Conflicts of interest represent a major threat to companies, local authorities, and public administrations. When a personal interest interferes with a professional role, it can undermine the transparency, integrity, and impartiality of decisions. It can also threaten the organization’s stability, long-term viability, and effectiveness. This is why conflicts of interest must be at the heart of organizations’ ethical and legal concerns.
What is a conflict of interest? Why does it constitute a major risk for institutions and companies? How is it governed by law? A closer look.
The first legal definition of conflicts of interest dates only from the 2000s at the European level. France followed suit in 2013, focusing its thinking on the public sphere, the most sensitive and the most exposed to scandals.
In its 2006 Guidelines for Managing Conflicts of Interest in the Public Service, the Organisation for Economic Co-operation and Development (OECD) considers that “A conflict of interest arises when a public-interest function and a public official’s private interests clash, in particular when the public official has private interests that could unduly influence the way they carry out their duties and responsibilities.”
It was only 7 years later, in 2013, that conflicts of interest were defined by law in France, and exclusively for the public sector. In Article 2, the law on transparency in public life defines a conflict of interest as “any situation of interference between a public interest and public or private interests that is likely to influence or appear to influence the independent, impartial, and objective exercise of a function”.
From these legal definitions, three elements follow to constitute a conflict of interest. These are the criteria examined by the courts in the event of legal proceedings:
The OECD distinguishes three conflict-of-interest situations:
In this case, there should be no question for the company, local authority, or administration. If the private interests of an elected official, director, administrator, or employee clearly conflict with the interests of their organization, they must be removed from the process or the decision.
A conflict of interest is potential when an elected official, director, administrator, or employee has private interests with no direct link to their current professional or political role, but those interests could generate a conflict if circumstances change (promotion, transfer, election, appointment, etc.). The company, local authority, or administration must then ensure that the person is not placed in a sensitive position.
As the name suggests, the person appears to have a private interest that seems to influence their duties, even though this is not the case. The difficulty is being able to justify it in case of doubts.
Biased decisions, made on the basis of personal rather than professional criteria, harm the company, administration, or local authority. By affecting the organization’s finances and integrity, conflicts of interest constitute a major risk.
Often suboptimal for the organization, decisions made under the influence of a personal interest lead to poor resource allocation, lower profitability, reduced quality of goods and services, or harm to innovation.
A conflict of interest also erodes stakeholders’ trust (customers, users, citizens, business partners, financial partners, etc.). This breakdown in trust can result in investors withdrawing, lower sales, lost business opportunities, grants being cut, partners leaving, or a drop in the share price.
As a result, a conflict of interest can cause a company to lose its competitive advantage and threaten its competitiveness and long-term viability. A local authority or administration may see its projects called into question and its budget thrown off balance, forcing it to cut spending and/or increase revenue.
Although conflicts of interest are not directly sanctioned by law, they can lead to legal proceedings if they result in a criminal offence.
Those involved are subject to prison sentences and fines, the length and amount of which vary depending on the offence. Sentences range from two to ten years in prison and fines from €200,000 to €1 million, depending on whether the conflict of interest is associated with an offence of favoritism, unlawful taking of interests, or an act of public or private corruption. Note that in the context of a conflict of interest involving a public actor, an accomplice may face the same penalties as the perpetrator.
Legal entities may also be held liable, with fine amounts multiplied by five.
Loss of reputation is one of the most destructive risks for an organization, especially if the media, by taking up the conflict of interest, prolong the crisis period.
A conflict of interest creates doubts about decision-making procedures and governance practices. It calls into question the organization’s transparency, integrity, and legitimacy—core values in the eyes of customers, users, citizens, and any other partner.
A tarnished reputation undermines the ability to attract new partners, retain customers, reassure users and citizens, maintain employees’ trust, and attract new talent. In the public sector, the loss of trust in institutions affects the legitimacy and effectiveness of public policies.
The fight against conflicts of interest is based on a set of legislative and regulatory provisions designed to preserve the integrity and impartiality of decisions in companies, local authorities, and public administrations.
Two laws govern conflicts of interest in the public sector:
This 2013 law created the obligation of declaring interests and assets for senior public officials and civil servants; it requires the automatic recusal of local elected officials and government members from decisions whenever a personal interest is at stake; it addresses the risk of revolving doors by prohibiting elected officials, at the end of their term, from joining a company with which they had ties in the course of their duties.
This 2016 law reiterates civil servants’ rights and obligations regarding neutrality, impartiality, and probity; it extends to the most exposed agents the obligation to declare interests and assets; it creates an obligation for civil servants to prevent and put an end to any situation of conflict of interest.
These laws are supplemented by articles of the Criminal Code to sanction illegal practices related to conflicts of interest in the public sector.
However, no overarching text governs conflicts of interest in companies, apart from laws, articles of the Commercial Code, and regulations targeted at sensitive activities (the law of 29 December 2011 addressing conflicts of interest in the pharmaceutical sector, the national internal regulations of the legal profession, the code of ethics for statutory auditors, etc.).
Published in 2016, the Sapin 2 law strengthens measures to prevent and punish corruption in large companies and public industrial and commercial establishments.
Although it is not focused on conflicts of interest, the Sapin 2 law makes it mandatory to implement risk prevention and control measures. Risk mapping, an internal code of conduct, a whistleblowing procedure, third-party assessment, a sanctions regime, training and awareness, etc., are all tools that a company, local authority, or administration can use to manage and prevent conflicts of interest.
Compliance with the regulatory framework is ensured by several bodies and mechanisms, including:
Created by the 2013 law, it verifies declarations of interests and assets by senior public officials; it is also responsible for monitoring requests by public officials to move into the private sector and requests to hold multiple positions.
Focused on the fight against corruption, it plays an advisory and oversight role regarding measures to prevent corruption risks. In particular, it published a guide in 2021 on preventing conflicts of interest in companies.
The ethics officer reviews the risks of revolving doors for public officials in less sensitive roles. They are also the primary point of contact for reporting a conflict-of-interest situation.
Court decisions provide many examples of conflicts of interest in the public sector. Although less publicized, conflicts of interest in companies are no less serious, and the associated offences are sanctioned by law.
In the public sector, conflicts of interest take several forms, defined and punished by the Criminal Code.
Unlawful taking of interests applies to any elected official, public agent, and private-sector person participating in a public mission who “takes, receives, or retains, directly or indirectly, an interest (…) in a company or an operation for which they are responsible, in whole or in part, for oversight, administration, liquidation, or payment” (Article 432-12 of the Criminal Code).
Unlawful taking of interests is established, for example, when a public agent reviews an application for public aid submitted by their own company, or when an administrator of a public industrial and commercial establishment (EPIC) grants an advantage to a company in which they are a shareholder.
Many unlawful-taking-of-interests cases have made headlines, with Patrick Balkany at the forefront. In addition to the trial for laundering tax fraud, the mayor of Levallois-Perret and his wife had already been convicted in 1996 for having three municipal employees work exclusively at their home. Jean-Paul Huchon, president of the Île-de-France Regional Council, was also found guilty of unlawful taking of interests after public contracts were awarded to communication agencies where his wife worked.
The revolving-door offence concerns tenured and contract public officials leaving the civil service to join a private-sector company with which they were closely connected in the course of their public-service missions (inspection and oversight missions, contract conclusion, etc.). The revolving-door offence also covers taking a stake in the company.
Revolving doors are regularly denounced in the media, such as Muriel Pénicaud, former Minister of Labour, hired by the temporary staffing company Manpower, or the many members of parliament who join the ranks of lobbyists at the end of their term. In 2022, former Transport Minister Jean-Baptiste Djebbari caused an outcry by joining the chairmanship of the board of directors of an automotive manufacturer, Hopium.
However, all levels are concerned. For example, the courts convicted a former prefecture civil servant for joining a company whose projects and urban-planning acts he was responsible for reviewing for legality.
Also known as granting an unjustified advantage, the offence of favoritism consists of using one’s position to favor a partner by circumventing public procurement rules.
In the Bygmalion case, the France Télévision component made headlines for several years. A communications consulting agency, Bygmalion obtained nearly €1.5 million in contracts with France Télévision without competitive tendering. The problem? Its founder, Bastien Millot, was a former member of France Télévision’s management.
Favoring a family member or close associate is not limited to public procurement. Nepotism is also suspected if an elected official awards a public contract to a close associate, if a mayor hires within their municipality the child of a deputy mayor, or if a mayor sells municipal land on favorable terms to a company whose manager is a friend.
Although private conflicts of interest receive less media attention, they are no less real. There are many examples. The following may find themselves in a conflict-of-interest situation:
➡️ a recruiter handling the application of a family member…
➡️ a company executive who is also a director of a competing company they wish to acquire…
➡️ a buyer responsible for comparing quotes from several suppliers, including that of a friend…
➡️ an accountant personally preparing financial statements for clients of their company…
➡️ a business owner sponsoring their son’s football team…
➡️ an internal auditor responsible for auditing the department where their partner works…
➡️ a communications manager using their graphic-designer brother without going through a tender process…
➡️ a lawyer managing litigation with a company in which they are a shareholder…
➡️ a manager involved in selecting a company that has offered them a job…
➡️ an employee accepting a gift from a bidder in a call for tenders…
Whether actual, potential, or apparent, conflicts of interest are a crucial issue for sound governance in companies, local authorities, and public administrations. Their economic, legal, financial, and reputational impact justifies implementing rigorous prevention and control measures.
Although the legal framework has expanded considerably in recent years, individual vigilance and ethics remain the first barriers against these high-risk situations. Proactive management of conflicts of interest ensures impartial decisions and preserves the credibility of institutions and companies.