CEO 05-8 -- June 7, 2005

CONFLICT OF INTEREST

COUNTY COMMISSIONER EMPLOYED BY WHOLLY OWNED SUBSIDIARY OF COMPANY PROVIDING INSURANCE TO COUNTY AND OWNING STOCK IN PARENT COMPANY


To: Mr. Tony Grippa, Leon County Commissioner (Tallahassee)

SUMMARY:

Under the specific circumstances presented, where a county commissioner owns stock in an insurance company that does business with the county and the civic center authority and where he is employed by its wholly-owned subsidiary, no prohibited conflict of interest is created. The subsidiary does not do business with the county, so neither Section 112.313(3) nor 112.313(7)(a), Florida Statutes, is implicated. Although the ownership of stock constitutes a contractual relationship for purposes of the Code of Ethics, the amount of stock the commissioner and his immediate family members own in the parent company does not constitute a "material interest" for purposes of Section 112.313(3), Florida Statutes, and through the application of Section 112.316, Florida Statutes, does not violate Section 112.313(7)(a), Florida Statutes. Section 112.3143(3), Florida Statutes, is not at issue, as the county commissioner intends to recuse himself from all votes involving either the parent company or its subsidiary to avoid the appearance of impropriety.

QUESTION:


Would a prohibited conflict of interest be created where you, a county commissioner, are employed by an insurance agency that is wholly owned by its parent corporation, an insurance company doing business with the county, and where you and your family own stock in the parent company?


Under the circumstances presented, your question is answered in the negative.


From your letter of inquiry and supplemental information you provided to our staff, we are advised that you serve on the Leon County Commission and are in the process of changing your private sector employment to become the head of operations for a wholly-owned subsidiary of a large insurance company. You further advise that the parent company currently handles certain insurance business for the County, as well as for the City-County Civic Center Authority on whose board you sit as the County Commission's representative, but that these accounts were established prior to your employment with the subsidiary, a separate Florida corporation. Although the subsidiary may sublease office space for your use from the local office of the parent company, your position with the subsidiary will have no involvement with the County's or Civic Center Authority's insurance accounts and, you relate, these accounts will not be a factor in any compensation you receive from the subsidiary, as your salary and bonuses are directly based on the success of the subsidiary.


You also advise that you and your immediate family own stock in the parent company, but in no way does the County or the Civic Center Authority's insurance business inure to your "special" benefit. According to its website, we note that the parent company is headquartered in Florida with over 130 offices in thirty-three states, and its stock is publicly traded on the NYSE. You relate that there are over 100,000 shareholders of record holding more than 69 million shares of stock and that the parent company has a $3 billion market cap earning $68 million in revenue.


Relevant to your inquiry are the following provisions of the Code of Ethics for Public Officers and Employees:


DOING BUSINESS WITH ONE'S AGENCY.--No employee of an agency acting in his or her official capacity as a purchasing agent, or public officer acting in his or her official capacity, shall either directly or indirectly purchase, rent, or lease any realty, goods, or services for his or her own agency from any business entity of which the officer or employee or the officer's or employee's spouse or child is an officer, partner, director, or proprietor or in which such officer or employee or the officer's or employee's spouse or child, or any combination of them, has a material interest. Nor shall a public officer or employee, acting in a private capacity, rent, lease, or sell any realty, goods, or services to the officer's or employee's own agency, if he or she is a state officer or employee, or to any political subdivision or any agency thereof, if he or she is serving as an officer or employee of that political subdivision. The foregoing shall not apply to district offices maintained by legislators when such offices are located in the legislator's place of business. This subsection shall not affect or be construed to prohibit contracts entered into prior to:

(a) October 1, 1975.

(b) Qualification for elective office.

(c) Appointment to public office.

(d) Beginning public employment.

[Sec. 112.313(3), F.S.]


CONFLICTING EMPLOYMENT OR CONTRACTUAL RELATIONSHIP.--No public officer or employee of an agency shall have or hold any employment or contractual relationship with any business entity or any agency which is subject to the regulation of, or is doing business with, an agency of which he or she is an officer or employee . . . ; nor shall an officer or employee of an agency have or hold any employment or contractual relationship that will create a continuing or frequently recurring conflict between his or her private interests and the performance of his or her public duties or that would impede the full and faithful discharge of his or her public duties. [Sec. 112.313(7)(a), F.S.]


VOTING CONFLICTS.--No county, municipal, or other local public officer shall vote in an official capacity upon any measure which inures to his or her special private gain or loss; which he or she knows would inure to the special private gain or loss of any principal by whom the officer is retained or to the parent organization or subsidiary of a corporate principal by which he or she is retained, other than an agency as defined in s. 112.312(3); or which he or she knows would inure to the special private gain or loss of a relative or business associate of the public officer. Such public officer shall, prior to the vote being taken, publicly state to the assembly the nature of the officer's interest in the matter from which he or she is abstaining from voting and, within 15 days after the vote occurs, disclose the nature of his or her interest as a public record in a memorandum filed with the person responsible for recording the minutes of the meeting, who shall incorporate the memorandum in the minutes. [Section 112.3143(3)(a), Florida Statutes.]


Section 112.313(3), Florida Statutes, prohibits a County Commissioner from acting in his official capacity, as a public officer, to purchase, rent, or lease, any realty, goods or services for his agency from a business entity of which he, his spouse, or child is an officer, partner, director, or proprietor, or in which any of them own a material interest,[1] and from acting in his private capacity to sell or lease any realty, goods, or services to his agency. With regard to the subsidiary agency, Section 112.313(3) does not apply since the subsidiary will not be providing any insurance services to the County or to the Civic Center Authority.


While the parent company is providing services to both the County and the Civic Center Authority, you and your family's ownership of stock in the parent corporation does not come close to approaching the statutory threshold for a "material interest," given the large number of shareholders (100,000) holding more than 69 million outstanding shares of stock in the parent company. In this regard, you have advised that you and your wife presently own 1,234 shares of the parent company's stock through a brokerage account, and that you have custodial accounts for your minor daughters with 155 shares in one daughter's account and 80 shares in the other daughter's account, and these accounts continue to invest $300 per month in the parent company's stock. You also explain that part of your compensation package with the subsidiary corporation includes $100,000 worth of restricted stock in the parent company that will vest in 15 years if various performance criteria are met, as well as participation in a 401(k) and an employee stock purchase plan. Even so, because of the large number of shareholders and the amount of stock issued by the parent company, we can comfortably conclude that your ownership of stock in the parent company (currently amounting to about 0.002% of outstanding shares) does not approach that of a "material interest" for purposes of Section 112.313(3), Florida Statutes.


With regard to Section 112.313(7)(a) and your employment with the subsidiary, we consistently have treated corporate subsidiaries and their parents as separate business entities because of the language in Section 112.312(3), Florida Statutes, which defines "business entity" to mean


any corporation, partnership, limited partnership, proprietorship, firm, enterprise, franchise, association, self-employed individual, or trust, whether fictitiously named or not, doing business in this state.


See CEO 78-20, CEO 80-25, CEO 80-89, CEO 82-78, CEO 86-12, CEO 86-36, CEO 93-11, and CEO 99-13. Therefore, your employment relationship would be with the subsidiary agency, not the parent company, and Section 112.313(7)(a) would not be violated by your proposed employment with the subsidiary.

Your ownership of stock in the parent company requires a different analysis, one of first impression. In CEO 99-13, we noted that the ownership of stock constitutes a contractual relationship for purposes of Section 112.313(7)(a), Florida Statutes. There, a city councilman owned 1,000 shares of stock in a large telecommunications company, and a wholly-owned subsidiary of the telecommunications company was doing business with the city council. Because we concluded that the city councilman did not have a contractual relationship with the business entity that was actually doing business with his agency, there was no violation of Section 112.313(7)(a). However, in your situation, you do have a contractual relationship with a business entity doing business with both the County and the Civic Center Authority, and we must determine whether that contractual relationship creates a conflict of interest prohibited by Section 112.313(7)(a).


With regard to the parent company's relationship with the Civic Center Authority, you indicate that you were not serving on its Board at the time the parent company was selected to be its insurance broker in October 2004. Assuming there have been no changes to that relationship after you came on the Board in December 2004, the relationship would be considered "grandfathered-in" pursuant to the Commission's precedent. See CEO 95-13.


Concerning the County, you have advised that the County initially selected the parent company as its insurance broker through a competitive bid process after you were elected to the County Commission, and the parent company later assumed additional lines of insurance through its acquisition of another insurance company. Since the business between the parent company and the County did not predate your election to office, it would not be "grandfathered-in." The competitive bid exemption in Section 112.313(12)(b), Florida Statutes, also does not apply because it requires that the public officer not participate in the determination of bid specifications or the determination of lowest or best bidder, refrain from influencing the bid award, and file the CE Form 3A Interest in Competitive Bid For Public Business, prior to or at the time the bid is submitted. The exemption in Section 112.313(12)(i), Florida Statutes, for a public officer who, in his private capacity, purchases goods or services at a price and upon terms available to similarly situated members from the general public from a business entity which is doing business with his agency, would not apply to the purchase of stock.


Notwithstanding, your situation is distinguishable from that of CEO 79-16, where a police officer owned stock in a pawnshop regulated by the police department; CEO 80-25, where a county commissioner was an owner and stockholder of a corporation whose one asset was a subsidiary that booked shows in the county arena; and CEO 91-24, where the State Comptroller inherited stocks in banking companies whose subsidiaries were regulated by the (then) Department of Banking and Finance. We believe that it is appropriate to apply Section 112.316, Florida Statutes, to your circumstances. Section 112.316 provides:

CONSTRUCTION.--It is not the intent of this part, nor shall it be construed, to prevent any officer or employee of a state agency, or county, city or other political subdivision of the state or any legislator or legislative employee from accepting other employment or following any pursuit which does not interfere with the full and faithful discharge by such officer, employee, legislator, or legislative employee of his duties to the state or the county city, or other political subdivision of the state involved.


In our view, it is not uncommon for a public officer to own shares of stock in large, publicly traded corporations, whether through a mutual fund or through personal stock accounts. Under the specific circumstances here, where you and your family owns only about 0.002% of the corporation, we do not believe that the Code of Ethics should preclude you from having such an investment in a large, publicly-traded corporation which happens to do business with your agency, especially where there is no indication that you were responsible for steering business to the corporation or that you and family members received a personal, private benefit as a result.


Section 112.3143(3) prohibits you from voting on a matter that inures to the special private gain or loss of a principal by whom you are retained, or to the parent organization or corporate subsidiary of a principal by whom you are retained. You have already indicated that you would recuse yourself from voting on any matter involving the parent organization which owns the subsidiary, as well as any vote involving the subsidiary with which you would be employed. Fulfilling this commitment, announcing the conflict, and filing the CE Form 8B within 15 days of any vote will ensure that no violation of Section 112.3143(3), Florida Statutes, occurs. As for votes involving other entities which may be clients of the parent company, these entities would not be your principals for purposes of the voting conflicts law since the parent company is not your employer or a principal by whom you are retained.


Accordingly, under the specific circumstances presented, we find that no prohibited conflict of interest is created where you, a County Commissioner, are employed by a corporation that is wholly-owned by its corporate parent, where the corporate parent currently serves as the County's and the Civic Center Authority's insurance broker.


ORDERED by the State of Florida Commission on Ethics meeting in public session on June 2, 2005 and RENDERED this 7th day of June, 2005.




__________________________

Joel K. Gustafson

Chairman


[1] The term "material interest" is defined in Section 112.312(15), Florida Statutes, to mean "direct or indirect ownership of more than 5 percent of the total assets or capital stock of any business entity. For the purpose of this act, indirect ownership does not include ownership by a spouse or minor child."