Conflict of Interest in Business Law

This article discusses conflict of interest in business law, including laws preventing conflict of interest in the US, policies and procedures enacted to prevent conflict of interest, and management implementation measures. It also explores the efficiency of these measures and suggests improvement measures to further reduce conflict of interest cases.

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Introduction
Conflict of interest develops in businesses when the benefits of the organization clash
with the personal interests of an employee or employees. BlackRock, a fund's management firm
in the US, was in 2015 fined $12 million for failing to inform its shareholders about an
investment that was done to benefit one of its employees who was a fund's manager at that
particular time. Dan Rice who was a financial advisor at BlackRock was accused of breach of
trust to the organization and investors. Dan failed to disclose that he had interests in the energy
funds he managed. The individual attention was associated with a family owned oil and gas
business that he advanced to become the biggest shareholding fund in BlackRock. Organizations
have developed measures that prevent the advancement of personal interests at the expense of the
company (Bell, 2018). To safeguard shareholders investments, the government has also enacted
laws with penalties to discourage conflict of interest.
Laws Preventing Conflict of Interest in the US
Chapter 286 section A of the General Laws provides the laws of engagement between the
employer and employees to prevent cases of conflict of interest from arising. The rules apply to
both public and private organizations. Breach of the civil laws in Chapter 286A has a penalty of
up to 25,000 million dollars depending on the economic advantages gained. These laws have
been strengthening the different Acts of Laws and precedence rulings since 1940.
1. Investment Advisers Act: This law was developed in 1940 to ensure financial investing
companies act in the best interest of their clients (Geyer, 2017). BlackRock’s employee
was accused of having worked in self-interest to the disadvantage of the business and
shareholders.

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2. Nepotism: Section286 C prevents employees in private and public organizations from
dealing in activities that directly benefit their families. This includes awarding tenders or
investment opportunities for their businesses.
3. Confidentiality: Section 23(c) prohibits employees from using privileged information for
personal gains (Jambeck, 2015). This also applies to provide classified information to
third parties to gain either economically or socially.
4. Misuse of office: The law prevents officers from engaging in activities that do not honor
their offices. This includes actions that portray the organization in a wrong way to the
public, for example, participating in corrupt activities or bribery allegations.
5. Investment Company Act: The investment Act developed in 1940 was aimed at
preventing investment companies from misleading the public against Ponzi schemes
investments (Kraakman, 2017). The case of BlackRock in which an employee mislead
the public into investing in his family business.
Policies and Procedures enacted to Prevent Conflict of Interest.
Organizations have put in place internal structures and measures that prevent employees from
engaging in activities that conflict with their business. These are contained in the employees'
employment contracts and the Standard Operating Procedures which differ from one
organization to the other. These policies include the following which was also in the
BlackRock’s Code of Conduct.
1. Compliance: Employees are required to adhere to and follow their organization's rules
and regulations strictly. These rules create unity of purpose in organizations that yield
positive results. In the case of BlackRock, Dan Rice was accused of not complying with
the firm's standards.

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2. Disclosure: Before employees are employed they are mandated to declare any interests
that may hinder their loyalty to the business. These can include personal or family related
activities. Dan Rice failed to report to BlackRock that his family had businesses in oil and
gas funds he was managing.
3. Objectivity: This policy states that employees need to be focused on their job descriptions
and not engage in external ventures. Conflict of interest arises in cases where worker
losses focus and start to self-advance at the expense of the company.
4. Opportunism: Due to access to privileged information from customers’ data, workers are
discouraged from being opportunistic. Dan Rice saw an opportunity to grow the energy
fund in BlackRock that ultimately benefited his family business.
Management Implementation Measures to Prevent Conflict of Interest
The leadership of either private or public organizations is tasked to ensure both internal
policies and external laws are adhered to prevent conflict of interest cases. The first step is to
train employees on the importance of loyalty to their organizations (Law, 2015). The second
step will entail showing both good and bad results of adherence. This will be followed by
providing disciplinary measures where an employee engages in acts that compete with the
interests of the organization. A clear example is how Dan Rice was dismissed from
BlackRock and civil suit launched against his employer due to selfish acts of self-dealing.
Developing a culture of loyalty and belonging by the management will also reduce cases
of conflict of interest (Kugler, 2015). When employees feel valued and appreciated loyalty is
enhanced. Cases of conflict of interest mostly arise due to management issues and not legal
implementation of corporate laws.

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The efficiency of Measures Reducing Conflict of Interest Cases
There has been a reduction in cases involving the conflict of interest cases in the US.
Heavy penalties and strict monitoring by authorities have barred many employees from
engaging in self-gains (Ritchie, 2015). This is evident with the BlackRock case where a
penalty of 12 million dollars was fined. Good mentorship and training have also helped
employees to change their perspective towards their employers. In the US corporate
governance structures have been enhanced that monitor and report any attempts of conflict of
interest.
Improvement Measures
Both company and government laws should be aligned in preventing conflict of interest
(Van, 2015). The distinction of a business and an employee should be established. For
example, Dan Rice acted on his own accord to enrich his family oil and gas business.
Unfortunately, it was his employer BlackRock that was fined $12 million. Personal
responsibility should be encouraged in preventing other employees from engaging in self-
dealing.
Motivating employees to be objective and deliver according to their organizations
standards will reduce cases of conflict of interest. Motivation can be in different forms like
rewarding compliance. Promotions and financial appreciation of employees will encourage
them not to engage in activities that are in conflict with their employers.
The laws can be improved by having Legislative Acts that treat conflict of interest cases
like criminal cases and not civil. The actions caused by conflict of interest are criminal in
nature because they deprive the organization its revenue. Employees should also be

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compelled to sign legally binding contracts that prohibit them from engaging in actions that
lead to conflict of interest cases.
The main cause of conflict of interest is associated with employees not adhering to the
vision and mission of their organizations. Developing a culture of trust and integrity will
encourage the sealing of any loopholes that may arise due to conflicting interests. This
strategy is cost effective and will enhance employees’ loyalty to their organizations.
Conclusion
The case of BlackRock has proved the importance of adhering to corporate laws and
organizations' policies. Both the business and employee are responsible for fostering a
culture of integrity in their dealings. Conflict of interest cannot be entirely eradicated but
measures can be put in place to prevent employees from engaging in personal gains that are
self-benefiting.

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