ANSWERING THE CONFLICTS OF INTEREST

One of the questions addressed in this edition often arises in the institute’s practice and is present in the almost daily practice of compliance professionals. We will delve into the circumstances of (potential) conflicts of interest, specifically for the case of receiving hospitality.

I provide an overview of the situation, including a professional compliance opinion and several typical criteria for assessing conflicts of interest, summarized in the public version. The entire opinion is accessible by request at: spekaing@andrijanabergant.com

The situation is anonymized, with some fictional elements, to protect the identity of individuals and companies, stemming from typical and realistic business circumstances across various industries.

DESCRIPTION OF THE CASE/SITUATION

The head of sales is inquiring whether it is appropriate for them, along with one board member and two colleagues from sales department, to accept an invitation from a business partner (a company’s supplier) to a three-day seminar on their products. These products are already included in the company’s regular sales program, are quite popular among customers and account for an important portion of overall sales.

The seminar will take place in Milan, at the supplier’s premises, where external experts and the supplier’s own professionals will present product innovations and marketing approaches for sales. There will be no education costs incurred for the company, and the supplier would cover travel and accommodation expenses for the entire team, too.

The compliance officer is asked for an opinion because it involves receiving benefits from the supplier (hospitality).

PROCESS OF PREPARING A PROFESSIONAL OPINION

Primarily, in assessing situations potentially involving conflicts of interest, which entail the risk of individual interests (those of invitees) prevailing over the lawful primary interests of the company, and potentially causing harm to the company due to invitations to a free event or hospitality (or because of received gifts, personal relations, etc.), we explore the following:

1. Which interests are accruing in the given relationship and what are they like, whether they are lawful and legitimate (supplier interests, company interests, and the interests of invited managers and employees)?
2. Whether there might be individual and private interests or circumstances related to the invitation that could cause bias among decision-makers or other company employees, conflicting with the company’s best interests, regulations (legislation), or internal policies.
3. What kind of direct or indirect transaction – exchange (financial or non-financial) is present in the relevant situation, whether it is logical, acceptable, or in any way contentious.

We are focused on justifying the invitation from the business partner within lawful and legitimate interests and in a proportional exchange, seeking a connection with justified business interests of the company and acceptable business practices.

The obscurity, complexity, or ambiguity about what is mutually balanced, justified, and lawful business benefit in the given situation, what the interests and transactions are, serves as one of the basic indicators of the risk: that the situation establishes a relationship that cannot be understood as legally or economically logical or acceptable. In such cases, there is likely to be hidden interests, agreements, and concealed unauthorized transactions (which can also be non-financial, e.g., services), which require more detailed examination.

Hospitality is also unacceptable, if it is not appropriate in substance and otherwise…

…Acceptance of the invitation is subject to the positive assessment of the following conditions or criteria of acceptability:

Necessity/relevance of the educational event to which our employees are invited by the supplier: e.g., the training relates to a professionally complex product or…

Proportionality: Is it necessary that…

…

The content of the compliance opinion received by the requester for the opinion (sales manager)

Potential conflicts of interest can arise due to receiving benefits from the supplier regarding the sale of their products. On the other hand, the proposed method of gaining information and knowledge directly related to sales execution and products important from the company’s offering and business operations perspective is acceptable and customary. In principle, we believe that accepting the invitation is appropriate, with the acceptance of some measures to manage the risk of conflicts of interest.

The entire content including the thought process behind the assessment and in preparing of a complete opinion, as well as the entire compliance opinion presented in this issue of Compliance Practices, consists of six (6) pages and is accessible to subscribers.

Get in touch with me for the full version of this article at: speaking@andrijanabergant.com

Exclusions

The presented opinion is one response to a situation that, besides the described circumstances, could have a range of other assumptions and circumstances in a concrete situation, which could lead to a different opinion. Therefore, we discourage its direct application to your situation, which almost certainly cannot be identical. EICE will not take responsibility for use of this opinion. 

However, we hope and encourage you to use the presented approach and characteristic criteria in weighing potential conflicts of interest based on your specific business reality!

Originally published in EICE’s Compliance Practices, December 2023