New York State
Ethics Commission

INTRODUCTION

The following advisory opinion is issued in response to a request by [ ], General Counsel to [a public Authority], who asks whether [ ], a [senior agency official] of [the Authority], may serve on an Advisory Board of [a Bank].

Pursuant to the authority vested in it by Executive Law §94(15), the New York State Ethics Commission ("Commission") hereby renders its opinion that Public Officers Law §74 precludes [the State employee] from serving on the Board.

BACKGROUND

[The State employee] is [a senior official] of [the public Authority], reporting directly to the Executive Director. He is responsible for all of [the public Authority's] [ ] operations, [ ].

[The Bank] is [an out-of-state] financial institution that has recently established a northeastern presence through the acquisition of several local banks in the metropolitan New York City area. It has invited [the State employee] to serve as a member of an Advisory Board. This Board would not have a formal corporate function. Rather, according to the mission statement provided by the Bank, the Board "is to support business generation goals in New York markets by actively introducing, referring and/or recommending new customers to the Bank. Board members will also actively advise senior management on issues relating to the Bank's business practices."

The Board consists of two divisions, one representing the [ ] region and the other representing the [ ] region. The Bank has recruited business and civic leaders from each of these geographical areas to serve on the Board in an effort to facilitate its entry into these markets. [The State employee] is a long time [ ] County resident and former Commissioner of [ ] for the county.

Each of the two divisions of the Board is expected to meet separately three or four times each year, and the entire Board will likely meet one or two times within this period. Each board member will receive a fixed annual retainer of $2500 as well as a board attendance fee of $750 per meeting. Advisory Board members will be appointed to terms of three years, and they may serve multiple terms.

[The Bank], in recognition of [the State employee's] position with [the public Authority], has, in its invitation, stated that it would not look to him for any assistance in pursuing banking opportunities with New York State or [the public Authority].

[The Bank] and [the public Authority] currently do not have any business relationship. However, [a subsidiary of the public Authority] currently has a contract with [another out-of-state] bank which was recently acquired by [the Bank]. This bank serves as a depository for the [subsidiary's] daily cash receipts. [The public Authority's subsidiary] customarily maintains a monthly balance of approximately $100,000 in this account, which is .4% of all [the public Authority's] cash balances. [The public Authority], which sweeps out its cash balances on a daily basis to be invested, has an investment pool of approximately $3.4 billion.

All banking services for [the public Authority], as well as for its affiliates and subsidiaries, are procured through a competitive request for proposal ("RFP") process pursuant to [the public Authority's] Guidelines for the Procurement of Services. Numerous employees participate in the procurement process to identify needs, prepare the RFP, develop the criteria for evaluating responses and make the final recommendation for selecting a bank. All contracts for services which exceed $20,000 are required by law to be presented to [the public Authority] board for approval.

[The State employee] has indicated that, with respect to the selection process for banking services, he would disclose his relationship with [the Bank] and recuse himself from the process. He also intends to recuse himself from any involvement on behalf of [the public Authority] in day-to-day matters relating to these services.

The question presented to the Commission is whether [the State employee] may accept the invitation to serve on [the Bank's] Advisory Board. APPLICABLE STATUTE

In reaching a decision concerning a State employee's outside activity, the Commission considers the provisions of Public Officers Law §§73 and 74.⁽¹⁾

Public Officers Law §74(2) is the code of ethics for State officers and employees. The rule with respect to conflicts of interest is as follows:

No officer or employee of a state agency . . . should have any interest, financial or otherwise, direct or indirect, or engage in any business or transaction or professional activity or incur any obligation of any nature, which is in substantial conflict with the proper discharge of his duties in the public interest.

Following this rule, Public Officers Law §74(3) provides standards of conduct which address actual as well as apparent conflicts of interest:

(a) No officer or employee of a state agency . . . should accept other employment which will impair his independence of judgment in the exercise of official duties.

(b) No officer or employee of a state agency . . . should accept employment or engage in any business or professional activity which will require him to disclose confidential information which he has gain by reason of his official position.

. . . .

(d) No officer or employee of a state agency . . . should use or attempt to use his official position to secure unwarranted privileges or exemptions for himself or others.

. . . .

(f) An officer or employee of a state agency . . . should not by his conduct give reasonable basis for the impression that any person can improperly influence him or unduly enjoy his favor in the performance of his official duties, or that he is affected by the kinship, rank, position or influence of any party or person.

. . . .

(h) An officer or employee of a state agency . . . should endeavor to pursue a course of conduct which will not raise suspicion among the public that he is likely to be engaged in acts in violation of his trust.

. . . .

DISCUSSION

Section 74 is concerned with both actual and apparent conflicts of interest. It provides minimum standards against which State officers and employees are expected to gauge their behavior, addressing the conflict between an employee's obligation in public service and his or her private, often personal, financial interests. As the Attorney General stated in a 1979 opinion applying Public Officers Law §74⁽²⁾:

A public official must not only be innocent of any wrongdoing, but he must be alert at all times so that his acts and conduct give the public no cause for suspicion. He must give no appearance of a potential conflict between his duties and personal activities even though an actual conflict is not present. . . .

In Advisory Opinion No. 90-6, the Commission considered whether §74 precluded a State employee from serving as an uncompensated member and officer of the board of directors of a not-for-profit development corporation and its wholly owned for-profit subsidiary which conducted business with State agencies, and, potentially, with the State officer's employing agency. The Commission, in assessing the appearance of a conflict of interest on the part of the employee in sitting on the board of directors of a for-profit corporation, stated the following:

The presence of a State employee on the board of such a corporation may raise questions as to the knowledge the corporation has about available State business and the matter in which it was received, as well as the influence the requesting party may exert to gain the State business. . . . No State employee should place, or appear to place himself or herself in a position of disclosing confidential information which he or she has received in a State position. Nor, should he or she disclose such information or attempt to obtain unwarranted privileges for others.

The Commission also found it significant that one of the entities on which the employee served as director was a for-profit corporation. It stated:

The potential for conflict is more of a problem with the private, for-profit corporation. For, in the case of . . ., the profits that may be received from doing business with the State may appear to have been the direct result of the involvement of the requesting individual [State employee], a voting board member. . . . We [the Commission] express greater concern about the involvement of public servants in private corporations.

In Advisory Opinion No. 91-7, the Commission relied on Advisory Opinion No. 90-6 and held that a campus President within the State University of New York ("SUNY") could not serve on the board of directors of a bank in which his or her campus deposited funds. The SUNY Presidents who sought that opinion had acknowledged that they had an advisory role in the selection process. The Commission was concerned that the presence of campus presidents on the boards of such banks generated a certain degree of good will, respectability and favorable public relations toward the banks. The Commission stated:

Holding the positions of president of a SUNY campus and director of the board of the bank, a profit-making corporation, could raise the reasonable suspicion among the public that, for example, the president had a role in directing the campus's business to a particular bank, that his or her presence on the board ensures the bank will maintain the campus's business and encourages campus related organizations to use the same bank.

Finally, the Commission found that the presidents' duty of loyalty to their SUNY campuses and their fiduciary duty to the banks on whose boards of directors they served were incompatible in that there was the potential for a dispute in each situation between the campus and the bank concerning any of the campus's accounts.

In Advisory Opinion No. 95-21, another SUNY president sought approval to serve on the board of directors of a for-profit corporation that sold computer products to SUNY. Of the company's $2.1 billion in revenue, approximately $245,000 was generated by on-going software and maintenance contracts with SUNY and $18,000 from contracts with the campus of the subject SUNY President. In permitting the SUNY President to serve on the board of the computer company, the Commission distinguished the situation from Advisory Opinion No. 91-7, where the banks had an "on-going and significant business relationship with the campuses." In Advisory Opinion No. 95-21, the relationship between the campus and the computer company involved "arms-length" transactions which were trivial in terms of the overall operations of both the computer company and the particular SUNY campus. The Commission concluded that, given the trivial amount of business generated by the SUNY campus, it was extremely unlikely that the SUNY president would ever have to choose loyalties between the computer company and the State.⁽³⁾

While recognizing that none of the Advisory Opinions discussed above is directly on point, [the requesting individual] argues in his submission that the circumstances with respect to [the State employee's] proposed service on [the Bank's] Advisory Board is more akin to the circumstances of Advisory Opinion No. 95-21. He emphasizes that the Advisory Board is "an informal advisory entity", as it has no legal corporate authority. Thus, [the State employee] would not have fiduciary obligations to the Bank that might conflict with his duty of loyalty to [the public Authority].

In addition, [the requesting individual] notes that even though [the State employee] is responsible for all aspects of [the public Authority's] [ ] policy, his current role in the procurement of banking services is limited by virtue of [the public Authority's] procurement guidelines; furthermore, he has agreed to recuse himself from any involvement in the procurement process if he were to be appointed to the Advisory Board.

Finally, [the requesting individual] argues that the current financial and contractual relationship between [the public Authority] and [the Bank] cannot be said to be significant in terms of the total volume of banking business conducted by [the public Authority] and its affiliated agencies, or engaged in by [the Bank].

[The requesting individual's] arguments are not without weight. The Advisory Board, unlike the boards in Advisory Opinion Nos. 91-7 and 95-2, has no formal corporate role, and [the State employee] would not have fiduciary obligations to [the Bank]. In addition, the amount of business currently being conducted between [the public Authority] and [the Bank] is small, given the overall size of [the public Authority's] cash balances and investments.

There are, however, counterveiling concerns. [The State employee], although he has offered to recuse himself from [the public Authority's] bank selection process, would remain chief financial officer, reporting directly to the Executive Director. He, therefore, is one of the highest level staff officials at [the public Authority], with responsibility for its finances. Any individual at this level of Authority in a public body with these responsibilities cannot ignore the inherent appearance problems that are created by his association with a major bank, especially when his central role at the bank is in generating new business.

Presumably, [the Bank], which has only one current account with [the public Authority's subsidiary], will be seeking to conduct future business with [the public Authority], as well as with its affiliates and subsidiaries. Even though [the State employee] would not assist [the Bank] in gaining such business, other banks and the public could easily question any action taken by [the public Authority] leading to the selection of [the Bank]. The choice of a bank would be made by those working directly under [the State employee] or upon their recommendation. It would be difficult, if not impossible, for these [the public Authority] employees to ignore [the State employee's] association with [the Bank].

Furthermore, [the Bank] may be seeking the business of [the public Authority's] vendors. Given the critical role played by [the State employee] at [the public Authority], it would be hard for these vendors to ignore his association with [the Bank] in making their decisions. Thus, [the State employee's] public position, even if not outwardly promoted, could become a factor in private decisionmaking. This is exactly what §74 is intended to prevent.

Finally, and of significance, is the fact that the very purpose of the Board and the reason for [the State employee's] involvement is to market [the Bank] and its services by introducing, referring and recommending new customers. This function on behalf of [the Bank] is inconsistent with his role as the chief financial officer of one of the largest enterprises in New York State. Service on this Board by a key executive of [the public Authority] has the potential for leaving the impression that a would-be [public Authority] vendor might enjoy [the State employee's] favor, in violation of Section 74(3)(f), by responding to his promotion of [the Bank]. There is a significant risk that his public position cannot be divorced from his efforts on behalf of [the Bank]. His dual positions would be fraught with the potential for conflict.

Taking all of these factors into consideration, the Commission concludes that [the State employee's] serving on the Advisory Board of [the Bank] will entail the appearance of a conflict of interest in violation of Public Officers Law §74.

CONCLUSION

The Commission concludes that Public Officers Law §74 precludes [the State employee] from serving on the Advisory Board of [the Bank].

This opinion, until and unless amended or revoked, is binding on the Commission in any subsequent proceeding concerning the person who requested it and who acted in good faith, unless material facts were omitted or misstated by the person in the request for opinion or related supporting documentation.

All concur:

Evans V. Brewster
Henry G. Gossel
Paul L. Shechtman
O. Peter Sherwood, Members

Dated: February 4, 1998

Endnotes

1. The Commission finds no provisions of §73 that would preclude [the State employee] from serving on the advisory board.

2. 1979 Op. Atty. Gen. 66.

3. While the Commission permitted the SUNY President to serve on the board of directors and accept fixed annual compensation, it denied her request to accept a stock option plan offered to non-employee board members since she would be in a position to financially benefit from SUNY contracts. "This financial relationship would constitute the type of inappropriate appearance that high level executives in State government should avoid."