Meet the Authors

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Mr. Kaplan is a partner in Kaplan & Walker LLP, a law firm in Princeton, New Jersey and Santa Monica, California. He specializes in all aspects of assisting companies in developing, implementing and reviewing corporate compliance/ethics programs, including conducting risk analyses; writing/editing codes of conduct and other policy documents; counseling companies in matters regarding training; developing compliance audit protocols and reporting systems; establishing compliance/ethics offices; and assisting boards of directors in meeting their fiduciary duties under the Caremark case.
 

 

Rebecca Walker is a partner in the law firm of Kaplan & Walker LLP, a law firm specializing in corporate compliance and ethics located in Santa Monica, California and Princeton, New Jersey. Ms. Walker advises clients on the development and implementation of compliance and ethics programs that are tailored to each client's legal risks and business needs and that conform to applicable government requirements and pronouncements regarding effective compliance programs. 
 

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Shifting Perspectives on COI in the Modern Workforce

Conflict of interest (COI) practices have generally remained consistent over time, but legal and regulatory changes as well as technological and societal changes have made this an ideal time for organizations to reconsider how they handle conflicts of interest within the workplace. Following the promulgation of the Sarbanes-Oxley Act in 2002, U.S. companies began to err on the side of strictly regulating conflicts; however, today there is a shift toward balancing corporate risk with employee interests. Originally more of a European approach, this change is pushing a number of companies to reassess their conflicts policies. 

This emergent practice of balancing competing interests comes at the same time as a number of other important developments in employer/employee relationships. First, with the General Data Protection Regulation (GDPR) in effect, more companies are more carefully considering the privacy rights of all stakeholders – including employees. The #MeToo movement, most prominent in the U.S., has given a large number of previously silent employees a voice. Social media and other technological developments have empowered both employees and consumers. These developments and others like them have accelerated the state of hyper-transparency businesses currently operate in.

In response, some organizations are focusing less on ridding their workplaces of all potential conflicts, and instead exploring more nuanced approaches that prioritize mitigating risk while also accounting for employee interests and relationships. In effect, not all conflicts are created equal. (Of course, this was always true, to some extent, but we think that it is even more true today than it has been before.)

Consider the risk of a junior employee becoming involved in a romantic relationship with a colleague or referring a family member for an open position. There is an inherent potential for conflict of interest in these scenarios, but even if realized, the conflict is unlikely to cause irreparable damage to the organization, reputational or otherwise, because the junior employee is unlikely to have significant discretionary authority. If the employee was a high-ranking leader, however, the situation would need to be handled with much more sensitivity.

While this shift in approach may enhance the employee experience, it does open organizations up to risks that would not exist with more rigidity around COI. The existence and even the appearance of a conflict of interest can create significant harm to organizations – financial harm, business opportunities, reputational harm and harm to the organizational culture. Greater flexibility in permitting conflicts of interest to exist (even with appropriate controls in place) thus increases the risk of such harm. Nonetheless, some companies are choosing a more nuanced approach, creating greater flexibility in how they handle different tiers of employees and weighing their risk appetite of such activities.