Gifts, Entertainment and Travel

Perhaps the most common forms of COIs in business organizations are in the related areas of gifts, entertainment and travel. In this section, we will examine cases and compliance measures relating to both the provision and receipt of these sorts of items of value

Special Super Bowl Edition of the Conflict of Interest Blog

While the NFL’s code of conduct for fans doesn’t mention COIs (it is more about not throwing objects on the field.) the Super Bowl is a perennial source of COI issues.  Indeed, Super Bowl tickets received by a US Secretary of Agriculture from a company his department regulated played a central role in a major COI prosecution in the 1990’s – although the Secretary was acquitted and the company’s conviction on a related matter (involving US Open tickets, among other things) was overturned by the Supreme Court.

The case evidently didn’t put an end to government officials getting Super Bowl tickets from those with whom they have official business.  As noted in this post last year by Judy Nadler, senior fellow in government ethics at the Markkula Center for Applied Ethics: “I spoke with a reporter recently who was writing about gifts elected officials were taking but not disclosing. More troubling, many of the officeholders said they ‘couldn’t remember’ whether or not they had gone to the Super Bowl courtesy of a major business interest.”  (Easy to see how one could forget that!)

More common, though, is a business providing Super Bowl tickets to individuals in the private sector, particularly to customers.  Indeed, Super Bowl tickets are frequently the subject of discussions in codes of conduct.  For instance, the Home Depot’s code provides, in relevant part: “In the event that the recipient is willing to pay face value for a ticket or other gifts and entertainment, when in fact the market value is significantly higher than the face value (e.g. Super Bowl or Masters Tournament tickets), the associate must still have the item approved in advance in accordance with this policy.”

As with many COI issues, the devil is in the details regarding the propriety of giving or receiving Super Bowl tickets, and here are a few questions to ask in deciding whether to give:

-Would someone from your company attend the event with the potential recipient or would it be an out-and-out gift?

– What does the recipient’s company’s policy say about gifts and entertainment?

– Does the recipient’s supervisor know about the offer?

– What is the function of the proposed recipient in her company?  (Purchasing, of course, is most obvious from a risk perspective, but others – e.g., an external auditor or even supplier in some instances –  could raise COI risks, too.)

– What is the state of play in terms of new/existing business with the recipient’s company?

– What other costs  (e.g. air travel) would be borne by your company in connection with attending the event?

– Is the recipient an employee of a government agency (including a state-owned enterprise)? Even if not, do they do business with the government – which, in some instances, might be risk causing at least from a reputational perspective?

Finally, two questions about process:

– Is the decision of whether give or not to give reviewed by the compliance officer or other function (e.g., law department) that is independent of the part of the business proposing the invite?

– Are the bases for decisions sufficiently documented?

But, all this is for next year. For now, just enjoy the game!  And, go Giants!  (Disclosure: I’m from NJ.)

Other People’s Conflicts

Samuel Johnson once famously said of some unfortunate soul, “He is not only dull himself, he is the cause of dullness in others,” and in this posting we’ll examine how companies can avoid the misfortune that sometimes comes from causing conflicts of interests in others.

To start, a brief bit of COI history.

Several years ago an advertising agency lost a highly lucrative account with Wal-Mart and – according to some press accounts at the time – part of the reason for the loss was the agency’s entertaining of a Wal-Mart executive in ways that allegedly caused her to violate that company’s code of conduct. Although the agency presumably violated no law, its loss of future revenue could be seen as costly as some of the largest criminal fines in history.

The case led many companies to add to their codes of conduct a requirement that in providing gifts, entertainment or travel to employees of third parties one must not cause those employees to violate their respective employers’ codes. But is such a provision by itself enough to mitigate risks of this kind?

For any given business organization, addressing this issue should, of course, be driven by an assessment of relevant risk. However, for all organizations it may be useful to consider the range of available C&E measures that can be taken here, and “work backwards” to determine if their respective risks warrant implementing the measure in question.

First, there is the language of the code itself. While at first blush a mandate that employees must not cause a violation seems strong, a preferable approach may be to specify that employees must ensure that they do not cause a violation. The latter sort of requirement (particularly if reinforced the right ways) suggests a higher and more meaningful burden on the employees who deal with third parties.

Second, companies can establish a practice of periodically collecting customers’ and other relevant third parties’ codes and disseminating gifts and entertainment language to at-risk employees and their respective managers. Even if it is not possible to do this for all third parties, the effort can be useful if codes for major customers are obtained.

Third, COI training can emphasize the importance of identifying and following relevant third-party standards. Fourth, companies can deploy “just-in-time” communications to at-risk employees around these issues.

Fifth, for organizations with relatively high risks in this area, managers can be required to monitor for compliance with third-party codes. Sixth, auditors might be tasked with including third-party standards in their audits.

Finally, note that this post deals with the topic of other people’s conflicts only at a very high level. There are many other aspects to this area. Indeed, the whole field of corruption by definition involves “causing conflicts in others,” and many of the largest criminal fines in history (specifically in the FCPA and health care fraud-and-abuse areas) have been precisely about that. The point of this post is to suggest that even without significant corruption risks, all organizations should consider whether they do enough to avoid creating third-party COIs.