Dealing with Trump's conflicts of interest (the DGCL 144/SOX 406 analogy)

Milan Markovic writes On Trump and Divestment:

I, like many, am very concerned that the President-Elect's business interests will interfere with the performance of his duties as President.  While Trump may sincerely believe that the conflicts of interests posed by his sprawling business empire can be managed by, for example, allowing his children to run his company, virtually every decision involving a foreign nation in which he has investments will inevitably be subject to skepticism, undermining faith in the Presidency and the government as a whole.  This is to say nothing of the matters that the Trump Organization currently has pending before the NLRB and other agencies. 

Nevertheless, I respectfully disagree with Richard Painter and others who have argued that total divestment is the only solution to Trump's very serious conflicts.  Indeed, divestment would hardly eliminate the conflicts and could even make them worse. 

Divestiture or liquidation of one's assets, followed by transferring the proceeds to a blind trust, is the appropriate recourse for individuals whose wealth consists largely of liquid assets such as stock.  For example, former Treasury Secretary and Goldman Sachs banker Hank Paulson liquidated his Goldman stock prior to joining the government.  Of course, the mere fact that Paulson divested his Goldman holdings hardly ensures that he did not favor Goldman's interests while serving in the Treasury.  Lost in all of the discussion of Trump's financial conflicts is that relational conflicts - which are ubiquitous in government circles - can be just as serious.  

Let's assume that Trump does indeed decide to liquidate his substantial holdings.  Three things are certain. 1) As Professor Bainbridge has argued, divesting from a business empire like Trump's will necessitate a lengthy process that likely cannot be completed within the course of a few months and without significant displacement of employees.  2) Some assets and holdings likely cannot be divested at all because of transfer restrictions and alike in membership / joint venture agreements whereas for those assets that are sold, Trump can likely avoid paying hundreds of million dollars in taxes by obtaining a certificate of divestiture.  3) Among the bidders for Trump assets will be foreign entities, including foreign government-owned entitities. On this last point, were one inclined to try to curry favor with Trump, paying above market price for one of his hotels would probably a better strategy than planning a holiday party at one of those same hotels. ...

Rather than pushing for total divestment, which Trump has heretofore resisted and would not eliminate his conflicts of interest, an alternative approach would be for Trump to provide a full accounting of his holdings and to transfer all of his interests (and those of his family) into a voting trust to be managed by an unaffiliated and walled-off third party.

Where we disagree is that I don't think an independent voting trustee is necessary (I also don't think it's something Trump would agree to do). See my earlier post, which proposed that:

In Trump's case, this means:

1. He resigns from all positions with his businesses.
2. He puts all of his shares in the companies he owns into voting trusts and appoints one of his children, probably Ivanka, as trustee.
3. Any members of the Trump family that take formal or informal positions in the White House must resign from any positions they hold in the Trump organization. They should sign confidentiality agreements pursuant to which they commit not to share confidential information with any member of the Trump family, including spouses or children.
4. Any members of the Trump family who do not hold positions in the White House should also sign confidentiality agreements, agreeing not to seek access to confidential information and agreeing not to use any confidential information they may learn from government sources.
5. Senate Ethics Rules provide that:
   
   1. "If a Member’s spouse or immediate family member is a registered lobbyist, or is employed or retained by such a registered lobbyist or an entity that hires or retains a registered lobbyist for the purpose of influencing legislation, the Member shall prohibit all staff employed or supervised by that Member (including staff in personal, committee, and leadership offices) from having any contact with the Member’s spouse or immediate family member that constitutes a lobbying contact as defined by section 3 of the Lobbying Disclosure Act of 1995 by such person."
   2. Trump should adopt a similar rule for West Wing employees having any contact with members of his family who are not themselves west Wing officials.
6.  Any contacts between Trump and anyone affiliated with his business--including his children--should be publicly disclosed.
7. All West Wing employees-including Trump-should adopt a clean desk rule when Trump business affiliates--including his children--are in the building.
8. Any contacts between anyone in the West Wing and any foreign official doing business with the Trump business organization should be disclosed.

In addition, Walter Olson addresses the issue and concludes that "Congress will affirmatively need to 'decide what it is willing to live with in the way of Trump conflicts'—and it should draw those lines before the fact, not after."

Walter argues that even if Trump adopts my proposal, problems would remain under the Emoluments Clause:

... especially those surrounding favorable treatment that a presidentially owned business may not have sought out but which may nonetheless constitute “presents.” Congress should expect to ramp up the expertise it can apply to these problems, and (absent divestiture) assign ongoing committee responsibility to tracking them. And it should issue clear guidelines as to what it is willing and not willing to approve. Such a policy will not only signal that lawmakers are taking their constitutional responsibilities seriously, but could also benefit the Trump Organization itself by clarifying how it needs to respond if and when foreign officials begin acting with otherwise inexplicable solicitude toward its interests.

I will freely confess that I have trouble enough spelling emoluments, let alone saying anything meaningful about what it requires, but even just as a purely prudential matter I think it would be useful for Congress to put its imprimatur on whatever plan Trump comes up.

There is a corporate law analogy here to situations under Delaware General Corporation Law section 144 in which approval of a conflict of interest by independent directors or shareholders cleanses the conflict (technically it transfers the burden of proof to the plaintiff to show waste).

There is also an analogy to Sarbanes-Oxley section 406 and the rules thereunder, which impose a comply or explain obligation with respect to adoption by a corporation of "a code of ethics for its principal executive officer, principal financial officer, principal accounting officer or controllers, or persons performing similar functions. [4]  The SEC defines a code of ethics as written standards that are reasonably designed to deter wrongdoing and to promote: 1) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; 2) full, fair, accurate, timely and understandable disclosure in reports and documents that a registrant files with, or submits to, the SEC and in other public communications made by the issuer; 3) compliance with applicable governmental laws, rules and regulations; 4) the prompt internal reporting to an appropriate person or persons identified in the code of violations of the code; and 5) accountability for adherence to the code."