Monday, December 19, 2016
In her post on Saturday, co-blogger Ann Lipton offered observations about possible legal issues resulting from the President-Elect's tweets regarding public companies. She ends her post with the following:
So, it's all a bit unsettled. Let's just say these and other novel legal questions regarding the Trump administration are sure to provide endless fodder for academic analysis in the coming years.
Today, I take on a somewhat related topic. I briefly explore the President-Elect's conflicting interests through the lens of a corporate law advisor. For the past few weeks, the media (see, e.g., here and here and here) and many folks I know have been concerned about the potential for conflict between the President-Elect's role as the POTUS, public investor and leader of the United States, and his role as "The Donald," private investor and leader of the Trump corporate empire.
The existence of a conflicting interest in an action or transaction is not, in and of itself, fatal or even necessarily problematic. In a number of common situations, fiduciaries have interests in both sides of a transaction. For example, a business founder who serves as a corporate director and officer may lease property she owns to the corporation. What matters under corporate law is whether the fiduciary's participation in the transaction on both sides results in a deal made in a fully informed manner, in good faith, and in the bests interests of the corporation. Conflicting interests raise a concern that the fiduciary is or may be acting for the benefit of himself, rather than for and in the best interest of the corporation.
Corporate law generally provides several possible ways to overcome concerns that a fiduciary has breached her duty because of a conflicting interest in a particular action or transaction:
- through good faith, fully informed approval of the action or transaction (e.g., after disclosure of information about the nature and extent of the conflicts) by either the corporation's shareholders or members of the board of directors who are not interested in the transaction; and
- through approval of a transaction that is entirely fair--fair as to process and price.
See, e.g., Delaware General Corporation Law Section 144. Yet, if I believe what I read, no similar processes exist to combat concerns about actions or transactions in which the POTUS has or may have conflicting interests. In particular, to the extent one does not already exist, should a disinterested body of monitors be identified or constituted to receive information about actual and potential conflicting interests of the POTUS and approve the action or transaction involving the conflicting interests? Perhaps the Office of Government Ethics ("OGE") already has something like this in place . . . . If it does, then both the public media and I are underinformed about it. While there seems to be OGE guidance on the President-Elect's nominees for executive branch posts (see, e.g., here and here) and on overall executive branch standards of conduct (see here), I have not found or read about anything applicable to the President-Elect or POTUS.
In making these observations, I recognize that our federal government is different in important ways from the corporation. I also understand that the leadership of a country/nation is different from the leadership of a corporation. Having said that, however, conflicting interests can have similar deleterious effects in both settings. The analogy I raise here and this overall line of inquiry may be worth some more thought . . . .