Conflict of interest explained

A conflict of interest occurs when an entity or individual becomes unreliable because of a clash between personal (or self-serving) interests and professional duties or responsibilities. Such a conflict occurs when a company or person has a vested interest—such as money, status, knowledge, relationships, or reputation—which puts into question whether their actions, judgment, or decision-making can be unbiased.

A conflict of interest in business normally refers to a situation in which an individual's personal interests conflict with the professional interests owed to their employer or the company in which they are invested. A conflict of interest arises when a person chooses personal gain over the duties to an organization in which they are a stakeholder or exploits their position for personal gain in some way.

All corporate board members have fiduciary duties and a duty of loyalty to the corporations they oversee. If one of the directors chooses to take action that benefits them at the detriment of the firm, they are harming the company with a conflict of interest.

One example might be the board member of a property insurance company who votes on the induction of lower premiums for companies with fleet vehicles—when they, in fact, own a truck company. Even if the institution of lower premiums isn't a bad business move for the insurer, it could still be considered a conflict of interest because the board member has a special interest in the outcome.

In legal circles, representation by a lawyer or party with a vested interest in the outcome of the trial would be considered a conflict of interest, and the representation would not be allowed. Additionally, judges who have a relationship with one of the parties involved in a case or lawsuit will recuse themselves from presiding over the case.

A conflict of interest may lead to legal ramifications as well as job loss. However, if there is a perceived conflict of interest and the person has not yet acted maliciously, it's possible to remove that person from the situation or decision in which a possible conflict of interest can arise. Using the prior example of a board member who owns a truck company, they could simply remove themselves from all decisions that could positively or negatively affect their personal business.

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