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Conflicts of Interest and the Consequences of Unethical Behaviour

Explanation of conflicts of interest and unethical behaviour in organisations.
Hardly a decade goes by without some major international scandal erupting. The cause usually boils down to unethical behavior or sometimes conflict of interest or improper behavior. We have to assume that most business managers run ethical organizations. Yet corporate corruption regularly occurs despite the regulated business environment. Are the rules on ethical behavior bent or broken, due to weak leadership and oversight or is there something more sinister at play? When management is under pressure to perform or there is a climate of fear, are the situations where the moral and ethical dimensions of good management evaporate. The idea of ethical fading and decision-making may be based on unconscious behavior rather than deliberate actions.
Now, let’s take a look at this topic in more detail. Conflicts of interests occur when a person or an organization is involved in multiple interests that may not be apparent and which potentially leads to corrupt behavior or impropriety. Thompson 1993, defined conflict of interest as a set of circumstances that creates a risk that professional judgment or actions regarding a primary interest will be unduly influenced by secondary interest. Here, primary interest is based upon goals or ethos of professional standing with due regards being influenced by secondary interests that covers financial interests, professional advancement and favors carried out for others. Here conflicts of interests arise and become objectionable since they have a greater weight than the primary interests that may influence decisions.
Conflict of interest for internal auditors can occur when the person’s position of trust is undermined through a competing professional and personal interest, even though no ethical or improper behavior has yet occurred. The loss of trust and confidence in the individual could impair their ability to perform their duties and responsibilities objectively. The common forms of conflict of interest are self dealing, nepotism, gifts, manipulation of financial markets. Today, many organizations have policies and procedures in place for dealing with the disclosure of gifts whereby gifts are declared when a certain threshold has been breached. In the UK, the accounting professions maintain standards by setting clear guidelines within their professional certification that are periodically reviewed and updated.
These safeguards seek to reduce or eliminate threats. They fall into three categories, professional, work environment and the individual. Unethical behavior occurs when there has been a potential breach in code of ethics and fundamental principles of the profession. Most professions have a process for conflict resolution as set out in the session graphic, whereby there is a clear process that includes both internal and external support in order to find a resolution. Most professionals have such codes of conduct that is supported by membership and certification on a voluntary basis, not legally. However, breaches in codes of conduct may result in being barred from the profession, or there may be specific areas resulting to tax and insider trading that may result in imprisonment.
Let us now review what we’ve learned today. In this session, we have seen how many professions, including accountancy, rely upon professional bodies to self-regulate areas where conflicts of interests or unethical behavior may arise. Without these codes, the independent position of trust occupied by the accountant dealing with internal and external audits becomes compromised. Codes of conduct and the use of control and monitoring help eliminating proper behavior, both within the profession and also within organizations as a whole. When these codes are breached, extreme penalties include exclusion from the practice or even prison. Thank you for watching. That concludes this topic. Here are five key points from the session.
Key point one: most professions establish voluntary codes of conduct.
Key point two: codes of conduct are periodically reviewed and reflects societal and legal needs.
Key point three: Common areas of conflict include the giving or receiving gifts.
Key point four: Conflict resolution process has external professional support and not purely an internal process.
Key point five: Control and monitoring should eliminate conflicts of interest and unethical behavior.

What is considered unethical behaviour in organisations? What are conflicts of interest and how do they result in unethical behaviour? Watch this video from the University of Law Business School to find out.

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Ethical Management and Decision Making

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