We have received an inquiry from the President of a State College (the College) as to whether he may serve on the Board of Directors of a Maryland bank (the Bank).
The Requestor indicates that he has been informally approached regarding a possible invitation to serve on the Board of Directors of the Bank, a full-service State chartered bank that offers the complete range of banking, credit and investment services. The Requestor's service on the Board would be a compensated position that would apparently involve general policy-making, and review of particular transactions that exceed $1,500,000. According to both the Requestor and the Executive Director of the Board of Trustees for State Universities and Colleges (the State Board), the Bank does not have any dealings with the College except for its participation in the State's student loan program. The Executive Director indicates that the State Comptroller handles all of the college's checking accounts. Moreover, the Ethics Commission print-out of entities doing business with the State (covering calendar year 1983) lists the Bank as having one contract with the Maryland Higher Education Loan Corporation, and no relationships with the College.
The presidents of the State Universities and Colleges are appointed by the State Board and serve at its pleasure. The president is generally described as the chief executive officer of the institution, responsible "for the discipline and successful conduct of the university/college and for the administration and supervision of all its departments." The president submits recommendations to the Board regarding academic programs, prepares and submits the annual operating budget, nominates for appointment administrative staff, heads of departments and teaching personnel, makes recommendations for promotion, and has appointment authority as to all classified personnel.
The Requestor's duties as President of the College thus involve appointment and supervision of the Vice President for Administration, who in turn hires and supervises the Director of Financial Aid. This individual is the person in the College that works with the student loan program, apparently the only College program that would interact with the Bank in any way. The student loan program is a State guaranteed program established pursuant to the Education Article §1001-1014, Annotated Code of Maryland, and administered by the Maryland Higher Education Loan Corporation (MHELC). According to the Executive Director of MHELC, as well as a State university financial aid officer, the process begins with a student completing the student section of the application and submitting it to the financial aid officer. The college section is then completed, certifying the student's enrollment and providing cost and fees information, and the student takes the application to the bank of his choice.
According to MHELC's Executive Director, on very rare occasions a student whose family has no banking affiliations may ask for assistance in selecting a bank, and a financial aid officer may identify several in the student's area. This is a very rare circumstance, however, and generally the college's involvement in the loan process is very limited. Most commercial banks in the State participate in the program, and policy interaction by them is with MHELC, and is at well below the Board of Directors level. Once the student's application is approved by the bank, it is sent to MHELC for guarantee approval. A college's sole responsibility at this point is to provide MHELC with twice-yearly status verification reports as to the student's continued enrollment and grade level. Colleges are not involved in establishing repayment schedules (which is done by the bank and MHELC) or in collecting delinquent loans (which is done by the bank for at least 120 days after delinquency, and later by the MHELC).
The Requestor's service on the Bank's Board would be compensated, and would also involve the type of fiduciary and management responsibility that we have consistently said results in an employment relationship. See, for example, our Opinions No. 84-17, No. 83-24, No. 82-45 and No. 82-43. FT#(1). The primary issue in this request is thus whether any violation would arise under the employment prohibitions of §3-103(a) of the Public Ethics Law (Article 40A, §3-103(a), Annotated Code of Maryland, the Ethics Law). This section forbids an official or employee from having a financial interest in or being employed by an entity that is regulated by or has or is negotiating contracts with his agency (subsection (a)(1)(i)). It also prohibits any other employment that would impair the individual's impartiality or independence of judgment (subsection (a)(1)(ii)).Since there appears to be no contractual or regulatory relationship between the Bank and the College, our initial conclusion is that the strict prohibition of subsection (a)(1)(i) does not apply here.
The issue, then, is whether the more general bar of subsection (a)(1)(ii) would apply. We have generally viewed this subsection as a complement to subsection (a)(1)(i), designed to deal with situations where there are clear and serious conflict of interest issues, even though there may be no contractual or regulatory contacts between the agency and the outside employer. See, for example, our Opinions No. 84-7, No. 83-39, No. 83-30 and No. 81-28. In applying this section we have looked at an individual's official duties and responsibilities to determine whether they have any relationship to the outside employer. In this situation, the Requestor does not appear to have any direct involvement in College actions regarding the student loan program, and, in any case, these actions apparently do not involve dealings directly with the Bank. Moreover, we do not believe that the Requestor's administrative and supervisory responsibilities as to the College's financial aid office constitute duties regarding the Bank that would give rise to an impairment as contemplated by this section.
We therefore advise the Requestor that his service on the Bank's Board of Directors would not violate the employment provisions in §3-103(a) of the Ethics Law. Also, given the unlikelihood of his having any Bank duties relating to the College, or of his taking particular official actions regarding student loan activities, we do not believe there are any issues raised under the other conflict of interest provisions of the Law. Nor do the facts here indicate that the §3-104 prohibition against use of prestige of office would have any applicability to his being selected for the Bank's Board.
Herbert J. Belgrad, Chairman
Reverend John Wesley Holland
Betty B. Nelson
Barbara M. Steckel
Thomas D. Washburne
Date: October 16, 1984
1Except as otherwise expressly cited to the Maryland Register, Opinion citations are to Commission Opinions published at COMAR Title 19A.