Essay Writing

Review: Conflicts of Interest and Self-Dealing in the Professions: A Review Essay Reviewed Work(s): Conflict of Interest in the Professions by Michael Davis and Andrew Stark Review by: Thomas L. Carson Source: Business Ethics Quarterly, Vol. 14, No. 1 (Jan., 2004), pp. 161-182 Published by: Cambridge University Press Stable URL: https://www.jstor.org/stable/3857777 Accessed: 07-01-2020 05:46 UTC

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REVIEW ARTICLE

CONFLICTS OF INTEREST AND SELF-DEALING IN THE

PROFESSIONS: A REVIEW ESSAY

Thomas L. Carson

Conflict of Interest in the Professions

Michael Davis and Andrew Stark

New York: Oxford University Press, 2001; ISBN 0-19512863-X

This anthology begins with an excellent introduction by Michael Davis. Davis

1 identifies three overarching questions addressed in the book: 1. What is,

and is not, a conflict of interest? 2. What is morally wrong with conflicts of interest? and 3. What should be done to handle or address conflicts of interest?

The papers included in this volume address conflicts of interest in a very

wide range of professions including the judiciary, the bar, government service, journalism, accounting, engineering, corporate boards teaching, counseling,

anthropology, financial services, criticism, the film industry, medicine, and physi-

cal therapy. The great range of professions discussed allows for illuminating

comparisons between the issues faced by members of different professions. Most, but not all, of the papers are of high quality and well worth reading. The papers

present a dizzying array of examples of conflicts of interests, some familiar, others not. The book as a whole demonstrates the pervasiveness of conflicts of

interest in professional life and the centrality and importance of moral ques-

tions about conflicts of interest in professional ethics. I will not attempt to

summarize or describe all, or even most, of the papers included in this volume. Instead, I will focus on a relatively small number of the papers those that ad- dress the definition of conflicts of interest and conflicts of interest in business and medicine. When appropriate, I discuss and refer to other important contri- butions to the literature on conflicts of interests. I also venture an account of the badly neglected concept of ';self-dealing'8 and explain the relationship between

self-dealing and conflicts of interest.

C) 2004. Business Ethics Quarterly, Volume 14 Issue 1. ISSN 1052-1SOX. pp. 161-182

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162 BUSINESS ETHICS QUARTERLY

Conceptual Issues

In his introduction, Davis offers the following definition of a conflict of in-

terest which he calls the "standard view":

A conflict of interest is a situation in which some person P (whether an

individual or corporate body) stands in a certain relation to one or more

decisions. On the standard view, P has a conflict of interest if, and only if,

(1) P is in a relationship with another requiring P to exercise judgment in

the other's behalf, and (2) P has a (special) interest tending to interfere

with the proper exercise of judgment in that relationship.l

According to Davis, the relationship required for a conflict of interest "must

. . . be fiduciary; that is, it must involve one person trusting (or, at least, being

entitled to trust) another to do something for her exercise judgment in her

service."2 The kind of exercise of judgment required for a conflict of interest

must involve P's having considerable latitude and discretion in acting on behalf

of the other party. The kind of "interest" that satisfies condition 2 is "any influ-

ence, loyalty, concern, emotion, or other feature of a situation tending to make

P's judgment (in that situation) less reliable than it would normally be, without

rendering P incompetent."3 In this and other writings on conflicts of interest,

Davis4 has identified one of the central moral issues involved in conflicts of

interest. Conflicts of interest often, or perhaps generally, involve compromising

the judgment of someone who is supposed to act on behalf of another party.

However, not every conflict of interest involves the impairment of someone's

judgment (or making someone's judgment "less reliable than it would normally

be"). There might be cases in which it is perfectly clear to P what she should do

on behalf of the other party, but she fails to do what she ought to do for the other

party because of some special interest that tempts or induces her not to do what

she judges to be right. For example, suppose that in my role as a stock broker

and financial advisor I advise my clients to purchase the stock of a company

that I know will soon be facing bankruptcy, because offering this advice will

promote my own financial interests or the interests of a close personal friend.

Surely this is a conflict of interest, even though my judgment about the wisdom

of this investment for my clients is not in any way impaired or made "less reli-

able." In some cases, conflicts of interest create temptations to do what we know

will violate our duties to other parties.5

Kevin McNunigal's "Conflict of Interest and Risk Analysis," is an outstand-

ing paper that illuminates many issues and points to deElciencies in standard

treatments of the topic. McNunigal addresses conflicts of interest that attorneys

face in the practice of the law. McNunigal suggests that we view conflicts of

interest as a species of perverse incentives that create substantial and unjusti-

fied risk of harm to those to whom one owes fiduciary duties. McNunigal draws

a sharp distinction between things an attorney does that are harmful to a client's

interests and things that risk causing harm to clients.

McNunigal argues that, in cases in which attorneys risk harm to clients, the

likelihood and magnitude of the harm being risked are not the only morally

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REVIEW OF CONFLICT OF INTEREST IN THE PROFESSIONS 163

relevant factors. The attorney's reasons for taking the risk are also relevant.

Consider the risks drivers create when they exceed speed limits. In order to

assess the morality of imposing these risks on others, we need to know why the

person does this. Driving fast for the thrill of it is ordinarily impermissible when

it imposes risks on others, but it might be permissible to drive in the same way

and impose the same risks on others in order to take a critically injured person

to the emergency room of a hospital. McNunigal claims that we need to employ

the notion of an "unjustified risk" as part of the definition of a conflict of inter-

est. He says that a conflict of interest for an attorney "would exist if there is 'a

substantial and unjustifiable risk' that the representation will be impaired."6

Although McNunigal's definition is ably motivated and defended, it is open

to a serious objection. The problem is that his definition builds controversial

moral notions into the concept of a conflict of interest. Given his definition, we

can't wield the term "conflict of interest" without giving answers to controver-

sial moral questions. Pragmatic considerations weigh against this feature of

McNunigal's definition. His definition makes it impossible for us to determine

whether or not certain cases are conflicts of interest until we have first resolved

difficult and controversial moral questions about whether or not it is justifiable

to impose certain kinds of risks on others. It is a matter of controversy exactly

when it is and is not justifiable to impose risks on other people. If we accept

McNunigal's definition (or any similar definition), then we can't call a situation

a conflict of interest unless we have reason to think that someone is unjustifi-

ably risking harm to others. There are good pragmatic reasons for us to use the

concept of a conflict of interest to help point out and distinguish between salient

features of actions and thereby assist us in making moral judgments. In order to

serve this purpose, the concept of a conflict of interest must be defined indepen-

dently of controversial moral assumptions.

Stephen Latham's paper, "Conflict of interest in Medical Practice," nicely

makes the distinction between having interests that conflict and having a con-

flict of interest. The interests of the buyer and seller of a commodity typically

conflict, but this is not a conflict of interest. A person who desires to pursue

both leisure and wealth has conflicting interests but not necessarily a conflict of

interest. To count as a conflict of interest, my interests must conflict with my

duty to advance your interests. Latham proposes the following definition of a

conflict of interest:

A person has a conflict of interest when, in the presence of some duty to pursue the interests of another, she is motivated by self-interest to do some- thing inconsistent with that duty.7

Latham's definition is too narrow. Not all cases of conflicts of interest involve

self-interested motives. The desire to promote the interests of friends or family

can create conflicts of interest. For example, it is a conflict of interest if I am

motivated to do something inconsistent with my duties to my employer or client

because I want to help a friend. There is also a way in which Latham's definition

is too broad. The kind duty to pursue the interests of another person necessary

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164 BUSINESS ETHICS QUARTERLY

for a conflict of interest must be a duty one has in virtue of occupying an office

or position. I have a moral duty to help starving people in distant lands that is

independent of any offices or positions that I hold. I also have self-interested

motives not to fulfill these duties, but this situation does not constitute a conflict

of interest.

John Boatright defends the following definition of a conflict of interest:

A conflict of interest occurs when a personal or institutional interest inter-

feres with the ability of an individual or institution to act in the interest of

another party, when the individual or institution has an ethical or legal ob-

ligation to act in that other party's interest.8

According to Boatright, conflicts of interest occur when individuals or institu-

tions have personal or institutional interests that interfere with their fiduciary or

agency duties to other parties. His stress on the centrality of fiduciary duties

and agency duties to the concept of a conflict of interest is helpful and illumi-

nating. Boatright explains the nature of fiduciary obligations and the obligations

of agents. He writes:

A fiduciary is a person who is entrusted to act in the interest of another.

Fiduciary duties are the duties of a fiduciary to act in that other person's

interest without gaining any material benefit except with the consent of the

person. The concepts of Elduciary and fiduciary duty originated in common

law for cases in which one person entrusts property to another, but these

concepts have been expanded over time to other trust-like situations in which

one person relies on another's superior knowledge or skill.9

The fiduciary relation closely resembles the relation of agent and principal,

in which one person (the agent) has been engaged to act on behalf of an-

other (the principal). Whereas fiduciary relations arise when something of

value is entrusted to another person, agency relations are due to the need to

rely on others for their specialized knowledge and skills.l°

Boatright is mistaken in claiming that a conflict of interest requires that the

person has an ethical or legal obligation to act on another person's behalf. Inter-

ests I have that conflict with the duties attaching to an office or position I hold

can generate conflicts of interest, even if the duties in question are neither legal

nor ethical obligations. Suppose that, in his capacity as Public Relations direc-

tor of a Klu Klux Klan Klavern, Bob has an official duty to represent the Klan at

a public meeting in which his Klavern is requesting to be allowed to "adopt" a

stretch of the local highway. However, Bob is reluctant to do this because he

thinks that it is likely to damage or destroy his academic career at a local univer-

sity if he publicly identifies himself as a member of the Klan. This is a conflict

of interest, even though Bob has neither a legal nor an ethical obligation to

represent the Klan. This is not to deny that we typically do have at least a prima

facie ethical obligation to fulfill the duties of the offices we hold (see below,

including endnote #18, for more on this).

Without pretending to defend it adequately, let me briefly sketch my own

analysis of the concept of a conflict of interest. In order for there to be a conflict

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REVIEW OF CONFLICT OF INTEKEST IN THE PROFESSIONS 165

of interest, the following conditions must be met: 1. There must be an individual

(I) who has duties to another party (P) in virtue of holding an office or a posi-

tion, 2. I must be impeded or compromised in fulfilling her duties to P, 3. the

reason for I's being impeded or compromised in fulfilling her duties to P must

be that she has interests that are incompatible (or seem to her to be incompat-

ible) with fulfilling her duties to P. Conditions 2 and 3 should be broadly

construed. Anything that makes it difficult for I to fulfill her duties to P or that

compromises her duties to P satisfies condition 2. The kinds of interests that

satisfy condition 3 can be either self-regarding interests, e.g., making money,

enhancing one's reputation, or winning the esteem of others, or other-regarding

interests, e.g., desiring to promote or harm the interests of other individuals.

Some Features of My Proposed Definition

1. My definition follows most other definitions of conflicts of interest in that

it holds that the individual need not fail to perform her official duties in order

for there to be a conflict of interest. My definition only requires that the situa-

tion make it diff cult for I to perform her official duties.

2. On my definition, it is not necessary that there be an actual conflict be-

tween the interests of the relevant parties. It is sufficient that I believe that there

is an actual or potential conflict between the interests of the relevant parties. A

person might be hindered in the performance of the duties of her position be-

cause she mistakenly believes that her doing so is contrary to her own interests

(or the interests of others whose interests she is concerned to advance). Con-

sider the following case:

A lawyer works for a client. Her fiduciary obligations include protecting

the Elnancial interests of the client. The lawyer incorrectly perceives a con-

flict between her own financial interests and those of the client. As a result,

she is sorely tempted to act in ways that are harmful to her client.

This case constitutes a conflict of interest, even though there is no actual

incompatibility between the lawyer's interests and those of her client. The justi-

fication for calling this a conflict of interest is that the lawyer's perception of a

clash between her interests and her duties to her client can create just as great a

hindrance to her successful performance of her official duties as an actual clash.

An actual clash between I's interests and I's duties to P (or a clash between

I's desire to promote or harm the interests of some third party and I's duties to

P) is not sufficient to create a conflict of interest. This clash must somehow

hinder I in the performance of her official duties.l2 Suppose that my financial

interests objectively clash with my fulfilling the duties of my office, but this is

so only in virtue of some unlikely and improbable circumstance of which I am

completely unaware, e.g., the fact that a distant relative whom I have never heard

of has made me a beneficiary of her will. Nothing in this situation consciously

or unconsciously affects my actions or hinders me in doing my official duties.

According to my definition, this is not a conflict of interest.

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166 BUSINESS ETHICS QUARTERLY

3. Bribery is a special case of a conflict of interest.l3 To be bribed is to be paid to do things that are incompatible with the duties of one's office, position, or role.l4 The recipient's personal financial interest in accepting the bribery pay- ments can create a conflict of interest. For example, when a policeman is bribed to ignore a traffic ticket, he is being paid to ignore his ofElcial duties. His official duties require him to issue traffic tickets to all who violate trafElc laws. In order for the bribery offer to create a conflict of interest, the offer must be sufficiently large to tempt the officer to ignore his duties. An offer of ten cents would not make it difficult for the officer to fulE1ll his official duties and, therefore, would not create a conflict of interest. Bribery offers can create conflicts of interest, even if the offers are refused. A bribery offer that tempts me to violate the duties of my ofElce creates a conflict of interest, even if I refuse the bribe.

4. My definition implies that a person can be involved in a conflict of interest only if he has duties in virtue of occupying an office or position. Those who have no official duties as employees, professionals in private practice, or mem- bers of organizations cannot have conflicts of interest. Consideration of nepotistic employment practices supports this feature of my analysis. Such practices clearly constitute conflicts of interest when the person who hires his friends or relatives is himself an employee or officer of an organization. For example, a conflict of interest exists if I am a personnel officer in a corporation and hire a close per- sonal friend for a job with the corporation. By contrast, it is not a conflict of interest if my uncle hires me to work for a business of which he is the sole owner, because he has no duties attaching to his job or position that conflict (or might conflict) with my interest in being hired.ls His position as (sole) owner of the business carries with it no obligation to hire the best people for positions within the business. To take another example, it would not be a conflict of inter- est if I were to hire my brother to paint my house, but it would be a conflict of interest if I were to hire him to do painting for my employer.

5. Almost everyone agrees that conflicts of interest can be created by one's desire to promote one's own interests or the interests of others. Conflicts of interest can also be created by one's desire to harm others. (This is overlooked in all other analyses I am aware of.) Suppose that a personal enemy is among those bidding on a contract with my company and I have the authority to deter- mine who is given the contract. Or suppose that I review a book written by someone I intensely dislike. These cases constitute conflicts of interest, pro- vided that my desire to harm the individuals in question makes it difficult for me to perform my official duties.l6

6. My definition requires that the conflicting interest make difficult the per- formance of a duty. On examination, this feature of my definition will strike many people as counterintuitive. In any given situation, the nature and strength of a person's character largely determines whether or not it is difficult for her to fulfill her duties. According to my definition, a conflicting interest or objective situation that creates a conflict of interest for one person might not create a conflict of interest for another person who has a stronger character and is less

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REVIEW OF CONFLICT OF INTEREST IN THE PROFESSIONS 167

prone to temptation. My definition gives people a basis to deny that they have

conflicts of interest in cases we would regard as paradigms of conflicts of inter-

est. Whatever the case, a person can claim that he has no conflict of interest

because he had (or will have) no difficulty fulfilling his duties in spite of having

interests that conflict with performing his ofElcial duties. My reply is that a per-

son can claim this, but whether such a claim is plausible is quite another matter.

Since people are often mistaken and self-deceived about such matters, we have

reason to be very skeptical of any such claims. I am reluctant to concede this

objection because my definition has the virtue of identifying a salient feature of

conflicts of interests that explains why they are generally morally problematic.

Conflicts of interest involve some kind of difficulty in discharging one's official

duties and (except in unusual cases such as my Klan example) violating those

duties is prima facie wrong (I defend the latter claim below). It is because of

this feature of conflicts of interest that they are important from the moral point

of view. My definition has the virtue of identifying the most morally salient

feature of conflicts of interest.

I can avoid this objection by revising my definition and defining a conflict of

interest in terms of what an ordinary person (a person of ordinary moral virtue)

woald find diJficult. Someone has a conflict of interest when he has interests

that conflict with fulfilling his duties in such a way that an average person in his

objective circumstances would have difficulty doing his official duties. I sus-

pect that most readers will find this revised version of my definition more

plausible and much easier to apply to actual cases. If my foregoing reply to the

objection is inadequate, then I can fall back on this revised version. The revised

definition is preferable for the purposes of framing rules policies, or laws to

discourage conflicts of interest. Rules and policies might reasonably aim at dis-

couraging the existence of situations in which an average person would have

difficulty discharging his official duties. However, rules and policies cannot be

effectively implemented if they require us to make judgements about the sub-

jective states of individuals and the degree of difficulty those individuals would

have in discharging their ofElcial duties.

What's Wrong With Conflicts z?f Interest? Conflicts of interest are morally

problematic almost by definition. A persons official duties aren't necessarily

moral duties, even prima facie moral duties. However, ordinarily, one has a con-

tractual or promissory (moral) duty to fulfill the duties of one's office or position.

Offices within organizations and relationships between professionals and their

clients carry with them special duties. A person who voluntarily assumes an

office within an organization (or a professional who voluntarily takes on a cli-

ent) tacitly agrees or promises to fulfill those duties.l7 Ordinarily, these

agreements create at least a prima facie moral obligation to fulfill the duties in

question. If, however, the aims of the organization or office themselves are im-

moral, e.g., the aims of the Nazi party, then the agreement doesn't create even a

prima facie moral obligation to fulfill the duties. Bob has agreed to fulfill the

official duties of his position, but, given the immoral aims of the Klan, this

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168 BUSINESS ETHICS QUARTERLY

doesn't give him even a prima facie moral duty to do this. (More generally, one

can't create a prima facie moral duty to do something that is immoral by prom-

ising to do it.l8)

Morally speaking, the position of a person who occupies an office or position

he has not freely chosen to accept, e.g., a conscripted soldier, is very different

from the position of someone who freely assumes an office or position on the

understanding that it carries with it certain duties or responsibilities. Ordinarily,

the prima facie wrongness of breaking a promise or agreement when others are

relying on one to keep it partly accounts for the wrongness of conflicts of interest.

As McNunigal's paper so ably shows, conflicts of interests are also wrong on

account of the harm to others that they cause and risk. I also conjecture the fol-

lowing. In most cases in which individuals consciously pursue personal interests

that conflict with their official duties they need to deceive others in order to suc-

ceed in this. Often, the wrongness of conflicts of interest consists largely in the

extensive dishonesty and deception practiced by the individuals who have them.

Self-Dealing. Let me propose a rough account of the concept of 'self-dealing"

and its relation to the concept of a conflict of interest. As a first approximation, let

us say that a person, S, is involved in self-dealing when he pursues his own inter-

ests to the neglect or detriment of his duties to another party (P) while acting in

his capacity as an official, agent, or employee of P. Self-dealing involves pursuing

one's own interests when one is supposed to be serving the interests of others.

This definition will strike some people as too broad. Suppose that a person ne-

glects his official duties because he goofs off on the job or wants to have more

leisure time, e.g., a lawyer who plays golf instead of preparing to serve a client.

Some will regard it as objectionable to count this as a case of self-dealing. They

would contend that self-dealing requires taking advantage of opportunities cre-

ated by one's role or office to pursue personal (self) interests other than leisure.

An alternative definition of self-dealing is the following:

A person, S, is involved in self-dealing if, and only if, he has official duties

to another party, P, in virtue of occupying an office or role and takes advan-

tage of opportunities created by this role or ofElce to actively pursue personal

(self) interests (other than leisure or rest) to the neglect or detriment of his

duties to (P). [I am not sure whether or not I should prefer this definition to

the earlier definition.]'9

A paradigmatic example of self-dealing would be the case of the member of a

corporate board who uses his position as a member of the board to make per-

sonal business contacts and does this to the neglect of his official duties as a

member of the board.

What is the relationship between self-dealing and conflicts of interest? All

cases of self-dealing involve conflicts of interest (all cases of self-dealing are

conflicts of interest in which the conflict is created by the individual's desire to

promote her own personal interests), but not all conflicts of interest involve

self-dealing. Conflicts of interests created by one's concern to promote or harm

the interests of third parties are not cases of self-dealing. Further, cases in which

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REVIEW OF CONFLICT OF INTEREST IN THE PROFESSIONS 169

one is tempted to pursue one's own personal interests to the detriment of one's

official duties can be conflicts of interest, even if one doesn't give in to the

temptation to pursue one's own interests. Self-dealing occurs only when one

neglects or ignores one's duties to the other party.

Conflicts of Interest in Accounting and Financial Services

Conflicts of interest in accounting played a central role in the recent account-

ing scandals. The Arthur Andersen accountants who looked the other way when

Enron doctored its books facilitated the massive fraud perpetrated by Enron's

management. This and other similar instances of fraud and deception in account-

ing have seriously undermined public trust in financial markets and are important

causes of the disastrous downturn of the US stock market at the beginning of the

twenty-first Century.

Leonard Brooks's paper, "Conflict of Interest in the Accounting Profession,"

discusses the Code of Conduct of the American Institute of Certified Public

Accountants and the Rules of Conduct of the Institute of Chartered Accountants

of Ontario. Brooks summarizes these codes in the following passage:

The code of conduct of the American Institute of Certified Public Accoun-

tants and the Rules of Conduct of the Institute of Chartered Accountants of

Ontario apply directly and indirectly to the largest number of professional

accountants in the United States and Canada. They provide representative

guidance sources in which fundamental ethical principles are developed.

Both the Code and Rules also extend these principles to provide general

and specific rules. The Codes of Conduct for professional accountants in-

dicate that members should ( 1) at all times maintain the good reputation of

the profession and its ability to serve the public interest, (2) perform with

integrity, due care, professional competence, independence, and confiden-

tiality, and (3) not be associated with any misleading information or

misrepresentation . 20

Brooks quotes an explicit prohibition on conflicts of interest in the Ontario code;

an accountant should:

hold himself or herself free from any influence, interest or relationship in

respect of his or her client's affairs, which impairs his or her professional

judgment or objectivity or which, in the view of a reasonable observer would

impair the member's professional judgment or objectivity.2l

Codes of ethics for accountants prohibit them from being party to deception,

tax evasion, or other illegal activities, but these codes do not require accoun-

tants to report illegal activity to government authorities.

If a professional accountant finds that a client has misrepresented or ille-

gally evaded tax, he or she must counsel corrective action, and if no such

action is forthcoming, the accountant must resign. At present, professional

accountants are not required to report the evasion or illegality to taxation

authorities.22

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170 BUSINESS ETHICS QUARTERLY

Brooks devotes a short section of his paper to describing common or "fre-

quent" kinds of conflicts of interest in accounting. He states that "Many of the

conflicts professional accountants face involve favoring their own interest at the

expense of others."23 An accountant who accepts substantial favors from clients

could be put "in the position to be asked for a favor in return that would erode

his or her independence and perhaps cause harm to other investors or govern-

ment that represents the public interest."24 Conflicts of interest can also arise

when accountants use confidential information for their own benefit. Such use

might constitute "insider trading" or "improperly signaling the marketplace about

their client's affairs."25 Brooks discusses problems that can arise when accoun-

tants represent clients who are in competition with each other or have conflicting

interests. He argues plausibly that such cases are not necessarily conflicts of

interest and are generally much less problematic than analogous cases in the

law when attorneys represent clients with competing interests.

Brooks's paper is helpful and well worth reading. However, he spends so

much time discussing issues other than conflicts of interest, that he doesn't do

enough to identify and discuss the kinds of systemic conflicts of interest that are

pervasive in accounting and played such a central role in recent events.

These kinds of systemic conflicts of interest in accounting are ably identified

and analyzed in a recent paper by Mary Armstrong not included in the present

volume.26 Armstrong notes two kinds of systemic conflicts of interest in ac-

counting common today. The first kind of conflict of interest is created by the

fact that although CPA firms are hired and paid by the firms they audit, CPAs

have obligations to the users of financial statements, e.g., investors and govern-

ment tax officials. Armstrong writes:

The auditee's management hires, pays, and fires the auditor, yet the auditor is

essentially attesting to the fairness of management's representations about

its own stewardship. All the while, the auditor's primary responsibility is

toward the users of the financial information being audited. It is somewhat

analogous to butchers hiring their own meat inspectors, with the power to set

their prices and Elre them if they do not like the inspection reports issued.27

A second and closely related common type of conflict of interest arises in cases

in which financial service companies provide both auditing and other financial

services to customers. It is common for firms such as Andersen to provide both

auditing and other financial services such as management consulting to their

clients. This creates conflicts of interest because the firm being audited is an

important customer for financial services firms and the desire not to displease

one's customers and lose business often affects the work of their auditors. The

managers of corporations being audited typically want to receive favorable au-

dits. They are in a position to dismiss financial service providers whose auditors

make them unhappy. The executives of financial services providers and the au-

ditors who work for them understand this, and the auditors' objectivity and

independence are thereby compromised. The auditors face a conflict of interest in

that they are under pressure to give favorable audits to please valued customers.

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REVIEW OF CONFLICT OF INTEREST IN THE PROFESSIONS 171

Armstrong also notes that conflicts of interest are created when auditors audit their own past work or the past work of members of their own firms.

Armstrong makes some very interesting suggestions about how to avoid "struc-

tural" conflicts of interest in accounting. Her suggestions include the following:

governmental audits, an audit "tax" to fund audits, audits bought by large institutional investors instead of the companies themselves, a "tenure" sys- tem for auditors, mandatory periodic rotation of auditors, and others.28

All of these proposals merit careful consideration. The suggestion that audits be done by the government or by large institutional investors is particularly promis- ing. This would insure that the company being audited is not a valued customer of the Elrm auditing it. This proposal would also insure that corporate managers would not have the power to dismiss external auditors whose work displeases them.

John Boatright's paper on conflicts of interest in financial services identifies

a very large number of examples of conflicts of interest. Some of those I found most noteworthy are the following. To the extent that financial advisors are of- ten also financial managers who receive commissions on trades, advisors often have an incentive to engage in excessive trading in discretionary accounts and recommend more buying and selling than is in the interests of clients. This all- too-common practice is known as "churning."

Similar practices occur in banking, when loan customers are urged to replace one loan with another, and in insurance, when agents persuade customers to replace one policy with another, in order to generate extra fees and commis- sions. These abuses are called 4'flipping" and "twisting" respectively.29

Another common conflict of interest is involved in cases of "personal trading."

investment company personnel . . . who have access to proprietary research and information about pending transactions . . . are in a position to use this information to trade ahead of a fund's purchase (called frontrunning) and benefit from any upward price movement. If frontrunning raises the price of a stock, then the fund pays more for a security than it would otherwise. Similarly, an access person with advance knowledge of a stock sale could capitalize on the information by selling short.30

In both cases, personal trading is likely to harm the interests of clients by rais- ing the price of the securities they buy or lowering the price of the securities they sell.

Boatright claims that conflicts of interest in Elnance can't be eliminated, but can only be managed.

Conflicts of interest are built into the structure of our financial institutions and could be avoided only with great difficulty. As one person has noted, "The biblical observation that no man can serve two masters, if strictly followed, would make many of Wall Street's present activities impossible." In addition, the inhabitants of Wall Street are motivated primarily by self- interest and can be induced to serve any master only within limits. The challenge, therefore, is not to prevent conflicts of interest in financial ser- vices but to manage them in a workable financial system.3'

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172 BUSINESS ETHICS QUARTERLY

How are conflicts of interest in financial services to be managed? Boatright

surveys a number of suggestions about how to manage conflicts of interest.

Competition. Competitive pressures limit the adverse consequences of con-

flicts of interest. Financial service providers which act contrary to their clients'

interests and thereby reduce returns to them will have difficulty attracting cli-

ents in a very competitive marketplace.

Disclosure. This involves the requirement to disclose all adverse interests to

clients. Further,

disclosure of performance data of all kinds, including levels of risk, facili-

tates competition, which in turn reduces conflicts of interest. In addition,

conflicts of interest can be avoided by making known a firm's policies and

procedures for dealing with conflicts.32

Rules and Policies. Specific rules requiring people to avoid conflicts of inter-

est or prohibiting actions that constitute conflicts of interest can be created by

the legislation, regulatory agencies, industry associations and exchanges, and

financial service firms themselves. Boatright mentions several examples including

prohibitions against personal trading on stock before and after the fund pur-

chase and prohibitions "on all short-term selling (generally a security must be

held for more than ninety days)."33

Structural Changes Since many conflicts of interest result from combining

different services in one firm, the strongest remedy for conflicts of interest is to

"institute structural changes that separate these functions."

Many conflicts could be eliminated by separating the functions of trust man-

agement and commercial banking, of underwriting and investment advising,

of retail brokerage and principal trading, and so on.34

Boatright argues that, on balance, this remedy is not desirable because of the

costs and the inefficiencies it would involve.

Addressing the problem of conflict of interest by such radical structural

changes is probably unwarranted, however, because of the many advan-

tages of such combinations. For example, underwriting a corporation's

securities requires an investment bank with substantial sales capability as

well as personnel with analytic skills.35

Boatright proposes, instead, that conflicts of interest should be managed by struc-

tural changes within existing multifunction institutions. He recommends

measures to strengthen the autonomy of different divisions in multifunction Elrms

and restricting the flow of information between different divisions of firms ("Chi-

nese walls"). Boatright observes:

There are some drawbacks to Chinese walls, however. They take away some

of the gains from integrating different functions in one firm, and firms may

lose the confidence of customers, who fear, for example, that investment ad-

vice does not represent all the information possessed by a firm. However, a

customer may also benefit, by being assured that a broker's investment ad-

vice is not biased by the need to place unsold stocks in an underwriting.36

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REVIEW OF CONFLICT OF INTEREST IN THE PROFESSIONS 173

Conflicts of Interest on Corporate Boards

Eric Orts's paper "Conflict of Interest on Corporate Boards" discusses con-

flicts of interest in corporate governance. He focuses on conflicts of interest

involving members of corporate boards of directors. Orts devotes considerable

attention to the law and his article is the source of much useful information on

legal issues. Orts observes that conflicts of interest arise for members of corpo-

rate boards, because directors have the duty to promote and safeguard the interests

of the firm and at the same time have personal interests and opportunities for

self-dealing that may conflict with their duties as directors. He divides these

conflicts of interest into two broad categories: 1. conflicts of interest that arise

when directors have financial interests that diverge from the interests of the

firm, and 2. conflicts of interest that arise when corporations do things that af-

fect family members or friends.

Orts says that the "most fundamental" conflict of interests for corporate di-

rectors involve issues of compensation for executives.

In the corporate law of conflicts of interest, the most signiElcant difficulty

arises in the payment of executive compensation . . . The problem with re-

spect to executive compensation is that corporate ofElcers, especially CEOs,

often exercise extraordinary defacto power over the corporate boards which

are supposed to oversee them. To the extent the real power of CEOs over-

comes formal board structures that are answerable to shareholders, the

problem of excessive payment of executive compensation may arise. Some

empirical evidence supports the claim that levels of executive compensa-

tion have become problematic from a social perspective, at least in the United

States. In 1996, for example, the CEOs of the largest thirty corporations

made more than 200 times more in compensation than did the average U.S.

employee, almost a fivefold increase in this ratio since 1965.37

Not only do executives often use their indirect influence over boards to in-

crease their compensation, they often sit on boards that set their own

compensation. [The conflict of interest isn't avoided if they recuse themselves

from the committees that determine their compensation. The other members of

the board will face a conflict of interest in virtue of their personal relationships

with the executives who are on the board and their decisions about executive

compensation will be known to the executives who are members of the board.]

A similar conflict of interest is constituted by the fact that board members are

sometimes in a position to determine their own compensations and vote them-

selves stock options, etc. For example, The Public Company Oversight Board

was created by Congress in 2002 to oversee the auditors of publicly traded com-

panies. On January 9, 2003 the members of the Oversight Board met and voted

themselves salaries of $452,000 per year.38

A different kind of conflict of interest involving the financial interests of

directors arises from the business opportunities that directors learn of in their . . . .

Ottlcla. , capacltles.

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174 BUSINESS ETHICS QUARTERLY

The general rule is that if a corporate director or executive hears about an

opportunity for an investment that is characterized as ;'an interest or ex-

pectancyS' or "in the line of business" of the corporation, then the opportunity

must first be offered to disinterested representatives of the corporation (usu-

ally disinterested board members or the shareholders) and the interested

director of executive may then pursue the opportunity only if the corpora-

tion declines it.39

Christopher Stone's landmark book Where the Law Ends offers a powerful

critique of corporate boards as they are presently constituted in the US. Stone

decries the increasing presence of "insideS' directors," i.e., "men serving as di-

rectors of the very companies that employ them as managers."40 This arrangement

itself constitutes a conflict of interest. Managers' own personal interestsn e.g.,

interests in retaining their jobs, increasing their income, securing promotion,

and maintaining amicable relations with other managers, etc., prevent them from

impartially and effectively serving the function of overseeing management and

protecting shareholders from abuses by management. Conflicts of interest are

also created by the fact that directors are typically placed on boards by manage-

ment (rather than the other way around.)4l Conflicts of interest arise when board

members develop personal relationships and friendships with management, which

make them reluctant or unwilling to criticize or remove managers. Stone pro-

vides some indirect evidence for this claim in the following passage:

Myles Mace . . . points out that the typical outside director, having been

placed on the board by management . . . is particularly reluctant to rock the

boat by asking discerning questions. It is "plain bad manners,n' one com-

pany president chided, in private and after the meeting, an aberrationally

inquisitive director who had done nothing more rude than to ask what was

being done to correct steadily declining earnings.42

Stone goes on to note the failure of the members of Penn Central's Board of

Directors to question the actions of Penn Central's egregiously corrupt and in-

competent management which drove the huge corporation into bankruptcy shortly

after the merger which founded it.

Many board members lack adequate incentive to be diligent and careful in

promoting the interests of the corporation; often they are indemnified or insured

against law suits for damages due to negligence.43 Another serious and systemic

problem is that management is in a position to manipulate boards to do their

bidding by selectively determining what sort of information reaches the board.

Boards often lack adequate information to perform their roles adequately. Stone

makes a number of proposals to remedy or ameliorate these problems with cor-

porate governance. Among his proposals are the following: remove inside

directors from corporate boards, limit the indemnification and insurance of di-

rectors against suits for negligence, and give directors staff and resources so

that management can't control and limit the information directors receive.44

Another proposal that has been made in light of recent events is to give boards

of directors their own independent auditors who report only to the boards.

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REVIEW OF CONFLICT OF INTEREST IN THE PROFESSIONS 175

Conflicts of Interest in Medicine

Stephen Latham's paper "Conflict of Interest in Medical Practice" focuses

on conflicts of interest that arise from methods of paying physicians. It is well-

known that traditional "fee for services" payment creates a financial incentive

for physicians to prescribe more treatment and services than patients need. Phy-

sicians make recommendations about the kinds of medical services patients need

and then often provide those services themselves.

The physician is thus her [the patient's] agent for the purchase of medical

services as well as purveyor of those services. His conflict of interest lies

in this: As her purchasing agent, he has a duty to assist her in making pru-

dent choices among medically relevant health care services, but as a purveyor

of services, he has a pecuniary interest in advising her to make rather more

extravagant purchases than a disinterested prudence would counsel.45

Latham's observations have much wider application. Plumbers, dentists, exter-

minators, auto mechanics, electricians, psychologists, appliance repairmen, and

many others professionals also occupy the dual roles of diagnosing problems

and providing services. Self-employed members of these professions all have

exactly the same kind of conflict of interest as physicians under fee for service;

professionals employed by others also have conflicts of interest to the extent

that their employers reward them for generating revenue. This problem is par-

ticularly worrisome because most lay people are unable to assess the honesty

and accuracy of the diagnoses and the quality of the care that they receive.46

Physicians and other professionals are in a position to take advantage of mem-

bers of the public and run very little risk of being caught when they do.47 We are

all at the mercy of professionals whose knowledge of their fields greatly ex-

ceeds our own. We need them to refrain from deceiving and manipulating us for

their own benefit.

Certain alternative methods of paying physicians also create conflicts of in-

terest. In many HMOs physicians are paid on a "capitation" basis; physicians or

medical groups are paid a fixed amount for each patient enrolled and in return

the physician or group provides complete health care services for those patients.

Primary care physicians are gate keepers for more expensive specialists, tests,

and treatments. Most HMOs give physicians strong financial incentives to keep

costs down. It is common to set a maximum amount of money that can be spent

treating a physician's patients. In some HMOs, physicians receive a bonus if the

total costs of their patients are below the maximum. Alternatively, physicians

may have their salaries reduced if the costs incurred by their patients exceed the

maximum permitted. This creates very serious conflicts of interest in that the

quality of the care and treatment physicians give their patients is often compro-

mised by their concern for their own financial interests. In his book Medicine

and Morals: Physicians' Conflicts of Interest, Marc Rodwin claims that eighty-

five percent of HMOs use these kinds of financial incentives to insure that

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176 BUSINESS ETHICS QUARTERLY

physicians keep costs down. Physicians can lose twenty to thirty percent of sala- ries if they exceed the cost guidelines set by their HMOs.48

Latham offers a very helpful consideration of possible remedies for the prob- lems created by conflicts of interest in the payment of physicians. He says that we can minimize risk of adverse impact on particular clinical decisions

by making sure that financial rewards are given piecemeal, on a sliding scale basis, rather than in large blocks upon the attainment of fixed target numbers. A physician who earns a large bonus upon the attainment of a certain level of cost savings, but who gets nothing short of that attainment, will be under extreme financial pressure whenever he or she is near the borderline of attaining the goal. A better plan would give the physician financial rewards proportional to whatever level of savings he or she in fact attains. Under the latter plan, every cost saving would be rewarded, but no one clinical decision or patient would be a "bonus breaker."49

In the case of the conflicts of interest generated by methods of paying physi- cians, the most obvious remedy would seem to be to separate diagnosis from treatment. A person would go to a diagnostic physician who would then refer the patient to someone else for treatment. Latham notes that this kind of remedy is employed by laws that forbid physicians to sell the drugs they prescribe, but he dismisses the proposal to separate diagnosis and treatment because of the expense and inconvenience it would create for patients.

Are there other ways of paying physicians that avoid conflicts of interest and do not create other equally serious problems? Latham notes that "physicians on salary have no pecuniary interest in offering more or fewer services than the patient requires."50 He seems to think that, nonetheless, a physician's interest in leisure creates a conflict of interest for salaried physicians. He goes on to sug- gest that, unlike fee for service and capitation, this conflict of interest is not worrisome; "this interest [in leisure] is easily outweighed by the non-pecuniary interest in reputation and by the pecuniary interest in not being fired.''5l This is plausible and interesting, but Latham's very brief discussion of paying physi- cians salaries ends here. One wishes that he had more to say about this.52

Latham discusses one other kind of conflict of interest at length the con- flicts of interest created by the gifts and other inducements pharmaceutical companies give to physicians to prescribe their drugs. Pharmaceutical compa- nies often give gifts to physicians. These gifts can vary from keychains, pens, and free samples for personal and family use to lavish travel and entertainment sometimes disguised as educational seminars. Latham does not think that a phy- sician having goodwill or gratitude toward a pharmaceutical company is enough to create a conflict of interest.

For example, a physician may, without losing anything, harbor warm feel- ings toward a firm that entertained her and still prescribe a competitor firm's product when she feels it medically appropriate.53

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REVIEW OF CONFLICT OF INTEREST IN THE PROFESSIONS 177

It is possible, of course, that one could feel gratitude without this affecting one's

judgment and actions. It is also possible that a physician's gratitude toward a

pharmaceutical company might make it difficult for her to make the right deci-

sions for her patients and such cases are conflicts of interests. Latham is very

troubled about cases in which pharmaceutical companies give physicians finan-

cial rewards for prescribing their products.

Most troubling, however, are marketing practices that offer physicians fi-

nancial rewards, either concurrently or retrospectively, for their actual

prescribing practices. Some firms have offered vacations and expensive gifts

as rewards to their "high prescribers."54

AMA guidelines strictly prohibit physicians from receiving gifts with strings

attached. Latham observes, however, that

The AMA guidelines are essentially voluntary; there is no meaningful en-

forcement mechanism for their violation, and no means even of detecting

violations dependably . . . numerous physicians violate them annually.55

Latham quotes from the AMA code of ethics, which says that

[i]f a conflict develops between the physician's financial interest and the

physician's responsibilities to the patient, the conflict must be resolved to

the patient's benefit.56

He continues with the following observation with which I strongly concur.

Yet the skeptic might be forgiven for wondering whether, assuming the ad-

monition was sincerely meant by its draftsman, the laudable attitude it preaches

can seriously be cultivated by a professional organization that spends so much

of its time in the ardent pursuit of physicians' Elnancial interests.57

Referral fees or "kickbacks" for physicians (fees or payments for physicians

to refer patients to other physicians, usually specialists) also create conflicts of

interest, since they create a financial incentive for physicians to give unneeded

referrals. Latham notes that the practice of fee-splitting has long been prohib-

ited by both the law and medical codes of ethics. However, Marc Rodwin argues

that these prohibitions have been ineffective in deterring fee splitting and have

led to the development of dishonest means of evading the law (instead of paying

a referral fee, specialists often hire referring physicians as "assistants").58

Another serious conflict of interest noted by Rodwin is that often physicians

refer patients for tests to facilities that they own or partly own. Rodwin reports

a Florida study that found that patients of physicians who owned labs received

twice as many tests as other patients. Further these labs charged twice as much

as other labs.59 AMA guidelines permit this provided that the physician dis-

closes ownership to the patient. Rodwin argues that the requirement of disclosure

does not remove the conflict of interest. He also claims that the disclosure re-

quirement is ineffective and widely ignored by physicians.60

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178 BUSINESS ETHICS QUARTERLY

Lessons From Comparisons Between DiJjrerent Professions

The book ends with Andrew Stark's paper "Comparing Conflict of Interest

Across the Professions." This is an outstanding paper that draws some interest-

ing and important lessons from the papers in the anthology. It probably could

not have been written had he and Davis not assembled a collection of discus-

sions of conflicts of interest from so many different professions. Stark lays out

a very useful and perspicuous typology of different kinds of conflicts of inter-

est. He distinguishes between two general types of conflict of interest: 1. those

that result from external relationships, e.g., a government official offering a sub-

sidy to a company in which his wife owns stock and 2. those internal to one's

job or profession, e.g., cases in which one's professional judgment is adversely

affected by one's desire to advance in the ranks of a bureaucracy. That cases of

the second type are genuine conflicts of interest is not adequately appreciated.

Stark contends that the first type of conflict of interest is exactly the same in

every profession. Everyone has friends and family ties that can create conflicts

of interest. Stark writes:

A personal gift from an individual external to the professional-principal

relationship a pharmaceutical manufacturer in the case of a physician-

patient relationship, a mutual fund salesman in the case of a broker-client

relationship, an art dealer in the case of a critic reader relationship im-

pairs the professional's judgment in all three pursuits in exactly identical

ways. A judge's decision making capacity is threatened in precisely the

same fashion as a journalist's or a corporate director's by her capacity

to affect an out-of-role financial holding through her role in decision mak-

ing. It is only when we turn to conflicts of interests that arise within role, to

conflicts not extrinsic but intrinsic to the professional's relationship with

her principal, that revealing differences emerge across professions.61

Stark claims that conflicts of interest that arise within professional roles fall

into two broad categories: 1. "many roles one principal" and 2. "many princi-

pals one role." Conflicts of interest in the first category arise because professionals

serve different and, to some extent, incompatible, roles for clients. Conflicts of

interest involving many principals and one role are created by the conflicting

interests of different clients. For example, "Capitation forces doctors to choose

between allocating their limited time and resources to different principals...."62

Brokers who manage the accounts for multiple clients are sometimes forced to

choose between different clients when they decide how to allocate a security in

short supply.

Stark claims that conflicts of interest involving many roles and one principal

tend to fall into one of the following two categories: 1. the conflict between the

roles of diagnosing problems and providing services, e.g., churning and fee for

service, and 2. conflicts between the roles of being a judge and being an advo-

cate teachers judge their students and are also expected to provide

recommendations for them. Brokers sometimes judge securities that they then

are expected to sell and endorse.

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REVIEW OF CONFLICT OF INTEREST IN THE PROFESSIONS 179

Moralsfor Business Ethics

Work in business ethics should pay more attention conflicts of interest, espe-

cially the ways in which conflicts of interest are "internal" to professional roles

and pervade business and professional life. Self-dealing is one of the most fun-

damental and pervasive moral problems in business, but it is largely overlooked

in the literature on business ethics. The literature in our field is too consumed by

debates about the social responsibilities of business and debates about whether

business executives should or should not pursue the interests of shareholders

alone (within limits). Moral problems arise in business not so much when busi-

ness executives promote (or fail to promote) the interests of shareholders over

the interests of other stakeholders, but rather when business people engage in

self-dealing and promote their own personal interests to the detriment of every-

one else. Questions about the social responsibilities of business are practical

questions only for high ranking business executives. Most business people have

little power or authority to make decisions about the policy issues that are dis-

cussed in the literature on the social responsibilities of business, e.g., corporate

contributions to charity and corporate environmental policy. The literature on

the social responsibilities of business sheds very little light on the moral obliga-

tions of most business people. By contrast, conflicts of interest and temptations

to engage in self-dealing are practical moral problems for almost all business

people. The recent corporate accounting scandals all involved conflicts of inter-

est and self-dealing; the Eleld of business ethics needs to put the issues of conflicts

of interest and self-dealing front and center.

Notes

Thanks to John Boatright, Ian Maitland, Joe Mendola, Jean Tan and Moshe Adler for many

helpful criticisms and suggestions.

' Davis and Stark, eds., Conflict of Interest in the Professions, p. 8.

2 ConJ7ict of Interest in the Professions, p. 8.

3 Conflict of Interest in the Professions, p. 9.

4 Michael Davis, "Conflict of Interest," Business and Professional Ethics Journal 1 (1982):

17-27 and "Conflict of Interest Revisited," Business and Professional Ethics Journal 12

(1993): 2141.

5 In his paper, "Conflicts of Interest: An Agency Analysis," in Norman E. Bowie and R.

Edward Freeman, eds., (New York: Oxford University Press, 1992), pp. 187-203, John

Boatright also presents counterexamples to Davis's definition. If I understand them correctly,

Boatright's examples are different from the ones I have offered here. They are presented as

examples of conflicts of interest that don't interfere with any actions (requiring judgment)

that P takes on behalf of the other party. Based on his reply to Boatright, I suspect that Davis

might reply that my example is a case of a "breach of loyalty" rather than a conflict of

interest ("Conflict of Interest Revisited," pp. 21-41). To this, I would reply that my case is a

breach of loyalty and that, in this case, I am disloyal because of a conflict of interest which

consists in my being tempted by conflicting financial interests to violate my official duties.

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BUSINESS ETHICS QUARTERLY 180

6 ConfZict of lnterest in the Professions, p. 69.

7 Conflict of Interest in the Professions, p. 283.

8 Conflict of Interest in the Professions, p. 219.

9 Conflict of Interest in the Professions, p. 219.

10 Conflict of Interest in the Professions, pp. 219-220.

1 l This is a revised and simplified version of the following definition which I defended in

my paper, "Conflicts of Interest," Journal of Business Ethics, 13 (1994): 387404.

A conflict of interest exists in any situation in which an individual (I) has

difficulty discharging the official (conventional/fiduciary) duties attaching to

a position or office she holds because either: i) there is (or I believes that there

is) an actual or potential conflict between her own personal interests and the

interests of the party (P) to whom she owes those duties, or ii) I has a desire to

promote (or thwart) the interests of (X) (where X is an entity which has inter-

ests) and there is (or I believes that there is) an actual or potential conflict

between promoting (or thwarting) X's interests and the interests of P.

The section immediately below, "Some Features of My Proposed Definition," closely fol-

lows pp. 388-389 of my "Conflicts of Interest."

12 In order for the conflict between the interests of one's employer or organization (etc.)

and the interests of one's friends or family (etc.) to make it difficult for one to fulfill one's

official duties, one must have some desire or preference to the effect that the interests of

one's family or associates be advanced. Consider the following case: a person has no special

interest in or attachment to her cousin. Her official duties conflict with the interests of the

cousin. The conflict between the interests of her cousin and her official duties will not create

any difficulty for her in fulfilling her official duties. On my view, such a case would not

constitute a genuine conflict of interest. Less probably, suppose that I is completely indiffer-

ent to the welfare of his own daughter. Cases in which his daughter's best interests conflict

with those of P would not constitute conflicts of interest, because they would not make it

difficult for him to discharge his duties to P. I would describe such cases as apparent, but not

actual, conflicts of interest.

13 Cf. Joseph Margolis, "Conflicts of Interest and Conflicting Interests," in Ethical Theory

and Business, ed. Tom Beauchamp and Norman Bowie, first edition, (Englewood Cliffs,

N.J.: Prentice Hall, 1979), p. 364; Neil Luebke, "Conflicts of Interest as a Moral Category,"

Business and Professional Ethics Journal 6 (1987): 70; and John Boatright, "Conflict of

Interest: An Agency Analysis," p. 189. Davis claims that:

Bribes as such do not create conflicts of interest; generally, what they create

is something more serious: disloyalty at least; at worst, a crime.... Bribe

offers, however, can create a conflict of interest" (Conflict of Interest in The

Professions, p. 18).

14 I defend this analysis in "Bribery, Extortion, and 'The Foreign Corrupt Practices Act,"'

Philosophy & Public Aff^airs 14 (1985): 66-90.

15 It is permissible for my uncle to engage in nepotistic hiring. However, if he does, he

should not advertise the position or interview other people for the job, since that would give

others the false impression that they are competing with others and that they will be judged

on their merits.

16 One might object that, inasmuch as I desire to harm someone (or promote someone's

welfare), it is in my own self-interest to harm (benefit) her. But the ill-fare (or welfare of

others) does not by itself (apart from its consequences such as giving me pleasure) contrib-

ute to my own welfare. It is not analytic that (other things equal) my welfare is enhanced

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REVIEW OF CONFLICT OF INTEREST IN THE PROFESSIONS 181

whenever a state of affairs that I desire obtains. Among other things, this would make it

logically impossible for one to desire or prefer actions which are contrary to one's self-

interest and thus logically impossible for there to be genuine acts of self-sacrifice. (See Mark

Overvold, "Self-Interest and the Concept of Self-Sacrifice," Canadian Journal of Philoso-

phy 10 (1980): 105-118.) The satisfaction of other-regarding desires does not necessarily

contribute to one's own personal welfare.

17 See my papers 4'Bribery, Extortion, and sThe Foreign Corrupt Practices Act,"' Philoso-

phy & Public AJfairs 14 (1985): 66-90 and "Bribery and Implicit Agreements: A Reply to

Philips," Journal of Business Ethics, 6 (1987): 123-125 for a defense of this.

18 This point is crucial for my objection to Boatright's defiIlition. Boatright and I dis-

agree about whether Bob's agreement with the Klan generates a prima facie moral duty for

him to fulfill his official duties. For a very good discussion of this issue (one that doesn't

clearly side either with me or with Boatright) see Shelly Kagan, Normative Ethics, (Boulder,

Colorado: Westview, 1998), pp. 124-125.

9 See Andrew Stark, Conflict of Interest in American Public Life, (Cambridge, Mass.:

Harvard University Press, 20000), Chapter 3, for discussion of self-dealing that I cannot

begin to summarize here.

20 Conf ict of Interest in the Professions, p. 95.

21 Conflict of Interest in the Professions, p. 93.

22 Conflict of Interest in the Professions, p. 97.

23 Conflict of Interest in the Professions, p. 98.

24 Cony?ict of Interest in the Professions, p. 99.

25 Conflict of Interest in the Professions, p. 99.

26 "Ethical Issues in Accounting" in The Blackwell Gaide to Business Ethics, Norman

Bowie, editor, (Oxford: Blackwell's, 2002), pp. 145-164.

27 "Ethical Issues in Accounting," p. 155.

28 "Ethical Issues in Accounting," p. 156.

29 Conflict of Interest in the Professions, pp. 228-229.

30 Conflict of Interest in the Professions, p. 229.

31 Conftict of Interest in the Professions, p. 217.

32 Confliet of Interest in the Professions, p. 232.

33 Conflict of Interest in the Professions, p. 234.

34 Conflict of Interest in the Professions, p. 234.

35 Confiict of Interest in the Professions, p. 234.

36 Conflict of Interest in the Professions, p. 235.

37 Conflict of Interest in the Professions, p. 138.

38 New York Times, January 10, 2003.

39 Conflict of Interest in the Professions, p. 140.

40 Christopher Stone, Where the Law Ends (New York: tIarper and Row, 1976), p. 128.

41 Where the Law Ends, p. 128.

42 Where the Law Ends, p. 128.

43 Where the Law Ends, pp. 144-147,

44 Where the Law Ends, pp. 139-150.

45 ConJlict of Interest in the Professions, p. 285.

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182 BUSINESS ETHICS QUARTERLY

46 Cf. E. Haasi Morreim, Balancing Act: The New Medical Ethics of Medicine's New

Economics, (Washington, D.C.: Georgetown University Press, 1995), p 106.

47 Many of the same issues about conflicts of interest in the payment of physicians and

other professionals are considered in "Conflict of Interest in Physical Therapy" by Mike

Martin and Donald Gabard (Conflict of Interest in the Professions, pp. 314-332.) Martin and

Gabard claim that all professions are involved systemic conflicts of interest in that members

of all professionals are subject to the temptation "to provide unnecessary services to clients

in order to increase profits" (p. 318). This conflict is created by their dual roles as advisors

and provider of services.

48 (Oxford: Oxford University Press, 1993), pp. 139-140.

49 Conf ict of Interest in the Professions, p. 292.

50 Conflict of Interest in the Professions, p. 290.

S] Conflict of Interest in the Professions, p. 290.

52 Michael Bayles argues that there exists a "fundamental conflict of interest" in any

relationship between a client and a professional person. This conflict of interest is created by

the professional person's interest in income and leisure. When professionals are paid on a fee

for service basis they have an interest in providing more services than are either necessary or

desirable for their clients. For example, when physicians are paid according to how much

work they do for their patients, many physicians succumb to the temptation to provide their

patients with unnecessary, even dangerous treatments. Bayles continues:

Alternative systems of paying professionals do not remove this conflict but

merely reverse the effect on the client. In a capitation payment system, profes-

sionals have an interest in having as many clients as possible to maximize their

income and in performing as few services as possible to minimize their costs.

On a salary system or flat fee for a case, professionals receive the same income

no matter the number of clients or services performed, so they have an interest

in minimizing clients or services. These payment systems thus encourage pro-

fessionals not to perform useful services.... This fundamental conflict of interest between professional and client cannot be removed. It is inherent in

the professional-client relationship. Michael Bayles, Professional Ethics, sec-

ond edition, (Belmont, Calif.: Wadsworth, 1989), p. 89.

Another noteworthy feature of Bayles's discussion of conflicts of interest that is not ad-

dressed in the Davis and Stark anthology is his claim that the self-regulation of profession

involves systematic conflicts of interest. On conflicts of interests in self-regulation also see

my paper "Conflicts of Interest," p. 394. Haavi Morreim also argues the conflicts of interest

arising out the payment of physicians are "inescapable," Balancing Act: The New Medical

Ethics of Medicine's New Economics, pp. 61-62.

53 ConJ7ict of Interest in the Professions, p. 295.

54 Conflict of Interest in the Professions, p. 295.

55 Conflict of Interest in the Professions, p. 296.

56 Conflict of Interest in the Professions, p. 297.

57 Conflict of Interest in the Professions, p. 297.

58 Marc Rodwin, Medicine and Moral: Physicians' Conflicts of Interest, (New York: Ox-

ford, 1993), pp. l9-52.

59 Medicine and Moral: Physicians' Conflicts of Interest, p. 72.

60 Medicine and Moral: Physicians' Conflicts of Interest, p. 42.

61 Conflict of Interest in the Professions, p. 336.

62 Cony?ict of Interest in the Professions, p. 341.

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