Dealing Responsibly with Business Relationships

In Louisiana, local government officials cannot do any sort of business with anyone who does business with their local government. This position is supported by a settlement reached with an Alexandria council member, according to an article at thetowntalk.com. The charges are here.

The business relationship between the council member and a lawyer-contractor was that the contractor leased an office in the council member's office building for $600 a month. The council member voted to make the contractor co-bond counsel for the city.

Does Any Business Relationship Constitute a Conflict?
The first question is, assuming that the rent paid was reasonable, does a limited landlord-tenant relationship constitute a business relationship sufficient to create a conflict of interest? Is there even an appearance of impropriety here? Would citizens feel that the council member was favoring his office-building tenant? Were the contractor renting a substantial portion of the building and, therefore, the council member could be seen as financially depending on the contractor's rent, there would certainly be an appearance of impropriety. But a single $600 a month office creates no feeling of obligation, unless that rent was significantly higher than the going rate, which is unlikely.

But according to Louisiana law, this conflict was worth a fine of $5,000, set down to $2,500 for future compliance. The council member settled, he said, not because he believed there was a conflict, but because it was less expensive than the alternative.

Respect for the Ethics Process
There are two problems here. The council member, and other Alexandria officials, probably lost respect for the ethics process in Louisiana. It didn't feel right or fair to them. And two, the council member has good reason to argue that his violation was inadvertent. Here's the language from the state ethics code:

Section 42-1111(C)(2) No public servant and no legal entity in which the public servant exercises control or owns an interest in excess of twenty-five percent, shall receive any thing of economic value for or in consideration of services rendered, or to be rendered, to or for any person during his public service unless such services are:

(a) Bona fide and actually performed by the public servant or by the entity;
(b) Not within the course of his official duties;
(c) Not prohibited by R.S. 42:1112 or by applicable laws or regulations governing nonpublic employment for such public servant; and
(d) Neither performed for nor compensated by any person from whom such public servant would be prohibited by R.S. 42:1115(A)(1) or (B) from receiving a gift.

Complexity and Rationality of Ethics Provisions
All the weight is on subsection (d), which requires looking at another part of the code. Essentially, a government official cannot do business with anyone he or she could not take a gift from. Not only is this simple rule poorly expressed, unnecessarily complicated, and hidden. But it is also counterintuitive. The reasons for not accepting a gift from someone are not the same as the reasons for not doing business with someone.

This makes sense when it comes to disclosure, but not when it comes to doing business. By making this rule so draconian and complex at the same time, it provides inadequate guidance and places into question the fairness of the ethics law. This is a bad combination. It sets officials up for gotcha complaints, and makes all relationships illegal rather than placing the emphasis on disclosure and dealing responsibly with relationships that exist.

It also makes conflicts themselves illegal, something I think is wrong (see my recent blog entry).

Are There Relationships Where Disclosure Is Sufficient?
There is a business relationship here, certainly, but is this the sort of situation where disclosure should be sufficient? I think that, in this instance, the council member should have said before discussion of his tenant's appointment, "One of the applicants for co-bond counsel rents an office in my office building, but I don't believe that this constitutes a conflict of interest sufficient for me to recuse myself. However, if the council feels there is a problem, I will recuse myself." This would be a responsible way of dealing with a potential but unlikely conflict.

Here's the recusal language in the Louisiana ethics code:

B. No public servant, except as provided in R.S. 42:1120, shall participate in a transaction involving the governmental entity in which, to his actual knowledge, any of the following persons has a substantial economic interest ...

(5) Any person who is a party to an existing contract with such public servant, or with any legal entity in which the public servant exercises control or owns an interest in excess of twenty-five percent, or who owes any thing of economic value to such public servant, or to any legal entity in which the public servant exercises control or owns an interest in excess of twenty-five percent, and who by reason thereof is in a position to affect directly the economic interests of such public servant. (emphasis mine)

The council member might well have believed that this small lease did not affect his economic interests, or only in a de minimis way. As I said, he still should have disclosed his relationship, but this does not appear to be an alternative under Louisiana law.

Dealing Responsibly with Potential Conflicts Should be the Focus of an Ethics Code
What I am getting at here is that it is important for an ethics program to (i) focus not on the official's relationship, but on the official dealing responsibly with relationships when they become relevant to an official's activities, and (ii) focus more on the process -- disclosure and recusal -- than on all the little details that might require them. It would be more clear to an official to know that if there is any relationship whatsoever, it should be disclosed, and that if there is a question whether it is de minimis or not, this should be answered not by the official or much later by the ethics commission, but by his fellow council members, in this instance.

Robert Wechsler
Director of Research-Retired, City Ethics

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