Essay on Conflicts of Interest

Published: 2021/11/08
Number of words: 825

Conflicts of interest refer to situations where the personal interest of an individual is not aligned or matched to those of the organization or company that he or she works for, or when interests of employees and other stakeholders are in conflict. For example, a company’s employee may take a bribe from an inferior supplier to purchase from the supplier, or an auditor may give a company a positive finance review to please their clients, when these actions may actually hurt the company in question.

The Wells Fargo case demonstrates conflict of interest, and in this essay, the Wells Fargo cheated customers by creating millions of fake accounts in order to achieve sales targets and high growth. The conflict of interest in this case affects both managers and sales employees. Managers and sales employees were given unrealistically high sales targets, or sales quotas, which were impossible to meet in the post-2008 recessionary environment. Nonetheless, they had a fiduciary duty to safeguard the financial interests and well-being of their customers. This was a conflict of interest because managers and sales employees were under pressure to sell more financial products to their customers, when their customers did not necessarily want to. In this case, employees and managers resorted to opening fraudulent accounts to hit their sales goals, often deceiving their customers to sign up for additional products under the guise of routine procedures such as address checks.

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Another well known example of conflict of interest was in the Enron case, where wall street firms often took on roles which engendered conflicts of interest. (Zhang et al, 2015) For example, some firms would underwrite Enron bond and stock deals, which meant that they would profit if Enron bonds and stocks did well, but also took on roles in researching the company’s stock. (Zhang et al, 2015) As a result, these research and underwriting firms were incentivised to give Enron positive reviews in order for Enron’s bonds and stocks to do well, in order to safeguard their own interests as underwriters. (Gasparino and Hamburger, 2002) Enron was also undermined by conflicts of interest in the form of one of its executives, Andrew Fastow, who took on both the role of Chief Financial Officer and manager of Special Purpose Entities. As a result, Andrew Fastow took to promoting the higher-risk Special Purpose Entities, which were a form of illegal financing, and thus neglected his fiduciary duty as Chief Financial Officer to ensure that Enron was compliant to regulations prohibiting the use of financing mechanisms such as Special Purpose Entities.

In both the Wells Fargo and Enron cases, management structure played a significant role in hindering ethical behaviour on the job. In the case of Wells Fargo, the bank’s board of governors and board of management likely pressured the C-Suite management for ever-higher financial returns, which led the C-Suite management to pressure their subordinates for higher sales quotas which proved unrealistic. Without the pressure of such returns, employees would not have been forced to choose between sales quotas and client interests. In the case of Enron, the close ties within the management structure between Enron’s management and their researcher-underwriter partners meant that conflict of interest was likely to happen. Structuring management such that the same person was both the Chief Financial Officer and a portfolio manager was also a way in which management structure hindered Fastow’s ability to execute his job with clarity and integrity.

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Communication can be an important way to resolve conflicts of interest. Foremost, the senior management should send a strong message to the entire company, that unethical behaviour will not be tolerated, and can be criminally prosecuted. In the case of Wells Fargo, such a strong message, rather than a limited ethics workshop, could have prevented further opening of fraud accounts. Secondly, the senior management should communicate with partners, employees and other stakeholders to delineate clear responsibilities, identify potential conflicts of interest, and set realistic targets.

Conflicts of interest are a major risk for many companies, as shown in the case of Wells Fargo and Enron. However, management structure reforms and proper communication can help to lower the risk of these issues.


Gasparino, Charles, and Tom Hamburger. “Congress Broadens Probe of Enron Fall To Wall Street Firms.” Wall St. J., Mar 7 (2002).

Tayan, Brian. “The Wells Fargo cross-selling scandal.” Rock Center for Corporate Governance at Stanford University Closer Look Series: Topics, Issues and Controversies in Corporate Governance No. CGRP-62 Version 2 (2019): 17-1.

Verschoor, Curtis C. “Lessons from the Wells Fargo scandal: the latest ethics scandal to hit the banking world demonstrates the importance of ethical influences in regard to company culture, risk evaluation, employee incentives, and more.” Strategic Finance 98, no. 5 (2016): 19-21.

Zhang, Yanli, Jeffrey Hsu, Ruben Xing, and Wencang Zhou. “Conflict of Interest: What It Is, Its Causes and Consequences.” International Journal of Knowledge-Based Organizations (IJKBO) 5, no. 2 (2015): 1-18.

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