The trouble with conflicts of interest

The trouble with conflicts of interest

29 April 2010

The View From Taft, Business World

In 2005, President Arroyo appeared on national television to apologize for calling a Comelec official while votes were being counted. She explained: “I was anxious to protect my votes and during that time had conversations with many people, including a Comelec official.” …”I recognize that making any such call was a lapse in judgment. I am sorry.”

It is 2010, an election year, and Issues of conflicts of interest are in the front pages again. Presidential candidate Sen. Villar has been reported as visiting the PSE to follow-up a decision related to shares of stock which were owned by a company linked to him. Villar was then the Senate president. In contrast to Arroyo, Villar offered no apology for the visit and defended himself: “it is normal to go to the PSE. I don’t see anything wrong with it. I only asked to be updated with the news.”

How can politicians be so blind to conflicts of interest? The frequent revelations of such conflicts among public officials is not as alarming as the excuses and claims of innocence they give regarding the conflicts themselves. Among older generations, the relevant principle was easily captured by the Spanish term, delicadeza. While I suspect that few parents of recent generations took little time to explain this to their children, Villar should be old enough to know this principle. More importantly, as a senator running for president, he should absolutely know this principle.

For the moment, let us set aside the fact that delicadeza as a cultural norm is dying or that Villar’s action is drawing controversy because he is running for the presidency. What is most important for the public is that the principles which make conflicts of interest unethical is well understod and observed. These principles are fundamental to the sound use of power and public governance in general. (NB: While I have covered these principles in a column years ago, they clearly deserve further discussion given the situation today.)

The basic premise is that public officials have the duty to exercise competent and fair judgment over citizens in specific areas. Anything that reduces or hinders an official’s competent and fair judgment can put serious doubt in the minds of citizens who rely on such judgments.

The ethical theorist Michael Davis explains that officials face possible conflicts of interest when they have special interests. A special interest is any loyalty, concern, or emotion which might make an official’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 an official has a special interest tending to interfere with the proper exercise of his or her duty to exercise competent judgment.

Despite his claim of seeing “nothing wrong” with visiting the PSE, Villar faced a conflict of interest when he did so because he had a special interest in a decision the body was about to make, He should have realized that this conflicted with his duty, as a senator, to exercise competent judgment in evaluating and enacting laws which could cover the capital markets and even the PSE itself.

What’s so wrong about conflicts of interest? Firstly, an official with a conflict of interest will be expected to be less fair by those who depend on his or her judgment. A law maker who actively pursues a special interest from a body over which he or she approves laws will not be seen as able to fulfill competent and fair judgment by other interested parties and the public at large.

Secondly, an official 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.” A law maker’s ignorance of a conflict of interest shows lack of competent understanding of a prescribed code of conduct and specific laws which calls for the supremacy of public interest over personal interest.

Thirdly, an official 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 official’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? Officials can nip them in the bud by avoiding the development of special interest relationships with parties whom they will pass judgment on. This includes refusing substantial gifts or allowing the development of close friendships. It also includes avoiding unnecessary contact with such parties, especially if it yields personal benefit.

Officials can escape existing conflicts of interest by divesting themselves of or changing the special interest relationship which creates the conflict. For example, an 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. For example, an official can inhibit himself from having to pass judgment on cases involving any family relations.

Conflicts of interest are difficult to deal with because they can arise beyond clear and strict legal rules. Public perception often becomes as important, if not more so, than actual facts. An official can only be effective if he is seen as worthy of trust. And this is best achieved by avoiding conflicts of interest.

Dr. Ben Teehankee is the Aquino associate professor of business and governance at the Ramon V. del Rosario Sr Graduate School of Business of De La Salle University. He may be emailed at