Conflicts of Interest

In a world of competing agendas, it’s inevitable that you will have a conflict of interest with a client, colleague, or boss.

This is particularly true in consulting firms, law firms, and investment banks.

Conflicts of interest come from having more than one role or relationship in a particular situation.

Here are some examples:

A) An emergency room physician is asked to treat a patient who, it turns out, is the doctor’s child.

In this case, the doctor has two relationships with the patient. There’s the doctor-patient relationship, and then there’s the parent-child relationship.

There are two roles and thus there’s the potential for a conflict of interest.

B) Let’s say a real estate agent finds a home for sale for her clients. It turns out that the home in question is owned by the real estate agent herself.

In this case, the realtor has two roles. She is an advisor to the buyer, and the seller of the home in question.

Again, there are two roles and thus there’s the potential for a conflict of interest.

C) A few years ago, I took an equity stake in the company of a client of mine. This resulted in me having a dual-role relationship with the CEO.

On the one hand, I served the CEO as an advisor. On the other hand, I was also a shareholder.

This put me in a position of having a potential conflict of interest.

As I said earlier, potential conflicts of interest do come up in one’s career. Depending on your line of work, they may even come up regularly.

The easiest solution is to make sure all of your relationships involve only a single role.

The emergency room physician assigns a different doctor to the patient so that the only role the doctor has now is that of the child’s parent.

The real estate agent resigns as her clients’ advisor and has someone else represent the buyers. This means the only role the agent has is that of the seller of the property in question.

Sometimes, it may not be possible, feasible, or desirable to avoid the dual-role relationship.

In that situation, the best way to proceed is to disclose the conflict and ask for the other party’s consent to continue the relationship, despite the dual roles.

For example, in the situation where I’m both an advisor and a shareholder to my client, here’s how I’ve handled it.

Most of the time, my advice as an advisor and my selfish interest as a shareholder are usually well aligned.

However, in a handful of cases, my advice to my client differs from what I’d like the CEO to do from a shareholder perspective.

(For example, it might be in my client’s best interest to quit as CEO for the benefit of his or her health. However, as a shareholder, a loss of a seasoned CEO negatively impacts the value of my investment.)

In those situations, I will say, “Listen, I have a conflict of interest on this issue. As your advisor, I think you should do X. However, I’m also a shareholder, and I want to point out that I have a financial incentive for you to do Y instead of X. As a result, there’s a risk that I’m biased on this and I wanted to be explicit about this risk with you.”

The first rule of thumb with conflicts of interest is to avoid dual-role relationships.

If that’s not feasible, explicitly disclose dual roles, and ask the other party for consent to continue in a dual-role relationship.

Here’s why.

For the sake of one’s integrity and reputation, it’s important to not just avoid an actual conflict of interest but to also avoid the appearance of one.

Maybe the real estate agent feels she can give objective advice to her buyers, even though she is the seller of the home in question. Even if her advice is objective, there remains the appearance of a conflict, which can cause others to question your integrity, objectivity, and professionalism.

Avoiding a conflict of interest isn’t enough. Avoiding even the appearance of a conflict of interest is the higher standard to strive for.