|Advisory Opinion No. 01-1:||State employees may serve in their official capacities on the Board of Directors of Intelligent Transportation Society of New York, Inc., a not-for-profit corporation.|
The following advisory opinion is issued in response to requests of several State agencies for reconsideration of a series of informal advisory opinions issued by staff of the State Ethics Commission ("Commission") which concluded that officers and employees of State agencies may not serve in their official capacities on the Board of Directors of Intelligent Transportation Society of New York, Inc. ("ITS-NY") because the dual loyalties created thereby would contravene Public Officers Law §74.
Pursuant to its authority under Executive Law §94(15), the Commission hereby reverses the prior informal advisory opinions in this matter and holds that officers and employees of State agencies may serve in their official capacities on the Board of Directors of ITS-NY without violating Public Officers Law §74, provided that they always act in the best interest of the State.
In December 1999, a State employee sought an advisory opinion from the Commission concerning the propriety of his service, in his official State capacity, on the Board of Directors of ITS-NY. ITS-NY is a not-for-profit corporation with over 70 members in private, academic and public sector organizations having an interest in the research, deployment and operation of intelligent transportation systems in New York State.(1) It is operated for the following purposes:
To provide a forum for the continuing professional development of individuals and organizations with an interest in ITS, in all modes of transportation, through the sponsorship of meetings, conferences, training, public education, public outreach, and the dissemination of information.
To serve as a voice for New York State's ITS concerns at the local, state, regional and national levels to foster the enhancement of multi modal travel including transit and highway, and private and commercial transportation through the application of technology.
To create an extensive network of professional relationships among public, private, and academic organizations within New York State in order to provide a mechanism for the exchange of ITS information.
To encourage greater participation in the activities and programs of ITS-America by ITS NY members and to encourage the growth and development of ITS resources, technologies, and applications within New York State.
Pursuant to the ITS-NY articles of incorporation, the number of its directors shall not exceed 25. Each director must be an employee of a member of ITS-NY. There is one class of membership, open to companies, corporations, associations, governmental agencies, universities and other organizations interested in advancing the purposes of ITS-NY. At least half of the directors shall be from the private sector. A permanent seat on the Board of Directors is reserved for the State Department of Transportation ("DOT"). Other New York State agencies which have (or, until the Commission's informal opinion, had) officers or employees serving on the Board of Directors are Metropolitan Transportation Authority, MTA Bridges & Tunnels, MTA New York City Transit Authority (collectively "MTA"), New York State Bridge Authority, New York State Energy Research and Development Authority ("NYSERDA") and New York State Thruway Authority.
ITS-NY is a chapter of the Intelligent Transportation Society of America ("ITS-America"). There are 21 chapters of ITS-America representing 31 states. The Intelligent Vehicle-Highway Systems Act of 1991 (Pub L 102-240, §§6051-6059) authorized the United States Secretary of Transportation to use an advisory committee in developing a national program for intelligent transportation systems. ITS-America was created as a not-for-profit corporation to coordinate the development and deployment of intelligent transportation systems in the United States. The United States Department of Transportation named ITS-America as a utilized Federal Advisory Committee.(2) ITS-America membership includes federal, state, local and foreign government agencies, national and international companies involved in the development of intelligent transportation systems, universities, independent research organizations, and public interest groups. Membership is approximately 50 per cent private sector companies and 50 per cent academia, governments and associations.
The Intelligent Transportation Systems Act of 1998 (Pub L 105-178, §§5201-5212) continued the mandate for coordinated nationwide intelligent transportation systems planning and development. It mandates a cooperative process among the federal government, the states, local governments and private entities and requires that the United States Secretary of Transportation use the national intelligent transportation system program plan developed by the federal Department of Transportation and ITS-America.
On April 10, 2000, in response to a request of a State employee who sought advice, Commission staff issued an informal advisory opinion concluding that officers and employees of State agencies may not serve in their official capacities on the Board of Directors of ITS-NY. Commission staff issued similar informal opinions to the head of each of seven State agencies that had an officer or employee serving on the Board of ITS-NY. This conclusion was based on previous formal Commission opinions holding that State employees cannot serve in their official capacities on the boards of corporations, whether for-profit or not-for-profit, because the requirement of corporate director loyalty to the corporation conflicts with a State employee's sole official responsibility to the public. However, Commission staff noted that State officers and employees could serve, in their official capacity, as uncompensated advisors to ITS-NY. In addition, organization membership by State agencies in ITS-NY would not be prohibited.
The informal advisory opinions requested each agency to advise the Commission by June 1, 2000, whether any of its officers or employees continued to serve as members of the ITS-NY Board. Thereafter, some agencies informed the Commission that their representatives had resigned. Other agencies advised the Commission that they intended to request reconsideration of the informal opinion. Subsequently, the Commission informed the agencies whose representatives continued on the ITS-NY Board that it would extend the June 1 deadline until July 1, by which time it expected to receive any requests for reconsideration. The Commission informed the agencies whose representatives had resigned from the ITS-NY Board that other agencies had received extensions and invited those agencies to contact the Commission if they wished any of their employees to serve on the ITS-NY Board pending the Commission's reconsideration.
After receiving requests for reconsideration from some agencies, the Commission further extended the deadline indefinitely pending reconsideration of the issue. Agencies were invited to submit any additional facts or arguments for the Commission's consideration. Agencies with representatives who had resigned from the ITS-NY board were invited to contact the Commission if they wished to have an employee serve on the Board; no such agencies contacted the Commission.
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.
(c) No officer or employee of a state agency, member of the legislature or legislative employee should disclose confidential information acquired by him in the course of his official duties nor use such information to further his personal interests.
(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.
Staff, relying on three formal Commission opinions, advised the seven ITS-NY member agencies and the inquiring employee that: (1) membership of New York State agencies in ITS-NY may continue; (2) officers or employees of New York State agencies may not serve as members of the Board of Directors of ITS-NY because to do so would constitute an inherent conflict of interest in violation of Public Officers Law §74; and (3) service by officers and employees of New York State agencies as unpaid advisors to ITS-NY is not prohibited by the State ethics laws. Staff cited Advisory Opinion Nos. 93-3, 95-36 and 99-4, which held that various State employees could not serve in their official capacities as members of corporate boards of directors. In those cases, the corporations, some for-profit and others not-for-profit, had purposes largely compatible with the respective agency missions. Nonetheless, the Commission held that there was an inherent conflict between the duties of a corporate director to the corporation and those of a State employee to the public. Staff advised that these precedents barred State employees from service in their official capacities on the ITS-NY board.
The agencies have urged the Commission to reconsider the informal opinion. They argue that service on the ITS-NY board would help the agencies to achieve their public purposes and that the rule banning participation on the ITS-NY board would extend to bar participation on the boards of other corporations, thereby depriving the State of other opportunities to achieve its objectives.
MTA argues that participation of its employees on the board of directors of ITS-NY is an essential part of MTA's mandate to develop and implement a unified mass transportation policy in the region. Likewise, DOT submits that service on the Board of Directors of ITS-NY is in furtherance of its statewide responsibility for the planning, coordination and support of transportation. DOT notes that it was one of the forces behind creation of ITS-NY, and, in recognition of its role, the founders granted DOT the only permanent seat on ITS-NY's Board pursuant to its By-Laws. DOT further notes the ITS-NY does no purchasing or contracting except with convention centers or other entities in connection with its seminars and forums, and that the rating, endorsing or certifying of any intelligent transportation systems product is expressly prohibited by ITS-NY By-Laws.
NYSERDA urges the Commission to reconsider the effect of its informal opinion on the ability of New York State agencies and public authorities to promote and advocate New York's position at the federal and State levels. NYSERDA identifies several organizations that have purposes and goals similar to, if not the same as, NYSERDA's. According to NYSERDA, by serving on the boards of these organizations, New York State can influence federal regulations and policy, participate in the establishment of national standards, and ensure that New York remains competitive for federal grants. NYSERDA states that service on the boards of these not-for-profit corporations gives New York access to policymakers at the federal level which is unavailable to those states that do not sit on the board or hold officer positions. NYSERDA states that its withdrawal from these positions would have an adverse impact on its ability to ensure that New Yorkers get their fair share of funding from Federal agencies. It notes that New York's place would be taken by other states that eagerly await a chance to impact the way federal dollars are spent.
A review of prior opinions and of the facts in this case persuades the Commission that the decision as to whether a State officer or employee acting in his or her official capacity may serve as a director of an entity created to foster public-private partnership interests should not depend solely on the nature of the legal vehicle selected to implement such interests. In each case, the central question to be determined is whether the proposed action satisfies the Code of Ethics as set forth in Public Officers Law §74. Under the Business Corporation Law and the Not-For-Profit Corporation Law, corporate directors and officers have a fiduciary responsibility to their corporations. Corporate directors are required to subordinate their individual and private interests to their duty to the corporation whenever the two conflict. State officers and employees have a duty always to act in the best interest of the State. Moreover, State officers and employees are obligated to avoid not only activities that constitute a conflict of interest, but should also avoid the appearance of a potential conflict. The competing statutory obligations imposed by the Business Corporation Law, the Not-For-Profit Corporation Law and the Public Officers Law pose a potential for conflicts of interest and necessarily require a heightened level of scrutiny whenever it is proposed that a State officer or employee serve as a director or manager of a non-governmental entity.
Although the conflicts inherent in these dual loyalties counsels caution, these concerns should not prevent such service where there is compelling evidence that the interests of the State would be best served thereby and the risks of an actual conflict of interest are not substantial. In many cases, the interests of the State may be served by the participation of State officers and employees in advisory capacities, thereby avoiding the potential of a conflict of interest. Further, if the entity is likely to seek to enter into contracts with a State agency, to be subject to regulation by a State agency, or to reap a financial gain from its relationship with a State agency, such circumstances could weigh against officers or employees of affected State agencies serving as directors or officers of the non-governmental entity. Similarly, if service of a State officer or employee as a director of a non-governmental entity has the potential to accord private sector participants in such entity unwarranted influence over the actions of an affected agency, such service should be avoided.
With these considerations in mind, the Commission turns to the question of whether State officers or employees may serve in their official capacities on the Board of Directors of ITS-NY. The Commission concludes that such service would not contravene the requirements of Public Officers Law §74.
The principal purpose of ITS-NY is to advance the interests of New York State as part of a Congressionally mandated partnership among the federal government, the states, local governments and private entities in the planning and development of intelligent transportation systems. The extent of the State's participation in the federal government's ITS-America initiative is likely to affect the State's ability to influence federal policy and to attract federal grants. As it has said repeatedly, the Commission should seek to "not interpret the [State ethics laws] in such a way as to hamstring State agencies" (Advisory Opinion No. 91-2, interpreting the lifetime bar post-employment restriction; see also, Advisory Opinion Nos. 93-15, 93-13, 93-11). The Commission believes that State agencies should not be precluded from fulfilling their legislative mandates by allowing their employees to serve on the governing bodies of entities which help the agencies to achieve their public purposes provided that such service does not pose a substantial risk of an actual conflict of interest.
In the informal advisory opinions issued in this case, Commission staff focused on the legal status of the organization -- that is, whether the organization has incorporated or not. A close reading of the advisory opinions on which staff relied reveals concerns that the particular arrangements involved posed significant risks of conflicts of interest for the affected State officers and employees. The rule outlined in this Advisory Opinion is consistent with the underlying concerns that informed the Commission's earlier opinions.
In Advisory Opinion No. 93-3, the Commission considered an arrangement involving transfer of valuable patent rights owned by the State to a for-profit enterprise in return for an equity stake in the company and seats on its board of directors which would be occupied by State officers and employees. In the Advisory Opinion, the Commission identified several potential conflicts of interest that led it to conclude that the State officers and employees could not, consistent with the requirements of Public Officers Law §74, satisfy both their duty of undivided loyalty to the corporation and their duty of fealty to the State.
On the other hand, when the entity was not organized as a corporation, the Commission has permitted State employees to serve on a governing body. For example, in Advisory Opinion No. 95-4, the Commission allowed MTA employees to serve without compensation on the governing body of a joint venture which took the form of a partnership. In that case, the Commission was satisfied that MTA employees serving on the governing body of the joint venture would act at all times in the MTA's best interest.
In Advisory Opinion No. 95-36, it was proposed that State University of New York ("SUNY") employees serve as directors of corporate entities that would negotiate contracts with SUNY hospitals. There the Commission was not satisfied that in contracting with SUNY hospitals, the SUNY employees who would serve as directors of the non-State entities could satisfy both the duty of loyalty to the corporation and their obligations to SUNY. As the Commission noted:
The loyalty of the University-employed board member would come into question if there were ever a dispute between the University and the network concerning its agreements. It is unlikely that the University's interests will always be compatible with network's interests, and it is not clear how the University official could serve the best interests of both in such a situation, even if recusal under such circumstances were permitted.
Thus, the Commission concluded that "for a University employee to serve on the corporate board of a managed care network, as proposed, would substantially conflict with the proper discharge of his or her duties in the public interest in violation of Public Officers Law §74" (emphasis added).
In Advisory Opinion No. 99-4, the Commission held that employees of the New York State Emergency Management Office ("SEMO") could not serve as directors of a proposed not-for-profit corporation that would be part of the Joint Lost Reduction Partnership Program. The purposes of the corporation were, inter alia, to encourage joint efforts between the private and public sectors with regard to developing emergency access to disaster sites, to create reliable communication between government authorities and businesses for the exchange of emergency-related information to, and to foster a better understanding in the public sector of the economic impact of emergency-related decisions. The corporation was expected to solicit private contributions in addition to receiving State budget funds, federal grants and fees based on service offerings. The Commission concluded that a SEMO employee could not serve on the board of directors of the not-for-profit corporation, but that the employee could serve as an unpaid advisor, although he or she could not fundraise for the corporation on State time and in his or her official capacity.
The proposed corporation considered in Advisory Opinion No. 99-4 is in some respects similar to the corporation considered here. However, unlike the present case where ITS-NY intends to advocate for the State's intelligent transportation concerns, the SEMO proposal was intended in part to influence the State's emergency response practices. In that circumstance, the Commission was not convinced that the interests of the proposed corporation and those of the State would always be compatible. The Commission noted that:
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. . . .
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.
In short, in our prior cases, the Commission perceived a risk for an actual conflict of interest if a State employee were permitted to serve on the Board of a corporate entity, and there was an insufficient showing that the legitimate interests of the State could not be advanced without Board membership. That is not true here. Accordingly, the Commission believes that the State ethics laws should not be interpreted to prevent State employees from serving in their official capacities on the ITS-NY Board.
The Commission reverses the prior informal advisory opinions in this matter and holds that officers and employees of State agencies may serve in their official capacities on the Board of Directors of ITS-NY without violating Public Officers Law §74, provided that they always act in the best interest of the State.
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.
Paul Shechtman, Chair
Robert J. Giuffra, Jr.
Henry G. Gossel
O. Peter Sherwood, Members
Dated: January 24, 2001
1. Intelligent transportation systems are transportation systems operated and managed through the use of advanced computer, communications and control technologies.
2. The United States Department of Transportation uses ITS-America to provide specific advice on federal intelligent transportation systems programs and plans, but the organization also continues its outside, independent activities in which the federal Department of Transportation does not participate.