Not always illegal, conflicts of interest are usually destructive

The corrupting influence of conflict of interest, both in and out of government, is a major threat to our democracy. When the people making the most important decisions in our society have a personal, financial stake in the outcome, or when the people providing supposedly objective information to the public are in effect paid for their point of view, democracy falls apart.

The failure to recognize and address conflicts of interest, either through disclosure, recusal or otherwise, is especially a problem as our institutions and their interrelationships become more complex and opaque.

Conflicts of interest are not necessarily illegal or even unethical. Indeed, the complexity of modern life makes some conflicts inevitable. Unless conflicts are recognized and addressed, however, their incidence will multiply, as will the damage they cause. In many cases we turn a blind eye to conflicts because we do not want to accuse anyone of improper behavior. Time and again, conflicts are soft-pedaled as “potential,” when they are all too real.

Let’s look at how widespread and untreated conflict of interest is through some recent examples. A commissioner of the Federal Communications Commission voted to approve the multimillion-dollar merger between Comcast and NBC and four months later went to work for Comcast.

The general counsel of the Securities Exchange Commission worked on standards for clawing back fictitious profits from Bernie Madoff investors, for the benefit of other investors, while he and his brothers had themselves inherited a $2 million Madoff investment account. The inspector general who referred this matter to the Department of Justice also noted that several other high-ranking SEC officials were aware of the situation but never suggested that the general counsel recuse himself from the Madoff matter.

In a hearing before the Senate Permanent Subcommittee on Investigations, the CEO of Goldman Sachs argued that during the housing meltdown there was no conflict of interest in selling securities backed by subprime mortgages as safe investments to clients, even as Goldman bet against these very same securities.

A member of Congress who was actively involved in writing Medicare legislation affecting the pharmaceutical industry left to work as the industry’s trade association CEO.

The BP spill exposed the fact that many of the Minerals Management Service’s inspectors were moving back and forth from the government to the oil industry that they were supposed to be objectively regulating.

Conflicts that are undisclosed are particularly harmful. Most media companies, for example, have ethics rules that preclude their reporters from receiving practically anything of value from those whom they are covering. Too often, these rules do not extend to non-employees who appear on the air or in the editorial pages. As a result, the public may be fooled into believing that they are receiving objective information and unvarnished opinions when nothing could be further from the truth. Many commentators on health care reform have received very lucrative speaking fees for attending conferences and other gatherings sponsored by firms that would be affected by reform, a crucial fact hidden from media consumers.

Foreign policy and security experts write columns or appear on TV supporting the view of a country and its regime while at the same time taking consulting fees from that country without disclosing their relationship.

At a more mundane level, when a TV review of a movie does not disclose that a division of the TV network produced the film, viewers of that review are deprived of a critical piece of information. In all of these media contexts, full disclosure ought to be a minimum requirement.

Undisclosed conflicts are not limited to government, big business, and the media. A growing and disturbing trend is the participation of academics in campaigns to influence public policies and regulation, on issues involving organizations from which they have received grants or consulting agreements, again without disclosing their relationship.

This very short list of examples reveals the breathtaking scope of the problem. Conflicts of interest and the failure to address them affect government, business, academia, and all levels of our society. We must all work to identify and disclose conflicts of interest and either eliminate them or come up with protective rules that work.

Originally published 9 Oct 2011 on delawareonline.com