Blogs & Comment

The true cost of conflict of interest

When companies put people in a conflict of interest, they erode public trust and risk big costs.

What does conflict of interest cost?

It was recently reported that certain employees of the Chicago Public Schools food services department were going to be required to undergo ethics training, after it was revealed that they had accepted improper gifts from contractors.

The worry, naturally, is that accepting gifts put those CPS employees into a conflict of interest, a situation in which they were trusted to make good decisions on behalf of CPS, but in which they had an ‘outside’ interest—in this case, gratitude to the gift-givers—that might reasonably be thought likely to warp their judgment. The behaviour here was more specifically a violation of the section of the CPS Code of Ethics that specifically forbids accepting gifts, but the moral root of the problem is conflict of interest.

Now, in addition to the trouble the employees are in, it’s been reported that Chicago Mayor Rahm Emanuel wants to go after two food services companies that had given improper gifts.

Just what have those companies done wrong? What’s wrong with putting someone else in a conflict of interest? I’ve argued before that we might think of this as analogous to suborning perjury. When you intentionally put someone else in a conflict of interest, it means that even if you’re not violating any duties yourself, you’re encouraging other people to violate their duties.

Here, the companies’ bad behaviour is going to cost them. It may well cost them future contracts, but it may cost them (and other companies that want to compete for CPS contracts) more than that. It’s been reported that they may be required to provide ethics training for their employees, and hire an independent auditor to make sure they’re complying with CPS ethics standards. Neither of those things is likely to be cheap. In an industry with narrow profit margins, such additional costs could well mean the difference between black ink and red.

But the most important “cost” in this case is, of course, the loss of confidence in the CPS and its purchasing procedures. That is always the risk with conflict of interest, namely that when conflicts are accepted and fostered, rather than avoided or remedied, they erode confidence in the judgment not just of individuals, but of entire institutions.