by Laurel Burke
Routinely, a business organization must balance building and reinforcing relationships with business needs and revenue goals in the context of legal and ethical behavior. And, people in business often believe building relationships and securing their positions requires providing gifts and hospitality to their commercial counterparts. (See e.g. Gratuities, gifts and the ethical business relationship, by Simon Longstaff found on http://www.ethics.org.au/ethics-articles/gratuities-gifts-and-ethical-business-relationship).
Certainly, ethical businesses seek to compete and win business fairly — without using illegal or unethical practices to gain advantages. However, sometimes, organizational sales personnel, public policy staff, lobbyists and others regard business courtesies or gratuities as a “cost of doing business” or something that “everyone else” is doing and are too lax about checking when a gift or hospitality is unethical or unacceptable or prohibited. To help ensure organizational culture or personnel do not succumb to an unethical mentality of getting the revenue no matter what the cost, organizations must provide clear direction and oversight to employees and executives. This article provides some recommendations regarding organizational policy considerations for giving to public/government personnel, discusses where to find rules and how to evaluate business courtesy requests, and finally suggests a sample checklist of items to assess for specific organizational courtesy requests.
Why should an organization care about the business courtesies provided to and from its personnel? Organizations that mishandle business courtesies are at risk of being barred from future business up to and potentially including criminal charges for individuals. The Foreign Corrupt Practices Act (“FCPA”), federal government and state and local agencies prohibit bribery and illegal payments. But, exceptions inserted in many rules, such as the “reasonable and bona fide expenditures” of the FCPA, make the distinction between prohibited payments and permitted expenditures less clear and more subjective. Additionally, organizations employing a lobbyist or involved in procurement may face different rules that may apply to others beyond the individuals performing those tasks and have additional reporting requirements for the lobbyist or organization.
Inside an organization, every employee—whether they sit in procurement or sales, policy or regulatory, technical or somewhere else—or their business unit lawyer should make an assessment of the state, local and agency specific rules regulating gifts before taking someone to lunch or dinner, buying or providing game tickets or even treating someone to coffee. The evaluation can be confused by existing relationships when for instance, a conscientious employee asks the organization if s/he can invite a public employee who is his neighbor over for dinner because they periodically socialize in the neighborhood. If the neighbor has input on a pending agency decision to purchase services from the organization but the employee is far removed from the transaction, the organization may not be concerned but if the employee happens to be the director that pitched the services to the neighbor’s agency, the organization may want to consider the event more closely and determine if action is required and possibly make suggestions about what the public employee would be permitted to accept.
If the organization chooses to allow gifts and entertainment of some type, it should provide a system that supports them, ensures the rules used are the most up to date and the requests are not reviewed in isolation. On the isolation point, the system should have mechanisms to consider what else is happening with the proposed recipient as well as the department or agency and the organization; for instance, is there a procurement or other contract pending or proposed legislation being considered, or will a commission be acting? Even if an organization chooses not to review every business courtesy proposed for public employees or officials, it should provide internal guidance in company policies and procedures – set limits that employees can easily find, understand and implement.
Careful attention to the specifics and some oversight serves an organization well, since once outside of pure bribery, the stringency and accessibility of the requirements vary widely.
The Rules and Requirements – Where to Find and How to Evaluate Them
At their essence, gift rules intend to protect integrity and encourage ethical conduct. Implementation and content vary widely. Where to find the rules also varies widely – e.g. state statutes, municipal codes, ethics codes, lobbying requirements, procurement guidelines, company codes of conduct, and industry “best practices” adopted by a company and for those with federal relationships, the FCPA, Anti-Kickback Act, Anti-Lobbying Act, Procurement Integrity Act, and others. In addition to standard statute and ordinance searches within the rules for lobbying, procurement and gifts, perform web searches on agency/local sites looking for policies, Codes of Conduct, ethics codes, gifts, gratuities, lunch, dinner, conflict of interest, entertainment, pecuniary/non-pecuniary, and hospitality are likely to provide more depth and understanding of what a particular agency intends. Searches may reveal that a state’s set of rules are vague, contradictory or silent while, because of its own experience or leadership, a city or county in that state decided to publish guidance on what’s acceptable and then its agencies may issue more guidance still. (See e.g Utah Procurement Code, Utah Code Ann. § 63G-6-1001 & 1002 (felony to accept or offer any emolument, gratuity, contribution etc if recipient is/acting as procurement officer) and Uintah School District Purchasing Policy 004.0200 (adopting 63G-6-1002 with guidelines) and the Dept of Administrative Services Internal Policy on Gratuities, Gifts and Solicitations published July 21, 2008 (policy to provide guidance where there may be a conflict of interest with the objective to “preclude impropriety” and indicating the requirements of the law do not apply to occasional non-pecuniary gifts with a value not exceeding $50 unless the employee is involved in a procurement or other governmental action affecting the donor); City & County of Denver Charter and Code of Ethics (Denver Rev Municipal Code Article IV) and Denver Public Schools Policies.) Or, a state may provide a significant amount of guidance so that the bulk of the municipalities and agencies within the state choose to adopt the state rules even if they issue their own codes of conduct. So, where to start?
Identify the applicable rules to analyze. If the proposed recipient is a municipal employee or official, start with the state statutes, but don’t stop there; take a look at the city’s ordinances and ethics or business codes, as well as the website for the specific department or agency.
Look for opinions from ethics boards and the Attorney General; they are at least persuasive materials. Be sure to check the statutory definitions for who qualifies as a lobbyist, which vary widely jurisdiction to jurisdiction; even registered lobbyists are surprised by the breadth of the plain language.
Search procurement guidelines for the agency and what’s discussed in any applicable contract or RFP/Q (Request for Proposal or Quote) documents. Dig in to determine if there are policies that have been issued addressing the specific situation or an analogous one. One agency may permit a round of golf with the business contact while another prohibits entertainment of any sort. Consider that one department might exclude food from what is entertainment or a gift while some others might apply a dollar limit on the food that may be consumed with the business contact.
Once the applicable set of rules has been determined, consider the recipient – not only where the recipient works but also whether the recipient is employed, elected, appointed or volunteering; what authority does the recipient exercise. Officials, Directors/Trustees and employees may be subject to different requirements; so look for different policies for different people. For instance, a school district employee may not be permitted to attend certain events for free while the superintendent of the same school district may, in certain circumstances, be permitted to attend the event at no or little personal cost.
Determine the definition of “gift”. Some rules define the parameters of a gift or, more often, rather than provide a definition per se, yet choose to exclude items from the definition of a gift such that a prohibition in practice becomes more lenient. For instance, items of “nominal” value may be excluded from an otherwise outright prohibition on accepting gifts and therefore, the intended recipient may actually accept the item; even the term “nominal” can mean different things in different states or be of “unexceptional value” rather than of nominal value. In the most extreme rules, all gifts are bribes and impose criminal penalties for violations on either the recipient or the giver or both. See e.g. Utah Code Ann.§ 63G-6-1001 & 1002. More typically though, rules look to what the giver intends to get as a result of providing the gift. If the giver intends to gain an advantage or buy his or her way into a contract opportunity, for example, the recipient would not be permitted to accept the offered items. But, if the giver has no such devious or underhanded intent, and the value of the gift falls within the permitted parameters, the recipient usually may accept.
Gift rules cast a wide net and come in a variety of forms. Focusing on the type of recipient first and acting with prudence when it comes to providing a courtesy help steer the organization to the right side of giving and receiving.
SAMPLE Business Gratuities Checklist
(Some things, not the only things, to consider when evaluating a business courtesy/gratuity request internally.)
Who is the Recipient?
- Public employee (employed by federal, city, state, agency, department)
- Public official (elected or appointed)
- Influence on decision makers or
- Decision maker for pending contracts/RFPs/RFQs
- Authority for agency/department
Who is Organization and “Giver”
- Lobbying Employer
- Lobbyist providing courtesy
- Lobbying rules – by offering courtesy, does organization need to report a certain way
- Policy permits gratuity/entertainment of this value
- Policy permits gratuity/entertainment to this type of recipient given business climate
What gift/gratuity/entertainment is proposed?
- More than Nominal
- Food (breakfast, lunch, dinner, coffee)
- Entertainment (giver will attend)
- Cash or cash equivalent (gift card)
- Tickets (giver will not attend)
Where is the agency/department (jurisdictions)
- State/Federal rules
- Local ordinances
- Policy statements
- Code of Conduct, Ethics Codes
- Procurement Rules/Guidance
- Legislature in session
- RFP/Q pending
- Contract negotiations in progress
What is the reason for the courtesy?
- Influence recipient
- Get something in exchange for the gift
- Relationship separate from business
Organizations with employees that interact with public employees should create a mechanism for those employees to ensure they provide business gratuities only when allowed by company policy and the rules that apply to the intended recipient. Scrutinize the reasons for providing a courtesy and ensure that no impropriety could be inferred or attributed to the organization from its employee behavior.