Conflict of interest vs. something at stake

I am on the board of the Hydrocephalus Association, which is a national medical nonprofit organization. Every year board members fill out a form where we must identify any potential conflicts of interest — not because they would disqualify us from serving on the board, but to state them and allow the board to make public judgments about when someone might need to recuse themself.

One time, when we were discussing conflicts of interest for board members who were also doctors, a senior board member piped up: “In my day, we didn’t call these conflicts. We called them synergies.”

It’s less popular these days to think that it can be a good thing when people have overlapping interests, but I think it’s important to remember that everyone behaves differently when they have something at stake.

When my son was five or six years old he would often get upset about things that hadn’t happened yet, but might happen.

“But Dad, if we go to the grocery store it’s going to take forever and then I’ll miss all my TV time for today and we’ll have something I hate for dinner and it’ll be the worst day ever!”

He’s a smart kid, so it was hard to logic your way out of his story. In reality, he didn’t think any of these things were that likely — he was just smart enough to write a narrative that gave him the fuel to explain his emotional reaction. Instead, I started to introduce stakes that he cared about to the conversation.

”OK Julian. Let’s bet some Pokémon cards on it. If we get home after all your TV time, I get to keep your Glaceon GX card, OK?”

And it worked. All the time, and almost immediately. He would usually crack a sheepish smile, and admit that, well, probably it was going to be just fine to stop at the grocery store.

People behave differently — I would argue that people behave more thoughtfully and better optimize for what they really want — when something they care about is on the line. So having something at stake is usually a good thing, because it kicks our intellectual “rationalizing” self aside and makes room for the part of us that considers consequences seriously and helps us make intelligent trade offs.

Overlapping interest can be great, too.

A conflict of interest really only happens when someone has overlapping interests that are truly at odds. As I spend more time in the world of venture capital, I am becoming more familiar with these situations because they do exist, and it’s important to know which is which.

When a VC sits on the board of a company, for example, that VC is invested in the outcome of the company but also in the outcome of their fund. This is no secret and it’s a classic example of “conflict of interest.” But the nuance here is that it’s only a conflict of interest some of the time. When what’s good for the company is the same as what’s good for the fund, it’s just an overlapping interest.