Inherent Conflict Of Interest Research Articles

To Trust or to Monitor: A Dynamic Analysis

In a principal-agent framework, principals can mitigate moral hazard problems not only through extrinsic incentives such as monitoring, but also through agents' intrinsic trustworthiness. Their relative usage, however, changes over time and varies across societies. This paper attempts to explain this phenomenon by endogenizing agent trustworthiness as a response to potential returns. When monitoring becomes relatively cheaper and more widely used over time, agents acquire lower trustworthiness and hence trust declines, which may actually drive up the overall governance cost in society. An innovative finding is the inherent conflict of interests between principals and agents in using trust and monitoring: higher trustworthiness benefits agents but not necessarily the principals, while cheaper monitoring makes agents worse off but benefits principals. So across societies, those giving agents/employees lower weights in choosing governance methods tend to have higher monitoring intensities and lower trust. These results are consistent with available empirical evidence.

The Board Managment Nexus in Corporate Governance

The parties involved in corporate governance include the board of directors, the Chief Executive Officer, Management and shareholders. The Board is the focal point of the corporate governance system - it is ultimately accountable and responsible for the performance and affairs of a company. In discharging his duties, a director must act honestly and exercise such degree of skill and diligence as would amount to the reasonable care which an ordinary man might be expected to take in the circumstances of his own business. Boards have to consider weighing the right balance between policing and partnering with management. The aim of corporate governance is to address the inherent conflicts of interest between directors of a corporation and its managers that is, a balance between those who make decisions and those who execute decisions. It is essential that the roles of chairman and chief executive are not exercised by the same individual. The division of responsibilities between the chairman and chief executive should be clearly established, set out in writing and agreed by the board.

Public Rights and Private Rights of Action: The Enforcement of Federal Election Laws

In what circumstances should there be a private right of action to sue for violations of federal election statutes. Lying at the intersection of federal courts and election law, this question has arisen in several recent cases, as private litigants have increasingly called upon federal courts to resolve election disputes. The question was before the U.S. Supreme Court in Brunner v. Ohio Republican Party (“Brunner”) which alleged that a state chief election official had failed to follow the requirements of the Help America Vote Act of 2002 (“HAVA”) pertaining to statewide voter registration lists. In a one-paragraph, unanimous per curiam opinion, the Court held that a political party could not sue, reversing the lower courts’ conclusion that there was a private right of action. The brevity of the Brunner decision masks the significance and complexity of the larger question. To be sure, the issue in Brunner was a straightforward one under existing private-right-of-action doctrine, which requires an “unambiguously conferred” individual right. The problem is this doctrine fails to account for the vital role that federal courts play in overseeing elections in the United States, especially in pre-election litigation. The availability of a private right of action is especially critical in election cases – and the existing doctrine especially ill-fitting – for both conceptual and practical reasons. On a conceptual level, election cases typically involve non-individuated or collective interests. It follows that the Court’s insistence on an unambiguously conferred individual right makes little sense in election cases. Existing doctrine is also problematic from a practical perspective, given the absence of any institution besides the federal courts with the ability to ensure consistency in the interpretation of federal law. The ultimate consequence is to leave the interpretation of federal election law in the hands of state and local officials, except in those rare instances when the U.S. Attorney General decides to sue. This is particularly troubling given the partisan affiliation of most state and many local election officials, which creates an inherent conflict of interest and makes federal judicial oversight especially important. The Court’s stringent approach to private rights of action is therefore ill-suited to federal election law disputes, because they involve quintessentially public rights for which a federal judicial forum is essential. In Brunner, the Court failed to consider the distinctive character of election controverises. In fact, both the lower courts and the Supreme Court got it wrong in this case – even though they arrived at diametrically opposite conclusions. The lower courts incorrectly applied existing precedent, which foreclosed private enforcement of HAVA’s matching requirement. But the Supreme Court was also incorrect, in failing to reconsider this precedent to account for the especially important role the federal courts play in electoral disputes. Though faithfully applying existing doctrine, the Court missed an opportunity to correct – or at least limit – a line of precedent that has unfortunate consequences in the realm of election law. The Article concludes that, in the appropriate case, the Court should revisit Brunner and relax the standard for private enforcement of federal election statutes under Section 1983.

Ethics And Tax Education: A Change In Focus Is Needed

The corporate scandals of recent years have highlighted the failure of ethics, not only in corporate management, but also in the big accounting firms. For tax professionals, there is an inherent conflict of interest that makes studying ethics in the context of tax practice problematic. On the one hand, the tax professional is a client advocate with the responsibility of helping the client to legally minimize tax liability. On the other hand, tax professionals who are lawyers or CPAs and who practice before the IRS have both ethical and legal obligations mandated by their professions and the Department of the Treasury. For the tax educator, the problem is finding a way to reinforce the importance of ethical behavior while promoting an understanding of the inherent conflict that anyone in the tax profession faces. In this paper, we look at ethics in tax practice and consider the difficulties faced by faculty in providing an ethical grounding for undergraduate students in taxation. First we will discuss the professional standards already in place for CPAs— the AICPA Statements on Standards for Tax Services and the Treasury Department’s Circular 230. Next we will discuss the need for new guidelines, as demonstrated by the recent wave of lawsuits over tax shelters. Then we will look at ethics as covered in several popular tax textbooks. Finally, we will offer recommendations on improving the coverage of ethics and refining the focus of materials commonly available for educators.

Directors Remuneration, Who Should Decide?

It has been argued that there is a conflict of interest when executive directors take part in setting their own pay and that no director should be involved in deciding his or her own remuneration. The aim of Corporate Governance is to address the inherent conflicts of interest between directors of a corporation and its managers that is, a balance between those who make decisions and those who execute decisions. Disclosure of directors remuneration is increasingly regarded as good practice and is now mandated in several countries. Some jurisdictions call for disclosure of remuneration of a certain number of the highest paid executives, while in others it is confined to specified positions. The CMA requires that the remuneration policy especially of executive directors should include an element that is linked to corporate performance.

Editorial – Toward a Global Theory of Corporate Governance

Editorial – Toward a Global Theory of Corporate Governance

Can Companies Buy Credible Analyst Research?

I examine the determinants and market impact of paid-for coverage using a hand-collected sample of paid-for reports over 1999–2006. More than five hundred publicly listed US companies paid for analyst coverage since 1999. Yet little is known about the informational consequences of this analyst research. Firms with greater uncertainty, weaker information environments, and low turnover are more likely to buy coverage as they have the most to gain from analyst coverage but are unlikely to attract sell-side analysts. Despite the inherent conflicts of interest, I find paid-for reports have information content for investors based on two-day abnormal returns. After the initiation of coverage, companies experience an increase in institutional ownership, sell-side analyst following, and liquidity. In addition, the results are strongest for the fee-based research firm with ex ante policies that reduce potential conflicts of interest.

The Power of Governance in Financial Relationships: Governing Tensions in Exotic Infrastructure Territory

ABSTRACT The scope of financial products has recently extended to include investments in infrastructure assets that were previously community owned. While private investment in infrastructure is not new, the rise of institutional investors searching for infrastructure investments to match long‐term liabilities is a recent phenomenon. Most cannot hire the necessary expertise or take on the relatively large risks that accompany undertaking such endeavors in‐house, with many opting to place capital in specialised infrastructure funds. While there is a plethora of studies on various aspects of public and corporate governance, this paper concentrates on the governance of relationships between institutional investors and their infrastructure fund managers, contributing to the growing body of literature on financial geographies through a focus on the decision‐making of financial actors at the micro level, where the origins and destination of capital into geographies are determined. This private governance is defined as the “regulation” by private agents, insofar as they must anticipate and deal with potential or inherent conflicts of interest. Even as the “embedded” argument stresses the role of concrete personal relations and networks in generating trust, when interests need to be safeguarded in new and unfamiliar settings such as in infrastructure equity investing, the scope of private governance plays a central role in creating the financial relationship. This is supported through a discussion of four problems in private infrastructure governance, which are affected by but also have an impact upon the development of trust and long‐term relationships. Despite differing constraints and various degrees of negotiating leverage, innovative economic action is structured through anticipating and aligning diverging interests of (new) social relations.

When public meets private: conflicts in information policy

PurposeThe purpose of this paper is to explore some of the policy debates surrounding the commercial reuse of public sector information. It aims to provide an overview of these discussions in the light of the 2003 EU Directive on this matter and the UK's implementation in the form of the 2005 Reuse of Public Sector Information Regulations. It also aims to argue that there is an inherent conflict of interest between the UK policy of making public sector information more freely available and the financial targets imposed by government on some of the key producers of this information.Design/methodology/approachThe discussions presented in this paper draw on secondary academic and commercial research carried out in Europe and the USA. Primary analysis of the financial accounts of public bodies is also utilised to consider the potential conflicts of interest between revenue generation and information dissemination.FindingsThe evidence presented suggests that the sale of information collected by a number of key public bodies and the financial targets that are set by HM Treasury for them are a barrier to innovation within the private sector and to the wider development of an information society.Practical implicationsThis research provides useful evidence for developers of UK information policies within the context of stimulating the development of a more vibrant information economy.Originality/valueThis is the first attempt to combine the financial analysis of UK public accounts with discussions about the commercial reuse of public sector information.

Psychotherapy as Religion

In Psychotherapy as Religion, author William M. Epstein seeks to demonstrate that the entire field of psychotherapy is based upon unscientific concepts and has never been shown to effectively treat any mental disorder. Dr. Epstein, a professor of social work at the University of Nevada, reports that the basis of his premises are derived from reviewing randomized controlled trials that addressed effectiveness and were published within the past decade in either the American Journal of Psychiatry, Archives of General Psychiatry, or the Journal of Consulting and Clinical Psychology. The introduction presents the author's conclusion that psychotherapy, while lacking in efficacy, is widely accepted in America because it is in concordance with the nation's “heroic individualism” and belief in personal responsibility for social ills. He argues that psychotherapy has taken on the role of social religion, and finds similarities with Christian Science. The major portion of the book is devoted to criticism of individual studies and meta-analyses. Specific topics include depression, anxiety, eating disorders, addictions, testing methodology, psychodynamic psychotherapy, and cognitive-behavioral therapy. In each chapter, the author identifies apparent limitations in every study he encounters. Many of his arguments appear articulate and well crafted, such as rejecting studies with high attrition rates or lack of an adequate comparison arm. In other instances, he discounts studies on the basis of the argument that psychologists have an inherent conflict of interest when evaluating the validity of their own field, and therefore might not be able to objectively report upon the patients they evaluate. The author's use of complicated sentence structure and obscure vocabulary impairs the readability of the text. Likewise, redundant editorializing detracts from what would otherwise be a straightforward and logical presentation. The book may appeal most to those with an interest in evidence-based medicine and to those true believers in psychotherapy who enjoy having their faith challenged.

An Investigation of Ethics Officer Independence

In this paper, we examine whether ethics officers are able to perform their assigned duties independently of organizational management. Specifically, we investigate whether inherent conflicts of interest with company management potentially hinder the ability of ethics officers to serve as an effective monitor and deterrent of unethical activity throughout the organization. As part of our analysis, we conducted 10 detailed phone interviews with current and retired ethics officers in order to determine whether practicing ethics officers feel the need for additional independence protection from management. We propose that the current system in which ethics officers report to management must be changed in order for ethics officers to effectively perform their jobs. Specifically, we maintain that ethics officers should (1) be hired by, (2) be fired by, and (3) report directly to the corporate board of directors rather than company management. Such a change in the reporting environment would greatly enhance the independence of ethics officers.

Research Ethics Boards: Size, Not Money

I read with interest the debate about for-profit versus non-profit institutional review boards (IRBs) [1], but was disappointed that no one addressed the ability (or inability) of for-profit IRBs to review studies with the local context of research subjects in mind and then monitor what actually occurs during the consent process throughout the research trial. To my mind the “bigness” of for-profit IRBs may be more of an impediment in protecting research subjects than their inherent conflict of interest. Our IRB has reviewed consent forms approved by central/for-profit IRBs that contained obvious errors such as schemas that did not match protocol narrative and use of eight point font in a study of geriatric subjects. Even when the initial review is outstanding, it seems a practical impossibility for a single IRB to provide meaningful monitoring of the actual consent process and implementation of the protocol at sites throughout the country. The greater “efficiency” of for-profit IRBs is only a meaningful benefit if increased speed can be shown not to occur at the expense of careful review of consent forms, real understanding of the local research context, and a commitment to audit the informed consent process throughout the study for the protection of research subjects, including ongoing education and advice for researchers and their teams. This is not to say that all local IRBs perform this function as they should, but it does seem almost impossible for one IRB to perform local review and oversight for research sites around the nation in a way that really makes a difference for the men, women, and children who give of their time and their bodies so that society can benefit.

A proposed corporate governance reform: Financial statements insurance

Abstract The inherent conflicts of interest in the auditor–client relationship and the unobservability of financial statement quality are likely culprits in the recent corporate scandals such as Enron and WorldCom. The solution proposed here is a financial statement insurance (FSI) mechanism. Instead of appointing and paying auditors, companies would purchase financial statement insurance that provides coverage to investors against losses suffered as a result of misrepresentation in the financial reports. The coverage and the premiums would be publicized. The insurance carriers then would appoint and pay the auditors. Those announcing higher limits of coverage and smaller premiums would distinguish themselves in the eyes of the investors as companies with higher quality financial statements. In contrast, those with smaller or no coverage or higher premiums would reveal themselves as having lower quality financial statements. Every company would be eager to get higher coverage and pay smaller premiums, lest it be identified as the latter. By transferring the hiring decision to the insurer, this scheme eliminates the auditor's inherent conflict of interest. The publicization of the coverage and the premium credibly signals the quality of the insured's financial statements and direct investments towards better projects. At the same time, the ability to signal the quality of financial statements provides companies with incentives to improve them. Thus, FSI will result in fewer misrepresentations and, accordingly, in fewer suits and smaller shareholders’ losses, as well as a more efficient allocation of resources.

Potential for Conflict of Interest in the Evaluation of Suspected Adverse Drug Reactions

HEALTH CARE PRACTITIONERS AND PATIENTS SEEK safe and effective drugs. However, no drug is completely safe; all drugs have toxic effects that must be balanced with their benefits in deciding whether they should be marketed or used in any given person. To inform such decisions, the United States relies on a drug approval system whereby preclinical studies precede 3 phases of clinical studies. Collectively, these usually include 500 to 3000 exposed patients and 2 or more confirmatory trials, demonstrating before marketing that a drug is effective and reasonably safe for its recommended use. Thus, adverse reactions occurring in 1% or more of exposed patients are usually well described upon marketing. However, rarer adverse reactions are not well characterized until after marketing. This reflects a deliberate societal decision to balance delays in access to new drugs with delays in information about rare adverse reactions. To provide the missing information, the United States maintains a postmarketing surveillance system including passive collection of spontaneous reports of adverse drug reactions (ADRs) to generate signals of possible adverse drug events. This is supplemented by formal pharmacoepidemiology studies testing those hypotheses, confirming or disproving potential signals from the spontaneous reporting system (SRS). Cerivastatin uniquely challenged this system. It is now well known that cerivastatin, when combined with gemfibrozil, poses an increased risk of rhabdomyolysis. In fact, a rhabdomyolysis warning was included in the original cerivastatin label upon its US launch, along with a warning against use with fibrates, based on experiences with previously released statins. Postmarketing reports of rhabdomyolysis soon after marketing were therefore neither unexpected nor alarming. Thus, the normally difficult decision to act more aggressively on spontaneous reports, always subjective, was even more difficult here. I share the concern by Psaty et al that drug manufacturers have an inherent conflict of interest in making such decisions. However, cerivastatin presents a unique opportunity to highlight SRS limitations, and its potential misuse, and provides insights into how to improve the US drug monitoring program. This commentary will not consider issues of the ongoing litigation, including manufacturer conduct, timelines of company memos, the litany of legal exhibits, or the accusations made by Psaty et al regarding those issues. Rather, it will discuss the scientific and policy issues raised by Psaty et al, describe the SRS in some detail, and discuss appropriate uses of SRS data and organizational implications of its limitations. Cerivastatin serves as an instructive example. The company response addresses the cerivastatin legal issues elsewhere in this issue.

Conflict of Interest and Purpose in Bilirubin Screening: In Reply

In Reply .— I thank Dr Lavin for his comments. Perhaps my conclusion was a trifle hyperbolic, but I have no hesitation in standing by the statement that the ability to measure a transcutaneous bilirubin (TcB) level in the office should be very valuable for the practicing physician. When Dr Lavin sees a jaundiced newborn on day 3 or 4 in his office and decides to get a bilirubin level, would he prefer a completely noninvasive, instantaneous measurement of the bilirubin or would he rather perform a heel stick on the infant (or have it done elsewhere) and wait several hours for the results? More important, what does he think the mother (and the infant) would prefer? In our study, data from 40 infants were obtained from a private-practice group, and discussions with these physicians amply confirms that they have found this instrument to be very useful. We have been using TcB measurements in our own outpatient clinic for >6 months, and I can assure Dr Lavin that our residents and attending physicians find it equally useful. In addition to providing instantaneous and important information about the infant's bilirubin level, the use of TcB measurements in both the nursery …

Do Portfolio Managers Have an Inherent Conflict of Interest with Energy Efficiency?

Portfolio managers, both public and private, can face conflicts of interest with energy efficiency when cost recovery and profits are tied to sales volume, but this problem can be solved. Regulators and utilities in states such as California, New York, Oregon, Washington, and Idaho are implementing policies that remove disincentives for investments in cost-effective energy efficiency and distributed resources.

Do Portfolio Managers Have an Inherent Conflict of Interest with Energy Efficiency?

Portfolio managers, both public and private, can face conflicts of interest with energy efficiency when cost recovery and profits are tied to sales volume, but this problem can be solved. Regulators and utilities in states such as California, New York, Oregon, Washington, and Idaho are implementing policies that remove disincentives for investments in cost-effective energy efficiency and distributed resources.

UNDERSTANDING STABILITY IN MUTUALISMS: CAN EXTRINSIC FACTORS BALANCE THE YUCCA–YUCCA MOTH INTERACTION?

Mutualisms form an integral part of many communities and play an important role in the maintenance and promotion of biodiversity. The inherent conflict of interest between mutualists suggests that partners should reduce the cost of the interaction whenever possible. As a result, defense mechanisms may evolve to prevent overexploitation by both partners. Selection for the evolution of defenses intrinsic to the interaction may be unnecessary, however, under particular ecological conditions. I examined the interaction between the pollinating yucca moth Tegeticula cassandra and its host plant Yucca filamentosa to determine whether extrinsic factors are important in promoting stability in this mutualism. Yuccas can selectively abscise fruit with high egg loads for moth species that damage ovules during oviposition into the locule. Female T. cassandra, however, lay eggs less than a millimeter beneath the tissue surface and fail to damage ovules, circumventing this mechanism of selective abscission. Consequently, yuccas are unable to regulate egg loads by T. cassandra, and moths are free to lay many eggs. Despite this, only 5–11% of T. cassandra eggs survive to exit the fruit as mature larvae. I tested the hypothesis that T. cassandra survivorship is regulated by the extrinsic factors dehydration and predation. While exclusion of potential predators seemed to have no effect on survivorship, moth eggs in flowers with experimentally increased vapor pressure had significantly greater survivorship compared to controls. Survivorship of a closely related locule-ovipositing species was unaffected by either predator exclusion or changes in vapor pressure. The results suggest that the stability of mutualisms can depend at least in part on extrinsic factors.

Demutualization and Corporate Governance of Stock Exchanges

Securities exchanges all over the world are demutualizing and converting from non-profit mutual organizations to for-profit, investor owned corporations. Several exchanges have become publicly traded companies and are listed on the exchange itself. The dramatic changes in the organizational form of the exchanges reflect major changes in their business environment caused by intense global competition and advances in technology. Some of the traditional sources of revenue, such as listing fees, membership fees, and sale of information services and market data are becoming less important. Transactions fee will continue to be one of the most important sources of revenue and exchanges that can attract liquidity will succeed. Exchanges are adding new products and services to expand their revenue base. Typically, exchanges have operated as self-regulatory organizations and the new organizational structure has raised a number of regulatory issues. There are concerns about the inherent conflict of interest between the business operations and the regulatory obligations. However, demutualized exchanges argue that enforcing a good regulatory framework is critical to an exchange's commercial success.

Competing Values: A Respectful Critique of Narrative Research

Smythe and Murray (2000) presented the basic ethical issues in narrative research (NR) in a comprehensive, well-reasoned, and direct manner. In this critique, we highlight 3 issues. Two matters appear to challenge the internal inconsistency of the assumptions of NR: privileging some voices over others and a potential inherent conflict of interest for some researchers. We also examine some issues regarding the protection of research participants and conclude with modest recommendations.