No One Seems to Care about Conflicts

A member of the board of trustees of a NY City private school provides information to a prospective parent about the school.  Sounds simple enough, but then the parent pays the trustee for the information.  Say, what?

Apparently, there is a business in this.  The NY Times reports that Aristotle Circle provides these various contacts to otherwise unconnected NYC parents.  Let’s set aside for a moment, the hyper-aspirations of parents and the crazed environment for coveted spots in select pre-schools.  Instead, let’s focus for a moment on the trustee who provided these services.

Serving as a trustee on the board of a non-profit is a fiduciary position.  The trustee owes a fiduciary duty to the Board and the organization.  Receiving a fee from a third party for either access to the school or information about the school is a gross example of self-dealing.  This trustee should be thrown off the board, ASAP.

The bigger issue, however, is how come this trustee is so tone deaf to a blatant conflict of interest?  Did the trustee have any qualms about these actions?  Furthermore, how does Aristotle Circle build a business model on these fee for services, and introductions?

A few weeks ago, Berkshire Hathaway announced that David Sokol had made personal investments in a company in which he then encouraged Warren Buffet to buy.  Neither Buffet, nor his right hand man Charlie Munger, seemed to think that there was anything wrong with these actions.  Sokol tendered his resignation only after pressure was raised by outsiders.

Whether it is the heir apparent of Berkshire Hathaway or an ambitious NY city parent, no one seems to be bothered by these conflicts of interest.

Try as we may to overcome the financial crisis through new rules and regulations.  No meaningful progress can be made until we address this very simple business proposition.  People who hold positions of trust — in any organization — must avoid any appearance of a conflict of interest.

One Response to “Conflicts Epidemic”

  1. Mitchell Shames says:

    Thank you for the response to my post. I did not mean to imply that the Trustee was going to use his/her influence at “their” respective school on behalf of the applicant. I will re-read the post and make a correction if necessary. My point was very different. That is, the Trustee has a fiduciary obligation to the school. Under traditional fiduciary principles, a fiduciary cannot use its position for self-advancment, such as earning a fee from someone else. Or, if the Trustee does earn a fee from services related to being a trustee (even if anonymously), the Trustee should turn that fee over to the school. The point I’m trying to make is that is appears that the “only reason” the trustee has the credibility to earn the fee is because the Trustee is in fact a Trustee. Let me put the question another way. I have two children who attended private school and one is now in college. In effect, my wife and I have managed this process successfully. Would your clients pay us an advisory fee? Probably not. Would our status and credibility be elevated if we are Trustees of a highly selective school? Your business model suggests yes. And my response is that it is inappropriate for a Trustee to monetize their experience while they are Trustees.
    I do applaud your mission in trying to expand the benefits afforded by independent schools to those who might not otherwise have access to these schools. I would, however, be much more comfortable if your experts consisted of educators and former trustees.
    Finally, my real point is that I think that in our current culture (particularly in the world of finance …….which, let’s face it ….drives a lot of the private school pressures, etc, both in NY and elsewhere), too many people have become desensitized to conflicts of interest. I think that we lose individually, and the whole culture loses when this happens.
    Again, I applaud your mission.

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