What’s the Interest in “Conflict of Interest”?

“Conflict of interest” is a deceptively simple term devilishly difficult to apply.  It first came into common parlance in the United States in the nineteen fifties thanks to the political uproar sparked when the former CEO of General Motors Charles Wilson, President Eisenhower’s nominee to be the Secretary of Defense, told the Senate that the interests of the U.S. and General Motors were aligned.  Senators questioned that premise given that Mr. Wilson owned considerable GM stock and as Secretary of Defense would make decisions that would affect that stock.  His interest in seeing the value of his stock holdings rise would, they asserted, conflict with his duty to advance the national interest and so they demanded he sell the stock to avoid any conflict of interest.

The ensuing controversy about when a public official must sell off assets or take other measures to prevent a conflict of interest prompted Congress to update and modernize federal ethics laws.  A 1962 statute banned four types of conflicts, those arising from employees: i) awarding themselves government contracts, ii) assisting anyone in pursuing a claim against the government, iii) taking money from someone for discharging their duties as a government employee, or iv) advising, after leaving government employee, an individual or firm on a matter they worked while an employee.

Each of these four involves the possibility that the employee will put his or her personal, financial interest ahead of the public interest when taking a decision.  These are clear, “bright line” rules easy to understand and easy to enforce.  The problem has come with the subsequent expansion of the term “interest.”

Somewhere, perhaps when the idea of “conflict of interest” crossed the Atlantic, “interest” was expanded to mean far more than a financial interest.  In 2000 the Council of Europe recommended that its member states define a conflict between a public servant’s obligation to the nation and his or her “interest” to include:

any advantage to himself or herself, to his or her family, close relatives, friends and persons or organizations with whom he or she has or has had business or political relations.  It includes also any liability, whether financial or civil, related thereto” (emphasis added).

The OECD likewise embraced a broad definition of “interest” in a 2003 report, Managing Conflict of Interest in the Public Service: OECD Guidelines and Overview. There the group said “interest” should include not only financial interests but “personal affiliations,” “associations,” “family interests,” and indeed any interest that “could reasonably be considered likely to influence improperly an official’s performance of their duties.”

With growing concern about corruption and the accompanying demand that public servants be beyond reproach, it is easy to understand why lawmakers broadened the term “interest.”  The problem they created was a failure to offer any idea of where lines should be drawn when enforcing, or trying to comply with this expanded “conflict of interest” ban.  How “personal” does an “affiliation” have to be to constitute a conflict?  Membership in the same church?  Golf club?  What type of “association” disqualifies a government employee from participating in a decision?   Is there any de minimis exception to the advantage that might be realized from a decision?

Just how hard it is know when an interest is illegal is illustrated by the Queensland anticorruption agency ’s heroic effort to identify when it is.  As the commission explains in a circular meant to offer guidance for those trying to comply with the law, “interest” can include:

 “many social and professional activities and interests. For example, a public official might be a member of a club, or have personal affiliations or associations with individuals or groups, including family and friends. Any of these relationships could be the source of interests that could conflict with the public interest in a particular situation. Moreover, we all have our own personal opinions, prejudices and attitudes, which we are expected to set aside when performing our official duties. However, if personal values are likely to impact on the proper performance of public duty, then these can also lead to a conflict of interest.”

Got that?  See what interests are prohibited?  (Anyone knowing of a workable definition please let me know.)

One gets the sense, almost, that agencies which draw the line this broadly are pining for a government like that Plato described in The Republic.  Rulers in his ideal state were to be stripped of all interests to ensure their decisions would not be tainted by personal considerations, be it family ties or financial interests.   Would-be leaders were to be taken from their parents at birth and reared communally so that they would not know whom their relatives were; to prevent any conflict between their economic interests and those of the state, they would not be allowed own property.

Plato’s scheme has always been considered utopian, and today’s efforts to purge government decision-makers of all their personal, professional, and financial interests are equally unrealistic.

In a later post I will review how enforcement agencies stuck with overly broad, unrealistic conflict of interest laws attempt to administer them.

2 thoughts on “What’s the Interest in “Conflict of Interest”?

  1. One of the things that is particularly interesting to me in the conflict of interest debate is that we often *want* our public officials to have an interest in the field they are entering. The alignment of interests is not in an of itself a problem; it is when interests conflict. Having a Secretary of Defense who has strong ties to private sector firms producing military technology is in many ways an advantage. Public officials are often better able to serve the public when they have close ties–business, personal, familial–to influential players within their sectors. Perhaps we have so much trouble coming to consensus on a clear definition because we focus on the definition of ‘interest’ rather than that of ‘conflict.’ If the fear is that officials will make decisions which are not in the public interest, developing standards which require officials to show that they made what could reasonably be viewed as the best possible decision (cost-benefit analysis could be one tool), could assuage this fear.

  2. The basic problem here, it seems to me, will be a familiar one to anyone who has ever been to law school, and probably to most other people as well. We have a choice between (1) a clear rule that we fear is substantially under-inclusive (for example, prohibiting direct financial conflicts-of-interest but nothing else); (2) a clear rule that we fear is substantially over-inclusive (for example, not allowing anyone who has any personal, familial, or social tie to anyone who might be affected by a government decision from participating in making that decision); and (3) a fuzzy standard, kind of like Queensland and OECD language you quoted, which can be very difficult to interpret and apply in practice. (That three-fold distinction is itself an oversimplification, but you get the idea.)

    You do a nice job in this post pointing out and criticizing the fuzzy nature of many of the existing formulations, but what’s your preferred alternative? A very narrow rule that might not cover lots of situations where we might think that there’s a real conflict-of-interest problem despite the absence of a direct financial stake? A broad prophylactic rule that might end up excluding a lot of highly qualified individuals from public service?

    As is almost always the case, there’s probably no single right answer — everything depends on context, yada yada yada. But I’d be interested in your take on what the best alternative would be, given the fundamental dilemma.

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