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LEVICK Risk and Business Strategy

January 30, 2017

Business Ethics in the Trump Era

“Tone from the top matters.”

Such was the thesis of the Director of the Office of Government Ethics (OGE) during rare public comments delivering his assessment that, thus far, then President-elect Donald Trump’s plans for avoiding conflicts of interest during his presidency are inadequate. The week before his inauguration, Trump and his lawyer announced that Trump would put his two sons, Donald Jr. and Eric, in charge of his business, and sell off his various investments. They claimed that his sons would not tell Trump about the goings-on of the business, but stopped short of creating a blind trust. Additionally, they claimed that the Trump Organization would not pursue any new foreign business deals during Trump’s presidency, and that any ongoing foreign deals would be halted. This has already proven to be untrue – in one instance, a Trump golf course in Scotland is moving ahead with an expansion project.

Further, limiting the conflict of interest restrictions to simply “The Trump Organization” does not take into account Trump’s son-in-law and recently appointed Senior Adviser Jared Kushner, whose family real estate concern has continued to pursue deals with Chinese conglomerate Anbang Insurance Group even as Kushner was preparing for his White House role.

In making his point about the importance of the president’s ethics signaling, OGE Director Walter Shaub contrasted Trump’s intended measures with those of his cabinet-in-waiting (most, but not all, of whom have signed letters promising full divestiture of assets) imploring that “the greater the authority entrusted in the government official, the greater the potential for conflicts of interest” and noting that “nothing short of divestiture” could solve Trump’s conflict of interest problems.

Three days after his inauguration, an independent ethics watchdog NGO (Citizens for Responsibility and Ethics in Washington) filed a lawsuit against Trump in the Southern District of New York, claiming that Trump’s conflict of interest plans would still allow him to profit from foreign businesses in violation of the Emoluments Clause of the Constitution. The lawsuit wants the courts to “stop and prevent…[Trump’s] Foreign Emoluments Clause violations.” While it remains to be seen whether Trump’s any of business interests even constitute “foreign emoluments,” we should all hope that the courts provide clarity; but, even if this lawsuit sets a precedent (as NPR notes, the courts have never before ruled on the Emoluments Clause), the tone will still have been set for at least the Trump administration.

Tone from Congress matters, too.

On the day before the opening session of the new Congress, House Republicans met in secret to deliberate on rules for the upcoming Congress. During this session, House Republicans voted their approval for introducing a measure the next day in session that would effectively neuter the power of the previously independent Office of Congressional Ethics (OCE), by requiring it to, among other things, submit all leads on possible criminal activity to the House Committee on Ethics (composed of Congress members) before notifying law enforcement authorities, as well as barring the OCE from accepting anonymous tips.

Although Congressional Republicans responded to the public outcry (including a tweet from Trump) by nixing a vote on the measure the next day, their willingness to even raise such an issue is troubling. Furthermore, it was made clear by a number of Republican leaders (including those that raised initial objections) that their primary concerns were with the timing and optics, but not necessarily the substance, of the proposed measure. There is more evidence that Congress is willing to assert group interest over ethical constructs – Congressman Jason Chaffetz, the Chairman of the House Oversight and Government Reform Committee has sharply criticized the OGE Director’s public comments on the now president, and threatened to subpoena him for questioning. Director Shaub is, after all, an Obama appointee with two years left on his term (although he had worked in OGE since before Obama’s election in 2008).

Government ethics are business ethics.

To expand on the point made above by the OGE Director, tone from the government matters when it comes to the ethics of business. The political drama is both reflective of, and refracts back upon, the moral timbre of a society and all its constituent elements – which includes businesses large and small. Although perhaps yet speculative, the signals emanating from the incoming administration indicate that the government might not enforce business regulations even if it does not roll them back. The signals also suggest that the ability of private enterprise to influence public levers in their favor will become even more the currency of the day than it has been before.

But there is another complication. Since the election, Trump has taken to Twitter on multiple occasions to criticize individual companies by name and make vague threats of punishing them. These tweets have induced demonstrable impacts to the target companies’ stock prices. The possibility that the president may randomly denigrate one’s company on Twitter and inflict it harm is certainly more of a constraint than any degree of ethicality or lack thereof.  This new environment, in which the contours of risk have shifted from ethical considerations into the mercurial temperament of political leadership, is much less predictable.

An ethically weak and inscrutable political economy may bear significant consequences for business in the long term.

Ethics from the bottom up.

There appears to be little that can be done to avoid a Twitter tirade. But risks associated with ethicality may still be within the remit of private enterprise. Business owners, managers, legal counsel teams, and compliance officers should decide on (if they have not already done so) a concrete plan for how to answer ethical questions that will inevitably emerge under a new political paradigm. Some, but not all, of the reasons are as follows:

  • Nothing lasts forever – companies do not know what will happen during the Trump administration or after. Actions taken now or in the next four years that may seem permissible under the current paradigm may be used as evidence against one in the future, when the paradigm shifts. How businesses conform to present temptations may be used as a litmus test against them in the future.
  • It is in the interests of companies to voluntarily submit to a rules-based order. In such an order, the rules (particularly those that govern how businesses and governments are to interact) are clear, consistent, and arrived at logically. The best guarantor of such an order is a disinterested government – companies should favor pressing government officials not only for removing odious and stifling regulations but also for well-considered regulations that maximize market efficiencies.
  • Corruption is many things and not simply a transaction of money or benefits. Corruption in political and societal functions, whittled to its essence, encompasses not just the paying of bribes or the exchange of favors, but using one’s vested power contrary to the purposes for which it has been entrusted. A system becomes corrupt at the moment its institutions fail or refuse to enforce the ethical standards for which they were intended, well before those failures enable payoffs and bribes.

It is increasingly apparent that institutions are more dependent on norms than we previously realized. Norms, which are behavior-based, are fickle and malleable. For example, nothing but norms can prevent Congress from flexing its muscle and neutering its own oversight body (the Office of Congressional Ethics). Given this reality, companies need to be proactive in developing ethical norms in the absence of institutional guarantees.

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