New York State
Ethics Commission


Advisory Opinion No. 99-04: Application of Public Officers Law §74 to the participation by State employees in the activities of a proposed not-for-profit corporation.

INTRODUCTION

The following advisory opinion is issued in response to a request from Edward F. Jacoby, Jr. ("Jacoby"), Director of the New York State Emergency Management Office ("SEMO"). He seeks advice regarding the possible role of employees of SEMO in a not-for-profit corporation to be created as part of the Joint Loss Reduction Partnership Program.(1)

Pursuant to the authority vested in the State Ethics Commission ("Commission") by Executive Law §94(15), the Commission renders its opinion that a SEMO employee could not serve on the board of the corporation, as the divided loyalty would create a conflict of interest prohibited by Public Officers Law §74. However, a SEMO employee could act as an advisor to the corporation, although he or she could not engage in fundraising. Finally, a State attorney could work on the incorporation of the proposed corporation.

BACKGROUND

SEMO, with funding from the Federal Emergency Management Agency, has instituted a program known as the Joint Loss Reduction Partnership Program. Its goal is the establishment of a mechanism which will allow for increased cooperation and coordination between the public and private sectors in enacting mitigation measures and providing efficient and effective emergency responses to disasters.

SEMO's role has been to bring together interested public and private sector entities to develop solutions to such critical matters as emergency travel restrictions, communications, unified planning and training. It has also been charged with determining the future direction of the partnership, including the development of a permanent existence and a permanent funding source.

In implementing the program, SEMO has formed a committee of the participating private and public sector entities. Those from the public sector include, in addition to SEMO, the Division of State Police, local emergency management officials, the State Insurance Department and the Empire State Development Corporation. Entities from the private sector include the Albany Times Union, the American Red Cross, Bell Atlantic, Niagara Mohawk, Consolidated Edison, the Federal Reserve Bank, the Troy Savings Bank and Merrill Lynch. The Committee that was formed has divided its work into six subcommittees, one of which has been charged with recommending a permanent entity and ensuring sufficient funding sources for this entity.

In its final report, the subcommittee recommended that a permanent tax exempt, not-for-profit corporation be formed. Its purposes would be to encourage joint efforts between the private and public sectors with regard to developing emergency access to disaster sites, creating reliable communication between government authorities and businesses for the exchange of emergency-related information, fostering a better understanding in the public sector of the economic impact of emergency-related decisions, promoting a stable business environment through disaster resistant communities, and maintaining a resource clearinghouse for disaster affected communities.

The corporation would be expected to solicit private contributions in addition to its receiving state budget funds, federal grants and fees based on service offerings. Potential sources of private funds would include utilities, financial institutions, insurance companies, the media, and health care organizations. One of the roles of the corporation's board and its Executive Director would be to solicit contributions.

Jacoby asks several questions concerning the possible involvement of SEMO's employees in the new corporation. He first asks whether a SEMO employee may, in an official capacity, have any connection with the corporation. More specifically, he asks whether a SEMO employee may sit on the board of the corporation. He notes that it will be seeking funding from public and private sources, and asks whether, assuming a SEMO employee may sit on the board, the employee should recuse himself or herself from any fundraising activities. In the alternative, Jacoby asks whether a SEMO employee can act as an advisor to the corporation. Finally, Jacoby asks whether it would be appropriate for a State attorney, in the course of his or her State employment, to handle the incorporation.

APPLICABLE LAW

The applicable statute is Public Officers Law §74, the code of ethics for State officers and employees. Subdivision 2 contains the rule with respect to conflicts of interest:

No officer or employee of a state agency . . . should have any interest, financial or otherwise, direct or indirect, or engage in any business or transaction or professional activity or incur any obligation of any nature, which is in substantial conflict with the proper discharge of his duties in the public interest.

Following this rule, Public Officers Law §74(3) provides standards of conduct which address apparent as well as actual conflicts of interest. Relevant standards include the following:

(b) No officer or employee of a state agency . . . should . . . engage in any business or professional activity which will require him to disclose confidential information which he has gained by reason of his official position or authority.

(d) No officer or employee of a state agency . . . should use or attempt to use his official position to secure unwarranted privileges or exemptions for himself or others.

(f) An officer or employee of a state agency . . . should not by his conduct give reasonable basis for the impression that any person can improperly influence him or unduly enjoy his favor in the performance of his official duties, or that he is affected by the kinship, rank, position or influence of any party or person.

(h) An officer or employee of a state agency . . . should endeavor to pursue a course of conduct which will not raise suspicion among the public that he is likely to be engaged in acts in violation of his trust.

DISCUSSION

The Commission looks first at the question of whether a SEMO employee may serve on the board of the corporation. In Advisory Opinion No. 93-3, the Commission held that Department of Health ("DOH") officials could not serve on the board of a for-profit corporation because of the appearance of a conflict of interest. Its holding was premised upon the legal duties of corporate directors. The Business Corporation Law (§717) imposes a fiduciary duty upon directors to act in good faith and with the degree of care that an ordinary prudent person in a like position would use under similar circumstances. Similar provisions are found in the Not-For-Profit Corporation Law (§717). These provisions require a corporate director's loyalties be to the corporation, and conflict with a State employee's sole responsibility to the public.

In Advisory Opinion No. 95-36, the State University of New York asked whether a University employee could serve on the corporate board of a managed care network. The Commission concluded that a University employee's service on such a board would substantially conflict with the proper discharge of his or her duties in the public interest in violation of Public Officers Law §74. The Commission stated:

While the University claims that its designated employees would vote only the interests of the University, their legal obligation, as a board member, would not guarantee this approach and might even compel a contrary result. Once a member of a corporate board of a network, employees would be faced with the cited provisions of the Business Corporation Law or the Not-for-Profit Corporation Law. It is not clear how they could overcome their conflicting responsibilities under these provisions.

With these opinions, the Commission has made it clear that a State employee may not serve in his or her official capacity on the board of a private corporation. The dual loyalties created are in contravention of Public Officers Law §74. Therefore, the Commission concludes that a SEMO employee may not serve on the board of the not-for-profit corporation to be created under the Joint Loss Reduction Partnership Program.

Turning to the possibility of a SEMO employee acting as an advisor to the corporation, the Commission holds that this arrangement would be permissible. In Advisory Opinion No. 93-3, mentioned above, the Commission, after holding that certain DOH officials could not serve on the board of a private corporation, noted, in a footnote, that it would be appropriate for them to serve as uncompensated advisors to the corporation. Similarly, in Advisory Opinion No. 92-18, the Commission held that certain State employees who were prohibited from serving on the board of a Task Force after it was reorganized into a not-for-profit corporation could, nevertheless, participate as advisors and consultants. These opinions would permit similar service by SEMO employees when the proposed corporation is formed.

Since SEMO employees will be able to act as advisors, the next question that is presented is whether they may engage in fundraising activities for the corporation on State time and in their official capacities.

It is well settled that a State employee may not, in an official position, solicit funds for a purely private entity, even if it is one that does work which may substantially benefit the public. For example, an employee of DOH may not, on State time, solicit funds for the American Cancer Society. While finding a cure for cancer will, without question, benefit the public health, and is therefore consistent with the Department's mission, the use of Department personnel to solicit funds for the society would, nevertheless, constitute the use of public resources for private purposes.

In contrast, the Commission has said that where State employees are authorized by statute to solicit gifts or funds for public purposes, such employees may seek to obtain such gifts or funds as long as they do not solicit in a manner that would create the potential for a conflict of interest (See Advisory Opinion No.97-10).

The question of whether SEMO employees may solicit on behalf of the corporation to be formed depends upon whether the corporation is more like a public or private entity. On balance, the Commission concludes that it is more like a private entity.

While the corporation will have a purpose that is beneficial to the public, it will include representatives of private sector entities. These entities may presumably be pursuing their interests. For example, when examining how to handle power outages, the utility company representatives may have interests that may differ from those of the public entity representatives. They, for instance, would be expected to look more closely at their costs than would those from the public entities. This is not to say that all parties will not be working toward the same objective, but each will see how to reach that objective from its own perspective. This can be seen from the purposes of the corporation, which include both public and private purposes.

Since private perspectives will play an important, and quite legitimate, role, the corporation cannot be seen to be purely public. Thus, solicitation by SEMO employees in their official capacities would constitute their soliciting on behalf of a private entity, which is not permissible.

Finally, Jacoby asks whether it would be appropriate for a State attorney, in the course of his or her State employment, to incorporate the organization. Such activity would fall within the scope of a State employee acting as an advisor to the corporation, and would, thus, be permissible. Obviously, activity undertaken by a State employee on behalf of the entity would need to be sanctioned by the employing agency, and would thus be permissible if approved by the appointing authority.

CONCLUSION

The Commission concludes that a SEMO employee could not serve on the board of the not-for-profit corporation after it is formed, but could act as an advisor to the corporation. As an advisor, such an employee could not engage in fundraising. Finally, a State attorney could work on the incorporation.

This opinion, until and unless amended or revoked, is binding on the Commission in any subsequent proceeding concerning the person who requested it and who acted in good faith, unless material facts were omitted or misstated by the person in the request for opinion or related supporting documentation.

All concur:

Paul Shechtman, Chair,

Robert J. Giuffra, Jr.,
Henry G. Gossel,
O. Peter Sherwood, Members

Dated: January 25, 1999


Endnotes

1. Jacoby also asks about the possible role of employees of other State agencies that will be involved in the Program. The principles set forth in this opinion with respect to SEMO employees are equally applicable to all other State employees.


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