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Conflicts of Interest

February 18, 2008 at 4:22 pm by Blair

Someone posed a question to me a few weeks ago about handling conflicts of interest (COI) and I promised to post a response here when I had more time. Well, time flies when you're busy. (sheepish grin here). Here now, a few points on the realities of conflict of interest issues and how to handle them. 

A COI arises, potentially, when you find yourself presented with an opportunity to do business with one of your client's direct competitors. My experience has been that generally speaking there is more worry on the part of the firm than there is expression of concern from good clients. Interestingly, COI should be more likely to arise with vertically specialized firms, but these firms tend to attract more sophisticated clients who willingly pay a premium for expertise gained from working with lots of companies like theirs. They understand that most expressions of conflict are overblown.

The poorer quality clients attracted by more generalist firms are more likely to want to 'own' the supplier relationship and push the firm around  by dictating to them who they can and cannot work with. How you handle COI issues is a great test of whether yours is an expert firm or an order taker.

Take Control 

The most important point is to take the lead on this subject. When it does arise you want to be in the position of bringing it to your client or client-to-be's attention. If it does get brought to your attention first, you want to be able to respond with a written policy that demonstrates you've thought through the issue before and have taken steps to determine how you will act.

Take the initiative and define for your clients and clients-to-be what your policy is on working for competing companies, brands or projects. Put it in writing and make it available to your clients as part of your normal contractual terms and conditions, or as an addendum. When it comes up in conversation, state that you have a written policy on the issue, review what's in it and send it to the client. 

The worst thing you can do is be caught on the defensive on this issue.

Don't Over promise

Give some thought to what really is a conflict, and what conflict perceptions can be managed internally through defined processes. Some categories are highly competitive and involve carefully guarded IP, but most aren't. 

Some large companies have lengthy highly-limiting non-compete agreements that they'll ask you to sign. If you're doing work for Pepsi, they'll try to tell you that they won't let you do any creative work for any other beverage company. But really, they just don't want you working for Coke at the same time. If they see you as a specialized expert they'll accept some push back on their own COI policies. Don't be afraid to push back. 

The Specialist Conflict

Specialized firms are able to command a price premium for their services because of their experience in an industry (vertically-specialized firms) or a discipline (horizontally-specialized firms), but vertical specialization is only acquired by working for many clients within the same space. This is where it gets interesting. The same client who wants to hire you for your specialization, even pay you a premium for it, doesn't want you working with other brands or companies within their space. 

If yours is a vertically specialized firm you would meet such requests by pointing out this obvious trade-off: if the client wants to benefit from your experience he needs to appreciate that you will continue to deepen your category experience with other clients while working with him. If your client continues to push his unrealistic concerns, simply offer to sell him category exclusivity. Then smile like you are about to win the lottery. 

If you're billing $200,000 a month and a client within a vertical representing 50% of your business wants to limit you from working with other companies like his, then his premium is $100,000 a month. Blunt math like this tends to wise people up quickly. While he's reeling from the shock, politely explain that it's not necessary for him to pay you this premium - you have policies in place on how you manage different clients within the same space. 

Be Discreet 

Interestingly, I've encountered many situations where a principal or employee immediately reports to his client that they have been approached by the client's competitor. This is driven I suppose by a desire on the part of the firm to show that they are in demand, or they are loyal to the client, perhaps. Don't do it. You'll be able to put all COI cases into one of three buckets: 1. Clearly a conflict as defined by your policies and therefore you say no (unless there's a bigger, better engagement involved), 2. Clearly not a conflict and therefore you take it, and 3. The gray area in between. 

The gray area issues you take to your client and ask to help solve. The other two you can decide to tell your client about it or not, but do it after you've made your decision. That's what the expert would do.



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