6.8. Policy for Managing Conflicts of Interest

 

A conflict of interest is a situation, where a representative of any profession (government, business, media, public organisation, etc.) must choose between execution of his / her official duties required by his/her official position and the private interest.

 

Approach to conflict of interest in the public sector

 

Public interest means the public’s expectations with regard to impartial and just decision-making of the persons in civil service.

Article 2(2) of the Republic of Lithuania Law on the Adjustment of Public and Private Interests in the Civil Service, defines conflict of interest as a situation, where a person in the civil service, discharging his duties or carrying out instructions, is obliged to make a decision or participate in decision-making or carry out instructions relating to his private interests.

According to that definition, private interest means a personal economic or non-economic interest[81] of a person in the civil service (or a person close to him) which may affect his decision-making in the discharge of his official duties.

 

For example:

  • a municipal officer, responsible for public order, receives a complaint regarding a violation of public order committed by his brother;
  • a member of a ministry's  public procurement commission must vote regarding an agreement between the ministry he represents and a company, partially owned by his wife as a shareholder;
  • a deputy director of a state enterprise must make a decision on granting assistance  to beneficiaries, which include a public institution headed by his mother;
  • a director of a budget institution must select the best candidate to a vacant job position in his institution, and one of the prospective candidates is his daughter-in-law, etc.

 

In the public sector, when performing any actions and making any decisions, the public interest must always be given a priority over the private interest.

 

In order to avoid a possible conflict of interest, a person employed in the civil service:

  • Must declare his / her private interests by submitting a declaration of private interests[82], which contains information about the person concerned and his/her spouse, cohabitee or partner (place(s) of employment and position, participation in legal entities, individual activities, membership in and duties to enterprises, bodies, associations or foundations  (with the exception of membership in political parties and trade unions), gifts, gifts received during the past 12 calendar months (except for the gifts received from close persons) if the value of such gifts exceeds 150 euros), information about the transactions concluded or other transactions valid during the past 12 calendar months, if the value of such a transaction exceeds 3,000 euros, close persons or other persons he/she knows or the data who/which may be the cause of a conflict of interest, etc.).
  • May not participate in the preparation, consideration or making of decisions or from otherwise influencing decisions which may give rise to a conflict of interest situation. Should this type of situation occur, a person must inform the appropriate head, declare his self-exclusion and must not in any form participate in the subsequent preparation, consideration or making of the decision.
  • May not represent the state or municipality, or state or municipal institutions:
    • when he is dealing with natural or legal persons from whom he or persons close to him receive any kind of income;
    • when he is dealing with all types of undertakings in which he or persons close to him own over 10% of the authorised capital or shares.
  • May not represent private groups or persons and defend their interests in state or municipal institutions, except for where he acts as a legal representative in accordance with the Law.
  • Upon violation of the set requirements, such person may not be given incentives for a certain period of time, and in case of a gross violation of the provisions of the Law[3], such person may not be given incentives, accepted, appointed to the office or promoted for three years following the day the violation has come to light.

 

Moreover, legal acts also provide for certain restrictions related to a person who has left his office in the civil service:

  • a person shall have no right, within a period of one year, to take up employment of company head, deputy head, company board or management board member and run other offices directly related to decision-making in company management, property management, financial accounting and control sphere, provided that during the period of one year immediately prior to the termination of his service in public office his duties were directly related to the supervision or control of the business of the company or its controlled undertaking, or the person participated in preparation, consideration and making of favourable for these companies decisions for obtaining state orders or financial assistance in the course of public tenders or otherwise. 
  • a person may not for a period of one year represent natural or legal persons in the institution in which he held office for a period of one year immediately prior to his leaving the service.
  • a person may not for a period of one year represent natural or legal persons in other state or municipal institutions on the issues which had been assigned to his official functions.

 

For example, on 4 November 2014 the Chief Official Ethics Commission announced that the former Vice-Minister of Justice confused public and private interests, whereas, within the one- year period when leaving the office as Vice-Minister, he took up employment in the State Enterprise Centre of Registers, which he governed as Vice-Minister, and due to that he must be dismissed from the new office.

 

Approach to conflict of interest in the private sector

 

A conflict of interest in the private sector also refers to any situation, where the employee's private interests may conflict with those of the company. In case of a conflict of interest the risk occurs that the employees will make biased decisions that may have a negative effect on the property or reputation of the business organisation.

Private interests may occur due to a person's material or immaterial interest, most often due to  personal friendship, family or extended family connections, and  in appropriate cases, also  due to membership in political activities, financial, profit or non-profit, religious or charity organisations.

 

Each employee of an organisation should receive a written notice that in case he/she encounters a conflict of interest in the place of employment, he/she must immediately inform his / her head and declare self-exclusion. 

 

Codes of ethics of business organisations often contain the provisions which require avoiding conflict of interest, for example, to:

  • pursue one’s private advantage at the expense of the employer;
  • cover private costs by using one's position;
  • pursue one’s private or family interest in transactions with the organisation or between the organisation and any supplier or client;
  • hire family members for employment in the organisation;
  • work for the advantage of other enterprises, institutions or organisations during the working hours;
  • use organisation's property, name and reputation for the  secondary office;
  • taking up activities, which would be detrimental to the organisation in terms of competition or would cause a conflict of interest;
  • to work for or have any interest in enterprises that compete with the organisation, supply goods or services to it, or have other business relations.

 

Declaration of private interests

 

In order  the provisions of their code of ethics are not merely of a declarative nature and they are pursued  in practice, some organisations, in hiring new employees to the positions significant for the company,  ask them to fill in their declarations of private interests.

Moreover, information on possible private interests of the employees may be also collected from public sources (for example, social networks).

Later on, in conducting audits of the organisation or checks on the activities of individual employees, it may be evaluated whether the employees comply with their obligations assumed regarding avoidance of conflict of interest.

 

The declaration of private interests is one of the most effective measures for prevention of conflicts of interest, which helps the employee to identify potential threats and to report them to his / her heads.

This measure serves not only for prevention of possible conflicts of interest, but also demonstrates the organisation's accountability to the public as well as its clients, and its strive for transparent action and trustworthy conduct.

 

The system of declaration of private interests functions at three levels:

  • private (at the level of a person who must file a declaration). An employee, in filling in the declaration of private interests, thinks hard about which of his private interests may be relevant for the official duties assigned to him and has an opportunity to evaluate the risks of potential conflict of interest or perhaps even those of corruption nature himself/herself.
  • institutional (at the level of heads of organisations, heads of organisational units, the collective of the organisation). Heads of the organisation must be familiar with the private interests declared by their subordinates. In cases of reasonable doubt that private (business) interests of an employee may conflict with the objectives of the organisation he/she is employed with, in order to ensure the supremacy of these interests over the private interests of the employee, the head may declare the exclusion of the specific employee from execution of appropriate tasks and to delegate the execution of them to other persons.
  • public (at the level of the media, public organisations and the public). The public may directly get familiar with the private interests of public persons whose information provided in their declarations of private interests is publicly available.. This type of public control is the most effective measure for prevention of potential conflicts of interest, as it always and (in real time) allows checking whether the specific employee acts impartially and transparently.

 

The form of a declaration of private interests for persons in the civil service, in accordance with the provisions laid down in the Law on the Adjustment of Public and Private Interests in the Civil Service, shall be prescribed by the Chief Official Ethics Commission.

Non-governmental organisations and private equity companies operating in Lithuania, following their internal legal acts, may impose an obligation on their employees (or a certain group of employees) to declare their personal (financial) interests, which may be relevant in performing their official duties, under the procedure and in the form established in them. .

For example, TILS  on its website: www.transparency.lt publicly announces the  declarations of private interests of its shareholders, which contain all their paid and unpaid offices, solid property, companies, where they own more than 5% of total property, relations with the civil service.  Ambergrid, AB, also requests to file declarations of private interests from the members of the Board of the Company prior to their entry into this office, where they specify all circumstances, which might cause a conflict of interest between the Board member and the Company. An analogous requirement for the Board and Supervisory Board members is established in the Articles of Association of Klaipėdos nafta, AB.

 

There are opinions that in small business organisations, often called "family business organisations",  the conflict of interest is unavoidable, as the majority of their employees are the members of one family (or extended family); therefore, there is no sense in  applying the conflict of interest prevention measures.

 Prior to supporting this opinion, it should be noted that a private interests in such organisations usually coincide with those of the organisation. On the other hand, as business grows and expands, it will inevitably hire more and more employees who have no connection to the family. It is presumable that in this case it would be beneficial to start assessing the compatibility of interests of the newly employed staff with those of the organisation.

 

It is also noteworthy that a conflict of interest may occur not only between private interests of an employee and the organisation (employer), but also between the organisation and its clients / beneficiaries of services. Such situations may emerge in providing advisory/consultancy, expertise, legal, bankruptcy administration and other services for two or more persons with conflicting interests.

In order to avoid such uncomfortable situations, organisations are recommended to prepare their policies for avoidance of conflicts of interest[84].



[81] Private interest  means a  moral debt, moral obligation, pecuniary or non-pecuniary advantage, or any other similar interest.
[82] In accordance with Article 10 of the Republic of Lithuania Law on the Adjustment of Public and Private Interests in the Civil Service, the majority of the data declared by such persons is public and available on the website of the Chief Official Ethics Commission: http://www.vtek.lt/index.php/deklaravimas.
[83] The person is recognised as gross violator of the provisions of this Law, if:

  • the person had been provided with  prior written recommendations on what decision  preparation, consideration and making he should refrain from;
  • the violation was repeatedly committed within a  year the day the person was sanctioned for violating the law.

[84] For example:

Policy for avoidance  of conflict of interest of Vanhara Law Firm is available here: http://vanhara.lt/interesu-konfliktu-vengimo-politika/ 

Policy for avoidance of conflict of interest of SEB Group is available here:

https://www.seb.lt/sites/default/files/web/pdf/Interesu_konfliktu_vengimo_politika.pdf 

Policy for avoidance g and management  of conflict of interest of the bank  FINASTA, AB is available here:

http://www.finasta.com/files/Reglamentai%20ir%20tvarkos/Interesu_konflikto_vengimo_politika_LT.pdf