Legal Doesn’t Make It Right: The Ethics Commission Chair Defends His Opinion
Yesterday the Chairman of the Ethics Commission, Perry Newsom, defended the Commission’s decision to bless the North Carolina Treasurer’s appointments to two public company boards. I have no doubt that the Chairman is correct about his analysis and conclusion. No one is in a better position to analyze a set of facts against the requirements of the state ethics law. But Mr. Newsom and Treasurer Janet Cowell have completely missed the ethical issue raised when a sole fiduciary divides her loyalties between her duties to the beneficiaries of a public pension and her new obligation to shareholders. Although the Treasurer has to think and act as a fiduciary, Mr. Newsom and the Ethics Commission do not have that responsibility.
The opinion of the State Ethics Commission is limited to the requirements of the State Government Ethics Act, G.S. Chapter 138A. It doesn’t consider the State Treasurer’s obligations under other statutes or regulations and doesn’t opine on the Treasurer’s ability to carry out her duties under N.C.G.S.§ 147-69.7, which establishes her fiduciary authority. The Ethics Commission’s remedy for any potential conflict (recusal) may work for most public acts by North Carolina officials, but it doesn’t work for sole fiduciaries (see, my post “A Fiduciary Can Only Delegate So Much [May 3, 2016]”).
While the Ethics Commission reached the proper conclusion under its statute, the State Treasurer reached the wrong conclusion in accepting the appointments to the corporate boards. The Treasurer has repeatedly cited the Ethics Commission to defend her decision, which should come as no surprise to those who have followed her stewardship of the pension plan. Treasurer Cowell has taken a very legalistic approach to investing. During her tenure, policies and procedures have piled up, and the investment statute has become even more convoluted. I wrote about this mistaken approach several years ago (see, “When Lawyers Manage Investments [December 19, 2013].”
If a sole fiduciary sitting on the board of public company troubles you, you should be even more upset that the Ethic Commission’s opinion applies all the employees of the Department of State Treasurer. Thus there’s nothing to prevent the Chief Investment Officer, Fiduciary Counsel, or director of an asset class supplementing their incomes by joining corporate boards.
North Carolina’s public pension plans require the undivided attention of the fiduciary and her agents. I suspect that Treasurer Cowell would have been very upset if one of her senior advisors had sought permission to join the board of a public company. However, she thought of the idea first, so it’s apparently okay.