Review of Conflicts of Interest and Self-Dealing in the Professions

Review: Conflicts of Interest and Self-Dealing in the
Professions: A Review Essay
Reviewed Work(s): Conflict of Interest in the Professions by
Michael Davis and Andrew
Stark
Review by: Thomas L. Carson
Source: Business Ethics Quarterly, Vol. 14, No. 1 (Jan., 2004),
pp. 161-182
Published by: Cambridge University Press
Stable URL: https://www.jstor.org/stable/3857777
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REVIEW ARTICLE
CONFLICTS OF INTEREST AND SELF-DEALING IN THE
PROFESSIONS: A REVIEW ESSAY
Thomas L. Carson
Conflict of Interest in the Professions
Michael Davis and Andrew Stark
New York: Oxford University Press, 2001; ISBN 0-19512863-X
This anthology begins with an excellent introduction by
Michael Davis. Davis
1 identifies three overarching questions addressed in the book:
1. What is,
and is not, a conflict of interest? 2. What is morally wrong with
conflicts of
interest? and 3. What should be done to handle or address
conflicts of interest?
The papers included in this volume address conflicts of interest
in a very
wide range of professions including the judiciary, the bar,

government service,
journalism, accounting, engineering, corporate boards teaching,
counseling,
anthropology, financial services, criticism, the film industry,
medicine, and physi-
cal therapy. The great range of professions discussed allows for
illuminating
comparisons between the issues faced by members of different
professions. Most,
but not all, of the papers are of high quality and well worth
reading. The papers
present a dizzying array of examples of conflicts of interests,
some familiar,
others not. The book as a whole demonstrates the pervasiveness
of conflicts of
interest in professional life and the centrality and importance
of moral ques-
tions about conflicts of interest in professional ethics. I will
not attempt to
summarize or describe all, or even most, of the papers included
in this volume.
Instead, I will focus on a relatively small number of the papers
those that ad-
dress the definition of conflicts of interest and conflicts of
interest in business
and medicine. When appropriate, I discuss and refer to other
important contri-
butions to the literature on conflicts of interests. I also venture
an account of the

badly neglected concept of ';self-dealing'8 and explain the
relationship between
self-dealing and conflicts of interest.
C) 2004. Business Ethics Quarterly, Volume 14 Issue 1. ISSN
1052-1SOX. pp. 161-182
2020 05:46:33 UTC
162 BUSINESS ETHICS QUARTERLY
Conceptual Issues
In his introduction, Davis offers the following definition of a
conflict of in-
terest which he calls the "standard view":
A conflict of interest is a situation in which some person P
(whether an
individual or corporate body) stands in a certain relation to one
or more
decisions. On the standard view, P has a conflict of interest if,
and only if,
(1) P is in a relationship with another requiring P to exercise
judgment in
the other's behalf, and (2) P has a (special) interest tending to

interfere
with the proper exercise of judgment in that relationship.l
According to Davis, the relationship required for a conflict of
interest "must
. . . be fiduciary; that is, it must involve one person trusting
(or, at least, being
entitled to trust) another to do something for her exercise
judgment in her
service."2 The kind of exercise of judgment required for a
conflict of interest
must involve P's having considerable latitude and discretion in
acting on behalf
of the other party. The kind of "interest" that satisfies
condition 2 is "any influ-
ence, loyalty, concern, emotion, or other feature of a situation
tending to make
P's judgment (in that situation) less reliable than it would
normally be, without
rendering P incompetent."3 In this and other writings on
conflicts of interest,
Davis4 has identified one of the central moral issues involved
in conflicts of
interest. Conflicts of interest often, or perhaps generally,
involve compromising

the judgment of someone who is supposed to act on behalf of
another party.
However, not every conflict of interest involves the impairment
of someone's
judgment (or making someone's judgment "less reliable than it
would normally
be"). There might be cases in which it is perfectly clear to P
what she should do
on behalf of the other party, but she fails to do what she ought
to do for the other
party because of some special interest that tempts or induces
her not to do what
she judges to be right. For example, suppose that in my role as
a stock broker
and financial advisor I advise my clients to purchase the stock
of a company
that I know will soon be facing bankruptcy, because offering
this advice will
promote my own financial interests or the interests of a close
personal friend.
Surely this is a conflict of interest, even though my judgment
about the wisdom
of this investment for my clients is not in any way impaired or
made "less reli-

able." In some cases, conflicts of interest create temptations to
do what we know
will violate our duties to other parties.5
Kevin McNunigal's "Conflict of Interest and Risk Analysis," is
an outstand-
ing paper that illuminates many issues and points to
deElciencies in standard
treatments of the topic. McNunigal addresses conflicts of
interest that attorneys
face in the practice of the law. McNunigal suggests that we
view conflicts of
interest as a species of perverse incentives that create
substantial and unjusti-
fied risk of harm to those to whom one owes fiduciary duties.
McNunigal draws
a sharp distinction between things an attorney does that are
harmful to a client's
interests and things that risk causing harm to clients.
McNunigal argues that, in cases in which attorneys risk harm to
clients, the
likelihood and magnitude of the harm being risked are not the
only morally

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REVIEW OF CONFLICT OF INTEREST IN THE
PROFESSIONS 163
relevant factors. The attorney's reasons for taking the risk are
also relevant.
Consider the risks drivers create when they exceed speed
limits. In order to
assess the morality of imposing these risks on others, we need
to know why the
person does this. Driving fast for the thrill of it is ordinarily
impermissible when
it imposes risks on others, but it might be permissible to drive
in the same way
and impose the same risks on others in order to take a critically
injured person
to the emergency room of a hospital. McNunigal claims that we
need to employ
the notion of an "unjustified risk" as part of the definition of a
conflict of inter-
est. He says that a conflict of interest for an attorney "would
exist if there is 'a
substantial and unjustifiable risk' that the representation will be

impaired."6
Although McNunigal's definition is ably motivated and
defended, it is open
to a serious objection. The problem is that his definition builds
controversial
moral notions into the concept of a conflict of interest. Given
his definition, we
can't wield the term "conflict of interest" without giving
answers to controver-
sial moral questions. Pragmatic considerations weigh against
this feature of
McNunigal's definition. His definition makes it impossible for
us to determine
whether or not certain cases are conflicts of interest until we
have first resolved
difficult and controversial moral questions about whether or
not it is justifiable
to impose certain kinds of risks on others. It is a matter of
controversy exactly
when it is and is not justifiable to impose risks on other people.
If we accept
McNunigal's definition (or any similar definition), then we
can't call a situation
a conflict of interest unless we have reason to think that

someone is unjustifi-
ably risking harm to others. There are good pragmatic reasons
for us to use the
concept of a conflict of interest to help point out and
distinguish between salient
features of actions and thereby assist us in making moral
judgments. In order to
serve this purpose, the concept of a conflict of interest must be
defined indepen-
dently of controversial moral assumptions.
Stephen Latham's paper, "Conflict of interest in Medical
Practice," nicely
makes the distinction between having interests that conflict and
having a con-
flict of interest. The interests of the buyer and seller of a
commodity typically
conflict, but this is not a conflict of interest. A person who
desires to pursue
both leisure and wealth has conflicting interests but not
necessarily a conflict of
interest. To count as a conflict of interest, my interests must
conflict with my
duty to advance your interests. Latham proposes the following
definition of a

conflict of interest:
A person has a conflict of interest when, in the presence of
some duty to
pursue the interests of another, she is motivated by self-interest
to do some-
thing inconsistent with that duty.7
Latham's definition is too narrow. Not all cases of conflicts of
interest involve
self-interested motives. The desire to promote the interests of
friends or family
can create conflicts of interest. For example, it is a conflict of
interest if I am
motivated to do something inconsistent with my duties to my
employer or client
because I want to help a friend. There is also a way in which
Latham's definition
is too broad. The kind duty to pursue the interests of another
person necessary
2020 05:46:33 UTC
for a conflict of interest must be a duty one has in virtue of

occupying an office
or position. I have a moral duty to help starving people in
distant lands that is
independent of any offices or positions that I hold. I also have
self-interested
motives not to fulfill these duties, but this situation does not
constitute a conflict
of interest.
John Boatright defends the following definition of a conflict of
interest:
A conflict of interest occurs when a personal or institutional
interest inter-
feres with the ability of an individual or institution to act in the
interest of
another party, when the individual or institution has an ethical
or legal ob-
ligation to act in that other party's interest.8
According to Boatright, conflicts of interest occur when
individuals or institu-
tions have personal or institutional interests that interfere with
their fiduciary or
agency duties to other parties. His stress on the centrality of
fiduciary duties

and agency duties to the concept of a conflict of interest is
helpful and illumi-
nating. Boatright explains the nature of fiduciary obligations
and the obligations
of agents. He writes:
A fiduciary is a person who is entrusted to act in the interest of
another.
Fiduciary duties are the duties of a fiduciary to act in that other
person's
interest without gaining any material benefit except with the
consent of the
person. The concepts of Elduciary and fiduciary duty
originated in common
law for cases in which one person entrusts property to another,
but these
concepts have been expanded over time to other trust-like
situations in which
one person relies on another's superior knowledge or skill.9
The fiduciary relation closely resembles the relation of agent
and principal,
in which one person (the agent) has been engaged to act on
behalf of an-
other (the principal). Whereas fiduciary relations arise when
something of

value is entrusted to another person, agency relations are due to
the need to
rely on others for their specialized knowledge and skills.l°
Boatright is mistaken in claiming that a conflict of interest
requires that the
person has an ethical or legal obligation to act on another
person's behalf. Inter-
ests I have that conflict with the duties attaching to an office or
position I hold
can generate conflicts of interest, even if the duties in question
are neither legal
nor ethical obligations. Suppose that, in his capacity as Public
Relations direc-
tor of a Klu Klux Klan Klavern, Bob has an official duty to
represent the Klan at
a public meeting in which his Klavern is requesting to be
allowed to "adopt" a
stretch of the local highway. However, Bob is reluctant to do
this because he
thinks that it is likely to damage or destroy his academic career
at a local univer-
sity if he publicly identifies himself as a member of the Klan.
This is a conflict

of interest, even though Bob has neither a legal nor an ethical
obligation to
represent the Klan. This is not to deny that we typically do
have at least a prima
facie ethical obligation to fulfill the duties of the offices we
hold (see below,
including endnote #18, for more on this).
Without pretending to defend it adequately, let me briefly
sketch my own
analysis of the concept of a conflict of interest. In order for
there to be a conflict
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REVIEW OF CONFLICT OF INTEKEST IN THE
PROFESSIONS 165
of interest, the following conditions must be met: 1. There must
be an individual
(I) who has duties to another party (P) in virtue of holding an
office or a posi-
tion, 2. I must be impeded or compromised in fulfilling her
duties to P, 3. the
reason for I's being impeded or compromised in fulfilling her

duties to P must
be that she has interests that are incompatible (or seem to her
to be incompat-
ible) with fulfilling her duties to P. Conditions 2 and 3 should
be broadly
construed. Anything that makes it difficult for I to fulfill her
duties to P or that
compromises her duties to P satisfies condition 2. The kinds of
interests that
satisfy condition 3 can be either self-regarding interests, e.g.,
making money,
enhancing one's reputation, or winning the esteem of others, or
other-regarding
interests, e.g., desiring to promote or harm the interests of
other individuals.
Some Features of My Proposed Definition
1. My definition follows most other definitions of conflicts of
interest in that
it holds that the individual need not fail to perform her official
duties in order
for there to be a conflict of interest. My definition only
requires that the situa-
tion make it diff cult for I to perform her official duties.

2. On my definition, it is not necessary that there be an actual
conflict be-
tween the interests of the relevant parties. It is sufficient that I
believe that there
is an actual or potential conflict between the interests of the
relevant parties. A
person might be hindered in the performance of the duties of
her position be-
cause she mistakenly believes that her doing so is contrary to
her own interests
(or the interests of others whose interests she is concerned to
advance). Con-
sider the following case:
A lawyer works for a client. Her fiduciary obligations include
protecting
the Elnancial interests of the client. The lawyer incorrectly
perceives a con-
flict between her own financial interests and those of the client.
As a result,
she is sorely tempted to act in ways that are harmful to her
client.
This case constitutes a conflict of interest, even though there is
no actual
incompatibility between the lawyer's interests and those of her

client. The justi-
fication for calling this a conflict of interest is that the lawyer's
perception of a
clash between her interests and her duties to her client can
create just as great a
hindrance to her successful performance of her official duties
as an actual clash.
An actual clash between I's interests and I's duties to P (or a
clash between
I's desire to promote or harm the interests of some third party
and I's duties to
P) is not sufficient to create a conflict of interest. This clash
must somehow
hinder I in the performance of her official duties.l2 Suppose
that my financial
interests objectively clash with my fulfilling the duties of my
office, but this is
so only in virtue of some unlikely and improbable circumstance
of which I am
completely unaware, e.g., the fact that a distant relative whom I
have never heard
of has made me a beneficiary of her will. Nothing in this
situation consciously
or unconsciously affects my actions or hinders me in doing my

official duties.
According to my definition, this is not a conflict of interest.
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3. Bribery is a special case of a conflict of interest.l3 To be
bribed is to be paid
to do things that are incompatible with the duties of one's
office, position, or
role.l4 The recipient's personal financial interest in accepting
the bribery pay-
ments can create a conflict of interest. For example, when a
policeman is bribed to
ignore a traffic ticket, he is being paid to ignore his ofElcial
duties. His official
duties require him to issue traffic tickets to all who violate
trafElc laws. In order
for the bribery offer to create a conflict of interest, the offer
must be sufficiently
large to tempt the officer to ignore his duties. An offer of ten
cents would not
make it difficult for the officer to fulE1ll his official duties
and, therefore, would
not create a conflict of interest. Bribery offers can create
conflicts of interest,
even if the offers are refused. A bribery offer that tempts me to
violate the duties
of my ofElce creates a conflict of interest, even if I refuse the
bribe.

4. My definition implies that a person can be involved in a
only if he has duties in virtue of occupying an office or
position. Those who
have no official duties as employees, professionals in private
practice, or mem-
bers of organizations cannot have conflicts of interest.
Consideration of nepotistic
employment practices supports this feature of my analysis.
Such practices clearly
constitute conflicts of interest when the person who hires his
friends or relatives
is himself an employee or officer of an organization. For
example, a conflict of
interest exists if I am a personnel officer in a corporation and
hire a close per-
sonal friend for a job with the corporation. By contrast, it is
not a conflict of
interest if my uncle hires me to work for a business of which he
is the sole
owner, because he has no duties attaching to his job or position
that conflict (or
might conflict) with my interest in being hired.ls His position
as (sole) owner of
the business carries with it no obligation to hire the best people
for positions
within the business. To take another example, it would not be a
conflict of inter-
est if I were to hire my brother to paint my house, but it would
be a conflict of
interest if I were to hire him to do painting for my employer.
5. Almost everyone agrees that conflicts of interest can be
created by one's
desire to promote one's own interests or the interests of others.

Conflicts of
interest can also be created by one's desire to harm others.
(This is overlooked
in all other analyses I am aware of.) Suppose that a personal
enemy is among
those bidding on a contract with my company and I have the
authority to deter-
mine who is given the contract. Or suppose that I review a
book written by
someone I intensely dislike. These cases constitute conflicts of
interest, pro-
vided that my desire to harm the individuals in question makes
it difficult for me
to perform my official duties.l6
6. My definition requires that the conflicting interest make
difficult the per-
formance of a duty. On examination, this feature of my
definition will strike
many people as counterintuitive. In any given situation, the
nature and strength
of a person's character largely determines whether or not it is
difficult for her to
fulfill her duties. According to my definition, a conflicting
interest or objective
situation that creates a conflict of interest for one person might
not create a
conflict of interest for another person who has a stronger
character and is less
2020 05:46:33 UTC

PROFESSIONS 167
prone to temptation. My definition gives people a basis to deny
that they have
conflicts of interest in cases we would regard as paradigms of
conflicts of inter-
est. Whatever the case, a person can claim that he has no
because he had (or will have) no difficulty fulfilling his duties
in spite of having
interests that conflict with performing his ofElcial duties. My
reply is that a per-
son can claim this, but whether such a claim is plausible is
quite another matter.
Since people are often mistaken and self-deceived about such
matters, we have
reason to be very skeptical of any such claims. I am reluctant
to concede this
objection because my definition has the virtue of identifying a
salient feature of
conflicts of interests that explains why they are generally
morally problematic.
Conflicts of interest involve some kind of difficulty in
discharging one's official

duties and (except in unusual cases such as my Klan example)
violating those
duties is prima facie wrong (I defend the latter claim below). It
is because of
this feature of conflicts of interest that they are important from
the moral point
of view. My definition has the virtue of identifying the most
morally salient
feature of conflicts of interest.
I can avoid this objection by revising my definition and
defining a conflict of
interest in terms of what an ordinary person (a person of
ordinary moral virtue)
woald find diJficult. Someone has a conflict of interest when
he has interests
that conflict with fulfilling his duties in such a way that an
average person in his
objective circumstances would have difficulty doing his
official duties. I sus-
pect that most readers will find this revised version of my
definition more
plausible and much easier to apply to actual cases. If my
foregoing reply to the
objection is inadequate, then I can fall back on this revised

version. The revised
definition is preferable for the purposes of framing rules
policies, or laws to
discourage conflicts of interest. Rules and policies might
reasonably aim at dis-
couraging the existence of situations in which an average
person would have
difficulty discharging his official duties. However, rules and
policies cannot be
effectively implemented if they require us to make judgements
about the sub-
jective states of individuals and the degree of difficulty those
individuals would
have in discharging their ofElcial duties.
What's Wrong With Conflicts z?f Interest? Conflicts of interest
are morally
problematic almost by definition. A persons official duties
aren't necessarily
moral duties, even prima facie moral duties. However,
ordinarily, one has a con-
tractual or promissory (moral) duty to fulfill the duties of one's
office or position.
Offices within organizations and relationships between
professionals and their

clients carry with them special duties. A person who
voluntarily assumes an
office within an organization (or a professional who voluntarily
takes on a cli-
ent) tacitly agrees or promises to fulfill those duties.l7
Ordinarily, these
agreements create at least a prima facie moral obligation to
fulfill the duties in
question. If, however, the aims of the organization or office
themselves are im-
moral, e.g., the aims of the Nazi party, then the agreement
doesn't create even a
prima facie moral obligation to fulfill the duties. Bob has
agreed to fulfill the
official duties of his position, but, given the immoral aims of
the Klan, this
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doesn't give him even a prima facie moral duty to do this.
(More generally, one

can't create a prima facie moral duty to do something that is
immoral by prom-
ising to do it.l8)
Morally speaking, the position of a person who occupies an
office or position
he has not freely chosen to accept, e.g., a conscripted soldier,
is very different
from the position of someone who freely assumes an office or
position on the
understanding that it carries with it certain duties or
responsibilities. Ordinarily,
the prima facie wrongness of breaking a promise or agreement
when others are
relying on one to keep it partly accounts for the wrongness of
conflicts of interest.
As McNunigal's paper so ably shows, conflicts of interests are
also wrong on
account of the harm to others that they cause and risk. I also
conjecture the fol-
lowing. In most cases in which individuals consciously pursue
personal interests
that conflict with their official duties they need to deceive
others in order to suc-
ceed in this. Often, the wrongness of conflicts of interest

consists largely in the
extensive dishonesty and deception practiced by the individuals
who have them.
Self-Dealing. Let me propose a rough account of the concept of
'self-dealing"
and its relation to the concept of a conflict of interest. As a
first approximation, let
us say that a person, S, is involved in self-dealing when he
pursues his own inter-
ests to the neglect or detriment of his duties to another party
(P) while acting in
his capacity as an official, agent, or employee of P. Self-
dealing involves pursuing
one's own interests when one is supposed to be serving the
interests of others.
This definition will strike some people as too broad. Suppose
that a person ne-
glects his official duties because he goofs off on the job or
wants to have more
leisure time, e.g., a lawyer who plays golf instead of preparing
to serve a client.
Some will regard it as objectionable to count this as a case of
self-dealing. They
would contend that self-dealing requires taking advantage of

opportunities cre-
ated by one's role or office to pursue personal (self) interests
other than leisure.
An alternative definition of self-dealing is the following:
A person, S, is involved in self-dealing if, and only if, he has
official duties
to another party, P, in virtue of occupying an office or role and
takes advan-
tage of opportunities created by this role or ofElce to actively
pursue personal
(self) interests (other than leisure or rest) to the neglect or
detriment of his
duties to (P). [I am not sure whether or not I should prefer this
definition to
the earlier definition.]'9
A paradigmatic example of self-dealing would be the case of
the member of a
corporate board who uses his position as a member of the board
to make per-
sonal business contacts and does this to the neglect of his
official duties as a
member of the board.
What is the relationship between self-dealing and conflicts of

interest? All
cases of self-dealing involve conflicts of interest (all cases of
self-dealing are
conflicts of interest in which the conflict is created by the
individual's desire to
promote her own personal interests), but not all conflicts of
interest involve
self-dealing. Conflicts of interests created by one's concern to
promote or harm
the interests of third parties are not cases of self-dealing.
Further, cases in which
2020 05:46:33 UTC
PROFESSIONS 169
one is tempted to pursue one's own personal interests to the
detriment of one's
official duties can be conflicts of interest, even if one doesn't
give in to the
temptation to pursue one's own interests. Self-dealing occurs
only when one
neglects or ignores one's duties to the other party.

Conflicts of Interest in Accounting and Financial Services
Conflicts of interest in accounting played a central role in the
recent account-
ing scandals. The Arthur Andersen accountants who looked the
other way when
Enron doctored its books facilitated the massive fraud
perpetrated by Enron's
management. This and other similar instances of fraud and
deception in account-
ing have seriously undermined public trust in financial markets
and are important
causes of the disastrous downturn of the US stock market at the
beginning of the
twenty-first Century.
Leonard Brooks's paper, "Conflict of Interest in the Accounting
Profession,"
discusses the Code of Conduct of the American Institute of
Certified Public
Accountants and the Rules of Conduct of the Institute of
Chartered Accountants
of Ontario. Brooks summarizes these codes in the following
passage:
The code of conduct of the American Institute of Certified

Public Accoun-
tants and the Rules of Conduct of the Institute of Chartered
Accountants of
Ontario apply directly and indirectly to the largest number of
professional
accountants in the United States and Canada. They provide
representative
guidance sources in which fundamental ethical principles are
developed.
Both the Code and Rules also extend these principles to
provide general
and specific rules. The Codes of Conduct for professional
accountants in-
dicate that members should ( 1) at all times maintain the good
reputation of
the profession and its ability to serve the public interest, (2)
perform with
integrity, due care, professional competence, independence,
and confiden-
tiality, and (3) not be associated with any misleading
information or
misrepresentation . 20
Brooks quotes an explicit prohibition on conflicts of interest in
the Ontario code;

an accountant should:
hold himself or herself free from any influence, interest or
relationship in
respect of his or her client's affairs, which impairs his or her
professional
judgment or objectivity or which, in the view of a reasonable
observer would
impair the member's professional judgment or objectivity.2l
Codes of ethics for accountants prohibit them from being party
to deception,
tax evasion, or other illegal activities, but these codes do not
require accoun-
tants to report illegal activity to government authorities.
If a professional accountant finds that a client has
misrepresented or ille-
gally evaded tax, he or she must counsel corrective action, and
if no such
action is forthcoming, the accountant must resign. At present,
professional
accountants are not required to report the evasion or illegality
to taxation
authorities.22

2020 05:46:33 UTC
Brooks devotes a short section of his paper to describing
common or "fre-
quent" kinds of conflicts of interest in accounting. He states
that "Many of the
conflicts professional accountants face involve favoring their
own interest at the
expense of others."23 An accountant who accepts substantial
favors from clients
could be put "in the position to be asked for a favor in return
that would erode
his or her independence and perhaps cause harm to other
investors or govern-
ment that represents the public interest."24 Conflicts of interest
can also arise
when accountants use confidential information for their own
benefit. Such use
might constitute "insider trading" or "improperly signaling the
marketplace about
their client's affairs."25 Brooks discusses problems that can

arise when accoun-
tants represent clients who are in competition with each other
or have conflicting
interests. He argues plausibly that such cases are not
necessarily conflicts of
interest and are generally much less problematic than
analogous cases in the
law when attorneys represent clients with competing interests.
Brooks's paper is helpful and well worth reading. However, he
spends so
much time discussing issues other than conflicts of interest,
that he doesn't do
enough to identify and discuss the kinds of systemic conflicts
of interest that are
pervasive in accounting and played such a central role in recent
events.
These kinds of systemic conflicts of interest in accounting are
ably identified
and analyzed in a recent paper by Mary Armstrong not included
in the present
volume.26 Armstrong notes two kinds of systemic conflicts of
interest in ac-
counting common today. The first kind of conflict of interest is
created by the

fact that although CPA firms are hired and paid by the firms
they audit, CPAs
have obligations to the users of financial statements, e.g.,
investors and govern-
ment tax officials. Armstrong writes:
The auditee's management hires, pays, and fires the auditor, yet
the auditor is
essentially attesting to the fairness of management's
representations about
its own stewardship. All the while, the auditor's primary
responsibility is
toward the users of the financial information being audited. It
is somewhat
analogous to butchers hiring their own meat inspectors, with
the power to set
their prices and Elre them if they do not like the inspection
reports issued.27
A second and closely related common type of conflict of
interest arises in cases
in which financial service companies provide both auditing and
other financial
services to customers. It is common for firms such as Andersen
to provide both

auditing and other financial services such as management
consulting to their
clients. This creates conflicts of interest because the firm being
audited is an
important customer for financial services firms and the desire
not to displease
one's customers and lose business often affects the work of
their auditors. The
managers of corporations being audited typically want to
receive favorable au-
dits. They are in a position to dismiss financial service
providers whose auditors
make them unhappy. The executives of financial services
providers and the au-
ditors who work for them understand this, and the auditors'
objectivity and
independence are thereby compromised. The auditors face a
conflict of interest in
that they are under pressure to give favorable audits to please
valued customers.
2020 05:46:33 UTC

PROFESSIONS 171
Armstrong also notes that conflicts of interest are created when
auditors audit
their own past work or the past work of members of their own
firms.
Armstrong makes some very interesting suggestions about how
to avoid "struc-
tural" conflicts of interest in accounting. Her suggestions
include the following:
governmental audits, an audit "tax" to fund audits, audits
bought by large
institutional investors instead of the companies themselves, a
"tenure" sys-
tem for auditors, mandatory periodic rotation of auditors, and
others.28
All of these proposals merit careful consideration. The
suggestion that audits be
done by the government or by large institutional investors is
particularly promis-
ing. This would insure that the company being audited is not a
valued customer of
the Elrm auditing it. This proposal would also insure that
corporate managers would
not have the power to dismiss external auditors whose work
displeases them.
John Boatright's paper on conflicts of interest in financial
services identifies
a very large number of examples of conflicts of interest. Some

of those I found
most noteworthy are the following. To the extent that financial
advisors are of-
ten also financial managers who receive commissions on trades,
advisors often
have an incentive to engage in excessive trading in
discretionary accounts and
recommend more buying and selling than is in the interests of
clients. This all-
too-common practice is known as "churning."
Similar practices occur in banking, when loan customers are
urged to replace
one loan with another, and in insurance, when agents persuade
customers to
replace one policy with another, in order to generate extra fees
and commis-
sions. These abuses are called 4'flipping" and "twisting"
respectively.29
Another common conflict of interest is involved in cases of
"personal trading."
investment company personnel . . . who have access to
proprietary research
and information about pending transactions . . . are in a
position to use this
information to trade ahead of a fund's purchase (called
frontrunning) and
benefit from any upward price movement. If frontrunning raises
the price
of a stock, then the fund pays more for a security than it would
otherwise.
Similarly, an access person with advance knowledge of a stock
sale could
capitalize on the information by selling short.30

In both cases, personal trading is likely to harm the interests of
clients by rais-
ing the price of the securities they buy or lowering the price of
the securities
they sell.
Boatright claims that conflicts of interest in Elnance can't be
eliminated, but
can only be managed.
Conflicts of interest are built into the structure of our financial
institutions
and could be avoided only with great difficulty. As one person
has noted,
"The biblical observation that no man can serve two masters, if
strictly
followed, would make many of Wall Street's present activities
impossible."
In addition, the inhabitants of Wall Street are motivated
primarily by self-
interest and can be induced to serve any master only within
limits. The
challenge, therefore, is not to prevent conflicts of interest in
financial ser-
vices but to manage them in a workable financial system.3'
2020 05:46:33 UTC
How are conflicts of interest in financial services to be

managed? Boatright
surveys a number of suggestions about how to manage conflicts
of interest.
Competition. Competitive pressures limit the adverse
consequences of con-
flicts of interest. Financial service providers which act contrary
to their clients'
interests and thereby reduce returns to them will have difficulty
attracting cli-
ents in a very competitive marketplace.
Disclosure. This involves the requirement to disclose all
adverse interests to
clients. Further,
disclosure of performance data of all kinds, including levels of
risk, facili-
tates competition, which in turn reduces conflicts of interest. In
addition,
conflicts of interest can be avoided by making known a firm's
policies and
procedures for dealing with conflicts.32
Rules and Policies. Specific rules requiring people to avoid
conflicts of inter-
est or prohibiting actions that constitute conflicts of interest

can be created by
the legislation, regulatory agencies, industry associations and
exchanges, and
financial service firms themselves. Boatright mentions several
examples including
prohibitions against personal trading on stock before and after
the fund pur-
chase and prohibitions "on all short-term selling (generally a
security must be
held for more than ninety days)."33
Structural Changes Since many conflicts of interest result from
combining
different services in one firm, the strongest remedy for
conflicts of interest is to
"institute structural changes that separate these functions."
Many conflicts could be eliminated by separating the functions
of trust man-
agement and commercial banking, of underwriting and
investment advising,
of retail brokerage and principal trading, and so on.34
Boatright argues that, on balance, this remedy is not desirable
because of the
costs and the inefficiencies it would involve.

Addressing the problem of conflict of interest by such radical
structural
changes is probably unwarranted, however, because of the
many advan-
tages of such combinations. For example, underwriting a
corporation's
securities requires an investment bank with substantial sales
capability as
well as personnel with analytic skills.35
Boatright proposes, instead, that conflicts of interest should be
managed by struc-
tural changes within existing multifunction institutions. He
recommends
measures to strengthen the autonomy of different divisions in
multifunction Elrms
and restricting the flow of information between different
divisions of firms ("Chi-
nese walls"). Boatright observes:
There are some drawbacks to Chinese walls, however. They
take away some
of the gains from integrating different functions in one firm,
and firms may
lose the confidence of customers, who fear, for example, that

investment ad-
vice does not represent all the information possessed by a firm.
However, a
customer may also benefit, by being assured that a broker's
investment ad-
vice is not biased by the need to place unsold stocks in an
underwriting.36
2020 05:46:33 UTC
PROFESSIONS 173
Conflicts of Interest on Corporate Boards
Eric Orts's paper "Conflict of Interest on Corporate Boards"
discusses con-
flicts of interest in corporate governance. He focuses on
conflicts of interest
involving members of corporate boards of directors. Orts
devotes considerable
attention to the law and his article is the source of much useful
information on
legal issues. Orts observes that conflicts of interest arise for
members of corpo-

rate boards, because directors have the duty to promote and
safeguard the interests
of the firm and at the same time have personal interests and
opportunities for
self-dealing that may conflict with their duties as directors. He
divides these
conflicts of interest into two broad categories: 1. conflicts of
interest that arise
when directors have financial interests that diverge from the
interests of the
firm, and 2. conflicts of interest that arise when corporations
do things that af-
fect family members or friends.
Orts says that the "most fundamental" conflict of interests for
corporate di-
rectors involve issues of compensation for executives.
In the corporate law of conflicts of interest, the most
signiElcant difficulty
arises in the payment of executive compensation . . . The
problem with re-
spect to executive compensation is that corporate ofElcers,
especially CEOs,
often exercise extraordinary defacto power over the corporate

boards which
are supposed to oversee them. To the extent the real power of
CEOs over-
comes formal board structures that are answerable to
shareholders, the
problem of excessive payment of executive compensation may
arise. Some
empirical evidence supports the claim that levels of executive
compensa-
tion have become problematic from a social perspective, at
least in the United
States. In 1996, for example, the CEOs of the largest thirty
corporations
made more than 200 times more in compensation than did the
average U.S.
employee, almost a fivefold increase in this ratio since 1965.37
Not only do executives often use their indirect influence over
boards to in-
crease their compensation, they often sit on boards that set
their own
compensation. [The conflict of interest isn't avoided if they
recuse themselves
from the committees that determine their compensation. The
other members of

the board will face a conflict of interest in virtue of their
personal relationships
with the executives who are on the board and their decisions
about executive
compensation will be known to the executives who are
members of the board.]
A similar conflict of interest is constituted by the fact that
board members are
sometimes in a position to determine their own compensations
and vote them-
selves stock options, etc. For example, The Public Company
Oversight Board
was created by Congress in 2002 to oversee the auditors of
publicly traded com-
panies. On January 9, 2003 the members of the Oversight
Board met and voted
themselves salaries of $452,000 per year.38
A different kind of conflict of interest involving the financial
interests of
directors arises from the business opportunities that directors
learn of in their
. . . .
Ottlcla. , capacltles.

2020 05:46:33 UTC
The general rule is that if a corporate director or executive
hears about an
opportunity for an investment that is characterized as ;'an
interest or ex-
pectancyS' or "in the line of business" of the corporation, then
the opportunity
must first be offered to disinterested representatives of the
corporation (usu-
ally disinterested board members or the shareholders) and the
interested
director of executive may then pursue the opportunity only if
the corpora-
tion declines it.39
Christopher Stone's landmark book Where the Law Ends offers
a powerful
critique of corporate boards as they are presently constituted in
the US. Stone
decries the increasing presence of "insideS' directors," i.e.,
"men serving as di-

rectors of the very companies that employ them as
managers."40 This arrangement
itself constitutes a conflict of interest. Managers' own personal
interestsn e.g.,
interests in retaining their jobs, increasing their income,
securing promotion,
and maintaining amicable relations with other managers, etc.,
prevent them from
impartially and effectively serving the function of overseeing
management and
protecting shareholders from abuses by management. Conflicts
of interest are
also created by the fact that directors are typically placed on
boards by manage-
ment (rather than the other way around.)4l Conflicts of interest
arise when board
members develop personal relationships and friendships with
management, which
make them reluctant or unwilling to criticize or remove
managers. Stone pro-
vides some indirect evidence for this claim in the following
passage:
Myles Mace . . . points out that the typical outside director,
having been

placed on the board by management . . . is particularly
reluctant to rock the
boat by asking discerning questions. It is "plain bad manners,n'
one com-
pany president chided, in private and after the meeting, an
aberrationally
inquisitive director who had done nothing more rude than to
ask what was
being done to correct steadily declining earnings.42
Stone goes on to note the failure of the members of Penn
Central's Board of
Directors to question the actions of Penn Central's egregiously
corrupt and in-
competent management which drove the huge corporation into
bankruptcy shortly
after the merger which founded it.
Many board members lack adequate incentive to be diligent and
careful in
promoting the interests of the corporation; often they are
indemnified or insured
against law suits for damages due to negligence.43 Another
serious and systemic
problem is that management is in a position to manipulate

boards to do their
bidding by selectively determining what sort of information
reaches the board.
Boards often lack adequate information to perform their roles
adequately. Stone
makes a number of proposals to remedy or ameliorate these
problems with cor-
porate governance. Among his proposals are the following:
remove inside
directors from corporate boards, limit the indemnification and
insurance of di-
rectors against suits for negligence, and give directors staff and
resources so
that management can't control and limit the information
directors receive.44
Another proposal that has been made in light of recent events is
to give boards
of directors their own independent auditors who report only to
the boards.
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PROFESSIONS 175
Conflicts of Interest in Medicine
Stephen Latham's paper "Conflict of Interest in Medical
Practice" focuses
on conflicts of interest that arise from methods of paying
physicians. It is well-
known that traditional "fee for services" payment creates a
financial incentive
for physicians to prescribe more treatment and services than
patients need. Phy-
sicians make recommendations about the kinds of medical
services patients need
and then often provide those services themselves.
The physician is thus her [the patient's] agent for the purchase
of medical
services as well as purveyor of those services. His conflict of
interest lies
in this: As her purchasing agent, he has a duty to assist her in
making pru-
dent choices among medically relevant health care services, but
as a purveyor
of services, he has a pecuniary interest in advising her to make
rather more

extravagant purchases than a disinterested prudence would
counsel.45
Latham's observations have much wider application. Plumbers,
dentists, exter-
minators, auto mechanics, electricians, psychologists,
appliance repairmen, and
many others professionals also occupy the dual roles of
diagnosing problems
and providing services. Self-employed members of these
professions all have
exactly the same kind of conflict of interest as physicians under
fee for service;
professionals employed by others also have conflicts of interest
to the extent
that their employers reward them for generating revenue. This
problem is par-
ticularly worrisome because most lay people are unable to
assess the honesty
and accuracy of the diagnoses and the quality of the care that
they receive.46
Physicians and other professionals are in a position to take
advantage of mem-
bers of the public and run very little risk of being caught when
they do.47 We are

all at the mercy of professionals whose knowledge of their
fields greatly ex-
ceeds our own. We need them to refrain from deceiving and
manipulating us for
their own benefit.
Certain alternative methods of paying physicians also create
conflicts of in-
terest. In many HMOs physicians are paid on a "capitation"
basis; physicians or
medical groups are paid a fixed amount for each patient
enrolled and in return
the physician or group provides complete health care services
for those patients.
Primary care physicians are gate keepers for more expensive
specialists, tests,
and treatments. Most HMOs give physicians strong financial
incentives to keep
costs down. It is common to set a maximum amount of money
that can be spent
treating a physician's patients. In some HMOs, physicians
receive a bonus if the
total costs of their patients are below the maximum.
Alternatively, physicians
may have their salaries reduced if the costs incurred by their

patients exceed the
maximum permitted. This creates very serious conflicts of
interest in that the
quality of the care and treatment physicians give their patients
is often compro-
mised by their concern for their own financial interests. In his
book Medicine
and Morals: Physicians' Conflicts of Interest, Marc Rodwin
claims that eighty-
five percent of HMOs use these kinds of financial incentives to
insure that
2020 05:46:33 UTC
physicians keep costs down. Physicians can lose twenty to
thirty percent of sala-
ries if they exceed the cost guidelines set by their HMOs.48
Latham offers a very helpful consideration of possible remedies
for the prob-
lems created by conflicts of interest in the payment of
physicians. He says that
we can minimize risk of adverse impact on particular clinical
decisions

by making sure that financial rewards are given piecemeal, on a
sliding
scale basis, rather than in large blocks upon the attainment of
fixed target
numbers. A physician who earns a large bonus upon the
attainment of a
certain level of cost savings, but who gets nothing short of that
attainment,
will be under extreme financial pressure whenever he or she is
near the
borderline of attaining the goal. A better plan would give the
physician
financial rewards proportional to whatever level of savings he
or she in fact
attains. Under the latter plan, every cost saving would be
rewarded, but no
one clinical decision or patient would be a "bonus breaker."49
In the case of the conflicts of interest generated by methods of
paying physi-
cians, the most obvious remedy would seem to be to separate
diagnosis from
treatment. A person would go to a diagnostic physician who
would then refer
the patient to someone else for treatment. Latham notes that
this kind of remedy
is employed by laws that forbid physicians to sell the drugs
they prescribe, but
he dismisses the proposal to separate diagnosis and treatment
because of the
expense and inconvenience it would create for patients.
Are there other ways of paying physicians that avoid conflicts
of interest and
do not create other equally serious problems? Latham notes
that "physicians on

salary have no pecuniary interest in offering more or fewer
services than the
patient requires."50 He seems to think that, nonetheless, a
physician's interest in
leisure creates a conflict of interest for salaried physicians. He
goes on to sug-
gest that, unlike fee for service and capitation, this conflict of
interest is not
worrisome; "this interest [in leisure] is easily outweighed by
the non-pecuniary
interest in reputation and by the pecuniary interest in not being
fired.''5l This is
plausible and interesting, but Latham's very brief discussion of
paying physi-
cians salaries ends here. One wishes that he had more to say
about this.52
Latham discusses one other kind of conflict of interest at
length the con-
flicts of interest created by the gifts and other inducements
pharmaceutical
companies give to physicians to prescribe their drugs.
Pharmaceutical compa-
nies often give gifts to physicians. These gifts can vary from
keychains, pens,
and free samples for personal and family use to lavish travel
and entertainment
sometimes disguised as educational seminars. Latham does not
think that a phy-
sician having goodwill or gratitude toward a pharmaceutical
company is enough
to create a conflict of interest.
For example, a physician may, without losing anything, harbor
warm feel-
ings toward a firm that entertained her and still prescribe a

competitor firm's
product when she feels it medically appropriate.53
2020 05:46:33 UTC
PROFESSIONS 177
It is possible, of course, that one could feel gratitude without
this affecting one's
judgment and actions. It is also possible that a physician's
gratitude toward a
pharmaceutical company might make it difficult for her to
make the right deci-
sions for her patients and such cases are conflicts of interests.
Latham is very
troubled about cases in which pharmaceutical companies give
physicians finan-
cial rewards for prescribing their products.
Most troubling, however, are marketing practices that offer
physicians fi-
nancial rewards, either concurrently or retrospectively, for
their actual
prescribing practices. Some firms have offered vacations and

expensive gifts
as rewards to their "high prescribers."54
AMA guidelines strictly prohibit physicians from receiving
gifts with strings
attached. Latham observes, however, that
The AMA guidelines are essentially voluntary; there is no
meaningful en-
forcement mechanism for their violation, and no means even of
detecting
violations dependably . . . numerous physicians violate them
annually.55
Latham quotes from the AMA code of ethics, which says that
[i]f a conflict develops between the physician's financial
interest and the
physician's responsibilities to the patient, the conflict must be
resolved to
the patient's benefit.56
He continues with the following observation with which I
strongly concur.
Yet the skeptic might be forgiven for wondering whether,
assuming the ad-
monition was sincerely meant by its draftsman, the laudable
attitude it preaches

can seriously be cultivated by a professional organization that
spends so much
of its time in the ardent pursuit of physicians' Elnancial
interests.57
Referral fees or "kickbacks" for physicians (fees or payments
for physicians
to refer patients to other physicians, usually specialists) also
create conflicts of
interest, since they create a financial incentive for physicians
to give unneeded
referrals. Latham notes that the practice of fee-splitting has
long been prohib-
ited by both the law and medical codes of ethics. However,
Marc Rodwin argues
that these prohibitions have been ineffective in deterring fee
splitting and have
led to the development of dishonest means of evading the law
(instead of paying
a referral fee, specialists often hire referring physicians as
"assistants").58
Another serious conflict of interest noted by Rodwin is that
often physicians
refer patients for tests to facilities that they own or partly own.
Rodwin reports

a Florida study that found that patients of physicians who
owned labs received
twice as many tests as other patients. Further these labs
charged twice as much
as other labs.59 AMA guidelines permit this provided that the
physician dis-
closes ownership to the patient. Rodwin argues that the
requirement of disclosure
does not remove the conflict of interest. He also claims that the
disclosure re-
quirement is ineffective and widely ignored by physicians.60
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Lessons From Comparisons Between DiJjrerent Professions
The book ends with Andrew Stark's paper "Comparing Conflict
of Interest
Across the Professions." This is an outstanding paper that
draws some interest-
ing and important lessons from the papers in the anthology. It
probably could

not have been written had he and Davis not assembled a
collection of discus-
sions of conflicts of interest from so many different
professions. Stark lays out
a very useful and perspicuous typology of different kinds of
conflicts of inter-
est. He distinguishes between two general types of conflict of
interest: 1. those
that result from external relationships, e.g., a government
official offering a sub-
sidy to a company in which his wife owns stock and 2. those
internal to one's
job or profession, e.g., cases in which one's professional
judgment is adversely
affected by one's desire to advance in the ranks of a
bureaucracy. That cases of
the second type are genuine conflicts of interest is not
adequately appreciated.
Stark contends that the first type of conflict of interest is
exactly the same in
every profession. Everyone has friends and family ties that can
create conflicts
of interest. Stark writes:

A personal gift from an individual external to the professional-
principal
relationship a pharmaceutical manufacturer in the case of a
physician-
patient relationship, a mutual fund salesman in the case of a
broker-client
relationship, an art dealer in the case of a critic reader
relationship im-
pairs the professional's judgment in all three pursuits in exactly
identical
ways. A judge's decision making capacity is threatened in
precisely the
same fashion as a journalist's or a corporate director's by her
capacity
to affect an out-of-role financial holding through her role in
decision mak-
ing. It is only when we turn to conflicts of interests that arise
within role, to
conflicts not extrinsic but intrinsic to the professional's
relationship with
her principal, that revealing differences emerge across
professions.61
Stark claims that conflicts of interest that arise within
professional roles fall

into two broad categories: 1. "many roles one principal" and 2.
"many princi-
pals one role." Conflicts of interest in the first category arise
because professionals
serve different and, to some extent, incompatible, roles for
clients. Conflicts of
interest involving many principals and one role are created by
the conflicting
interests of different clients. For example, "Capitation forces
doctors to choose
between allocating their limited time and resources to different
principals...."62
Brokers who manage the accounts for multiple clients are
sometimes forced to
choose between different clients when they decide how to
allocate a security in
short supply.
Stark claims that conflicts of interest involving many roles and
one principal
tend to fall into one of the following two categories: 1. the
conflict between the
roles of diagnosing problems and providing services, e.g.,
churning and fee for
service, and 2. conflicts between the roles of being a judge and

being an advo-
cate teachers judge their students and are also expected to
provide
recommendations for them. Brokers sometimes judge securities
that they then
are expected to sell and endorse.
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PROFESSIONS 179
Moralsfor Business Ethics
Work in business ethics should pay more attention conflicts of
interest, espe-
cially the ways in which conflicts of interest are "internal" to
professional roles
and pervade business and professional life. Self-dealing is one
of the most fun-
damental and pervasive moral problems in business, but it is
largely overlooked
in the literature on business ethics. The literature in our field is
too consumed by

debates about the social responsibilities of business and
debates about whether
business executives should or should not pursue the interests of
shareholders
alone (within limits). Moral problems arise in business not so
much when busi-
ness executives promote (or fail to promote) the interests of
shareholders over
the interests of other stakeholders, but rather when business
people engage in
self-dealing and promote their own personal interests to the
detriment of every-
one else. Questions about the social responsibilities of business
are practical
questions only for high ranking business executives. Most
business people have
little power or authority to make decisions about the policy
issues that are dis-
cussed in the literature on the social responsibilities of
business, e.g., corporate
contributions to charity and corporate environmental policy.
The literature on
the social responsibilities of business sheds very little light on
the moral obliga-

tions of most business people. By contrast, conflicts of interest
and temptations
to engage in self-dealing are practical moral problems for
almost all business
people. The recent corporate accounting scandals all involved
conflicts of inter-
est and self-dealing; the Eleld of business ethics needs to put
the issues of conflicts
of interest and self-dealing front and center.
Notes
Thanks to John Boatright, Ian Maitland, Joe Mendola, Jean Tan
and Moshe Adler for many
helpful criticisms and suggestions.
' Davis and Stark, eds., Conflict of Interest in the Professions,
p. 8.
2 ConJ7ict of Interest in the Professions, p. 8.
3 Conflict of Interest in the Professions, p. 9.
4 Michael Davis, "Conflict of Interest," Business and
Professional Ethics Journal 1 (1982):
17-27 and "Conflict of Interest Revisited," Business and
Professional Ethics Journal 12
(1993): 2141.

5 In his paper, "Conflicts of Interest: An Agency Analysis," in
Norman E. Bowie and R.
Edward Freeman, eds., (New York: Oxford University Press,
1992), pp. 187-203, John
Boatright also presents counterexamples to Davis's definition.
If I understand them correctly,
Boatright's examples are different from the ones I have offered
here. They are presented as
examples of conflicts of interest that don't interfere with any
actions (requiring judgment)
that P takes on behalf of the other party. Based on his reply to
Boatright, I suspect that Davis
might reply that my example is a case of a "breach of loyalty"
rather than a conflict of
interest ("Conflict of Interest Revisited," pp. 21-41). To this, I
would reply that my case is a
breach of loyalty and that, in this case, I am disloyal because
of a conflict of interest which
consists in my being tempted by conflicting financial interests
to violate my official duties.
2020 05:46:33 UTC

BUSINESS ETHICS QUARTERLY 180
6 ConfZict of lnterest in the Professions, p. 69.
10 Conflict of Interest in the Professions, pp. 219-220.
1 l This is a revised and simplified version of the following
definition which I defended in
my paper, "Conflicts of Interest," Journal of Business Ethics,
13 (1994): 387404.
A conflict of interest exists in any situation in which an
individual (I) has
difficulty discharging the official (conventional/fiduciary)
duties attaching to
a position or office she holds because either: i) there is (or I
believes that there
is) an actual or potential conflict between her own personal
interests and the
interests of the party (P) to whom she owes those duties, or ii)
I has a desire to
promote (or thwart) the interests of (X) (where X is an entity
which has inter-

ests) and there is (or I believes that there is) an actual or
potential conflict
between promoting (or thwarting) X's interests and the interests
of P.
The section immediately below, "Some Features of My
Proposed Definition," closely fol-
lows pp. 388-389 of my "Conflicts of Interest."
12 In order for the conflict between the interests of one's
employer or organization (etc.)
and the interests of one's friends or family (etc.) to make it
difficult for one to fulfill one's
official duties, one must have some desire or preference to the
effect that the interests of
one's family or associates be advanced. Consider the following
case: a person has no special
interest in or attachment to her cousin. Her official duties
conflict with the interests of the
cousin. The conflict between the interests of her cousin and her
official duties will not create
any difficulty for her in fulfilling her official duties. On my
view, such a case would not
constitute a genuine conflict of interest. Less probably,
suppose that I is completely indiffer-
ent to the welfare of his own daughter. Cases in which his

daughter's best interests conflict
with those of P would not constitute conflicts of interest,
because they would not make it
difficult for him to discharge his duties to P. I would describe
such cases as apparent, but not
actual, conflicts of interest.
13 Cf. Joseph Margolis, "Conflicts of Interest and Conflicting
Interests," in Ethical Theory
and Business, ed. Tom Beauchamp and Norman Bowie, first
edition, (Englewood Cliffs,
N.J.: Prentice Hall, 1979), p. 364; Neil Luebke, "Conflicts of
Interest as a Moral Category,"
Business and Professional Ethics Journal 6 (1987): 70; and
John Boatright, "Conflict of
Interest: An Agency Analysis," p. 189. Davis claims that:
Bribes as such do not create conflicts of interest; generally,
what they create
is something more serious: disloyalty at least; at worst, a
crime.... Bribe
offers, however, can create a conflict of interest" (Conflict of
Interest in The
Professions, p. 18).
14 I defend this analysis in "Bribery, Extortion, and 'The

Foreign Corrupt Practices Act,"'
Philosophy & Public Aff^airs 14 (1985): 66-90.
15 It is permissible for my uncle to engage in nepotistic hiring.
However, if he does, he
should not advertise the position or interview other people for
the job, since that would give
others the false impression that they are competing with others
and that they will be judged
on their merits.
16 One might object that, inasmuch as I desire to harm
someone (or promote someone's
welfare), it is in my own self-interest to harm (benefit) her. But
the ill-fare (or welfare of
others) does not by itself (apart from its consequences such as
giving me pleasure) contrib-
ute to my own welfare. It is not analytic that (other things
equal) my welfare is enhanced
2020 05:46:33 UTC
PROFESSIONS 181

whenever a state of affairs that I desire obtains. Among other
things, this would make it
logically impossible for one to desire or prefer actions which
are contrary to one's self-
interest and thus logically impossible for there to be genuine
acts of self-sacrifice. (See Mark
Overvold, "Self-Interest and the Concept of Self-Sacrifice,"
Canadian Journal of Philoso-
phy 10 (1980): 105-118.) The satisfaction of other-regarding
desires does not necessarily
contribute to one's own personal welfare.
17 See my papers 4'Bribery, Extortion, and sThe Foreign
Corrupt Practices Act,"' Philoso-
phy & Public AJfairs 14 (1985): 66-90 and "Bribery and
Implicit Agreements: A Reply to
Philips," Journal of Business Ethics, 6 (1987): 123-125 for a
defense of this.
18 This point is crucial for my objection to Boatright's
defiIlition. Boatright and I dis-
agree about whether Bob's agreement with the Klan generates a
prima facie moral duty for
him to fulfill his official duties. For a very good discussion of
this issue (one that doesn't
clearly side either with me or with Boatright) see Shelly

Kagan, Normative Ethics, (Boulder,
Colorado: Westview, 1998), pp. 124-125.
9 See Andrew Stark, Conflict of Interest in American Public
Life, (Cambridge, Mass.:
Harvard University Press, 20000), Chapter 3, for discussion of
self-dealing that I cannot
begin to summarize here.
20 Conf ict of Interest in the Professions, p. 95.
24 Cony?ict of Interest in the Professions, p. 99.
26 "Ethical Issues in Accounting" in The Blackwell Gaide to
Business Ethics, Norman
Bowie, editor, (Oxford: Blackwell's, 2002), pp. 145-164.
27 "Ethical Issues in Accounting," p. 155.
28 "Ethical Issues in Accounting," p. 156.
29 Conflict of Interest in the Professions, pp. 228-229.

31 Conftict of Interest in the Professions, p. 217.
32 Confliet of Interest in the Professions, p. 232.
35 Confiict of Interest in the Professions, p. 234.
38 New York Times, January 10, 2003.
40 Christopher Stone, Where the Law Ends (New York: tIarper
and Row, 1976), p. 128.
41 Where the Law Ends, p. 128.
42 Where the Law Ends, p. 128.
43 Where the Law Ends, pp. 144-147,
44 Where the Law Ends, pp. 139-150.
45 ConJlict of Interest in the Professions, p. 285.
2020 05:46:33 UTC

46 Cf. E. Haasi Morreim, Balancing Act: The New Medical
Ethics of Medicine's New
Economics, (Washington, D.C.: Georgetown University Press,
1995), p 106.
47 Many of the same issues about conflicts of interest in the
payment of physicians and
other professionals are considered in "Conflict of Interest in
Physical Therapy" by Mike
Martin and Donald Gabard (Conflict of Interest in the
Professions, pp. 314-332.) Martin and
Gabard claim that all professions are involved systemic
conflicts of interest in that members
of all professionals are subject to the temptation "to provide
unnecessary services to clients
in order to increase profits" (p. 318). This conflict is created by
their dual roles as advisors
and provider of services.
48 (Oxford: Oxford University Press, 1993), pp. 139-140.
49 Conf ict of Interest in the Professions, p. 292.

S] Conflict of Interest in the Professions, p. 290.
52 Michael Bayles argues that there exists a "fundamental
conflict of interest" in any
relationship between a client and a professional person. This
conflict of interest is created by
the professional person's interest in income and leisure. When
professionals are paid on a fee
for service basis they have an interest in providing more
services than are either necessary or
desirable for their clients. For example, when physicians are
paid according to how much
work they do for their patients, many physicians succumb to
the temptation to provide their
patients with unnecessary, even dangerous treatments. Bayles
continues:
Alternative systems of paying professionals do not remove this
conflict but
merely reverse the effect on the client. In a capitation payment
system, profes-
sionals have an interest in having as many clients as possible to
maximize their
income and in performing as few services as possible to
minimize their costs.
On a salary system or flat fee for a case, professionals receive

the same income
no matter the number of clients or services performed, so they
have an interest
in minimizing clients or services. These payment systems thus
encourage pro-
fessionals not to perform useful services.... This fundamental
conflict of
interest between professional and client cannot be removed. It
is inherent in
the professional-client relationship. Michael Bayles,
Professional Ethics, sec-
ond edition, (Belmont, Calif.: Wadsworth, 1989), p. 89.
Another noteworthy feature of Bayles's discussion of conflicts
of interest that is not ad-
dressed in the Davis and Stark anthology is his claim that the
self-regulation of profession
involves systematic conflicts of interest. On conflicts of
interests in self-regulation also see
my paper "Conflicts of Interest," p. 394. Haavi Morreim also
argues the conflicts of interest
arising out the payment of physicians are "inescapable,"
Balancing Act: The New Medical
Ethics of Medicine's New Economics, pp. 61-62.
53 ConJ7ict of Interest in the Professions, p. 295.

58 Marc Rodwin, Medicine and Moral: Physicians' Conflicts of
Interest, (New York: Ox-
ford, 1993), pp. l9-52.
59 Medicine and Moral: Physicians' Conflicts of Interest, p. 72.
60 Medicine and Moral: Physicians' Conflicts of Interest, p. 42.
62 Cony?ict of Interest in the Professions, p. 341.
2020 05:46:33 UTC
Contents[161]16216316416516616716816917017117217317417
5176177178179180181182Issue Table of ContentsBusiness
Ethics Quarterly, Vol. 14, No. 1 (Jan., 2004), pp. 1-196Front
MatterEmployee Governance and the Ownership of the Firm
[pp. 1-21]The Fragile Structure of Free-Market Society: The
Radical Implications of Corporate Social Responsibility [pp.
23-46]Future Generations and Business Ethics [pp. 47-69]Is
There a Special E-Commerce Ethics? [pp. 71-94]The Ethics of
Mentoring [pp. 95-122]Information Requirements and the
Characteristics of Sales Situations [pp. 123-139]The Effects of
Context on Trust in Firm-Stakeholder Relationships: The

Institutional Environment, Trust Creation, and Firm
Performance [pp. 141-160]Review ArticlesReview: Conflicts of
Interest and Self-Dealing in the Professions: A Review Essay
[pp. 161-182]Review: Peter Singer on Global Ethics [pp. 183-
196]Back Matter
!?
C O M P A R I N G C O N F L I C T O F
I N T E R E S T A C R O S S T H E
P R O F E S S I O N S
Andrew Stark
Consider the following two situations. In the first, a govern-
ment bureaucrat's decision to support a high-tech subsidy
program is affected by her part ownership of—or her spouse's
employ-
ment with—a software venture that would benefit from the
program: a
set of interests she possesses outside her role as an officeholder.
In the
other, her decision to support the high-tech subsidy program is
affected
by her desire to advance through the ranks bureaucratically,
shift her
career path within the department, and increase her official
salary: a set
of interests she possesses within her role as an officeholder.
Both kinds
of interest compromise her professional judgment. And yet, for
a long

time, scholars of conflict of interest typically have concerned
themselves
only with the first type, when the encumbering interest arises
outside of
role. For if the second type—when the impairing interest arises
within
role—were treated as actionable conflict of interest, all
professionals
would be in conflict of interest all the time.
It is also the case, however, that if the first kind of situation—
when
the impairing interest arises out of role—exhausts what we
mean by
conflict of interest, as it typically seems to have, then every
profession
faces exactly the same kinds of conflict of interest. There is
little to say,
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little grist for the mill, if our purpose is to compare conflicts
across
professions and our focus remains confined to out-of-role
interests.
A personal gift from an individual external to the professional-
principal
relationship—a pharmaceutical manufacturer in the case of the
physician-patient relationship, a mutual fund salesman in the
case of the

broker-client relationship, an art dealer in the case of the critic-
reader
relationship—impairs the professional's judgment in all three
pursuits in
exactly identical ways. A judge's decision-making capacity is
threatened
in precisely the same fashion as a journalist's—or a corporate
director's—
by her capacity to affect an out-of-role financial holding
through her in-
role decision making. It is only when we turn to conflict of
interests that
arise within role, to conflicts not extrinsic but intrinsic to the
profes-
sional's relationship with her principal, that revealing
differences emerge
across the professions. Here, as we shall see, the resulting
conflicts fall
into two main categories: Some arise because the professional
occupies
more than one role with respect to the same principal, such that
the
existence of the second role impairs her capacity to exercise the
first.
Others occur because the professional must exercise the same
role with
respect to more than one principal, such that the presence of a
second
principal impairs her capacity to exercise her role on behalf of
the first.1
It is not surprising that one gets greater traction for cross-
professional
comparisons from in-role rather than out-of-role conflict of
interest. After
all, whereas judges and journalists and directors can all have the

same
kinds of external interests—stocks, bonds, fees, gifts—the
internal struc-
tures of their roles each differ. In Tolstoyan fashion, conflicts
of interest
arising from out-of-role sources are all alike, but every
profession expe-
riences in-role conflicts in its own way. And, without in any
way being
orchestrated, the chapters in this volume confirm this fact.
Almost every
contributor, perhaps led by an innate sense of where the really
interesting
issues reside in his or her topic profession, spends as much time
on in-
role or "professional" as on out-of-role or "personal" conflicts
of interest;
sometimes more. As a result, this volume can be seen as a
turning of
the page in the exploration of conflict of interest in the
professions, a
turning from outside to inside. And, as we shall see, some
striking pat-
terns emerge from the book as a whole.
Many Roles, One Principal
There are, as I noted, two basic kinds of in-role conflict, one
that arises
when a professional occupies more than one role with respect to
any
given principal; the other, when the professional occupies the
same role
with respect to many principals. Consider, to begin with, the
first type,
which—to judge from the contributors' chapters—is itself

amenable to
being divided into two classes. On the one hand, there are
professions in
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which such multiple-role conflicts emerge because the
professional si-
multaneously occupies a judging and an advocating role—an
impartial
and a partial role—in the work he does for the principal. On the
other
hand, conflicts inhere in a tension between the professional's
diagnostic
and service-provision roles, his roles as both a buyer of services
for and
a seller of services to the principal.
Consider first the professions that fuse a judging with an
advocacy
role. Many officials fall into this class. Think, for example, of
legislators
whose role it is to advocate aggressively for various interests
held by
different sections of the public while, in the final analysis,
judging leg-
islation impartially in the interest of the public as a whole. Or
think of
agency officials who help prepare cases which they ultimately
have to

participate in deciding. Primary-market financial services
underwriters,
too, find themselves riven between judging and advocacy roles
when they
assess the merits of a client I.P.O. (initial public offering)
which they are,
at the same time, promoting. Likewise journalists, who often
combine
reportorial with commentative work, or who wrestle with the
need to be
"objective"—to judge the hard truth of a story—and yet at the
same time
display "balance," by rendering "all sides of the story." Literary
critics,
too, find the distinction between judging and advocacy, between
being an
arbiter and a tribune of public taste, extremely fuzzy. The same
with
university teachers, who, as Jane Gallop shows, must confront a
conflict
posed by their having to judge their graduate students—grade
and assess
them—while at the same time advocating for them in the
professional
marketplace. Show-business agents, too, can fall into an
advocacy/judg-
ing form of conflict. On the one hand, the agent is obliged to
represent
his client—say the star of a TV show—by energetically
advocating for
her interests. On the other, he might also produce the show, and
in that
role his obligation is to judge what is best for the program and
its inves-
tors, whose interests could easily diverge from the star's.2

Even with judges themselves, whose roles are more obviously
"judg-
mental," if they ever find themselves in a multiple-role sort of
conflict, it
is because they are tugged by a competing obligation to
advocate. They
might, for example, find themselves torn between an obligation
to assess
a case "on the merits" and an obligation to advance a broader
legal
doctrine or "legal agenda," as David Luban puts it. Or judges
might find
themselves sundered by a role requirement to rule exclusively
on the
"legal issues" in a case and a competing imperative to show
"compassion"
for particular parties before them: to pursue "impartiality and
universal-
ity" at the same time, as Robin West says.
True, some of these professionals—in particular, journalists,
financial
underwriters, show-business agents, and officials—work in
organizations
which, if they are suitably structured, can largely segregate
those occu-
pying judging from those occupying advocacy roles.
Commentators need
not be reporters, financial analysts need not also be salespeople,
show-
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business agents need not double as producers, and decision-
making of-
ficials—administrative judges, for example—need not at the
same time
fill the roles of preliminary investigators. But in the remaining
three pro-
fessions—judging, criticism, and university teaching—the
professional
operates with far greater independence from whatever
organizational
structure surrounds her. In these three venues, whatever fusion
of judg-
ing and advocacy roles arises is thus more likely to be
inveterately inter-
nal to the individual and less amenable to resolution through
organiza-
tional manipulation.
It is true that Jane Gallop describes a situation, at her
university, where
the "freshman composition course is organized to isolate
evaluation from
all other aspects of the student-teacher relation"; where,
specifically, "[a]t
the end of the semester, the student's writing is evaluated by
other [fresh-
man composition] instructors," and the "actual teacher functions
only
as a coach"—and "possibly as an advocate"—"preparing [her
students]
for evaluation by someone else." The very exceptionalism of
this arrange-

ment, however, proves the rule that judging and advocacy
combine in-
extricably within most university teachers. More to the point,
Gallop her-
self uses the very incorrigibility of the professor's impartiality-
partiality
role conflict in the area of academic judging (evaluation) and
advocacy
(coaching, recommending, instructing) to say, in effect, that if
we are
going to allow such conflicts there, we should allow them
anywhere,
including situations in which the professor is both evaluator and
lover.
But whether or not judging and a professional advocacy roles
are ulti-
mately segregable, these are the professionals—journalists,
financial un-
derwriters, show-business agents, officials, judges, critics, and
professors—
who are peculiarly prey to it.
The second kind of intraprincipal role conflict arises when the
profes-
sional occupies both a diagnostic and a service-providing role
with re-
spect to the same principal. Consider the accountant who
provides an
audit and then offers comptrolling or forensic services to deal
with any
shortcomings she discovers. Or the consulting engineer who
recommends
structural work which his firm can then supply as a contractor.
Or the
lawyer who reviews a client's estate and then suggests a
complex series

of trust arrangements. Or the corporate director whose
engagement in a
proxy fight involves, essentially, a conflict between her
fiduciary obligation
to ascertain a course of action that will best cure the company's
ills and
her position as someone who might be able to offer such a
course of
action. Or the broker who "churns," recommending "frequent
trading of
(possibly) unsuitable securities" on the secondary stock market
in a sit-
uation where he is "compensated only for executing trades." Or,
too, the
official who identifies a social problem and then seeks the
budget and
staff to deal with it: the kind of conflict of interest public-
choice scholars
study. Or the physician who diagnoses a particular ailment and
then
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prescribes a battery of tests to confirm, or who refers the patient
to a
specialist facility she co-owns for treatment.
In each of these cases, the professional is conflicted between a
diag-
nostic and a service-provision role. As Stephen Latham puts it

in dis-
cussing the physician in particular, in all such situations, the
professional
occupies the role of both buyer—the principal's agent for the
purchase
of services—and seller, the supplier of those services. What
Latham says
about the doctor is the case for each of these other
professionals: "His
conflict of interest is this: as [the principal's] purchasing agent,
he has a
duty to assist her in making prudent choices among [relevant
profes-
sional] services; but as a purveyor of those services, he has a
pecuniary
interest in advising her to make rather more extravagant
purchases than
a disinterested person would counsel."
For some of these professionals—in particular, accountants,
doctors,
secondary-market financial brokers, and lawyers, who operate
according
to traditional fee-for-service principles—the fusion of
diagnostic and
service-providing roles will, at some level, become inveterate
and incor-
rigible, unamenable to any kind of organizational remedy.
Latham, for
example, notes the impracticality of a world in which a "patient
visits
one physician for diagnosis, paying her a simple hourly rate,
and is given
a sheet of paper [which she takes] to another physician of her
choice,
who implements that treatment for a fee." Indeed, some

physicians cite
the very irremediability of the fee-for-service conflict to say, in
effect, that
if we are going to allow diagnostic/service-provision conflicts
there, we
should allow them anywhere, including situations in which "a
physician
refers a patient for testing to a lab that he or she owns." As
Bradford H.
Gray puts it:
Because [such] conflicts of interest are so similar to the
conflicts of
interest that inhere in fee-for-service, criticisms of the new
arrange-
ments [such as a physician referring a patient who needs tests to
a
laboratory she co-owns] can be seen as criticisms of
arrangements to
which organized medicine is wedded. If the physician who
invests in
facilities to which he refers cannot be trusted to resist economic
temp-
tation and to put the patient's interest first, then why should fee-
for-
service physicians—who are faced with analogous decisions
daily—be
trusted? This logic makes the profession reluctant to condemn
any eco-
nomic arrangement on the basis of the temptation to which it
exposes
physicians.3
Of course, the same could be said of accounting, law, and
secondary-
market financial services which, like medicine, are traditionally

fee-for-
service professions.
By contrast, engineering, corporate directorships, and
government—
while they, too, risk diagnostic/service provision conflicts—are
not fee-
C O N F L I C T O F I N T E R E S T A C R O S S P R O F E S
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for-service professions in the same way, and hence any such
conflicts are
less inveterate, more amenable to organizational remediation
through the
segregation of those occupying diagnostic from those occupying
service-
provision roles. It is frequent practice, for example, for
engineering clients
to use separate firms, one firm as a consultant to study needs,
design
specifications, review proposals, and monitor performance and
another
as the actual contractor. Indeed, only a handful over the past
thirty years
of National Society of Professional Engineers Board of Ethical
Review
(NSPE BER) conflict-of-interest cases deal with "diagnostic-
service provi-
sion" conflicts, and all find them relatively amenable to

remediation
through a combination of recusal, where the diagnosing firm
takes itself
out of the running for service-provider, and pluralism, where
the diag-
nosing firm recommends a number of competing alternatives as
service
providers. As for corporate directors, there also exists the
possibility of
considerable daylight between diagnosis and service provision:
If a direc-
tor is in a position to provide services to the company, then
disinterested
directors, shareholders, or potential buyers of the company are
available
to verify the diagnosis that those services are indeed needed.4
Govern-
ment, too, has available an innumerable number of arrangements
whereby it can segregate officials charged with diagnosing the
need for
a program or monitoring it from those developing and executing
it. Fi-
nally, although primary-market financial brokers can also fall
into a di-
agnostic/service-provision conflict, such conflict—by
comparison with
fee-for-service secondary brokers—is amenable to
organizational
resolution, to a structural segregation of those occupying
diagnostic
roles, determining the best stocks for a client's portfolio, from
those filling
service-provision roles, trying to sell a particular stock or bond
that the
company underwrites.s

In sum, when it comes to conflicts of interest that arise when
the
professional occupies more than one role with respect to a
particular
principal, the professions fall neatly into two categories: those
that feature
a conflict between judging and advocacy roles and those that
exhibit a
conflict between diagnostic and service-provision roles. And,
within each
category, the conflict can be more or less inveterate and
incorrigible.
Thus, when the conflict conflates a judging with an advocacy
role, the
two roles may in some situations be amenable to organizational
segre-
gation, as with journalists, primary-market financial
underwriters, show-
business agents, and officials. But in other circumstances—
when the pro-
fessional operates with some quasi-independence from the
surrounding
organizational structure, and hence remains beyond the reach of
orga-
nizational manipulation—the judging-advocacy conflict, where
it arises,
may be more entrenched within the individual practitioner, as it
is with
judges, critics, and university teachers. Likewise, when the
conflict in
question fuses a diagnostic with a service-provision role, it may
lend itself
to resolution through organizational ecology or maneuvering—
as with
340 E P I L O G U E

ot
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n
an
y
fo
rm
w
it
ho
ut
p
er
mi
ss
io
n
fr
om
t
he
p
ub
li
sh
er
,
ex
ce

pt
f
ai
r
us
es
p
er
mi
tt
ed
u
nd
er
U.
S.
o
r
ap
pl
ic
ab
le
c
op
yr
ig
ht
l
aw
.
on 1/7/2020 12:41 AM via

Interest in the
Professions
Account: s8434881
engineers, corporate directors, and primary-market financial
underwrit-
ers—or there may come a point where such conflicts are
ingrained and
irremediable, as with the traditional fee-for-service professions
of law,
accounting, medicine, and secondary-market brokerage.
Many Principals, One Role
"Internal" conflicts of interest—those intrinsic to the
professional-prin-
cipal relationship—can also arise not when the professional
occupies
more than one role with respect to any given principal but when
he or
she must deal with more than one principal within the ambit of
any
given professional role. If, for example, the central problem
with fee-for-
service medicine is that it creates conflicts between the various
roles (di-
agnostic vs. service-provision) that the physician occupies with
respect
to a particular patient, the central problem with its alternative—
capita-
tion—is that it fosters conflicts between the various patients
whom the
doctor services in any given medical role. Capitation forces

Review of Conflicts of Interest and Self-Dealing in the Professions

Review of Conflicts of Interest and Self-Dealing in the Professions

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