CEO 05-18 -- December 7, 2005

 

CONFLICT OF INTEREST

 

DEPARTMENT OF MANAGEMENT SERVICES ENTERPRISE

INFORMATION TECHNOLOGY SERVICES EMPLOYEE

OWNER OF STOCK OPTIONS OF COMPANY

DOING BUSINESS WITH DEPARTMENT

 

To: Name withheld at person's request

 

SUMMARY:

 

Under the particular circumstances of this inquiry, no prohibited conflict of interest would be created under Section 112.313(7)(a), Florida Statutes, were an employee of the Enterprise Information Technology Services office of the Department of Management Services to own stock options in a large, publicly-traded telecommunications company doing business with the Department. The relatively small amount of options received by virtue of his prior employment coupled with the size of the company negate any conflict via Section 112.316, Florida Statutes. CEO 05-8 and CEO 99-13 are referenced.[1]

 

QUESTION:

 

Would a prohibited conflict of interest be created were a telecommunications company in which an employee of the Enterprise Information Technology Services office of the Department of Management Services holds stock options to contract with the Department?

 

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

By your letter of inquiry, items attached to the letter, a telephone conversation between our staff, you, and the person in whose behalf you make inquiry, and a second letter from you, we are advised that ... is an employee of the Department of Management Services (DMS), holding the position of Director of Telecommunications and Wireless Services for the Department's Enterprise Information Technology Services office (EITS), formerly known as the State Technology Office (STO). In addition, we are advised that the employee worked for 26 years for a large, publicly-traded telecommunications company,[2] thereby gaining, inter alia, expertise of great value to his current public employer and stock options in the company.[3] Further, we are advised that the company is a potential provider of telecommunications services to the Department under a procurement process involving the employee in his public capacity.[4] Against this background, the employee inquires as to whether his ownership of stock options in the company would create a prohibited conflict of interest for him under the Code of Ethics,[5] given the relatively small amount of stock subject to his option vis--vis the size of the company, given that most of the options are "under water,"[6] given that the options have not reached maturity, and given that the options cannot be given away or transferred.

Section 112.313(7)(a), Florida Statutes, the portion of the Code of Ethics which is applicable to the employee's situation,[7]provides:

 

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.

 

Unless ameliorated by another provision of the Code of Ethics, the first part of Section 112.313(7)(a) would prohibit the employee's holding a contractual relationship with the company (e.g., holding company stock options)[8] were the company to do business with DMS; and the second part of the statute would prohibit his holding a contractual relationship with the company if the contractual relationship would create a continuing or frequently recurring conflict between his private interests and the performance of his public duties or would impede the full and faithful discharge of his public duties.

 

However, under the material circumstances presented (a situation in which the employee owns a small amount of stock options in a large, publicly-traded corporation by virtue of his previous employment with the corporation), we find that Section 112.316, Florida Statutes, is applicable to negate the literal, harsh effect of the first part of the statute. See CEO 05-8 (county commissioner employed by wholly owned subsidiary of company providing insurance to county and owning stock in parent company), our very recent opinion applying Section 112.316 in a similar situation. 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 or her duties to the state or the county, city, or other political subdivision of the state involved.

 

Also, we find that the employee's situation would not be prohibited by the second part of the statute, inasmuch as the second part does not contain a literal or mechanical element but instead depends for a violation on a conflicting reality which is not present under the facts of this inquiry.


Accordingly, under the particular facts of this inquiry, we find that a prohibited conflict of interest under Section 112.313(7)(a), Florida Statutes, would not be created for the DMS employee were the company to contract with DMS.

 

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

 

 

_________________________

Thomas P. Scarritt, Jr., Chairman

 

[1] Prior opinions of the Commission on Ethics are viewable on its website: www.ethics.state.fl.us

[2] BellSouth Corporation.

[3] The stock options are part of a retirement plan which previously included interests in a company-related mutual fund in the approximate amount of $123,000. However, the employee has transferred his interests in the company-related mutual fund to an index stock fund which has no direct relationship to telecommunications. Therefore, the only contractual connection remaining between the employee and the company are the stock options. Information supplied in your inquiry indicates that the employee has been granted 16,714 options (7,164 of which are exercisable) with various expiration dates occurring from 2006 to 2011.

[4] Your inquiry describes a complicated bid or bid-like process for selection of the provider who will contract to provide the telecommunications services to DMS. However, we find that the process would not comply with the requirements for exemption of ethics conflicts under the sealed, competitive biding exemption codified at Section 112.313(12)(b), Florida Statutes, because the employee is involved in the process in his DMS capacity. Nevertheless, based on our reasoning set forth below, we find that no prohibited conflict would be created.

[5]Your inquiry also asks whether some other conflict of interest would be created. To the extent standards of conduct located outside the Code of Ethics for Public Officers and Employees (Part III, Chapter 112, Florida Statutes), if any, exist which would address the employee's situation (e.g., Florida Statutes located outside the Code), it is not within our jurisdiction to opine as to any such standards.

[6] You relate that the options being "under water" means that the employee would pay more to exercise the options than the stock is currently worth.

[7] Sections 112.3185(2), 112.3185(6), and 112.313(3), Florida Statutes, are not applicable because the DMS employee whose situation is at issue does not hold private employment with the company or otherwise hold a relationship required for a violation of any of the statutes.

[8] We find that holding stock options in a company constitutes a "contractual relationship" between the holder and the company similar to that existing by virtue of owning stock, even a very small amount, in a company (see, for example, CEO 99-13) because the options constitute a contract between the company and its option holders.