Ignorance or Insider Trading?

6.6 Ignorance or Insider Trading?

Controversies: 4.15, 4.16 Key Words: ethics orientation, grants, contracts, RFP, information Case Complexity → Low CD: 6.2 International City/County Management Association Code of Ethics CD: 6.4 American Institute of Certified Planners Code of Ethics

You are a young policy analyst in your second month of work for a city’s law enforce- ment agency. You have received no ethics orientation, although an ethics booklet was handed to you on the first day of work. You have not read it. Your basic job is to analyze agency operations to make them more effective and efficient. To do this, it is necessary for you to read the case reports of the agency’s field agents. Th ese reports are classified confidential or secret as the case may be. You have been granted an interim secret clearance, pending completion of a background investiga- tion, which will take a year.

As a related duty, you sit on a grant and contract review board that evaluates proposals from outside contractors for studies with the same general purpose. Over the few weeks you have sat on the board, you have become quite disappointed by the low quality of the bids. Few contractors seem to have carefully read the RFPs, and many are at best only nominally qualified to do the work.

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One day, an acquaintance of yours who is affiliated with a very prestigious think tank calls and explains that the think tank is thinking about filing a proposal. Your friend says that he has several questions about what the agency is really looking for. You eagerly fill him in. “Finally,” you think, “we’ll get a good proposal, and the county will get some solid research for all the dollars they’re granting.”

A few days later, you come across the ethics manual in your desk drawer, and, it being a slow day, decide to read it. You are both surprised and a little apprehen- sive to learn that no one but the contact person named in the RFP is to reveal any information about a Request for Proposals. Upon reflection, you realize that what you have done could be considered a form of “insider trading,” that is, providing information that could be advantageous to only a few persons.

Discussion Questions

1. What should you do?

2. Should you discuss the situation with a veteran colleague?

3. Should you tell your boss? You decide to discuss the problem with your office-mate, a 30-year veteran

government employee who has been in this agency over ten years. He advises that “if you tell Max (the division chief) you divulged confidential material, you’ll never see another confidential file.”

Th is is very plausible. Max cut his teeth as a security investigator protecting nuclear weapons secrets at the height of the Cold War.

What should you do?

Case Assessment

Gerald Caiden, Professor of Public Administration, School of Policy, Planning and Development, University of Southern California, Los Angeles:

A mistake is a mistake whether made intentionally or inadvertently. Everyone makes mistakes; we are only human. Most mistakes are harmless and of little consequence unless one is a perfectionist. Most people just keep quiet and await the outcome. Usually, noth- ing much occurs at all and the mistake is soon forgotten by all. When the mistake is discovered, it may be too late for a correction to be made and again it is best forgotten. In a democracy, the courts will not accept self-incrimination and one is judged innocent until proven guilty. My advice is: “Do not deliberately draw attention to oneself, especially not a beginner and try to keep matters quiet and confined.”

But some mistakes may well have serious consequences that need to be rectified or corrected. To avoid this harmful situation, it is best

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to warn one’s supervisor (Max) and come clean. It is then up to the supervisor to decide what has to be done. The supervisor may take a dim view of the perpetrator and hold it against him. Or the supervi- sor may demonstrate and use the case as a learning experience for the perpetrator, an experience expected to be taken to heart and avoided in the future.

If the mistake is so grave that the supervisor has to take responsi- bility, he may have to find an appropriate response. In this case, the confidential information was given in error. Max and the perpetra- tor must await a submitted RFP at which point it may have to be returned, with an explanation about how the mistake occurred and that it was a breach of the law or established practices. Max should then cancel the RFP and re-advertise so that the rejected applicant can reapply. Is there any obligation to take any applicant at all? Is there really an overwhelming reason why the RFP should not be with- drawn and revised? Is the law being broken? Is there any conflict of interest involved? Is anything underhanded taking place or perceived to be taking place?

What, in this case, is judged to be the appropriate disciplinary action should the mistake be that serious? Should the policy analyst feel guilty or suspect that victimization is occurring as a consequence of the mis- take, the analyst should look for alternative employment. The agency will lose credibility for its failure to recognize an honest mistake, a per- son of integrity and conscience who has taken the experience too much to heart and needs counseling. Max would similarly lose and should the response be seen as a cop out, a gutless supervisor for not taking the blame and just another cowardly bureaucrat following orders instead of using judgment, plain common sense, and compassion. Max would then make a good totalitarian tool devoid of democratic understanding. Unfortunately, there are far too many like Max in supervisory positions in all regimes.

Th is response is by MPA students in the Ethics in Public Service course supervised by Professor Rod Erakovich at the School of Urban and Public Affairs at the

University of Texas at Arlington:

It can be asserted that the analyst is guilty both of insider trading and ignorance; however, the latter is the cause of the former. Moreover, it is our belief that the young analyst did not intentionally act unethi- cally when divulging the information. The analyst realized his mis- take only after he familiarized himself with the formal ethics booklet provided in training. The organization abdicated the responsibil- ity of creating a collectively accepted values system. Although the

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agency provided the analyst with the ethics booklet, the culture of the organization was not conducive to employees collectively embracing ethical standards. Without clearly understanding the organizational values, the analyst is forced to rely on his own individual values to resolve the dilemma.

Th e analyst is faced with two basic approaches to resolving this dilemma. He may accept the role of whistle-blower and admit his error

while also drawing attention to the failure of the organization to ensure employees are aware of all ethical responsibilities. Or, in the interest of self-preservation, he may admit to nothing and accept the ethical culture of the organization. As noted by Montgomery Van Wart in his book, Changing Public Service Values, the analyst is faced with the dilemma of

sacrificing his individual values of honesty, consistency, coherence, and reciprocity in order to preserve his position of employment. Conversely, the analyst may choose to uphold his own civic integrity and risk the loss of his employment.

Th e personal ethical choice for the analyst is whether to approach the division chief in an honest and forthright manner. Th e analyst should explain the circumstances of the incident and illustrate his lack of knowledge. Although unlikely within this orga- nization, it is possible the division chief may accept the analyst’s error and take steps to improve the culture of the organization. However, from the analyst’s perspective as a new employee, it is more likely that he will conceal his mistake and subsequently accept the current values put forth within the organization in order to sustain employment.

Another issue surfaces when evaluating the leadership roles within this organization. The division chief for the analyst does not communicate standards or expectations to his team members. Based on the information provided, it appears this leader operates by using

a culture of fear among his employees, and he approaches problem issues reactively. His leadership style is not indicative of an open and transparent culture within the organization. By not developing transparency in the culture, the division chief has effectively encour- aged a climate of secrecy with employees to keep mistakes quiet. In order to change this behavior within the division and organization,

he must develop an environment conducive to open exchange and transparency. Th e shortcomings in this dilemma are not solely that of the analyst or the division chief. This agency failed to effectively communicate its expectations to employees because of a poorly developed values system that was sparingly embraced in a reactive environment. A large part of

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the organizational failing can be attributed to the absence of a strong code of ethics, leadership, and employee ownership of the organiza- tional values. The analyst was given an interim secret clearance for a

position on a grant and contract review board after only two months of employment. A federal agency should not delegate such clearance without enumerating the conduct expected of employees within high- security positions.

To prevent a similar recurrence of this dilemma, the agency must develop clearly stated and collectively accepted values. Furthermore, the agency must allow employees to participate in the development of values and ethical standards in order to encourage individual and ultimately collective ownership. Employee ownership of organizational values encourages operation under an agreed framework of ethical standards. By involving employees in the values formulation process and eagerly transmitting the organizational values to new employees, the agency will develop strong ownership of values and personal action to uphold them.

It is also imperative that employees be empowered with the necessary tools to conduct themselves in the most professional and ethical manner within any given organization. The internal struc- ture of the agency should echo underlying cultural values embraced by leadership and employees alike. In this ethical dilemma, no clear organizational values are evident. The agency seems to have a reac- tive approach to ethical standards and dilemmas in the workplace. This is evidenced by the analyst’s behavior and the reaction of his coworker.

Ultimately, the agency must also accept a proactive role. Deep structural and organizational reforms must be made in order to develop

a culture of transparency in which values are operational. If the agency had recognized the importance of transcending organizational values, it is possible the analyst would have embraced the values and main- tained lawful and ethical behavior.