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ADVISORY OPINION NO. 96

 

This opinion is based on the following facts:  A member of the City Council [Council] was invited to be a member of the board of a nonprofit corporation.  Its primary objectives within the jurisdiction of the City and County of Honolulu are: (1) land use, (2) community development, (3) water, and (4) energy.

 

The question is whether a councilmember would acquire a business interest that is incompatible with official duties should he become a member of the board of a nonprofit corporation with objectives within the Council's jurisdiction.

 

Generally, the councilmember's appointment as a director and the primary objectives of the corporation on the one hand and on the other hand his membership on the Council might result in the violation of ROH Section 6-1.2(a)(2), relating to acquisition of a business interest, and RCH Section 11-102.3, relating to acquisition of a business interest which is incompatible with the proper discharge of an officer's official duties. In addition, the foregoing facts may give rise to an appearance of an alleged violation of ROH Section 6-1.2(a)(3), relating to an appearance on behalf of a private interest before a City agency; RCH Section 11-102.2, relating to disclosure of confidential information; and RCH Section 11-104, relating to fair and equal treatment.

 

ROH Section 6-1.2(a)(2) states that:

 

No officer ...shall:

. . . .

 

(2) Acquire financial interest in business enterprises which he has reason to believe may be directly involved in official action to be taken by him.

 

Upon application of the foregoing provision to the facts of the case, the Ethics Commission [Commission] is of the opinion that the councilmember has acquired a business interest which will be before him as a member of the Council.  One may question how a nonprofit organization can be characterized as a business interest when it is a nonprofit private corporation.  A nonprofit private corporation is a business interest based on the definition of "business" found in ROH Section 6-1.1(a)(2).  That subsection, in essence, states that any organization is defined as a business whether or not such organization is operated for profit. Thus, acceptance of a directorship in a nonprofit corporation will result in an acquisition of a business interest.  Moreover, when the primary objectives of the corporation are examined, the Commission finds that some of its objectives are within the Council's jurisdiction for its consideration and action. Therefore, the corporation's interests, sooner or later, might come before the councilmember for consideration and action as a member of the Council.  Consequently, accepting this directorship would be a violation of ROH Section 6-1.2(a)(2).

 

Another standard of conduct provision which might be a basis of charging the councilmember with a violation of the standards of conduct is RCH Section 11-102.3.  That section states that:

 

No elected or appointed officer or employee shall:

 

Engage in any business transaction or activity or have a financial interest, direct or indirect, which is incompatible with the proper discharge of his official duties or which may tend to impair his independence of judgment in the performance of his official duties.

 

The Commission's reading of that section is that it prohibits the councilmember from acquiring a business interest which might be incompatible with the proper discharge of his duties and responsibilities or which might impair the independence of his judgment. As previously stated, the acceptance of a directorship of the corporation would result in an acquisition of a business interest. Moreover, his directorship in the business interest is incompatible with his duties as a member of the Council because of the fiduciary relationship that would be established between him as a director of the corporation and the nonprofit corporation as a corporation.

 

Fiduciary relationship is defined as follows:

 

'Fiduciary relationship' includes not only legal and technical relations, but is found wherever there is confidence reposed on one side and resulting superiority and influence on the other and such relationship may be moral, social, domestic or merely personal.  In re Perry's Estate, 181 P .2d 783,787. 181 Or 332. [16A, Words and Phrases]

 

Note that such a relationship creates a situation wherein the councilmember cannot take any action against the interests of the corporation. On the other hand, as a member of the Council, he cannot let the interests of the corporation be paramount over the interests of his constituents.  Thus, if a subject matter which is a concern of the corporation should come before him for action as a member of the Council, he might have w decide whose interests he would represent on a particular issue. The presence of such dichotomy would be incompatible with the proper discharge of his official duties and might impair his independence of judgment.  Thus, the Commission is of the opinion that he would be violating RCH Section 11-102.3 by becoming a director of the nonprofit corporation.

 

Such incompatibility can be readily reflected in the following diagram:

 

[DIAGRAM]

 

By way of explanation of the diagram. note that the block on the right represents his membership on the Council, the block on the left represents his directorship with the corporation, and the third block represents the subject matters which are within the jurisdiction of the Council and the primary objectives of the corporation.  The linking of the three blocks indicates that he would be serving two masters which have either interests or jurisdiction in a common subject matter.  This is a classic situation giving rise to a conflict between the interest of one master (City) against the other master, the nonprofit corporation.

 

In addition, whenever a subject matter which is a concern of the corporation is before the Council for its consideration and action, the appearance of an alleged violation is difficult to overcome because as a director of the corporation he might be representing the corporation before the Council.  Moreover, while the disclosure of his relationship with the corporation made before Council's action on a subject matter which is a concern of the corporation would satisfy the disclosure requirement, it may still be alleged that he was representing a business interest before the Council. The foregoing discussion and conclusion are based on ROB Section 6.1.2(a)(3) which in pertinent part states that:

 

No officer ... shall:

 

. . . .

 

(3) Appear in behalf of private interests [nonprofit corporation] before any agency [Council] other than a court of law . . . .

 

The two remaining standards of conduct provisions which may result in an appearance of a violation thereof are RCB Sections 11-102.2, relating to disclosure of confidential information and 11-104, relating to fair and equal treatment. That is, an allegation could be made that his directorship might cause him to favor the corporation when a subject which is one of its primary objectives is before the Council.  If such an allegation were proven, then he would have violated RCB Section 11.104, relating to fair and equal treatment.

 

With respect to disclosure of confidential information, the councilmember is privy to such information because he participates in executive sessions of the Council wherein confidential matters are considered.  Thus, an allegation could be made that he could disclose such confidential information to the corporation.  If this were proven, he would have violated RCB Section 11-102.2, relating to disclosure of confidential information.

 

To summarize, the Commission concludes that as a director of the corporation in question, the councilmember would be violating ROB Section 6-1.2(a)(2), relating to acquisition of a business interest which might come before the Council for action, and RCB Section 11-102.3, relating to acquisition of a business interest which is incompatible with the proper discharge of his official duties or impair his independence of judgment as a member of the Council.  In addition, he might be subject to allegations of a violation of ROH Section 6-1.2(a)(3), relating to an appearance on behalf of a private interest before a City agency; RCH Section 11-102.3 relating to disclosure of confidential information; and RCH Section 11-104, relating to fair and equal treatment, should he become a director of the nonprofit corporation.

 

No doubt, the foregoing violations and allegations would affect his integrity as a member of the Council which may undermine the confidence of the public in elected officials.

 

Before closing, the Commission would like to state the ultimate consequence which would be perceived by the public. That is, any allegation of violations of the standards of conduct which might be made against him because of his status as a director of the nonprofit corporation would diminish his integrity.  Thus, such accusations or innuendos would undermine the public's confidence in elected officials. Therefore, the Commission recommends that he does not become a director of the nonprofit corporation.

 

Dated: February 11, 1981

 

ETHICS COMMISSION

Rev. William Smith

 

Last Reviewed: Wednesday, August 04, 2004