Ethical Lapses: The Treasurer’s Appointment to Corporate Boards
I keep thinking that the story of the North Carolina’s Treasurer’s appointment to two corporate boards is complete. However as the press picks up the story, I’m finding more and more problems. In this post, I want to respond to the call by the Asheville Citizens-Times for tighter ethics standards. Treasurer Cowell has enacted strong ethics standards, but I suspect she didn’t follow her own standards. I also want to highlight the finding in David Sirota’s reporting in the International Business Times that makes clear that department staff were involved in her appointment to the two positions. Using public employees or resources for private purposes is a serious matter.
In an editorial the Asheville Citizens-Times called for tighter ethics standards in the wake of North Carolina Treasurer Cowell’s appointments to the boards of Channel Advisor and James River Group Holding. Jeff Tiberii, a reporter for WUNC, did a fine job of laying out the ethical concerns. However, I don’t think anyone has looked at the existing regulations promulgated by Treasurer Cowell. The “Code of Ethics and Conduct” and the “Supplemental Ethics Policy for State Treasurer, Senior Executive Staff and Investment Division” govern the Treasurer’s action. These documents provide detailed guidance and procedures for the precise situation arising out of the Treasurer’s appointment to the two company boards. Unfortunately, the State Treasurer didn’t follow her own ethics standards.
The Code of Ethics sets an appropriately high standard of conduct for the Treasurer and her employees. They are to:
Act with integrity, competence, diligence, respect, and in an ethical manner in dealings with the beneficiaries and stakeholders defined by applicable statutes, and in dealings with other participants in the global capital markets.
• Owe a duty of loyalty to beneficiaries and act for their exclusive benefit.
• Exercise prudence consistent with the Treasurer’s fiduciary duties under G.S. Section 147-69.7 and exercise independent professional judgment when conducting investment analysis, making investment recommendations, taking investment actions, and engaging in other related activities.
• Have an affirmative duty to proactively identify and promptly disclose to the Compliance Counsel any personal, social, employment or business activities and relationships that:
- impact my objectivity
- create potential Conflicts of Interest
- impair my ability to make impartial decisions
- otherwise interfere with my proper performance of official duties
I think it’s self-evident the State Treasurer’s ability to act for the “exclusive benefit” of the beneficiaries has been compromised by the State Treasurer’s appointment to two private sector corporate boards. Similarly, I believe her “independent professional judgment” has been put into question. The experts interviewed by WUNC, the News & Observer, and the International Business Times confirm my view.
I’m left to wonder whether Treasurer Cowell followed the affirmative duty to proactively and promptly notify the Department’s Compliance Counsel (the third bullet I reproduced above). The Code of Ethics calls upon the Compliance Counsel to investigate the situation and make a report to and advise the General Counsel. I wonder if the Compliance Counsel made the required report. Clearly, strong ethics procedures didn’t prevent this ethical lapse.
I’m also troubled that department staff were involved in Treasurer’s appointment. In developing his story David Sirota of the International Business Times made a public records request of the Treasurer’s emails. It’s now evident that members of the Treasurer’s staff were involved in working on her appointment to the corporate boards. According to the emails cited by Mr. Sirota, attorneys in the Department worked on both appointments. Nonetheless, the Treasurer’s press secretary Brad Young, said, “Members of the State Treasurer’s staff were not involved in any way in the negotiation of either board appointment, nor were staff members involved in the process of these board appointments.” Clearly, Mr. Young is wrong. Moreover, Mr. Young contradicted himself when he said, “Treasurer Cowell has not been in contact with anyone at the State Ethics Commission.” The Commission crafted an opinion stating that the appointments would not violate the State Ethics Law. If the Treasurer didn’t work with State Ethics Commission, then her General Counsel or others in the Department had to have worked on the matter and communicated with the Commission.
Since Janet Cowell’s role on these boards is supposed to be purely in her capacity as a private citizen, she should not have involved anyone in the department in the matter. To the extent her appointment raised legal or ethical questions, she should have hired her own attorney. At this point she should reimburse the State for the work performed by every state employee involved in her appointment to Channel Advisor and James River Group.
After reimbursing the State, the Treasurer has to make a choice: resign as Treasurer or resign from the corporate boards.
 The State Treasurer insisted on this remedy in another matter, according to the News & Observer. http://www.wral.com/news/local/wral_investigates/story/6071551/. The Treasurer required her former Chief Investment officer to reimburse the State for the use of a cell phone for private purposes.