The Chancellor of the University of Maryland at Baltimore (UMAB) has inquired as to whether he and other University faculty and staff may serve on the Board of Directors of a newly established University of Maryland Club Corporation (the University Club or the Club), if the Club does business with the University.
The University Club project has been in process for about six years. It was begun by several University alumni located in downtown Baltimore, along with some individuals on the UMAB campus in downtown. The goal was to establish a quality restaurant and social place that would be readily accessible (walking distance) to the campus. About two years ago, after a period of evaluation and marketing study, the group decided to move forward, and set up a formal planning group consisting of approximately half alumni and half current faculty and staff. University staff have been assigned by the Chancellor to participate in the organization of the Club apparently in part to assure its proper relationship to the University.
An initial decision, after some study, was to set up a private corporation, rather than function under the auspices of the University. This was because primarily the goal is to establish a quality restaurant and gathering place, and there was concern about whether this would be possible given the State employment and procurement rules, and also whether such a facility could maintain a reputation as a fine restaurant if it were a State facility. There was also some interest in avoiding the State budget process. The planning group established itself as a tax exempt organization, and accepted a monetary donation in order to begin public relations and marketing work. It continued its half alumni/half current staff membership breakdown, in the expectation that about half its market would be from the current University community. The By-laws provide for election of directors based on nominations from the UMAB Chancellor from specified categories or positions. Apparently Board members are not expected to be compensated for their service as directors.
Currently the group is involved in a membership drive. Membership is to be open to University alumni, faculty, staff and final year graduate students, to Medical System staff, and to President's Club members (based apparently on monetary contributions to the University). The group plans to move forward with more definitive action when it has received 1,000 memberships, with an expectation that this threshold will be reached in the Fall when the faculty returns to campus. The hope is to be able to offer corporate memberships to the University and the Medical System Corporation, though whether this will be possible depends upon allowability under the tax exempt provisions of the Internal Revenue Code. No firm commitments have been made regarding the location of the Club or other operational details. A tentative search has been made for space, and the original hope to rent space from the University has been abandoned, due to the unavailability of acceptable space that the University would be willing to give up. The location tentatively settled upon is a professional building at Paca and Redwood Streets across from the law school. None of the space is used by the University, or expected to be, though the Medical System (a private corporation) may do so. The Club would probably be located on the entire second floor.
In addition to the possibility of a corporate membership, the University's dealings with the Club would consist primarily of the purchase of luncheons and other dining capabilities. The legal assistant in the Chancellor's office has indicated that there are very few places in easy walking distance of the University, and that catered lunches or similar activities are often necessary where there are seminars, meetings or continuing education activities. This individual indicates that procurement of these services would continue as it has in the past, except that the Club would add a third facility to the two hotels currently available for catered lunches. The procurement of these services is done by the central purchasing offices of the various University campuses. Purchase of such services would be through informal competition based on price availability within defined purchase parameters such as location, schedule, and space and services needed. The purchasing offices would be advised that sole source awards to the Club would not be allowed simply because it carries the University name. Payment would be made by purchase order, hopefully through a University corporate membership.
Apparently the Club's planning group based its organizational structure on review and evaluation of comparable university clubs throughout the country. The Chancellor's legal assistant indicates that the conclusion was that establishment of a private entity run independently of the institution is the usual and generally accepted approach. The Club planners anticipate that the membership of the Board of Directors would continue as the planning group, half alumni and half from the current University community. Though participation at the Chancellor and higher management level is perceived of as important in the early organization and membership phases, it is believed that once the organization is functioning, other ways can be structured to assure University input. Though it is recognized that this input could be organized to avoid actual voting membership by current University staff, the group hopes to provide for some voting participation by University board members since they expect that about half of the market will be in this community. There is some concern about the ability to maintain credibility with this community if there are no University personnel on the controlling board.
The Chancellor's request presents issues primarily under the outside employment provisions in §3-103(a)(1) of the Public Ethics Law (Article 40A, §3-103(a)(1), Annotated Code of Maryland, the Ethics Law). This section provides (in subsection (a)(1)(i)) that an official or employee may not be employed by or have a financial interest in an entity that is under the authority of or contracts with his agency, and further bars (in subsection (a)(1)(ii)) any other employment relationship that would impair the individual's impartiality or independence of judgment. In considering requests from employees regarding a wide variety of outside activities, we have consistently said that service on the operational and controlling boards of private entities, even when it is not compensated, constitutes an employment relationship for purposes of the §3-103(a) employment provisions of the Ethics Law.1. In our view the purchase of meals and other catering services from the Club through the University's procurement mechanism would result in a contract for purposes of the strict prohibition of subsection (a)(1)(i). We therefore believe that, though this relationship does not now present an issue under the outside employment prohibition,2 it would be barred by §3-103(a)(1)(i) if and when the Club begins operation and enters into purchase contracts with the University, unless an exception can be applied.
We have evaluated this situation in view of the general exception set forth in §3-103(a)(1), and our implementing regulatory criteria (COMAR 19A.02.01). This exception is allowed where an interest is disclosed and where there is a determination that the situation presents no conflict of interest or appearance of conflict. The regulations are designed as guidelines for determining whether the relationships between private and official activities are sufficiently remote so that these statutory criteria are met. They include review of official responsibilities, consideration of the nature of the private affiliations, and a general evaluation of whether the total circumstances of the particular situation would present a conflict of interest or appearance thereof.
In considering these regulatory criteria and how they apply to this situation, it is our view that they cannot be applied to allow the Chancellor's service on the Club's Board of Directors once it becomes operational. We are concerned that potential issues arise here from the nature of his position as Chancellor and his ultimate responsibility for everything that happens on the campus. This type of situation was addressed in our Opinion No. 83-1, which involved application of the regulatory criteria to another University Chancellor. As in that situation, even though the organizing of luncheons and purchasing of catering services are not matters in which the Chancellor necessarily would be involved on an operational basis, he plainly has supervisory duties as to the purchasing officers who do those things. Also, of course, if there were issues raised regarding these purchases, by auditors for example, it is the Chancellor who would be ultimately accountable for these purchasing activities.
Under all of these circumstances, and given the fact that the Club would be in competition with existing vendors, we are unable to conclude that the Chancellor's service on the Club's Board would be sufficiently remote from his duties as Chancellor to warrant application of an exception in this situation.3 We therefore advise him that he should discontinue his relationship with the Club's Board when it becomes operational and has dealings with the University, and should see to it that Club By-laws calling for his membership are adjusted.
As to other staff and faculty of the University, we believe that the allowability of this service must depend on particular situations. However, since many individuals in the University would be in positions that do not affect the procurement of these services in any way, the exception provisions could be applied. This is particularly true if the By-laws provide for University representatives to be chosen by the University, and to serve as University representatives rather than in their private capacity. It is not possible to definitively rule here on how the Law and regulations would apply to particular circumstances. However, University and Club officials may communicate with Commission staff to resolve any issues that arise regarding other faculty and staff.
*Herbert J. Belgrad, Chairman
Thomas D. Washburne
Reverend John Wesley Holland
Betty B. Nelson
Barbara M. Steckel
Date: September 24, 1986
* Mr. Belgrad was a member and Chairman of the Commission when this request was considered and decided, but resigned prior to issuance of the formal Opinion.
1 See, for example, our Opinions No. 85-19, No. 84-26, No. 84-23, and No. 83-24.
2 As long as the Club is still in the planning stages, and does not contract with or have other dealings with the University, we do not believe that either of §3-103's employment prohibitions comes into play now. Nor do we believe that the prestige provisions of §3-104 would apply to the Chancellor, since he is acting at this point only in implementation of University objectives.
3 The exemption provisions in §2-103(h) and §3-103(a)(2) would not be relevant here because they apply only to board and commission members or, as to §3-103(a)(2)(ii), ministerial employees. Also, the exception in §3-103(a)(3) has been viewed by us as an extraordinary remedy. It requires a recommendation from an appropriate agency head, it must be requested by the Governor, and it must be based on the finding that failure to grant the exception would reduce the State's ability to recruit and hire highly or uniquely qualified professionals or assure the availability of competent services to the public. No exception request has been received under this provision.