Fred Wilson on A VC blog talks on conflicts of interests that exist in the VC line of business - post.
My moral perspective on each conflict mentioned:
Confidentiality Conflict - Due to the nature of VCs work, where they meet everyday with different people it is reasonable that pieces of information disclosed or domain expertise gained in discussions with entrepreneurs will be used or even spoken without harm intentions. We are all people and having to keep high level of confidentiality is an important part of a VC job description.
The situation that really worries entrepreneurs is when a VC takes this sensitive information and uses that intentionally for its own benefit with the knowledge that it will harm the person that trusted him/her. This, of course is not the common state of mind although in life, you encounter situations where the temptation gets high. This behavior is a matter of personal ethics since the decision to do or not to do lies in the VC's head only and many times it will be taken without external accountability.
Portfolio Company Conflict - If relationship with portfolio companies are open and candid then all the sides of the conflict should be aware to each other line of business, duties and responsibilities; A VC has to manage a portfolio of companies driving to the best result possible. As long as decisions are based on good rationale and not on personal preferences (As it happens also) I think that the involved parties will understand and accept the decisions, and if not immediately then it will happen within time.
Relationship conflict - I agree that this is a true conflict that can be handled only by openness and sensitivity.
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