The many shades of grey

A situation, where an individual has competing interests or loyalties, is normally referred to as prone to 'conflict of interest". Different circumstances can create situations of conflict of interest. An officeholder, either in public sector, or the private sector, if his "interests" clash with his/her official status, there is a clear case of conflict of interest. That is to say that if decision-making gets clouded by the domineering self-interest, it is undoubtedly, conflict of interest. A person who has a position of authority in one organization that conflicts with his/her interests in another organization with a person who has conflicting responsibilities, also is encysted, within the realm of 'conflict of interest'?
The obvious question that arises, what's wrong with 'conflict of interest'? A lot. Conflict of interest, classified activities, carry the consequences of being declared 'criminal'. It is akin to all the illegal and unethical activities. It can result in prosecution. As an example, a legislator, who has family running, say an iron and steel business, will be seen to be landing himself into the devious arena of 'conflict of interest', if he were to table or support a motion in the parliament to reduce import tariffs or if he/she were to lobby, support or initiate issuance of SROs, that suit their business compulsions. No, state legislator or for that matter, officeholder of any type cannot do anything that will result in personal gain, because of conflict of interest. In most cases, 'conflict of interest' are handled in court by a civil suit. As an example, if a company has proof that a board member profited from his/her role on the board, that individual has violated the duty of loyalty and can be proceeded against in a Court of Law.
Since the concept of "conflict of interest' pervades through all sectors of business and economy, I will for this piece, focus on certain of its elements, that relate to banking and finance. Since it is the most "sensitive" part of the over-all economy, and is central to other sectors of the economy, and hence, I believe, it requires attention and understanding.
Banking until recently was considered a noble profession. Its practitioners were comparable in behavior to the profession of "Nightingale of Florence". That is being helpful and caring. Today, it is criminally offensive to even think of a "Nurse" and a "Banker", in the same breath; despite the deterioration in the former's professional Caring Standards; while the later has fallen into an abyss of decay.
Any classical definition of a banker would be built around to say, "... is a person who engages in the business of banking. The business of bank is to keep money, to deposit funds, to lend money as facilitators to a transaction for a fee. A bank therefore is an institution that accepts money from their customers in the form of deposits and then collects cheques on their behalf, and then placing those cheques to customer's credit. The bank must honor the cheques that are drawn on them to pay third parties. To carry on the banking business, the institution must maintain current accounts and record debits or credits to the account. The clients of a bank may include individuals, firms, organizations, Government and its entities and even other banks. The moment the account opening formalities are completed, a 'banker-customer' relationship is established, that entail, immediate assumptions of certain legal obligations, of duty of care, confidentiality, secrecy, etc.
This classical definition of a banker/banking has undergone modifications, due to the introduction of newer products and services, that lie beyond accepting deposits and lending money. So, in a manner the definition, gets to be little smudged, but retains at its centrality, the existence of rights, duties and obligations, under the time-tested concept of banker-customer relationship.
In the present day business world of 'Panama' and 'Paradise' leaks, it is an imperative duty of a banker, to avert money-laundering activities. For this purpose, know your client or KYC for short, is a necessary regime to follow. A banker must 'know' his client's business. How much of it, should he know? Does it have to be a process or a test, that each transaction must undergo, to determine that it does not in any manner get to be inconsistent with legitimacy? If yes, how much intrusive should the enquiry and examination be. These nagging questions are still under debate and the regulations are evolving. So while the framework is being fine-tuned, bankers, sometimes, in their gusto, assume the mantle of LEA's (Law Enforcement Agency) personality. Short of a Spanish inquisition, they attempt to get under the skin of the client. Here, is the beginning of the journey towards the trap of the 'Conflict of Interest'!
"To know" business, a visit is always desirable. The visit leads to meeting outside the office environment. The consequence, usually is that, the formality of contact, between the banker & customer, lands itself, into the vary many facets of shades of grey!
Should client be friends? To me, the answer is an emphatic, No. But can we do so? No. Culturally, it will be considered - rude not to engage. But where does one draw the fine line between friendship and professionalism look at the non-performing-assets of any financial institution, and one finds that it is inevitably, professionalism that gets compromised and buried.
While trying to find an answer to whether clients, vendors, service providers etc., can be friends; do some soul searching. How many times should you meet a client socially? Should you wine and dine, with them? Will the presence of expensive? Remy Martin, Baccaradi, Cognac or aged French-wine, allow you to remain professional. Will you acquiesce? If God forbid, the inner person, says something positive, as an answer; the concept of KYC, has been stretched, a bit too far! There is a Portuguese proverb, he who serves two masters has to lie to one!
One major area, in the arena of financial institutions, where Conflict of Interest can breed itself, like white ants, is lending propositions. Many people incorrectly say that a bank is a place that will lend you money if you can prove that you don't need it. Nay, bankers internationally lend indiscriminately. The popularity of a banker and his ability to lend, always remain in tandem. Lending is the pathway to achieve 'stardom' status amongst the fan-following of borrowers. I was told by a very senior wiseacre (banker), that a 'bank owner's friend is the enemy of the bank'. How true. Just expand the word 'owner' and replace it with the fancy titles, bankers use, like circle executives, Regional Heads, Corporate Heads, Zonal Heads etc. - a situation in which a person is in a position to derive personal benefits from actions or decisions made in their personal capacity. E.g.: A borrowing stockbroker may lend tips to the gullible bank manager, to either buy or sell, a particular scrip - this is blatant conflict of interest!
Giving and receiving gifts is another, not novel or new, but a time - tested methodology to legitimize, Conflict of Interest. Bankers cheat themselves, when they accept as gift, the goods-in-trade, of a borrower, 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 watches or DeBeers diamonds, justify this logic! An interest, financial or otherwise, that can possibly corrupt, either the motivation or the decision making of an individual or an entity, is a measure of "Conflict of Interest'.
A formal contact with a client is far superior than a breeding informality that may lead to grievous incompetency. Being invited to wedding is a cultural aspect. And not to attend, is considered rude and arrogant. (Personally, I don't subscribe that all invitations have to be taken-up). In the neighboring country, many (not few) politicians refuse to turn up at weddings; instead they write a letter of congratulatory invocation, for the bliss of the couple. Isn't that more worthy, than any gift!
If you find, your client or vendor or any business associate, dancing with joy or appears even more happier, then you, at your daughter's wedding; please do pause, to think and ponder, where have you gone wrong? I have been witness to situations, where the wedding of the offspring of many senior executive, was made to look, as if the 'Son or heir-apparent' of the institution is getting married. Just as families have a festive look during wedding ceremonies; so does the institutions!
Conflict of interest reigns through all segments of society and economy. I chose to confine to the financial industry, but that isn't to mean that this does not lurk prominently, in other industries. The Conflict at the Board level is just as grievously wrong as it is at any management level. There is 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 of decision making is bad. Instead, stay aloof. Meet less. A man is worth something, when his inner person fights him, when he errs/. Only those that can distinguish between Interest and Conflict of Interest, can remain incorruptible. (The writer is a freelance contributor and columnist)