Tuesday, November 15, 2016

The Trump Organization and a President Trump: Minimizing the Exploitation of Conflicts of Interest

In a matter of days after his being elected as President of the United States, Donald Trump decided to put his business empire in the hands of his adult children. Roughly a month later, in recognition of the intractable conflicts-of-interest problem even were his three eldest children to run his roughly 500 companies, he announced that he would sever his ties with his empire; after all, he would have his hands full as the federal president of another sort of empire: The United States of America. Even so, he did not mean to divest, suggesting that conflicts of interest involving his brand could be salient through his tenure as U.S. President. It is important to remember that nothing in federal law prohibits the President from continuing to run his own business; the conflict-of-interest rules that apply to other federal officials do not apply to the office of the president. Even so, enormous external pressure was being brought to bear on the president-elect to divest completely from his businesses.

The Trump Organization’s vice president of marketing pointed to the “transfer of management of the Trump Organization and its portfolio of businesses” to the children.[1] As laudable as it is for a father to have such pride in his offspring, the conflicts of interest cannot be ignored. “The inclusion of the kids on the transition team makes it clear that there is no real separation between their politics and their family,” said Lisa Gilbert of Public Citizen.[2] With Trump’s children running the Trump Organization, it could hardly be pretended that it’s assets would be in a blind trust.

Turning operations over to Donald Jr. and Eric would not qualify as a blind trust because the U.S. President would have knowledge of the company’s major assets and be in contact with the people running the business. “To say that his children running his businesses is the equivalent of a blind trust—there is simply no credibility in that claim,” said Matthew Sanderson, a Washington (Republican) lawyer.[3] “It’s not a blind trust when you know what’s in it,” Richard Painter, who oversaw White House ethics policies under President George W. Bush.[4] Accordingly, the Office of Government and Ethics informed Trump’s lawyers that only a divestiture would result ethical concerns.[5] Trump could object that selling his brand could risk its impairment. As the Trump brand is his name, he could be expected to continue to have a vested interest in how well the business does. At the very least, he would not want to see it fail.

While a president’s business should not have to take a major hit, the notion that assuming public office is a duty should be sufficient to justify costs—even in terms of opportunities lost (i.e., opportunity cost)—arising as a result of the business being put in a blind trust. Yet in the case of a business empire of real estate, whose properties would of course be known to the future president, expunging, or deconstructing, the conflicts of interest would be impracticable. So the task, I submit, is to do what can realistically be done while still recognizing that conflicts of interest are inherently unethical because human nature, being what it is, cannot be expected to stand up to the temptation, even if a latent one.

In Donald Trump’s case, at least four possible conflicts of interest stood out in the wake of the election. Firstly, the Trump International Hotel was already operating out of the Old Post Office Building, which is owned by the U.S. Government, when he was elected president. The institutional conflict of interest lies in Donald Trump as U.S. President appointing the head of the General Services Administration, the agency that manages the building, while Trump’s children run the hotel (even as they were advisors in their father’s transition team). A personal conflict of interest lies in his enrichment from officials including of foreign governments staying in the hotel when visiting Washington even if just to make a good impression on the president. Even while Trump was the president-elect, foreign diplomats were booking stays so they could comment on what a nice luxury hotel the president has.

Secondly, the U.S. President oversees the National Labor Relations Board, which, a week before the 2016 election, ruled against Trump’s hotel in Las Vegas. Being a major employer while being the U.S. President, Trump would naturally feel tempted to exploit the latter role in favor of the former. The same sort of conflict of interest would apply to the IRS and the EPA—two other federal agencies highly relevant to business.

Thirdly, roughly half of Trump’s 30 properties in the U.S. had debt as of the time of the election. As President of the United States, Donald Trump could put in his own Chair of the Federal Reserve in 2018. He would have a personal financial interest in keeping interest rates low. Additionally, he would be tempted to use is role as president to put pressure on his banks should any of his properties (again) be in financial trouble.

Fourthly, the need to adequately protect Trump’s New York home in Trump Tower set up the conflict of interest whereby Trump would profit by renting several floors to the U.S. Secret Service. The operative question is whether a president should profit monetarily from his own protection.

Trump’s own modus operendi of using publicity to sell his brand should also be considered. Selling his brand had been so very salient in his business persona (and even in his role on The Apprentice) and the pattern continued with VP-elect Mike Pence giving a prominent speech at Trump’s hotel near the White House that Trump could hardly be expected to stop advancing the financial-political synergies after taking the oath of office. That he explicitly extolled his brand of steak during an acceptance speech after winning a primary (or caucus)—even furnishing some of the steaks on display—suggests that he would at the very least make references to his brands on the “bully pulpit” of the presidency. What he might do behind the scenes in the White House to further his business empire is anyone’s guess.

Yet disentangling Trump from his business empire may be unrealistic, given the man, his brand, and the nature of a large and prominent business. “It is unprecedented in modern history to have the level of complexity of global substantial business relationships that the president-elect has, and the litigation that inevitably follows any complex business venture,” said Norman Eisen, a former special counsel for ethics and government reform.[6] The presidency has so much power that the possible points of contact are too numerous to deconstruct on a case by case basis. “Since he has the power to affect all policies in this country, there are bound to be almost daily potential conflicts of interests between his business holdings and his decisions as president,” said Fred Wertheimer of Democracy 21.[7]

Jimmy Carter put his peanut farm in a blind trust. Ronald Reagan and both Bush presidents used blind trusts as well. Trump’s case is not so simple. “The layers of potential conflicts [of interest] he faces are in many ways as complex as his far-flung business empire.”[8] At the time of the 2016 election, that empire included more than a dozen hotels and golf courses, commercial real-estate including Trump Tower, and marketing deals.[9] Even were Trump to place the Trump Organization in a blind trust (i.e., not run by his children), he would undoubtedly know the major assets—many of which literally have “Trump” emblazoned on them far above street level. So even divestiture—selling the business to outsiders—would not obviate possible conflicts of interest.

Pressuring Trump to liquidate the business he founded may be asking too much of the man, especially if public service is considered a duty. Should he be pressured to take such a hit to his family business simply because he decided to step up to the plate for the good of his country? I’m by no means suggesting that this was his only motivation, but it should be asked whether it is in the national interest to put large stumbling blocks in front of accomplished, successful people who would otherwise undergo public service.  Fourteen-months of campaigning could be enough of a repellant for would-be presidents of excellent caliber; having to sell or liquidate “your baby” could be asking too much.

In short, ridding the future president of any possibility of conflicts of interest concerning his business-role and his role as U.S. President could be so detrimental to Trump’s private affairs that doing so would be asking too much of his public duty. Moreover, the message sent out to future well-qualified candidates for the office would be that being president would cost them dearly.

I am not suggesting that we should throw our hands in the air and not attempt to curb Trump’s opportunity to get even richer from being president. Rudy Giuliani, former mayor of New York City and one of Donald Trump’s advisors during the campaign, advocated trusting the future president. “You have to have some confidence in the integrity of the president. . . . The man is an enormously wealthy man. I don’t think there’s any real fear or suspicion that he’s seeking to enrich himself by being president. If he wanted to enrich himself, he wouldn’t have run for president.”[10] Yet he sold his steak-brand during his speech after a primary.

Moreover, given the level of temptation that is in a conflict-of-interest situation, I submit that trusting Trump is not a wise option. Furthermore, although he undoubtedly believed after the election that having his children run his business-empire would ensure its survival—not to mention profitability—the business would hardly suffer from the hiring of a seasoned CEO along with an independent monitor. Such an arrangement would be fitting, given the extraordinary nature of the situation of a president being the founder and head of a business empire. However, such an arrangement would fall well short of staving off potential conflicts of interest.

Given how oriented Donald Trump has been to selling his brand, he should at the very least divest financially from his businesses and licensing agreements. Owing to the nature of a family business, he could transfer his ownership interest to his children, who would hold off from running the Trump Organization until their father has left the presidency. The management during Trump’s term of office would essentially be in a blind trust even though the business itself would not be. It asks too much of the man to sell off his family business to be owned and run by outsiders, for his family might not get the business back after Trump leaves office. The use of the Trump International Hotel in Washington even when Trump was president-elect suggests that even this arrangement would not forestall conflicts of interest, but at least the public would have some deserved solace in knowing that some distance has been placed between the president and his business empire while he is in office.

1.  Fredreka Schouten, “Watchdogs Warn Trump on “Blind Trust,” USA Today, November 16, 2016.

2.  Fredreka Schouten, “Watchdogs Warn Trump on “Blind Trust,” USA Today, November 16, 2016.

3.  Eric Lipton and Susanne Craig, “Trump’s Far-Flung Holdings Raise High Risk for Conflicts,” The New York Times, November 15, 2016.

4.  Fredreka Schouten, “Watchdogs Warn Trump on “Blind Trust,” USA Today, November 16, 2016.

5. Maggie Haberman and Jo Becker, “Donald Trump Is Said to Intend to Keep a Stake in His Business,” The New York Times, December 7, 2016.

6.  Steve Eder, “How Federal Ethics Laws Will Apply to a Trump Presidency,” The New York Times, November 11, 2016.

7. Fredreka Schouten, “Watchdogs Warn Trump on “Blind Trust,” USA Today, November 16, 2016.

8. Lipton and Craig, “Trump’s Far-Flung Holdings Raise High Risk for Conflicts,” The New York Times, November 15, 2016.

9. Ibid.

10. Ibid.