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.

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.

Two conflicts of the apocalypse

The COI Blog has, since its launch in 2011, examined a host of different types of conflicts.  (For those new to the blog, you can explore this “parade of horribles” through the various tabs and sub-tabs to your left on this site.)  But, of course, not all conflicts should be of equal concern. Rather, and as described in this earlier post,  worrisome conflicts typically involve one of several types of “market failures,” as those are the conflicts  for which market mechanisms provide insufficient corrective capacities. Indeed, that is only part of the picture, because while a market failure analysis can explain the likelihood  of an unaddressed COI, the possible impact of a COI is important tooAnd, at the risk of drifting into the realm of politics (which I have tried to keep this blog out of in its young life) there seem to be two areas involving COIs that could have a  truly apocalyptic impact on our society, both politically charged.

One of these is public debt, and particularly the conflict in saddling future generations with an insurmountable debt burden.  Indeed,  two of the principal areas of focus of this blog are highly relevant to the risks here: behavioral ethics, and particularly the phenomenon of overly discounting the future; and moral hazard (i.e., present generation takes the risks, future generations bear the costs).

But in addition to these two structural conflict-like challenges in dealing with public debt there are also plain-old COIs to be identified and addressed.  As noted in an article last week in the NY Times – in discussing an investigation by New York’s financial services superintendent into COIs in the handling of the state’s pension funds – COIs may have played a role in leading Detroit to what is clearly a financial apocalypse: the city’s “municipal pension fund suffered severe losses on real estate investments, among other problems, and now that the city is bankrupt, investigators are trying to find out exactly what went wrong. In some cases, certain Detroit pension trustees were taken on junkets dressed up as investment site inspections. And in one instance, an investment promoter paid a bribe to win pension money for real estate projects in the Caribbean but then spent the money building an $8.5 million mansion in Georgia.”

Of course, whatever COIs may have existed or still exist in any state or municipality likely cannot explain more than a small fraction of the entity’s debt.  But conflicts can undermine the trust and sense of shared sacrifice that will be needed to work our way out of these debts – in the same way that a COI can undermine the sense of organizational justice needed to promote compliance and ethics generally in an organization, as discussed in this post.  Another way to think about this is that COIs not only directly cause individual harms but they can make it harder to prevent and remediate a broad range of harms. For this reason, COIs in the public pension area seem to deserve an extra degree of attention, and investigations like that now taking place in New York are, in my view, worth pursuing.

The other area where – given the potential harmful impact at issue – we need to be extra careful about COIs is, of course, climate change.  Here the prospect of an apocalypse dwarfs even that in the area of public debt.

The principal COI issues here concern the science of climate change, and particularly the extent to which those speaking to those issues as experts have conflicting interests.  This recent post on the web site of the Union of Concerned Scientists– while clearly weighing in on one side of that issue – makes a lot of sense to me, and I urge readers of the COI Blog to read it.

Of course, I’m not a scientist and am in no position to say anything meaningful about the science involved in climate change.  But I do know something about conflicts of interest, and when – as the above post describes – scientists who have no financial interest in the issue are accused of COIs by climate change deniers who receive fossil fuel industry funding, that to me suggests not only a flawed ethical analysis but a strategy of deflecting attention from the merits of the scientific issues at hand.

More generally, given what is at stake in getting such issues right, those involved in all sides of the climate science debate have a particularly important obligation to get the ethics right. And that includes avoiding spurious charges of COIs, which can have the same trust-destroying harmful impact that actual ones do.

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The problem with apparent conflicts of interest

Virtually all codes of conduct prohibit apparent, as well as actual, conflicts of interest.   Apparent COIs are generally seen as less serious than actual ones.   Moreover, many compliance officers and others who conduct internal investigations are familiar with situations where it is hard to prove an actual COI (even where it seems obvious that one exists) but easy to prove the apparent type – the C&E equivalent of “getting Al Capone on a tax charge.”

But while apparent COIs are often easier to prove than actual ones, they may be harder to mitigate.  In that connection, consider the following hypothetical case and question:

X Company is considering using Y Company as a supplier, because Y offers the best goods on the best terms. But Y is owned and operated by A, whose twin brother A Plus is a senior manager of X.  A Plus has nothing to do with purchasing anything for X and rigorous controls are put in place at X to ensure that he doesn’t in any way help Y in its dealings with X.  Does the fact that X has in fact mitigated any actual conflict mean that it has done so with the apparent one?

The analysis in situations such as this turns in part on the question:  Apparent to whom?  For instance, is it well known among X employees and the company’s other suppliers that A and A Plus are brothers (as the case suggests from their being twins and from A Plus’ prominent role in the organization)? If so, then the employees and suppliers  – two groups whose trust companies like X typically have strong reasons to maintain – would likely need to know the particulars of the mitigation measures to believe that that there is nothing to the apparent conflict.  But for various understandable reasons, companies in this sort of situation are often reluctant to publicize their mitigation measures in any detail.  And even if they did, there would be a good chance that the parties to whom the conflict is apparent would be skeptical of the sincerity and efficacy of the effort.

Not all apparent conflicts raise significant challenges of this sort.  However, some present even greater mitigation difficulties than our hypothetical does – such as where the apparent COIs become known to shareholders (as in the Chesapeake Energy case described in previous posts) who are typically a more distant and dispersed group than are employees or suppliers and thus presumably harder to provide comfort to.  But regardless of the particulars of the situation, considering the “apparent to whom” question should be part of every mitigation analysis in addressing apparent COIs.

Finally, note that the concept of “potential COIs” is sometimes used interchangeably with apparent COIs.  However, they are clearly distinct from each other, with the former not having to do with present appearances but with the foreseeability of actual (or apparent) COIs coming into play in the future.

(Click here for various posts on the various forms of harm that can be caused by the various types of COIs.)

Dangerously narrow views of public – and self – interest

Last week the Financial Reporting Council (FRC), the  body that regulates the accounting  profession in the UK, fined Deloitte L.L.P.  £14 million pounds – a record setting penalty for that body - and issued the firm a severe reprimand, as well as fining  a former director of the firm £250,000 and banning him from  accounting work for three years.  As described in the NY Times,  the case arose from the firm’s work for MG Rover, a  failed automaker, and for the “’Phoenix Four,’ four businessmen who took over the automaker in 2000 and ran it into the ground, taking out millions of pounds for themselves in highly dubious transactions before the company failed.” Although Deloitte had been the company’s auditor it was not the audits that were faulted but the corporate finance work run by the former director – particularly its “very prominent role” in some of the questionable transactions.

In the UK, “ethics rules require accountants to consider the ‘public interest’, but Deloitte argued that this duty was inapplicable to corporate finance work.”  The FRC rejected this argument, noting that, among other things, the applicable rules make no such distinction.   The FRC’s decision on this issue seems correct to me, as one can readily imagine the difficulty clients and others would have in trying to discern whether an employee of an accounting firm was in any given instance being guided by a very high standard of ethicality (as a public interest test entails) or something less.  Indeed, the notion of an ethical carve out would tend to diminish the overall trust the public has in accountants, and that would be bad not only for the profession but – given the key role they play in various aspects of business life – the economy generally.

But is it possible to have an overly narrow view of self interest? Eddie Lampert of Sears may have had just that,  as described by Jonathan Haidt and David Sloan Wilson in their new column  for Forbes -  “Darwin at Work.”   The article is based in part on a recent profile of Lampert by Mina Kimes in  Bloomberg BusinessWeek,  which had noted: “’Lampert runs Sears like a hedge fund portfolio, with dozens of autonomous businesses competing for his attention and money. An outspoken advocate of free-market economics and fan of the novelist Ayn Rand, he created the model because he expected the invisible hand of the market to drive better results. If the company’s leaders were told to act selfishly, he argued, they would run their divisions in a rational manner, boosting overall performance.”

Haidt and Wilson write: “The results have been disastrous, in part because Lampert was ideologically committed to the metaphor of the invisible hand and the associated idea that people are purely selfish. Ideology is a lens – it makes some things more visible, others less so. Lampert’s ideology prevented him from seeing that he was destroying the invisible band – the bond that forms around groups that can trust each other and work together toward shared goals.  Evolution is a different lens – one that we believe brings unparalleled focus and resolution when examining complex human systems. A brief look through the evolutionary lens would have made it obvious how dysfunctional Lampert’s reorganization was likely to be.”

They further note: “Evolution is all about competition, and the dramatic effects that competition has on the structure and behavior of organisms over time. But here’s the key idea: competition occurs at multiple levels simultaneously, and the winner at any one level generally succeeds by suppressing destructive forms of competition at the level below.”  Finally, they suggest that ”the next time someone suggests changing the organizational chart, incentives, or culture of your company to ‘align incentives’ or appeal to selfish interests, ask them if they have thought about the full range of motives evolution has bequeathed to our complex species.”

In effect, what Haight and Wilson are doing is identifying a different type of conflict of interest – where an interest – or at least one’s perception of such – conflicts with human nature itself. It is an important area to pursue, and I certainly look forward to reading more of Darwin at Work.

Conflicts of interest in the press

One of the top COI stories of the past week concerned how ESPN’s financial relationship with the NFL  may have caused it to withdraw from  collaborating on a documentary about the league’s dealing with players’ traumatic head injuries.  Earlier in the month another sports news COI  issue – whether John Henry’s purchase of the Boston Globe would impact that paper’s coverage of the Red Sox, which Henry also owns - received a fair bit of attention. So did the purchase of the another paper  - the Washington Post by Amazon’s  Jeff Bezos,  which raised somewhat weightier COI concerns than did the Globe purchase.  This therefore seems like a good moment to take a look at press conflicts.

As with many areas of business-related conflicts,  press conflicts exist on two levels: organizational and individual.  Organizational conflicts arise out of the press ownership – e.g., the concern with the Henry and Bezos acquisitions, and other financial relationships at the entity level, e.g.,   ESPN’s deal to broadcast NFL games,  including, most obviously, relationships with advertisers. Of course, the more that newspapers are part of larger business entities, the greater the likelihood of such risks will be. With individual COI’s the interest is usually at the reporter (or perhaps editor or producer) level.

Additionally, in discerning the relevant ethical framework for press COIs  it is important to consider the press’s critical role in maintaining our democratic society.  That is, given that trust in the press is essential to maintaining that role - like other ”market failures” discussed in this recent post - preventing harm to that trust arguably should not be left totally to the push and pull of market forces.   This would suggest the need for a strong legal or ethical approach to addressing COIs in the press.

However, any legal response of this sort would be problematic as a form of interference with press freedom.  For this reason, the  ethical (and compliance) measures to prevent COIs in the press should be especially potent.

This is not an area about which I had much prior knowledge, but I was pleased to learn that the NY Times has what appears to be a good set of standards  regarding COIs.  For instance, regarding advertising COI, the Times’ standards provide: “Our company and our local units treat advertisers as fairly and openly as they treat our audiences and news sources. The relationship between the company and advertisers rests on the understanding that news and advertising are separate – that those who deal with either one have distinct obligations and interests, and each group respects the other’s professional responsibilities” and goes on to set forth detailed guidance regarding a number of contexts in which the paper’s advertising and news functions might need to deal with each other.  With respect to individual COIs, the same source provides guidance on a)  journalists paying their own way to and at events they cover, b) receiving of gifts and entertainment;  c) steering clear of advice giving roles; d) entering competitions and contests; e) collaborations and testimonials;  f) public speaking and the receipt of speakers fees; g) family-based conflicts; h) financial conflicts; i) free-lance work; j) dealing with competitors; and k) social media use.

The Times standards make an interesting read for one who spends a lot of time reviewing C&E policies and procedures.  Indeed, it would be rare to find COI policies as detailed as these in the great majority of industries.

Needless to say, the Times is not unique in this respect. The BBC also has what seem to be a very comprehensive and rigorous set of COI standards for its journalists.   Of course, just as the map is not the territory, sound ethical policy and procedures are not the same as a full-fledged compliance and ethics program.  But they are a good foundation for one.

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For information on the larger world of ethics in journalism (beyond that of COIs) visit the website of the Center for Journalism at the University of Wisconsin’s School of Journalism.

Massive but (mostly) harmless conflicts of interest

The conflicts of interest will be enormous when  the recently announced merger between Publicis and Omnicom – each a giant ad agency (or collection of agencies) in its own right – is finalized.  Both companies, through their respective subsidiaries,  represent major players in such industries as automotive,   telecommunications,  food,  beverages, and beer (as described in this article) .   Are conflicts of this sort something that business-ethics-minded individuals should find of concern?

Not in my view – because such conflicts can, at least as a general matter,  be addressed by market forces.  By contrast, truly dangerous conflicts typically involve one of several types of “market failures.”

The first such failure is “information asymmetry,” meaning where market players lack the information needed to make an informed – and hence optimal – decision.  In the COI context, this can occur when a conflict isn’t fully disclosed, which, in some cases, can be seen not only as an ethical breach but a legally actionable instance of fraud or corruption.  To this classic type of information asymmetry one should add the various findings of behavioral ethicists – some discussed in this earlier post – showing that, for a variety of reasons,   even when COIs are disclosed the information doesn’t seem to be processed in an optimal manner. (I’m not sure if this would truly count as an information asymmetry, but it is in that neck of the woods.)

The other most often relevant market failure to COIs concerns externalities, meaning where the cost of a COI is not borne by the individual/entity in a position to address it but by a third party who doesn’t have a seat at the decision making table.  COIs in the health care field – the costs of which are passed on in large measure to taxpayers and insurance companies – are a prominent example of the great harm that externalities can cause.  Moreover, the phenomenon of   “moral hazard” – also addressed in various prior posts - can be seen as causing harm in this way.   Of course, some COIs – like public-sector corruption – involve more than one type of  market failure.

COIs caused by the mergers of ad agencies certainly don’t raise the issue of externalities, at least not as a general matter. For the sake of completeness, I should note that if the merger creates a monopoly that would be yet another form of market failure –  but this seems very unlikely to ever happen, due to (what I assume are) relatively low barriers to entry in the advertising industry.

Finally, while it is possible that the above-mentioned behaviorist findings about the weakness of disclosure does raise the prospect  of information asymmetry (or the behaviorist version thereof) in this setting,  I think that the strong presence of market forces in the form of competitors pointing out to advertisers  the risks of staying with a conflicted agency would largely negate harms of this sort too.  Indeed, astute ad agencies looking to recruit new clients could do worse than trying to utilize some of this behaviorist science for their commercial advantage.

For further reading:

- here’s a description of the various forms of market failures;  

- here’s a piece about another context  – joint venture governance  - in which COIs should not be seen as inherently troublesome; and

- here’s something on how market failures should factor into anti-corruption risk assessment.

Catching up on CEO COIs

As noted in a previous post, CEO’s tend to have different COIs than the rest of us. Today’s post will look at a few CEO-related COI stories that have been in the news lately.

Most notably, yesterday the pharma company Novartis dropped a controversial plan to pay outgoing CEO Daniel Vasella up to $78 million over the course of six years. As described by Forbes, “The board had originally justified its decision in order to ‘protect’ the drug maker, since Vasella knows ‘the company’s business intimately, having built the leading R&D organization and personally recruited most of the top executives.’ In other words, the payoff was hush money designed to keep him from telling secrets to competitors.” The notion that a board could even consider paying a CEO something extra for keeping shareholder secrets is – at least on its face – pretty distressing.

Public sector organizations have CEO’s, too – and various press accounts have noted that super-lawyer Mary Jo White, who President Obama has nominated to head the Securities and Exchange Commission,  will need to take conflict avoidance measures if confirmed for that post.  But as noted in this recent story in Bloomberg News , while it is hardly unusual for a lawyer going from private practice to public service to have COIs of this sort, White’s particular contemplated mitigation approach to her potential COIs (which concern not only her law firm partnership but that of her husband, himself a prominent securities lawyer) appears to be of less than optimal efficacy.

I should stress that I don’t think there is any chance that White will personally act in a conflicted way in the discharge of her duties at the SEC.  But individual honesty is presumably not the end of the analysis regarding any leader’s COIs – and that is particularly so where a) the leader leads a government agency whose mandate includes, among other things, addressing COIs (at least in the financial services field);  b) that agency has an uneven record over the years in enforcing that mandate; and c) there is a reasonably strong concern among press and public that the reason for the agency’s shortfall is one of regulatory capture.

And speaking of the SEC, there is this story   from yesterday about a deposition of hedge fund chief Steve Cohen whose firm, SAC Capital, is being investigated for insider trading.  Cohen apparently testified: “I’ve read the compliance manual, but I don’t remember exactly what it says,’’ and, according to John Coffee, a noted securities-law professor at Columbia, “That’s a dangerous statement. The fact that he doesn’t know what’s in his compliance manual is useful to the SEC,” should it decide to pursue the firm on a “control person” theory of liability (which essentially involves supervisory neglect).

But is this really a COI issue?  It is in the sense that under Delaware law compliance oversight failures by directors and officers can be deemed a violation of the duty of loyalty, which – even if not technically involving a conflict – is from the same neck of the woods as COIs.

Finally, just today an internal investigation cleared former Chesapeake Energy CEO Aubrey McClendon of any “intentional wrongdoing” in connection with the controversial borrowing practices that were the subject of the prior post linked to at the top of this one.  But presumably it did not do the same with respect to creating an appearance of a conflict  – given the facts as described in the prior post, that could not be done with a straight face.  And with CEOs, proper appearances can matter just as much as avoiding actual COIs, as evidenced by the great costs and disruption that befell Chesapeake when the borrowing practices became known to the company’s shareholders and others.  Indeed, the company evidently continues to be the subject of an SEC investigation concerning these matters, and COI watchers may be able to look to the outcome of that inquiry for an early view of how seriously that agency will address conflicts in the era of Mary Jo White.