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Unpaid Advisers and the Misuse of Inside Information
Saturday, October 20th, 2012
Robert Wechsler
A
front-page article in today's New York Times looks on a
conflict situation that is usually ignored: the unpaid adviser
who effectively sells her inside, often confidential information to
her clients. She is not technically a lobbyist, because her
communications with officials are not intended to push for her
clients' goals (although it is impossible to know whether her
clients' goals affect her advice). Therefore, she does not have to
make disclosures and is not limited by lobbying laws, including
their post-employment provisions (the focus of the article is a
former official). And she is not technically an official or
consultant, because she is not paid for her advice. Therefore, she
is not an official making use of confidential information to benefit
herself or others. Thus, she falls through the cracks of just about
any ethics program.
And yet there is a clear conflict situation here. The adviser is wearing two hats and is benefiting herself and others through the use of inside information. Much of that inside information may not technically be confidential, because it's about tendencies and likelihoods rather than facts. This is another limitation of ethics laws. What is considered confidential information tends to be limited to facts, such as where subway stops will be placed or how much contractors have bid. But facts are not all that is valuable to those seeking special benefits from a government. What people are looking for is not just facts, but the likelihood that a bill will be passed (e.g., how many council members have been lined up to vote) or whether there's a good chance that a deal can be done. This is the kind of information an adviser has to offer.
The problem goes beyond benefiting from the "sale" of inside information to interested businesses. There are also problems with the trustworthiness of the advice given to officials, as well as with the way this situation taints an administration's policy-making.
Several years ago I was an unpaid adviser to my town's first selectman (effectively, the mayor). It made a big difference to the trustworthiness of my advice that I had nothing to gain, directly or indirectly, either from the advice I gave or the inside information I learned. It didn't mean that my advice was right. It meant that what I thought was best for the town, not for me or for anyone I did business with (I did business with no one in town or with the town), was the sole basis for my advice.
If I had had clients who were seeking special benefits from those I advised, how could the first selectman have trusted my advice not to be corrupted by my other interests? It's not whether I would be a bad person, but whether I could possibly separate my personal interests from the way I perceived the public interest. Seeking and accepting advice from someone who has conflicting interests taints the official's policy-making. The official might think he can still trust the advice of a former aide (usually advisers are former campaign or government aides), but only by putting on blinders and not being concerned (1) how accepting the former aide's advice would look to others and (2) how it would look to treat this individual not as a lobbyist, but as someone whose relationship did not need to be disclosed to the public.
It's important not just to criticize those who seek advice from individuals who can benefit from what they learn in providing advice. One should also recognize how important it is for officials to seek out individuals who cannot benefit from what they learn, whose only goal is to provide useful advice. It is just as important to disclose and encourage the role of unselfish advisers as it is to disclose and limit the role of selfish advisers. The relationships of all advisers, paid or unpaid, should be disclosed, and advisers should not communicate with officials about any matter of interest to any client, family member, or business associate. A rule such as this can seriously change the nature of advisers, the nature of advice, and the government's ethics environment.
It is worth pointing out that most of the people who seek out my advice on local government ethics matters are citizens, ethics commission members, and ethics commission staff. It is the rare ordinary official, and the even more rare government attorney, who seeks out my advice. I don't think this is just a matter of seeking out the answers one wants. When one is surrounded by insiders, one is uncomfortable turning to an outsider for advice. It's not the way the game works. When one plays the game like this, when there is no reason to seek truly neutral advice, there will be conflict situations, and many of them will not be handled responsibly. Only when the rules of the game are changed can an ethics environment be improved.
It bothers me that Anita Dunn, the adviser who is the focus of the Times article, is married to Bob Bauer, who was special counsel to the President for ethics and government reform. The fact that he presumably found this kind of relationship acceptable, because it is legal, shows how hard it is for many lawyers, even ones who are considered ethics experts, to tell the difference between legality and ethics.
Robert Wechsler
Director of Research-Retired, City Ethics
---
And yet there is a clear conflict situation here. The adviser is wearing two hats and is benefiting herself and others through the use of inside information. Much of that inside information may not technically be confidential, because it's about tendencies and likelihoods rather than facts. This is another limitation of ethics laws. What is considered confidential information tends to be limited to facts, such as where subway stops will be placed or how much contractors have bid. But facts are not all that is valuable to those seeking special benefits from a government. What people are looking for is not just facts, but the likelihood that a bill will be passed (e.g., how many council members have been lined up to vote) or whether there's a good chance that a deal can be done. This is the kind of information an adviser has to offer.
The problem goes beyond benefiting from the "sale" of inside information to interested businesses. There are also problems with the trustworthiness of the advice given to officials, as well as with the way this situation taints an administration's policy-making.
Several years ago I was an unpaid adviser to my town's first selectman (effectively, the mayor). It made a big difference to the trustworthiness of my advice that I had nothing to gain, directly or indirectly, either from the advice I gave or the inside information I learned. It didn't mean that my advice was right. It meant that what I thought was best for the town, not for me or for anyone I did business with (I did business with no one in town or with the town), was the sole basis for my advice.
If I had had clients who were seeking special benefits from those I advised, how could the first selectman have trusted my advice not to be corrupted by my other interests? It's not whether I would be a bad person, but whether I could possibly separate my personal interests from the way I perceived the public interest. Seeking and accepting advice from someone who has conflicting interests taints the official's policy-making. The official might think he can still trust the advice of a former aide (usually advisers are former campaign or government aides), but only by putting on blinders and not being concerned (1) how accepting the former aide's advice would look to others and (2) how it would look to treat this individual not as a lobbyist, but as someone whose relationship did not need to be disclosed to the public.
It's important not just to criticize those who seek advice from individuals who can benefit from what they learn in providing advice. One should also recognize how important it is for officials to seek out individuals who cannot benefit from what they learn, whose only goal is to provide useful advice. It is just as important to disclose and encourage the role of unselfish advisers as it is to disclose and limit the role of selfish advisers. The relationships of all advisers, paid or unpaid, should be disclosed, and advisers should not communicate with officials about any matter of interest to any client, family member, or business associate. A rule such as this can seriously change the nature of advisers, the nature of advice, and the government's ethics environment.
It is worth pointing out that most of the people who seek out my advice on local government ethics matters are citizens, ethics commission members, and ethics commission staff. It is the rare ordinary official, and the even more rare government attorney, who seeks out my advice. I don't think this is just a matter of seeking out the answers one wants. When one is surrounded by insiders, one is uncomfortable turning to an outsider for advice. It's not the way the game works. When one plays the game like this, when there is no reason to seek truly neutral advice, there will be conflict situations, and many of them will not be handled responsibly. Only when the rules of the game are changed can an ethics environment be improved.
It bothers me that Anita Dunn, the adviser who is the focus of the Times article, is married to Bob Bauer, who was special counsel to the President for ethics and government reform. The fact that he presumably found this kind of relationship acceptable, because it is legal, shows how hard it is for many lawyers, even ones who are considered ethics experts, to tell the difference between legality and ethics.
Robert Wechsler
Director of Research-Retired, City Ethics
---
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