Conflict of interest in the work environment

It is not uncommon to hear about cases of nepotism, favoring suppliers, or exchanging favors between a certain person and a company in the media.

These and other similar situations are characterized as conflict of interest in public and/or private relations and can cause various and immeasurable losses, both at the level of the Government and in the private sphere.

For this reason, it is important to understand the term conflict of interest and what are the possible mechanisms to be adopted so that it can be prevented and its risks are mitigated.

In this article, we will focus on conflict of interest in the private work environment.

What is a conflict of interest?

In the private sphere, conflict of interest occurs when a person acts with a view to their personal interests and not to the interests of the company they work for, compromising the possibility of making an impartial decision in a given situation. In other words, there is an imbalance between the agent's personal interests and those of the Company or its stakeholders, causing various negative effects on the latter.

Law no. 8,213/2013, although it provides for conflict of interest when exercising a position or employment in the public sphere, it serves as a parameter for private relations, since there is no specific rule for that sector. Let's take a look at the provisions of articles 3 and 4 of the said law:

”Article 3 For the purposes of this Law, it is considered:
I - conflict of interest: the situation generated by the confrontation between public and private interests, which may compromise the collective interest or improperly influence the performance of the public service.” (We scream)
”Article 4 The occupant of a position or employment in the federal Executive Branch must act to prevent or prevent possible conflict of interest and to protect privileged information.
(...)
§ 2 The occurrence of a conflict of interest regardless of the existence of injury to public property, as well as the receipt of any advantage or gain by the public agent or third party.” (We scream)

Notably, the Federal Comptroller General's Office (CGU) itself, in its Conflict of Interest Prevention and Resolution course, prepared in 2019, reinforces that:

”It is worth noting that The configuration of the conflict of interest does not depend on the existence of injury to public property, as well as on the receipt of any advantage or gain by the public agent or third party. The public agent does not necessarily need to obtain any type of undue property advantage or cause some type of loss to the treasury in order to create a situation of conflict of interest. The possibility of compromising the public interest or of influence, inappropriate, regarding the agent's performance of the public function, it is the parameter for characterizing a conflict of interest, even if this commitment is not of a material or property nature.” (We scream).

Therefore, not necessarily, the conflict of interest will be characterized by the receipt of any advantage or gain. As an example, we can mention two people who maintain a friendly relationship, one of whom is a reporter who works for the ZWY radio station and the other an aeronautical engineer.

Although the ZWY broadcaster has other indications of aeronautical engineers, who even have more experience in the area, the reporter decided to call her engineer friend directly to speak live about the launch of a new space rocket. This appearance will certainly make the engineer better known and evident, including on their social networks and digital channels.

Note that, in this situation, the reporter will not have any financial or material advantage. Her intention was just to highlight her friend.

‍

Types of conflict of interest

For better clarification and understanding of possible situations that may constitute conflict of interest, we will discuss their types:

Royale

Situations in which conflict of interest It is crystalline, so that action aimed at personal interests has already been taken.

A common example is hiring a supplier who is a close relative, such as: father, mother, siblings, children, spouse, partner, or other person with whom you have an emotional bond.

In fact, it is worth noting that, even if the price charged by this supplier was cheaper or its cost-benefit ratio is the best for the Company, the hiring decision could not have been taken, nor was it effective, by the one who has a close relationship of kinship.

Another common example is the receiving gifts or awarding hospitality during a vendor hiring process. In order to conclude a contract, a potential supplier grants a week's stay in a Resort with everything paid, or a box of expensive wines, for example, for the employee who will have the decision-making power to choose the supplier or who may influence the hiring decision.

Potential

Situations that provide for the occurrence of a real conflict of interest; in the process of decision-making.

In other words, there is still the possibility of taking, or not, a certain decision that may affect the interests of the company or its stakeholders.

An example is a husband who discloses confidential business information about the company where he works to his wife who works at a competing company, knowing that she may be promoted if she presents an innovative solution to a particular problem at the Company.

In this situation, considering that they are spouses, not only will the wife benefit from the promotion, but also the husband, even if indirectly.

Apparent

Situations that seem possible conflict of interest.

For these cases, it is necessary to verify that, in fact, there is a conflict of interest that could become real. Let's look at two examples:

The first refers to two people who know each other very well and maintain a certain degree of friendship, one of whom is an employee of the company ZYKW S.A., and the other a partner of the company XJHL S.A., which provides advertising services.

At first, the situation appears to be a conflict of interest, since it was found that the employee of the company ZYKW S.A. who knows very well the partner of the advertising company, XJHL S.A., was the one who hired this supplier.

However, when the situation was reported to the Department of Compliance, it was found that the decision of the employee of the company ZYKW S.A., had no influence due to the relationship maintained with the supplier, and all the company's internal regulations for hiring the supplier were observed, such as: making three quotes from suitable suppliers, analysis of the best cost-benefit, transfer of supplier referrals to the Purchasing Department for analysis and negotiation, respect for the promotion policy, approval of suppliers, etc.

Therefore, although it appeared to be a case of conflict of interest, it was found that the employee acted with integrity during the hiring process and with their obligations, as determined by the company's internal regulations.

The second example refers to a grandfather who directly hired his grandson to work for the same company.

Regarding this case, there are two alerts. The first of these is the verification of the possibility of more than one person in the family working for the same Company.

As a rule, such permission or prohibition is enshrined in the company's Code of Ethics and Conduct or in a specific policy on hiring individuals. In other words, it is an internal control created by the company itself.

In the public sector, for example, there is an express prohibition in this regard, provided for in Binding Precedent No. 13¹, of the Supreme Federal Court; such a situation is characterized as nepotism.

The second warning, on the other hand, concerns the hiring of a person, directly by their close relative. Even if there is the possibility of hiring more than one person from the same family, it cannot be carried out by the next of kin, given the partiality in decision-making.

So that there are no, for example, conflict of interest In favor, relatives should not work in the same area or in different areas, but should have close and constant interactions.

Like other examples of situations that configure conflict of interest, we can mention: working simultaneously in competing companies and requesting or accepting gifts and monetary benefits from suppliers and/or competitors.

Consequences for those who find themselves in a situation of conflict of interest

As highlighted before, in the private sphere, there is no law that defines or contains parameters of what is considered conflict of interest, nor the possible consequences for those who find themselves in such a situation.

Aiming to protect not only the company's assets and image, but also its stakeholders, it is recommended that a Code of Ethics, specific policy, internal manual, or other document be prepared, reinforcing the best ethical standards and behaviors expected of your employees, regardless of their hierarchical position.

To this end, it is suggested that the company take into account, for example, the activity it carries out, its objectives and values, the audience with whom it relates (its stakeholders) and its existing internal controls.

As already mentioned, Law No. 8,213/2013, although applicable to public officials, can serve as guidance for private companies to develop their internal regulations.

In accordance with article 12 of the said law, the public agent who is in a situation of conflict of interest incurs administrative impropriety and is subject to the application of the disciplinary penalty of dismissal, in addition to other penalties, such as: payment of a fine and compensation for damages.

Thus, when drafting internal rules and controls by the company to protect its assets, image and stakeholders, as well as of the legal hypotheses provided for the public sector, which may serve as a parameter for the private sector, in the event of a situation that constitutes, in fact, conflict of interest in the private sphere, the following measures may be adopted by companies, depending on the seriousness of the act and the impact caused to it:

1. Application of disciplinary measures;
2. Termination of the employment contract with or without just cause by the employee who is in a situation of conflict of interest;
3. Filing of legal action for losses and damages, possibly suffered by the Company; and
4. Communication to the competent public bodies.

It is suggested that the situation be immediately interrupted by another representative and that decision-making be carried out by an impartial person.

Impacts of a conflict of interest for a company

The existence of conflict of interest in a company it can cause numerous losses, considering that they may be:

1. Financials: unfavorable negotiations and losses to the Company;
2. Judicial: lawsuits by parties that may have been injured.

As an example, we can cite two situations.

The first occurs in situations of nepotism. Employee X has worked for the company for ten years, holds the position of Full Manager and earns R$ 10,000.00. Employee Y, because he is the son of a Director, has just graduated from college and is immediately hired to fill the same position as Full Manager, without qualification or any experience to do so, and in return, he will earn R$ 16,000.00.

What can be seen is that employee Y was privileged and favored because he was the son of a Director, while employee X, with vast qualifications and experience, was disadvantaged and harmed.

In this situation, employee X may file a labor claim, seeking wage equalization and compensation for moral damages, as provided for in the Consolidation of Labor Laws (CLT).

The other example is the case of an employee who discloses confidential business information of the company where he works, ZYKW S.A., to the direct competitor, XJHL S.A. The employee's attitude ends up causing serious losses to the company ZYKW S.A., given the use of privileged information by the company XJHL S.A., to leverage its business.

As a result, ZYKW S.A. investors, upon identifying the occurrence of a conflict of interest and the absence of internal controls by the company (business negligence), may choose to withdraw and withdraw investments, given the loss of trust with ZYKW S.A.'s internal processes.

3. Trust: breach of trust between the Company and its employees, suppliers, customers and others stakeholders.; and
4. Picture: the absence of internal controls to mitigate the occurrence of a conflict of interest (which is classified as an integrity risk), may eventually result in damage to the Company's reputation and image, with significant loss, for example, of clients and investors.

This is because the control and fight against integrity risks by private companies are essential to protect their assets, image and stakeholders in addition to what they are often evaluated by companies that wish to hire their services or by potential investors, through due diligence.

For these reasons, it is extremely important that prevention and monitoring measures be adopted by companies, which are generally carried out by the Department of Compliance.

How to avoid?

The occurrence of a conflict of interest can be mitigated through the implementation of various mechanisms by the Company, such as, but not limited to:

Creation of a Code of Ethics and Conduct

Defining (i) the company's values and ethical standards; and (ii) what a conflict of interest is and when a conflict of interest occurs. Examples of situations that constitute a conflict of interest are also welcome and end up making it more clear to the reader when it occurs.

For this integrity risk to be mitigated and that there are no allegations of ignorance on the part of employees on the subject, it is essential that the Code of Ethics and Conduct be widely disseminated by the company, signed by all employees and made available in an easily accessible place, such as on the intranet or official communication channel, for consultation at any time by everyone who is part of the company.

Creation of specific policies and procedures

Such as: granting and receiving gifts and hospitality, elevations, participation in tenders, and contact with public officials, among others;

With regard to this specific point, it is essential to monitor compliance with policies and procedures in the company, in order to verify, even, which areas would be most susceptible to a conflict of interest and that deserve specific training.

Implementation of reporting channels

So that these situations can be reported in an anonymous or identifiable way.

Employment contracts with specific clauses

Such as (i) liability for losses and damages; (ii) exclusivity (total prohibition of the accumulation of jobs or partial prohibition of the accumulation of jobs, that is, only prohibition of working in companies in the same line of activity/competitors); (iii) and confidentiality, foreseeing the consequences in the event of the disclosure of internal company information (technical, administrative, commercial, etc.), whether confidential or not.

Conducting training on the topic

For companies, for example, that work directly with public bodies, it is suggested not only to create specific policies and procedures on the subject, but also to carry out constant training, especially for those who will represent the Company in tenders.

The training can focus, for example, on what employees can do if they encounter or identify a situation that constitutes a conflict of interest, to whom the situation should be reported, on which channel the conflict should be reported, etc.

Among other measures applicable or possible to be applied in the Companies, depending on the field of activity.

Therefore, there are several measures that companies can adopt in order to avoid the occurrence of conflicts of interest and their various losses (financial, judicial, trust and image).