Conflict of Interest and the Rule of Law

The hapless mayor of Canada’s largest city is again facing accusations of conflict of interest. Or, more accurately, he is facing accusations that he violated the relevant legislation regarding how conflicts of interest ought to be handled by municipal councils. The claim is that Toronto Mayor, Rob Ford, violated the Municipal Conflict of Interest Act when he voted, along with the rest of Council, on whether or not Council should let him off the hook with regard to a prior charge related to improper use of his position to garner donations for his own private charity.

Alas, this is far from being Ford’s first run-in with conflict of interest rules. See my blog postings on previous events here and here. But the present accusations are more serious, in particular because the penalty prescribed under the legislation is for the mayor’s seat to be “declared vacant.” In other words, if Ford is found guilty, he loses his job. Further, he can (at the judge’s discretion) be barred, for up to seven years, from becoming a member of council again.

Two elements of this case are particularly worth highlighting.

The first has to do with an apparent difference between the possible penalties in this case and the penalties that would apply in a parallel case in the private sector. Imagine the CEO of a major corporation being found guilty of violating her company’s Conflict of Interest Policy. How many would be summarily fired for it? It’s certainly not a legal requirement, to the best of my knowledge. As for corporate policy, some corporate conflict of interest policies don’t specify penalties at all — in some cases because they are part of larger corporate codes of ethics that try to focus on the positive. Should corporate policies specify penalties as harsh as removal from office? That’s a question for another day.

The second instructive aspect lies in the Mayor’s thinking on how the situation should be handled, and who should decide his fate. Ford is reported to have said that voters, not the court, should decide his fate. To his credit, Ford’s assertion here has the whiff of moral principle about it. He’s pointing to a principle of democratic accountability. If voters believe he has acted wrongly, they can and should make that clear at the next election, two years hence.

What Ford is missing, of course, is something called the Rule of Law. “Let the people decide” is, on its own, a recipe for disaster. For one thing, many people (including apparently some in positions of responsibility) just don’t understand what conflict of interest is or why it is important. While an electorate certainly ought to take such things into consideration when they enter the voting booth, that doesn’t mean they ought always to have the final say. Another way of looking at it is that the voters already have decided — they elected the provincial government that put into place the Municipal Conflict of Interest Act twenty or so years ago, the law that in turn will determine Ford’s fate. And, should they choose, the voters can ask their representatives to change that law.

Incidentally, the ‘rule of law,’ broadly understood, is what makes so called “say-on-pay” rules, rules allowing shareholders to vote on executive salaries, something less than a slam-dunk from a corporate governance point of view. Whether ‘voters’ should have direct control over something as technical (and sometimes emotional) as executive compensation is far from clear, which is why most say-on-pay requirements today call only for advisory votes.

The general principle, here, is that ‘the people’ ought to have a say, but that their say needn’t always be direct. It is for good reasons that we set up systems of laws, or in the corporate case systems of policies, and empower and entrust qualified administrators to apply those laws and policies. Of course, just which matters ought to be left to judgment to case-by-case basis, and which ought to be categorically determined as a matter of policy, is a hard problem for those who design institutions of all kinds.

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