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Stock Ownership by Local Officials and Conflicts of Interest
Monday, August 25th, 2008
Robert Wechsler
House Speaker Nancy Pelosi has come up with a new defense of a
potential conflict of interest: "I'm investing in something I believe
in."
What she was investing in, as "part of an entrepreneurial package," as she said on yesterday's Meet the Press, according to a partial transcript, was T. Boone Pickens' Clean Energy Fuels Corp., which despite Pickens' emphasis on wind power, also invests in using natural gas instead of gasoline for transportation, an important goal for Pelosi.
Pelosi is involved in determining which energy alternatives will be supported by Congress. It's good that she is investing her money (very little of it in this case, at least for someone with her fortune) in what she believes in, but this makes no difference in whether she should either sell the stock or recuse herself from involvement in bills that might help the company. This is why high-level politicians often put their money in blind trusts.
At the local level, this is less of a problem. Many fewer industries are involved, so there are fewer investments that might create a conflict of interest.
In addition, local government conflict provisions usually require a minimum 5% ownership in a company, which means that ownership of publicly traded stocks is almost never considered a conflict. But is this the right way of looking at the matter? Of course, an individual won't own a large percentage of a publicly traded company, but his ownership of a stock might constitute a large percentage of his portfolio, which is all that really matters to him. It doesn't matter what his stock ownership means to the company. The company does not even have to know about the official's stock ownership for there to be a conflict.
From a local government point of view, Pelosi's ownership of Clean Energy Fuels Corp. does not constitute a conflict. It's an infinitesimal percentage both of her portfolio and of the company's outstanding shares. More important is whether this ownership should be disclosed, and how its disclosure should be treated by the news media, which couldn't care less about such things as percentage of portfolio or ownership.
As soon as a potential conflict becomes a political football, the appearance of impropriety is created. An official should consider this when purchasing even small amounts of stock. You can't always do what you believe in when you're a government official, especially one with as much power as Nancy Pelosi or a mayor. This is the sort of consideration that has no place in an ethics code, but should be an important element of ethical leadership.
Robert Wechsler
Director of Research-Retired, City Ethics
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What she was investing in, as "part of an entrepreneurial package," as she said on yesterday's Meet the Press, according to a partial transcript, was T. Boone Pickens' Clean Energy Fuels Corp., which despite Pickens' emphasis on wind power, also invests in using natural gas instead of gasoline for transportation, an important goal for Pelosi.
Pelosi is involved in determining which energy alternatives will be supported by Congress. It's good that she is investing her money (very little of it in this case, at least for someone with her fortune) in what she believes in, but this makes no difference in whether she should either sell the stock or recuse herself from involvement in bills that might help the company. This is why high-level politicians often put their money in blind trusts.
At the local level, this is less of a problem. Many fewer industries are involved, so there are fewer investments that might create a conflict of interest.
In addition, local government conflict provisions usually require a minimum 5% ownership in a company, which means that ownership of publicly traded stocks is almost never considered a conflict. But is this the right way of looking at the matter? Of course, an individual won't own a large percentage of a publicly traded company, but his ownership of a stock might constitute a large percentage of his portfolio, which is all that really matters to him. It doesn't matter what his stock ownership means to the company. The company does not even have to know about the official's stock ownership for there to be a conflict.
From a local government point of view, Pelosi's ownership of Clean Energy Fuels Corp. does not constitute a conflict. It's an infinitesimal percentage both of her portfolio and of the company's outstanding shares. More important is whether this ownership should be disclosed, and how its disclosure should be treated by the news media, which couldn't care less about such things as percentage of portfolio or ownership.
As soon as a potential conflict becomes a political football, the appearance of impropriety is created. An official should consider this when purchasing even small amounts of stock. You can't always do what you believe in when you're a government official, especially one with as much power as Nancy Pelosi or a mayor. This is the sort of consideration that has no place in an ethics code, but should be an important element of ethical leadership.
Robert Wechsler
Director of Research-Retired, City Ethics
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