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A Lobbying Firm Wears Two Hats in Its Relationship with NYC Council Speaker
Friday, July 18th, 2014
Robert Wechsler
A
New York Daily News article yesterday describes an
interesting conflict situation. At least one lobbying
firm has worn two hats in its relationship with the speaker of the
New York City council. One hat was that of a campaign and appointments consultant,
the other was that of a contract lobbyist for multiple clients. See
a
Crain's New York Insider blog post from January for more about
such relationships with the speaker.
This is legal, as the speaker's spokesperson insists, but there is still a serious conflict situation that needs to be handled responsibly. As Susan Lerner, head of New York Common Cause, is quoted as saying, “The merger between campaign consultant and lobbyist by the same entity raises significant problems and concerns.” In other words, the problem lies in having one firm wearing multiple hats in its relationship with a high-level official.
What specific problems does wearing these two hats cause? One, consulting creates a special relationship that goes beyond the usual meals and meetings with lobbyists. A special relationship leads to special access and favoritism, or the appearance of these. Lobbying is all about relationships, and lobbyists are obligated to do anything they can to further their relationships, especially with someone as important as the head of a major city's council.
Two, any business relationship with an official creates the possibility of secret gifts. For example, a lobbyist can make gifts to a campaign by charging less than its usual fee or doing more work than is reported on campaign disclosures. There would be no way of finding out, but people may reasonably suspect this is occurring since, as I said, lobbyists are obligated to do anything they can to further their relationships with high-level officials, and gifts are an important element of this relationship. One could even argue that a lobbyist who didn't manage to go above and beyond the call of duty in consulting to the target of his lobbying efforts would be not be doing his job for his firm's lobbying clients.
What can a government official do? The speaker might have said to the lobbyist/consultant, "I'd like you to be my consultant, but if you accept the job, you can't lobby me for at least a couple of years or, if I'm elected speaker, while I'm the speaker." Or the speaker could have made the decision herself, choosing not to hire the lobbying firm to consult with her.
As for the lobbying firm, if an official or the campaign of an official that it lobbies comes to it for consulting services, does it have an obligation to say that it can only wear one hat with respect to the official? Lobbying firms do not have a fiduciary obligation to the communities whose officials they lobby, but they do have obligations to their clients, who do not want their names associated with scandals that arise from conflict situations.
In more common situations, a lobbying firm should, at the very least, ask the official to get the ethics adviser's permission. But since this situation falls outside most, if not all ethics and lobbying codes, a firm should point out to the official the fact that it would be conflicted, that this conflict cannot be cured by disclosure (contrary to the speaker's position), and that this conflict not only may put the official in a compromised position, but it may also affect the firm's reputation and, therefore, its clients' reputations.
Wearing two hats, although lucrative for the firm in the short run, may be harmful to the firm in the long run, because it will cause its other clients to question the firm's judgment, it will cause other officials to steer clear of the firm, and it will cause regulators to pay more attention to everything the firm does, as if it were driving a bright red Corvette down the government ethics highway.
It's not a good idea for one firm to represent both officials and those seeking special benefits from them. If a firm is going to do this, it should be extra careful not to wear two hats with respect to any official. If this is impossible, then it should split up into two firms, not just in name, but in all ways. This is what was required of accounting firms that also did consulting, and in that case the firms were representing the same clients (but had special professional obligations as accountants).
Robert Wechsler
Director of Research-Retired, City Ethics
---
This is legal, as the speaker's spokesperson insists, but there is still a serious conflict situation that needs to be handled responsibly. As Susan Lerner, head of New York Common Cause, is quoted as saying, “The merger between campaign consultant and lobbyist by the same entity raises significant problems and concerns.” In other words, the problem lies in having one firm wearing multiple hats in its relationship with a high-level official.
What specific problems does wearing these two hats cause? One, consulting creates a special relationship that goes beyond the usual meals and meetings with lobbyists. A special relationship leads to special access and favoritism, or the appearance of these. Lobbying is all about relationships, and lobbyists are obligated to do anything they can to further their relationships, especially with someone as important as the head of a major city's council.
Two, any business relationship with an official creates the possibility of secret gifts. For example, a lobbyist can make gifts to a campaign by charging less than its usual fee or doing more work than is reported on campaign disclosures. There would be no way of finding out, but people may reasonably suspect this is occurring since, as I said, lobbyists are obligated to do anything they can to further their relationships with high-level officials, and gifts are an important element of this relationship. One could even argue that a lobbyist who didn't manage to go above and beyond the call of duty in consulting to the target of his lobbying efforts would be not be doing his job for his firm's lobbying clients.
What can a government official do? The speaker might have said to the lobbyist/consultant, "I'd like you to be my consultant, but if you accept the job, you can't lobby me for at least a couple of years or, if I'm elected speaker, while I'm the speaker." Or the speaker could have made the decision herself, choosing not to hire the lobbying firm to consult with her.
As for the lobbying firm, if an official or the campaign of an official that it lobbies comes to it for consulting services, does it have an obligation to say that it can only wear one hat with respect to the official? Lobbying firms do not have a fiduciary obligation to the communities whose officials they lobby, but they do have obligations to their clients, who do not want their names associated with scandals that arise from conflict situations.
In more common situations, a lobbying firm should, at the very least, ask the official to get the ethics adviser's permission. But since this situation falls outside most, if not all ethics and lobbying codes, a firm should point out to the official the fact that it would be conflicted, that this conflict cannot be cured by disclosure (contrary to the speaker's position), and that this conflict not only may put the official in a compromised position, but it may also affect the firm's reputation and, therefore, its clients' reputations.
Wearing two hats, although lucrative for the firm in the short run, may be harmful to the firm in the long run, because it will cause its other clients to question the firm's judgment, it will cause other officials to steer clear of the firm, and it will cause regulators to pay more attention to everything the firm does, as if it were driving a bright red Corvette down the government ethics highway.
It's not a good idea for one firm to represent both officials and those seeking special benefits from them. If a firm is going to do this, it should be extra careful not to wear two hats with respect to any official. If this is impossible, then it should split up into two firms, not just in name, but in all ways. This is what was required of accounting firms that also did consulting, and in that case the firms were representing the same clients (but had special professional obligations as accountants).
Robert Wechsler
Director of Research-Retired, City Ethics
---
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