C
Conflict of Interest in Four Professions: A Comparative Analysis

Michael Davis* and Josephine Johnston**


This paper presents a selective survey of the ways in which important professions other than medicine understand and regulate conflicts of interest. The professions evaluated here—law (lawyers), accountancy (certified public accountants [CPAs]), architecture, and engineering—each differ from medicine in having clients or employers rather than patients as the focus of concern. The difference is not simply one of terminology. A client or an employer is not necessarily human. Many are corporations or governments. Even the human clients differ from patients. With some exceptions (e.g., clients accused of crimes), they are typically healthy, calm, and relatively well-informed about the service to be provided; they are seldom as vulnerable as a physician’s patient typically is. A client or employer simply asks that something be done (a building put up, a machine designed, a contract drawn, or a company audited). Emergencies are much rarer in these professions than they are in medicine, and time to think through a problem is more plentiful. Because of their relative sophistication and bargaining strength (compared both with patients and with the professional in question), clients or employers need not readily consent to accept the conflicts disclosed to them; they are more likely to insist that a conflict be avoided or resolved or to use the conflict to better the bargain. In other words, law, ac-

*

Michael Davis, Ph.D., is a senior fellow within the Center for Study of Ethics in the Professions and a professor of philosophy in the Humanities Department, Illinois Institute of Technology.

**

Josephine Johnston, L.L.B., is a research scholar at the Hastings Center, Garrison, New York.



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C Conflict of Interest in Four Professions: A Comparative Analysis Michael Dais* and Josephine Johnston** This paper presents a selective survey of the ways in which important professions other than medicine understand and regulate conflicts of inter- est. The professions evaluated here—law (lawyers), accountancy (certified public accountants [CPAs]), architecture, and engineering—each differ from medicine in having clients or employers rather than patients as the focus of concern. The difference is not simply one of terminology. A client or an employer is not necessarily human. Many are corporations or governments. Even the human clients differ from patients. With some exceptions (e.g., clients accused of crimes), they are typically healthy, calm, and relatively well-informed about the service to be provided; they are seldom as vulner- able as a physician’s patient typically is. A client or employer simply asks that something be done (a building put up, a machine designed, a contract drawn, or a company audited). Emergencies are much rarer in these pro- fessions than they are in medicine, and time to think through a problem is more plentiful. Because of their relative sophistication and bargaining strength (compared both with patients and with the professional in ques- tion), clients or employers need not readily consent to accept the conflicts disclosed to them; they are more likely to insist that a conflict be avoided or resolved or to use the conflict to better the bargain. In other words, law, ac- * Michael Davis, Ph.D., is a senior fellow within the Center for Study of Ethics in the Professions and a professor of philosophy in the Humanities Department, Illinois Institute of Technology. ** Josephine Johnston, L.L.B., is a research scholar at the Hastings Center, Garrison, New York. 0

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0 APPENDIX C counting, architecture, and engineering are professions in which one might expect much less concern with conflicts of interest than in medicine. Although these are the chief differences between medicine and the pro- fessions discussed here, they are not the only ones. These other professions differ substantially in size from medicine—and from each other. Physicians outnumber architects in the United States by about 10 to 1, engineers out- number physicians by about 3 to 1, and the numbers of individuals in the other professions fall somewhere in between. Importantly, only one profes- sion, engineering, does much that physicians would recognize as scientific research. The professions evaluated here were chosen because none is a close an- alogue of medicine. Medicine tends to be the model for adjacent professions (osteopathy, dentistry, pharmacy, nursing, and so on). The comparison of medicine with an adjacent profession would provide less contrast and there- fore less understanding of conflict of interest as a general problem for pro- fessions. All of the professions discussed here have substantial experience with employment in large organizations. Two of the professions—engineer- ing and accounting—have a long history of employment in such organiza- tions. Only a small minority of engineers has ever been self-employed in the way that most physicians, except those in research and teaching, were until recently. Even self-employed architects, lawyers, and accountants of- ten work for and in large organizations in a way that physicians have only recently begun to do in large numbers. Looking at how these nonmedical professions respond to the conflicts of interest that are more likely to arise in large organizations should help physicians both look critically at present arrangements and anticipate the future. Finally, these professions all recog- nize conflicts of interest as posing a threat to the integrity of the profession and have developed ethics rules to address the threat. TERMINOLOGY “Conflict of interest” is not an old term. The first court case to use it in something like the sense that is now standard occurred in 1949.1 Federal legislation first addressed conflict of interest in the late 1950s.2 The Index of Legal Periodicals had no heading for “conflict of interest” until 1967; Black’s Law Dictionary had none until 1979. No ordinary dictionary of English seems to have had an entry for “conflict of interest” before 1971. The term also began to appear in codes of ethics in the 1970s, although related terms, such as “adverse interest,” “conflicting interest,” “bias,” 1 In re Equitable Office Bldg. Corp., D.C.N.Y., 83 F. Supp. 531. 2 Staff report of the Antitrust Subcommittee (Subcommittee No. 5) of House Judiciary Com- mittee, 85th Cong., 2d sess., Federal Conflict of Interest Legislation (Comm. Print 1958).

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0 CONFLICT OF INTEREST “prejudice,” and the like appeared in codes much earlier.3 This short history may explain, at least in part, the variation in how the term is used among professions. We are all trying to keep pace with the usage. The term “conflict of interest” is not self-explanatory but is an idiom or term of art (a term designed to pick out a phenomenon until then lack- ing a suitable name). For the professions discussed here, the term groups together a range of scenarios in which the professional judgment of the individual in question risks being compromised.4 These professions do not use explicit definitions of “conflict of interest” but instead describe in their codes a variety of situations that fall under the heading “conflict of inter- est” and that must either be avoided or managed in specified ways. For example, the definitions section of the American Bar Association’s (ABA’s) Model Rules of Professional Conduct includes definitions of “informed consent” and “fraud” but not “conflict of interest.”5 Instead, situations labeled conflicts of interest are described in the Model Rules.6 Similarly, the American Institute of Certified Public Accountants’ (AICPA’s) Code of Professional Conduct includes a definition of some of the terms used in its conflict of interest rules, such as “immediate family” but not “conflict of interest.” In fact, AICPA’s Code does not use the term “conflict of interest” at all, speaking instead of various threats to “independence” and “objectiv- ity,” including the threat posed by certain financial interests.7 The major concern uniting the professions’ use of the term is to protect the judgment of individual professionals from undue influence, whether the risk arises from gifts or kickbacks; an individual’s personal (generally fi- nancial) interests; or the interests of family members, colleagues, or current and former clients. In some of the professions, a situation—for example, the representation of both plaintiff and defendant in the same legal case—is labeled a conflict of interest when it would be described as a conflict of ob- ligations or responsibilities in the report to which this paper is an appendix (see Chapter 2) because neither obligation would be considered secondary to the other. For all of the professions discussed in this paper, a certain sort of expert 3 Neil R. Luebke, “Conflict of Interest as a Moral Category,” Business and Professional Ethics Journal 1987; 6 (Spring): 66–81. 4 Michael Davis, “Conflict of Interest Revisited,” Business and Professional Ethics Journal 1993; 12 (Winter): 21–41. 5 American Bar Association, Model Rules for Professional Conduct: Rules 1.0. www.abanet. org/cpr/mrpc/rule_1_0.html. 6 American Bar Association, Model Rules for Professional Conduct: Rules 1.7–1.10. www. abanet.org/cpr/mrpc/mrpc_toc.html. 7 The American Institute of Certified Public Accountants, AICPA Code of Professional Responsibility: Section 100—Independence, Integrity, and Objectivity. www.aicpa.org/About/ code/sec100.htm.

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0 APPENDIX C and trustworthy judgment in individual situations (the judgment character- istic of the profession) is what makes members of the profession useful. A conflict of interest makes that judgment unreliable just when reliability is needed. A conflict of interest is therefore always considered a threat to the good that the profession seeks to achieve and is often also a threat to the profession’s reputation. That is what makes having a conflict of interest a serious concern in professional ethics. The next four sections of this paper consider in detail how the four professions on our list understand conflict of interest, respond to it, and why. The final section summarizes and compares the professions and iden- tifies approaches from which medical research, education, and practice might learn. LAWYERS The main legal professions—lawyers and judges—have traditionally taken conflict of interest very seriously. Because justice is to be fairly meted out, interests that might cause a judge to be or appear to be partial are also generally prohibited. Although lawyers owe obligations to the legal system and the public, their primary obligation is to their clients; interests that might interfere with this obligation are generally to be avoided. The legal professions have some of the strictest rules about conflict of interest and have a long history of examining and enforcing those rules. In the interests of space, the focus here is on lawyers because their work, in most respects, is more like that of physicians than is the work of judges. (Judges are more like physicians serving on drug and device approval panels or as authors of review articles, whose charge is to weigh all the evidence and reach a reasoned and impartial decision.8) In legal practice, conflicts of interest are conceptualized in the context of the attorney-client relationship, which is protected by very strong obliga- tions of loyalty and confidentiality. Broadly speaking, two kinds of conflict are understood to arise in that relationship: first, conflicts between the in- terests of two or more clients (whether they be current clients or a current client and a former client) and, second, conflicts between the interests of one or more clients and the personal interests of the attorney. The first kind of conflict is created by the act of entering into a certain attorney-client relationship. For that reason, lawyers routinely conduct “conflicts checks” before taking on a new client or a new file from an existing client. The second kind of conflict can be created by either enter- 8 For an example of rules of professional conduct for judges, see New York State Commission on Judicial Conduct, Rules of Conduct, at http://www.scjc.state.ny.us/Legal%20Authorities/ rgjc.htm. Judicial ethics emphasizes independence.

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06 CONFLICT OF INTEREST ing into a new attorney-client relationship; taking on a new file from an existing client; or taking on a personal interest, including but not limited to a financial interest. In part, because the conflict of interest of one lawyer is, as a general principle, imputed to all lawyers working in the same firm or group practice, procedures, internal databases, and software have been developed to assist large firms in identifying possible conflicts of interest. So, for example, a lawyer who marries will immediately report that change of status to his firm along with the spouse’s investments, family connec- tions, employer, and the like. In some cases, law firms have staff dedicated to monitoring conflicts of interest, including, according to one New York City law firm partner whom we spoke with, general counsel whose risk management responsibilities include conflict of interest issues. Lawyers also use letters of engagement to carefully specify which of the firm’s lawyers will be working for the client on the particular matter to avoid or make more manageable any future conflict of interest. For the first kind of conflict, the analogy with medicine is not particu- larly strong: physicians are not generally constrained from taking on new patients because of their loyalty to other (current or former) patients, al- though analogous problems concerning confidentiality may arise when one physician serves several members of the same family. The analogy becomes somewhat stronger if one thinks of a pharmaceutical company or a device manufacturer with whom a physician has a financial relationship as one “client” and one or more patients as the other “client.” The legal profession’s management of the second kind of conflict—a conflict between a lawyer’s personal interests and the interests of a client— could provide more direct instruction to medicine, insofar as there is a concern that physicians’ financial and other relationships with industry might lead physicians to make clinical decisions that they would not have made but for those financial or other relationships. Furthermore, the legal profession’s general attitude toward conflict of interest might be instructive for medicine. Conflicts of interest are under- stood to be a common feature of legal practice for which the profession has developed norms, rules, and procedures. Censure attaches not to finding oneself in a position in which agreeing to represent a client would create a conflict of interest (all lawyers are in this position from time to time, even though they try to avoid it) but to agreeing to represent that client without properly addressing the conflict of interest. Lawyers share some similarities with physicians. Until recently, many lawyers worked alone or in small group practices. Lawyers are under a strong obligation of fidelity to their individual clients; and although some clients are large companies or sophisticated and powerful individuals, many are vulnerable individuals, including people who are in trouble with the law, are victims of physical harm or abuse, or are making major decisions

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0 APPENDIX C that can have a lasting impact on their lives and the lives of their fami- lies (e.g., buying or selling property, making a will, or adopting a child). However, although some lawyers represent clients with a compromised decision-making ability, lawyers do not routinely deal with clients whose decision-making ability may be medically impaired. In the United States, as in most other common-law jurisdictions, a lawyer (often called an attorney) may conduct all aspects of litigation (in- cluding court appearances); may represent clients in negotiations; may give legal advice; and may prepare contracts, wills, and other legal documents. The specific criteria for admission to the bar are set by each state: candi- dates must generally hold a law degree (J.D.) from an accredited law school; pass that state’s bar examination; and in all but three jurisdictions, pass the Multistate Professional Responsibility Examination, which is a 2-hour-long multiple-choice test that includes questions about conflict of interest.9 To be accredited, American law schools are required to provide sub- stantial instruction to all J.D. students in the values, rules, and responsibili- ties of the legal profession, including instruction in the identification and management of conflicts of interest.10 Law professors themselves are subject to any conflict of interest policies of their own institutions. In keeping with the Association of American Law Schools’ 2003 Statement of Good Prac- tices by Law Professors in the Discharge of Their Ethical and Professional Responsibilities, law professors are obligated in publications and presenta- tions to “disclose the material facts relating to receipt of direct or indirect payment for, or any personal economic interest in, any covered activity that the professor undertakes in a professorial capacity.”11 To maintain the license to practice law, 41 U.S. states require comple- tion of a prescribed number of hours of continuing legal education (CLE), and 36 of these states mandate the inclusion of professional responsibility (also called “legal ethics”), including in some states “elimination of bias.”12 Providers of mandatory CLE, which can be law schools, law firms (which offer CLE only to lawyers in-house or to outside lawyers as well), or private companies, must individually be accredited by each state’s CLE accrediting authority. Mandatory CLE can be funded in a number of ways: it may be provided for a fee or it may be offered for free by the ABA, by state bar 9 American Bar Association, Bar Admissions Basic Overview. www.abanet.org/legaled/ baradmissions/basicoverview.html. 10 American Bar Association, 2007–2008 Standards for Approval of Law Schools, Interpre- tation 302-9. www.abanet.org/legaled/standards/standards.html. 11 Association of American Law Schools, Statement of Good Practices by Law Professors in the Discharge of Their Ethical and Professional Responsibilities, 2003. www.aals.org/ about_handbook_sgp_eth.php. 12 American Bar Association, Summary of MCLE Jurisdiction Requirements. www.abanet. org/cle/mcleview.html.

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0 CONFLICT OF INTEREST associations, or by law firms. (One lawyer with whom we spoke noted that large malpractice firms sometimes sponsor CLE.) The lawyer or the lawyer’s employer pays the fee. Providers are required to offer tuition assistance to unemployed attorneys, attorneys working in the public sector, and those in a financial hardship situation. Lawyers seem unconcerned about the prospect of commercial interests being involved with CLE—they even allow corporate sponsorship at CLE events. Of course, in general, commercial providers of CLE are not potential clients or adverse parties but simply the makers of the tools or the providers of the services that lawyers use in the course of their work. As a result of these requirements, virtually all, if not all, U.S. lawyers have received instruction on the identification and management of conflicts of interest, and many continue to address this issue in their CLE. Because the legal profession has developed considerable case law, detailed rules (described below), and legal scholarship (two or three dozen articles per year) addressing lawyers’ conflicts of interest, there is much for American law students and lawyers to learn. Canons, Model Codes, and Model Rules Although local bar associations began to appear in the United States in the late 19th century, most U.S. lawyers at the time were only informally controlled by reputation and peer pressure. The ABA was founded in 1878; and one of its first major initiatives became, in 1908, the Canons of Professional Ethics, developed in response to a perceived need to promote and vouch for the integrity (or reliability) of lawyers generally.13 Initially there were 32 canons, and the number of canons eventually expanded to 47. The individual canons were fairly brief (the briefest is one sentence of two dozen words, whereas the longest is a few paragraphs). They were not accompanied by further guidance or detailed explanation, as is found in modern codes of legal ethics. Nevertheless, they were influential. By 1924, virtually every state and local bar association had adopted the canons.14 A number of the canons are relevant to conflict of interest, although it was the sixth canon (titled Adverse Influences and Conflicting Interests) that addressed the issue directly. Canon 6 consisted of three short paragraphs, and although it was fairly unsophisticated and incomplete, it captured the major conflict of interest issues that attorneys face even today. It attempted 13 Ted Schneyer, How Things Have Changed: Contrasting the Regulatory Environment of the Canons and the Model Rules. www.abanet.org/cpr/schneyer.pdf. 14 James M. Altman, “Considering the ABA’s 1908 Canons of Ethics,” Fordham Law Re- iew 2003; 71: 2395–2524, at 2396, quoting Report of the Standing Committee on Profes- sional Ethics and Grievances, American Bar Association Report 1924; 49: at 466, 467.

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0 APPENDIX C a definition of client-client conflict of interest as a conflict of obligation (“when, in behalf of one client, it is his duty to contend for that which duty to another client requires him to oppose”), identified client loyalty and confidentiality as two values threatened by conflict of interest, identi- fied the particular problems of concurrent and subsequent representation of conflicting clients, and proposed one remedy for concurrent represen- tation (disclosure followed by informed consent).15 Other canons dealt with related conflict of interest issues, including a prohibition on a lawyer purchasing an interest in the subject that is a matter of litigation and a requirement that contingency fee arrangements be supervised by the court to prevent unjust charges. Fifteen amendments to the canons (none related to Canon 6) were adopted before the ABA developed a new code, the Model Code of Profes- sional Responsibility, in 1969.16 The Model Code was a far more detailed document than the canons. It contained nine “canons” (described as “axi- omatic norms”). These doubled as section titles. Each canon was followed by a series of Ethical Considerations and Disciplinary Rules. The Ethical Considerations were described as “aspirational in character,” representing the objectives toward which all lawyers should strive. The Disciplinary Rules were, unlike the Ethical Considerations, mandatory and set “the minimum level of conduct below which no lawyer can fall without being subject to disciplinary action.” Conflict of interest was mainly addressed in Canon 5 of the Model Code, which states: “A Lawyer Should Exercise Independent Professional Judgment on Behalf of a Client.” The first of the 24 Ethical Considerations for Canon 5 explains that [The] professional judgment of a lawyer should be exercised, within the bounds of the law, solely for the benefit of his client and free of compro- mising influences and loyalties. Neither his personal interests, the interests of other clients, nor the desires of third persons should be permitted to dilute his loyalty to his client. The seven Disciplinary Rules describe a mix of situations in which a conflict of interest is prohibited outright and situations in which the interest is per- missible only after the conflict of interest is fully disclosed to and informed consent is received from the client or clients in question. Although the states more or less uniformly adopted the Model Code, it was soon abandoned.17 In 1983, the ABA adopted a replacement. One theory about why the Model Code was so quickly replaced is that it mixed 15 American Bar Association Canons of Ethics, Canon 6. 16 American Bar Association, Model Code of Professional Responsibility, 1983. www.law. cornell.edu/ethics/aba/mcpr/MCPR.HTM. 17 Charles W. Wolfram, Modern Legal Ethics, West Publishing, 1986.

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0 CONFLICT OF INTEREST minimum standards of conduct permitted under the law with ethical rules intended to set higher standards and therefore was perceived as confusing ethics with law (and, in the process, reducing ethical standards).18 In its report to the ABA recommending the adoption of a new code of profes- sional responsibility, the Kutak Commission on Evaluation and Professional Standards cited a steady increase in concern about professional ethics, including Supreme Court cases, statutes and regulations, opinions of the ABA’s Committee on Ethics and Professional Responsibility, and reports and articles, as leading it to reconsider the Model Code.19 The commission ultimately concluded that amendments would not suffice to address this increased concern, and so, just 15 years after adopting the Model Code, the ABA replaced it with the Model Rules of Professional Conduct. The states were slow to adopt the Model Rules, although today all states but Califor- nia, Maine, and New York have professional conduct rules that follow the format of the Model Rules. (New York still follows the Model Code, and California and Maine have developed their own rules.)20 The Model Rules are fairly detailed, clustered under eight headings, and accompanied by lengthy comments. The Model Rules most closely related to conflict of interest fall under the heading “Client-Lawyer Relationship” and are described in the following sections. Rule .. Conflict of Interest: Current Clients Rule 1.721 begins with a strong statement of general principle, fol- lowed by a description of the circumstances in which the general principle does not apply. The general principle is that a lawyer “shall not represent a client if the representation involves a concurrent conflict of interest.” A concurrent conflict of interest is defined as the situation in which the representation of one client will be directly adverse to that of another cli- ent (conflict of obligation) or there is a “significant risk” that representing one client will be “materially limited” by the lawyer’s responsibilities to another client, a former client, or a third party or by the personal interest of the lawyer (true conflict of interest). However, the lawyer may proceed 18 Robert P. Lawry, “The Law and Ethics of Lawyers’ Conflicts of Interest,” in Thomas Murray and Josephine Johnston (eds.), Ethical Issues in Financial Conflicts of Interest in Biomedical Research, forthcoming. 19 American Bar Association Commission on Evaluation of Professional Standards (Robert J. Kutak Chairman), “Model Rules of Professional Conduct: Discussion Draft,” January 20, 1980. www.abanet.org/cpr/mrpc/kutak_1-80.pdf. 20 American Bar Association website, ABA Model Rules of Professional Conduct: State Adoption of Model Rules. www.abanet.org/cpr/mrpc/model_rules.html. 21 American Bar Association, Model Rules for Professional Conduct: Rule 1.7. www.abanet. org/cpr/mrpc/rule_1_7.html.

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 APPENDIX C despite this conflict with the written informed consent of each client and provided that so proceeding (1) is not prohibited by law and (2) will not involve representing two opposing parties in litigation and (3) provided that the lawyer “reasonably believes” that he or she can provide competent and diligent representation to both clients. (The Model Rules define “reasonably believes” in both subjective and objective terms: the lawyer must actually believe, and the belief must be reasonable.) Rule 1.7 is accompanied by a comment, which is 35 paragraphs long.22 Its second paragraph describes the process that lawyers must go through under the rule: they must 1) clearly identify the client or clients; 2) determine whether a conflict of interest exists; 3) decide whether the representation may be undertaken despite the existence of a conflict, i.e., whether the client’s consent could be an appropriate cure; and 4) if so, consult with the clients affected under paragraph (a) [any clients affected by a concurrent conflict of interest] and obtain their informed consent, confirmed in writing. Determining whether a conflict of interest exists often involves some judgment (although the comment casts the net fairly widely to include cases both of “direct adverseness” and of “significant risk that a lawyer’s ability [to act for the client] will be materially limited”). The key judgment here, however, is whether the conflict is “consentable”—bearing in mind that the presumption is that a lawyer must not represent opposing parties in litiga- tion or where prohibited by law. The rationale for the division between consentable and nonconsentable seems to be that some conflicts of interest are too risky for the client or profession—for example, the lawyer might ap- pear to a reasonable outsider to be taking egregious advantage of the client for the lawyer’s personal benefit (even though the lawyer is not). Paragraph 14 of the comment for Rule 1.7 begins by noting that al- though clients may ordinarily consent to representation notwithstanding a conflict, “some conflicts are nonconsentable, meaning that the lawyer can- not properly ask for . . . agreement or provide representation on the basis of the client’s consent.” Although it is long, the comment provides little additional guidance on how to determine whether a conflict is consentable other than to note at Paragraph 15 that representation is prohibited if the lawyer “cannot reasonably conclude that [he or she] will be able to provide competent and diligent representation.” The next two rules provide more specific guidance. 22American Bar Association, Model Rules for Professional Conduct: Rule 1.7 Comment. www.abanet.org/cpr/mrpc/rule_1_7_comm.html.

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 CONFLICT OF INTEREST Rule .. Conflict of Interest: Current Clients: Specific Rules Rule 1.823 adds to the general principles contained in Rule 1.7 10 classes of conflict of interest situations, some of which may be resolved with the consent of the client (and sometimes subject to other protective mea- sures) and some of which cannot be resolved even with consent. Rule 1.8 therefore helps lawyers to determine when a conflict may be consentable. Conflict of interest situations that are not consentable include • soliciting or preparing an instrument to receive a substantial gift from a client unless the client is a relative, • negotiating literary or media rights that would substantially rely on information relating to the representation, • providing financial assistance to a client for litigation except where the client is indigent or where litigation costs will be repaid under a contin- gency agreement or lien, and • having sexual relations with a client unless the sexual relationship preceded the attorney-client relationship. Conflict of interest situations that are in principle consentable (provided that other conditions are met, such as advising the client of the desirability of seeking independent legal counsel) include • entering into a business transaction with a client, • knowingly acquiring an ownership or other interest that is adverse to a client, • using information about one client to another client’s disadvantage, • accepting compensation for representing a client from a third party, and • representing two or more clients in an aggregated settlement or agreement (for example, both parties in a friendly divorce). In such situations, provided that full disclosure is followed by valid informed consent, a lawyer might reasonably be able to argue that an “arm’s-length transaction” took place (something not possible in the non- consentable situations), that is, that the client was fully able to look after its own interests without relying on the lawyer. 23 American Bar Association, Model Rules for Professional Conduct: Rule 1.8. www.abanet. org/cpr/mrpc/rule_1_8.html.

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 APPENDIX C certain kinds of interests, those that always (or at least too often) conflict with an engineer’s professional duties. The two rules under Rule III.5 confirm this inference. Rule III.5a bars the acceptance of “financial or other considerations, including free engi- neering designs, from material or equipment suppliers for specifying their product.” (Free engineering designs, sometimes including free software, are the engineering equivalent both of the free samples of drugs that phy- sicians receive and of drug company-sponsored courses.) Rule III.5b also bars the acceptance of “commissions or allowances, directly or indirectly, from contractors or other parties dealing with clients or employers of the engineer in connection with work for which the engineer is responsible.” There is no exception for disclosure and consent. The engineer can easily avoid such interests without failing to do anything that an engineer should do for the public, a client, or an employer. The engineer should not put his or her interests in financial gain ahead of the interests of the public, a client, or an employer in having the engineer’s independent judgment. Finally, Rule III.6 is concerned with obtaining employment. Although most of the rules under it have nothing to do with conflict of interest, one does. Rule III.6a forbids engineers to “request, propose, or accept a com- mission on a contingent basis under circumstances in which their judgment may be compromised.” At one time, most engineering codes simply forbade engineers from working on a “contingent basis” (that is, where payment, all or just part, depends on success). One consequence of a series of antitrust cases brought against professions in the 1970s was that the rule against con- tingent fees was declared an unreasonable restraint of trade. The NSPE then sought to restate the rule to make clear its intent, which was not to raise the fees that engineers could charge for failure but to protect engineering judgment. Engineers might, it was thought, take chances that they should not take if their income depended even in part on “success”—success not in the sense in which engineers understand it (which takes into account the public’s long-term interests) but in the sense in which a client or employer might understand it (for example, getting a product out the door by a cer- tain date). Hence, Rule III.6a is another absolute rule. The consent neither of the client nor of the employer would permit an engineer to enter a fee contingent arrangement that might compromise her or his judgment. That completes the survey of how the NSPE code of ethics regu- lates conflict of interest. That does not, however, complete the survey of NSPE’s regulation of conflict of interest. In addition to the code, the NSPE maintains the Board of Ethical Review (BER), which receives inquiries from NSPE members concerning questions of ethics and issues opinions in response.64 BER publishes between 6 and 13 opinions each year. About 64 Many of these, including most since 1990, are available at www.niee.org/cases/.

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 CONFLICT OF INTEREST a quarter of these are indexed under “conflict of interest” (among other categories). Space does not allow for an examination of these, but such an examination would only confirm the guiding principles sketched so far: avoid all conflicts of interest that can reasonably be avoided, whether they are actual, potential, or merely apparent. Tolerate the remainder only if full disclosure to interested parties and their informed consent give them the tools that they need to protect against less reliable judgment. Neither consent nor disclosure is enough when an affected party cannot protect itself once it is fully informed. ABET Code The ABET code consists of two major parts: the Code of Ethics proper, which is a short document (210 words), and the much longer Suggested Guidelines for Use with the Fundamental Canons of Ethics (2,667 words). The Code of Ethics is divided into Fundamental Principles (which have much the same content as the NSPE preamble) and Fundamental Canons (which have much the same content as NSPE’s Fundamental Canons). The ABET guidelines correspond to the rest of the NSPE code (Parts II and III). For the purposes of this paper, the only significant difference between the two codes (apart from the guidelines) is that ABET’s Fundamental Canon 4 has been amended to append to the language of the NSPE code a comma and the words “and shall avoid conflicts of interest.” Most engi- neering codes of ethics now include that amendment, the result of a scandal in the middle 1970s that ended in a $7.5 million judgment against ASME.65 Some volunteers in one of ASME’s standard-setting bodies, although faith- ful agents and trustees of their employer (as Fundamental Canon 4 then required), had a conflict of interest when acting as members of the commit- tee. Because the engineers involved were members of ASME, as well as vol- unteers, ASME had not been their client or employer (in the ordinary sense of these terms). They had not (it seemed) violated Fundamental Canon 4 (or any other rule in effect at the time). Yet, most engineers thought that they had clearly done something that an engineer should not do. Since Fundamental Canon 4 did not seem to cover the case, although it should have, ABET revised Fundamental Canon 4 (adding the reference to conflict of interest), and most other engineering societies followed (with the notable exception of NSPE—which dealt with the problem by adding or amending rules under its equivalent of Fundamental Canon 4). 65 See ASME . Hydroleel Corp., 456 U.S. 556 (1982).

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 APPENDIX C ABET Guidelines Although the ABET Guidelines were explicitly designed for use with the Fundamental Canons, they are an independent code in structure (and they were in fact the body of the code itself until 1977). The guidelines consist of seven main divisions, each of which is identical to one of the code’s Fundamental Canons (and carries the same number). Under each of these are lettered sections and sometimes numbered subsections interpreting or applying the canon. Many of the sections are identical in language to provisions of the NSPE code. Some differ in ways not important here. For example, ABET Rule 3d differs from NSPE Rule III.3c in using “engineering matter” rather than “technical matter,” by requiring engineers to identify themselves (as well as the party for whom they are speaking), and requiring them to describe any “pecuniary interest” that they may have in what they are about to say (rather than just any interest). In what follows, we ignore such small differences, focusing on rules that add something important to what we found in the NSPE code. There are only two such rules. They are, not surprisingly, both under Canon 4 (the canon explicitly concerned with avoiding conflict of interest). Rule 4a of ABET’s code differs from its NSPE counterpart (Rule II.4a) in requiring engineers to “avoid all known conflicts of interest” (rather than simply to disclose them) and to disclose promptly to their clients or employers the rest, what the NSPE code identified as “potential” conflicts of interest: “any business association, interests, or circumstances which could influence their judgment or the quality of their services” (emphasis added). This guideline makes explicit what we had found implicit in NSPE’s Rule II.4a. The ABET rule may, nonetheless, be less demanding than its NSPE counterpart. If the adjective “business” applies to “interest” and “circum- stance” as well as to “association” (a natural reading), then Rule 4a does not require disclosure of all conflicts of interest but only those arising from business associations, business interests, or business circumstances. The theme of avoidance is carried through the rest of the conflict of interest provisions under Rules 4b to 4g—all of which, except for Rule 4b, are (more or less) identical to the rules in the NSPE code (and, in fact, date from some of the earliest codes of engineering ethics). The exception, Rule 4b, forbids engineers to “knowingly undertake any assignments which would knowingly create a potential conflict of interest between themselves and their clients or their employers.” The two uses of “knowingly” sug- gests not only sloppy editing but also a great concern that engineers not be blamed for undertaking such assignments inadvertently. The require- ment of knowledge is a break with the ABET code’s general policy, which is to require avoidance or disclosure without providing for the excuse “I did not know.” (In other words, engineering codes generally treat ethical conduct as a question of competence for which “I did not know” is an

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0 CONFLICT OF INTEREST admission of wrongdoing and not an excuse.) There is only one other use of “knowingly” in the entire code, one of which is unrelated to conflict of interest (Rule 6a, avoiding association with a disreputable business). Rule 4a’s knowledge requirement (like the use of “conflict of interest”) is new to the 1977 code. However, it is an innovation that some other codes have followed. For example, Rule 4b in ASME’s current code (2002) is simply a cleaner version of ABET’s: “Engineers shall not undertake any assignments which would knowingly create a potential conflict of interest between themselves and their clients or their employers.” Conclusions from Survey of Engineering Codes For engineering, then, conflict of interest is a threat to the profession’s usefulness (the reliability of its judgment) as well as to its honor and reputa- tion. For most purposes, the best response to an actual or potential conflict of interest is to avoid it as soon as one learns of it. In a few cases, recusal is allowed (or required); in others, those cases in which (1) disclosure allows the public, client, and employer an adequate response and (2) the engineer cannot be replaced or cannot be replaced at reasonable cost, tolerance of a conflict of interest is allowable. However, it is only allowable. Even then, there is a risk to all who rely on the engineer’s judgment that the engineer’s judgment will not be as good as it should be (and would be but for the conflict of interest). Disclosure is not a cure-all. COMPARATIVE OVERVIEW This survey has discussed both similarities and differences in the treat- ment of conflicts of interest by four important professions. What can be learned from this survey of lawyers, certified public accountants, architects, and engineers? The obvious point is that all four professions take conflict of interest in professional practice very seriously. The recent history of public accountancy shows that failure to take conflicts of interest seriously enough can result in federal regulation. Engineering had a similar experience three decades ago with civil liability.66 With the exception of engineering, these professions do not under- take the kind of scientific research carried out by some in the medical 66 American Society of Mechanical Engineering, Inc. . Hydroleel Corp., 456 U.S. 556 (1982), in which the U.S. Supreme Court held that ASME was strictly liable for the acts of its agent (the chairman of ASME’s Boiler and Pressure Vessel Codes Committee) if those acts are in breach of antitrust laws (the chairman, an officer in the competitor of Hydrolevel, had a financial interest in his committee, finding that Hydrolevel’s product did not meet ASME’s code).

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 APPENDIX C profession.67 They have therefore not had to deal with controversies over conflicts of interest in research. Although each profession sets standards for providers of continuing professional education, they have, it seems, not faced any significant conflict of interest in education either.68 One reason for the relatively low level of attention given to conflicts of interest in research and education may be that lawyers and accountants do not act as gatekeepers for significant numbers of products and services as physicians do when they prescribe medications, use medical devices, order diagnostic tests, and the like. To the extent that architects and engineers are gatekeepers for supplies, their codes of ethics carefully regulate relation- ships with suppliers, gifts from suppliers, and other entanglements with suppliers that might threaten their professional judgment. All four professions treat conflict of interest situations as risk situa- tions; bias, breach of confidentiality, fraud, and malpractice are dealt with separately. Conflicts of interest are understood to threaten the quality of the individual professional’s judgment and, as a consequence, the well-being of the client or employer in question, the profession’s usefulness to the public (depending on the specific circumstance), and the reputation of the profes- sion as a whole. The four professions express concern about conflict of interest in somewhat different ways and justify their management measures by appealing to different core values. The three most prominent values are loyalty to the client (or the employer), professional judgment, and public service. Beyond the fact that the four professions share these three most prominent values, we can draw at least 13 other conclusions: 1. Each profession has, over time, developed at least one detailed na- tional code of professional ethics. Each of these codes is generally adopted (sometimes with amendments) by state-level professional organizations, licensing boards, or both. All these codes include general principles as well as more specific rules. A substantial part of each of these codes addresses conflicts of interest, describing what the profession understands conflict of interest to mean and how members of the profession should deal with 67 Publishable engineering research generally goes on in (1) universities, (2) government laboratories, or (3) private laboratories (such as IBM’s Watson Research Center). Most of this engineering research is scientific and is therefore subject to federal conflict of interest rules much as most medical research is. Relatively little engineering research is the equivalent of testing by the FDA. Some is, however, for example, the testing done by Underwriters Labo- ratories. So far, it seems, engineering’s strict rules concerning conflict of interest seem to have protected it from the sorts of scandals medical research has suffered. 68 Nevertheless, some guidance on conflict of interest in scholarship is available from the Association of American Law Schools, which requires that professors disclose any economic interest that they have in the subject matter of their scholarship. Insofar as professors are themselves members of their respective professions, they will be subject to the same conflict of interest rules and codes of conduct as their nonscholarly colleagues.

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 CONFLICT OF INTEREST specific conflicts of interest (usually describing which conflicts will be pro- hibited, consentable, or allowable even without consent). 2. Compliance with each profession’s codes of ethics depends—as the AICPA code of ethics says—“primarily on members’ understanding and voluntary actions, secondarily on reinforcement by peers and public opin- ion, and ultimately on disciplinary proceedings, when necessary, against members who fail to comply with the Rules.” In other words, the codes of ethics of all four professions are enforced in much the same way that the AMA enforces its code of ethics. They are not designed for use by state licensing boards. 3. Protecting against conflict of interest occurs not only at the level of the professional society and state licensing board. Some conflicts of interest constitute malpractice or breach of criminal law or civil regulation (e.g., the Sarbanes-Oxley Act and its regulations). Some failures to deal properly with conflicts of interest can have serious consequences for the professionals involved. Statutes and case law, however, generally sets a standard for con- duct lower than that set by codes of ethics: law is designed to set minimum standards below which no member of the profession should fall, whereas codes of ethics are designed at least in part to set a higher standard (some- thing closer to the best that can reasonably be expected of members of the profession). For many professions, the minimum standard with respect to conflict of interest has risen substantially over the last four decades. There is no reason to expect that trend to change anytime soon. 4. There is general agreement that professionals will find themselves in some conflict of interest situations even when all reasonable precautions have been taken to avoid them. When avoidance cannot reasonably be expected or has failed, censure attaches not so much to having a conflict of interest (except for prohibited relationships) as to a professional’s failure to take proper steps to deal with it. 5. The conflicts of interest discussed in this paper can arise in at least three ways: • The interests of two or more of a professional’s current or former clients (or employers) can conflict and the professional can therefore be in a situation in which serving one client competently (for example, preserv- ing confidential information) would mean not serving another client com- petently (that is, the professional is not able to use all of the information that he or she knows). This is a major concern for lawyers as well as for engineers. • The financial, familial, or other interests or relationships of a professional can conflict with the interests of one or more clients (or em- ployers) and thereby compromise judgment (a major concern for all four professions).

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 APPENDIX C • The interests of a client (or employer) can conflict with the public interest and thereby risk compromising the quality of the professional’s judgment (a major concern for CPAs, particularly when they conduct au- dits, but also a concern for architects working as adjudicators or making public statements and for engineers making public statements or working for or with government). 6. Each of the professions, as a general matter, understands that conflicts of interest can be created not only by financial considerations but also by other considerations, such as nonmonetary gifts, friendships, family relationships, and previous employment. The crucial question is always the known or suspected tendency of the fact in question to affect professional judgment adversely. 7. Each profession understands that conflict of interest is in part a threat to the trustworthiness (or reliability) of the profession as well as to judgments in specific cases. This is clear from the way in which the profes- sions, each in a somewhat different way, address appearances. In general, members of these professions are supposed to avoid giving clients, employ- ers, and the public even a plausible reason to suppose that they have an interest, relationship, or the like that might impair their objectivity (the reliability of their judgment). 8. Not all conflicts of interest are treated in the same way. We may distinguish three ways of treating them. The codes of ethics for each of the four professions begin with the instruction to avoid conflicts of interest. This general instruction is then modified or further refined by distinguishing between (1) conflicts of interest that must be avoided regardless of the spe- cific circumstances (i.e., conflict of interest situations that are prohibited), (2) those that are permitted under certain circumstances following disclo- sure and, generally, that are accompanied by the informed consent of the client or other parties directly affected or some other management strategy, and (3) those conflicts of interest that are permitted because of their relative insignificance. Because clients or employers are often sophisticated individu- als or businesses, they are capable of refusing consent or setting conditions for consent (once a conflict is disclosed). Modifiers such as “substantial” or “significant” as well as “direct” (in contrast to “indirect”) indicate that not all conflicts of interest are of equal concern. The professions understandably attempt to focus their rules on interests that seem likely to have more than a minor impact on professional judgment or on trust in the profession. 9. Because so many conflicts of interest are either prohibited outright, require disclosure and consent, or are hard to manage, avoidance is, all else being equal, the preferred technique for dealing with conflict of interest. Avoidance is facilitated by certain practices; for example, a lawyer runs a “conflicts check” inside the firm before a new file is accepted. In all four

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 CONFLICT OF INTEREST professions, the avoidance of a conflict of interest sometimes means forgo- ing personal gain or gain for a client or an employer, a fact that all four professions acknowledge. Avoiding conflict of interest certainly has costs (as well as benefits). 10. When the conflict of interest has not been avoided (for whatever reason and whether intentionally or unintentionally), various options to es- cape from or manage the conflict exist. Recusal is one option. For example, engineers who are members, advisors, or employees of a governmental department must withdraw from decisions in which they, their employers, or their clients have an interest. The engineer must comply with this ethical rule even if governmental regulation allows for disclosure and consent as an alternative way of managing the conflict. Despite the general requirement to avoid conflicts of interest, professionals can proceed despite a conflict of interest under specified circumstances. Generally, certain precautions must then be taken: (1) disclosure of the interest to the parties concerned (who can include current and former clients, current and former employers, and third parties), (2) the informed consent of these parties (although, occasion- ally, disclosure alone is sufficient), and (3) the implementation of additional management measures (for instance, the use of screens in law firms). The codes try to make clear when disclosure followed by consent (or disclosure alone) will be considered sufficient to preserve both the fact and the ap- pearance of proper judgment (independence, loyalty to client, reliability, or the like). When proper judgment cannot be ensured, the conflict must be avoided, despite the advantages (to the professional, the professional’s employer or client, or any other party) of accepting it. 11. Patterns of difference between (what lawyers call) “consentable” and “nonconsentable” conflicts of interest are sometimes difficult to discern (and, indeed, may be evolving). Overall, it seems that the more dependent that the client, employer, or public is on the professional and the less abil- ity that the client, employer, or public has to manage the conflict, the more likely that consent, even after full disclosure, will not override the general prohibition of conflict of interest. In legal practice, for example, a typical nonconsentable conflict of interest arises if a lawyer undertakes the drafting of a will granting him or her a substantial gift from a client. A typical con- sentable conflict of interest arises if, for example, a lawyer bought a share in a hotel owned by a client (what lawyers call an “arm’s-length” business transaction). 12. Instruction in understanding, identifying, and managing conflicts of interest is included in graduate education, licensing examinations, and (often) in mandated CPE for all of the professions evaluated here. 13. CPE in law, accounting, architecture, and engineering is provided by companies that are authorized by the relevant state-designated licensing boards or a national accreditation body to provide CPE. Individual pro-

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 APPENDIX C fessionals must regularly complete a set amount of CPE, often including training in conflict of interest, to maintain their professional licenses. They or their employers pay the cost of the CPE, although some CPE courses are offered for free by local or national professional organizations. Table C-1 summarizes the responses of the four professions discussed here to conflicts of interest.

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6 TABLE C-1 Summary of the Responses of Four Professions to Conflicts of Interest Certified Public Conflict of Interest Lawyers Accountants Architects Engineers Gifts or rebates Lawyers cannot solicit or Gifts are prohibited unless Gifts cannot be accepted. Engineers cannot solicit prepare instruments to the value is “clearly Rebates are permitted or receive gifts or other receive substantial gifts. insignificant to the only with the informed valuable consideration. recipient.” consent of all relevant parties. Public speaking, speaking Not addressed. Public speaking is not Architects must disclose Engineers are forbidden about professional issues addressed, except to the any personal financial from making statements extent that audits and interests in public on technical matters “that attestations are public statements. are inspired or paid for by statements (conflict of interested parties,” unless interest management is the engineer prefaces the very strict in such cases). statement with disclosure of the interest. Financial or other Some fair financial Neither a CPA nor Disclosure and consent No contingent fee under relationships with client relationships (business members of a firm can are required if the client is conditions that could transactions, real estate, have direct or many not aware. affect professional etc.) with a client are indirect financial interests judgment is allowed. possible following or familial interests in Disclosure and consent disclosure and informed the client being audited. are required if the client is consent. Many personal Restrictions on nonaudit not aware. relationships are services are offered during nonconsentable. the time of audit.

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Financial or other No representation of Few restrictions. Disclosure and consent of Such relationships are relationships with relevant opposing parties in all interested parties are generally prohibited. (opposing) nonclients litigation is allowed. required. Exceptions (such as Representation following testifying in court as disclosure and consent of an expert witness) both parties at other times are allowed with full is allowed. disclosure and consent. Sponsorship of CPE CPE is usually paid for CPE is paid for by the AIA or NCARB provides CPE is primarily required by the lawyer or his or accountant or his or her CPE. CPE is paid for by for a PE license, generally her firm. firm. CPE is not approved the architect or the firm state certified. Most if it is “devoted to the when it is not provided engineers are not required promotion of particular for free. to take CPE, but whether products or services.” it is required or not, it is generally paid for by the engineer or the employer.