Conflicts of interest

Conflicts of interest (June 21, 2005)

Ben Teehankee

Managing For Society column, The Manila Times

Managers, whether in private or public organizations, have the duty to exercise competent and fair judgment over others. A plant manager judges the quality of the work output of plant workers. A manager of a government licensing agency judges the qualifications of applicants.

Anything that reduces or hinders a manager’s competent and fair judgment can put serious doubt in the minds of those who rely on such judgments – whether within an organization or outside of it.

Here is where the concept of conflict of interest becomes relevant. In the old days, this concept was easily captured by the Spanish opposite term, “delicadeza”, which was culturally clear to most people. This term is unknown to many among the younger generations. I suspect that few parents take the time to explain this to their children nowadays.

In clarifying conflicts of interest, ethical theorist Michael Davis starts with the concept of special interest. A special interest is any loyalty, concern, or emotion which might make a manager’s judgment less reliable than it would normally be. Usual special interests include financial influences, family connections, prejudice, love or gratitude, among others. A conflict of interest arises when a manager has a special interest tending to interfere with the proper exercise of his duty to exercise competent judgment.

A plant manager who has a romantic relationship with a subordinate has a conflict of interest. A licensing officer dealing with an applicant who is a relative has a conflict of interest.

What about the case of the alleged wiretapped conversations on voting results between a presidential candidate and a member of the independent electoral commission? Clearly, a commissioner has the duty to exercise judgment over a candidates’ compliance with electoral rules. Hypothetically, therefore, a commissioner who has a special interest, say, of loyalty, to a particular candidate has a conflict of interest when he deals with such a candidate on election matters.

What’s so wrong about conflicts of interest? We can answer this question by going back to whether a manager can be relied upon and trusted to fairly and consistently exercise competent judgment.

Firstly, a manager with a conflict of interest will be expected to be less fair by those who depend on his judgment. Workers under the plant manager with a subordinate love interest will see him as less deserving of reliance for a fair judgment of their work output. Other applicants for licensing will tend to trust less the licensing officer who deals with his relative. Other candidates and the public at large will see the election commissioner who deals with a “special” candidate as less deserving of trust.

Secondly, a manager who has a conflict of interest but is unaware of it could be considered incompetent. He should, after all, know the limits imposed on him by his official duties. In the case of public officials, the official code of conduct states that: “Public officials and employees shall at all times be accountable to the people and shall discharge their duties with utmost responsibility, integrity, competence, and loyalty, act with patriotism and justice, lead modest lives, and uphold public interest over personal interest.” Ignorance of a conflict of interest shows lack of competent understanding of a prescribed code of conduct which calls for the supremacy of public interest over personal interest.

Thirdly, a manager who has a conflict of interest and does not disclose it is, in effect, deceiving those who are relying on his competent judgment since they normally assume that there is no such conflict. Those who rely on a manager’s independent and competent judgment would naturally be outraged to discover conflicts of interest because they would see this as deception.

What are the remedies for conflicts of interest? Managers can nip them in the bud by avoiding the development of special interest relationships with those whom they will pass judgment on. This includes refusing substantial gifts or allowing the development of close friendships. The late BusinessWorld publisher Raul Locsin issued receipts for gifts and informed the giver of the charitable institution to which the gift has been forwarded in the giver’s name.

Managers can escape existing conflicts of interest by divesting themselves of or changing the special interest relationship which creates the conflict. The plant manager above can resign his post or ask to be reassigned to another plant. A public official with oversight responsibility over an industry can sell off any business interest in that industry.

Finally, conflicts of interest can be disclosed. This does not remove the conflict but only makes it less harmful to those who can be affected. A government official can inhibit himself from having to pass judgment on cases involving family relations.

Conflicts of interest are tough to deal with because they can arise beyond clear and strict legal rules. Public perception often becomes as, if not more, important than actual facts. Competence alone does not make a manager effective. A manager, whether of a plant or a government entity, can only be effective if he is seen as worthy of trust.