Nonmonetary conflicts of interest

In “Using behavioral ethics to curb corruption” – recently published in Behavioral Science & Policy – Yuval Feldman of Bar-Ilan University notes  that “Classic studies on the corrupting power of money focus on politicians influenced by campaign donations and on physicians whose health care decisions are affected by the receipt of drug industry money and perks. In contrast, more recent studies have analyzed situations where a government regulator has no financial ties to a private entity being regulated but does have social ties to the organization or its members, such as sharing a group identity, a professional background, a social class, or an ideological perspective. In that situation, regulators were likely to treat those being regulated more leniently. Thus, even relatively benign seeming tendencies that regulations tend to ignore—such as giving preference to people having a shared social identity—could be as corrupting as the financial ties that are so heavily regulated in most legal regimes.”

Feldman cites two studies that support this view: “In 2014… investigators in the Netherlands showed that regulators in the financial sector who had previously worked in that sector were less inclined to enforce regulations against employees who shared their background. Similarly, in a 2013 look at the regulation of the U.S. financial industry before the 2008 crisis, James Kwak noted that the weak regulation at the time was not strictly a case of regulatory capture, in which regulatory agencies serve the industry they were meant to police without concern for the public good. Some regulators, he argued, intended to protect the public, but cultural similarities with those being regulated, such as having graduated from the same schools, prevented regulators from doing their job effectively. In such instances, people often convince themselves that their responses to nonmonetary influences are legitimate, mistakenly thinking that because such influences usually go unregulated, they are unlikely to be ethically problematic.”

I agree that the danger posed by nonmonetary COIs tend to be underappreciated and have tried to make this point in prior posts. Included are: glory as a conflict of interest,  and friendship and COIs (discussed in the second case in this post).

But perhaps the most interesting case of a nonmonetary COI to appear in this blog  concerned an issue of “director independence in an internal investigation [that] arose several years ago in a case brought by the shareholders of Oracle [against the company’s board]. There, the Delaware Court of Chancery ruled that a board special litigation committee consisting of two Stanford professors could not be considered independent in an internal investigation concerning alleged insider trading by fellow board members, because the target directors had close ties to that university: ‘It is no easy task to decide whether to accuse a fellow director of insider trading,’ the court wrote, and for the company to have compounded ‘that difficulty by requiring [special litigation committee] members to consider accusing a fellow professor and two large benefactors of their university’ of a criminal act was ‘inconsistent with the concept of independence recognized by our law.’”

Feldman closes his discussion of this issue with a call for “[a]dditional controlled research … on  the ways that nonmonetary influences cause corruption and on how they can lead people to engage unwittingly in wrongdoing.” I agree, but also think using the research that is already available, compliance and ethics officers can deploy internal education about nonmonetary COIs into policies, training and other C&E communications and investigation/discipline protocols.

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