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Nov 28, 2016

DealBook - November 28, 2016: Congress May Hold Key to Handling Trump's Conflicts of Interest

The New York Times

nytimes.com

Peter J. Henning
 
That issue is especially challenging because so much of Mr. Trump’s work could make his company richer or poorer, and therefore his motivations could be questioned about a multitude of decisions.

One approach for dealing with conflicts of interest is for Mr. Trump to divest himself of direct ownership in his company. Richard W. Painter, a law professor and former chief White House ethics lawyer under President George W. Bush, argued that “Trump owes it to the American people to do the same” as his predecessors, who sold assets to avoid even the appearance of a conflict. The Wall Street Journal argued that his “best option is to liquidate his stake” in his company, although more because of the political perception Mr. Trump’s holdings may create than the actual effect of a conflict of interest on his decisions.
Divestment is the easiest solution, but one that creates difficulties because real estate assets like Mr. Trump’s would not be easy to unload without becoming a fire sale. The law does allow federal officials who are required to sell their holdings to avoid conflicts of interest to postpone paying taxes on any capital gains as long as they invest the proceeds in Treasury bonds and mutual funds. Mr. Trump’s tax situation remains unclear, so it is questionable whether this would be of any real benefit.
Another option would be to put the assets into a blind trust that would administer them away from the president-elect’s direct control. But given Mr. Trump’s intimate knowledge of his company and desire to have his children run the business, there does not appear to be any realistic means to create an arrangement that would be truly blind and operating outside his purview.
Divestment or a blind trust are not the only ways to deal with the issue. Conflicts of interest are not necessarily wrong. They are a regular feature of many corporate transactions that proceed despite the potential for a decision to personally enrich a director.
The law’s position on conflicts of interest has evolved. In a 19th century case arising from the building of the transcontinental railroad, the Supreme Court in Wardell v. Railroad Company took a strict view by voiding a contract in which corporate directors were the beneficiaries of the agreement with the company. The court explained that “the law therefore will always condemn the transactions of a party on his own behalf when, in respect to the matter concerned, he is the agent of others, and will relieve against them whenever their enforcement is seasonably resisted.”
Since then a much more flexible approach has developed for dealing with conflicts, in recognition that corporate directors often have multiple business interests that could prevent many from serving. Under Delaware law, the most influential state for corporations, a contract or transaction involving a conflict of interest is not voidable solely because of the financial interest of a director. To avoid any problem, disinterested directors can approve the deal despite the conflict as long as all the details are disclosed in advance.
The key to dealing with conflicts — whether actual or potential — is transparency about any decision that could have an effect on Mr. Trump’s business interests if he decides not to divest his holdings or create a truly blind trust. Unlike the approach of many teenagers, who believe that it is easier to beg forgiveness than permission, in business the advance notice of a potential issue can lessen its impact.
The challenge is coming up with a mechanism for dealing with questions that might arise from Mr. Trump’s business interests rather than relying on the good faith of the parties involved or deflecting the issue with claims that any criticism is only political, especially in foreign countries in which the president-elect has investments, as The New York Times points out. In a corporation, it is the responsibility of the board of directors to approve transactions despite a conflict. The executive branch does not have anything comparable to deal with potential conflicts involving the president.
Some critics have pointed to potential problems Mr. Trump’s business interests could present under the Emoluments Clause of the Constitution. That obscure provision provides that “no person holding any office of profit or trust under them, shall, without the consent of the Congress, accept of any present, emolument, office or title, of any kind whatever, from any king, prince or foreign state.”
Although it is not clear what constitutes an “emolument” — defined by Webster’s New World Dictionary as “gain from employment or position, payment received for work, salary, wages, fees, etc.” — the provision is intended to keep federal officials from receiving benefits beyond their salary while in office. In Griffin v. United States, a case in which former President Richard M. Nixon sought compensation for the tape recordings made while he occupied the Oval Office, a federal district judge explained that “the framers of the Constitution forbade the president from receiving any emolument other than a fixed compensation, in part because they feared the consequences of allowing a president to convert his or her office into a vehicle for personal profit.”
The Constitution does allow for receiving an emolument with congressional approval, which could be a path to vet presidential decisions that might present a conflict of interest. If Congress approves actions that would affect part of Mr. Trump’s company after full disclosure of the potential benefit, that would go a long way toward removing any taint, in much the same way that corporate directors can acquiesce to a conflicted transaction.
This approach would not involve trivial conduct, such as when Ivanka Trump’s jewelry company promoted sales of a $10,000 bracelet she wore during an interview of her father on “60 Minutes.” Presidential siblings and children have tried to cash in on the presidency for years — does anyone remember Billy Beer? — and there has been little concern that it might affect government decisions.
Mr. Trump’s personal involvement in his company goes far beyond the financial interests of other presidents, and whether Congress would be willing to undertake a role in resolving potential conflicts is unclear. With Republicans in control of both chambers for the next two years, adopting a mechanism along the lines of how corporate law approaches conflicts could do much to defuse the questions that surround the president-elect’s business ties.
In his interview with The New York Times, when asked about a role for his son-in-law in his administration, Mr. Trump said that “the president of the United States is allowed to have whatever conflicts he wants.” That view does not encourage the level of trust necessary for governing effectively. Creating a means to mitigate potential conflicts of interest presented by someone with a business background unique in the history of the presidency would be helpful.
There will always be the potential for conflicts of interest between an official’s personal interests and the requirements of public service. Corporate law offers one way to deal with the issue when it involves the president: giving Congress a role in the process, in that way encouraging transparency before a decision.