1. Common Ethical Problems (2): Conflicts of Interest Geoffrey G. Bell, PhD, CA University of Minnesota Duluth September 2003

2. The heart of conflict of interest Key is to have impartiality, both in fact and in appearance. Key is to have impartiality, both in fact and in appearance. Conflict of interest impairs your judgment, or could appear to impair your judgment. Conflict of interest impairs your judgment, or could appear to impair your judgment. E.g., Andrew Fastow at Enron arranged limited partnerships where he profited at Enron’s expense (estimated he made $30 million on one partnership alone). E.g., Andrew Fastow at Enron arranged limited partnerships where he profited at Enron’s expense (estimated he made $30 million on one partnership alone). NB Enron’s Board had to vote 3 times to suspend Enron’s ethics guidelines to create the partnership. NB Enron’s Board had to vote 3 times to suspend Enron’s ethics guidelines to create the partnership. E.g., Arthur Andersen’s audit practice department answered to local client partners, not national office. E.g., Arthur Andersen’s audit practice department answered to local client partners, not national office.

3. Wall Street examples Think of the “Dot-con” video. Think of the “Dot-con” video. Brokerage firms have both investment banking and retail sales divisions. Problems with this: Brokerage firms have both investment banking and retail sales divisions. Problems with this: Unwillingness to issue “negative coverage” of investment banking clients. Unwillingness to issue “negative coverage” of investment banking clients. Investment analysts’ skills became a sales tool (“we’ll promote your IPO”). Investment analysts’ skills became a sales tool (“we’ll promote your IPO”). Firms that did issue negative opinions would be kept out of firm briefings. Firms that did issue negative opinions would be kept out of firm briefings.

4. The problem with bribes & gifts Bribes impair one’s judgment to act impartially. Bribes impair one’s judgment to act impartially. Bribes may also make one subject to blackmail (I’ll tell on you!). Bribes may also make one subject to blackmail (I’ll tell on you!). Issues of gift-giving may create major problems when dealing with cultures where it’s accepted. Issues of gift-giving may create major problems when dealing with cultures where it’s accepted. Problem is adhering to firm policy without offending the gift-giver. Problem is adhering to firm policy without offending the gift-giver. Clearly, one cannot personally accept the gift without violating firm policy. Clearly, one cannot personally accept the gift without violating firm policy. Are there win/win solutions such as accepting the gift on behalf of the firm? (Maintains individual impartiality) Are there win/win solutions such as accepting the gift on behalf of the firm? (Maintains individual impartiality)

5. Privileged Information The idea is that you cannot use the information you get in one setting to benefit you in a way that harms others. The idea is that you cannot use the information you get in one setting to benefit you in a way that harms others. This is Martha Stewart’s potential problem with Imclone. She reportedly used information from Sam Waksal to sell her Imclone shares ahead of bad news. This is Martha Stewart’s potential problem with Imclone. She reportedly used information from Sam Waksal to sell her Imclone shares ahead of bad news. You may have to sign a non-compete clause if you leave an employer. You may have to sign a non-compete clause if you leave an employer.