What’s new in managing conflicts of interest

Most organizational or other types of ethical standards (e.g., professional ones) do not have a zero tolerance approach to COIs.  That is as it should be: many COIs can be managed without too much difficulty – and the benefits of a zero tolerance regime in these instances would likely be outweighed by the costs.  But sometimes managing a conflict of interest does pose considerable challenges, as illustrated by two recent stories from very different contexts.

First, as reported in the Wall Street Journal this past week: “At Hillary Clinton’s confirmation hearing for secretary of state, she promised she would take ‘extraordinary steps…to avoid even the appearance of a conflict of interest.’ Later, more than two dozen companies and groups and one foreign government paid former President Bill Clinton a total of more than $8 million to give speeches around the time they also had matters before Mrs. Clinton’s State Department, … Fifteen of them also donated a total of between $5 million and $15 million to the Bill, Hillary and Chelsea Clinton Foundation, the family’s charity, according to foundation disclosures. In several instances, State Department actions benefited those that paid Mr. Clinton…”

The Journal does caution that it is aware of no evidence of a quid pro quo involving the speech fees or donations. But still, and as described more fully in the piece, the appearance of COIs seems strong.

The story further describes how “[t]he Clintons struck an agreement with the Obama administration to allow State Department ethics officers to check for conflicts between speech sponsors and Mrs. Clinton’s government work….” Such reviews were conducted by career civil servants at State – not political appointees, and did result in a few speech requests being rejected, including potential appearances sponsored by North Korea, China and the Republic of Congo.

But while better than nothing, this hardly seems enough, as it is unrealistic to ask an employee of any organization to make a decision that could cost the head of the organization vast sums of money (through her marriage). While they may rise to the occasion when presented with truly egregious cases (e.g., taking money from the North Korean government),  preventing actual or apparent COIs requires a more effective compliance regime than this.  At least in the private sector, a COI-related decision about a CEO and her spouse would almost certainly involve the board of directors – as they are not subordinate to the CEO the way that an ethics officer is. Perhaps there is a lesson that the public sector can learn from the private one.

On the other hand, while clout is necessary for monitoring COIs effectively, it is generally not sufficient – and boards of directors don’t always do a good job in this area either.  A recent case from Delaware Supreme Court –  In re Rural/Metro Corp. Stockholders Litigation, as summarized in this post by an attorney from Orrick, Herrington & Sutcliffe on the Harvard Law School Forum on Corporate Governance and Financial Regulation  – underscores this.

The case involved conflicts of interest on the part of a financial advisor to a company (and not a CEO), the  specifics of which are less important (at least to me) than is the following italicized (by me) portion of that summary:  “While a board will not be liable any time it fails to discover conflicts of interest on the part of its financial advisors, the Court’s decision reaffirms that a board has an affirmative duty to take sufficient steps to uncover any conflicts of its advisors, including by requesting ongoing disclosure of material information that might impact the board’s decision-making process.” This is a technical compliance point, but an important one.

Indeed, requiring ongoing disclosure of COI-related information should be seen as a necessary component of any monitoring regime (not just those involving financial advisors).  But I would bet that many organizations – public and private – fall short in this regard. The holding should prompt C&E personnel to review monitoring related provisions of COI policies/procedures to see if the ongoing disclosure piece is adequate.

These are two very different stories – and two different lessons, one having to do with the “will” of COI mitigation and the other the “way.”  But together they help remind those involved in any aspect of monitoring COIs of the need to develop approaches that are truly up to the often difficult task at hand.

(For further reading on COI  disclosure and management see the posts collected here.)

Leave a comment
*
**

*



* Required , ** will not be published.

*
= 4 + 3