Understanding 'Conflict of Interest' in Finance - Explained Here!

Updated:7 Sep, 2022

You must have heard about conflict of interest somewhere. For example - a businessman could not invest in a particular business due to a Conflict of Interest. If you work in a better position, then your chances of being heard about this word increase, and even if you are preparing for some examination you may hear this word under the umbrella of 'Ethics'. Whether you have heard it or not, you must know about it because it is related to a person's moral values. By the way, if the Conflict of Interest is understood from above, then it is nothing else, just prevents you from being biased. 

Conflict Of Interest (COI) - Definition

Conflict of interest occurs when someone who is too conscious of his benefit leaves their responsibilities (and ethics) behind. There can be many types of conflict of interest where on one side you have your own and on the other side your ethics. 

For example, you are a judge in the court and you come across a case of someone who is known to you. So in this case, the judge should not be biased anywhere, he does not take this case. Humans easily become greedy in terms of friendship or flattery, so that they can get more power and money. Conflict of Interest can occur personally and professionally if you have a family business and are an employee at a certain organization. Each of the businesses wants a person to give his 100 percent towards them. Thus conflict may arise. 

Consequences of Conflict of Interest

Conflict of interest has a variety of forms and involves multiple interests including both personal and professional.

  • Self Dealing: This happens when a person who is in a big position starts using the money of the company for his profit. This is a bad job that can result in a fine and you can be fired.
  • Nepotism: When because of you, one of your family members gets the opportunity that he does not even deserve. This has been seen when that person is a very big man or has political power over him. The word nepotism is very common in every field but it gets sound from the film industry.
  • Excess Compensation: It happens in such a way that some organization starts earning you more even when you are not worthy of it. This has been seen when that person is a very big man or has political power over him.
  • Financial: This conflict is due to the gain or loss of money. If you have one seat in the college and you have the option to give this seat to the one whose marks have come or the one who is paying more money should be given this seat.
  • Non-Financial: This Non-financial benefit could be the strong bonding among the social connection. A useless example can be that, if you want to make an impression in front of someone, then you have put their work above the work of others.

Conflict Of Interest in Finance

Conflict of interest in finance is mostly to those officers or owners who hold large stocks of the company. But every company man should know about the financial conflict of interest because investing in his competitor's vendor can get him in trouble. When this happens, it is seen somewhere that there is no personal benefit to you or any of your family members. 

Having more than the average stake in the company can be seen from the point of view of conflict of interest volatility so you should know your limits. And if you find any issue at any point then you can ask any of the Legal Representatives of the company. One conflict of interest that almost everyone faces is between your time and company resources. 

When a company hires you, there is an agreement that you will get money in return for your time. This means the company expects that you give 100 percent of your company during the working hours of the company. And in this time you will not do any outside activity like making phone calls for any other work, using the company's internet, using company photocopy machine, using company property after working hours. 

Don't rationalize don't push the limits don't trivialize wasting time stealing company time is just as unethical as stealing company resources of course. Some outside activities may be permissible during lunches or breaks but the company maintains the right to regulate or limit the activity as it sees fit.

Manage Conflict of Interest

It is a very common thing that you will get caught in a situation of conflict of interest but the most important thing would be how to deal with this situation. An organization must have an environment where people can directly say about the position of conflict of interest. Always try to look at both sides of the situation and think ethically.

As a rule of thumb just think in such a way that you should list the situation in such a way that by doing this work, the organization will benefit or you will benefit more. If you think that you are getting more benefits then it is a point of conflict of interest to do only the ethical things and try to avoid any type of conflict of interest as stated above.

Lastly, like other unethical activities Conflict of Interest is also unethical and you can be set to a criminal offense or can result in prosecution. At the professional level, the different organizations a different points of punishing the person, and the person may be ended with high compensation or can be fired in case of the personal level you will not be such a case of fire but you will lose the trust of your loved ones.

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