Avoiding the pitfalls of conflict of Interest – a toolkit for Directors, Management and Staff – Corporate Governance Series

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Written by Yvette C. Rahming, LLM, LLB, CLE, CCEP-I, CQP MCQI


How Bahamians view Conflict of Interest

The Bahamas is such a small nation that one may argue that conflict of interest as is used in layman’s nomenclature cannot be helped in our society; many live by the mantra “hand-go-hand-come”; that is to say most daily dealings are looked at as a quid pro quo arrangement.  One may ask how can we avoid entering into contracts or supporting a vendor that we are well acquainted with and in some cases are related to. after all we have all had lunch at a “service club” meeting where we’ve sat across from or with the major business stakeholders in our community; in New Providence we all live within at least 21 miles of each other; and finally, aren’t all Bahamian’s related anyway?

While the answer to all/most of the above is yes, we in The Bahamas all the more have a reason, if not a requirement to uphold proper governance and ensure that we do all that is humanly possible to understand the concepts of conflict of interests and how to avoid the pitfalls.  Least of all we in the business community whether non-profits, for profits or corporations must make every effort to understand, preach, teach and ourselves avoid conflicts of interests in our business activities.

What exactly is a conflict of interest

Conflict of interest in business occurs when directors, management or other members of staff (herein collectively called staff) engage in activities that a) are contra to the organization’s policies; b) that compete with the organization while the staff member is still in the business’ employ and in some specialized industries – for a period after employment ceases; c) accepts or solicits an advantage or benefit for the promise of favouring or rewarding a client, vendor or potential client or vendor of their employer; or d) the staff without proper authority engages in commercial activities with other parties doing business with its employer, where through and because of its employment, the staff has formed a relationship with the party and through this relationship the staff derives a benefit outside of its benefits earned from its employer.  While this list does not form a complete and comprehensive list of conflict of interest possibilities – it gets your mind acclimated to the general idea.

Notwithstanding the foregoing, in some cases mere disclosure (and sometimes disclosure coupled with one’s removal from discussions concerning the matter) can cure conflict of interest issues as will be discussed later.

It is important to note that statute law criminalizes a number of conflict of interest activities, whereas in some companies it is the by-laws, employee handbook and policy documents that penalize behavior which amounts to conflict of interest.  In both cases grave consequences can arises if such activities are carried out and discovered.

Examples of conflict of interest includes, but are not limited to the following: 1) taking gifts from clients or vendors beyond an amount agreed by the recipient’s company in its policies, 2) without authorization, providing information to others about clients or vendors of the company in order to benefit the party receiving the information or derive a personal benefit, or 3) entering into a contract or inducing the company to enter into a contract with another party in order to unfairly benefit the other party, or to obtain a personal benefit for making the contract happen and 4) treating one business or person doing business with your employer more favourably than another.

Benefits and advantages derived include but are not limited to the following: any gift, loan, fee, reward or commission consisting of money or any valuable security or of other property or interest in property of any description; any office employment or contract; any payment, release, discharge or liquidation of any loan, obligation, or other liability, any other service or favour (by law not including entertainment/although in some companies receipt of this could be a conflict), including protection from any penalty – action or proceedings of a disciplinary, civil or criminal in nature, the act of not carrying out any right or any power or duty, any offer, undertaking or promise, whether conditional or unconditional.

It must be stated here for clarity sake, and so that the readership is not quick to blame those around them of engaging in some type of illicit activity if they are seen receiving an advantage of a kind listed above, that legislation states that if receipt of or soliciting of any advantage by an agent is done so with the permission of its principal, then this permission is considered a reasonable excuse and the act of receiving or soliciting is not illegal.

Where to get guidance

While a person’s moral compass in most cases ought to guide them in determining whether an action is a conflict of interest, not all scenarios are so cut and dry.  There are instances where one may have some degree of difficulty determining whether or not a behavior is in conflict.  When the very vague possibility of conflict exists, or when a conflict exists because of operation of law to which a lay person may be oblivious, it is beneficial for staff to refer to the company’s policies imbedded in the company’s employee handbook or policy documents.  Of greater help to lay persons however, would be the guidance of the company’s risk management department or in-house counsel, and if neither of these roles exist within a company there should be at the bare minimum some identifiable personnel who is tasked with ensuring that staff are made aware of, receive training in the company’s ethics policies and are assessed and audited for compliance with the policy.

There are some fundamental starting points that every officer, director, c-suite executive and manager must be informed of.  First there are the legislative land mines that must be navigated.  If a company is a multinational entity or deals commercially with foreign entities these company leaders must be fully informed and trained on international ethics law and corporate governance principles; or if not trained have an in-house counsel with an understanding of or a network of international colleagues in law who are readily accessible to give advice and guidance.  Needless-to-say they must also be fully apprised of the local legislation which deals with ethical business behavior.  Top tier staff must lead by example and finally, there must be an ongoing commitment by companies to ensure that they have provided the right training tools for staff.


There are a myriad of local legislation, both primary and secondary which should be considered as the starting point to guide a company’s staff, and individuals generally wishing to engage in business activity with other companies and public corporations.    The most salient are considered here:

The Prevention of Bribery Act (PBA)

This piece of legislation and any amendments to date is in my view one of the principal legislations that deals with conflict of interest activities; the name alone can be quite deceiving as it gives the impression it addresses the outright and obvious offence of under-the-table dealings. However, this legislation touches heavily upon activities that many may consider an innocent expression of gratitude for a favour; or a friendly acknowledgement to a friend or relative who have “put in a good word” in order to procure the advantage of a contract.  For whatever reason Bahamians have historically adopted the view point that these mentioned acts are okay; that to put in a good word for a relative or close friend to give them that edge in a contract bid is not uncanny.

It was only a few months ago that the headlines were rife with allegations of friends and family members of public officers obtaining lucrative and ongoing government contracts resulting from their relationships; or an individual to whom money was loaned awarded a contract because of their relations with a government official, the same official being the lender. While the beforementioned scenarios are before the courts for adjudication and ought not to be determined in the court of public opinion – as all the facts are not known; these do present textbook examples of conflicts of interest activities which are captured by the PBA.

The PBA in section 4 address “Bribery for giving assistance in regard to government contracts”.  It states that a person who without the proper lawful authority or reasonable excuse, offers an advantage to a public servant as an inducement to or reward for the public servant’s assistance or use of his/her influence in promoting, execution or procuring a contract with a government agency for performance of work, is guilty of an offence.  So, there is no misconceptions that can be had here…if you use your office as a public servant “unlawfully” to cause another person to obtain the benefit of a government contract, and you receive a benefit for doing this “favour”, you are guilty of an offence.

The other side to that coin is found in sub-section 2 of section 4.  Sub-section 2 makes it an offence for a government employee without lawful authority or reasonable excuse to solicit or accept any advantage as an inducement or reward to give assistance or use his influence for the promotion, execution or procurement of a contract or sub-contract and to use his assistance and influence in pricing a contract or sub-contract.  The PBA also makes it an offence for persons to interfere with the submission or withdrawals of tenders for government contracts.

Also of interest is section 7 of the PBA.  This section makes it an offence for anyone who without lawful authority or reasonable excuse while dealing with a government department, offers an advantage to a public servant employed in or by that government department.  Interpreted broadly this means if an individual or company seeks to give some monies or benefit to a government worker to get something done, speed up some process or the like (i.e. dealing with a government department) commits an offence.

While the above addresses dealings with government agencies, Section 8 addresses corrupt transactions with private companies and individuals (or agents).  In this instance “agents” means both a public servant and any person employed by or acting for another.  As an employee of a company you are the agent of that company (note a company can also act as an agent).  Section 8 states that any agent who without lawful authority or reasonable excuse, solicits or accepts any advantage as an inducement to or reward for doing or not doing any act in relation to his/her company’s affairs or business or who shows favour or acts unfavourably to any person in relation to his employer’s affairs or business is guilty of an offence.

Companies Act (CA)

Companies Act in addition to a company’s by-laws guides officers and directors of the company in knowing what would be considered conflict of interest activities and how to avoid them.  The starting point is the duty of care that a director has toward the company he/she serves.  This duty of care is laid out in section 81 of the CA – the most poignant detail found in the section states that every director and officer in exercising his powers and carrying out his duties shall act honestly and in good faith with a view to the best interests of the company.  With respect to contractual relationships the CA goes on to state – A director or officer of a company or body, who is a party to a material contract or proposed material contract with the company shall disclose in writing or request to have entered into the minutes of the meetings the director’s nature and extent of his interest.  The CA then goes on to describe the parameters and character of the disclosures to be made by both a director and officer who may have some interests in a contract with the company or body they serve.

In determining what amounts to a conflict in terms of the law one can look to a 1966 English case called Boardman v Phipps where it was provided that the test is whether reasonable persons looking at the facts would think there was a real possibility of conflict.

If a director benefits from an unauthorized contract, he/she must give the profits made from that contract to the company, as he is a fiduciary of the company.  The company may have the contract voided or affirmed.

In addition to the two broad statutes that I discussed above there are targeted legislation that address the necessity for those in specialized professional roles to avoid conflict of interest issues.  For example there is the Bahamas Bar (Code of Professional Conduct) Regulations which governs the legal profession; there is the Public Accountants (Rules of Professional Conduct) Regulations which governs the Accounting profession and directly provides that every accountant must perform professional services free of conflicts of interest; BISX rules requires that new applicants for listing must demonstrate that it has arrangements in place to ensure that private business interests of its directors are not detrimental to the business or prospects of the applicant.

Notwithstanding all the legislation and directives it all typically comes down to one’s morality.  As was highlighted in the case of Boardman v Phipps mentioned above if the reasonable person after thinking about an act, in his heart believes this act to be a conflict, then most often than not it is.

In addition to one’s own morality it is recommended that companies develop training programs geared toward ensuring their staff are fully aware of the ins and outs of conflict of interests and how to avoid them.  If there are no in-house legal counsel or compliance and risks departments, companies must identify those in the organization who can be trained to be that resource for the company or ensure that there is a professional that can provide training to all personnel at least bi-annually on conflict of interests and compliance and ethics generally.

We invite you to read other interesting articles. See among others why Executives, Management and the team must say No to gifts.