Listen to the podcast:
It’s a series of events that would give pause to any sentient corporate board. You offer the job to a new CEO. He says yes, but tells you that acceptance doesn’t mean he will be giving up the old job — and, by the way, you are getting clear signals that he might still feel more loyalty to the old company. The board of directors hires him anyway.
The scenario is not hypothetical. The “firm” in question is the U.S., and the new CEO, President-elect Donald Trump. Unless something unexpected happens, the electoral process will soon confirm a new U.S. president who has done nothing to satisfy concerns over his many conflicts of interests. Both domestically and internationally, Trump’s looming interlocking business and presidential interests and obligations are much more substantial than any other U.S. president in history.
So much so, in fact, that experts say Trump stands to be in violation of the law the moment he takes office. The U.S. Constitution spells it out: There are two emoluments clauses in the Constitution, says Wharton professor of legal studies and business ethics Philip M. Nichols. The one that applies in the present case is the more obscure one.
“It is obscure because no president has violated it,” says Nichols. “An emolument is a gift or a payment for services, and presidents have been careful to not accept gifts from foreign governments and certainly have avoided payments for services. But presidents have also been careful to divest themselves of business interests. Thus the only gifts they could have received from foreign governments would have been outright gifts. If President Trump maintains his interests in businesses, then he will almost certainly violate the emoluments clause.”
To name just one example, officials of foreign governments have publicly stated that they are booking rooms in Trump hotels to ingratiate themselves with the president-elect. “At a hotel, people pay for services,” says Nichols. “As soon as he is sworn into office, President Trump is beholden to the emoluments cause, and it is hard to understand how he would not be in violation.”
Does it matter? If Trump ends up doing a great job as president, why worry about conflicts of interest? But Trump’s maze of business and governing dealings makes conflicts inescapable, and their scale and scope promises to color his judgment to a remarkable degree in much more serious matters, as extensively detailed in a December 13 Newsweek article.
Among the potential conflicts cited in the article: Trump has praised Philippines president Rodrigo Duterte — or so Duterte claims — whose death squads have slaughtered an estimated 4,500 Filipinos merely suspected of being drug users or dealers. Trump and his family stand to make millions upon completion of Trump Tower at Century City in Manila, whose chief, Jose E.B. Antonio, is Duterte’s special envoy to the U.S. “The Trump family’s dealings in the Philippines will set off a constitutional crisis on the first day of Trump’s presidency, if anyone in the federal government decides to abide by the law,” Newsweek’s Kurt Eichenwald writes in the article.
The reasons for being wary of conflict of interest are as varied as they are numerous. “The research on corruption suggests that ‘tone at the top’ is extremely important in creating a culture that either is or is not corrupt. There is great reason for concern,” says Nichols. “It is also interesting that the ‘drain the swamp’ movement has morphed into an open door appointments policy for Washington insiders and lobbyists. I am not sure that this will increase the culture of corruption in Washington, but it is very unlikely to decrease it.”
“None of this is meant to say that the Trump administration will be endemically corrupt, but it is not starting in a good place.” –Philip M. Nichols
Nichols and others have conducted research in other countries that suggests a strong relationship between a culture of corruption and the occurrence of corruption. “Moreover, governments that are trying to substantially change things, which the Trump administration seems to suggest is its goal, sometimes are willing to put up with a certain amount of corruption as they focus on other things, and their tolerance of corruption usually comes back to haunt them,” Nichols says. “Think of Yeltsin’s Russia. None of this is meant to say that the Trump administration will be endemically corrupt, but it is not starting in a good place, and [Trump and his team] should be diligent — a diligence that has not yet been demonstrated.”
The U.S. Office of Government Ethics says that Trump should divest of conflicting assets, establish a blind trust, or both. Trump appears willing to do neither. “Nothing short of a real blind trust is going to be adequate, and no one in their right mind thinks he’s going to do that,” says Andrew D. Herman, a lawyer from Miller & Chevalier who specializes in election laws and Congressional ethics and investigations.
Conflicts of interest are pernicious, and they operate even on an unconscious level, making it impossible to disentangle what we think is the right thing from the thing we want, says Wharton operations, information and decisions professor Maurice Schweitzer. “Even subtle conflicts of interest, when explicit, can do quite serious damage in harming our objectivity,” he says. “It’s important for us to be really scrupulous in avoiding conflict of interest, and Trump’s cavalier attitude in itself has caused great harm. I don’t think we can be cavalier about it at all.”
As a practical matter, Schweitzer notes, between Trump’s cabinet nominees, himself and his family, “it’s a tangled mess of conflicts of interest.” He adds that research shows that conflicts of interest will influence Trump’s judgment and his decisions.
“There is no way around it,” Schweitzer says. “We can tell people we are unbiased, but that doesn’t make us unbiased. We know from science that really moral people are biased by conflicts of interest. Disclosure isn’t enough. Being very conscious of our conflicts isn’t enough. There is no way to be truly impartial. At the national level, I feel like we are backsliding with respect to the progress we have made at taking conflicts of interest seriously. And it presents a serious problem. Consider the dire state of many African nations. They are desperate to climb out of the corruption spiral they are in. Corruption is what is holding those economies back.”
A Global Web of Conflicts
Exactly what Trump and his advisers intend to do about his conflicts of interest is impossible to know by their words. He and members of his administration have made any number of statements in recent months that are demonstratively false, and they have failed to make good on promises and vacillated on the question of whether, and to what degree, Trump may remove himself from his business ventures.
Most recently, Trump postponed — until after the electoral college votes — a December 15 announcement on plans for addressing concerns about conflict of interest, instead offering on Twitter that he would be “leaving my businesses before [inauguration day on] January 20,” and that his sons Don and Eric would manage his businesses, and that “no new deals will be done during my term(s) in office.”
A large swath of the American public is looking askance at the potential for Trump’s putting business over country: 65% of those polled by the Pew Research Center said they were “very” or “somewhat” concerned that Trump’s “relationships with organizations, businesses or foreign governments conflict with his ability to serve the country’s best interests.” The poll of 1,502 U.S. adults, taken between November 30 and December 5, found 34% “not too” or “not at all” concerned. Not surprisingly, a breakdown by party affiliation was highly polarized, with 92% of those identifying as Democrats or leaning-democratic concerned, and 31% of Republicans/leaning republicans expressing concern.
The appointment of Exxon Mobil chief Rex W. Tillerson as Secretary of State will do nothing to assuage concerns over conflict of interest. Tillerson has deep ties to Russia and Vladimir Putin, and regardless of what he does with his own holdings of $218 million in Exxon Mobil stock (plus a pension plan worth nearly $70 million), there is no doubt about his views that U.S. sanctions against Russia should be lifted. Exxon Mobile has billions of dollars at stake in future relations between the U.S. and Russia, while key details on Russian hacking intended to favor Trump in the election are still emerging.
“Even subtle conflicts of interest, when explicit, can do quite serious damage in harming our objectivity.” –Maurice Schweitzer
Trump has taken the position that being the president means that conflict of interest laws don’t apply — and in fact, the president and vice president are exempt from such laws, says Nichols. But all of the rules apply to the cabinet — specifically, section 202 of chapter 18 of the federal code, the basic law prohibiting conflicts of interest.
So what can we expect from his cabinet — not to mention Trump’s closest advisers, his family? “Some have demonstrated a difficult history with ethics,” says Nichols. “Newt Gingrich is a case in point, so, too, are people like Rupert Murdoch, whose newspapers were penalized for longstanding schemes of bribing and invading privacy, and Chris Christie, who was implicated in the costly closure of a bridge as petty political retaliation.”
Nichols notes that it is interesting that President-elect Trump was considering David Petraeus for Secretary of State. “Petraeus actually handed classified documents to his mistress, whereas candidate Trump scathingly criticized Hillary Clinton just for being sloppy with documents,” he points out. “The Trump administration looks to be packed with Washington insiders who regularly float in between public and lucrative private positions, and thus might not draw clear lines with respect to conflicts of interest. President-elect Trump’s closest advisers seem to be his children, who also have a large hand in running the businesses, and who thus inherently constitute conflicts of interest.”
Regardless of whether Trump puts aside any “new deals,” the co-mingling of Trump’s business and governmental realms raises the real possibility that he views the presidency more as a merger of two enterprises than a moment for pure public service. While one may have concerns on behalf of the country that Trump’s conflicts of interest may cause him to put business over country, it may also be the case that his many properties and business interests around the world put them at risk for boycotts, protests and unprecedented security challenges. New York City has already asked the federal government for $35 million to reimburse it for costs it is incurring to protect Trump Tower. Will Trump expect the cost of additional security at his properties worldwide to be picked up by those governments?
“We have a situation where he puts his name on buildings all over the world, and people just send money in to the Trump organization for putting his name on a building, and that’s fine for a real estate developer. It’s not fine for the president,” said University of Minnesota professor of corporate law Richard W. Painter during a recent segment on the Knowledge@Wharton show on Wharton Business Radio on SiriusXM. (Listen to the podcast at the top of this page.) “We don’t have Obama Tower in London, Paris and Nairobi, and people just send checks to the president. And furthermore, who’s going to protect all these buildings? Is this going to be the United States’ taxpayers or is it going to be the foreign government that has to do this, or is it going to be the Trump organization?”
“[Trump] chose this job, and he needs to make adjustments in his business life in order to take the job and do a good job.” –Richard W. Painter
Moreover, if the buildings aren’t protected, that could put them at risk of a tragedy, Painter added. “I think he needs to get his name off buildings all over the world, particularly in the hot spots, if he’s going to be president. He chose this job, and he needs to make adjustments in his business life in order to take the job and do a good job.”
But conflicts abound. Trump is part owner of a Las Vegas hotel with an active case before the National Labor Relations Board, whose operations he will oversee and whose board members are appointed by the president. Another hotel — in a Washington, D.C., former post office — is leased from the federal government. His businesses operate with money borrowed from China and Deutsche Bank. And there are conflicts within conflicts: Trump says he will retain an executive producer role on NBC’s The New Celebrity Apprentice — which means he will be receiving payments from the network even as he oversees the Federal Communications Commission, which oversees NBC, whose news operations will be covering Trump.
In agencies from the U.S. Equal Employment Opportunity Commission, to the Department of Justice and Department of State, the openings for back-scratching, threats and reprisals — either real, or perceived on the parts of underlings — is enormous, observers say.
In the meantime, Trump has distracted the public from these substantive issues, at least to some extent, with a communications strategy as president-elect that he used effectively as candidate. His tweets — blunt, provocative statements that are at times out-and-out lies or meant to flout convention — have often drawn media attention away from other more newsworthy developments.
Looked at through the lens of the elaboration likelihood model of persuasion, the strategy makes a lot of sense, says Wharton marketing professor and identity theorist Americus Reed. The so-called central route of persuasion is about the rational pros and cons. Trump’s tweets, however — the ones about flag-burning and the cost of the next generation of Air Force One are examples — take the peripheral route, which is more about whether it feels right. “Peripheral cues take your attention away from the quality of the argument you would otherwise be evaluating,” says Reed. “Whether it is energizing the base or outraging a group of non-supporters, it has the same impact, which is to say it takes air time from a cold, objective, rational analysis of other things.”
The Corrosiveness of Crony Capitalism
It is difficult to see a way in which Trump or his children could serve the country while maintaining any role in his business without violating the law. Yet whether anyone would be prosecuted remains an open question. “The law envisions two remedies, impeachment and the political process,” says Nichols. Impeachment requires a simple majority of the voting members of the House of Representatives, and then removal from office requires a “trial” before the Senate and a vote of two-thirds of the Senate. “It is very difficult to imagine the current House mustering a simple majority to impeach President Trump for something as obscure as the emoluments clause,” Nichols notes. “Because House districts are so gerrymandered it is also difficult to envision a change in the makeup of the House. So it seems unlikely that President Trump will face the discipline of impeachment, at least for violations of conflict of interest.”
It also seems equally unlikely that Trump will face the discipline of the political process, Nichols says. “He has already shown that he does not need to win a majority of the popular vote; he just needs to win the electoral vote. And he will. On the face of things, it seems odd that a billionaire … playboy from New York has been embraced as the champion of Middle America, but that very fact suggests that President Trump presents a canvas on which Middle America can draw whatever it wants.”
In particular, Nichols says, many of Trump’s supporters acknowledge his flaws but say that those flaws are not as important as the change that he represents. “Any attack on President Trump also represents an attack on their hopes for change,” Nichols notes. “Thus, it seems quite unlikely that the political process will work to discipline President Trump for conflicts of interest. As far as the rules go, then, it looks like President Trump has a free hand. He shouldn’t, and it would be quite unseemly of him to gloat about it, but it looks like he does.”
What we are seeing taking shape is a pact between the executive and legislative branches, writes John Cassidy of The New Yorker: “Trump appears to have made a deal, at least an implicit one, with the Republican leaders in which they get their way on many of the big policy issues — taxes, education, the environment, regulation of finance and the labor market — and he gets to keep hold of his businesses, and his personal brand, the value of which, as he freely admitted a few weeks ago, has been greatly enhanced by his election victory.”
“As far as the rules go, it looks like President Trump has a free hand. He shouldn’t, and it would be quite unseemly of him to gloat about it, but it looks like he does.” –Philip Nichols
Still, individual members of Congress have great power, notes lawyer Herman, and they may be able to work in tandem with whistleblowers. “I always believe that the best investigative entity in the federal government is Congress,” says Herman. “It is the entity with the strongest potential, and my hope is that this will reinvigorate Congressional investigative authority, and the history of whistle-blowing to Congress is strong. I started reflecting on the Pentagon Papers. This is somewhere I would expect people are going to explore. If you are a member of Congress and information relating to someone in the administration comes over the transom one day into your office, you can take that information and read it into the Congressional Record and you are absolutely protected.”
Senate Democrats including Elizabeth Warren have said they plan to introduce a bill that would require the president to disclose or divest from any conflicts of interest, similar to a law that already exists for most public officials.
At the moment, though, it does not appear that the law, politics, or the structure of the Trump administration can provide controls on the conflicts of interest created by a Trump presidency, says Nichols. “On the one hand, some businesses might be excited about this. They might see allying their interests with those of the Trump businesses as a way of securing an advantage,” he says. “That may or may not be true in the short run, but decisions made on the basis of self-interest work against the interest of business in general, particularly over the long run.”
Markets work best when they are fair and competitive, Nichols notes, and safety nets and socially-oriented programs work best when they are impartial. He points out that crony capitalism “destroyed” the banking system in South Korea, “gutted” economic growth in Indonesia, and has contributed to “grossly distorted” systems in any number of emerging economies. “Do business firms really want to operate in a system where they are pressured to make deals on the basis of who the other party knows rather than the soundness of the deal?” Nichols asks. “And what are business firms going to do if the education system doesn’t educate people, including the people who will work at those firms? Or if the infrastructure supporting a handful of businesses is improved but the vast majority of places in the country can no longer be reached cheaply and effectively? Business could be hurt by crony capitalism.
“There might or might not be moral reasons supporting the existence of rules prohibiting conflicts of interest. There probably are rules regarding fairness and equity. There are definitely pragmatic reasons for these rules,” Nichols continues. “If a decision is influenced even slightly by something other than the best interest of the country, it is not the best decision that could have been made.”