Conflict

PERSPECTIVE C O N F L I C T O F I N T E R E S T

Conflict of interest has been topical in the recent history with debacle of ‘state capture’ involving audit firms and the likes, and not forgetting landmarks events such as Steinhoff, Old Mutual (Moyo debacle) etc. raising questions on the effectiveness of the governance structures existing within Corporate and Public Sector.

Are they even there? Do they have the knowledge/ skills or even have the necessary authority to effect the necessary change or are they fit & proper?

In the past year, Board and Sub-committee members have increased their level of awareness and scrutiny to management reports and the levels of assurance that can be drawn from it.

Similarly, professional bodies such as SAICA, IIA etc. have come under scrutiny on whether;  they can actually ‘bite’ when a member has acted in a questionable manner;  whether there is a process to be followed in these eventualities and;  has the process stood the test of time or;  has a proven record of adding value to the organisation over time.

Many organisations have policies in place on conflict interest that will address one of the following issues:  that conflicts of interest must be disclosed at the earliest point of detection. Generally, they’ll be a register where all the necessary information is recorded, the nature and monetary value.  that the concerned individual should not be involved in the decision-making process concerning the conflict.

The definition of conflict of interest relates to the existence of a conflict (clash) between

before simply because there were no delinquents or even if they there were there, they were fewrelationships formed in and outside of

PERSPECTIVE C O N F L I C T O F I N T E R E S T or relationships? by Lindiwe Magobholi, IRMSA Risk Intelligence Committee Member

I’m of the opinion that the existence of the business environment. Some can be traced as far back as conflicts of interest is the genesis of the Primary School and therefore run very problem. Prevention is always better than cure. deep. They also provide a comfortable level of trust, an important element in private interests and official responsibilities of person in a At this level of management, the position of trust including family members and in external character of an individual outweighs their competencies. organisations, businesses and practices. Where the conflict concerns a person in a position of

These policies have been placed under serious scrutiny power, then the assurance providers come under extreme on their adequacy in preventing/managing conflicts of pressure not forgetting the impact on their careers. interest. So, the issue in many instances including the fall This is where the lines of assurance, be it Audit or Risk of entities such as Enron, is that there’s existing relationship are side-lined one way or the other. The COSO framework between the conflicted parties and it ‘waters-down’ the of 2017 stressed that not only do risk professionals need policies in place. to review the implementation of strategies but should be

The culture of stakeholder management exists in involved in its formulation and evaluate its appropriateness business where events like Golf days etc. are held to in light of the vision & mission of the entity. strengthen business relationship. These often set a different It is very easy to get side-tracked by a brilliant strategy, tone to that of conflict of interest as they create a relation but does it speak to the heart of the entity? of trust amongst stakeholders which underpins many And so the same principle should apply here i.e. the risk important decisions in the business. of conflicting interests should not only be acknowledged

I’m of the opinion that the existence of conflicts but fully dissected by the risk professionals, the implications of interest is the genesis of the problem. Prevention is and depth thereof. Only then can the appropriate response always better than cure. Professional bodies likewise, be formulated. Business relationships exists purely for that have reviewed their code of conducts and reverted to i.e. business and not for personal gain. members to sign on an annual basis.Understandably so, the And so, where a conflict arises, the introspection point reputational risk on them is immense because the question for the decision makers is primarily, should that situation exist remains that “is a professional membership a carrot or stick in the first place? Secondly, is the exclusion of the conflicted (or both) relationship?” member in the decision-making process translate to fact

Is the benefit of professional membership balanced that their referent power, influence, existing relationships with the behavioural requirements? the systemic risk becomes absent in the minds of the decision-makers? cannot be ignored. And thus, can we really argue that they do not influence

These recent events as seen in media reports have the decision? What happens with the outcome of the raised the questions that we`ve never had to deal with decision and the impact on the existing relationship? and- far in between or didn’t hold any reputational risk whatsoever. It is normal It is very easy to get side-tracked by a business practice that senior positions brilliant strategy, but does it speak to the heart are mostly based on networking of the entity? business dealings.