From the course: Ethics: Managing Real or Perceived Conflicts of Interest

Managing conflicts of interest

- This is an audio course. Thank you for listening. - This is a ProDio audio production, engaging, story-style scenario learning in audio. No need to watch, just listen. (serious music) - Some new concerns this morning about a potential conflict of interest involving- - TC and Perez conflict of interest case continued to unfold before a local judge today. - Told that this is a horrible conflict of interest. You're a Harvard researcher. You supposedly just want to get the information. - Canada's ethics commissioner has found the prime minister violated the Conflict of Interest Act, and that he did seek- - Conflicts of interest make headlines, and professions are under greater scrutiny than ever before when a conflict is suspected. And in many situations, the concern is absolutely valid, but let's be blunt about it. Conflicts of interest happen, and sometimes, that's okay. Does that sound odd to you? Stick with us and we'll explain to you why conflicts of interest aren't always the evil beasts that they're made out to be. - Hi, I'm Brian Friedrich - And I'm Laura Friedrich - And this is "Conflicts of Interest Unpacked". Okay, so let's start with a question. When you hear that a public official or a board member is in a conflict of interest, what words come to mind immediately to describe that person? Think about that for just a second. (curious music) Are you thinking corrupt, greedy, immoral? Those are typically some of the words that might come to mind. - And don't get us wrong here, sometimes those words are perfect descriptors for the situation, but that's not always the case. Let's back up for a minute and think about where the problem arises. Is it the conflict of interest that's the issue? Or is the issue that the conflict wasn't dealt with appropriately? Or that the person in the conflict specifically orchestrated the conflict, and used a situation to their advantage? Those are generally where the real issues lie. - Conflicts of interest do not necessarily suggest corrupt intentions, but we've been conditioned to hear the words conflict of interest, and immediately think that something unethical and perhaps illegal has happened. But that's not always the case. The conflict of interest itself is actually not necessarily a bad thing per se. Where the problems come up depend on how the conflict happened, and what is done to address the conflict and deal with it appropriately. - Okay, so let's run through the outline for this course. Now that we've reframed conflicts as not always evil, we'll get back to basics and start by defining what conflicts of interest are and the different types that can arise. Then we'll look at some of the key legal requirements that are commonly included in laws and regulations, as well as looking at how conflicts of interest are addressed in the ethics standards for professions. And then once we've got a solid grounding of the legal and ethical requirements, we'll talk through a framework for dealing with conflicts of interest appropriately to make sure that the best outcomes result. - So what is a conflict of interest? In order for a conflict of interest to exist, there, quite simply need to be interests that are conflicting. (gentle music) And normally, how that manifests itself is that an individual's self-interest is in conflict with or is competing with a contractual or a fiduciary duty that they owe to another party, whether that's a client, an organization, their employer, or some other entity. Here are a few examples. (bell dings) - Engineers have a duty to ensure public safety, but what if an engineer working for the government also consults to private companies, and she just learned that one of her client companies that has a marginal safety record is going to bid on a government construction contract? (bell dings) Real estate agents have a fiduciary duty to act in the best interest of their client, but what if the agent owns a property and is selling it, and he thinks that the property would be a perfect fit for one of his clients who's in the market? (bell dings) Professional accountants performing audits are required to be independent of the organizations they audit. But what if the auditor's sister-in-law was just hired as the CFO of one of the firm's audit clients? (bell dings) Academic researchers have an obligation to objectively seek the truth, and present unbiased findings to the public. But what if a researcher's project is funded by a special interest group that is hoping for a certain result to support their position? - In each of these cases, the person's own self-interest could motivate them to take an action that would be to the detriment of their employer, their client, or to the public. And when we're talking about self-interest, the most common situation is where there's a financial interest, where there's money at stake, but it doesn't have to directly be money. It could be some other type of benefit. Perhaps recognition or opportunity for a family member or something else. - There are a few other common examples that raise conflicts of interest that we'll introduce here. (curious music) The first is one we have access to confidential information that we could use for our own personal advantage. Our personal interests then could influence us to act on that information, but our professional duty is obviously to refrain from doing so. The second example is one where a vendor offers a gift, or extends hospitality. And they're trying to influence us to act in a certain way, usually to win business. Gifts and hospitality are a risky area because even if we don't think we're being influenced, we might actually be, and others would certainly question our ability to be objective. And another example is where we have an opportunity to get an inappropriate benefit because of our position. For example, if my team is required to travel as part of the job, and I'm the one allocating travel budget, I'd have the opportunity to assign myself to all of the interesting foreign trips, and assign other team members to the less desirable destinations. - And let's be clear. In each of these examples, we're not saying that the person in a conflict of interest has done or would do anything inappropriate. We're just saying that that's what their self-interest could motivate them to do. We need to understand the distinction between the conflict of interest itself, how it arises, and ultimately, the action or decision that's taken to resolve it. And it's a message we'll be repeating regularly throughout the course because the term conflict of interest is frequently used quite loosely without proper evaluation. To illustrate the distinction between the conflict of interest and the action, we're going to turn to an expert that you might have heard of, his name is Richard Painter, a US law professor who served as the Chief White House Ethics Lawyer under President George W. Bush from 2005 through 2007. Although he was a Republican at that time, he later ran for the Senate as a Democrat. And ultimately, he describes himself as a moderate or a centrist. Note that we are not at all concerning ourselves with the political affiliations of folks in this course, we just want to provide context for his commentary. Professor Painter spoke to students at Dartmouth College about conflicts of interest, specifically with respect to the legal safeguards in the US Constitution and statutes. And he mentioned that during the Bush Administration, it was his job to explain the requirements of the Conflict of Interest Statute to individuals that were being considered for high-powered government roles. - Here's the example of the type of problem I would deal with. The chairman of Goldman Sachs come to my office, Henry Paulson. He was being considered for the treasury secretary back in 2006. And I had to discuss with him the conflicts of interest that could arise from his holding lots of stock in Goldman Sachs. And he already knew that he would probably have to sell the stock at Goldman Sachs in order to become treasury secretary. Why? Because there's a criminal conflict of interest statute that says if you participate in any government matter that has a directive predictable effect on your financial interest, or those of a company in which you own stock, that's a crime. You could go to jail for that. (mellow music) - A student asked Painter how he would manage to convince a candidate to divest themselves of such interests. Listen to his description of how discussions would play out. - What I'd start with is the statute, the conflict of interest provision is a criminal statute. So you commit a crime if you do anything in the government that has a direct and predictable effect on your financial interest, or of a company that you own stock in. So you could keep your Goldman Sachs stock and go to the Treasury Department, but the minute you do anything, participate, personally and substantially in a government decision, any government matter at the Treasury Department that has a directed predictable effect on Goldman Sachs, you've committed a felony. Whoa there, that's serious. And they say, I can just sell the Goldman Sachs stock. So the key is start with what they honestly have to do when they start with a criminal statute. Because these guys generally don't want to go to jail. (gentle music) - So from Professor Painter's example, you should be able to separate out the conflict of interest from the problematic action or decision. The conflict of interest arises from being a major shareholder in a huge investment bank, like Goldman Sachs, while also serving as US Treasury Secretary where you are responsible for domestic and international financial, economic, and tax policy. The conflict of interest itself isn't what causes the harm. As Painter said, you could keep your stock. The harm doesn't come from the conflict itself. The harm comes if you do anything in your government position that has a direct and predictable effect on your financial interests, or on the financial interests of the investment bank that you own stock in. That's the part that's unethical. And in this case, also illegal. And so the reason why the stocks would be sold is because the risk is high that many actions that the treasury secretary undertakes could have a direct and predictable impact on Goldman Sachs. In other words, in some situations, the potential for inappropriate decisions to be made, or the perception that the person can't possibly set aside their own interests and make decisions in the best interest of the public, that risk and perception is so strong that the only workable course of action is to eliminate the conflict of interest by either not taking the job, or by divesting of the interest before taking the job. - A lot of conflict of interest examples stem from the fact that one or more people have the power to make decisions that impact others, but those decision makers have a personal financial interest that threatens to sway their judgment. As I said earlier, it's not always about the money. Sometimes, it's some other benefit at stake, but often, financial interests are the root of the issue. And in some cases, the outcome can be severe. When we think about how important it is to get this stuff right, it's useful to remember the extreme cases and what can be at stake. Professor Painter provides a sobering example that we'll close out this part with. He's talking to the Dartmouth Students about Presidents Washington and Jefferson, both historically well-respected presidents, but he's talking about the fact that they both ran plantations and they were allowed to keep those plantations because the US Founding Fathers exempted the president from the conflict of interest statutes. And he alludes to how the ownership of those plantations may have influenced their views with devastating results. - Presidents Washington and Jefferson in particular would visit their plantations when they were not on the job. And these plantations were very successful businesses. Those businesses were serious financial conflicts of interest because when you look at the business model, slave labor, massive amounts of slave labor used in those plantations. They were owned by a first president or third president and several other presidents, many members of the United States Senate, and members of the United States House of the Representatives. Many of the founders at the time of the draft of the Constitution had enormous financial conflicts of interest with respect to their businesses. And this was the most tragic financial conflict of interest in American history. I mean, it was a large part of people not being willing to deal with slavery at the outset, in the drafting of the Constitution. There were other reasons as well, but financial conflicts of interest have consequences. (serious music) - Financial conflicts of interest have consequences. Indeed, they have. (curious music) We'll look at more types of conflicts of interest in the next module.

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