Dealing Responsibly with Business Relationships

Anonymous

Wed, 05/06/2009 - 06:52

City Related

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 <a href="http://www.thetowntalk.com/article/20090505/NEWS01/905050319/-1/NEWSFRO…; target="”_blank”">an
article</a> at thetowntalk.com. The charges are <a href="http://domino.ethics.state.la.us/EthicRu2.nsf/ecfd553acd8f6446862567f90…; target="”_blank”">here</a>. 
 
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 <a href="http://www.ethics.state.la.us/Pub/Laws/Title42Ch15.pdf" target="”_blank”">the
state ethics code</a>: 
 
<ul>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: 
<ul>(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. 
</ul>
</ul>
 
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 <a href="http://www.cityethics.org/node/715" target="”_blank”">recent blog entr</a>y). 
 
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 <a href="http://www.ethics.state.la.us/Pub/Laws/Title42Ch15.pdf" target="”_blank”">the
Louisiana ethics code</a>: 
 
<ul>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 ... 
<ul>(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) 
</ul>
</ul>
 
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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