Conflict of Interest Blog

Conflict of Interest at Harvard and the Need for Deterrence

We are pleased to have this guest post from Jameson W. Doig, Visiting Research Professor of Government, Dartmouth College  and Professor Emeritus at the Woodrow Wilson School of Public and International Affairs.

On September 12, the Journal of the American Medical Association carried an important story regarding conflict-of-interest in research carried out at Harvard.  In the 1960s, the chairman of Harvard’s Nutrition Department and two of his researchers were given $50,000 (in today’s dollars) to provide a critical review of studies that had identified Sugar as a significant factor in coronary heart disease. Recently discovered files indicate that the Harvard researchers were in close contact with the Sugar Research Foundation, and that they shaped their analysis so it raised doubts about research studies that identified sugar as a causal factor (they suggested that instead “fat” had a key role in causing heart disease). On reviewing a draft, a SRF official said he was pleased with the results. The role of the SRF in financing and partially guiding the study was not revealed in the researchers’ report, which was published in the New England Journal of Medicine in 1967.

The study was completed in 1967 and all three researchers have now died. Even so, the case raises important issues in the field of deterrence. In my view, Harvard should review the evidence described in the JAMA article, and if the integrity of the researchers’ work was compromised significantly by their contacts with the sugar industry, the University should consider public action — formally announcing the negative findings, perhaps removing any Harvard awards given to the three, etc. Action of this kind should help to deter other researchers who may be tempted to carry out research shaped to benefit the funder. (If the allegations in the article are incorrect, the Harvard review should publicly challenge the JAMA implication of unprofessional faculty behavior.)

Although professional rules now ask researchers to reveal their funding sources, it is reasonable to expect that some will not fully comply. More important, revealing funding sources may not be a sufficient deterrent, when large sums to finance research and complex studies are involved. For example, Coca-Cola has recently funded studies on the links between sugary drinks and obesity; and the National Confectioners Association has financed and been actively involved in studies that raise doubts that eating candy is a factor in child obesity. The candy studies were carried out by researchers at two universities, in collaboration with an industry consultant. To protect the reputation of their own institutions, and to improve the quality of research said to benefit the public, university officials should actively monitor apparent conflicts of interest and take punitive action when appropriate.

Would a Trump presidency spell the end of ethics and compliance?

Many years ago, I helped provide E&C training to a group of Russians visiting the U.S. The apparent hope of the session sponsor (the Commerce Department) was that these individuals would use our information to implement programs in Russian companies. The visitors seemed interested in the presentations but at one point indicated that what they needed was not so much practice pointers on technical issues as a home government that supported the basic notion of E&C.

The logic of this point was obvious even before it was made – but I have never forgotten hearing it articulated. I have also never stopped giving thanks for living and working in a country where the basic notion of E&C is supported by the government. When one thinks about those countries where E&C is either ignored or worse, having the type of support that both Republican and Democratic administrations have shown for E&C for the past quarter century is truly a blessing of liberty – a blessing which plays a substantial role in promoting honest business practices, fair returns for shareholders, safe and respectful workplaces and a healthy environment.

Could that be lost in a Trump presidency?

I should stress at the outset that I’m no fan of Hillary Clinton’s ethics. I never bought her explanation of how she made a small fortune in commodity trading; am very uneasy about many of her and her husband’s paid speeches (less so about the Clinton Foundation); and think what she did with her email was, for want of a better word, deplorable. But I don’t view her as an existential threat to E&C, which I do with Donald Trump.

I see this on two levels.

First is the ethics dimension – and specifically Trump’s “tone at the top.” Based on the campaign he has run to date his ethical tone is deeply problematic – characterized, as it certainly can be, by a near total absence of humility (which, in my view, is the most underappreciated ethical quality); an equal lack of empathy and respect for others; a view that the ends always justify the means; a lack of respect for the law (most recently, the laws of war ); and the greatest penchant for lying I have ever seen in any human being  (including in my nearly twenty years as a white collar criminal defense lawyer).

While – as with all matters involving ethical culture – measuring the impact of a leader’s tone is an inexact science, we would do well to remember these words of Justice Brandeis: “Our Government is the potent, the omnipresent teacher. For good or for ill, it teaches the whole people by its example.” The example set by a President Trump would, in my view, be utterly poisonous, reaching into not only businesses but also the governmental and possibly even personal (family and community) spheres.

The second dimension is, of course, compliance – and concerns various substantive areas of risk where instead of zero tolerance he seems to favor either zero or substantially reduced enforcement or himself appears to be a violator. Among these are corruption (he has said the FCPA is a horrible law ); conflicts of interest ; anti-discrimination/anti-harassment ; fraud (think of Trump University case and his practice of not paying suppliers); and gutting environmental laws .

When you take these areas off the E&C table, there’s not much left. Moreover, a lowering tide could wreck all boats, with each cutback feeding a broader acceptance of social irresponsibility by businesses.

Having said all this, I don’t think a Trump presidency would truly be the death of E&C. Other countries’ governments presumably would continue their respective efforts to promote E&C, and at least some state attorneys general would seek to fill the void, as would plaintiffs’ lawyers. Perhaps more importantly, many companies would continue to see strong E&C as good for business, in maintaining the trust of customers and shareholders and being a preferred place to work.

But a Trump presidency would almost certainly hurt E&C – the only real question to my mind is: How much? And the casualties would be all of us.

NOTE TO READERS: I AM TRAVELLING FOR THE FIRST PART OF THIS COMING WEEK AND SO MAY BE DELAYED IN POSTING ANY COMMENTS.

The Wells Fargo Bank case and behavioral ethics

In 1170 King Henry II of England, unhappy with Archbishop Thomas Becket, asked of his knights: “Will no one rid me of the meddlesome priest?” Taking his words (the specifics of which have been the subject of historical dispute) as royal instruction, several of those knights assassinated the clergyman. Correctly or not, the story is often used as an example of how a powerful person can cause others to engage in wrongdoing without himself  being provably guilty.

Late last week, the Consumer Financial Protection Bureau and several other agencies announced a settlement involving Wells Fargo Bank arising from sales practices abuses  – a settlement which was condemned from many corners. As noted in the American Banker : “It’s become an all-too-familiar story – a big bank is caught doing something bad, it pays a fine, some lower-level employees are let go while higher-level executives appear to get off scot-free and no criminal charges are assessed. Wells Fargo became the latest example of that cycle this week, when it paid $190 million in fines and restitution after some 5,300 employees were caught opening more than 2 million unauthorized bank and credit card accounts.” The American Banker piece also reported: “Wells insisted the problems were not systemic.”

The notion that 5300 employees could be involved in this sort of wrongdoing but the problem not be systemic is laughable. Indeed, it calls to mind a classic Doonesbury strip about the trial of China’s “Gang of Four,” in which the defendants claimed that they had not committed mass murder but “34,375 unrelated acts of passion.”

The bank’s contention is also contradicted by this account from the Charlotte Observer (among others): “Julie Miller was working in Pennsylvania for Wachovia when Wells Fargo took over the Charlotte bank in 2008 and began changing more than the name on its branches. Miller said she watched with dismay as Wells Fargo increased her branch’s sales goals and lowered bonuses for meeting the new targets…That’s when she also started noticing Wells Fargo customers complaining they were being signed up for products they never asked for.”

The understanding that undue pressure can lead otherwise good people to engage in wrongdoing is, of course, common sense. It is also one of the central tenets of “behavioral ethics.” Indeed, in one landmark experiment from more than forty years ago, individuals put under time pressure were about six times more likely to engage in unethical conduct than were those not under such pressure. I should emphasize that behavioral ethics didn’t create this understanding of human nature. But it does prove the point with a force that anecdote cannot match.

To my mind, results such as these (of which there are many) must inform how we seek to promote lawful and ethical conduct in banks and indeed business organizations of all kinds. For the government, it means pursuing enforcement strategies based not only on direct involvement by executives in wrongdoing but those who use the modern day equivalent  of the indirect approach apparently taken by King Henry.  For companies it means doing the same when it comes to internal investigations and disciplinary decisions.

Finally, for companies faced with a scandal where there is a temptation to protect the executives, consider how the apparent Wells Fargo approach is likely to discourage employees from reporting wrongdoing internally.  And the related question for audit committees:  if your company takes this route and suggests that compliance is only for the “little people,” how can you meet your Caremark obligation to have an effective  whistleblower system?

“Tailoring” the duty of loyalty

A prior post provided an overview of “corporate opportunities” – an important and somewhat distinct type of COI. Last week, writing in the Harvard Corporate Governance Blog, Gabriel Rauterberg of Michigan Law School and Eric Talley of Columbia Law School described some fascinating research they conducted regarding companies allowing their respective directors and officers to engage in conduct that would otherwise violate the corporate opportunities doctrine. The full paper is available for download here.

By way of introduction, they note that the duty of loyalty is widely perceived as “’immutable’—impervious to private efforts to dilute, tailor, or eliminate it.” However, the authors state: “That perception is false: Beginning in 2000, Delaware dramatically departed from longstanding tradition, amending its statutes to enable corporations to waive a critical component of loyalty—the corporate opportunity doctrine—which forbids corporate fiduciaries from appropriating new business prospects for themselves without first offering them to the company. From that moment forward, Delaware corporations and managers were free to contract out of a significant portion of the duty of loyalty…”

Rauterberg and Talley studied the experience of public companies that took this route. They found that literally thousands of companies adopted such waivers, showing: “Public companies have an enormous appetite for tailoring the duty of loyalty when freed to do so.” They further note that “there are…several plausible economic rationales for a corporation to embrace a COW [corporate opportunity waiver] for the sake of shareholder value. Indeed, in the years leading up to Delaware’s initial reform, a growing chorus of critics argued that the exacting requirements of the duty of loyalty had begun to impede corporations’ ability to raise capital, build efficient investor bases, and secure optimal management arrangements. This claim was based in part on the recognition that many then-emerging sources of capital, such as private equity, venture capital, or spin-off transactions may subject their financial sponsors to fiduciary duties in profound conflict with either their larger business plans or with fiduciary obligations they owe to other business entities.” The authors found as well that “COW adopters … tend to deliver larger overall market returns to their capital investors by comparison to other public companies….it does not appear that companies that execute waivers are systematically the unscrupulous bottom feeders of the corporate ecosystem.”  Finally, they assessed “whether the adoption of a waiver tends to add or dilute value on the margin, by analyzing market reactions to issuers’ first public disclosure of a COW. [Their] event study analysis reveals that market reactions are generally favorable, resulting in an average positive abnormal stock return of between 1.0 and 1.5 percent in the days immediately surrounding the announcement date…The positive market response does not seem sensitive to whether the waiver also covers officers and/or dominant shareholders…”

All told, Rauterberg and Talley present corporate opportunities waivers as often desirable based on the logic born of an efficient markets perspective.  This largely makes sense to me (although, as noted below, I have do have one area of concern about their analysis). Indeed, in an earlier post I argued that waivers of the duty of loyalty involving board representatives of joint venture partners were not troublesome, given that such partners can be seen as “consenting adults” in deciding whether a full-fledged duty of loyalty was indeed desirable in any given JV . Somewhat similarly, I’ve previously argued that client COIs arising from advertising agency mergers can readily be addressed by market forces.  (However, in other situations – particularly involving financial services professionals giving investment advice to retail clients – cutting back on the duty of loyalty seems less defensible.)

But, I am troubled by the above-noted part of the authors’ findings about officers, given that the legitimate need for a waiver should be less significant for an officer than for an outside director – as the latter is presumably more likely have business roles with other companies involving identifying business opportunities.  Also, I think (though am not sure) that the likelihood of harm flowing from a director’s usurpation of a corporate opportunity is less than that of an officer’s doing so, in that officers tend to be more knowledgeable about a company’s operations than are directors – and so on average would have the greater chance to misuse such knowledge in the pursuit of the corporate opportunity in question.

In effect, this aspect of the study’s findings can be seen as an effort to gauge the compliance and ethics risk assessment implicitly undertaken by shareholders of publicly traded companies when they learn of a COW.  Given how difficult  C&E risk assessments are even for professionals in the field, I wouldn’t view these particular findings as the final word on the downside of corporate opportunity waivers. Put otherwise, some markets are more efficient than others – and the C&E information market seems pretty inefficient to me, at least at this level of granularity.

Finally, a practice pointer for C&E officers. NYSE listing requirements (section 303A.10) strongly encourage (but do not actually require) companies to have corporate opportunities provisions in their codes of conduct, and a great many codes do this. However, if a company has adopted a COW then presumably it should  not to have such a provision, which could make the code seem deceptive.  For more on possible liability for making false claims about a company’s compliance standards  see this post.

Behavioral compliance: back to school edition

In the waning days of summer, here is a roundup of some recent  notable writings about using behavioral ethics to enhance corporate compliance efforts.

First is a post on the Compliance and Enforcement web site by Timothy Lindon, the Chief Compliance Officer of Philip Morris International. In it, he suggests that companies should start down this path by establishing “an in-house compliance curriculum to educate the compliance function and others about relevant research and learnings. At a minimum, the curriculum should include discussion of research in behavioral ethics, behavioral economics, and psychology. Other relevant topics include organizational theory and case studies of notable disasters such as the NASA Space Shuttle explosion and the Fukushima nuclear meltdown, which demonstrate the role of power and hierarchy. Another useful topic,” he suggests,“is corporate lingo given the use of euphemisms such as ‘creative accounting’ and ‘technical violation’ in companies to hide and rationalize misconduct.”

Lindon further recommends: “Once the company’s compliance professionals are trained on academic research,” seek to determine if “they routinely use these learnings in all aspects of the company’s compliance program? This can include revising a Code of Conduct to harness the power of peer influence; anticipating the problem of ethical fading though just-in-time training or training which places employees in real life ethical dilemmas while under business pressure; and developing a communications toolbox to drive employee behavior and minimize employees’ rationalizations of misconduct.” Finally, he suggests that companies use data analytics “to check on and enhance the behavioral approach…” These are all good ideas from my perspective.

Second, writing in Compliance Week in last Spring, Jose Tabuena argues that compliance program auditors should act as behavioral scientists: “In the field of behavioral economics, priming has proven to be an effective tool to subtly encourage honest behavior. Priming occurs when an individual is exposed to a specific stimulus that influences his or her ensuing actions. In studies by behavioral economist, Dan Ariely, experiments were designed to influence honest behavior when researchers ‘primed’ people with a stimulus that involved morality and then observed how often cheating occurred when solving small math problems. When the participants were asked to recall the Ten Commandments, cheating significantly decreased compared with those who were instead asked to recall the names of Shakespeare’s sonnets.” Tabuena also notes: “Similar studies provide additional behavioral insights. It is easier to be just a little dishonest. Experiments show that we are more likely to cheat over a small amount of money than a large amount. People also tend to find it harder to be dishonest when interacting with another person than with an impersonal mechanism. The belief that we make rational decisions is a myth that belies the complexity of human behavior.”

Auditors play an important (but not always appreciated) role in C&E programs. Hopefully, Tabuena’s article will help “recruit” more of them to the behavioral perspective, particularly given that he is one of the true experts in the field of C&E auditing.

Finally, in an interview in the August issue of Compliance & Ethics Professional (available to SCCE members on that organization’s web site), Joel Rogers of Compliance Wave speaks about a behavioral approach to C&E marketing, particularly  the role that conditioned responses play in spawning unethical conduct, and how C&E marketing campaigns can provide “pattern interrupts” to such forces. Among other things, such a campaign can help mitigate the phenomenon, noted by Ariely and others, that people do “tend to forget moral and ethical reminders really quickly.”

This interview was conducted by the SCCE’s Adam Turtletaub, who – like Rogers – is a long-time champion of the behavioral approach to C&E. I recommend the interview to you, not only for its behavioral-related insights but also for the ideas and information it has about the C&E field generally.

CEOs’ ethics: what’s new

In the past week, three stories relating to CEOs caught my attention.

The first was a recent report by the research organization MSCI on CEO compensation, the summary of which provides: Has CEO pay reflected long-term stock performance? In a word, “no.” Companies that awarded their Chief Executive Officers higher pay incentive levels had below-median returns, based on a sample of 429 large-cap U.S. companies observed from 2005 to 2015. On a 10-year cumulative basis, total shareholder returns of those companies whose total summary pay was below their sector median outperformed those companies where pay exceeded the sector median by as much as 39%.

While stunning, this is not completely a surprise. High-profile examples of CEOs being lavishly paid for poor performance are plentiful, as noted in this piece in ZME Science.  And it is an issue of some consequence from a C&E perspective: while not a topic covered in most companies’ codes of conduct, fairness in executive compensation is surely an “ethics issue” for millions of American and other workers – indeed, one which eclipses in significance areas that are frequently in codes (including conflicts of interest).

The second story of note in the past week was in a post on the Harvard Corporate Governance Blog by Robert H. Davidson,  Assistant Professor at Georgetown University McDonough School of Business, based on a recent paper he wrote with Aiyesha Dey, Associate Professor of Accounting at University of Minnesota Carlson School of Management; and Abbie J. Smith, Professor of Accounting at University of Chicago Booth School of Business. Davidson’s summary of their research includes the following: We … examine whether materialistic CEOs [defined as CEO’s who have relatively high luxury item ownership] head firms with lower [Corporate Social Responsibility] scores and find that firms led by materialistic CEOs have lower CSR scores in all five CSR categories and a lower aggregate score. Firms with materialistic CEOs have fewer CSR strengths and more CSR weaknesses, with the magnitude greater regarding CSR strengths. in CSR weaknesses.

This, too, was, not a total shock, but is nonetheless noteworthy given how important good  corporate deeds can be to addressing many of society’s ills. The study’s finding was also depressing, since it is hard (but not impossible) to imagine many corporate directors putting to use the central insight of the piece, i.e., that in considering candidates for CEO their respective companies might wish to steer clear of those with a lavish lifestyle.

Third, and also courtesy of the Harvard blog, was this post  by Quinn Curtis, Associate Professor at University of Virginia School of Law, based on paper he authored with Justin J. Hopkins, Assistant Professor at University of Virginia Darden Graduate School of Business Administrations. Curtis writes: Corporate directors who suspect malfeasance by managers may face conflicting incentives. On the one hand, encouraging transparency and demonstrating diligence by pressing for the investigation and disclosure of problems might be rewarded with re-election, appointment to seats on other boards, and greater shareholder support. On the other hand, revealing misconduct could draw negative attention to the company and result in worse career outcomes for directors. In Do Independent Directors Face Incentives to Monitor Executives? we empirically examine whether directors who publicly demonstrate diligent monitoring are rewarded. Our findings cast doubt on whether directors face strong incentives to monitor. Instead, our results suggest that directors sometimes benefit from looking the other way when they suspect problems.

Taken together, these three studies paint a picture of there being many CEOs whose greed hurts both shareholders and society, and of directors who for institutional reasons may not be up to the job of reining them in.

I would not go so far as to call this a “rigged system,” as Donald Trump has robbed that phrase of its meaning – at least for the moment. But addressing the infirmities described in these studies will require a lot of effort – and certainly more clout than the C&E profession can currently muster.

 

Should there be an “Open Payments” Database for Healthcare Executives?

By Bill Sacks

[We are very pleased to have this guest post from Bill Sacks, Vice President, COI Management at HCCS.  He can be reached  at Bill.Sacks@healthstream.com.]

Many individuals personally involved in the healthcare industry are familiar with the “Open Payments” database published each year by the Center for Medicare and Medicaid Services (CMS). This database, sometimes referred to as the Physician “Sunshine” database, was created as a part of the Affordable Care Act in 2010, and requires that pharmaceutical companies and medical device manufacturers report payments made to physicians and teaching hospitals for services such as promotional talks, consulting, research and royalty agreements.

On June 30th this year, CMS released payment data covering the period from January 1, to December 31, 2015. Companies reported more than $7.5 billion in payments from 1,456 companies to 618,000 physicians and 1,110 Teaching Hospitals. Within two weeks, local newspapers around the country were reporting on payments to their local physicians with headlines like these:

“St. Louis area physicians dominate list of Missouri docs receiving industry money” (St. Louis Post Dispatch)

“Iowa doctors get more than $12.6 million in outside payments” (The Gazette)

“Analysis: More than 80 percent of doctors at three Arizona hospitals accept drug-company payments” (The Republic)

and

“South leads the nation in drug and device company payments to doctors” (USA Today)

The database is doing its job: It is bringing attention to payments made to physicians, giving patients the ability to take those payments into account when selecting a physician or a course of treatment, and possibly influencing whether a physician agrees to accept payments and valuable perks in the future.

However, lately I have seen some different types of headlines and stories:

“Hospital CEO in the hot seat over hefty outside board compensation

Medical Center CEO is under scrutiny for receiving $5 million in stock and cash in recent years for being a board member of companies that do business with the hospital.” (San Francisco Business Times)

and

“Conflict of interest: Academic leaders on US healthcare industry boards

Researchers looked at 279 academically affiliated directors on the boards of 442 companies in 2013. These leaders included 17 CEOs and 11 vice presidents or executive officers of health systems and hospitals, as well as 15 university presidents and eight medical school deans or presidents. On average, these leaders earned $193,000 a year and got at least 50,000 shares of stock in exchange for serving on the boards.

In total, they earned $55 million in compensation and owned roughly $60 million in stock options.” (FierceHealthcare)

 These articles reveal, on the basis of disclosures made by the executives themselves, payments from industry in the hundreds of thousands, and even millions of dollars for Board participation, consulting, and other services. These payments are made by the same companies that are required to report payments to physicians with the goal of eliminating, or at least mitigating, potential conflicts of interest. Yet there is no corresponding requirement that companies report payments to healthcare executives, who may, all things considered, have as great or greater influence on how healthcare dollars are spent.

It is highly unlikely that a mandate requiring that payments to healthcare executives be reported publicly would be proposed or acted on in an election year, but perhaps we should put the topic on the table for consideration at some point after the dust settles in November.

If Trump becomes President

In the fourth volume of his biography of Lyndon Johnson  Robert Caro describes how, once in office, the President put his extensive personal business interests into a blind trust… but also took steps to manage those interests on the sly, including having “a private line installed in the White House so he and the trustee could talk without their conversations being taped or made part of the official record.” What would a President Trump do from a conflict of interest perspective with his business interests – which are more varied and valuable than Johnson’s were?

At the outset, it should be noted that federal COI  laws do not apply to Presidents, as described in this recent Wall Street Journal article.  But, for ethical and presumably political reasons Presidents have sought to address actual, apparent and potential COIs through the use of blind trusts (or, in the case of Johnson, what might be called the appearance of a blind trust).

However, this approach doesn’t necessarily work for all types of property interests.  As noted last month in an NPR story: “A blind trust works for liquid assets: stocks, bonds, other financial instruments. Trump has plenty of those, but his biggest assets are all about the Trump brand. The golf courses, high-rises and so forth can’t be easily unloaded. Dropping the Trump name would very likely reduce their value. Bowdoin College government professor Andrew Rudalevige said, ‘To put your identity into a blind trust is a little bit difficult.’ And as Washington ethics lawyer Ken Gross said, ‘You can’t get amnesia when you put it into a trust, and forget you own it.’”

What is Trump’s view of an acceptable blind trust to address these issues? According to the LA Times, he “has said repeatedly that he would have his children manage his enterprises if he became president,…” However, “experts doubt that would be enough distance to remove suspicion. The Office of Government Ethics, which oversees conduct for the executive branch, specifically states that a blind trustee cannot be a relative, and more generally warns about government officials’ actions that could benefit the financial interests of family members.  Indeed, given that FCPA cases have been brought where the corrupt attempt to influence official conduct was hiring a government employee’s family member this does not seem like a cure at all. (The late Mayor Daley – when caught giving government business to a son  – famously said,  “If I can’t help my sons, then [my critics] can kiss my ass. I make no apologies to anyone.”  Could anyone rule out a President Trump saying something similar?)

What might the actual COIs be in a Trump presidency? One interesting possibility was identified in an article in Mother Jones last month: “the presumptive GOP nominee …has a tremendous load of debt that includes five loans each over $50 million… Two of those megaloans are held by Deutsche Bank, which is based in Germany but has US subsidiaries. And this prompts a question that no other major American presidential candidate has had to face: What are the implications of the chief executive of the US government being in hock for $100 million (or more) to a foreign entity that has tried to evade laws aimed at curtailing risky financial shenanigans, that was recently caught manipulating markets around the world, and that attempts to influence the US government?” An interesting question indeed.

Would a President Trump be influenced by this potential COI? In light of some of the statements he made during the time he was “self funding” his campaign, it is clear that he believes financial ties can influence how politicians act. Moreover, given the behavioral ethics phenomenon of “loss aversion,”  COIs arising from being in debt could be seen as potentially more impactful than are those involved with receiving contributions (although this is concededly a somewhat speculative observation).

This is just one potential COI. Others, according to the LA Times story, include “if a future Trump administration, for example, declared a parcel next to a Trump golf course as public land, causing the value of his golf property to triple; or if a President Trump had dealings with a leader of a foreign country where businessman Trump operates a casino.” And, from a story in The Real Deal: “The Trump Organization …has a 60-year lease with the federal government at a former Washington D.C. post office, where it developed and now operates the Trump International Hotel. If the hotel failed to make its lease payments or violated its lease in another way, would a federal agency be tasked with going after it and crossing the commander in chief?”

Additionally, while the federal COI statute does not, as mentioned above, apply to Presidents, other laws might be relevant to COI-type behaviors. As noted in The Real Deal: “If Trump does actually make it to the White House, one thing he’d need to examine is a little-known Constitutional provision called the Emoluments Clause. The clause — which dates back to 1787 and was meant to bar U.S. government officials and retired military personnel from accepting royal titles in foreign countries — has in recent years been interpreted far more broadly to ban accepting any kind of gift from a foreign entity. And the definition of ‘gift’ has also broadened in scope….For Trump, the provision could get him in hot water if, say, a foreign government offered a tax break to one of his overseas sites in a way that was perceived to be a gift or an act of favoritism. The GOP frontrunner owns golf courses in Ireland and Scotland (in addition to Florida, New Jersey and elsewhere), and while it’s not clear if the overseas holdings receive any tax breaks, many of his courses benefit from them stateside.”

Finally, note that I am not suggesting that this is good fodder for a political attack by the Democrats.  Hillary has too many problems of her own COI-wise.  Rather,  I write because  it certainly is interesting – and as challenging from a COI management perspective  as any set for circumstances of which I’m aware.

.

Specialty bias

A recurring theme in Doonesbury during the presidency of George W. Bush was that whatever the challenge he was faced with the President would respond by cutting taxes for the wealthy. The reason was not nefarious, according to the comic strip. Cutting taxes was simply what he knew best how to do.

In a column in Sunday’s New York Times Cornell professor Sunita Sah writes of various studies she has conducted showing that disclosure of conflicts of interest can in some instances exacerbate – rather than mitigate – the harmfulness of such conflicts. Most interesting to me in Sah’s article was the interplay of disclosure and the phenomenon of “specialty bias.” She writes:

My latest research, published last month in the Proceedings of the National Academy of Sciences, reveals that patients with localized prostate cancer (a condition that has multiple effective treatment options) who heard their surgeon disclose his or her specialty bias were nearly three times more likely to have surgery than those patients who did not hear their surgeon reveal such a bias. Rather than discounting the surgeon’s recommendation, patients reported increased trust in physicians who disclosed their specialty bias. Remarkably, I found that surgeons who disclosed their bias also behaved differently. They were more biased, not less. These surgeons gave stronger recommendations to have surgery, perhaps in an attempt to overcome any potential discounting they feared their patient would make on the recommendation as a result of the disclosure. Surgeons also gave stronger recommendations to have surgery if they discussed the opportunity for the patient to meet with a radiation oncologist. This aligns with my previous research from randomized experiments, which showed that primary advisers gave more biased advice and felt it was more ethical to do so when they knew that their advisee might seek a second opinion.

Like most behavioral ethics findings, there is logic to this seeming illogic. And for those working in the healthcare field understanding this logic is critically important to minimizing the impact of bias. This logic is presumably also important to understanding bias in the financial advisory world.

Moreover, even for C&E officers not working with companies having COIs involving professional advisors – which differ in various key respects from the types of COIs most frequently found in business organizations generally (such as hiring relatives) – gaining the broader understanding that behavioral ethics offers into how humans function on issues of right and wrong can be invaluable.

In that connection, it is interesting to consider how in many companies C&E officers’ day-to-day work has little to do with addressing biases (other than the few types that can have legal implications – such as racial bias)  or indeed fairness generally. Perhaps this will change if, as the profession matures, the ethics component of C&E becomes better appreciated by business leaders and the government.

 

 

Compliance officer pay: the government speaks

In my latest column in Compliance & Ethics Professional (page 2 of this PDF) I discuss recently articulated governmental expectations regarding  C&E officer pay – and the related issue of how “tough” C&E officers need to be.

I hope you find it useful.