Conflict of interest

To preside over an opinion or judgement on an issue that is likely to have either beneficial positive or negative impact upon one’s interest is a classic case of conflict of interest. In the formulation of an independent and judicious opinion, all possibilities of influence to get a favourable result smack of total disregard to principles of conflict of interest. An office holder, either in the public sector or the private sector, if his “interests” clash with his/her official status, there is a clear case of conflict of interest. If decision-making gets clouded by domineering self-interest, it is, undoubtedly, conflict of interest.

Any decision-making that is done while holding office that goes to profit the decision-maker will lack a standard of acceptability. Any individual’s personal interest involving the family, friends and associates, be it in relation to financial arrangements or otherwise too, involving social standards that is likely to benefit through a compromise of a judgement, decision, or action is a serious demeaning of the concept of conflict of interest and principles of righteousness.

An office holder, particularly a public office servant, has to take special care to see that his/her duty towards the society, alongside the best governance practices is not impaired by his/ her relationships. Any “interest”, however far-fetched it may be, shouldn’t cloud decision-making by the manager/leader.

The areas or the domain of conflict of interest can be very far and wide — its range can extend from immediate family and friend links to financial interests; from favouritism to nepotism and from blatant disregard to principles of good governance to abject abandonment of generally accepted best practices.

A leader has to maintain a very close relationship with the teammates, but this effort to bond mustn’t result in the creation of a preferred class within the organisation, who may, or will, take complete command of the leader’s ability to take independent decisions, without fear or favour.

Public office holders, including the law making parliamentarians have upon themselves a heavy burden of responsibility to ensure that enactments that they construct and approve do not give benefit to themselves, first and the most. Readers may recall of the “Era of SRO’s” which were issued to benefit a particular section of business and industry. Most SROs once used were allowed to die within the covers of a file.

Economic managers should not frame policies that will give undue advantage to a specific section of people or even economic sectors. Adding a few hectares of land of a friend or family to a designated special economic zone, for enhancing the value and benefits, is not merely a dereliction of duty towards the State but also a flagrant violation of the principles of conflict of interest. We have all heard, true or alleged, that the direction of rivulets, streams, and canals have been altered to benefit from water or to save from floodwaters. This is achieved through a fine artwork of proper documentation, with no loopholes in the designing of paper work; however the spirit of honesty and fair play is put on the pyre, with no regrets.

Our country has been a witness, regrettably and unfortunately, to framing of trade policies (export & import) that massively served the “interests” of the few privileged. It is stupidity to have businessmen in positions of authority— because of the rarity of the spirit to rise above oneself; the abuse of the position is more pronounced and rampant. If an individual is a successful shipping magnate, it doesn’t mean that he or she should be crowned with the ministership of ports & shipping. The conflict of interest will remain predominant. Elon Musk went against his leader upon realising that all policies being framed that were directly hitting his own business; he preferred to quit in order to protect his business interests.

In the corporate sector, too, there are situations where principles of good governance and conflict of interest are boldly violated. From the selection of vendors to the hiring of staff, compromises prevail and dominate.

In Boardrooms, conflict of interest is handled through an undeclared and unwritten, charter of mutual convenience and benefit; this operates and hinges upon the adage, “I scratch your back, you scratch mine”. Board members despite the presence of the Code of Conduct issued by SECP tend to benefit each other. A family member’s company can be approved as a vendor for supply of PCs, Tablets, I- pads, etc.

Giving and receiving of gifts is another, not a novel or new, but a time-tested methodology to legitimise, conflict of interest. Bankers and others, too, cheat themselves, when they accept as gift, the goods in- trade, of a borrower/client, like rice, sugar, denim jeans, leather bags, etc.; the premise of self-foolery here is, that the client hasn’t bought anything! He is gifting from what he trades in; sometimes Rolex, Longines watches or DeBeers diamonds, justify this logic! An interest, financial or non-financial, that can possibly corrupt, either the motivation or the decision-making of an individual or an entity, is a measure of conflict of interest.

In the matters of trading in stocks and shares, the conflict of interest as a concept is put to the guillotine. CEOs and Board members shouldn’t be allowed to “trade” in shares of their own companies; they can be allowed to hold, but not be permitted to frequently indulge in buying/selling. As per their roles, they are privy to the financial results of the entity much before the results are released to other market participants. The declaration is made to regulators only when the holding crosses the threshold of 5 percent of issued Shares.

The financial results of listed companies are released every quarter. The Board decides how much dividend to declare. The trend nowadays is to give dividends every quarter. The CEO and Board members therefore over several quarters have a fair understanding of where the institution is heading and what kind of dividends will follow. Loaded with this information, they can directly or by proxy go on a buying/selling spree. This happens within the shout of the regulators. This phenomenon is more visible in the financial industry. Such trading must fall within the domain and ambit of unethical behaviour, which must result in punitive action. Allegiance to a code of conduct gets to be mere lip service.

In some Boardrooms a corporate drama is staged where the director or the CEO’s direct interest is linked to an agenda item, they are asked to leave the room to allow for a “free and fair” discussion….to approve or not. Invariably it is approved….recall the adage, “I scratch your back, you.....”. An aligned concept is at “arm’s length” here to give legal validity, the board examines, if the approval made for the benefit of the Director will match in strict measure and adherence, to any other party who doesn’t fall within the ambit of the definition of conflict of interest.

Conflict of interest reigns through all segments of society and economy. The conflict at the Board level is just as grievously wrong as it is in at any management level. There’s prevalent conflict of interest in professions like attorneys, solicitors, physicians, media personnel and so many more. Bonding with clients is good. Friendship that leads to corruptibility in decision-making is bad. Only those that can distinguish between interest and conflict of interest can remain incorruptible.

(The writer is a senior banker, published author & freelance columnist)

Copyright Business Recorder, 2025