By Vincent BOUQUET, Les Echos
Conflicts of interest are multi-faceted and potentially dangerous, and companies need to handle them with finesse and tact.
On 8 February last, a father expressed his despair on Twitter. "My daughter Ivanka has been treated so unfairly by Nordstrom. She's a great person - always pushing me to do the right thing! Terrible!" A rebuke that would be anecdotal if it did not come directly from the President of the United States, Donald Trump... A few days earlier, the American retail chain had announced that it was ending its collaboration with the clothing brand of the aforementioned Ivanka, daughter of a Trump. She was already facing suspicions of conflicts of interest linked to her past activities in real estate. On his own scale, and if we equate it with a micro-business, François Fillon is also in a conflict of interest situation. He employed his wife and children while he was a Member of Parliament.
Far from being confined to the public sphere, conflicts of interest also affect companies. "Because they can undermine the confidence of employees and shareholders, and therefore governance, but also the economic efficiency of companies, they have become a major issue in many of them".says Charles-Henri Boeringer. He is a lawyer at Clifford Chance. He is also co-author, with his colleague Thomas Baudesson, of the LexisNexis book "Conflicts of interest in business". How can companies protect themselves against conflicts of interest? We take a three-step approach.
Identifying the conflict
Relying on the presumed good faith of their teams, companies seem to have found the martingale: the declaration of interests. From the employee with the least decision-making power to the director. Passing through the members of top management, everyone - to varying degrees - must declare the existence of a conflict of interest that affects them personally. As part of its ethics charter, AccorHotels asks its employees to declare them spontaneously. This is particularly the case when they encounter a conflict of interest in the course of their duties. Members of the Executive Committee and directors must complete an annual declaration. They must report the existence or absence of any conflict situation.
"Identification is the keystone of the prevention system, explains François Pinon, legal director and secretary to the hotel group's board. Thanks to this declaration policy, the risk of suspicion that could weigh on a member of the company and alter internal confidence is dispelled. It is also the sine qua non for a procedure to deal with this conflict to be put in place.
It can settle the simplest cases - family ties, outside economic interests. However, this spontaneous declaration may prove insufficient in the case of more complex conflicts. "What do you do when a manager feels obliged to a shareholder, to whom he owes his recruitment, and takes his decisions accordingly, or when a human resources director, faced with a redundancy plan, can potentially reserve a place for himself in the plan?asks Thomas Baudesson. More diffuse and less easily admitted, these conflicts of interest are more often than not outside the scope of ethical charters. Just like others, more global and inherent to the business of certain structures.
Arthur Andersen is an emblematic example. It provided audit and advisory services to Enron. "A double role that led him to agree to certify accounts that should not have been certified".continues the lawyer. Another example is Morgan Stanley. A few years ago, LVMH (owner of Les Echos) accused Morgan Stanley of being both judge and jury in its dealings with Gucci. This accusation was made because of his dual activity as an investment banker and an analyst of the luxury goods market. "To remedy these situations, an internal investigation conducted by independent parties is an effective solution".advises Thomas Baudesson.
Building a Chinese wall
Identifying a conflict of interest is the first step, then it's a question of defining it. At Valeo, Pascal Colombani chaired the Board of Directors until last year. He did the same at Technip and Alstom, where he is still an independent director. He describes a well-oiled procedure, similar to that used in many companies. " Udirector must hold office in two companies entering into a merger. Following a review of his situation by the Chairman of the Board or by the Governance Committee, he must leave the company during discussions relating to this transaction and must not, under any circumstances, be informed of the content of these discussions.
The same logic applies to senior executives. "In the past, one of our legal managers abroad had a stake in a hotel in the region where he worked, says François Pinon. So we set up a procedure. She excluded it from any involvement in the contractual discussions we were conducting with the franchised hotels in the area concerned ". In such circumstances, the person concerned will have to defer certain matters. A counterpart or line manager will then take charge. "But if, structurally, the situation were to prevent him from fulfilling a large part of his mission, we would not hesitate to consider with him a change of position for his own good and that of the company".adds the General Counsel.
More diffuse conflicts of interest need to be tackled. The recommendation is to instil a culture of compliance at every level of the business. And to "To remind managers and operational staff that the company's interests must come first in every decision, says Blandine Cordier-Palasse, managing partner of BCP Executive Search and vice-president of the Cercle de la Compliance. Sometimes the lack of integrity is linked to a lack of understanding of the very notion of conflict of interest".
Adapting the penalty
You can never rule out a dishonest manoeuvre. In all cases, any sanction will have to be adapted accordingly. The fact remains that conflict of interest is "very rarely apprehended by criminal law, except in extreme cases of breach of trust or misappropriation of corporate assets".explains Charles-Henri Boeringer. As in the case of Olivier Fric, Anne Lauvergeon's husband, who is suspected of having made a capital gain thanks to information on the takeover of Uramin that he may have obtained from the former Areva CEO, which she denies.
Driven by a desire to keep the matter in-house, the settlement of a conflict of interest that has been established and discovered without prior declaration is subject to the classic system of disciplinary sanctions. "If it's a case of negligence, a simple reminder of the policy in place will suffice", notes François Pinon. But in the case of proven malice? " There was no harm done to the Group's interests. However, disciplinary action, up to and including dismissal, could be considered in particularly serious cases. A strict response is therefore required, in line with the financial and reputational risks to the company.
