When Conflict Conflicts

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We’re living in an interesting time; information that appears material or conflicting by the optics test for companies goes unmentioned.

At one hand we have the purchase by a senior Berkshire Hathaway exec of stock of a company that was subsequently bought by the firm (see this WSJ piece ) or the flap regarding whether Apple was legally required to provide information on CEO Steve Jobs health (see this article from the NY Times on the release of material information).

Toss in Kleiner Perkins partner John Doerr’s alleged comment, “No conflict, no interest” to describe the firm’s alleged investment strategy that if they ” aren’t privileged enough to enjoy a potential conflict of interest with respect to a potential investment, they have no interest in making the investment.”

The larger cut to the chase question is simple. When does a conflict conflict?

And how should conflicts of interest be handled?


The short answer is it depends.

The longer answer is it depends on the standards you want to set, the culture you want to develop, and how comfortable you are with tossing people off the boat whose behaviors and values doesn’t meet the criteria you’ve set for everyone. It is also, by the way, different for publicly companies than for companies that are privately held, though I’d suggest that the internal standard you want to deploy is the same.

In any case, talking about conflict of interest with employees (or board of directors members) is not a one-and-done deal.

Like great product development, and top tier customer service, it’s an ongoing conversation that should get discussed before, during, and after you’ve got real examples to use. And when it comes to conflict of interest standards, I’d always opt for the broader one I’ve seen used; conflict of interest is the actual conflict, or the appearance of conflict. Why give yourself part of an umbrella when you can use the whole umbrella for protection?

The kernel of the issue is what type of place do you want to run? If you opt for transparency (and the benefits of speed that accompany it) then being widely disclosive with internal information and holding to higher standards of disclosure of any conflicts is the way to go. If you are chronically concerned about who knows what, running things in an opaque fashion and likely a narrower standard of what constitutes a conflict is the more likely place you’ll end up.

Conflict of interest is described as “A term used to describe the situation in which a public official or fiduciary who, contrary to the obligation and absolute duty to act for the benefit of the public or a designated individual, exploits the relationship for personal benefit, typically pecuniary.” Someone who is a fiduciary is someone who has a legal or ethical relationship of confidence or trust regarding the management of money or property.

So to have a conflict you have to have an interest in the situation, and you have to have conflicting duties or obligations. If you’ve adopted the broader standard, it includes the appearance of conflict – not just an actual conflict – as well. That legal or ethnical relationship phrase applies to anyone who is an employee of a company, or anyone who is on the board of directors or even board of advisors of a company.

The other piece involved is whether the potential conflict is material. Is it of a size or topic that it matters? It may be a small item, but something of critical importance and it becomes material. It could be less critical something less critical, but the scope and breadth makes it material.

As an example, does it matter if I’m working at a competitor to Facebook and I have a Facebook account? Probably not though they I may have some sort of very, very minor conflict. Does it matter if I work at a competitor to Facebook and I’ve invested in Facebook? Yes; your interests clearly are conflicted that the latter account is a material conflict.

What that means on a practical basis is that interested parties – think employees and board members – have a requirement to identify a conflict before or when it occurs, not after. They can reduce the appearance of any conflict by being transparent and preemptively disclosing a potential conflict. Such a move airs things out, and you enables you to raise the issue from others if they perceive conflict.

You can recuse (one of my favorite words) yourself – step away and not be part of the decision and/or discussion – if you believe you are unable to make an impartial decision due to conflicting interests.

So where does this all end up? Ideally an organization’s employees surface potential conflicts before or when they happen. It keeps things transparent, avoids a corporate equivalent of something called “hide the weenie” by keeping everything on the up and up. And this month’s news about a “mole” at Twitter who preemptively tips off Google to potential Twitter outreach to Google employees? A violation of conflict of interest if the person ever gets identified.

Imagine how things, for example, if Google CEO and Apple BOD member Eric Schmidt had disclosed his conflict of interest earlier. The dialog might have gone something like this;

I want you to know that at Google we have acquired companies and technology with an intent to enter into the mobile phone business, and computer OS sectors, just like Apple. We also anticipate that we will build out a mobile apps store, attempt to mimic some of the functionality found in iTunes, just like Apple. Does anyone see a conflict of interest with that?

Had Schmidt spoken in those terms then the conflict – both real and material – would have been evident. And mostly likely Schmidt’s departure from the board would have been sooner.

Shepherding employees, organizations and board of director members is a critical task for any leader. Having a clear articulated sense of what constitutes of conflict of interest, and periodically discussing and reminding people of that standard is a sure way to avoid having your “flock” eaten by the wolves.

 

Life Back West is an occasional set of writings focused on ways people, teams and organizations can be both more effective (doing the right thing) and more efficient (doing the right thing well). More about executive, career and team / leadership coaching services can be found at the “About J. Mike Smith and Back West, Inc.” sidebar or the “Hire Me” tab above. You can also read an online interview with me at WhoHub, as well as participate in my learning community courtesy of KnowledgeCrush.

 

 

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