DEVELOPING AND MANAGING CONFLICT OF INTEREST POLICIES
June 22 – 25, 2008
Dennis H. Blumer
Kristine J. Dunne
Arent Fox LLP
Washington, DC
The need to address conflicts of interest and to have effective institutional conflicts of
interest policies is not new to higher education institutions. Yet conflict of interest issues
continue to evolve as the spotlight focuses on new aspects of conflict of interest policies and as
legislative and industry initiatives expand the level of coverage recommended or mandated for
higher education institutions. University counsel needs to anticipate and stay one step ahead of
the next stage in expanding the coverage of conflict of interest policies for higher education
institutions. An institution’s conflict of interest policies are just one component of a broad code
of conduct which may also include policies regarding ethics, confidentiality, and compliance.
I.
Origins of Conflict of Interest Policies
A.
Federal Laws and Regulations
While this Outline does not detail the origins of conflict of interest policies, it is helpful
to recognize why higher education institutions have recently implemented new or upgraded
conflict of interest policies. See D. Robinson, “Federal Exempt Organization Reform:
Responding to Sarbanes-Oxley” (June 24-28, 2006) (NACUA Outline) for history of conflict of
interest requirements for higher education institutions.1 See also NACUA Conflicts of Interest
Resources and Links Page at http://www.nacua.org/documents/Conflict_of_Interest.asp .
The Sarbanes-Oxley Act of 2002 (“SOX”), Pub. L. No. 107–204, focused institutions on
conflict of interest policies. Of course, SOX is generally applicable to publicly-traded
companies only, with the exception of two requirements that are applicable for all entities,
including non-profit organizations such as educational institutions. These requirements are: (1)
prohibition on retaliation against whistleblowers, and (2) prohibition on destruction of
documents in order to obstruct or influence any federal investigation or administrative procedure.
SOX § 1107 (codified at 18 U.S.C.A. §§ 1513(e), 1519). The remainder of the SOX
requirements, while not applicable to non-profits, nevertheless provide a helpful guide for higher
education institutions. This guide will be especially useful if Congress expands SOX to apply
some or all of its provisions to higher education institutions and other non-profits in the future.
While criminal sentencing is not generally of immediate concern to institutions, the
amended Federal Sentencing Guidelines nonetheless provide a helpful guide to best practices in
1
Public institutions may also be subject to state conflict of interest policies applicable to government institutions and
employees. Particular state laws and regulations are beyond the scope of this paper.
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the area of conflict of interest and institution of compliance programs. See generally
http://www.ussc.gov/2006guid/gl2006.pdf . The Federal Sentencing Guidelines have influenced
institutions with regard to implementing or expanding conflict of interest policies and allow for
some leniency in criminal sentencing for institutions that have implemented a “compliance and
ethics program,” including compliance standards, enforcement and oversight mechanisms, an
ongoing auditing and evaluation program, and whistleblower and document retention policies.2
A number of other federal laws have requirements in limited areas for document and data
retention and security protection. Such laws can set new legal and ethic standards. Tighter
standards for behavior can affect what actions may constitute a conflict under an institution’s
conflict policy. Examples include FERPA, (student records), HIPAA (medical records), and
Gramm-Leach-Bliley (financial records). While they do not expressly require conflict of interest
policies, these laws point toward increased responsibilities on the part of higher education
institutions to train and monitor compliance with these and other federal and state requirements.
For state requirements, see, e.g., The Charity Integrity Act of 2004, California Senate Bill 1262
(codified at Cal. Gov’t Code § 12581 et seq. (West 2008)).
B.
Guidelines
With the passage of SOX, there has been considerable interest in addressing potential
conflicts of interest that may arise in the non-profit sector. One major effort towards establishing
a guide for discussion was the Independent Sector’s Panel on the Nonprofit Sector,3 which has
now released several reports, starting with an Interim Report in March 2005, followed by a
Supplemental Report in April 2006, and most recently a report, “Principles for Good Governance
and Ethical Practice: A Guide for Charities and Foundations,” published in October 2007. See
http://www.nonprofitpanel.org/selfreg/index.html. See also Panel on the Nonprofit Sector,
“Strengthening Transparency, Governance, and Accountability of Charitable Organizations”
(June 2005); Panel on the Nonprofit Sector, “Supplemental Report” (April 2006).4 These reports
have provided recommendations on best practices for non-profit entities to follow in such areas
as board composition and prohibited activities, auditing, executive compensation, and conflict of
interest policies. Not surprisingly, the Panel’s recommendations have been consistent with much
of the SOX requirements for publicly-trade companies, with a focus on transparency,
accountability and fiscal responsibility.
Since the Independent Sector’s release of the Panel’s first report in 2005, other
organizations have also addressed conflict of interest issues for non-profits. See, e.g., American
Association of Medical Colleges, “Protecting Patients, Preserving Integrity, Advancing Health:
Accelerating the Implementation of COI Policies in Human Subjects Research” (Feb. 2008);
2
Pursuant to SOX, the U.S. Sentencing Commission was given authority to expand the Federal Sentencing
Guidelines with regard to corporate fraud and white-collar offenses. See SOX §§ 805, 905 and 1104 (codified at 28
U.S.C.A. § 994 Note).
3
The Independent Sector, which convened the Nonprofit Panel, is comprised of a number of large foundations,
including The Ford Foundation, Bill & Melinda Gates Foundation, The Robert Wood Johnson Foundation and the
Rockefeller Foundation.
4
See also “The Unconflicted U: College and University Conflict of Interest Policies,” NACUA Virtual Seminar, in
cooperation with the ACE, NACUBO and EDUCASE (November 30, 2007).
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American Council on Education, “Working Paper on Conflict of Interest” (Jan. 25, 2008); D.
Kurtz & S. Paul, “Managing Conflicts of Interest: A Primer for Nonprofit Boards (Second
Edition 2006). In addition, the Internal Revenue Service issued draft guidance entitled “Good
Governance Principles Discussion Draft” in February 2007. See
http://www.irs/gov/charities/charitable/article/0,,id_167626,00.html. The focus on conflict of
interest policies has likely been fueled by well-publicized fraud and abuse scandals that have
touched accounting firms, charities, and other organizations.
These resources do not provide a “one-size-fits-all” complete set of model policies that a
higher education institution could fully adopt. However, this is not surprising since institutions
vary widely, in terms of size, scope of activities and programs, and they find themselves at
different stages of establishing and implementing conflict of interest policies.
C.
Ethics
There are Federal regulations that mandate ethics requirements, including reporting of
conflicts of interest, for certain disciplines within the higher education community. See, e.g., 21
C.F.R. pt. 54 (mandating clinical investigator financial disclosures); 42 C.F.R. pt. 50 (NIHmandated financial disclosures for grant recipients). In addition, university accountants are
subject to general financial accounting principles, and medical professionals have taken the
Hippocratic oath which puts the health and safety of patients above all else. Moreover, officers,
trustees and senior level administrators and faculty owe a duty of loyalty to the institution, which
requires that they put the interests of the institution above their own when it comes to, for
example, potential conflicts in financial or other business arrangements. See, e.g., Stern v. Lucy
Webb Hayes Nat’l Training School, 381 F. Supp. 1003, 1015 (D.D.C. 1974) (trustees found in
violation of fiduciary duty to manage the fiscal and investment affairs of a charitable hospital for
knowingly permitting hospital to enter into business transaction with themselves or affiliated
business entities without reporting their interest in the transactions).
As ethics requirements increase, the possibilities for conflicts broaden.
It can be helpful to establish an institution-wide code of ethics, which requires that all
members of the community adhere to basic ethical tenets including, for example, compliance
with all applicable laws, financial and academic integrity, and mandatory reporting of actual or
apparent conflicts of interest.
II.
Scope of Conflict of Interest Policies
Conflict of interest policies are varied depending on the type of the conduct they are
intended to address and the nature of an institution’s structure and scope of programs. What
initially began as a wave of conflict of interest policies aimed at addressing conflicts of
individuals, has now expanded to include “institutional” conflict policies as well. In general, an
institution’s conflict of interest policies should cover the following conduct:
(1) conduct of trustees and officers;
(2) conduct of managerial employees;
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(3) conduct of faculty;
(4) research activities (with medical research being a subset of this category).
The institution should also have an overall institutional conflict of interest policy, which
establishes the standards of conduct for institutional financial, contractual and other matters.
In addition to these major categories, there may be conflict of interest policies for specific
areas such as athletics or donors.
A.
Definition of Conflict
At a minimum, a conflict includes any actual or apparent conflict between individual
interests and official responsibilities of a person in a position of trust. This may include Board
members, administrators, faculty, staff or volunteers of a higher education institution.
B.
The usual components
In general, conflict of interest policies are designed to accomplish the broad goals of
accountability and integrity for the institution. This may take on different forms depending on
the sector of the institution, but at a minimum requires that members of the institution commit to
legal compliance, adherence to applicable ethical standards, disclosure of potential conflicts of
interest relating to business or personal relationships, protection of an institution’s assets
(intellectual property and financial assets), and adherence to document retention and
whistleblower policies.
When establishing a conflict of interest policy, it is important to first address what the
institution is seeking to accomplish through the policy, and whether all or a subset of the
institution will be subject to the policy. An institution should have an overarching conflict of
interest policy applicable to all members of the institution, along with other conflict of interest
policies for particular sectors of the community (e.g., research conflict of interest policy
applicable only to researchers).
In addition to policy content, the institution must plan how to disseminate the policy,
determine whether the policy will be mandatory and, if so, the penalty for noncompliance. In
addition, the institution must educate its members about the new policy and identify who will be
responsible for oversight and enforcement of the policy. Regular review of the policies and
compliance efforts is essential to ensure that the policies are effective and compliant with
currently established standards of conduct for higher education institutions.
C.
The role of the chief compliance officer
An institution’s chief compliance officer has no easy task, and at a minimum must ensure
that the institution’s various conflict of interest policies are:
1) consistent (to the extent that the institution has more than one policy);
2) centrally and easily accessible;
3) disseminated to affected individuals and departments.
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The chief compliance officer also must oversee training about the policies, annual reporting of
potential conflicts, and regular review of the policies and supporting compliance efforts.
In general, the authors believe that this officer should be separate from the university
counsel’s office, if the resources are available. For example, counsel’s duties in defending the
university and its employees from external allegations of wrongdoing may from time to time
conflict the enforcement role of a compliance officer. While reasonable minds can differ on this
point, we believe that the university counsel may best limit its duties in this area to providing
legal counsel.
D.
Best Practices
As the dialogue on conflict of interest policies continues, there are some policy elements
which have become generally advisable for all institutions to consider implementing. Among
these best practices are the following:
1.
Annually disclosing and reviewing independently individuals’ business dealings that
present potential actual or apparent conflicts. Disclosures received by the institution should be
reviewed and evaluated by one or more officials, in compliance with established procedures.
2.
Coordinating dissemination, implementation, monitoring and enforcement of conflict of
interest policies. The policies should also be reviewed at least annually for conformance with
applicable laws and best practices.
3.
Ensuring independence of Board members and implementing conflict of interest policy
for all Board members, officers and senior staff. See Panel for Nonprofit Sector’s Principles for
Good Governance, Principle 3 and 12.
4.
Reviewing executive and Board compensation, including expense reimbursement and
loans. See id., Principles 13, 23, 25 and 26.
5.
Establishing audit committee and rotation of audit firm every five years. This too will
ensure proper controls over potential conflicts.
6.
Certifying financial statements by top management. This too will ensure another check
for potential conflicts with respect to financial matters.
E.
Model Policies
Many of the institutions have their conflict of interest policies available on their public
websites, and some provide “Conflict of Interest” resource pages with links to the various COI
policies handled by different departments within the institution. See, e.g., Stanford University’s
Conflict of Interest Resources Page, http://www.stanford.edu/dept/DoR/Resources/coi.html .
Some institutions are creative in conveying the message to members of their community. For
example, Stanford provides a quiz on its Conflict of Interest Resources Page. See id. University
of Pennsylvania provides a helpful article, “A Layman’s Guide to Conflict of Interest,” prepared
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by the University’s Vice Provost for Research. See
http://www.upenn.edu/almanac/v43/n22/conflict.html . Catholic University’s conflict of interest
disclosure form is comprised of a checklist of questions to which individuals respond yes or no.
See http://policies.cua.edu/faculty/handbook%20III/conflict-ofinterest/Conflict%20of%20Interest%20-%20Faculty.doc . In this way, individuals completing
the disclosure form may be prompted as to what might constitute a “conflict of interest” under
the institution’s policies.
In addition to having a single resource for all conflict of interest materials for the
institution, it is helpful to have a common set of terms used in an institution’s conflict of interest
policies. This would include definitions of terms like “family member” and “doing business.”
III.
Developing Areas
A.
Federal Activity
The IRS has made clear its intent to target the following activities of nonprofit
organization in the coming years:
1) Unrelated Business Income Tax (UBIT) income;
2) nonprofit hospitals;
3) political activity of nonprofits;
4) misuse of charities for charitable deductions;
5) executive compensation.
See March 30, 2005 Letter from Mark W. Everson, IRS Chairman, to Senate Finance
Committee; April 5, 2005 Testimony of Mark W. Everson to Senate Finance Committee. The
IRS has already begun with review of Form 990s, including mandatory disclosures of senior
executive compensation and self-dealing on the part of those executives, officers and Board
members.
The new IRS Form 990, which goes into effect starting with the 2008 tax year, also
requires non-profit institutions to report whether they have a written conflict of interest policy,
and if so, whether they require annual disclosures of conflicts by key individuals and whether
they “regularly and consistently” monitor and enforce compliance with the policy.
See http://www.irs.gov/newsroom/article/0,,id=181460,00.html for draft instructions on
completion of Form 990 (issued Apr. 15, 2008). Although not imposing any additional conflict
of interest requirements, these changes will nonetheless force institutions to take a fresh look at
their conflict of interest policies and whether they require greater monitoring and enforcement
mechanisms for those policies.
B.
Looking Ahead: A Brief Look at Conflict of Interest Requirements for
Federal Employees – A Window into Potential Future Obligations for
Institutions
Federal agency conflict of interest policies instituted for their employees may often be the
harbinger of changes to come in mandated conflict policies for other sectors. Therefore, it may
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be helpful to consider the current conflict of interest policies in effect for federal employees, and
where they may be more stringent than current policy requirements for non-governmental
entities, including higher education institutions.
Executive Order 12674 identifies the 14 basic ethical principles to which all federal civil
employees must adhere. These include conflict of interest requirements and are expanded upon
in the Code of Federal Regulations. See Standards of Ethical Conduct for Employees of the
Executive Branch (the Office of Government Ethics Rules), at 5 C.F.R. §2635. Many federal
agencies have added their own supplements to these rules. One significant example is the
Department of Defense Directive (DODD) 5500.7-R, also known as the Joint Ethics Regulation
(JER).5
A detailed tour of the Standards of Ethical Conduct is beyond the scope of this
discussion. However, if these Standards are indicative of what colleges and universities will face
in the future - either due to increased regulation or the voluntary adoption of more stringent
ethics codes – the compliance burden facing general counsels will increase significantly. Below
is just a small sampling of what federal employees are already subject to.
1.
Personal Financial Conflicts of Interest
It is a crime for federal employees to participate personally and substantially in any
particular matter in which they have a personal financial interest, if that matter will have a direct
and predictable effect on the interest. 18 U.S.C. §207. The definition of a personal financial
interest has been interpreted broadly. For example, the business interests of a company will be
imputed to a government employee negotiating with that company for employment. 5 C.F.R.
§2635.402(b)(2).
This rule also forbids a government employee with significant stock holdings in one
company from making decisions that may significantly affect that company. (Diversified stock
holdings and other pooled investment vehicles may be treated differently. See 18 U.S.C. §
208(b)(2) and 5 C.F.R. 2640.201). Certain government employees must submit to annual public
financial disclosures to prevent such a conflict from arising.
2.
Institutional (Organizational) Conflicts of Interest
Federal agencies are increasingly watchful for situations where an organizational conflict
of interest creates an uneven competition for agency dollars. For instance, a contractor may be
able to shape an agency procurement to suit its own needs; evaluate its own performance or the
performance of an affiliate; or gain access to nonpublic information which could give it an unfair
competitive advantage. Ultimately, the decision of what constitutes an organizational conflict of
interest will be made by the federal agency.
5
Available at http://www.dtic.mil/whs/directives/corres/pdf/550007p.pdf .
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3.
Employment Restrictions
“Revolving door” restrictions, as they are commonly called, limit the ability of former
government employees to appear before their former agencies on behalf of their new employer in
matters they worked on while in government service. See, e.g., 18 U.S.C. § 207.
*
*
*
In the past year, the higher education community has seen the investigations of the
student loan industry and affinity cards. Chief among the issues raised with these investigations
has been conflict of interest, with respect to both the institutions and their employees. In the
student loan investigation by the New York Attorney General’s Office, a number of instances of
alleged conflicts of interest appeared on the part of financial aid staff who received some
benefits from student loan providers. The most prevalent area of interest identified by the New
York Attorney General’s Office was the higher education institutions’ receipt of benefits from
preferred student loan providers. This investigation highlighted the issues of both real and
apparent conflicts of interest, at both the individual and institutional levels. Now more than ever,
conflict of interest policies are critical to best ensure institutions’ protection from potential
liability.
While higher education institutions have been at work developing and implementing their
conflict of interest policies now for a number of years, our work is not done. These policies
should be annually reviewed and updated accordingly, as new best practices and government
requirements emerge.
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USEFUL RESOURCES ON CONFLICT OF INTEREST POLICIES
I.
Federal Government Resources

Sarbanes-Oxley Act of 2002 (“SOX”) § 1107, Pub. L. No. 107–204 (codified at 18
U.S.C.A. §§ 1513(e), 1519). See SEC website for up-to-date information on SOX,
http://www.sec.gov/spotlight/sarbanes-oxley.htm

Federal Sentencing Guidelines, http://www.ussc.gov/2006guid/gl2006.pdf

IRS draft guidance “Good Governance Principles Discussion Draft” (February 2007),
http://www.irs/gov/charities/charitable/article/0,,id_167626,00.html

FDA requirements for financial disclosures by clinical investigators, 21 C.F.R. pt. 54,
http://www.access.gpo.gov/nara/cfr/waisidx_06/21cfr54_06.html

NIH requirements for financial disclosures of grant recipients, 42 C.F.R. pt. 50,
http://grants.nih.gov/grants/compliance/42_CFR_50_Subpart_F.htm

Standards of Ethical Conduct for Employees of the Executive Branch (the Office of
Government Ethics Rules), at 5 C.F.R. §2635,
http://www.usoge.gov/pages/forms_pubs_otherdocs/fpo_files/reference/rfsoc_02.pdf

Department of Defense Directive (DODD) 5500.7-R,
http://www.dtic.mil/whs/directives/corres/pdf/550007p.pdf
II.
Private Sector Resources

Independent Sector’s Panel on the Nonprofit Sector:
o Interim Report (March 2005)
o “Strengthening Transparency, Governance, and Accountability of Charitable
Organizations” Final Report (June 2005),
http://www.nonprofitpanel.org/Report/final/Panel_Final_Report.pdf
o Supplemental Report (April 2006),
http://www.nonprofitpanel.org/Report/supplement/Panel_Supplement_Final.
pdf
o “Principles for Good Governance and Ethical Practice: A Guide for Charities and
Foundations” (October 2007),
http://www.nonprofitpanel.org/selfreg/index.html

III.
Board Source, http://www.boardsource.org/
Higher Education Resources

NACUA Conflict of Interest Resources and Links Page,
http://www.nacua.org/documents/Conflict_of_Interest.asp
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
American Council on Education, “Working Paper on Conflict of Interest” (Jan. 25, 2008),
http://www.acenet.edu/AM/Template.cfm?Section=Search&template=/CM/HTMLD
isplay.cfm&ContentID=25337

NACUBO, Code of Ethics,
http://www.nacubo.org/documents/about/NACUBOCodeofEthicsasamendedNovember1007.pdf

American Association of Medical Colleges, “Protecting Patients, Preserving Integrity,
Advancing Health: Accelerating the Implementation of COI Policies in Human Subjects
Research” (Feb. 2008),
https://services.aamc.org/Publications/showfile.cfm?file=version107.pdf&prd_id=22
0&prv_id=268&pdf_id=107

Council on Government Relations, “Approaches to Developing an Institutional Conflict
of Interest Policy,” http://www.cogr.edu/files/publications_Conflicts.cfm

Stanford University’s Conflict of Interest Resources Page,
http://www.stanford.edu/dept/DoR/Resources/coi.html

University of Pennsylvania, “A Layman’s Guide to Conflict of Interest,” prepared by the
University’s Vice Provost for Research,
http://www.upenn.edu/almanac/v43/n22/conflict.html

The Catholic University’s Conflict of Interest Disclosure Form,
http://policies.cua.edu/faculty/handbook%20III/conflict-ofinterest/Conflict%20of%20Interest%20-%20Faculty.doc

The George Washington University’s Conflict of Interest Policy for Non-Faculty
Employees, http://my.gwu.edu/files/policies/ConflictofInterestNonFacultyFINAL.pdf
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