Conflict of Interest in the Professions PRACTICAL AND PROFESSIONAL ETHICS SERIES Published in conjunction with the Association for Practical and Professional Ethics Series Editor Alan P. Wertheimer, University of Vermont Editorial Board Sissela Bok, Harvard University Daniel Callahan, The Hastings Center Deni Elliott, University of Montana Robert Fullenwider, University of Maryland Amy Gutman, Princeton University Stephen E. Kalish, University of Nebraska-Lincoln Thomas H. Murray, Case Western Reserve University Michael Pritchard, Western Michigan University Henry Shue, Cornell University David H. Smith, Indiana University Dennis F. Thompson, Harvard University Vivian Weil, Illinois Institute of Technology Brian Schrag, Executive Secretary of the Association for Practical and Professional Ethics Practical Ethics A Collection of Addresses and Essays Henry Sedgwick With an Introduction by Sissela Bok Thinking Like an Engineer Studies in the Ethics of a Profession Michael Davis Deliberative Politics Essays on Democracy and Disagreement Edited by Stephen Macedo Conflict of Interest in the Professions Edited by Michael Davis and Andrew Stark Conflict of Interest in the Professions Edited by MICHAEL DAVIS ANDREW STARK OXFORD UNIVERSITY PRESS 2OOI OXFORD UNIVERSITY PRESS Oxford New York Athens Auckland Bangkok Bogota Buenos Aires Cape Town Chennai Dar es Salaam Delhi Florence Hong Kong Istanbul Karachi Kolkata Kuala Lumpur Madrid Melbourne Mexico City Mumbai Nairobi Paris Sao Paulo Shanghai Singapore Taipei Tokyo Toronto Warsaw and associated companies in Berlin Ibadan Copyright © 2001 by Oxford University Press Published by Oxford University Press, Inc. 198 Madison Avenue, New York, New York 10016 Oxford is a registered trademark of Oxford University Press All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior permission of Oxford University Press. Library of Congress Cataloging-in-Publication Data Conflict of interest in the professions / edited by Michael Davis and Andrew Stark. p. cm.—(Practical and professional ethics series) Includes bibliographical references and index. ISBN 0-I9-5I2863-X I. Professional ethics. 2. Conflict of interests. I. Davis, Michael, 1943- II. Stark, Andrew, 1956- III. Series. BJ1725 .C66 2001 174—dc2i 2001021983 987654321 Printed in the United States of America on acid-free paper CONTENTS Contributors vii Introduction 3 Michael Davis I LAW AND GOVERNMENT 1. Law's Blindfold 23 David Luban 2. Regulating the Conflict of Interest of Government Officials 49 Kathleen Clark 3. Conflict of Interest as Risk Analysis 61 Kevin McMunigal II PROFESSIONS WITHIN BUSINESSES 4. Conflict of Interest in Journalism 73 Sandra L. Borden and Michael S. Pritchard 5. Conflict of Interest in the Accounting Profession 92 Leonard J. Brooks 6. Conflict of Interest in Engineering 112 Neil R. Luebke 7. Conflict of Interest on Corporate Boards 129 Eric W. Orts III ACADEMICS 8. Counselors Who Teach and Teachers Who Counsel: Some Conflicts of Interest in Psychological and Philosophical Counseling 159 Elliot D. Cohen 9. Resisting Reasonableness (including a response by Eric Hayot and Jeff King) 182 Jane Gallop 10. Conflict of Interest in Anthropology 195 Merrilee Salmon IV MARKETS 11. Financial Services 217 John R. Boatright 12. The Economics of the Critic 237 Tyler Cowen 13. Conflict of Interest in the Hollywood Film Industry: Coming to America—Tales from the Casting Couch, Gross and Net, in a Risky Business 249 Thomas E. Borcherding and Darren Filson V HEALTH CARE 14. Conflict of Interest in Medical Practice 279 Stephen R. Latham 15. Ethical Conflict in Correctional Health Services 302 Kenneth Kipnis 16. Conflict of Interest and Physical Therapy 314 Mike W. Martin and Donald L. Gabard VI EPILOGUE 17. Comparing Conflict of Interest across the Professions 335 Andrew Stark Index 353 VI CONTENTS CONTRIBUTORS THOMAS E. BORCHERDING MICHAEL DAVIS Economics Philosophy Claremont Graduate University Illinois Institute of Technology SANDRA L. BORDEN DARREN F1LSON Journalism Economics Western Michigan University Claremont Graduate University DONALD L. GABARD JOHN R. BOATRIGHT Physical Therapy Busmess Chapman University Loyola University of Chicago JANE GALLOP LEONARD J. BROOKS English Management University of Wisconsin- University of Toronto Milwaukee KATHLEEN CLARK ERIC HAYOT Law School English Washington University University of Wisconsin- Milwaukee ELLIOT D. COHEN ^ JEFjEpF pKING Philosophy EnglEnglis.sh Indian River Community University of WisconsinWisconsin- College Milwaukee TYLER COWEN KENNETH KIPNIS Economics Philosophy George Mason University University of Hawaii at Minoa vii STEPHEN R. LATHAM ERIC W. ORTS Law Business Quinnipiac College University of Pennsylvania DAVID LUBAN MICHAEL S. PRITCHARD Law Philosophy Georgetown University Western Michigan University NEIL R. LUEBKE MERRILEE SALMON Philosophy Philosophy Oklahoma State University University of Pittsburgh MIKE W. MARTIN ANDREW STARK Philosophy Management Chapman University University of Toronto KEVIN C. McMUNIGAL Law Case-Western Reserve University viii CONTRIBUTORS Conflict of Interest in the Professions This page intentionally left blank INTRODUCTION Michael Davis ow important is conflict of interest to the professions? The Hanswer is complex. Consider what recently happened to PriceWaterhouseCoopers (PWC), the world's largest accounting firm. PWC hired an outside investigator (at the urging of the Securities and Exchange Commission) to determine whether the firm was observing its own conflict-of-interest rules. The investigator reported that more than three-fourths of PWC's partners, including thirty-one of the top forty- three, had not properly sanitized their personal finances. The partners held financial interests in businesses that PWC audited; a few even owned stock in businesses for which they had direct auditing responsibility. Many of those partners were disciplined; some were told to leave the firm. PWC suffered a substantial loss of personnel and reputation. Failure to pay sufficient attention to conflict of interest was a disaster for PWC. Soon after the PWC story reached its front page, the Wall Street Journal (January 19, 2000) ran an opinion piece challenging the utility of pro- hibitions of conflict of interest. Why not, instead, require auditors to take a long-term stake in any business they audit? An auditor with a long- term financial interest in the business audited would have a strong, per- sonal incentive to ensure that the business is financially sound. The in- dependence that conflict-of-interest rules are supposed to protect is a kind of indifference. That indifference does not guarantee effective auditing. Among important examples of audit failure over the past two decades, 3 the Journal listed "Continental Illinois, LTV, Braniff, the entire savings and loan industry, Sunbeam, Waste Management, Oxford Health, and Cen- dant." Might not self-interested auditors have done better? Professions and Conflict of Interest That Wall Street Journal piece combines the two themes combined here as well. Conflict of interest is a problem only in a certain domain, one in which we do not want ordinary self-interest to guide the decisions of those on whom we depend; instead, we want those on whom we depend to be "independent," "impartial," "unbiased," or the like. This is the do- main in which professions flourish. Why? If we think of a profession as a number of individuals in the same occupation voluntarily organized to earn a living by openly serving a certain moral ideal in a morally per- missible way beyond what law, market, and morality would otherwise require, then the answer is obvious.1 Insofar as a profession is successful at serving its chosen moral ideal, the profession provides an alternative to self-interest (the typical motive in an ordinary market). Whether the alternative is worth the trouble of organizing the profession is a distinct question, one requiring careful consideration of (among other things) the standards of conduct that define how the profession is to serve its moral ideal. Rules governing conflict of interest are part of those standards. They differ from profession to profession. The differences between them tell us much about the professions—and about conflict of interest in general. So, for example, to decide whether auditors should work under rules that eliminate conflicts of interest or should instead be required to maintain a long-term stake in any business they audit requires us to understand what auditors do, how they do it, and why they do it that way. We must also understand what conflict of interest is, what rules concerning conflict of interest do, and how they do it. The sixteen chapters that form the body of this book can be divided into five parts, all but the second containing three chapters. The first three chapters deal with occupations in which the term "conflict of in- terest" first became popular—judging, government service, and lawyer- ing. In "Law's Blindfold," David Luban uses a recent, highly publicized English case to argue that while we should try to eliminate all judicial bias, we should not try to eliminate all judicial conflicts of interest. We do not want justice to be too blind. Kathleen Clark's "Regulating the Conflict of Interest of Government Officials," though largely descriptive, includes an implicit warning. Much of the government's