Advisory Opinion No. 2008-53 Rhode Island Ethics Commission Advisory Opinion No. 2008-53 Re: Lise J. Gescheidt, Esq. QUESTION PRESENTED The petitioner, a member of the Tiverton Zoning Board of Review, a municipal appointed position, requests an advisory opinion regarding whether she may participate in discussion and voting on a petition for a variance brought by CVS Caremark Corporation, given that the petitioner owns 450 shares of CVS common stock. RESPONSE It is the opinion of the Rhode Island Ethics Commission that the petitioner, a member of the Tiverton Zoning Board of Review, a municipal appointed position, may participate in discussion and voting on a petition for a variance brought by CVS Caremark Corporation, notwithstanding that the petitioner owns 450 shares of CVS common stock. The petitioner is a member of the Tiverton Zoning Board of Review ("Zoning Board"). She states that there is currently pending before the Zoning Board a petition brought by CVS Caremark Corporation ("CVS") for a variance relative to signage and a drive-thru window at a CVS retail store. The petitioner states that she owns approximately 450 shares of the common stock of CVS which, at the time of her request for this advisory opinion, was valued at approximately $18,000. Since the date of her request, the market value of those shares has fluctuated greatly, and as of the writing of this opinion, they are valued at approximately $12,600. The petitioner's CVS holdings constitute approximately .0000003125% of its outstanding shares, of which there are approximately 1.44 billion. Given her CVS stock ownership, the petitioner asks whether the Code of Ethics prohibits her participation in the Zoning Board's consideration of the variance. Under the Code of Ethics, a public official may not participate in any matter in which she has an interest, financial or otherwise, that is in substantial conflict with the proper discharge of her duties or employment in the public interest. See R.I. Gen. Laws § 36-14-5(a). An official will have an interest in substantial conflict with her official duties if it is reasonably foreseeable that a "direct monetary gain" or a "direct monetary loss" will accrue, by virtue of the public official's activity, to the official, a family member, a business associate, an employer, or any business which the public official represents. See R.I. Gen. Laws § 36-14-7(a); Commission Regulation 36-14-7001. Section 36-14-5(d) further prohibits an official from using her position or confidential information received though her position to obtain financial gain, other than that provided by law, for herself, business associate(s), or any person within her family. The Ethics Commission has not had a recent opportunity to provide guidance on the question of whether a public official's stock holdings in a publicly traded entity trigger a recusal requirement under the above Code provisions. The only prior advisory opinion directly on point was issued ten years ago and used reasoning that we presently do not find to be persuasive. In Advisory Opinion 98-149, the Ethics Commission instructed the Chairperson of the Rhode Island Clean Water Finance Agency ("Agency") that he must recuse on a decision to appoint Fleet Securities as the manager of the Agency’s tax-exempt revenue bonds, given the Chairperson's ownership of approximately 350 shares of Fleet's common stock valued at approximately $5,000. Interestingly, the Commission's opinion was not based on a finding that the value of the Chairperson's Fleet stock might increase as a result of the Agency's decision. Rather, the Commission opined that recusal was required due to a determination that the Chairperson and Fleet were "business associates" based solely on the Chairperson's stated ownership of Fleet stock. Reviewing this opinion today, we disagree with the Commission's prior "business associate" analysis and reject its conclusion. The Code of Ethics defines the term "business associate" as "a person joined together with another person to achieve a common financial objective." R.I. Gen. Laws § 36-14-2(3). A "person" is defined as "an individual or business entity." R.I. Gen. Laws § 36-14-2(7). While we previously and consistently have held that a business association exists between an entity and its officers or directors, this determination has been based on the presumed ability of such persons to, in some manner, influence the entity's financial objectives. See A.O. 2008-36; A.O. 98-76. Under this same reasoning, the Commission has declared that a business association exists between a privately held business and its equity owners. See A.O. 2004-29 (business association exists between a private medical practice and its majority shareholders, and between diagnostic imaging business and its minority shareholders); A.O. 2003-62 (limited partner/investor in venture capital firm is a business associate of the firm). While it may be a fair presumption that most, if not all, shareholders of a privately held business are capable of influencing the business's financial objectives, this presumption would not accurately describe the relationship between a large, publicly traded corporation and its average shareholders. Using the instant facts as an example, the petitioner's ownership of 450 CVS shares (.0000003125% of CVS's 1.44 billion outstanding shares) does not enable her to play an active or meaningful role in the shaping of CVS's financial objectives. Therefore, it would be incorrect to assert that the petitioner is a "business associate" of CVS, as that term is defined in the Code of Ethics. Instead, the analysis should turn on whether the market value of the petitioner's CVS stock is likely to be impacted by the decision of the Tiverton Zoning Board. If so, then sections 5(a) and 5(d) of the Code would require her recusal. In the absence of any recent or compelling Ethics Commission analysis on this specific issue, we think it instructive to consider how the federal government handles such situations. Pursuant to 18 U.S.C. § 208, federal employees are prohibited from participating personally and substantially in matters in which they have a financial interest. This law allows the Office of Government Ethics ("OGE") to enact regulations creating exemptions where an employee's financial interest is deemed to be "too remote or too inconsequential to affect the integrity" of the employee's services. 18 U.S.C. § 208(b)(2). One such regulatory exemption crafted by the OGE relates to de minimis interests in publicly traded securities. See 5 CFR 2640.202. Pursuant to this regulation, a federal employee may participate in a matter involving a party, notwithstanding the employee's ownership of the party's publicly traded securities, if the market value of the employee's holdings does not exceed $15,000. See 5 CFR 2640.202(a). While we in theory approve of the OGE's bright-line, regulatory determination that interests of $15,000 or less are, per se, too remote and inconsequential to require recusal, we note that the Rhode Island Code of Ethics does not currently contain an analogous provision. While the future enactment of such a regulation may be advisable, unless and until this occurs we decline to adopt such a bright-line exception through the advisory opinion process. Instead, we are persuaded to follow a "totality of the circumstances" analysis, regardless of the value of a public official's stock holdings. Such an analysis is used by the OGE in situations where the value of a federal employee's interest in a party's stock exceeds $15,000. In the federal system, even if an employee's holdings are valued at over $15,000, he or she may seek and obtain an "individual waiver" allowing participation, based on a determination that the employee's financial interest is "not so substantial as to be deemed likely to affect the integrity of the employee's services to the Government." 5 CFR 2640.301. The OGE's regulations specify that a determination of waiver is based on the consideration of a number of factors, including: (1) the identity of the person whose financial interest is involved; (2) the type of financial interest (e.g. stock); (3) the value of the financial interest; (4) the predictable change in market value of the financial interest given the governmental decision to be made; (5) the nature and importance of the employee's role in the matter, and the amount of discretion involved; and (6) other relevant factors such as the importance of the employee's participation, and whether adjustments could be made to the employee's duties to reduce any appearance of impropriety. See 5 CFR 2640.301(b). We find that, regardless of whether the value of one's stock holdings is above or below $15,000, the consideration of the above factors will lead to a reasoned and fair determination of whether a public official's ownership of a particular security necessitates recusal from matters involving that security's issuer. Whatever the value of one's holdings, recusal will be necessary if the totality of the circumstances indicate that it is reasonably foreseeable that the public official will be financially impacted as a result of the performance of her public duties. Recusal in such instances is entirely consistent with the current conflict of interest provisions of the Code of Ethics. Applying the above factors to the instant case, the petitioner is a member of the Tiverton Zoning Board of Review, which is being asked to grant CVS a land use variance relative to allowable signage and the implementation of a drive-thru pharmacy window at a single CVS retail location. The petitioner's financial interest in CVS is in the form of ownership of 450 shares of CVS stock. During the last 52 week period the value of the petitioner's CVS stock has ranged from approximately $12,500 to $20,000. We believe that it is unlikely that CVS's share price will be impacted by a decision relative to signage and a drive-thru at one of CVS's approximately 6,200 retail stores. Finally, we note that if the petitioner were unable to participate in this matter, an alternate member of the Tiverton Zoning Board would be available to take her place. Thus, considering the totality of the circumstances, we find that it is not reasonably foreseeable that the decision of the Tiverton Zoning Board of Review relative to CVS's variance application will financially impact the petitioner. The petitioner's interest in CVS is not so substantial as to be deemed likely to affect the integrity of her public service or the decision of the Tiverton Zoning Board. Accordingly, it is the opinion of the Rhode Island Ethics Commission that the Code of Ethics does not require the petitioner to recuse from the Zoning Board's consideration of CVS's request for a variance. Code Citations: 36-14-2(3) 36-14-2(7) 36-14-5(a) 36-14-5(d) 36-14-5(f) 36-14-6 36-14-7(a) Other Authorities Cited: 18 U.S.C. 208 5 CFR 2640.202 5 CFR 2640.301 Related Advisory Opinions: 2008-36 2004-29 2003-62 98-76 Keywords: Business associate Financial interest