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The I-O Ethicist

Bill Macey

Ethics Panel Members: Jerry Greenberg, Dan Ilgen, Rick Jacobs, Dick Jeanneret, Deirdre Knapp, Joel Lefkowitz, Rodney L. Lowman, Robert McIntyre, Lois Tetrick, Nancy Tippins, Walt Tornow, Vicki Vandaveer

Many of us routinely invest in publicly traded firms. We may do so as part of an active wealth creation or preservation strategy, or more passively in the form of a 401K or similar retirement savings vehicle. Many of us may do so without giving deep thought to how our investment strategy might conflict with our professional activities, even though we may be actively involved with the very firms with whom we consult or advise. Our ethical dilemma for this issue brings this home:

Is it appropriate for an I-O psychologist who is acting in a consulting capacity to own stock or invest in a company (or their competitor) with whom he/she is consulting?

The relevant portion of the APA Ethical Code (3.06) that addresses this dilemma is as follows:

Psychologists refrain from taking on a professional role when personal, scientific, professional, legal, financial, or other interests or relationships could reasonably be expected to (1) impair their objectivity, competence, or effectiveness in performing their functions as psychologists or (2) expose the person or organization with whom the professional relationship exists to harm or exploitation.

Clearly, there are some situations where investment decisions might impair objectivity or reflect questionable judgment. Two highlighted by our panel are the following:

1. When the I-O psychologist has been given access to insider information. Any use of insider information would be inappropriate; 

2. When interests of stakeholders with whom the I-O psychologist works (including employees and even the community) are not consistent with the goal of maximizing shareholder value. 

To some, the issue can be regarded as one of whether the decision to invest is independent of working with the firm in a consulting capacity:

If, using your own due diligence, you have purchased shares in ABC and then subsequently ABC becomes a client, I see no ethical issue. If you had a stock purchase continuation plan in ABC, I still see no problem. Your investment decision making was completely independent of your consulting work.

Clearly, timing reflects the motivation behind the investment. One of us put it this way: 

It seems to me to raise some ethical concerns if the stock acquired was not previously owned and is purchased after taking on a consulting job. This seems ethically relevant even if the stakes are so small that practically the psychologist could have no influence on stock outcome. Why, after all, would one be buying the stock at that juncture?

Another suggested that the timing of the initial investment establishes the justification for stock ownership: 

I dont think you should be required to divest interest in a company if you have owned it prior to the engagement, whether that is the company you are consulting for or one of the companys competitors.

However, one of our contributors positioned their view differently, implying that timing alone is not the sole basis for determining potential conflict of interest: If the stock owned preceded the consulting engagement, it would seem to me not to create any real potential conflicts of interest to keep the stock. 

Thus, in some situations it would appear that the degree of influence one has or the degree to which one might be influenced is effectively negligible. However, from a more conservative point of view, perhaps degree or level of influence really isnt the issue at all, as one suggested:

Would our answers be any different if (a) the client(s) and competitor(s) were very large public corporations with huge capitalizations as opposed to smallish firms? or (b) if we were working at low levels or in peripheral areas of the firm with little chance of either influencing policy or significantly affecting corporate outcomes? These seem to me to be irrelevant distinctions.

Further, the point may be that the potential influence on our judgment can be subtle, even when a clear conflict of interest is not apparent:

The instance of investing in a clients competitor(s) seems to me to be a potential conflict of a different sort. On one hand, theconflict doesnt really exist because were not working with the clients and have no input. But on the other hand, it could exist in the opposite direction, so to speak. I imagine that it could impact the quality ofmutual trust that ought to be the basis of a professional consulting relationship. Am I (subtly/unconsciously) providing advice to my client that results in competitive disadvantage? And if my client knew about my investments would they be comfortable running that risk, or letting me be privy to various confidential matters?

What about when stock is just another form of payment, as when employees accept options or equity? Maybe this is a case of having skin in the game, something our clients may expect or even applaud. Thus, one of our panelists suggested that the decision may be situation specific:

As the situation moves to small companies or start-up ventures then the entire program changes. There are start-up and turn-around consultants who work for a piece of the action and do so in very ethical ways. I think in those instances decisions about the investing relationship are very individualized or situational and I am not sure a single guideline (e.g., do not invest) applies. Hence, I do not believe we can conclude that one should NEVER invest in a client because of an ethical conflict of interest. 

Another added:

When we consult we are investing, in a way, in that company. While we are being paid, we know that we will only continue that engagement if the company succeeds. We all know that when we consult and the company falls on hard times, we are likely to be told, We will call you when things turn around. Under this view, buying stock (or accepting future benefits if the company does well) seems warranted but I still believe it is problematic with respect to investments in the competition.

The bottom line issue may be objectivity of consulting judgment. As one panelist put it:

I believe investing is a separate activity from consulting and the fact that I now own or in the future decide to purchase stock in a large, publicly traded company does not impair my objectivity, competence, or effectiveness when it comes to my consulting relationship. I am always going to do my best to help the organization and hopefully improve its stock price whether I have any ownership or not.

An Attempt at Closure

The advice is clearat least on some fronts. Specifically, insider trading is wrongand illegal. Further, a decision made to invest in the stock of a client (or competitor) after beginning the client engagement is problematic and controversial at best. In addition, although the question of retaining ownership of previously owned stock after the point of engagement may be debated, questions regarding the appearance of impropriety remain. Finally, there is another way to look at these questions and that is from the perspective of our reputations. As our social psychologist colleagues would tell us, others are more likely to draw correspondent inferences (i.e., attribute dispositional influences as causes of our behavior) when our actions are particularly uncommon. Perhaps, then, this is an opportunity, as one of our panelists suggested:

I think this situation presents an occasion to go beyond the standard of being reasonably expected to impair objectivity.

Although we might not have to do so (and precisely because it is not required), staying away from any engagement from which one might have even the slightest opportunity to derive personal benefit provides an opportunity to position oneself as being scrupulously honest. The resulting positive attribution is sure to benefit to ones professional reputation, making this a rich opportunity to gain goodwill by doing the right thing. (In social psychological parlance, it is an opportunity to form correspondent inferences.) And, after all, any consultant whose clients cannot count on his or her endorsement of the highest ethical standards will not be in business very long. 

Bottom line: What might appear, at first blush, to be an unreasonably cautious stance may, in the long run, enhance ones professional reputation. 

Have a Question?

Submit your question in writing to The I-O Ethicist, SIOP Administrative Office, 520 Ordway Ave., PO Box 87, Bowling Green OH 43402. Alternatively, you may submit your questions on the SIOP Web site at www.siop.org. Please note that your submissions and correspondence will be treated in strict confidence and will be completely anonymous.

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