Potential conflicts: Overview, definition and example
What are potential conflicts?
Potential conflicts refer to situations or circumstances where competing interests, obligations, or relationships may create a risk of bias, unfair advantage, or breach of trust. In contractual or professional settings, potential conflicts often arise when an individual or organization’s duties to one party could compromise or be compromised by their duties to another party.
Potential conflicts are typically addressed in contracts or policies to ensure transparency and to outline steps for disclosure, mitigation, or resolution to protect all parties involved.
Why are potential conflicts important?
Addressing potential conflicts is important because it safeguards the integrity, fairness, and credibility of business relationships or professional obligations. For businesses, managing potential conflicts helps prevent ethical violations, legal disputes, or reputational damage. For individuals, clear guidelines ensure they can fulfill their duties without risking accusations of impropriety or bias.
By identifying and managing potential conflicts in agreements, organizations can establish trust, promote accountability, and ensure compliance with legal and ethical standards.
Understanding potential conflicts through an example
Imagine a consulting firm is hired to advise two competing companies in the same industry. This situation creates a potential conflict of interest because the firm may have access to sensitive information about both clients. To manage this, the firm discloses the conflict to both clients and establishes firewalls to ensure confidentiality and fairness in its services.
In another example, a board member of a nonprofit organization is also a major supplier to the organization. This creates a potential conflict as the board member might influence decisions that benefit their business. The nonprofit’s policy requires the board member to disclose the relationship and recuse themselves from decisions related to the supplier.
An example of a potential conflicts clause
Here’s how a potential conflicts clause might appear in an agreement:
“The Parties agree to disclose any potential conflicts of interest that may arise during the term of this Agreement. Each Party shall take reasonable steps to mitigate such conflicts and ensure that their actions do not compromise the integrity of the relationship or the performance of their obligations. Failure to disclose a potential conflict may constitute a material breach of this Agreement.”
Conclusion
Managing potential conflicts is essential for maintaining trust, transparency, and fairness in business and professional relationships. By including clear provisions for identifying and addressing potential conflicts, agreements can protect the interests of all parties and promote ethical behavior. A well-drafted potential conflicts clause ensures that risks are mitigated, and disputes are minimized, fostering accountability and integrity.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.