Conflicts

In this section of the blog (and the various sub-categories below) we will examine the many ways in which interests can conflict for COI purposes.

The cost of director and officer conflicts of interest just went up

In the vast realm of conflicts of interest those involving boards of directors tend to stand out. That is because part of the reason the role of corporate director even exists is to mitigate the conflict-of-interest-type tensions (which fall under the broad heading of “agency problems”) that managements may have vis a vis shareholders.  Moreover, while the role of officers obviously differs somewhat from that of director, the duty of loyalty that both owe shareholders is the same.

Director and officer COIs can arise in many settings but often the most consequential of these involves mergers. And, as described in a post last week in the D&O Diary:  ”Within the past few days, two merger objection settlements – one involving Activision Blizzard, Inc. and the other involving Freeport-McMoRan, Inc. — have been announced involving massive cash payments,… The Activision settlement may represent the largest cash settlement payment ever in a shareholder derivative lawsuit.” The post further describes that “[t]he common feature of these two cases that may account for the magnitude of the cash payments seems to be the conflicts of interest that were alleged to be part of the challenged transactions.”

The specific facts of these two cases – both of which are complex, as COI cases involving mergers typically are – may be less important than is what they (and another one last year involving News Corp, which is discussed in the same post) may mean for insurance costs to companies: “The rise of jumbo shareholder derivative lawsuit settlements has a number of implications. Among other things, it is a topic that will have to be taken into account as D&O insurance buyers consider how much insurance they will need to ensure that their interests are adequately protected.”

While most directly relevant to risk managers and others in companies in charge of securing D&O coverage,  I think C&E professionals also need to know about this development – because directors and officer of their companies  likely will and will be concerned about it.  And, hopefully this awareness will contribute to a greater overall sensitivity at high levels in companies to COIs generally – meaning that this may be a good time to train (or retrain – or schedule training of) your directors and officers on COIs.

For those looking to develop such training, here is a prior post on that topic.  And here are some other posts, portions of which might provide helpful ideas or information for training boards on COIs:

- Friendship – and the ties that blind (directors to conflicts of interest).

- CEOs’ ethical standards and the limits of compliance.

- Are private companies more ethical than public ones?

- Catching up on the backdating cases

- Behavioral ethics training.

- Catching up on CEO COIs.

- Catching up on director COIs.

- The largest derivative lawsuit settlements (from the D&O Diary).

Here are some pertinent words of wisdom from two good friends of the blog: Steve Priest (on keeping ethics training real) and Scott Killingsworth (on mitigating C-Suite risks).

Finally, if you are training your board, and want to use the occasion to look beyond the COI area to general C&E oversight by directors this recent article by Rebecca Walker and me  from Compliance and Ethics Professional magazine might be useful.

 

 

C&E officer reporting relationships: a tale of two recent surveys

More than a decade ago, Iowa senator Charles Grassley famously said of a company’s general counsel also serving as its compliance officer: “It doesn’t take a pig farmer from Iowa to smell the stench of conflict in that arrangement,…” And since then, there has been a lively (albeit not always as colorfully expressed) debate involving C&E practitioners, lawyers and others concerning the issue of to whom should the C&E officer report.

Earlier this month a survey conducted by NYSE Governance Services and the SCCE  captured considerable attention in the C&E field with its finding that 38% of  persons “with overall responsibility for the compliance program” in their companies reported to the CEO, 19% reported to the board of directors and only 18% did so to the general counsel. This led the Wall Street Journal to proclaim: “Legal [is] losing its grip over risk and compliance.”

However, two caveats should be borne in mind here. First, the specific question in question – “To whom does the person with overall responsibility for the compliance program report?” – could be read to include merely informational reporting (i.e., the C&E officer meets periodically with the CEO) as opposed to the more significant administrative kind (i.e., the CEO is the supervisor of the C&E officer). Having heard  many C&E officers speak over the years about their reporting relationships in a way that uses the two types interchangeably I would be surprised if this ambiguity didn’t account for a slice (and perhaps a large one) of the CEO and BOD numbers.  Second, nearly a third of the survey respondents were from the “health care and social assistance fields” – which is much higher than the percentage of such organizations in the economy generally; this is significant because, for regulatory reasons, reporting to the BOD and CEO are more common than in these types of entities than in most others.

A less noticed but no less notable contribution to this debate was the report of a survey published only a few weeks earlier by Mitratech (a provider of  enterprise legal management solutions for legal departments).  While not posing the same question that the NYSE Governance Services one did, this report noted (among other things) that “[t]he legal department owns the enterprise compliance function in 40% of respondents’ organizations and owns a portion of compliance functions in another 24% of organizations” and also that “[t]he role of the legal department in enterprise compliance is increasing as the responsibilities of the Chief Compliance Officer (CCO) and General Counsel become more tightly intertwined.”  These results feel closer to the actual practices I’ve seen in business organizations than do those in the other survey.

Granted, I have never been a pig farmer from Iowa, but I have been around this issue for a long time (my first experience with it dating back to the mid-1990’s when I was asked by a client whether the C&E officer should report to the GC or its Chief Operating Officer). Based on my experience since then, I can say with some confidence that there is no one-size-fits-all approach to the question of to whom the C&E officer should report.

Certainly, in a company where the GC herself is likely to be a source of risk then the case for independent reporting is clear enough. (This is not about the GC being honest as an individual but, rather,  giving advice regarding or otherwise playing a role in company activities that are relatively likely to be scrutinized in an enforcement context.)   Also, in industries where the government has expressed a preference for not including the GC in the C&E officer’s line of administrative reporting, then that is entitled to a fair bit weight. And, where employees are likely to see the GC as an aggressive defender of the company’s interests – which is sometimes the case where the company is the subject of high-profile litigation – then having the C&E officer subordinate to the GC could inhibit employees reporting suspected wrongdoing.

But there are many other situations where not reporting to the GC would effectively make the C&E officer an organizational “orphan,” because the CEO or BOD – who have a  vast array of responsibilities – would in fact do less for her (and the program) than would a GC whose duties and skill set naturally lend themselves to promoting C&E.   Indeed, I recall one case where the C&E officer did in fact report administratively to the audit committee;  it was a well-intended approach, but the committee gave him little day-to-day guidance, which sadly seemed to contribute to his losing his job. More generally, as C&E program requirements increasingly become part of the sinews of US business law (a trend that seems inevitable), then the case for administrative reporting to the GC may actually be enhanced.

Finally, even if a company does opt for this latter approach, care must be taken to protect the C&E officer’s independence – both actual and apparent – through other means.  One of these is having her reporting periodically to the relevant BOD committee in executive session.  Another is to provide that the C&E officer’s duties and compensation cannot be adversely affected without prior approval of such committee.  Finally, a GC to whom a C&E officer reports should take steps to ensure program independence by other members of the law department – such as through training them on their “reporting up” obligations under S-Ox section 307.

(For additional reading on BOD oversight of C&E programs please see this post by my partner Rebecca Walker and me on the Harvard Law School corporate governance blog.)

Conflicts of interest, compliance programs and “magical thinking”

An article earlier this week in the New York Times takes on the issue of “Doctors’ Magical Thinking about Conflicts of Interest.”  The piece was prompted by a just-published study  which examined “the voting behavior and financial interests of almost 1,400 F.D.A. advisory committee members who took part in decisions for the Center for Drug and Evaluation Research from 1997 to 2011” and found a powerful correlation between a committee member having a  financial interest (e.g., a consulting relationship or ownership interest ) in a drug company whose product was up for review and the member’s voting in favor of the company – at least in circumstances where the member did not also have interests in the company’s competitors.

Of course, this is hardly a surprise, and the Times piece also recounts the findings of earlier studies showing strong correlations between financial connections (e.g., receiving gifts, entertainment or  travel from a pharma company) and professional decision making (e.g., prescribing that company’s drug). Nonetheless, some physicians “believe that they should be responsible for regulating themselves.”

However, such self regulation can’t work, the article notes,  because “our thinking about conflicts of interest isn’t always rational. A study of radiation oncologists  found that only 5 percent thought that they might be affected by gifts. But a third of them thought that other radiation oncologists would be affected.  Another study asked medical residents similar questions. More than 60 percent of them said that gifts could not influence their behavior; only 16 percent believed that other residents could remain uninfluenced. This ‘magical thinking’ that somehow we, ourselves, are immune to what we are sure will influence others is why conflict of interest regulations exist in the first place. We simply cannot be accurate judges of what’s affecting us.”

While the findings of these and similar studies are, of course, most relevant to conflicts involving doctors and life science companies, there is a broader learning here which, I think, is vitally important to C&E programs generally.  That is, they help to show that “we are not as ethical as we think” – a condition hardly limited to the field of medicine or to conflicts of interest, as has been discussed in various prior postings on this blog.

One of the overarching implications of this body of knowledge is that we humans need structures – for business organizations this means  C&E programs, but more broadly these have been called “ethical systems” – to help save us from falling victim to our seemingly innate sense of ethical over-confidence.  So, to make that case, C&E professionals should – in training or otherwise communicating with employees (particularly managers) and directors  - address the issue of “magical thinking” head-on.

Moreover, using the example of COIs to prove the larger point here may be an effective strategy, because employees are more likely to have experience with ethical challenges in this area  than with other major risks, such as corruption, competition law or fraud – which indeed may be so scary as to be largely unimaginable to many employees.  I.e., these and other “hard-core” C&E risk areas might be subject to an even greater amount of magical thinking than is done regarding COIs.  So, at least in some companies,  discussing COIs might offer the most accessible “gateway” to addressing the larger topic of ethical over-confidence.

Conflicts of interest and “the social nature of humans”

Private supply chain auditing continues to serve an increasingly important role in compliance and ethics efforts worldwide.  A recent working paper from the Harvard Business School  – “Monitoring the Monitors: How Social Factors Influence Supply Chain Auditors,” by  Jodi Short, Professor of Law at the University of California Hastings College of the Law; Michael Toffel of the Technology and Operations Management Unit at the Harvard Business School; and Andrea Hugill of the Strategy Unit at the Harvard Business School – examines various factors that impact the efficacy of such audits.  The paper can be downloaded from SSRN and a summary of it can be found on the Harvard Corporate Governance web site.

For this study, the authors conducted a review of “data for thousands of code-of-conduct audits conducted in over 60 countries between 2004 and 2009 by one of the world’s largest social auditing companies, …”  They found that “auditors’ decisions are shaped not only by the financial conflicts of interest that have been the focus of research to date, but also by social factors, including auditors’ experience, professional training, and gender; the gender diversity of their teams; and their repeated interactions with those whom they audit.”  The authors state that this  “finer-grained picture suggests that audit designers should moderate potential bias and increase audit reliability by considering the auditors’ characteristics and relationships that we found significantly influencing their decisions,” and also that these findings “should likewise inform the broader literature on private gatekeepers such as accountants and credit rating agencies.”

Indeed, and beyond the scope of the paper, a focus on social – and not just economic – ties may be key to assessing various  independence issues regarding boards of directors.  In an important decision from 2003 involving a derivative action brought by shareholders of Oracle Corp., then Vice Chancellor Leo Strine noted: “Delaware law should not be based on a reductionist view of human nature that simplifies human motivations on the lines of the least sophisticated notions of the law and economics movement.  Homo sapiens is not merely homo economicus.  We may be thankful that an array of other motivations exist that influence human behavior; not all are any better than greed or avarice, think of envy, to name just one.  But also think of motives like love, friendship, and collegiality, think of those among us who direct their behavior as best they can on a guiding creed or set of moral values,” adding, “[n]or should our law ignore the social nature of humans.”

Finally, thanks to friend of the blog Scott Killingsworth for recently reminding me of the Oracle decision;  here’s an earlier post about the Oracle case, albeit with a different focus; and here is a post briefly discussing (and linking to) a paper by Jon Haidt and colleagues about business ethics implications of a model of human nature called “Homo Duplex,”  a term coined by the sociologist/psychologist/philosopher Emile Durkheim, which posits that we operate on (or shift between) two levels: a lower one – which he deemed “the profane,” in which we largely pursue individual interests; and a higher – more group-focused – level, which he called “the sacred.”

Friendship – and the ties that blind (directors to conflicts of interest)

King Herod the Great had something of a problem: he had backed the losing side in the contest between Marc Antony and Octavian to rule Rome,  and now fully expected to lose his life for it.  But, as described in Jerusalem: the  Biography, by Simon Sebag Montefiore,  when they met he cleverly asked Octavian “not to consider whose friend he had been but ‘what sort of friend I am.’”  Octavian was evidently persuaded by this, for not only was Herod’s life spared but the size of his kingdom was increased.

Loyalty is, of course, fundamental to friendship.  But, while potentially more physically dangerous in the Roman Empire than it is today, friendship in our world can be ethically treacherous.

In “Will Disclosure of Friendship Ties between Directors and CEOs Yield Perverse Effects?”  (to be published in the July 2014 issue of the Accounting Review), Jacob M. Rose, Anna M. Rose, Carolyn Strand Norman and Cheri R. Mazza  describe how they conducted thought experiments involving both actual corporate directors and MBA students to determine  whether “directors who have  friendship ties with the CEO [are more likely that are directors without such friendships] to manage earnings to benefit the CEO in the short term while potentially sacrificing the welfare of the company in the long term” and also whether “public disclosure of friendship ties mitigate or exacerbate such behavior, and will disclosure of friendship ties influence investors’ perceptions of director decisions.”

Sadly but not surprisingly, their research  found “that friendship ties caused directors to be more willing to approve reductions to research and development (R&D) expenses that cause earnings to rise enough to meet the CEO’s minimum bonus target more often than  when the directors and CEO were not friends.” Seemingly more of a surprise, they also found that “disclosing friendship ties resulted in even greater reductions in R&D expenses and higher CEO bonuses than not disclosing friendship ties.”

But this latter finding is not so surprising – given other  behavioral research showing that disclosure can “morally license” individuals  to act inappropriately when faced with a conflict of interest ( as discussed in this   and other prior posts.) As described in a recent piece in the NY Times  by Gretchen Morgenson, one of the study’s authors explained: “When you disclose things, it may make you feel you’ve met your obligations…They’re not all that worried about doing something to help out the C.E.O. because everyone has had a fair warning.”

Morgenson added: “There are two messages in this study. One is for regulators: Simply disclosing a conflict or friendship does not eliminate its potential to create problems. The other,” again quoting one of the study’s authors (but echoing Herod) “is for investors: ‘Shareholders should take a more active role in finding out what kinds of relationships their boards and C.E.O.s have…and recognize the potential traps created by them’.”

For more on conflicts of interest and directors see the posts collected here .

 

Fathers and children

With Father’s Day coming up this weekend, it seems like a good time to check in on conflicts of interest that can arise from arise from being a dad. Given the powerful instincts at work, parenthood is indeed fertile ground for COIs, as illustrated by the immortal words of the first Mayor Daley, who, in speaking to colleagues on the  Cook County Democratic Committee, defended his having directed a million dollars of insurance business to an agency on behalf of his son John by saying: “If I can’t help my sons, then [my critics] can kiss my ass. I make no apologies to anyone.”  

In the past year, the biggest COI story involving fathers has been the investigation into hiring of Chinese “princelings” by investment banks – and there is no sign of this story going away any time soon. The most recent addition (just in the past week) to the list of those apparently under scrutiny for such practices is  Deutsche  Bank. And, in what is apparently another recent development relating to this inquiry, the former head of JP Morgan’s  investment bank in China was arrested in late May.  However, one should not paint with too broad a brush here, as when it comes to the legality  and ethicality of hiring relatives the devil will likely be in the details – meaning that while some banks may well have crossed applicable legal/ethical lines  others that hired “princelings” could still have acted appropriately (depending on  a wide variety of relevant factors).

The most troubling of other recent fatherhood COI stories concerns the award of the 2022 World Cup to Qatar, in which football legend Michael Platini – a member of the  FIFA  executive committee – played a role. As noted in The Telegraph: “Mr Platini’s son Laurent became the chief executive of Burrda, a Qatar owned sports company” not long after the father’s vote in favor of Qatar’s candidacy,  although the latter has denied that there is any connection between the two events.

Out of fairness to the Platinis, I need to emphasize, first, that the controversial employment of the son was previously known; what is new is a wide variety of other troublesome facts about the choice of Qatar that have only recently surfaced – that may frame how one looks at this hiring; and, second, that a special investigator hired by FIFA is apparently due to submit his report on the matter by the end of July – after which more definitive ethical judgments can be made.  However, even if the hiring of the son is ultimately found to have been done with the purest of intentions, there is a more general learning  worth noting here – which is that, when gauging the possible appearance of a COI, consider if there may be a broader context (i.e, one that is beyond your control – or even current understanding) that, upon becoming known, might influence how others ultimately see the ethicality of one’s actions. (For more on the difficulty of mitigating apparent COIs see this earlier post.)

Finally, the most recent father-and-son COI issue to surface in the US comes to us courtesy of Fox News:  “Vice President Joe Biden’s visit Saturday to Ukraine in support of the country’s new democratic government is renewing concerns about his youngest son being hired by a Ukraine company promoting energy independence from Moscow. Hunter Biden will be working for the company while his father and others in the Obama administration attempt to influence energy policies and other issues of the new government, which is gripped in a struggle with Russia and pro-Russian separatists to control the county.” The article also points out: “American conflict-of-interest laws and federal ethics rules essentially do not regulate the business activities of adult relatives of those who work in the White House, and there’s no indication that the situation crosses legal or ethical lines.”  Still, there is presumably a little of the late Mayor Daley in all of us fathers, so this bears watching.

Spanking bankers for conflicts of interest. Again.

Two years ago the Delaware Chancery Court had harsh words about Goldman Sachs’ advising El Paso Corporation on a possible sale of the company while also having an ownership interest in the buyer.   Ultimately, the bank lost a $20 million fee due to this and other conflicts.

Goldman’s ethical lapse was not unique in the banking world.  Indeed, just a few months before the El Paso case, Barclay’s paid/gave up claims for about $45 million to settle a lawsuit in the Chancery Court based on its undisclosed dual role  in advising Del Monte on a sale the company while also providing financing to the buyers.  

The most recent addition to the banking COI hall of infamy is the Royal Bank of Canada, which, as described in this Reuters piece, the Chancery Court last week found should be “held liable to former shareholders of Rural/Metro Corp because [the bank] failed to disclose conflicts of interest that tainted the $438 million buyout of [Rural/Metro. The bankers] were so eager to collect higher fees that they convinced Rural/Metro directors to sell the company in June 2011 to private equity firm Warburg Pincus LLC at an unreasonably low” price,  while “conceal[ing] their efforts to provide financing to fund the buyout and other transactions,…” The court will “decide later how much RBC should pay former Rural/Metro shareholders in damages, including possibly damages for bad faith.”

That this could happen after the El Paso and Del Monte cases seems amazing.  But maybe it isn’t – since we’re seeing only the cases where the conflicted bankers got caught.  Perhaps there are many others where the betrayal went undetected and the wrongdoing proved profitable.  If so, the prospect of giving back fees – even large fees – may be a weak deterrent.

A piece on the case in the Wall Street Journal concluded:   “The bottom line is that investment banks that aren’t paying attention the Chancery Court’s continuing admonitions on conflicts will continue to be spanked.”  Yes, but will they be spanked enough to deter future COIs of this sort?

(For those wanting to learn more about the actual spanking, the court’s 91-page opinion can be found here.) 

Apparent and potential conflicts of interest: what’s the difference and why it matters

In addition to addressing actual conflicts, nearly all organizations’ COI standards speak to the need to avoid or disclose apparent conflicts.  Less often covered are expectations regarding potential COIs.

This may be because the two types of conflicts are often considered to be the same.  However, they are two different animals.

Apparent conflicts are, of course, existing situations or relationships that reasonably could appear to other parties to involve a conflict of interest.  They are discussed at some length (with examples given) in this earlier post.

Potential conflicts refer, as a general matter, to situations that do not necessarily constitute or appear to constitute a COI but where there is a reasonable possibility of an actual or apparent COI coming into play.  (I should stress that, given the thousands of laws, regulations and rules regarding COIs, this is not the only definition of a potential COI. But it is reasonably common and, in my view, reasonably logical.)

For instance, where A works at company X, which has as a supplier company Y, and A’s daughter B is considering applying for a job at Y, this is not yet an actual  or apparent conflict because B has not yet moved her job plans forward.  But (depending on a variety of facts not provided in this example)  the potential for a conflict is there.

As noted in this publication from the North Carolina Board of Ethics: “Potential conflicts of interest … are the most misunderstood concept in public service ethics. Many Public Officials give ‘potential conflict’ a negative connotation, when in fact it is neutral. ‘Potential’ [merely] means ‘capable of being but not yet in existence’ – possible.”  The same analysis holds true, I believe, in the private sector context.

Given this widespread misunderstanding, I think it is important to discuss potential (as well as actual and apparent) COIs in codes of conduct, other policies, training and other C&E communications – particularly because, as a practical matter, waiting until a potential COI has ripened into an actual  or apparent one might be too late to achieve a satisfactory resolution of the issue.  Indeed, the need for focusing on potential COIs assumes particular importance in light of certain findings of the emerging field of “moral intuitionism” which is discussed in this recent post.

As noted there, one of the strong moral intuitions humans have is loyalty, and this suggests that when a COI that triggers loyalty instincts  does appear – e.g., a conflict involving a family member, close friend or other individual to whom “in-group” loyalty is felt –  our intuitions might not lead us to deal with it an ethical way. To revert to our hypothetical, it is probably easier and certainly more effective  for A to get guidance from the C&E office about what to say to or ask his daughter B beforehand  about the conflict of interest that could arise from her applying for a job at Y than dealing with the situation after she has already done so  (when, due to is loyalty instincts,  he might well lapse into a defensive mode).

For this reason, preparing in advance to address a conflict may be particularly important.  And focusing on potential COIs in one’s C&E program – again, through the code, other policies, training and other communications – can help make that happen.

An important real-world conflict of interest experiment

In today’s NY Times, Michael Greenstone, an economics professor at MIT, writes about a study on auditor COIs that he –  together with Esther Duflo of M.I.T.;  and Rohini Pande  and Nicholas Ryan, both of Harvard – recently published.   The study was conducted in Gujarat, India, where industrial plants with high pollution risks are required  “to hire and pay auditors to check air and water pollution levels three times annually and then submit a yearly report to” a governmental body. In the study, for a randomly selected set of companies, but not for a control group, “auditors were paid a fixed fee from a central pool of money, a subset of the audits was chosen to have its findings re-examined, and auditors received payments for accurate reports, judged by comparisons with the re-examinations. The control group continued under the status quo system in which auditors were chosen and paid by the plants they were auditing.”

The results of this real-world experiment  powerfully demonstrate the impact on the ethicality of conduct that financial incentives can have – even on the judgment of individuals who, by virtue of their professional norms, are supposed to be resistant to COIs.  That is: “While many of the plants violated the pollution standards, few of the auditors in the control group reported these violations. In the case of particulate matter, an especially harmful air pollutant, auditors reported that only 7 percent of industrial plants violated the pollution standard. In reality, 59 percent of plants exceeded it.” However, “[t]he rules changes [in the experiment] caused the auditors to report more truthfully. In the restructured market, auditors were 80 percent less likely to falsely report a pollution reading as in compliance, and their reported pollution readings were 50 to 70 percent higher than when they were working in the status quo system. This difference was as large even when comparing reports of auditors working simultaneously under the two systems. Finally, and most important, the plants that were required to use the new auditing system significantly reduced their emissions of air and water pollution, relative to the plants operating in the status quo system. Presumably, this was because the plants’ operators understood that the regulators were receiving more accurate information and would follow up on it.”

Three comments on this important study.

First, while most directly relevant to auditors, these results can, I believe, be broadly applicable to COIs generally.  That is, if professionals who are trained to rise above COIs fare this poorly, one can only imagine the impact of COIs on the rest of us.

Second, the more important compliance and ethics program efforts become to society, the greater the need for not just C&E auditing but other forms of checking – such as monitoring, as was discussed in a piece in Corporate Compliance Insights.   But monitoring  (as a general matter) is even less independent than is auditing, so this recent study underscores  the considerable  challenges for making forms of checking beyond auditing effective.

Third, research to determine “what works”   is vitally important for the C&E field to mature and realize its full promise,  and real-world studies such as this one can be particularly valuable in that regard.  Interestingly, another article in today’s NY Times describes how in the UK there is now an government-run effort (headed by a “Behavioral Insights Team”) to use research to determine what works with respect to various public policies, including some compliance-related ones. I hope that the US and other countries will follow the UK’s lead here.

Finally, here is a prior post on auditor COIs

 

Thanksgiving edition: conflicts of interest and cholesterol

For millions of individuals (including me) Thanksgiving is not only a time for giving thanks but also for thinking about cholesterol.  And  if guidelines recently issued by the American Heart Association and American College of Cardiology are followed, the number of us who use  statins – cholesterol reducing drugs – will increase substantially, as described in this piece from Forbes.   But as described in this piece in Time (and also in the Forbes article) “the chair of the panel responsible for the new advice, which many see as favorable to … statins, had previous ties to a number of drug makers that manufacture those very same medications,” as did six of the other fourteen members of the panel.

I should add that the financial ties were duly disclosed and applicable guidelines (issued by the Institute of Medicine) were complied with, in that the guidelines do not prohibit any such COIs – only COIs by a majority of members of a panel.  Still, one cannot help feel uneasy about this situation for several reasons.

First, with respect to the panel’s report, one should not assume that disclosure cures the COI.  Indeed, as described in earlier posts in this blog, behavioral ethics experiments have shown just the opposite – that disclosure may “license” conflicts-inspired decision making.

Second, it is not clear to what extent the disclosures here are sufficiently processed.  As described in this article in MedPage Today by a faculty member at Harvard Medical School: “[A]midst all the late-breaking clinical trial presentations and ask-the-expert sessions, what I didn’t hear were the speakers’ financial conflicts of interest. Don’t get me wrong — the AHA mandates that all speakers present a disclosure slide at the beginning of every talk, and this rule was reliably followed by all presenters … in the following manner: ‘Here are my disclosures’ — PowerPoint slide flashes on screen with a list of pharmaceutical/device companies. Yet, by the time the speaker finishes speaking those four words, the slide deck has already advanced to the next slide. I, and my fellow audience members, didn’t even have enough time to read the disclosures, let alone process them.”

Finally, and on a broader level, COIs of this sort could have a more pernicious effect beyond directly impacting the patients involved, because of the great extent to which health-care costs are borne by the country as a whole.  As discussed in this recent post:

-          there are certain challenges (such as climate change and public debt) that both pose great risks to society as a whole and will require broad-based sacrifice to successfully address; and

-          COIs can imperil the likelihood that all relevant parties will be willing to make such sacrifices.

Health care costs fit into this category, too, and, like the others, key players in these areas have, in my view, a higher (i.e., “Caesar’s wife”) duty when it comes to addressing COIs ethically.