Actual and perceived conflicts of interest: Why both matter

David Burfoot

David Burfoot is a Senior Advisor to The Ethics Centre with international experience across the not-for-profit, public and private sectors. His past employers include the United Nations Development Program, Deloitte, the Independent Commission Against Corruption and Sydney University. His expertise includes anti-corruption, probity, corporate planning, and change management and his clients have included many of the top 50 ASX listed companies, government regulators and some of the most well-known non-profit organisations.

Trust and confidence hold our society together. Trust in public institutions plays an important part in this and it’s founded on the principle that officials will prioritise public interest over personal interests when making decisions.

It seems a simple principle but, as headlines show, one many find difficult to keep. This is understandable. Research shows once a person is conflicted with a personal interest in a matter, their objectivity decision-making mechanics will be affected at all levels – even the subconscious. Indeed, we now know the more confident people are in their ability to remain objective in situations where they are conflicted, the more biased they are likely to be.1

One of the most problematic areas in conflicts of interest management relates to perception issues, particularly for newcomers to the public service. Yet understanding the unique nature of this conflict is critical to understanding the nature of public duty.

The difference between perceived and actual

You can’t be good – or even bad – at your job these days without having a host of professional and personal relationships which, at times, mix. So it is common for public officials, or any experts, to find themselves in situations in which their personal relationships intersect with their professional ones.

For example, you could be running a tender process for your agency when you are surprised to discover that one of the bidders is your cousin. This is an actual conflict of interest; you are confronted with a dilemma. You are in conflict between two social values – your professional duty to be objective and your duty to family.

A potential conflict of interest is one that is not actual but, in time, could be. Let’s say you work in the IT section of an agency and your brother opens a computer store in the area. You have no tenders out now for IT equipment but it is possible you will hold one in the future which your brother might want to bid for.

A perceived conflict is trickier. In these situations there may be no actual or potential conflict, but someone could think (reasonably, of course) there is one and this can have its own ramifications.

This is not only of concern to the public sector. Let’s imagine your local RSL Club is raffling off a nice black BMW. The winner’s name is drawn from the barrel and it turns out to be the Club’s general manager. Now, it could be that it was all ‘fair and square’, that the general manager’s name was pulled out by chance and she had bought the ticket with her own money, like everyone else. But no club would expect people to have confidence in the integrity of the draw or of the club itself if they allowed this to happen.

Here’s another example: the department of housing I worked for had a policy that disqualified family members of departmental staff from purchasing department properties that needed to be sold. I could have had an estranged brother living in Dubbo wanting to buy a housing department property in Newcastle that I had no professional knowledge of, but he would still be disqualified.

Why? Because of a scandal in which a corrupt department officer was caught selling properties under market price to family and friends. Buyers lost confidence in the department and its property auctions. Bidding was down. Market price was not being reached on properties. The department was losing money and, as a result, fewer vulnerable families could be housed. Something had to be done to regain trust and the above policy was seen to be the answer.

Is the distinction important?

Some argue there is no difference between perceived and actual conflicts of interest. They suggest both must be managed so best not to confuse the issue.

I disagree. In fact, I think it is important for people, particularly public officials, to understand the difference.

First of all because while all conflict types need to be managed, the methods used to manage them can be significantly different. In the case of the actual conflict where you are running a tender your cousin bids for, the management strategy can be quite straight forward. You should, among other things, take yourself off the tender panel.

But perceived conflict risks can be more complicated because there are usually more stakeholders to be considered – your colleagues, your supervisor, the minister, your family members, your cousin and competing tender bidders. In the case of the department of housing example above, banning family members from housing property auctions had little to do with managing actual conflicts.

Second, it is important to ensure officials appreciate the significance of maintaining public confidence in their integrity and that of the government – and this requires them to think differently about their accountability.

I have witnessed people trying to shrug off their perception responsibilities with appeals to ‘natural justice’ type principles, such as, ‘one is innocent until proven guilty’ or ‘what I do in my own time is my personal business’ or ‘only actual conflicts violate my duties’.

As you can imagine, these appeals do not address perception risks.

This is of particular concern to government because public institutions are not controlled by the market but by officials with a duty to act with integrity. The money they administer is never theirs to lose, it is managed in trust on behalf of the taxpayer.

Most of all, there is little keeping our society from falling into the abyss of chaos and lawlessness without the trust we have in our institutions to act justly and the belief we, and others, will be held accountable for transgressions. Understanding the importance and distinctiveness of perception conflicts is at the heart of public duty. People's confidence and trust in public institutions has its own inherent value.


[1] Conflicts of Interest and Disclosure. November 2018. The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. Paper by Professor Sunita Sah, Cornell University, specialist in Behavioral Economics and Decision Research