Appearances Matter—Investing in Real Estate

4.7 Appearances Matter—Investing in Real Estate

Controversies: 4.10, 5.17 Key Words: appearances, conflict of interest, county Case Complexity → moderate CD: 4.12 Ethics Management in Cities and Counties CD: 6.2 International City/County Management Association Code of Ethics

You have been the county administrator for fifteen years in a rapidly growing county and have a stellar reputation for getting things done. One day your daugh- ter, a local TV news celebrity, calls you and says, “Dad, can you loan me $120,000 to help my husband invest in a condo in the county? We will repay you with inter- est.” Innocent enough? So it seems.

Alas, the plot thickens—it turns out that your daughter’s husband has been indicted on twelve federal fraud charges involving two land deals, and it appears that your money may have been involved in three different real estate investments that would benefit from the extension of a county road. You claim to have no knowledge of money laundering or any other misdeed.

As the situation evolves, the county commission decides to order an indepen- dent investigation into your account of the investments to determine whether you are covering something up and may even have lied. The investigation finds that you

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are not invested in the property that your son-in-law owned. Moreover, the investi- gation concludes that you did not lie or tell any untruths.

Th e county commission is relieved but somewhat dismayed. One commissioner says to you in public, “Did you lie? No. Did you engage in activities that brought about the appearance of indiscretion? I know you did. You’re guilty of that. Actions that reflect poorly on your representation of county government? I find you guilty

of that.” Another claims the “board is whitewashing the county manager’s involve- ment.” Still another asserts, “I have determined you have not violated your contract to the point you should be terminated and beg you to not invest in land in the county again. There should be an ethics requirement added to your employment contract.”

A fourth commissioner adds, “Is it a sad and pathetic day when we have to amend the county manager’s contract to include a requirement that he be ethical?” Th e board voted unanimously to have the county administrator and the county attorney draft ethics guidelines to include a policy about land investments for county workers.

Discussion Questions

1. What should the guidelines include? Your task as the county administrator is to draft guidelines. How would you begin?

2. Would you consult survey professional associations such as the International City/County Management Association? The American Society for Public Administration? The American Planning Association?

3. Should you have made the loan to your daughter? Why or why not?

4. Is the appearance of a conflict of interest sufficient reason to not make the loan?

Case Assessment

Carl Harness, Assistant County Administrator, Hillsborough County, Florida:

Yes, appearances do matter and often we find that some situations that may seem innocent enough at the onset end up in a negative light at no fault to the individual involved. The issue of Investments in Conflict with Official Duties is covered within the ICMA Code of Ethics. Guidelines for the code were revised in July 2004. I would draw your attention to a couple of passages within this section, the fi rst, “A member should not invest or hold any investment, directly or indirectly, in any financial business, commercial, or other private transaction that creates a conflict with their official duties,” and sec- ond, “Because personal investments may prejudice or may appear to influence official actions and decisions, members may, in concert

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with their governing body, provide for disclosure of such investments prior to accepting their position as local government administrator or prior to any official action by the governing body that may affect such investments.”

In this case, the administrator simply used bad judgment in entering into this deal with his daughter. First, he should have ascertained from his daughter whether the loan for the condo was simply an investment for purposes of profit or strictly for their per- sonal use.

I believe that this situation would have been a nonissue had the investment been for the couple’s personal use. Another way that this issue could have been avoided would have been if the administrator had simply given his daughter the money as a gift. In that scenario the fact that he provided his daughter with the money would have been totally separated from how they invested the funds.

Going back to the issue of the “loan,” the administrator could have possibly avoided any embarrassment by initially disclosing the details of the transaction to his commission in order to gauge any concerns or negative feedback that he may have received. Unfortunately, there was no way for him to know about the intent on the husband’s part to utilize the funds in a fraudulent manner.

I would guess that the daughter was probably unaware of her hus- band’s activities also. Therefore, as innocent as the transaction was between the administrator and his daughter, the connection with the loan to the indictment of the husband definitely resulted in a

cause for concern. In general, as a rule of practice, an administrator should never engage in any type of real estate investments in the area where he or she is employed (bound by either the city or county limits). In addition, contingent on one’s relationships (close friendships, etc.) with managers and administrators in neighboring communities,

I would also be cautious on entering into any investment deals in those areas.

Sandra J. Reinke, Associate Professor of Public Administration and Director, MPA Program, University of Central Florida:

Do appearances matter? Absolutely! In this case, an administrator with fifteen years of experience in the job let his parental love get in the way of better judgment. Prominent public officials such as the one in this case live in what I refer to as a fish bowl, a place where every action and every word reflects on the quality and probity of government and affects the public’s trust in government. It is sad but true that the

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original charges against the administrator were probably on page one of the local paper, while the news of his exoneration was on page six, next to the picture of this week’s featured dog and cat from the local animal shelter. The elected officials in this case clearly understand this dynamic and the importance of appearances. Under pressure from a public that focused on the charges, they felt compelled to “do some- thing” and so they took the only step they could. Since there is no basis for disciplinary action or termination in this case, they engaged in symbolic politics and ordered the administrator to put together a policy on county employees and real estate transactions. We are left to wonder whether the administrator’s relationship with these elected officials will

be permanently damaged. Appearances also matter in this case because employees take their cues for what is appropriate behavior from their leaders. And for county employees, there is no more visible leader than the county administra- tor. This administrator has damaged his or her ability to lead. If this incident is one of a long string of poor decisions, then the county should

be prepared to deal with more problems like this from employees at lower levels in the organization as the employees copy their leader’s behavior. If this is one bad mistake in an otherwise exemplary career, then the county’s employees will likely rally around their administrator and the organization will recover rather quickly.

Author’s Note: Story based on articles in the Naplesnews.com (www.naple- snews.com) August 2, September 4, September 30, 2008 and www.icma.org.