Conflict of Interest

A conflict of interest occurs when an individual or organization has multiple interests that could potentially contradict or influence one another. Conflicts of interest are a matter of concern in a number of fields, including finance, in which such conflicts can potentially cause significant monetary damage to the parties affected. In the field of law, conflicts of interest are of particular concern when a judge’s interests impede their impartiality or a lawyer’s interests affect their ability to serve a client properly. Conflicts of interest have perhaps the most significant effects when they occur in the area of government, as they can potentially influence the passage of laws, awarding of government contracts, and other important government functions.

Background

Although the concept of a conflict of interest is likely an old one, the term itself is thought to have been first used in a legal context in the late 1940s. However, it would not enter the public lexicon until significantly later. The term’s definition has long been somewhat nebulous, as different types of conflicts are of concern in different industries. However, a conflict of interest can generally be defined as any situation in which the ability of an individual to perform their job functions properly could be affected by their personal or professional interests. Depending on the field in which the individual works, a conflict of interests could affect not only the individual and their company or organization but also clients, consumers, or the public.

Some conflicts occur when an individual makes, or persuades others to make, decisions that benefit himself or herself financially. For example, when an individual accepts a bribe in exchange for making a particular decision, providing information, ignoring illegal conduct, or performing some other service, this financial interest conflicts with the individual’s duty to perform their job adequately and with integrity. In other cases, conflicts may involve an individual’s influence within their company or organization. Nepotism, in which powerful individuals make or influence decisions that favor their family or friends, is a notable example of that kind of conflict. Individuals involved in such conflicts may hire friends or relatives for important positions or award lucrative outsourcing contracts to companies owned by family, friends, or acquaintances.

As conflicts of interest can have detrimental effects on businesses and organizations, clients and customers, and the public as a whole, preventing such conflicts is of paramount importance in many fields. In some companies and organizations, individuals are required to disclose any potential conflicts and remove themselves from any situations that may result in conflicts of interest. Regulations vary based on industry, in accordance with the particular challenges associated with conflicts of interest in each field.

Overview

Conflicts of interest are possible in nearly any field. However, such conflicts are of particular concern in a number of specific fields, where their effects can be both severe and far-reaching.

As many conflicts of interest involve money, it is little surprise that conflicts of interest are of particular concern in the finance industry. Professionals such as brokers, financial advisers, and account managers are frequently tasked with facilitating the financial transactions of their clients or employers, but they often also have their own personal financial concerns. This can lead to a conflict of interest, and if a financial professional allows that conflict to influence their actions, the effect on the other parties involved can be detrimental. For example, a financial adviser who has a financial interest in a particular company may encourage their clients to invest in that company, regardless of whether doing so would actually benefit the client. Similarly, a broker might receive a high commission when a client buys a certain financial instrument. If they allow this financial incentive to influence their recommendations to clients, this becomes a clear conflict of interest. In light of the potential for conflicts of interest in this field, professionals in the US finance industry are, at times, required to disclose their own financial interests to governing entities such as the US Securities and Exchange Commission.

It is particularly important to avoid conflicts of interest in the legal field, as they could result in a miscarriage of justice. Legal conflicts of interest can take several forms. In a trial or civil proceeding, a judge is required to be impartial and rule based on the evidence and legal arguments at hand. However, in some cases a judge could have biases or personal attachments to the people, companies, organizations, or issues involved that would affect their impartiality. Similarly, when a lawyer takes on a client, they must ensure that the client’s interests do not conflict with the interests of one of the lawyer’s current or past clients or a client of their firm. For example, a lawyer cannot represent the plaintiff in a case when they have represented the defendant in the past, as this presents a conflict of interest.

Conflicts of interest in government can be particularly detrimental, as they can shape a local, state, or federal government’s actions and policies for a substantial period of time. In the United States, the influences of lobbyists and corporations on government has long been a cause of significant concern, as the funds contributed to campaigns by such organizations and individuals could potentially influence a government official’s decisions. For example, a politician who receives monetary contributions from a corporation that manufactures computer components could potentially be influenced to vote against trade or manufacturing legislation that would negatively affect that corporation. In an attempt to combat such conflicts of interest, some politicians and public interest groups have sought to reform campaign finance and other political contributions.

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