Opinion No. 95-9

Ethics Commission advice has been requested as to whether the recently appointed Assistant Secretary for Administration in the Department of Licensing and Regulation (the Requestor) may continue to serve on the Board of Directors of two private entities, the Avenue Market Corporation and Blue Cross/Blue Shield. We advise that service with the Avenue Market Corporation may continue within certain constraints, but that continued affiliation with Blue Cross/Blue Shield is barred by the Public Ethics Law.

The Requestor is a former member of the House of Delegates who resides in Northwest Baltimore. He was recently appointed to serve as an Assistant Secretary in the Department of Licensing and Regulation. This position involves oversight of the Department's administrative functions, through five administrations supervised by him: Administrative Services, Fiscal Services, Legislative Services, Management Information Systems, and Personnel Services. His areas of activity therefore include financial planning, expenditure control, budget preparation, grants management, procurement processing, personnel management, fair employment practices, substance abuse screening, data processing and management information systems, general services, facilities maintenance and security, inventory control, and risk management. According to his position description, the incumbent in this position also serves as a DLR liaison with other State agencies, the General Assembly, the Governor's Office, and the federal government.

The Department of Licensing and Regulation was created in 1970 to consolidate many of the State's licensing and regulatory functions. In addition to the Assistant Secretary for administration, it is managed by a Secretary, Deputy Secretary and Assistant Secretary for programs. It has four program divisions that reflect its substantive jurisdiction, including Financial Regulations, Labor and Industry, Occupational and Professional Licensing, and Racing. In recent reorganization legislation to become effective on July 1, 1995, the Employment and Training Division that is now part of the Department of Economic and Employment Development was transferred to the DLR, which will become the Department of Labor, Licensing and Regulation. In addition to the Unemployment Insurance program, this Division includes Employment and Training, Employment Services, and Data Processing units.

This request involves two pre-existing affiliations, identified by the Requestor in connection with his appointment, involving service on the Boards of Directors of two private entities, the Avenue Market Corporation and Blue Cross/Blue Shield of Maryland. The first is noncompensated service on the Board of the Avenue Market Corporation (the Corporation), a private nonprofit entity recently established as a quasi-governmental entity in connection with a plan to privatize a market located at Pennsylvania and Laurels Streets in Northwest Baltimore. This is a currently functioning market serving the Upton, Sandtown- Winchester, and Druid Heights communities in the City. At this time, the Corporation is in the process of selecting a developer that would undertake renovations to the facility. After renovation, it will be the Corporation's responsibility to find tenants and to generally operate and manage the facility.

According to DLR's Assistant Secretary for Programs, interaction between the Corporation and the Department would most likely be with the Occupational Safety and Health Program. She says that this program, however, focuses on employers and looks for an employer-employee relationship. General health and safety issues are within the jurisdiction of local health departments and fire and safety units. Apparently, for example, while renovation is underway, MOSH would look to the developer and any subcontractors as employers responsible for the workplace environment, rather than to the Corporation. Once the renovation is completed and the Corporation is operating the facility, it is possible that there would be some responsibility under MOSH, but this is limited, according to the Assistant Secretary. She says that MOSH inspects or takes direct action as to an employer if there is a fatality, an accident, a complaint or a referral. She says that there is also a schedule for inspections. This, however, tends to look to high hazard situations, and the Assistant Secretary indicates that a market would not likely be viewed as a high hazard operation that would put it on the scheduled list. (It should be noted, however, that other State agencies such as the Health Department, would have a role here and some of the new functions transferred from DEED also could be involved either actually or potentially.)

The Requestor's other service involves Blue Cross/Blue Shield, a private nonstock not-for-profit entity that is the largest health care insurer in the State. The Requestor has served on its Board since 1988 and is currently in a term that expires in January 1996. He indicates that he serves on committees involved in executive compensation and in customer complaints. This is a compensated position. Blue Cross/Blue Shield is subject to substantial regulatory requirements by the State's Insurance Administration. In addition to providing health insurance through a preferred provider insurance system, it also is substantially involved in direct provision of health care through managed care programs such as HMO's. It is a provider directly to individuals and groups and is involved in managing health care programs for both corporate and government entities. It is one of the primary providers under the health system for State employees through a Statewide point of service plan and with managed care programs in certain areas of the State.

Given its substantial health insurance position, BC/BS has played a major role in evaluation and development of health care policy in the State. A representative of the entity, for example, serves on the Health Care Access and Cost Commission. The company has been very active in legislative lobbying activities, with three lobbyists in recent years. These registrants identify their matters of interest as health insurance, health care cost containment and health insurance regulation. The company registers for both legislative and executive branch lobbying and reported just under $90,000 in total expenditures during the 1993-94 lobbying periods (the 24th highest expenditure for that year). It has in the past been subject to substantial legislative discussion and scrutiny, most recently on the issue of its continued nonprofit status. The company has been involved in some general health program and policy initiatives, with pro-grams relating to drugfree and smokefree workplaces, and the Employee Assistance Program.

Section 3-103(a) of the Public Ethics Law (Article 40A, §3- 103(a), Annotated Code of Maryland, the Ethics Law) prohibits employees from having outside employment with an entity that is subject to their authority or that of their agency (subsection (a)(1)(i)), and also prohibits any other employment that would impair their impartiality or independence of judgment (subsection (a)(1)(ii)). The Ethics Commission has consistently viewed service on private operating boards as resulting in an employment relationship even if it is not compensated, given the nature of the fiduciary responsibility that accrues to such boards. The Requestor's service with both of these entities would thus be employment for purposes of §3-103(a).

The occupational safety law implemented by DLR by its terms applies to "each workplace in the State." (Labor and Employment Article, §5-103(a), Annotated Code of Maryland.) Also, the Avenue Market Corporation would be an employer subject to the Unemployment Insurance program that will be transferred to the Department as of July 1, 1995 (which applies to entities or individuals that employ one or more workers to provide services for any part of a day), and could be a potential employer involved in the employment services and employment training programs being transferred to the agency. Under these circumstances, we believe that the Requestor's affiliation with the Corporation is with an entity that is under the authority of his agency, and would be prohibited by §3-103(a) of the Law unless exempted pursuant to the language of the section and the Commission's implementing regulations. Exception is allowed based on a conclusion that the employment would not result in a conflict of interest or appearance of conflict.

The regulatory exception criteria (as set forth in COMAR 19A.02.01) include consideration of the extent of an individual's official duties as to the private entity, as well as consideration of whether the private activity would likely lead to interaction with the agency or agency programs. Factors here include the fact that the Requestor does not appear to have any day-to-day direct substantive dealings with the DLR programs that will impact on the Corporation. Also, the Corporation is unlikely to be involved in agency interaction as to the MOSH or UI programs, in the absence of some particular event or issue (though it could be directly involved in other employment services programs.). Thus, though he serves on the Board that is ultimately accountable for the Corporation's compliance with the requirements of these programs, this may not entail any actual activity on his part. We note further that the agency Secretary has expressed the view that this affiliation entails a community service activity that would not be likely to bring the Requestor into contact with his agency, and that exception is supported by the agency as to this activity.

Under all of these circumstances, we advise that an exception can be applied to allow the Requestor's continued service on the Corporation's Board, provided that he takes care to avoid any involvement on behalf of the Corporation in matters involving the Department or State government, and assuming that his DLR duties do not in any way entail dealings with program or administrative matters that would impact on the Corporation. We also advise that the Requestor should take care to avoid any situations where his official position becomes a factor in his private affiliation. We note particularly that he is a high level official, which has generally not been the case in other situations where exception has been allowed. Also, he has duties relating to legislation and serves as a liaison with other governmental units. If an issue were to develop under either of the DLR programs as to the Corporation, his position as one of the top four managers in the Department could be a factor. This could result in issues under the prestige of office provision of §3-104 of the Ethics Law and suggest appearance and other concerns under the employment impairment provision of §3-103(a)(1)(ii), and could require reevaluation of the exception allowance and termination of his service with the Corporation.

As to the Requestor's Blue Cross/Blue Shield service, however, we do not believe that an exception can be applied to allow his continued membership on this Board. In our view this service presents more substantial issues under the impairment and prestige provisions of the Law, given the fact that the company itself plays a significant role in the development of State policy, and as the primary health insurer in the State itself has pervasive involvement both in State government and the private sector. It is, for example, a marketer of health insurance and programs to State employees in the Requestor's agency, and his responsibilities include personnel administration. Employees of the agency would be making their health coverage selections and would probably have service and fee disputes with BC/BS, and his role at BC/BS includes customer complaints. The company also competes with other providers in marketing health care and health care management services to the many businesses and licensees that are under the regulatory authority of the DLR. Also, the company has been involved in marketing of Employee Assistance services that may be purchased by the agency to be available to agency employees. It also has programs and has taken positions regarding drugfree and smokefree workplaces, both public policy issues of concern to the Department and to the Requestor in his personnel management responsibilities.

As with evaluation of the Corporation relationship, it should be noted that the Requestor is one of the four top managers in the Department, and has legislative and government liaison responsibilities that could very well bring him into policy development situations. Thus, there could be prestige of office concerns, as well as substantial appearance issues arising from his continued compensated service on the management and operating board of a very visible entity such as Blue Cross/Blue Shield that tends to be involved in State policy development at its highest level. Also, the Blue Cross/Blue Shield Board is involved in its policy positions, and as a member the Requestor would have substantial fiduciary responsibilities. The company has recently been involved with a substantial billing dispute with the State, and has been involved in a disagreement involving the State about its plan to form a for-profit insurance company. Both of these issues have involved some legislative consideration.

Also, as a general matter, we have in the past suggested concerns when individual State officials serve on the managing board of major business entities having sensitive relationships with the State. We have recommended that legislation be considered generally further limiting such relationships. We note also that the Department view as to this service recognizes the potential for appearance issues arising from this service, given the breadth of Blue Cross/Blue Shield's involvement in the State's health care policy and service delivery programs. Moreover, this company does provide health services and perform other functions that bring it as a legal matter within the direct jurisdiction of the Requestor's agency. Under the circumstances, and in view of the Requestor's position in the agency, we are unable to conclude that the situation satisfies the requirements of the Law so as to permit his continued service on this Board. We therefore advise the Requestor and the agency that his affiliation with this entity should be discontinued.

Mark C. Medairy, Jr., Chairman
    Michael L. May
    Charles O. Monk, II
    Robert J. Romadka
    April E. Sepulveda

Date: June 22, 1995