Recognizing and Managing Conflicts of Interest: the Case of Italian Listed Companies

Conflict of interest could be a serious problem and may lead to fraud practices if it is not managed properly. The various remedies proposed by scholars and practitioners seem to assume that individuals and institutions have a very clear definition of what conflict of interest is and are fully aware of what are the different ways in which the phenomenon occurs, and its potential for harm. However, the term "conflict of interest" is used in many different and often inconsistent ways. Conflict of interest is still sometimes viewed as a crime. As a result of this pejorative or negative connotation, the term conflict of interest loses much of its utility in practice, especially in terms of fraud prevention. For that reason there is a need to clarify this concept, in order to better resolve the conflicts of interest when they cannot be avoided. We critically review the academic literature on conflict of interest for agents within firms. Then, we present an exploratory study, based on a content analysis of the Italian listed companies that sought to empirically assess the conflict of interest definitions provided by corporate codes of ethics. Finally, we suggest some remedies to manage conflict of interest situations.