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Community Champion

Question of law and ethics

I’d like to solicit your opinion or, even better, a definitive answer to the following questions:

 

I am considering accepting an executive position at a sizable company.  According to the pre-negotiated terms, I will retain the ownership and continue to run part-time my own existing small consultancy and VAR business.

 

There are products and technologies that I am partial to, because of the level of expertise, results of comparative analysis and some clout with vendors. I am presently reselling some of those.

 

The question is this: is it legal for me to act as a VAR to the company where I am holding a decision-making authority?

 

If it is indeed legal, is it ethical for me to provide VAR services to “myself”, given that I may be able to control the costs better and sell products that firm will be using anyway, at a much lower margin? Should I use independent VARs?

 

P.S.  Their IT is presently billing company units and acting as an internal service provider.

 

Thank you,

VT100

13 Replies
Advocate II

Re: Question of law and ethics


@vt100 wrote:

...

The question is this: is it legal for me to act as a VAR to the company where I am holding a decision-making authority?

 

If it is indeed legal, is it ethical for me to provide VAR services to “myself”, given that I may be able to control the costs better and sell products that firm will be using anyway, at a much lower margin? Should I use independent VARs?

...


Vladimir,

Congratulations on the new position, and the positive value employment agreement you negotiated. Also, thank you for bringing up a very relevant question in this forum.

 

Bottom Line Up Front (BLUF): I recommend your consultancy and your VAR company not ever have your new employer company as a customer. That situation leads to either an actual conflict of interest or the appearance of such.

 

Discussion:

Every formal ethics training I have received over the past five decades of professional life have emphasized the importance of avoiding not only actual conflict of interest but also  the appearance of such. Even if you are not in the decision chain or the financial chain for interaction between your employer and your personally owned companies, as a senior executive of your employer, you are assumed to have the ability to informally influence the contracting and purchase decisions.

 

While you may have the greatest confidence in your own ability to act in the best interest of your employer, competitors to your personally owned companies will not have such high trust in your ethics and honesty. If any of them seek a contract with your employer and your company gets the contract, they are likely to file a grievance to the selection process and point out the conflict of interest inherent in your executive position and your ownership. That will result in costly delays to your employer's business as the challenge is resolved, and could cost you both time and money in your own businesses in trying to defend your position.

 

Also, I recommend that if your employer company ever has an open action to choose any competitor to your own companies for work, you open a well-recorded history of either total recusal from the process of setting requirements and reviewing bids, or a fully recorded history of exactly how and why you have used your own professional knowledge to advise the process. Either way, be sure to have the corporate ethics officer (usually the General Counsel or member of that staff) review and record the evaluation of your recusal or your participation. This is all about the necessity of having a transparent and valid CYA record in the corporate files.

 

 

We have a pertinent recent example in the case of the mayor of Baltimore, Maryland, who sat on the board of the University of Maryland Medical System (UMMS). She also self-published books aimed at children in medical care. The UMMS bought tens of thousands of her book fo hundreds of thousands of dollars, and had huge numbers of these books sitting in a warehouse. Once this situation became publicly highlighted,

University of Maryland Medical System pays members of volunteer board hundreds of thousands in busin... by Luke Broadwater THE BALTIMORE SUN | MAR 13, 2019,

the resulting furor ended in great embarrassment for the UMMS, the City of Baltimore, and the mayor, herself; see 

Baltimore mayor apologizes for deal to sell self-published books to Md. hospital system. Washington Post March 28. 

 

In less than a week the mayor had to resign her position on the UMMS Board:

Baltimore Mayor Quits Hospital System Board Over Book Sales
Baltimore Mayor Catherine Pugh has stepped down from the University of Maryland Medical System's board of directors days after it came to light that the hospital network had for years purchased her self-published children's books.

March 18, 2019

 

Good luck, and, again, congratulations on your new career opportunities.

 

Best regards,

 

 

 

 

Dr. D. Cragin Shelton, CISSP
Dr.Cragin@iCloud.com
https://CraginS.blogspot.com/
My Community Profile
My LinkedIn Profile
Contributor II

Re: Question of law and ethics


@vt100 wrote:

The question is this: is it legal for me to act as a VAR to the company where I am holding a decision-making authority?


Maybe. If the company deals with any government funding or contracts, conflict of interest laws may apply. Further, I'd be surprised if the company in question didn't have some conflict of interest policy.

 

If it is indeed legal, is it ethical for me to provide VAR services to “myself”, given that I may be able to control the costs better and sell products that firm will be using anyway, at a much lower margin? Should I use independent VARs?


It's not fair to the company, its employees, and the overall market not to draw some line. If there isn't a conflict of interest policy, perhaps that should be your first project. Ethics is a tricky topic, but I'd say the grand pitfall is we tend to look at questions as they apply to only us. Instead, think of how your precedent will impact others. While you may be able to walk the ethical line, others may not. You're laying the groundwork for their struggle, if not downfall,  by your choices.

Contributor III

Re: Question of law and ethics

It may well be against your new employers procurement or ethical policy to benefit from making a sale.  I'd suggest you examine if there is such a policy and what it says.  Also consider why the policy exists.  If you sell into your employer you are exposing yourself to claims you only selected certain products/service because you yourself would benefit financially.  Whatever the truth of the case it probably isn't worth the risk to your reputation.

 

-----------------------------------------------------------
Steve Wilme CISSP-ISSAP, ISSMP M.Inst.ISP
Advocate I

Re: Question of law and ethics


@CraginS wrote:

Bottom Line Up Front (BLUF): I recommend your consultancy and your VAR company not ever have your new employer company as a customer. That situation leads to either an actual conflict of interest or the appearance of such.

 


I agree with this advice the most and to you that may mean giving up your biggest customers. Are you prepared to do that? Don't live with ethical dilemmas!

Community Champion

Re: Question of law and ethics

> vt100 (Community Champion) posted a new topic in Career on 07-21-2019 01:48 PM

> I’d like to solicit your opinion or, even better, a definitive answer to the
> following questions:

Oh, I doubt you'll get anything *like* a definitive answer. This is an *excellent*
question for courses in ethics and law: mostly because you'll never get a final
answer, but the discussion would be valuable.

>   I am considering accepting an executive position at a
> sizable company.  According to the pre-negotiated terms, I will retain the
> ownership and continue to run part-time my own existing small consultancy and
> VAR business.
>   The question is
> this: is it legal for me to act as a VAR to the company where I am holding a
> decision-making authority?

If you hold decision-making authority about whether you *get* the contract, or
whether the work you do is acceptable, that's a pretty clear conflict of interest.
Even if the terms of your employment contract allow it, you'd put yourself in
legal jeopardy if you don't make provision for someone else to review the decision.

If the contract is for a different division or function, and the decision is made by
someone else, you are probably covered legally, but it's still a bit iffy ethically.

>   If it is indeed legal, is it ethical for me to
> provide VAR services to “myself”, given that I may be able to control the
> costs better and sell products that firm will be using anyway, at a much lower
> margin?

You say it's an "executive" position, although you don't say how far up the food
chain you are. "Executive" positions usually advise and govern, so, in a sense, if
you are charging for VAR services you are, in a sense, double-billing the company.


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Community Champion

Re: Question of law and ethics


@AppDefects wrote:

@CraginS wrote:

Bottom Line Up Front (BLUF): I recommend your consultancy and your VAR company not ever have your new employer company as a customer. That situation leads to either an actual conflict of interest or the appearance of such.

 


I agree with this advice the most and to you that may mean giving up your biggest customers. Are you prepared to do that? Don't live with ethical dilemmas!


Oh, I am perfectly fine with giving up my (possible future) employer as a customer. Frankly, it is much easier to recuse myself and my company from consideration. I'm sure there'll be plenty of other subjects to worry about.

Community Champion

Re: Question of law and ethics


@CraginS wrote:

@vt100 wrote:

...

The question is this: is it legal for me to act as a VAR to the company where I am holding a decision-making authority?

 

If it is indeed legal, is it ethical for me to provide VAR services to “myself”, given that I may be able to control the costs better and sell products that firm will be using anyway, at a much lower margin? Should I use independent VARs?

...


Vladimir,

Congratulations on the new position, and the positive value employment agreement you negotiated. Also, thank you for bringing up a very relevant question in this forum.

 

Bottom Line Up Front (BLUF): I recommend your consultancy and your VAR company not ever have your new employer company as a customer. That situation leads to either an actual conflict of interest or the appearance of such.

 

Discussion:

Every formal ethics training I have received over the past five decades of professional life have emphasized the importance of avoiding not only actual conflict of interest but also  the appearance of such. Even if you are not in the decision chain or the financial chain for interaction between your employer and your personally owned companies, as a senior executive of your employer, you are assumed to have the ability to informally influence the contracting and purchase decisions.

 

While you may have the greatest confidence in your own ability to act in the best interest of your employer, competitors to your personally owned companies will not have such high trust in your ethics and honesty. If any of them seek a contract with your employer and your company gets the contract, they are likely to file a grievance to the selection process and point out the conflict of interest inherent in your executive position and your ownership. That will result in costly delays to your employer's business as the challenge is resolved, and could cost you both time and money in your own businesses in trying to defend your position.

 

Also, I recommend that if your employer company ever has an open action to choose any competitor to your own companies for work, you open a well-recorded history of either total recusal from the process of setting requirements and reviewing bids, or a fully recorded history of exactly how and why you have used your own professional knowledge to advise the process. Either way, be sure to have the corporate ethics officer (usually the General Counsel or member of that staff) review and record the evaluation of your recusal or your participation. This is all about the necessity of having a transparent and valid CYA record in the corporate files.

 

 

We have a pertinent recent example in the case of the mayor of Baltimore, Maryland, who sat on the board of the University of Maryland Medical System (UMMS). She also self-published books aimed at children in medical care. The UMMS bought tens of thousands of her book fo hundreds of thousands of dollars, and had huge numbers of these books sitting in a warehouse. Once this situation became publicly highlighted,

University of Maryland Medical System pays members of volunteer board hundreds of thousands in busin... by Luke Broadwater THE BALTIMORE SUN | MAR 13, 2019,

the resulting furor ended in great embarrassment for the UMMS, the City of Baltimore, and the mayor, herself; see 

Baltimore mayor apologizes for deal to sell self-published books to Md. hospital system. Washington Post March 28. 

 

In less than a week the mayor had to resign her position on the UMMS Board:

Baltimore Mayor Quits Hospital System Board Over Book Sales
Baltimore Mayor Catherine Pugh has stepped down from the University of Maryland Medical System's board of directors days after it came to light that the hospital network had for years purchased her self-published children's books.

March 18, 2019

 

Good luck, and, again, congratulations on your new career opportunities.

 

Best regards,

 

 

 

 


Thank you for your excellent and comprehensive reply and for the example of the possible folly in particular.

Community Champion

Re: Question of law and ethics


@Steve-Wilme wrote:

It may well be against your new employers procurement or ethical policy to benefit from making a sale.  I'd suggest you examine if there is such a policy and what it says.  Also consider why the policy exists.  If you sell into your employer you are exposing yourself to claims you only selected certain products/service because you yourself would benefit financially.  Whatever the truth of the case it probably isn't worth the risk to your reputation.

 


Thank you for your reply. I would, actually take this further and would have to say that even if I sell to the company at no profit, it still may backfire, as there are less tangible benefits, such as my rating as VAR with the manufacturers that will be affected. All in all, there is no upside in doing it.

Community Champion

Re: Question of law and ethics


@JoePete wrote:

@vt100 wrote:

The question is this: is it legal for me to act as a VAR to the company where I am holding a decision-making authority?


Maybe. If the company deals with any government funding or contracts, conflict of interest laws may apply. Further, I'd be surprised if the company in question didn't have some conflict of interest policy.

 

If it is indeed legal, is it ethical for me to provide VAR services to “myself”, given that I may be able to control the costs better and sell products that firm will be using anyway, at a much lower margin? Should I use independent VARs?


It's not fair to the company, its employees, and the overall market not to draw some line. If there isn't a conflict of interest policy, perhaps that should be your first project. Ethics is a tricky topic, but I'd say the grand pitfall is we tend to look at questions as they apply to only us. Instead, think of how your precedent will impact others. While you may be able to walk the ethical line, others may not. You're laying the groundwork for their struggle, if not downfall,  by your choices.


You are making an excellent point. I will reply to the general thread later with specific reference to the section in bold.