Conflict of Interest

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Conflict of Interest

Conflict of Interest

BIBLIOGRAPHY

How can there be assurance that a government official, businessman, or professional person will properly perform his duty to the public, to his employer, or to his client when that duty affects his own private economic interests? In its narrowest sense, this is the key question of conflict of interest. The question rapidly broadens when the range of primary interests attached to duty are considered in relation to the dazzling variety of property and other interests potentially in conflict. In modern industrial society, where services abound, where government and business intersect in countless ways, the nature of conflicting interests is most complex. Government employees retain private economic interests that may be benefited by official actions. Officers of one corporation may own stock of another, whose value may be affected by actions of the first.

An ethical crisis in the public life of the United States after World War II was expressed in concern over conflicts of interest for upper-echelon civil servants. The matter was isolated and widely recognized as a moral and legal issue about 1950, and has been pondered and studied ever since. Conflict-of-interest legislation and regulations eventually were adopted for the United States government and a number of states and municipalities and by governments of other nations. Every sign suggests that this movement of concern and control will become more widespread in the world and will apply beyond the executive branch of government.

Since its control involves preventive law, conflict of interest must be distinguished from other kinds of criminal behavior, such as theft or bribery. A government official may be found guilty of bribery if he agrees to act in response to money or favors. The first general federal bribery statute in the United States, dating from 1853, declares that a payment to influence official action is a clear abuse and declares it a criminal act. By contrast, the term “conflict of interest” implies the need for preventive action to mark the kinds of situations individuals should avoid. “Regulation of conflicts of interest seeks to prevent situations of temptations from arising” (Association of the Bar … 1960, pp. 3–4). It is regulation of potential harm, of evil before it occurs. The added subtlety of preventive law gives the control of conflicts of interest unusual delicacy.

In the nineteenth century, if an official resolved a clash between his personal advantage and public duty in favor of personal advantage, it was called corruption. But since then “corruption” has come to be associated with only the most odious and obvious forms of venality and self-service, and the term “conflict of interests” was coined to cover less blatant cases. The leading study on the subject limited itself to two interests: “… one is the interest of the government official (and of the public) in the proper administration of his office; the other is the official's interest in his private economic affairs. A conflict of interest exists whenever these two interests clash, or appear to clash” (Association of the Bar … 1960, p. 3). The present article, accepting this usage, will review the significant recent developments in the framing of a system of relevant, up-to-date restraints against conflicts of interest in federal service in the United States. These limitations are being widely copied or adapted in other countries and by state and local governments in the United States. After surveying conflicts of interests in government service, this article will touch on other arenas in which such problems are now identified.

The legal profession, far more than any other professional group or social-science discipline, has scrutinized the problem of government officials' conflicts of interest. Leaders of the bar, as well as their clients in business and in other professions, have long counted public service as part of a viable career. Conscientious effort to disentangle public duty from private opportunity could not always shield such men from criticism. After World War II, American law on the subject of conflict of interest was so antiquated that little protection was afforded either the public or the large numbers of people entering and leaving public service, and many individuals were discouraged from taking jobs in the federal government. This was the chief impetus that led the New York City Bar Association to form, in 1956, a special committee, which has developed a corpus of knowledge on the subject (Association of the Bar … 1960, pp. vii-xii; Perkins 1963, p. 1114; Manning 1964).

Several other factors have been behind a trend toward deepening attention to conflicts of interest in the public service: (1) the growing reliance of government on the skills of individuals in private life, notably in the fields of science and technology; (2) the mobility of individuals in industry, business, and the professions, in and out of government employment; (3) the intricacy and extent of government regulatory, promotional, and financially supportive programs affecting private sectors of the economy; (4) the expansion in peacetime of government as a customer of business; (5) growing stock ownership among individuals, who have a resulting stake in the private economy (Perkins 1963, p. 1114); (6) the emergence of government during the past decade as a major source of wealth. “The Wealth of more and more Americans depends upon a relationship to government. Increasingly, Americans live on government largess …” (Reich 1964, p. 733). These accelerating changes have multiplied the number of potential conflicts of interests. The newness of these situations has led to subtleties difficult to understand, explain, or curb.

Legal analysis has succeeded in isolating some of the peculiar problems of conflict of interest in modern society. Some relevant skills in coping with the issue were noted by the Harvard Law Review in this way: “… behavior profitable but in itself innocent may be outlawed because it tempts abuse of power or allows misuse of information and advantages gained through government service. The resulting tension taxes the lawyer's faculty for inference drawing, for weighing competing interests, and for ingenuity in framing legal solutions” (”With the Editors …” 1963, p. vii). Lawyers have analyzed the aims of the conflict-of-interest statutes of the past and willingly specified the ethical norms upon which new rules of law should be based. Five principles have been established as fundamental to prudent conflict-of-interest regulations at the federal level in the United States (Perkins 1963, pp. 1118–1122).

The first moral imperative to be protected by conflict-of-interest rules is that against self-dealing. A public official may not participate in government action where that specific action might significantly affect his private economic interests.

A second principle, less distinct than the concept of self-dealing, stops a public official from accepting transfers of economic value from private sources. It is believed that gifts should be barred, even though bribery is absent, on the assumption that a danger of subservience remains present. A government official acting in his official capacity must be free of the relationship created when an individual accepts gifts and other valuable transfers from private sources (Perkins 1963, pp. 1119–1120).

Third, a public official should not ordinarily be allowed to drop his official role to help private individuals or organizations in their dealings with the government. This is an especially forceful conflict-of-interest principle when compensation is received for the assistance.

Fourth, the same principle also applies to a former public official in connection with his past official responsibilities. This principle is usually cushioned by a limitation of time, although objection has been made that any definite limit, say two years, is both artificial and ineffective. Nevertheless, the principle remains that a former official should not be able to trade against the government with influence gained from past association or friendship in his official capacity (Perkins 1963, pp. 1120–1121).

The fifth conflict-of-interest principle holds that a public official should not be allowed to use for private gain confidential information acquired in his official capacity. There may be no specific injury to the government, but it is argued that a wrong occurs in the private use of information that belongs to the public (Perkins 1963, pp. 1121–1122).

In 1962, following several years of study, education, and agitation, the federal code and regulations governing conflicts of interest were overhauled to express these principles better. The new act applies to all officers and employees “in the executive, legislative, or judicial branch of the Government, or in any agency of the United States” (Public Law 87–849, 76 Stat. 1121). Conflict-of-interest principles are applied to all forms of modern decisions: “… any proceeding, application, request for a ruling or other determination, contract, claim, controversy, charge, accusation, arrest, or other particular matter in which the United States is a party or has a direct and substantial interest.” The official is culpable if he “participates personally and substantially” in any of these transactions “through decision, approval, disapproval, recommendation, the rendering of advice, investigation, or otherwise.” The 1962 act thus embodies a creative effort to make the chief conflict-of-interest principles applicable to today's circumstances.

Criminal sanctions imposed by statute play a limited role in protecting conflict-of-interest principles. Bayless Manning has named many other means of conflict-of-interest regulation in the federal government:

The Senate, in its conduct of confirmation proceedings, has frequently imposed special conflict of interest standards not found in the statutes. Congress may also bring strong pressures to bear through its investigatory process. Many relationships that might be legally acceptable, and not considered morally reprehensible conflicts of interest, may be politically very sensitive and politically unacceptable. And, finally, many agencies of the government have developed their own operating rules and their own internal regulations for dealing with the problem of ethics as it affects their own operations. No one called upon to consider a question of conflict of interest in the federal service will have done his job unless he has weighed and investigated, in addition to the statutes in the field, the applicable administrative regulations, likely Congressional response, and the general political environment. (Manning 1964, pp. 10–11)

The American press almost daily reports incidents that bring wide public disapproval but where neither the statutes nor informal sanctions have been effective in preventing a conflict of interest in the federal service. Resignations occur, but public criticism is not always effective. This becomes comprehensible when it is recognized that the goal of avoiding corruption is balanced against other, competing goals, particularly employee recruitment and morale. This is a typical statement of the view: “In drafting a conflict-of-interests statute it is easy to become overzealous and to forget the impact which a broad restriction may have. A well-drawn statute should prohibit conflicts of interests which are most damaging to the standards of good government and yet not prohibit so much that competent people will be discouraged from serving” (Harvard Student Legislative Research Bureau 1964, p. 69).

This view has been carried further by some critics of conflict-of-interest regulation. In particular, a proposal to establish a commission on ethics in government was criticized as irrelevant to the problem, which is seen fundamentally as a question of the status of the government employee in the community (Davis 1954, p. 915). Thurman Arnold said this: “Ethics in any group arise out of a sense of tradition and pride in his particular calling. Humiliate that group. Subject them to constant restriction and supervision. Refuse to trust them in any of their activities in or out of Government and you destroy any possibility of an effective ethical code” (U.S. Congress … 1951, p. 372).

Altogether, several criticisms may be made of the approach to conflict of interest of the Bar Association, the 1962 act, and the federal regulations. The code-of-ethics approach has been mentioned. Another view is that in a democratic society all government employees should be required to disclose their personal assets and economic interests to the public or to Congress (Ross D. Davis in Chicago, University of … 1961, pp. 83–84). More often this suggestion is applied only to elected officials, on grounds that voters are the appropriate judges of improper conflicts of interests. But such publicity would unduly violate the private affairs of all the employees. Such a requirement for elected officials is more pertinent, but whether voters function effectively as judges of impropriety is open to question.

Another view is that the kinds of conflicts of interest described here are only a small part of the pressure and cross fire public officials feel. Against this, a concept of the “public interest” is put forward as the value to be served, and words like “neutral,” “objective,” and “disinterested” describe the desired stance. Davis remarked that “in an ideal state the only influence brought to bear upon a public official should of course be his enlightened consideration of the public interest as defined by law” (Chicago, University of … 1961, p. 81). Yet the acceptance of interest groups at all levels and branches of government as legitimate registers considerable faith in the capacity of public officials to be disinterested. Of course, gross forms of pressure have been banned, and disclosure of lobbying and campaign expenses is required. The Bar Association report (Association of the Bar … 1961, pp. 20–22) distinguishes conflicts of policy from the problem of personal conflicts of interest. The view is that when an organization seeks to persuade, even though the persuasiveness is backed by reprisal, the acts are political. Accordingly, conflicts of policy are altogether proper and desirable.

Actually, the Bar Association approach recognizes that public officials cannot put aside longtime associations. The legal realists of a past generation saw that emotional nuances and environmental conditioning inevitably affect the approach men take to the decisions they face. Of course, values such as affection or rectitude color official decisions. Indeed, nepotism is banned in government and other institutions, as a kind of conflict of interest. But the outlook of officials cannot and should not be neutralized or sterilized, and the conflict-of-interest laws can never control more than a small part of the total possible relationships that bear on those who make decisions. From the standpoint of the individual, conflicts of interest, under this usage, are a small part of political and personal ethics; from the standpoint of public affairs, they are a part of corruption and of the factors entering into the formation of public policy.

Setting tolerable limits to conflicts of interest also troubles many nongovernmental institutions. Corporation officials may have conflicting economic interests with competing companies. Law firms and advertising agencies may have client relationships that impinge on other loyalties. Philanthropic foundations and universities encounter conflicts of interest. Accountants, physicians, scientists, and athletes are among those whose conflicts have been reported.

Every group develops informal and unwritten codes of conduct, and it is only after a violation of such a standard that discussion begins to shape more precise rules. Then problems essentially like those in government come to the surface. Consider this definition of the attributes of conflicts in a corporation: “A conflict of interest exists where an employee has a private financial interest or other relationship outside the company that has the potentiality of being antagonistic to the best interests of the company, even though it may result in no financial loss to the company and irrespective of the motives of the individual concerned” (Adam 1963, pp. 12–13). The discovery and isolation of employee relationships that could bring potential harm raise delicate questions of supervision. These questions are so difficult that most private organizations continue to cope with them through informal methods rather than by formal rules and procedures.

Social scientists have yet to make studies designed to answer a number of key assumptions of popular writers on the subject. Is morale insurance against corruption? How may concepts such as morale and corruption best be defined and measured? Are salary and tenure protection against employee conflicts of interest? To the extent that conflicts of interest can be distinguished from bribery and from conflicts of policy, what circumstances nourish them? The effectiveness of statutory and other regulatory controls also needs to be measured. The effect of conflict-of-interest restrictions on the recruitment of public officials and on the entry of persons into particular businesses should also be ascertained with exactitude. Such knowledge is needed to understand the subject, and it will also be pertinent to future efforts to delineate and regulate conflicts of interest.

If the factors giving rise to these problems have universality, then developed societies are no more conflict-of-interest prone than developing ones. (This is another area where research is much needed.) Yet if the subject is not limited either to economic conflicts or to the public sector, conflicts of interest appear to be inevitable by-products of complex societies, of the development of sophisticated relationships among business, professional, and governmental institutions.

Clement E. Vose

[See alsoCivil service; Cross pressure; Lobbying; Office, misuse of; Political financing.]

BIBLIOGRAPHY

Adam, Paul J. 1963 What Is a Conflict of Interest? Management Dilemma. Challenge 11:11–14.

Appleby, Paul H. 1952 Morality and Administration in Democratic Government. Baton Rouge: Louisiana State Univ. Press.

Association of the Bar of the City of New York, Special Committee on the Federal Conflict of Interest Laws 1960 Conflict of Interest and Federal Service. Cambridge, Mass.: Harvard Univ. Press.

California, University of, Bureau of Public Administration 1961 Conflict of Interest in the Federal Government: A Bibliography. Compiled by Dorothy Campbell Tompkins. Berkeley: Univ. of California Press.

Chicago, University of, Law school 1961 Conference on Conflict of Interest, February 20, 1961. Chicago: The School.

Conflict of Interests: State Government Employees. 1961 Virginia Law Review 47:1034–1076.

Conflicts of Interest of State Legislators. 1963 Harvard Law Review 76:1209–1232.

Congress Amends Conflict-of-interest Laws. 1962 Congressional Quarterly Almanac 18:385–389.

Davis, Ross D. 1954 The Federal Conflict of Interest Laws. Columbia Law Review 54:893–915.

Graham, George A. 1952 Morality in American Politics. New York: Random House.

Harvard Student Legislative Research Bureau 1964 A Conflict-of-interest Act. Harvard Journal on Legislation 1:68–85.

Lasswell, Harold D. 1930 Bribery. Volume 2, pages 690–692 in Encyclopaedia of the Social Sciences. New York: Macmillan.

McElwain, Edwin; and Vorenberg, James 1952 The Federal Conflict of Interest Statutes. Harvard Law Review 65:955–983.

Manning, Bayless 1964 Federal Conflict of Interest Law. Cambridge, Mass.: Harvard Univ. Press.

Noel-Baker, Francis 1961/1962 “The Grey Zone”: The Problem of Business Affiliations of Members of Parliament. Parliamentary Affairs 15:87–93.

Odegard, Peter H. 1931 Corruption, Political: United States. Volume 4, pages 452–455 in Encyclopaedia of the Social Sciences. New York: Macmillan.

Perkins, Roswell B. 1963 The New Federal Conflict-of-interest Law. Harvard Law Review 76:1113–1169.

Reich, Charles A. 1964 The New Property. Yale Law Journal 73:733–787.

Senturia, Joseph J. 1931 Corruption, Political: General. Volume 4, pages 448–452 in Encyclopaedia of the Social Sciences. New York: Macmillan.

Unchanging Rules in Changing Times: The Canons of Ethics and Intra-firm Conflicts of Interest. 1964 Yale Law Journal 73:1058–1079.

U.S. Congress, Senate, Committee on Labor and Public Welfare 1951 Establishment of a Commission on Ethics in Government: Hearings Before a Subcommitee to Study Senate Concurrent Resolution 21 of the Committee on Labor and Public Welfare. 82d Congress, 1st Session. Washington: Government Printing Office.

Wilson, H. Hubert 1951 Congress: Corruption and Compromise. New York: Rinehart.

With the Editors … . 1963 Harvard Law Review 76, no. 6:vii.

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Conflict of Interest

CONFLICT OF INTEREST

A term used to describe the situation in which a public official or fiduciary who, contrary to the obligation and absolute duty to act for the benefit of the public or a designated individual, exploits the relationship for personal benefit, typically pecuniary.

In certain relationships, individuals or the general public place their trust and confidence in someone to act in their best interests. When an individual has the responsibility to represent another person—whether as administrator, attorney, executor, government official, or trustee—a clash between professional obligations and personal interests arises if the individual tries to perform that duty while at the same time trying to achieve personal gain. The appearance of a conflict of interest is present if there is a potential for the personal interests of an individual to clash with fiduciary duties, such as when a client has his or her attorney commence an action against a company in which the attorney is the majority stockholder.

Incompatibility of professional duties and personal interests has led Congress and many state legislatures to enact statutes defining conduct that constitutes a conflict of interest and specifying the sanctions for violations. A member of a profession who has been involved in a conflict of interest might be subject to disciplinary proceedings before the body that granted permission to practice that profession.

cross-references

Attorney Misconduct; Ethics, Legal.

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