Conflict of Interest

Paper Summary:

In this article, the writer notes that conflicts of interest are of great concern in recent years and months, especially since the recent, highly-publicized buyouts involving Qantas and Alinta. The writer points out that in efforts to protect clients and mitigate risk in the financial sectors, conflicts in interest must be addressed suitably. The Qantas and Alinta buyouts have highlighted many of the worst issues pertaining to conflicts in interest in financial institutions. This paper seeks to review the existing literature concerning conflicts of interest, outlining the key terms and issues involved. It additionally covers the recent transactions and conflict of interest issues related to the Alinta MBO and Qantas Private Equity Deal. Finally, it turns to the views of the takeover panel, highlighting their views on conflicts of interest and, more specifically, their views on the Alinta MBO and Qantas private equity deal transactions.

Outline:
Introduction
Analysis
Background & Definitions
Evaluation
The Alinta MBO and Qantas Private Equity Deal
Background & Discussion
Possible Conflicts
The Takeover Panel and Conflict of Interest
Summary

From the Paper:

"Conflicts of interest often shock shareholders and the general public since they often blatantly ignore the basic requirements and duty expectations of those involved. For example, a bank that abuses a conflict of interest by recommending services that they know are not the best for a customer comes under public scrutiny for abusing the basic trust assumed in a banking relationship. A bank may suggest such services because they receive a higher interest rate or because they do not offer competitive services. This takes advantage of the lack of knowledge of the consumer, who often looks to the bank as a trusted consultant. Individuals and investors have come to assume some trust in banking and finance relationships, and most would agree that this is not an unreasonable assumption."

Sample of Sources Used:

• Davis, Mark, and Scott Rochfort. "Revealed: Millions for Qantas Chiefs." SMH.com, Business: Feb. 21, 2007. Available: "http://www.smh.com.au/articles/2007/02/20/1171733762447.html
• Evans, Michael, and Stuart Washington. "Conduct Unbecoming." SMH.com, Business: Jan. 20, 2007. Available: http://www.smh.com.au/articles/2007/01/19/1169095975162.html.
• Gray, Joanne. "Conflicted Chiefs Push the Envelope." Australian Financial Review, Jan. 13, 2007: 11.
• Macquarie. "Fact Sheet - Macquarie Bank and Alinta." Available: http://www.macquarie.com/au/au/about_macquarie/acrobat/alinta_factsheet.pdf.
• Mehran, Hamid, and Rene M. Stulz. "The Economics of Conflicts of Interest in Financial Institutions." Journal of Financial Economics (forthcoming), doi:10.1016/j.jineco.2006.11.001.

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