Why Managing Conflicts of Interest Should Be a Critical Risk Management Priority

Why Managing Conflicts of Interest Should Be a Critical Risk Management Priority

According to an article by Michael Volkov of Volkov Law, conflicts of interest, whether perceived or real, pose a significant risk to an organization’s integrity and credibility. When personal interests clash with professional responsibilities, leaders and employees may prioritize self-interest over the company’s welfare, jeopardizing corporate governance and stakeholder trust. Volkov notes how high-profile scandals, such as Enron, have demonstrated the catastrophic consequences of unmanaged conflicts, leading to the downfall of executives and entire companies.

Conflicts typically arise when decision-makers, such as board members or executives, have a personal stake in business outcomes. An example from the article is an auto insurance company board member who owns a car rental business may improperly influence premium decisions for personal gain. In such cases, disclosure of the conflict is critical to ensure transparency and allow the organization to assess and mitigate the risk.

Volkov says robust conflict management protocols, including annual and continuous disclosure requirements, are essential. These processes identify potential conflicts, assess their impact, and implement appropriate mitigation strategies. Companies must adopt stricter policies for senior leaders, whose conflicts can have far-reaching consequences for organizational integrity. Ignoring these risks invites reputational damage and legal liability.

Common conflict scenarios include self-dealing, favoritism, and gift-giving, particularly during holidays. Nepotism and improper relationships can compromise corporate integrity. Effective conflict management fosters a culture of transparency, upholds fiduciary duties, and reinforces trust, safeguarding the organization from ethical and operational risks.