How should I handle a conflict of interest of a coworker?

Question

I am a senior software engineer in a small private company of about 55 employees. There is a manager here of the EE (Electrical Engineering) group who at every possible chance asks the CEO for me and my colleague to share our source code with him for his "review". He has also suggested aiding us by outsourcing some work to his country of origin, and letting him manage the resources for me (citing cultural/time differences). I see no need for this, and it leaves us puzzled and defending our turf - not shedding a great light on the software team. Unfortunately, this EE manager has a closer relationship with the CEO (who has zero software knowledge), and I assume he tells him all sorts of negative things about the software team.

It is no secret that this EE manager has consultants doing most of his work, and our company spends quite a bit of money in that area. I figured out on LinkedIn that he is affiliated with that very consulting firm, and a VP of his own firm owns the one with which we are doing business. I don't think our CEO is aware of this.

I have deduced that he is trying to get control of more aspects of the company, so he can use his consulting firm, lining his own pockets - not necessarily in the best interest of our company.

Am I correct that this is a conflict of interest? If so, how should I handle it, if at all? At the very least, I'd like this manager to stop speaking poorly of my team.

Edit:

The relationship between the EE mgr and the consultant is not very clear just looking on LinkedIn quickly. Cross referencing shows the EE mgr's company in common. He is president while the other guy is VP. I might be making some assumptions here, but look to the person who has most to gain. I heard of an $8k check go out today for a new version of software which his consultants did poorly in the first place. Just seems too lucrative for it to be a coincidence. Assuming I'm right, how should I handle it? I actually feel threatened because he's constantly trying to get control of the software team - possibly for his own benefit, not the company's.

Answer 1

Just what the heck is going on here?

Case 1: CEO gets kickbacks

So right away, if the CEO is getting some sort of kickbacks for spending the corporation's money in a certain way, they are breaking the law. They are not just doing something shady or immoral, this is white collar crime that can carry a jail term. In a more lenient case it would just be a shareholder lawsuit. Either way, this is a pretty serious matter.

If your duties elevate you to the point where you can be proven to have known about what is going on, but for one reason or another kept quiet, if the crap ever hits the fan you will have to answer some difficult questions - the kind of questions where you will need a lawyer.

Case 2: CEO gets no kickbacks, but the manager does without the CEO's knowledge

At this point, this is still crime/lawsuit territory depending on the scale. Firing is a given. Once again, if you've known about what is going on and said nothing, and anyone ever finds out, you will have to answer as to why that was.

Case 3: Everything is legit and this is just a misunderstanding

Bringing up a potential conflict of interests will not look bad on you if you do it diplomatically. The worst thing that will happen is that the CEO will cut you off at some point and say "Don't worry, I see where you're going with this, everything is OK because reasons XYZ". Make sure to phrase it in a way that positions you as someone looking out for their interests. This should make you look better, not worse (unless the CEO is committing a crime, of course).

Summary

You should approach the CEO with this. Present only the facts, do it diplomatically without assuming anything, and allow him/her to draw their own conclusions.

If after that you believe that shareholders are being defrauded then it's up to you if you want to be a whistle blower. Either way, you should distance yourself from the company and the situation. Don't just keep quiet and pretend that everything is OK.

Answer 2

I will create a more 'physical world' example to show how dangerous this is.

Imagine that you have a maintenance depot manager at a railroad 'farming out' work to a shop he runs on the side on the other side of town. Given that he 'signs the checks' the people in rest of the company have no idea that he's using offsite services rather than contractors and suppliers delivering to the company shop. Freight cars are 'out there somewhere' - obviously not on company property, and subject to damage, careless handling that puts the public at risk, etc. It doesn't take much to project what could go wrong in this scenario.

In the case you're describing the 'freight cars' are traveling half-way around the world, and being maintained in a legal and cultural environment you (or the senior management) know nothing about. If the software you're maintaining is for your own company's internal processes, then people you don't know anything about now know how your company does business. If it's for your clients, these absolute strangers know their business models, and perhaps (if they have real data), actual customer lists and revenue totals.

You may be in the middle of a 'catastrophe' and not realize it, since the effects of this may take some time to manifest. Quite possibly the behavior of this manager is criminal. If it has left your customers exposed, it will destroy your business.

Anyone working as a Federal Government employee as to avoid the 'appearance' of conflict as well as the reality. Even if there's no smoking gun, just the fact that this web of affiliations and business relationships exists at all doesn't pass the 'smell' test.

If at all possible, see if you can get a private audience with the CEO. This discussion would have two components - does he know that the EE manager is running work out to proxies, particularly those that he has a personal interest in feeding business to? Second, would he consider such behavior risky, whether it was occurring or not? In short, if he doesn't believe you, or at least doesn't admit to it, is he at least aware that it could hurt the company and his reputation as an executive? If you are too far removed from the CEO to be able to approach him, an alternative path is through a financial VP, or some other person that the CEO trusts (this should be any person on the executive team).

If your company has a board of directors, it would be worthwhile to reach the people that are on the board. This may be tricky for two reasons - first is that the person you talk to is probably a personal friend of the CEO, and would therefore not give you any more credence than the CEO does. Second is that the directors may be out of towners, and fly in for meetings. In that situation your window of opportunity is miniscule, unless you can reliably reach them by phone or email. Often, however, board members who discover something like this would have a tendency to quit if they can't get a straight answer from the officers - therefore they tend to protect themselves rather than the investors. Making a long story short, someone somewhere is losing money if this goes bad - typically a group of people that put money into the venture but don't run it. These are the people that will be harmed when this goes haywire. If the investors are mostly VCs and other sophisticates, they might simply shut the whole thing down, particularly if it's missing it's numbers.

Answer 3

If you are sourcing work from a company that you are the slightest affiliated with, you are in a conflict of interests. This may potentially be very harmful to the company that you are working for and in some cases illegal.

I can't advice on how exactly you should handle this, except that you need to bring this to the attention of the CEO. It would probably be best if you don't phrase it as an outright accusation, but just as some open questions leading the CEO to consider whether (s)he needs to do any more investigations.

Btw: as CEO, one of your responsibilities is to keep the integrity of the company intact, so if you play this right, it should be perceived as helpful.