The recognition and resolution of conflict of interest situations is vital to good corporate governance and maintaining confidence in public and private institutions. In the GCC, there are expectations that governments should deliver higher standards in the civil service, public institutions and in government-owned or -controlled corporations which are prevalent in Oman. Conflicts of interest should be a regular and important consideration of individuals who occupy a positon of trust. If conflicts of interest are not recognised and managed at the outset they have the ability to undermine the integrity of a company and its decisions.
Essentially, a conflict of interest is any situation where there is a risk that a private interest (political, business or commercial, etc.) of a director, manager, officer, agent or other representative interferes with the legitimate interest of the entity for which that individual works. In the public sector, a conflict arises when a public official has private capacity interests which could improperly influence the performance of their official duties and responsibilities. In the private sector, conflicts of interest have been identified as a major cause behind corporate governance shortcomings.
Conflicts of interest often lead to fraud and other corrupt practices which violate existing regulations. The Sultanate of Oman has, pursuant to Sultani Decree 112/2011, implemented the Law for the Protection of Public Funds and Avoidance of Conflicts of Interest (as amended) (the “Anti Corruption Law”) with which government officials must comply. A government official is defined by the Anti Corruption Law as any person holding a government position or working for the government, whether on a permanent or temporary basis and whether they are paid or not. The provisions of the Anti Corruption Law are also applicable to members of the Oman Council, the representatives of the government in companies, and employees of companies in which the government has a 40% shareholding of the company. Pursuant to the Anti Corruption Law, a government official for example:
- Is prohibited from acting as an intermediary, an agent or a sponsor of any company or establishment whose activities are connected with the entity in which he works; and
- Must not (and his minor children must not) have a share in any company, establishment or business for profit which is directly connected with the entity in which he works.
Further, it is not permissible for ministers’ council, ministries, public authorities and institutions and other administrative units that derive power from the state and that are supervised by the government official to deal with any company or establishment in which it has a direct or indirect interest.
The International Chamber of Commerce (“ICC”) Guidelines on Conflicts of Interest in Enterprises identifies three types of conflicts as detailed below:
1. An actual conflict of interest, which is a current situation in which an employee or associate of the company faces a real and existing conflict of interest. Some examples are:
- Hiring or supervising a relative.
- Serving on the board of a company while serving on the board of a competitor company.
- Purchasing goods or services from a supplier directly or directly owned by a relative.
- Close personal relationships influencing the decisions in a bidding process.
- Using assets of the company for private benefit.
- Trading in securities for personal benefit using non-public information.
2. A potential conflict of interest, which does not exist yet but may occur, regarding an employee or officer of a company. Some examples are:
- X is a board member of companies A and B which are not business related. This may develop into a conflict of interest if the two companies do business together.
- X is a former public official of the Capital Markets Authority of Oman (“CMA”). This could create a conflict of interest if the company becomes subject to an investigation by the CMA.
- X is the sibling of the CEO of the IT supplier of the company. This could become a conflict of interest if X were to become responsible for the company’s procurement process and was part of the decision-making process.
- X is in a position to influence a business decision of a third party where he has direct or indirect influence of a relative to the benefit of the company.
3. A perceived conflict of interest, which is a situation where a director, officer, manager, employee, agent or representative of a company appears to have a conflict of interest, even if this is not true. For example:
- X is a senior director at company A and accepts a board membership at company B with which company A does a lot of business. If X is appointed with the full support and approval of the board of company A this merely creates the appearance of a conflict.
- Company A hires a new employee who has the same name as the CEO, but they are not relatives.
The Organisation for Economic Co-Operation and Development (“OECD”) Tool Kit on Managing Conflicts of Interest [1] has identified a number of commonly repeated ‘at risk’ conflicts of interest areas which directors and managers should make themselves aware of, including:
- Inside Information – is there a policy and administrative procedure in place for ensuring that inside information obtained in confidence is kept secure and is not misused by directors or staff of the company? Is the policy being enforced?
- Ancillary Employment – does the company have a published policy and procedure for approval of additional/ancillary employment?
- Contracts – does the company ensure that any employee who is involved in the preparation, negotiation, management and enforcement of a contract involving the company has notified the company of any private interest in relation to the contract?
- Gifts or other Benefits – does the company policy deal with conflicts of interest arising from traditional and new forms of gifts or benefits?
- Nepotism – it is the practice of giving favours to relatives and close friends, often by hiring them?
- Self Dealing – is there a situation in which someone in a position of responsibility in a company has outside conflicting interests and acts in their own interest rather than that of the company?
To the extent that a company has not already implemented a policy to deal with the conduct of its employees, we recommend that all Omani government-owned companies (LLCs or SAOGs) put in place a specific policy to treat conflicts of interest between individual directors and the company. The policy should identify processes for dealing with actual, potential and perceived conflicts of interest, such as misappropriation of assets, related transactions, insider trading and more. It should be reviewed and signed by each director when appointed as a director and be reviewed and updated regularly.
Although a conflict of interest is not corruption on its own, it does hold the potential for a breach of trust and fraudulent behaviour to follow. Conflicts of interest must therefore be promptly identified and managed. Left unresolved, a conflict of interest can result in unlawful actions and lead to unhealthy mistrust and suspicion of both private and public companies.
Endnotes
[1]Managing Conflicts of Interest in the Public Sector – A Tool Kit, ISBN 92-64-01822, OECD, 2015
