Ethics: Advisory Opinion No. 2000-7

Advisory Opinion No. 2000-7
Advisory Opinion No. 2000-7

Application Of The Code To The CRRA’s Participation In The Management
Of Private Entities In Which The Authority Has An Interest

The Connecticut Resources Recovery Authority (CRRA) has asked the State Ethics Commission for an advisory opinion regarding the following issues:

CRRA is a quasi-public agency created by state statute to develop and operate a solid waste disposal system to serve the State of Connecticut. See, Conn. Gen. Stat. Chapter 446e. Pursuant to Conn. Gen. Stat. 22a-268, CRRA is required to discharge its functions in part through contracts with private sector entities. Among the purposes of the Authority, is to assist "in the development of industries, technologies and commercial enterprises within the State of Connecticut, based on resources recovery, recycling, reuse and treatment or processing of solid waste." Conn. Gen. Stat. 22a-262(5). In furtherance of this purpose, CRRA is empowered to make equity investments in such businesses. Conn. Gen. Stat. 22-267.

CRRA seeks the Commission’s guidance on how Authority employees may participate in the management of private sector entities in which the CRRA has a significant equity or operational interest. Specifically:

1. Whether a CRRA employee may serve on the Board of Directors of a private sector entity that is in business to generate electricity and to remediate polluted properties within Connecticut? The operations of this entity are directly related to CRRA’s mission; and, in fact, certain of the entity’s planned endeavors will benefit the Authority. As a consequence, CRRA has a substantial interest in the success of this entity. In order to protect this interest, if permissible, CRRA intends for one of its employees to serve as a director of the entity. Such employee would provide expertise regarding issues related to CRRA’s mission. The employee would receive no salary or other remuneration in connection with his or her service on the Board. While such employee may advocate CRRA’s interests, the individual will abstain from votes that directly affect CRRA’s business interests.

2.a. Whether a CRRA employee may serve on the Board of Directors of an entity which performs functions related to the Authority’s mission and in which CRRA may hold an equity interest (as the result of a purchase of a portion or all of the entity’s stock)? In order to manage its investment, if permissible, CRRA would expect to be represented on the Company’s Board. Specifically, at least one Authority employee would serve as a Director, but would receive no salary or other remuneration from the Company for such service. Such employee would represent CRRA’s interest on the Board and would vote accordingly.

2.b. Whether CRRA may assign one or more of its employees, on a full or part time basis, to assist in the management of this Company’s operations; and whether such employees may be paid, in whole or in part, by the Company? In this regard, the Authority also wishes to know if the Commission’s response is different if the employee: in the past has participated on behalf of CRRA in the negotiation of agreements to sell recyclable materials to the Company; or in the past has participated on behalf of CRRA in the negotiation of its investment in the Company.

1 and 2.a. Under the facts presented, no provision of The Code Of Ethics For Public Officials would prohibit a CRRA employee from serving as an unpaid Director of an entity in order to protect or represent CRRA’s interests or investments in such entity. In essence, the CRRA employee is performing the duties of Director as part of his or her Authority responsibilities. Therefore, such work poses no conflict of interests, as long as the employee receives no remuneration other than his or her CRRA compensation.

It must be remembered, however, that when serving in such capacity the CRRA employee remains fully subject to the provisions of the Code. See, State Ethics Commission Advisory Opinion No. 89-3, 50 Conn. L.J. No. 31, p. 2C (1/31/89); wherein the Commission held that when the Chief State’s Attorney serves on a council by virtue of his state position his actions remain subject to the requirements of the Code of Ethics.

Thus, for example, the Code’s prohibition on use of office for the benefit of one’s immediate family (Conn. Gen. Stat. 1-84(c)) would prohibit the CRRA employee/Director from using that Directorship to secure company employment or a promotion for a family member. Additionally, the Code’s ban on acceptance of employment that impairs independence of judgement (Conn. Gen. Stat. 1-84(b)) would preclude the CRRA employee/Director from investing in the entity he or she directs. (While such investment may seem consistent with the Director’s duty to effectively oversee the activities of the entity; the desire to maximize personal investment return in the short term may well conflict with the Director’s responsibility to protect CRRA’s long term interests.)

Furthermore, the Code’s post-state employment restrictions will also extend to the former CRRA employee/Director’s actions. Therefore, for example, the individual may not be employed by the Company, for one year after leaving the CRRA, unless such employment is at no greater rate of compensation than the individual was earning while at the Authority. Conn. Gen. Stat. 1-84b(b). See, State Ethics Commission Advisory Opinion No. 89-25 (Amended), 51 Conn. L.J. No. 24, p. 2E (12/12/89). (As with reemployment at one’s former agency, this restriction is necessary to prevent the former CRRA employee/Director from improperly utilizing contacts and influence at the Company he or she previously directed.) Additionally, the former CRRA employee/Director may not, for one year, be compensated to represent another person in its dealings with his or her former Company, where the individual’s successor CRRA representative now serves as a Director. Conn. Gen. Stat. 1-84b(b). See, State Ethics Commission Advisory Opinion No. 96-18, 58 Conn. L.J. No. 21, p. 3E (11/19/96): wherein the Commission held that, for one year, a former agency employee could not appear, for compensation, before a task force on which a member of his or her former agency serves.

2.b. Regardless of the CRRA employee’s prior involvement, or lack of involvement, with the Company, under no circumstances should an Authority employee’s salary be paid by the private entity, when the individual is furnishing his or her services as CRRA’s representative. In essence, it is a fundamental conflict of interests for a state servant’s compensation to be determined or directly provided by a private entity the individual is charged with regulating or managing on behalf of the State. It is true that the Commission has previously allowed private firms to pay the salaries of state officials under the Loaned Executive Program. See, State Ethics Commission Advisory Opinion No. 91-1, 52 Conn. L.J. No. 35, p. 1D (2/26/91). However, that Program was approved with the explicit directive that the loaned executive/official could take no action, in his or her state capacity, that affected the financial interests of the private entity. In this instance, such a restriction is obviously inapplicable, since the very purpose of the proposed arrangement is for the CRRA employee to manage the activities of the private company.

Under these circumstances, to avoid violation of the Code the Authority must continue to determine and provide the compensation for any employee it assigns to the entity in question. No provision of the Ethics Code, however, would prevent CRRA from recovering its costs for such services from the entity. See, e.g., Conn. Gen. Stat. 16-49: expenses of Department of Public Utility Control required to be paid by public service companies.

By order of the Commission,

Stanley Burdick,

Content Last Modified on 9/7/2005 8:03:24 AM