Where’s the harm in conflicts of interest?

There are many types of possible harm arising from conflicts of interest. Understanding what they are can be essential to developing effective policies, training, monitoring and other COI compliance measures. It can also be important to exercising informed judgment in the public realm.

First, and most obvious, COIs can lead to bad decision making. This can include choices made in research, purchasing, sales, hiring, investing and a wide range of other core business functions. All of these can harm a business organization, to the detriment of its shareholders and other stakeholders.

One common response to harm-based concerns of this sort is that that the COIs in question are too small to affect behavior.  I.e., they should be considered what appellate courts view as “harmless errors.”  But research does not bear this out.

Specifically,  a study published in 2016 on the impact on prescription writing of pharma companies buying meals for doctors found: “As compared with the receipt of no industry-sponsored meals, …receipt of a single industry-sponsored meal, with a mean value of less than $20, was associated with prescription of the promoted brand-name drug at significantly higher rates to Medicare beneficiaries.”

This is a startling finding and is, in my view, potentially relevant to COIs is all settings.

A second, and less obvious type of harm is that COIs can lead to the failure to take desirable measures. This sounds like the flip side of making bad decisions, but it is distinct and should be considered separately. The damage caused by COIs of this sort can arise in a variety of contexts.

For instance, individuals might be reluctant to take the medicines that their doctors recommend for fear that those recommendations are motivated more by the doctors’ financial relationships with pharma companies than by the patients’ well-being. A similar concern has historically affected the world of financial advice, but this may be changing with the recent advent of Regulation Best Interest. More generally, organizations could hesitate to take a wide range of everyday actions for which they need to trust their employees and agents to do what’s right by the organizations – or would proceed only with highly intrusive and costly surveillance-like measures in place.

These sort of harms are harder to measure than the first kind. But it is fair to say that such COIs can be seen as diminishing lives, resources and opportunities.

Third, mishandled COIs can affect an organization’s overall reputation for ethicality – particularly among its employee – not just its COI-related reputation.  That is, employees often see COIs as a having a personal dimension that is not found in most other risk areas.

For instance, when a fellow employee hires a relative or otherwise profits by using her position at the company, that can be viewed as unfair to those who “play by the rules” generally. COIs can be a real negative with respect to “organizational justice” and otherwise adversely affect the ethical culture of an entity and its leaders.

Finally, there is the broader (i.e., societal) realm. On a wide range of issues – the most pressing of which is climate change, followed closely by public debt – there is an increasing need for devising solutions that will be predicated on substantial trust, because they will require substantial sacrifice. Conflicts of interest in the public sphere makes this already considerable challenge even more daunting.

We would do well to recall these celebrated words of Justice Brandeis: “Our government is the potent, the omnipresent teacher. For good or for ill, it teaches the whole people by its example.” While Brandeis was speaking about violations of law the point seems just as applicable to ethics.