Conflicts of Interest – Be Alert !

Conflicts of interest lie behind many cases of procurement corruption and indeed other “corruption” in its widest sense. Often, these are not the highest profile or most serious examples – compared to envelopes of cash, swiss bank accounts and expensive prostitutes.  But if the practice of ignoring conflicts of interest (or covering them up) becomes pervasive in an organisation or a country, it can be corrosive and very damaging in the longer term.

A UK government minister, Robert Jenrick, is currently in the public eye because of a planning decision he made that favoured billionaire Richard Desmond. The two men had met at a dinner and chatted not long before the decision was made.  Jenrick is now facing more claims that another conflict of interest cropped up when he had a ministerial meeting with a “family friend” who had a financial interest in the future of a rival mining project that Jenrick was overseeing as minister.

In the procurement world, conflicts of interest can lead to bad buying when a supplier who shouldn’t win a contract does so, or is given a favourable contract, because someone on the buy-side has a vested interest in that happening. Often it is not overt bribery, but is based on relationships, nepotism, friendship, enjoyable dinners, invites to corporate events or Christmas presents. The dividing line between real corruption and poor judgement is very thin here, so we need to make sure that any conflicts are always declared and managed.

Back in my days as a procurement director, I had to ask our CEO, who had recently left Accenture, whether he still owned equity in the firm, as we were running a competition for a major contract for which Accenture was short-listed. If he did, then he couldn’t play any part in the selection process. I think he was genuinely surprised and a little offended by my question. But even if he was a cross between Jesus, Gandhi and Nelson Mandela in his personal ethics, it is how others perceive matters as much as the actual risk. And really, if others perceive a conflict, then it probably does exist.

There was a “hushed up” case (my freedom of information requests didn’t get very far) in the NHS not long ago where a small group of procurement executives gave contracts to a firm they controlled, which was also providing services to their organisation.  They may have felt those services were genuine and outside the scope of their “day jobs”. But was there a conflict of interest? Too right there was, and everyone could see that instantly.

And here’s another interesting issue. If I am involved in the decision to award a particular firm a contract, then six months later I join that firm on a huge salary, is that OK?  Many might say “no it isn’t”. But it happens all the time; this was an NHS example when an executive joined Deloitte shortly after the firm had won a large contract from his organisation.  There are of course many cases in the private sector as well as the public. 

And let’s face it, this starts from the top. The UK’s ex-chancellor George Osborne got a part-time job worth £600,000 a year for doing some pretty unspecified work for BlackRock, the world’s largest fund manager. But only months earlier, he was ultimately responsible for regulating the entire  financial services industry in the UK. Corruption? Maybe not. A retrospective conflict of interest? Absolutely.  It is the same with staff in the military who jump from managing contracts with big defence and services firms to working for those businesses.

My advice is to make sure your organisation’s HR and procurement policies make it very clear what defines a conflict of interest, and how people must act in that situation. Ensure every employee understands the rules and what they need to do.  And, by the way, “writing it down in a book” or sending a form to some admin person in HR or procurement is not a strong enough policy (just as it isn’t enough for declaring gifts or corporate hospitality).  Do it properly, then if anyone has a conflict, you can take steps to ensure they are not involved in decisions.

And of course, there is more on this in my book, Bad Buying- How Organisations Waste Billions Through Failures, Frauds and F*ck-ups, to be published in October by Penguin Business.