conflict of interest

What is conflict of interest?

The old adage goes, “you cannot serve two masters”. This is true because service to two masters will cause conflict of interest.

Conflict of interest is relevant in the law of tort, and in ethics. It occurs when a person who has a duty two or more other people at the same time does the best thing for one person which in turn harms the other. The duty owed to these persons must be a legal duty, a fiduciary duty. A conflict of interest situation arises when a person who has a fiduciary duty to two persons is conflicted on whether to fulfil their duties to one person while at the same time he or she will be said to have failed in their duties to the other person.

*person in this context means both a natural person and a legal person, like a company.

All professions, all offices, discourage conflict of interest. It is an obligation due to those any one works for or serves and whose breach can lead to prosecution. The companies Act 2015 (Kenya) also prohibits directors of both private and public companies from being involved in conflict of interest situations.

For example, suppose a company, Cottage Construction Company Limited has secured funds to construct a villa of 20 eco-friendly cottages in Mau Forest. Agrace owns 20 acres of fine 50-year old pine trees which are excellent for construction of cottages. Cottage Construction Company now seeks to procure trees for the project. Agrace is privy to all company meetings and knows the company’s budget. Agrace may have a conflict of interest if she pushes the board of the company to purchase her fine trees. On one hand, she can benefit from the sale of the trees, while saving the company valuable time looking for trees. On the other hand, however, she has an obligation as a director and board member to make sure that the company gets the best trees at the best price.

Since a conflict of interest occurs whenever someone’s fiduciary duties conflict with their personal interests, it is difficult to prevent them from happening altogether. Therefore, most courts hold that a conflict of interest itself is not a breach of fiduciary or business duties. Rather, a breach occurs when someone who has a conflict of interest decides to disregard his duty of loyalty to one company to benefit himself, whether directly or indirectly.

It is advisable to disclose any current or potential conflicts of interests when dealing with other persons. Sometimes, such disclosure is a fiduciary duty. To catch conflicts of interest before they become a problem, many organizations require

For example, in the example above, Agrace may avoid breaching her fiduciary duties by informing the board that she owns a forest of pine trees and would like to submit a bid for the supply of timber to do the project. The board may accept several bids and review each one anonymously, making them able to select the price and services that fit their needs without being swayed one way or the other by the fact that their colleague might benefit if they choose her company.

Disclosing conflicts of interest and voluntarily giving up the chance to make a personal benefit can help prevent a conflict of interest from turning into a court case. For example, if Agrace in the example above simply awards her own company the supply of timber contract without telling anyone she runs the company, she may find herself being sued by the Company for breaching her duty of loyalty to the organization

The surest ways of avoiding conflict of interest are to declare or remove or avoid the potential conflict of interest situation.

BY SAMALI BITALA

The law permits sharing.
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