What is a Conflict of Interest?

Definition: A conflict of interest is a situation where an individual has overlapping interests, affecting its ability to remain objective about a given topic. To sum up, it means that someone’s capacity to act upon a situation is affected by its self-interests.

What Does Conflict of Interest Mean?

A conflict of interest is a scenario where a decision is to be made or an activity is to be pursued and the person in charge of carrying that out has the disadvantage of having a personal interest clouding his judgment. It is a situation where the person must take care of someone else’s interest and the fact that the outcome of the decision might affect his own interest makes him unable to decide objectively about the subject at hand.

These situations appear frequently in business environments, since sometimes an individual’s job position, his compensation, his reputation, credibility or even his family, might be affected by a decision that he has to make on behalf of the company. On the other hand, these conflicts also appear in business to business relationships, since companies that have affiliation with other companies might step into conflict of interest when they are negotiating a deal on behalf of a client.

Example

Mr. Perry is a Plant Manager at a company called Wood Tables Co. The company manufactures furniture and Mr. Perry is in charge of managing the plant operations and personnel. The product’s demand is decreasing because of some new Chinese products made out of cheaper materials that are being imported into the country.

The company’s Board asked Mr. Perry to issue a list of people that will be laid off to cut costs. Mr. Perry informed the Board that his son is currently working at the plant as a Line Supervisor.

This means that Mr. Perry has a conflict of interest due to the fact that he might not be able to consider the possibility of including his son on the list, even though he should, because there’s a personal interest in the middle of that decision that might cloud his judgment.

The company should consider this situation and allow Mr. Perry’s to step out of this scenario and let someone else review the lay-off before he does, in order to avoid a conflict of interest and guarantee that his son and everyone else working in the plant get a fair and equal treatment.