Conflicts of Interest

One of the toughest problems in business relationships is avoiding conflicts of interest. When I joined up with my current business partner, I told him we need to build in safeguards that keep either of us from getting too greedy because I don't trust anyone when it comes to money – not even myself. So for those of you who may deal with such situations, here is a good article about how to build a good team of advisors without creating those conflicts of interest.

Sometimes, no matter how much trust finance managers may place in their co-workers, they need the advice of someone unaffiliated with their company. This, says Joni, is when you should rely on structural trust, which "provides leaders with a channel for pure insight and information."

To avoid conflicts of interest, executives usually place structural trust in people outside their company. "Strong outside advisers," she writes in HBR, "provide leaders with a resource their organizations cannot. They supply a kind of 'outside insight' that inoculates leaders against myopia." HighJump's Mayleben agrees: "It's important to have a sounding board where you can have an open conversation and get someone's opinion outside the company."

Rely solely on advisors within your own company, maintains Joni, and you may find that the structural trust is eroded by professional changes. One-time comrades may find themselves competing for a job, or for funds for their departments, or even for market share. Joni also notes that the Sarbanes-Oxley Act has created changes in structural trust between audit partners, senior finance executives, senior operations executives, and the audit committee. Senior audit partners who once reported to the CFO, for example, now often report to the audit committee. "Even if [a board member] has the best intentions for you," adds Mayleben, "they're a little conflicted because they have a fiduciary responsibility to the company."

Something I learned recently is to ask people upfront as you go into a business relationship if they want me to be honest with them on everything – good and bad. Of course most people say yes. Then when the time comes to give them bad news, I have a good lead in. I can say "remember when we started this thing and you told me to always be honest with you…" and I think it cushions the bad news and makes them realize it is for their benefit to hear this. Such honesty in relationships is one good way to avoid conflicts of interest because when they arise, you can speak honestly about them.

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