Insights in identifying and managing conflicts of interest

Insights in identifying and managing conflicts of interest
Insights in identifying and managing conflicts of interest

Human resources are always considered a key factor in any business plan: from building foundations to developing and maintaining operations of a company. Due to the participation in the activities of a Company, personnel – depending on the position – will be assigned to a certain authority corresponding to the task that he/she is in charge of, and it is unavoidable that the “personal interests” arising from the intentions of the employee himself can diminish the interests of the company.

What is conflicts of interest?

According to the Organization for Economic Co-operation and Development, a conflict of interest is understood as follows: “A ‘conflict of interest’ involves a conflict between the public duty and private interests of a public official, in which the public official has private interests which could improperly influence the performance of their official duties and responsibilities.”

According to the Law on Anti-Corruption, a conflict of interest is understood as “a situation where the interests of an office holder or his/her relative have or are likely to have affect the performance of their duties.”

It can be seen that conflicts of interest are problems that lawmakers have also anticipated in employment relationship, but it only ends at the regulations for officers, civil servants, and public employees – individuals working in state agencies who are governed by the Law on Anti-Corruption.

As above mentioned, conflicts of interest within companies are not governed by the above provision. However, at present, even the main legal document that regulates employment relationship – Labor Code, has not had any definitions or provisions guiding the “conflict of interest” in a company (from the Labor Code 1994 to the Labor Code 2019). In fact, conflicts of interest within the companies have become a dilemma due to lack of regulations. Therefore, throughout this article, we would like to highlight content regarding conflicts of interest that should be noted by companies.

Conflict of interest in companies

In the relationship between an employee and an enterprise, “conflict of interest” can be understood as a situation in which the employee is in the interests (material or immaterial) of the individual himself or of a related person, including family members and friends whose decisions to act or to not act aren’t in the interest of the company  where they are working.

Recognize conflicts of interest

Preventing Conflicts of Interest in state agencies aims to avoid the problem of “corruption”. For companies, their ultimate goal is to avoid self-interest, personal gain, or group interests to affect the common interests of a company. In other words, they are “anti-corruption” in their organization. Therefore, most companies now rely on legal documents about anti-corruption of states agencies to recognize conflicts of interest in their companies. Specifically, the following acts are currently classified as conflicts of interest:

  • Receiving money, property or other interests from a third party in connection with his/her/their work or under his/her/their management;
  • Establishing or participating in the management and administration of a company whose business activities are similar to the Employer’s one;
  • Performing work for other third parties as employees, consultants, partners, advisors, etc. and that this action causes conflicts with the activities of the company;
  • Using the information obtained from the working position for self-interest or serving the interests of other third parties;
  • Taking advantage of the working position to recruit relatives, friends, or other individuals to work positions in the company in order to receive personal benefits;
  • Establishing transactions with suppliers owned by the employee or his/her/their relative (family members, friends).
  • Other actions in which there is the impact of the employee and their ultimate goal is to degrade the interests of the company, creating personal benefits.

Based on the above discussion, we can see that the main point about conflict of interest acts is to create benefit for an employee or his/her/their relatives, and undermining the interests of a company. Conflict of interest can occurs at any position and it can be seen that the higher the position of the employee, the larger the consequences for the company. This comes from the fact that high-level positions such as Director, Manager, Chief Accountant, etc. are positions that hold materially important information that instead of aiming to be of interest to the companies, divert to personal interests or interests of their relatives.

In practice, it also shows that although companies can identify conflicts of interest, it is not easy to concretize internal regulations that are capable of deterring employees. In Vietnam, “conflict of interest” has only been concretized into legal documents for state agencies but the corresponding regulation for other organizations has not yet been issued. Therefore, companies need to have “flexibility” in understanding and protecting their own interests before having a clear legal corridor. To recognize conflicts of interest, companies need to understand:

–       Regulations for each act of conflict of interest, thereby choosing whether to apply civil or competition law or labor law;

–        Solutions for companies when facing conflict of interest;

–        What actions need to be taken to prevent conflicts of interest within companies?

Understanding the nature and relevant legal regulations for each conflict of interest act will help companies choose a solution and concretize in their internal documents to ensure that they can be applied in practice when a conflict of interest act occurs.

The article is based on applicable law at the time noted as above and may no longer be appropriate at the time the reader approaches this article as the applicable law has changed and the specific case that the reader wishes to apply. Therefore, the article is only for reference.