Business Law 6
Running head; Business Law 1
Business Law Assignment
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Introduction
Conflict of interest develops in businesses when the benefits of the organization clash with the personal interests of an employee or employees. BlackRock, a fund’s management firm in the US, was in 2015 fined $12 million for failing to inform its shareholders about an investment that was done to benefit one of its employees who was a fund’s manager at that particular time. Dan Rice who was a financial advisor at BlackRock was accused of breach of trust to the organization and investors. Dan failed to disclose that he had interests in the energy funds he managed. The individual attention was associated with a family owned oil and gas business that he advanced to become the biggest shareholding fund in BlackRock. Organizations have developed measures that prevent the advancement of personal interests at the expense of the company (Bennett, 2015). To safeguard shareholders investments, the government has also enacted laws with penalties to discourage conflict of interest.
Laws Preventing Conflict of Interest in the US
Chapter 286 section A of the General Laws provides the laws of engagement between the employer and employees to prevent cases of conflict of interest from arising. The rules apply to both public and private organizations. Breach of the civil laws in Chapter 286A has a penalty of up to 25,000 million dollars depending on the economic advantages gained. These laws have been strengthening the different Acts of Laws and precedence rulings since 1940.
Investment Advisers Act: This law was developed in 1940 to ensure financial investing companies act in the best interest of their clients (Gordon, 2010). BlackRock’s employee was accused of having worked in self-interest to the disadvantage of the business and shareholders.
Nepotism: Section286 C prevents employees in private and public organizations from dealing in activities that directly benefit their families. This includes awarding tenders or investment opportunities for their businesses.
Confidentiality: Section 23(c) prohibits employees from using privileged information for personal gains (McElwain, 2005). This also applies to provide classified information to third parties to gain either economically or socially.
Misuse of office: The law prevents officers from engaging in activities that do not honor their offices. This includes actions that portray the organization in a wrong way to the public, for example, participating in corrupt activities or bribery allegations.
Investment Company Act: The investment Act developed in 1940 was aimed at preventing investment companies from misleading the public against Ponzi schemes investments (Hurst, 2014). The case of BlackRock in which an employee mislead the public into investing in his family business.
Policies and Procedures enacted to Prevent Conflict of Interest.
Organizations have put in place internal structures and measures that prevent employees from engaging in activities that conflict with their business. These are contained in the employees’ employment contracts and the Standard Operating Procedures which differ from one organization to the other. These policies include the following which was also in the BlackRock’s Code of Conduct.
Compliance: Employees are required to adhere to and follow their organization’s rules and regulations strictly. These rules create unity of purpose in organizations that yield positive results. In the case of BlackRock, Dan Rice was accused of not complying with the firm’s standards.
Disclosure: Before employees are employed they are mandated to declare any interests that may hinder their loyalty to the business. These can include personal or family related activities. Dan Rice failed to report to BlackRock that his family had businesses in oil and gas funds he was managing.
Objectivity: This policy states that employees need to be focused on their job descriptions and not engage in external ventures. Conflict of interest arises in cases where worker losses focus and start to self-advance at the expense of the company.
Opportunism: Due to access to privileged information from customers’ data, workers are discouraged from being opportunistic. Dan Rice saw an opportunity to grow the energy fund in BlackRock that ultimately benefited his family business.
Management Implementation Measures to Prevent Conflict of Interest
The leadership of either private or public organizations is tasked to ensure both internal policies and external laws are adhered to prevent conflict of interest cases. The first step is to train employees on the importance of loyalty to their organizations (Perkins, 2006). The second step will entail showing both good and bad results of adherence. This will be followed by providing disciplinary measures where an employee engages in acts that compete with the interests of the organization. A clear example is how Dan Rice was dismissed from BlackRock and civil suit launched against his employer due to selfish acts of self-dealing.
Developing a culture of loyalty and belonging by the management will also reduce cases of conflict of interest (Reed, 2004). When employees feel valued and appreciated loyalty is enhanced. Cases of conflict of interest mostly arise due to management issues and not legal implementation of corporate laws.
The efficiency of Measures Reducing Conflict of Interest Cases
There has been a reduction in cases involving the conflict of interest cases in the US. Heavy penalties and strict monitoring by authorities have barred many employees from engaging in self-gains (Lemley, 2000). This is evident with the BlackRock case where a penalty of 12 million dollars was fined. Good mentorship and training have also helped employees to change their perspective towards their employers. In the US corporate governance structures have been enhanced that monitor and report any attempts of conflict of interest.
Improvement Measures
Both company and government laws should be aligned in preventing conflict of interest (Mundheim, 2000). The distinction of a business and an employee should be established. For example, Dan Rice acted on his own accord to enrich his family oil and gas business. Unfortunately, it was his employer BlackRock that was fined $12 million. Personal responsibility should be encouraged in preventing other employees from engaging in self-dealing.
Conclusion
The case of BlackRock has proved the importance of adhering to corporate laws and organizations’ policies. Both the business and employee are responsible for fostering a culture of integrity in their dealings. Conflict of interest cannot be entirely eradicated but measures can be put in place to prevent employees from engaging in personal gains that are self-benefiting.
Reference
Bennett-Alexander, D., & Hartman, L. P. (2015). Employment law for business (pp. 8-10). Chicago, IL: Irwin.
Gordon, D. I. (2010). Organizational conflicts of interest: A growing integrity challenge. Pub. Cont. LJ, 35, 25.
Hurst, J. W. (2014). The legitimacy of the business corporation in the law of the United States, 1780-1970. The Lawbook Exchange, Ltd.
McElwain, E., & Vorenberg, J. (2005). The Federal Conflict of Interest Statutes. Harvard
Mundheim, R. H. (2000). Conflict of Interest and the Former Government Employee: Rethinking the Revolving Door. Creighton L. Rev., 14, 707.
Lemley, M. A., Menell, P. S., Merges, R. P., Samuelson, P., & Carver, B. W. (2000). Software and internet law (pp. 333-34). Aspen Law & Business.
Reed, O. L. (2004). The legal environment of business. Mcgraw-hill, Incorporated..
Perkins, R. B. (2006). The New Federal Conflict-of-Interest Law. Harv. L. Rev., 76, 1113.