A conflict of interest is when an individual has competing interests or loyalties, often between professional and personal affairs. This could two relationships that might compete for a person’s loyalties – this could be a conflict between loyalty to an employer and loyalty to a family member. The conflict of interest causes an employee to experience a struggle between diverging interests, points of view, or allegiance.

Conflicts of interest can arise at any time for anyone, as a result of personal interests that are at odds with their business. As a result, everyone needs to remain alert at this possibility, and know how to react when they do arise.

It is important to deal with conflicts of interest efficiently to prevent legal problems and stop accusations of biased decision-making – both issues that can damage the reputation of your business.

There are different types of conflicts of interests:

• Part-time jobs – If an individual works for more than one business, they could have a conflict of interest because they’re trying to support two companies at the same time
• Business resources – Using business resources, facilities, or equipment, for personal gain is a conflict of interest
• Gifts – If you receive gifts or personal discounts from customers, competitors, or suppliers, it can become a conflict of interest because it could sway your professional decision
• Workforce – Hiring, promoting and supervising friends and family results in a conflict of interest because favouritism can quickly occur
• Personal relationships – Striking up a relationship with someone at work should be avoided as this can cause a loss of professionalism

Steps to follow

The individual with the conflict of interest should be the one to disclose it to the relevant people in the business, but this isn’t always the case, and this is when people can get in trouble. This is why others should be keeping an eye out for conflicts of interests occurring.

It is better to be too open if anything when deciding if something should be disclosed. More often than not, situations are not clear-cut. If an individual is uncertain about whether or not something constitutes a conflict of interest, it is safer and more transparent to disclose the situation anyway. The matter is then out in the open, and others can be the judge of the situation, and decide whether the situation is serious enough to warrant any further action.

Time is important too, the matter should be flagged and discussed with the relevant person as soon as the conflict of interest is identified. In most cases, the relevant person will be superior to them in the workplace, such as their manager.

Once the conflict has been declared, the right steps need to be taken to remove or mitigate the situation.

Conflict of interest policy

Having a good policy in place allows for employees to understanding where the business stands on conflicts of interests in the first place.

• Who – Your conflict of interest policy must be specific to the individuals it applies to. You can do this by listing every category of individuals that are included in the policy – employees, management and contractors.
• Examples – Specify what constitutes as a conflict of interest by listing different situations that count as a conflict of interest. The conflict of interest examples should then be followed by an explanation as to why it is classed as a conflict of interest, and why that is inappropriate. As well as providing detailed examples, stress that this is just some examples of cases that could arise, the spirit of the policy will be followed if a conflict of interest arises that is not listed.
• Disclosure – Your policy should tell people how they can disclose a conflict of interest. This could be a written form, an online tool, or a good old-fashioned face-to-face meeting.
• Update – Keep the policy up to date to reflect changes in your company’s position. Moreover, by maintaining a relevant and fresh policy, it doesn’t get forgotten and neglected.
• Apply – Always apply the policy whenever there is suspicion of conflict. Using the policy on all situations, no matter how big or small, means that it grows in authority. As a result, employees will see that you don’t turn a blind eye to anything and could prevent such behaviour in the future too.
• Training – Put your policy into practice with training too, this increases the understanding that staff have and makes the process all the more interactive and engaging, hopefully with results that reduce the chances of a conflict occurring at all.

Illegal insider trading is when non-public information is used by a company ‘insider’ such as an employee to make a profit through the trading of company stocks and shares. Insider trading was the focus of the 2019 ITV drama, Cleaning Up, starring Sheridan Smith. The programme featured two cleaners that used their place within a business to exploit the confidential stocks and shares information to make a healthy sum of money.

The legal process of insider trading is insiders buying and selling their own company’s stock all above board. The illegal version is all about when they choose to do this, why they do it, and the information they’re using to make that decision. To sum up, if you have an advantage over the public, what you’re doing is illegal and holds serious legal consequences.

Legislation

Although the rules and laws around insider trading vary across the world, in the majority of countries it is illegal due to the fact that it gives some people an unfair advantage. A person who becomes aware of insider information that then trades using that information may be guilty of illegal insider trading.

The term ‘insider trading’ has been labelled as a ‘criminal offence’ ever since 1980 – it is a criminal offence in the UK. All over the world insider trading is seen as the biggest offence against the ethics of business and is also seen as a way to destroy the confidence that the public has around the stock exchange.

Insider trading is legal once the confidential information has been released to the public because the insider loses any advantage once the information once it is known to the public.

The laws come from the Criminal Justice Act 1993 and the Financial Services and Markets Act 2000 – although there are small differences between them, both need to be taken into account when considering if insider trading has occurred. Insider trading is sanctioned by civil law under the control of the Financial Services Authority, the FSA.

The FSA is a non-governmental organisation that fights against market abuse. They have a model code that companies have a duty to adopt.

If found guilty of insider training, an individual can be sentenced up to seven years in prison, as well as facing hefty fines. Additionally, the FSA can issue a public announcement that the individual engaged in insider trading – an action that can destroy their reputation.

Illegal insider trading can lead to serious prison sentences, as well as hefty fines to pay – a serious offence has serious results.

The case of Martha Stewart

One of the most famous examples of insider trading is the case against the American TV star and home goods vendor, Martha Stewart.

In December 2001, the Food and Drug Administration (FDA) announced that it was rejecting ImClone’s new cancer drug, Erbitux. As the drug represented a major portion of ImClone’s pipeline, the company’s stocks took a sharp dive. As a result, many pharmaceutical investors were hurt by the drop, but not Martha Stewart. She sold 4,000 shares when the stock was still trading in the high $50s and made nearly $250,000 through the sale. The stock would plummet to $10 in the following months.

Stewart claimed to have a pre-existing sales order with her broker, but her lies continued to unravel, and public shame eventually forced her to resign as the CEO of her own company. Her friendship with the CEO Samuel Waksal suggested that she was warned about what was going to happen to the shares, and therefore triggered her to sell them when she did.

Waksal was arrested and sentenced to more than seven years in prison and fined $4.3 million in 2003. In 2004, Stewart and her broker were also found guilty of insider trading. Stewart was sentenced to the minimum of five months in prison and fined $30,000.

If she has held only her ImClone stock, she would still have benefitted from the Eli Lilly takeover, and made more money than she did through insider trading! She would have earned $60,000 if she had just waited – instead, she was fined $30,000 and went to jail. Her case shows how the risks outweighed the returns.

Our Ethics Courses

In order to understand the difference between something being ‘illegal’ or being ‘unethical’, we have to understand what these terms mean. ‘Unethical’ defines as something that is morally wrong, whilst something being ‘illegal’ means it is against the law.
In an illegal act, the decision-making factor is the law. For an unethical act, the deciding agent is the man’s own conscience. An unethical deed may be against morality but not against the law. An illegal deed is always unethical while an unethical action may or may not be illegal.
Illegal behaviour is much easier to detect because of the clean-cut side to the law. Comparably, unethical behaviour is tough to detect because people can have different opinions on whether something is ethical or not. Ethics can differ from person-to-person, but the law is the law, and everyone must follow the same rules.
Organisations need to be clear with their employees what the difference is, and what they expect in their workforce. This can be detailed in company policy to avoid any confusion.

Understanding unethical business practices

Unethical behaviour, simply put, is failing to do the right thing. In the workplace, unethical behaviour can include any deeds that violate the law like theft or violence, but unethical behaviour can involve much broader areas as well. These unethical actions could be deliberate violations of company policies or using hard-sell sales practices – both of these actions are legal, but they take advantage of human frailties for the personal advantage which means it goes against the ethics of a lot of people. Examples of unethical behaviour can be found in all types of businesses and in many different areas.
Some more examples of unethical business practices are:

• Deliberate deception – This could mean taking the credit of someone else’s work, ‘pulling a sicky’, sabotaging the work of someone else, or misrepresenting a product all with the aim of getting a sale. These actions are seen as unethical by many because it exploits the trust of others in order to better yourself.
• Violation of conscience – If your boss forces you to do something you know is wrong, they are the ones showing unethical behaviour, and causing you to violate your conscience.
• Failure to honour commitments – If your boss promises you something and then goes back on that promise, they have acted unethically. The result of this can be that they have lost your trust and respect, potentially leading to a workforce filled with discontent.

All these examples show how problems can be caused in the workplace even if no laws are broken. The results may not be as serious as prison and fines, but they lead to anger and frustration in the workplace – something that impacts the business badly too.

Understanding illegal business practices

Illegal business practices are much more obvious to label. If it is against the law, it is illegal and unethical, and as a result, hold lead to serious consequences such as prison and heavy fines.
Some examples of illegal business practices are:

• Discrimination or Harassment – This could be based on age, gender, sexual orientation, or race (just to name a few of many). If you discriminate people unfairly you are breaking the law, and you need to be aware of it in your business.
• Theft – If your business is stealing, they are breaking the law. This is a simple one and doesn’t really need more explaining.
• Employee Treatment – One way a business can break the law is if it fails to pay its employees the correct way. This can refer to meeting minimum wage, maternity leave, redundancy, and pensions. The way you treat your workers is extremely important, and if neglected then you could be breaking the law.
• Environmental – It might not be the first thing that comes to mind, but more and more companies are having to pay fines for breaking environmental laws. One example of this was Northumbrian Water being fined £375,000 for pumping raw sewage into the River Tyne.
• Health and Safety – Almost two-thirds of UK businesses fail to abide by basic health and safety laws, leaving their employees in danger as a result. This worry means that the majority of workers don’t feel they are equipped to deal with hazardous situation. Failure to supply workers with information and guidance on health and safety policies could land employers with a hefty fine, or even a prison sentence if the case is extreme enough.

The severity of illegal and unethical business practices cannot be stressed enough. Everyone shares the responsibility for promoting a positive workplace and conducting business ethically and legally.

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Insider trading is the process of trading company stocks and shares through individuals with access to non-public information about the company, otherwise known as ‘insider’ information. The huge development in internet usage has led to an acceleration in the speed that insider trading can occur and makes it more difficult to control.

This may sound familiar, and this is because it was the focus on the ITV drama, Cleaning Up, starring Sheridan Smith in January 2019. The programme featured two cleaners that used their place within a business to exploit the stocks and shares trading information – making a healthy profit as a result.

Although the rules and laws around insider trading vary, in the majority of countries it is illegal due to the fact that it gives some people an unfair advantage. A person who trades using insider information may be guilty of a crime.

Understanding insider trading

Insiders can be in the position of having access to information not known to the public. This could be information about a new product, a merger with another company, a change in leadership or annual earnings reports. Insider trading is apparent when they act on this information before it becomes public knowledge.

Insider trading can be legal and illegal, depending on the ways it is carried out. There is a very fine line between the two, so it is important to understand the difference.

Insider trading is legal when insiders such as employees buy their own company’s stock. It is all about the circumstances in which the shares are bought/sold that determines whether it is legal or not.

Trading on the stock exchange using confidential information for one’s own advantage is when insider trading becomes illegal. Insider trading crimes can also mean ‘tipping’ people with confidential information to help them make a profit.

The money made from insider trading becomes criminal, and therefore becomes proceeds of crime (money made through illegal activities).

To clarify, the legal version is simply insiders buying and selling their own company’s stock. The illegal version is all about when they choose to trade, why they’re doing it, and what information they’re using to make that decision.

In other words, insiders can’t trade when they have the advantage over the public.

Examples

As explained above, insider trading isn’t always illegal. Here are some examples of legal insider trading:

• A CEO of a corporation buys 1,000 shares of stock in the corporation. The trade is reported to the Securities and Exchange Commission.
• An employee of a corporation exercises his stock options and buys 500 shares of stock in the company that he works for.
• A board member of a corporation buys 5,000 shares of stock in the corporation. The trade is reported to the Securities and Exchange Commission.

Comparably, here are some examples of illegal insider trading:

• A lawyer representing the CEO of a company learns from a confidential meeting that the CEO is going to be accused of fraud the next day. The lawyer sells 1,000 shares of the company because he knows that the stock price is going to plummet because of news of the fraud.
• A board member of a company knows that a merger is going to be announced within the next day or so – a move that means the company stock prices are likely to increase. He buys 1,000 shares of the company stock in his mother’s name, failing to report the Securities and Exchange Commission so that he can make a profit.
• A high-level employee of a company overhears a meeting where it is revealed that the company is heading towards bankruptcy because of severe financial problems. The employee has a friend that owns shares of the company, so he tells him to sell his shares in order to avoid losing money.
• A government employee is aware that a new regulation is going to be passed that will significantly benefit a certain electricity company. The employee secretly buys shares of the electricity company and then pushes for the new regulation to go through as quickly as possible so they can make a profit without being found out.
• A corporate officer learns of a confidential merger between his company and another lucrative business. Knowing that the merger will require the purchase of shares at a high price, the corporate officer buys the stock the day before the merger is going to go through.

Martha Stewart

One of the most famous examples of insider trading is the case against American TV star and home goods vendor, Martha Stewart.

In December 2001, the Food and Drug Administration (FDA) announced that it was rejecting ImClone’s new cancer drug, Erbitux. As the drug represented a major portion of ImClone’s pipeline, the company’s stock took a sharp dive. As a result, many pharmaceutical investors were hurt by the drop, but not Martha Stewart. She sold 4,000 shares when the stock was still trading in the high $50s and collected nearly $250,000 on the sale. The stock would plummet to just over $10 in the following months.

Stewart claimed to have a pre-existing sale order with her broker, but her lies unravelled and soon enough the public shame eventually forced her to resign as the CEO of her own company. Her friendship with CEO Samuel Waksal suggests that she was warned for the drop in price the shares were about to go through. Waksal was arrested and sentenced to more than seven years in prison and fined $4.3 million in 2003. In 2004, Stewart and her broker were also found guilty of insider trading. Stewart was sentenced to the minimum of five months in prison and fined $30,000.

Legislation

The term ‘insider trading’ has labelled a ‘criminal offence’ since 1980 – insider trading is a criminal offence in the UK. All over the world it is seen as the biggest offence against the ethics of a business and is also seen as a way to destroy the confidence in the public around the stock exchange.

The laws around insider trading come from the Criminal Justice Act 1993 and the Financial Services and Markets Act 2000 – although there are small differences between them, both need to be considered when looking into whether insider training has occurred. Additionally, it is sanctioned by civil law under the control of the Financial Services Authority, the FSA.

How can insider trading be avoided?

Follow these top tips to protect yourself from insider trading:

1. Carry out due diligence checks on everyone you deal with – Whether it is new or existing employees or any other contacts you have, you need to know who you are dealing with to avoid insider trading.
2. Be careful in trade or social events – If you are in close contact with other financial firms, and sensitive topics are being discussed, stay out of them.
3. Know your information – Make sure you actually know what information is non-public, and what you are and aren’t legitimately allowed to share – this knowledge means you can avoid unlawful disclosure.
4. Keep things to yourself – Never disclose non-public information to outsiders, you never know what they might do with that information, and if they profit off information you have given them, you are just as guilty as them.
5. Be aware – If you have any concerns, don’t stay quiet. Report any worries you have to your manager.
6. Blackout periods – This is when traders are barred from buying or selling stocks and shares at certain times, such as just before any company changes.

Employee share schemes, also known as employee share purchase plans or employee equity schemes, give employees shares in the company they work for, or the opportunity to buy shares in the company.

The point of them is to motivate staff with financial benefits if the company performs well. If the company does well, the staff gain rewards and sometimes tax advantages too.

Understanding employee share schemes

The clue is in the name, the stocks are shared with the employees, and as a result, the financial profit of the company is shared with the staff members.

The stocks are often paid for through the salary of the employee over a set time period or by using the dividends received on the stocks. Some plans also allow employees to pay for the shares in full and upfront.

Employees on higher incomes often receive shares as a performance bonus, instead of receiving a higher salary.

The share schemes differ depending on the size of the company. For larger companies, they usually offer employees ‘ordinary shares’ that provide a fair investment in the company. However, smaller companies often offer schemes that pay dividends but fail to give employees the rights associated with traditional share ownership, such as the right to vote at general meetings.

Employees can benefit from the financial rewards if the company does well. However, there are drawbacks. There are often limitations on when the employee can buy, sell and access shares through the share scheme.

For example, if the employee is paying for their shares over a period of time, they can’t do anything with them until they’re paid for them. Additionally, a lot of companies insist that employees give back their shares when they leave – even if the price is less than what they paid in the first place.

When looking into joining a share scheme, you need to do some research. Look at the success of the business, this will give you an idea of whether owning shares could actually bring you a profit.

Each employee share scheme is different. You need to know what you’re getting into before you do anything else. Employee share schemes can be a great way of gaining access to discounted shares, however, you should think about how they fit into your personal investment strategy before you decide to get involved.

Employee share schemes are a type of legal insider trading, as employees trade stocks and shares of the company they are part of.

Approved share option schemes

If a company grants share options that aren’t approved by the HMRC, employees are subject to income tax via the Pay-As-You-Earn (PAYE) and National Insurance (NI) contributions. By going with approved schemes, you are reducing the tax liability attributable to awarding share options.

There are four HMRC approved share scheme options out there:

1. Share Incentive Plan (SIP)

2. Save as you Earn (SAYE)

3. Company Share Option Plan (CSOP)

4. Enterprise Management Incentive (EMI)

SIP and SAYE, are both relatively low-value schemes which are usually only used by large organisations to motivate a sizeable workforce. These schemes must be made available to all employees, whatever level of importance, and however many hours they work.

The CSOP and EMI schemes are optional schemes allowing a significant award of share options with more favourable tax treatment than unapproved schemes. The difference is that the employer often chooses who holds shares in these cases, rather than all employees automatically getting shares. The profits tend to be higher with these schemes as a result.

A conflict of interest is when an individual has competing interests or loyalties. They could have two relationships that might compete with each other for that person’s loyalties – this could be a conflict between loyalty to an employer and loyalty to a family member. The conflict of interest causes an employee to experience a struggle between diverging interests, points of view, or allegiance.

The key thing about a conflict of interest is disclosure. If disclosed beforehand, and the person is given the all-clear to continue, then the conflict of interest is not a problem – and therefore legal. However, if the conflict of interest activity was disapproved and the individual continued anyway, or never disclosed it in the first place, it could be considered illegal.

The main thing that gets people in trouble is failing to disclose before engaging in the activity. Additionally, a lot of the time there is a failure to document the decision for record-keeping purposes.

How do they occur?

A conflict of interest can exist in many different situations. The easiest way to explain the concept of a conflict of interest is by using some examples:

• A public official whose personal interests conflict with his/her professional position
• A person who has a position of authority in one organization that conflicts with his or her interests in another organization
• A person who has conflicting responsibilities
• There are different activities that can create a possible conflict of interest:
• Nepotism is the process of giving favours to relatives or close friends, usually by hiring them. This classes as a conflict of interest because the relative may not be the best person for the job, yet because of the personal link, you are prioritising them over other candidates.
• Self-dealing is when someone high up in a company acts off their own interests rather than the interests of the company.

Employees need to avoid any behaviour or choices that could potentially signal a conflict of interest. This is because employee reputation and trustworthiness could be damaged as a result.

Here are some examples of conflicts of interests:

• A manager is promoted and ends up being his wife’s boss
• A lawyer represents a client whilst secretly accepting money from the opposing side of the case
• An employer priorities his brother-in-law’s decorating company to carry out the refurbishment of his business without telling anyone of the link
• An employee starts a company that provides similar services to similar clients as those of her full-time employer (This is even worse when she has had to sign a non-disclosure agreement for her full-time employer)
• An employee works part-time in the evening for a company that makes a product that competes with the products of his full-time employer
• An employee accepts free gifts from a training and development company and then recommends the purchase of these products without comparing them to comparable products from other vendors
• An employee sets up a personal website on which he sells his employer’s software products

How can they be managed?

Organisations tend to have policies and procedures in place to avoid conflict of interests occurring in the first place. For example, many businesses are against hiring relatives because of the potential problems it can cause.

Members of the board of directors have to sign a conflict of interest policy statements, and if a conflict surfaces, they could be kicked off the board, and possibly even sued – it is something to be taken seriously.

One common conflict for board members is insider trading. This is when they could hear of a potential deal that might affect the selling prices of company stock – their influential position means that they can exploit the information for their own personal gain.

The appearance of a conflict of interest is when something looks like it could potentially become a conflict of interest. For example, if a business executive hires her daughter, it already looks like it could be a conflict of interest. However, it isn’t automatically a conflict of interest, it just looks like one. Unless the daughter is given preferential treatment, such as having a higher salary than her equals, then it isn’t a conflict of interest. If the executive isn’t in the position to give favours, then there’s no problem – but it will always be a tricky situation because of how it looks from the outside.

To avoid a conflict of interest occurring, it is easiest to just avoid the appearance of a conflict in the first place. Sometimes just appearing to have a conflict is enough to have negative consequences. You should set up strong policies and procedures for all types of conflicts, and then enforce these structures from the top to the bottom of the company. By doing this, you can maintain a strong company reputation, and make effective ethical decision-making.

Insider trading is the process of trading company stocks and shares by using non-public information about the company, otherwise known as insider information. Moreover, the huge development in internet usage has led to an acceleration in the speed that insider trading can occur – making it more difficult to control too.

This may sound familiar, and this is because it was the focus on the ITV drama, Cleaning Up, starring Sheridan Smith in January 2019. The programme featured two cleaners that used their place within the business to exploit the stocks and shares trading in order to make money – insider trading.

Although the rules and laws around insider trading vary across the world, in the majority of countries it’s illegal due to the fact that it’s seen as unfair on the investors that don’t have insider information. A person who becomes aware of insider information and then trades on that basis may be guilty of a crime.

Legislation

The term ‘insider trading’ has been labelled as a ‘criminal offence’ ever since 1980 – insider trading is a criminal offence in the UK. In all developed markets around the world, it is seen not only as the biggest offence against the ethics of business but also a way to destroy the confidence that the public has around the stock exchange.

Insider trading is legal once the confidential information has been released to the public, at which time the insider has no direct advantage over any other investor – until then, it is illegal.

The laws around insider trading come from the Criminal Justice Act 1993 and the Financial Services and Markets Act 2000. Although there are small differences between them, both need to be taken into account when considering if insider training has occurred. It is sanctioned by civil law under the control of the Financial Services Authority, the FSA.

The FSA is a non-governmental organisation that fights against market abuse. They have a model code that companies need to abide by. The code isn’t directly binding for directors of a company, but the company has to adopt it.

The main restrictions in the model code are:

• A director must not deal in securities (stocks and shares) within a period of 60 days preceding the preliminary announcement of the final results (in this case, the results are the insider information).
• A director must not deal when he or she knows price sensitive information that has not yet been published.
• A director must seek clearance from the chairman prior to entering into a transaction.
• Clearance to deal in any securities must not be given during a prohibited period; it is during a period when price-sensitive information is unpublished but is known.

Insider trading is the process of trading company stocks and shares through using access to non-public information about the company, otherwise known as insider information. Moreover, the huge development in internet usage has led to an acceleration in the speed that insider trading can occur – making it more difficult to control.

This may sound familiar, and this is because it was the focus of 2019 the ITV drama, Cleaning Up, starring Sheridan Smith. The programme featured two cleaners that used their place within a business to exploit the stocks and shares trading information in order to make a healthy sum of money – insider trading.

Although the rules and laws around insider trading vary, in the majority of countries it is illegal due to the fact it gives some people an unfair advantage. A person who becomes aware of insider information that then trades using that information may be guilty of a crime.

When is it Legal/Illegal?
There are two types of insider trading, one is legal, and one is illegal.

The legal form of insider trading is when insiders buy their own company’s stock. It’s called ‘insider trading’ because they are employees, and therefore they are ‘inside’ the business.

Insider trading can become illegal though, and there is a very fine line between the two.

By definition, the practice of trading on the stock exchange to one’s own advantage through having access to confidential information is when insider trading becomes illegal. Insider trading crimes can also mean ‘tipping’ people with confidential information that they can then use to make a profit from – if you supply someone with the information needed to carry out insider trading, then you are just as guilty as them.

To sum up the difference, the legal version is simply insiders buying and selling their own company’s stock. The illegal version is all about when they choose to trade, why they’re doing it, and what information they’re using to make that decision.

Insiders can be in the position of having access to information not known to the public. This could be information about a new product, a merger with another company, a change in leadership or earnings reports. Insider trading is apparent when they act on this information before it is public knowledge.

In other words, insiders can’t trade when they have the advantage over the public.

The Case of Martha Stewart

One of the most famous examples of insider trading is the case against the American TV star and home goods vendor, Martha Stewart.

In December 2001, the Food and Drug Administration (FDA) announced that it was rejecting ImClone’s new cancer drug, Erbitux. As the drug represented a major portion of ImClone’s pipeline, the company’s stock took a sharp dive. As a result, many pharmaceutical investors were hit by the drop, but not Martha Stewart. She sold 4,000 shares when the stocks were still trading in the high $50s and made nearly $250,000 through the sale. The stock would plummet to just over $10 in the following months.

Stewart claimed to have a pre-existing sell order with her broker, but her story continued to unravel, and public shame eventually forced her to resign as the CEO of her own company. Her friendship with CEO Samuel Waksal suggested that she was warned that the shares were going to drop in value. Waksal was arrested and sentenced to more than seven years in prison and fined $4.3 million in 2003. In 2004, Stewart and her broker were also found guilty of insider trading. Stewart was sentenced to the minimum of five months in prison and fined $30,000.

What is ironic this that if she has held onto her ImClone stock, she would still have benefitted from the Eli Lilly takeover, and would have actually made more money than what she made through insider trading! She would have earned $60,000 if she has just waited – instead, she was fined $30,000 and went to jail. Her case shows how the risks outweighed the returns.

Related Courses

A conflict of interest is when an individual has competing interests or loyalties. They could have two relationships that might compete with each other for that person’s loyalties – this could be a conflict between loyalty to an employer and loyalty to a family member.
As this falls under the topic of unethical activities, conflicts of interests can carry the risk of legal consequences. The circumstances can change when it comes to a conflict of interests, and that determines whether or not it is legal.

Legality

The key thing to consider with a conflict of interest is disclosure. If disclosed beforehand, and the person is given the approval to continue, then the conflict of interest is not a problem – and consequently legal. However, if the conflict of interest activity was disapproved and the individual continued despite this, or never it disclosed in the first place, it could be considered illegal.
The main thing that gets people in trouble is failing to disclose before engaging in the activity. Additionally, a lot of the time there is a failure to document the decision for record-keeping purposes.

Understanding a Conflict of Interest

A conflict of interest can exist in many different situations. The easiest way to explain the concept of conflict of interest is by using some examples:

• A public official whose personal interests conflict with his/her professional position
• A person who has a position of authority in one organisation that conflicts with his/her interests in another organisation
• A person who has conflicting responsibilities

There are different activities that can create a possible conflict of interest:

• Nepotism is the process of favouring relatives or close friends, usually by hiring them. This classes as a conflict of interest because the relative may not be the best person for the job, yet because of the personal link, you are prioritising them.
• Self-dealing is when someone high up in a company acts off their own interests rather than the interests of the company. This often occurs in a situation where someone abuses their position of trust. An example of this could be an estate agent benefiting from the sale of a property.
• Organisations tend to have policies and procedures in place to avoid conflict of interests occurring in the first place. For example, many businesses are against hiring relatives because of the potential problems it can cause.
• Members of the board of directors have to sign a conflict of interest policy statements, and if a conflict surfaces, they could be kicked off the board, and possibly even sued – it is something to be taken seriously.

One common conflict for board members is insider trading. This is when they could hear of a potential deal that might affect the selling prices of company stock – their influential position means that they can exploit that confidential information for their own personal gain.

Appearance of a Conflict

The appearance of a conflict of interest is when something looks like it could potentially become a conflict of interest. For examples, if a business executive hires her daughter, it looks like it could be a conflict of interest already. However, it isn’t a conflict of interest unless the daughter is given preferential treatment (such as having a higher salary than her equals). If the executive isn’t in the position to give favours, then there’s no problem – but it’s always a tricky situation because of how it looks from the outside.
To avoid a conflict of interest occurring, it is easiest to avoid the appearance of a conflict in the first place. Sometimes just appearing to have a conflict is enough to have negative consequences. You should set up strong policies and procedures for all types of conflicts, and then enforce these structures from the top to the bottom of the company.

Examples

Here are some workplace situations in which conflicts of interest in the workplace occur:
1. An employee may work for one company but he or she may have a side business that competes with the employer. In this case, the employee would likely be asked to resign or be fired.
2. A common workplace conflict of interest involves a manager and his/her employee in a relationship, whether they are married or just dating. This is a conflict because the manager has the power to show favouritism through promotion or a pay rise. Moreover, discussions about the company between the two people may also breach confidentiality restrictions.
3. An employee who has a friendship with a supplier and allows that supplier to go around the bidding process or gives the supplier the bid is a conflict because, again, the employee is showing favouritism.
4. A former employee may take his former company’s customer list and directly compete. Non-disclosure agreements are often required of executives and business owners for this reason.
5. In the public sector, a public servant may have a conflict of interest based on their knowledge of an event or their link to the situation. For example, if a judge has a link to one of the parties of the case, they must disclose the relationship and take themselves off the case straight away.

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