A Conflict of Interest Exam Question from Long Branch, NJ
Especially in small towns, bankers often have business relationships
with many people and, therefore, do not make the best board and
commission members on account of the many conflicts they have or, more
frequently, the appearance of impropriety.<br>
<br>
According to <a href="http://www.app.com/apps/pbcs.dll/article?AID=20101280355" target="”_blank”">an
article this week in the Asbury Park <i>Press</i></a>, in Long Branch, NJ
(pop. 40,000) there is a dispute concerning the reappointment of a
sewerage authority commission member, not a position that usually
creates problems for bankers. But it turns out the situation reads like
a question on a government ethics exam.<br>
<br>
The commission member was a founder and is a director of a local bank,
and a large contributor to the mayor's campaign. He needs to be
reappointed by the council, which includes the mayor. One of the five council members is the bank's chief
financial officer and also a director. Another council member works
part-time as a messenger for the bank, and a third owns a few shares in
the bank. The city attorney, who advises the council, is also a director of the bank, and
according to <a href="http://www.app.com/article/20100216/OPINION04/2170322/Authority-appoint…; target="”_blank”">a
letter
to the editor</a> by the individual who raised the conflict
issue, a major stockholder.<br>
<br>
The exam question ends, Which of these people should recuse themselves,
and why?<br>
<br>
The easy answer is the bank's CFO and board member on the council. As a close business associate, he
should not participate in any way.<br>
<br>
Nor should the commission member's fellow board member, the city
attorney (unfortunately, he already has participated, saying that the
conflict is far-fetched, making a recommendation to table the issue,
and saying he will get a conflict attorney to advise on the matter,
which is good, only he shouldn't choose the conflict attorney).<br>
<br>
The part-time employee is a tougher question. He gets his pay from the
bank, but it's part-time work and he would have no contact with a
member of the bank's board of directors. Would he be afraid to vote
against a board member? That's a possibility. If I were him, I would
recuse myself. There's an appearance of impropriety that puts him in a lose-lose situation: if he votes for the board
member, he'll be seen as having felt obliged; if he votes against him, he could
jeopardize his job.<br>
<br>
The small shareholder is easier. If the amount is small for
the individual, it shouldn't affect, or be seen to affect, his
decision. And there would be no possible benefit or loss from his
decision. But someone in his position should disclose the stock
ownership, even if not required by law.<br>
<br>
The mayor poses a difficult and recurring problem. His only relationship with the commission member is as the beneficiary of large campaign contributions. Some local governments formally consider this a conflict. But whether or not it is legally a conflict, it certainly creates an appearance of impropriety. Citizens hate cronyism. It makes local government look like a club of connected business people, with others left out in the cold. A mayor who recognizes this, and recuses himself (and, in other situations, does not nominate people who have given him or her large campaign contributions) will be very popular and, more important, it sends the message to the entire government that merit trumps connections.<br>
<br>
I would argue that the council should censure the city
attorney for participating in this matter, to send the message that government ethics, more than any area of city activity, should be free of conflicts. And, I think, the council should determine that the city attorney has so tainted the issue by saying the
conflict is far-fetched, that the council should not even consider reappointing the bank
director to the sewerage authority commission.<br>
<br>
Irrelevant to this conflict situation, but to show you how small the
world of New Jersey local government unethical conduct is, according to the letter to the
editor, another founding member of the same bank was a man who, after being charged in
connection with a multimillion-dollar real estate
Ponzi scheme, turned informant to help the FBI catch a network of
crooked officials in New Jersey (see my <a href="http://www.cityethics.org/node/815" target="”_blank”">July 2009 blog post</a> on
the case). The man was also a major client of the city attorney's law
firm. No Long Branch officials were arrested by the FBI, but one Long Branch
resident was arrested for money laundering.<br>
<br>
Robert Wechsler<br>
Director of Research-Retired, City Ethics<br>
<br>
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