Canons, Model Codes, and Model Rules

Although local bar associations began to appear in the United States in the late 19th century, most U.S. lawyers at the time were only informally controlled by reputation and peer pressure. The ABA was founded in 1878; and one of its first major initiatives became, in 1908, the Canons of Professional Ethics, developed in response to a perceived need to promote and vouch for the integrity (or reliability) of lawyers generally.¹³ Initially there were 32 canons, and the number of canons eventually expanded to 47. The individual canons were fairly brief (the briefest is one sentence of two dozen words, whereas the longest is a few paragraphs). They were not accompanied by further guidance or detailed explanation, as is found in modern codes of legal ethics. Nevertheless, they were influential. By 1924, virtually every state and local bar association had adopted the canons.¹⁴

A number of the canons are relevant to conflict of interest, although it was the sixth canon (titled Adverse Influences and Conflicting Interests) that addressed the issue directly. Canon 6 consisted of three short paragraphs, and although it was fairly unsophisticated and incomplete, it captured the major conflict of interest issues that attorneys face even today. It attempted a definition of client-client conflict of interest as a conflict of obligation (“when, in behalf of one client, it is his duty to contend for that which duty to another client requires him to oppose”), identified client loyalty and confidentiality as two values threatened by conflict of interest, identified the particular problems of concurrent and subsequent representation of conflicting clients, and proposed one remedy for concurrent representation (disclosure followed by informed consent).¹⁵ Other canons dealt with related conflict of interest issues, including a prohibition on a lawyer purchasing an interest in the subject that is a matter of litigation and a requirement that contingency fee arrangements be supervised by the court to prevent unjust charges.

Fifteen amendments to the canons (none related to Canon 6) were adopted before the ABA developed a new code, the Model Code of Professional Responsibility, in 1969.¹⁶ The Model Code was a far more detailed document than the canons. It contained nine “canons” (described as “axiomatic norms”). These doubled as section titles. Each canon was followed by a series of Ethical Considerations and Disciplinary Rules. The Ethical Considerations were described as “aspirational in character,” representing the objectives toward which all lawyers should strive. The Disciplinary Rules were, unlike the Ethical Considerations, mandatory and set “the minimum level of conduct below which no lawyer can fall without being subject to disciplinary action”

Conflict of interest was mainly addressed in Canon 5 of the Model Code, which states: “A Lawyer Should Exercise Independent Professional Judgment on Behalf of a Client” The first of the 24 Ethical Considerations for Canon 5 explains that

[The] professional judgment of a lawyer should be exercised, within the bounds of the law, solely for the benefit of his client and free of compromising influences and loyalties. Neither his personal interests, the interests of other clients, nor the desires of third persons should be permitted to dilute his loyalty to his client.

The seven Disciplinary Rules describe a mix of situations in which a conflict of interest is prohibited outright and situations in which the interest is permissible only after the conflict of interest is fully disclosed to and informed consent is received from the client or clients in question.

Although the states more or less uniformly adopted the Model Code, it was soon abandoned.¹⁷ In 1983, the ABA adopted a replacement. One theory about why the Model Code was so quickly replaced is that it mixed minimum standards of conduct permitted under the law with ethical rules intended to set higher standards and therefore was perceived as confusing ethics with law (and, in the process, reducing ethical standards).¹⁸ In its report to the ABA recommending the adoption of a new code of professional responsibility, the Kutak Commission on Evaluation and Professional Standards cited a steady increase in concern about professional ethics, including Supreme Court cases, statutes and regulations, opinions of the ABA’s Committee on Ethics and Professional Responsibility, and reports and articles, as leading it to reconsider the Model Code.¹⁹ The commission ultimately concluded that amendments would not suffice to address this increased concern, and so, just 15 years after adopting the Model Code, the ABA replaced it with the Model Rules of Professional Conduct. The states were slow to adopt the Model Rules, although today all states but California, Maine, and New York have professional conduct rules that follow the format of the Model Rules. (New York still follows the Model Code, and California and Maine have developed their own rules.)²⁰

The Model Rules are fairly detailed, clustered under eight headings, and accompanied by lengthy comments. The Model Rules most closely related to conflict of interest fall under the heading “Client-Lawyer Relationship” and are described in the following sections.

Conflict of Interest Management: Key Issues for Lawyers

Although the bar’s system of conflict of interest management is well developed, it is not without its critics or its thorny issues. For example, despite the large number of cases, articles, and the detailed codes or rules, the legal profession’s management of conflict of interest is still described as “abstruse,” “arcane,” and “intractable”³⁰ According to law professor Kevin McMunigal, however, the primary problem in the law’s conflict of interest doctrine is a failure to recognize the regulation of conflict of interest as a kind of risk management and not prevention of direct harm. This failure leads the legal profession to use harm rules, which punish lawyers who harm clients, and risk rules, which aim to prevent harm to clients indirectly by keeping lawyers out of risky situations or by otherwise managing conflicts of interest but without engaging the all important question: How much risk is too much?

McMunigal gives the example of a lawyer in a high-profile criminal case who early on accepts a lucrative book deal to write about the case. When the prosecution offers to settle the case (an option, McMunigal adds, that would clearly be in the client’s best interests), the lawyer advises her client to reject the settlement. McMunigal argues that the risky situation of the book deal (with the temptation being to take the case to trial to ensure publicity and probably help future book sales) probably led the lawyer to give bad legal advice (which would be harmful if it was followed). However, as McMunigal sees it, the legal profession uses the language of conflict of interest to describe and address both the risky situation and the harmful action. If the legal profession could more clearly separate harm rules—for example, rules against lawyers providing bad legal advice or against lawyers entering into unfair business deals with their clients—from risk rules—for example, rules prohibiting a lawyer from preparing an instrument by which the lawyer will receive a gift from the client or rules against accepting book deals based on cases—then, McMunigal argues, the legal profession would also avoid confusion about the goals of and justification for each kind of rule.³¹

McMunigal suggests that conflict of interest rules should be understood as being restricted to governing risky situations, leaving rules against breaching confidentiality or against providing incompetent advice to deal with situations in which actual harm has resulted (and in which the causal chain can be proved). In the medical context, conflict of interest rules could therefore focus on identifying and governing situations in which the risk of tainted judgment is considered unacceptably high. The rules invoked to deal with actual harm to patients (other than harm to trust in their physicians and the profession in general) would allege not conflict of interest but inappropriate practice, bias, breach of confidentiality, or the like. Another consequence of sharply distinguishing between risk and actual harm would be to make unnecessary the distinction between “actual” and “potential” conflicts of interest, which McMunigal considers to be a distinction of little practical use.

In his analysis of the legal profession’s management of conflicts of interest, law professor Robert Lawry focuses on a different kind of problem.³² He sees a gradual lessening of professional standards to allow for the greater mobility of lawyers, which is at least partially justified by an appeal to the increased sophistication of some clients. One reason for this reduction in standards is, as mentioned above, the mixing over time of ethics (a guide to good professional behavior) and law (minimum standards by which to police the profession). Another reason is the reality of modern legal practice, where lawyers move from town to town and firm to firm. Yet another reason that exceptions to conflict of interest rules and methods for managing conflicts of interest have developed is to allow medium to large firms to serve many clients, some of whom will, from time to time, have both opposing interests and an interest in relying on lawyers who know them.

Screens, Chinese Walls, and Cones of Silence

One major mechanism for managing conflicts of interest with concurrent clients is through the use of screens (also known as “firewalls,” “Chinese walls,” or “cones of silence”). Screens are mechanisms by which lawyers working on one matter are prohibited from certain kinds of communication with lawyers in the same firm working on a conflicting matter. The prohibition is sometimes augmented by placing the lawyers in separate locations (on different floors or in different buildings), controls on e-mail and file access, and the like. Some screens are simply matters of honor; some involve real walls. Screens cannot change a nonconsentable conflict into a consentable one. Instead, screens are used “to encourage clients to consent to a loyalty conflict”³³

Lawry sees screens as further evidence of erosion in lawyers’ conflict of interest standards. Lawyers were introduced to the idea of screens in 1975 by Formal Opinion 342 of the ABA’s Standing Committee on Ethics, which argued that former government lawyers should be permitted to work for a firm doing business with the government if they are screened within the firm from files that they worked on while they were in government. Without such screens, it was argued, “good lawyers would avoid government work, to the detriment of the common good” This principle, which was developed for government lawyers and which is discussed only in the Model Rules (and comments) in reference to government lawyers, is now routinely extended to private lawyers. Lawry reports that 22 of 51 jurisdictions allow screening without the consent of the former client.³⁴ Screens have also received some recognition in the courts and are endorsed in the restatement of the law governing lawyers as a way of dealing with conflicts created by lawyers switching firms. Reasonable people will likely continue to disagree about whether screens are a sign of eroding legal ethics or evidence that legal practitioners are both committed to legal ethics and capable of creating effective management systems. Nevertheless, the debate shows that lawyers are engaging with the fundamental question of how to balance the risks of conflict of interest in such situations against the benefits of tolerating the conflict if it is properly managed.

Licenses and Professional Membership

As in other professions, professional accounting societies were developed to ensure clients that people holding themselves out as accountants met minimal levels of education, competence, and ethical conduct.³⁶ Today, professional accounting societies do not license accountants—that function has been taken over by the state-designated accountancy boards—but the professional societies provide guidance on many issues, from technical accounting standards to ethics. Clients, who rely on accountants to provide specialized services and advice, may find some reassurance in the imprimatur of good standing in a professional society.

AICPA is a voluntary association. Although all CPAs must be licensed by their state boards of accountancy (or the equivalent), they are not obliged to be members of their state or national CPA organizations. Membership in good standing of the state or national CPA organization can, however, enhance the reputation of the CPA. (AICPA provides marketing tool kits to its members.)

The specific requirements for the CPA license vary somewhat from state to state, but all states require that individuals pass the Uniform Certified Public Accountant examination, which was developed and which is maintained by AICPA and which is administered by the National Association of State Boards of Accountancy. Questions about professional ethics are included in the Uniform Certified Public Accountant examination and are based on AICPA’s Code of Professional Conduct.

Many state licensing boards require continuing professional education (CPE) that includes ethics or professional conduct. These state boards prescribe CPE course requirements, but the courses are offered to CPAs by approved companies (sometimes called “sponsors”) for a fee. Some attention is paid to the independence of the CPE programs and their sponsors. In New York, for example, CPE can be offered only by sponsors that have been approved by the New York Department of Education, which requires sponsors to have a “direct interest in offering courses on a regular basis” and will not approve “programs devoted to the promotion of particular products or services” or “[i]nsurance, pension, investment, software and other offerings primarily promotional or informational in nature”³⁷ CPE is offered by a range of sponsors, including universities and private companies.³⁸

Accountancy After Enron

In addition to understanding and following AICPA’s Code of Professional Conduct (described in more detail below), CPAs need to be aware of and follow the rules of their state board of accountancy; the ethics standards of their state CPA organization (if they are members); any applicable state laws; and any applicable federal laws, notably, the Public Company Accounting Reform and Investor Protection Act of 2002.³⁹ This act, commonly known as the Sarbanes-Oxley Act, was passed in response to a number of corporate and accounting scandals in the late 1990s and early 2000s. Before passage of the act, the largest accounting firms had diversified their practices to the extent that audits were a small part of the services that they provided to their clients. Considered key to gaining insight into the client’s business, audit prices steadily declined while other services increased in profitability. As a business school professor at the University of Saskatchewan puts it, “Clients became sophisticated purchasers, shopping around for the best deal and putting intense pressure on audit prices, and thus on profits … some companies [clients] began to resort to a practice known as ‘opinion shopping.’”⁴⁰ Accounting firms were soon offering consulting services to audit clients that brought in far more than the audit fee, and therefore, “the auditors did not want to do anything to rock the boat with clients, potentially jeopardizing their chief source of income”⁴¹

This tension between auditing and consulting was identified and critiqued before the Enron scandal, but it was only after the collapse of Enron and WorldCom that practices and codes of conduct changed to address it. Boyd calls Enron “the ‘smoking gun’ evidence, indicating that the profession had reached a stage where commercial interests simply overwhelmed allegiance to professional integrity” Policy makers were not content to leave it to accounting firms or AICPA to address the issue. They chose to pass legislation—the Sarbanes-Oxley Act—to restore the reliability of the public company audit process.

Subject to certain preapprovals, Section 201 of the Sarbanes-Oxley Act prohibits auditors from providing a number of other services contemporaneous to the audit, including bookkeeping, management functions, investment advice, investment banking services, and legal services. The act also creates the Public Company Accounting Oversight Board (PCAOB) to oversee CPA practice in relation to public companies. Under Section 103 of the act, PCAOB has established standards and rules on a variety of issues, including ethics, that apply to registered public accounting firms preparing and issuing audit reports as required by the act or the rules of the Securities and Exchange Commission.

PCAOB’s conflict of interest rules are designed to preserve the independence of the accounting firm.⁴² Rule 3520 states: “a registered public accounting firm and its associated persons must be independent of the firm’s audit client throughout the audit and professional engagement period” Rules 3521, 3522, and 3523 describe situations in which an accounting firm cannot be considered independent, for example, if the firm provides a service or product to the audit client for a contingent fee or a commission, if the firm provides assistance in planning or tax advice on certain types of potentially abusive tax transactions to an audit client, or if the firm provides any tax services to certain persons in a financial reporting oversight role at an audit client or to immediate family members of such persons.

Violation of the PCAOB rules can lead to an investigation by PCAOB. Following a hearing, sanctions can be imposed, including (1) revoking a firm’s registration; (2) barring an individual from participating in audits of public companies; (3) monetary penalties; and (4) remedial measures, such as training, the implementation of new quality control procedures, or the appointment of an independent monitor.⁴³ PCAOB’s website reports that 3 of the 17 disciplinary proceedings before PCAOB over the past 3 years have found “independence” violations.

There has been some criticism that the post-Enron measures are too burdensome,⁴⁴ with others countering that the measures fail to do enough to end auditor-client “coziness”⁴⁵ Either way, this legislation and accompanying rules and sanctions serve as a cautionary tale. They installed the external regulation of a profession that apparently had not sufficiently regulated its own conflicts of interest. Since the Sarbanes-Oxley Act was passed, AICPA and state CPA societies have strengthened their codes of conduct, an example of a change in law forcing a tightening of ethical standards.

AICPA Code of Professional Conduct

The current version of the AICPA Code of Professional Conduct⁴⁶ emphasizes independence and objectivity. The AICPA Code of Professional Conduct is divided into principles and rules. The six principles are expressed in a sentence or two. Each principle is clarified by up to five subparagraphs. The dozen rules that follow the principles are also expressed in one or two sentences but are followed by more detailed guidance in the form of Interpretations of Rules of Conduct and Ethics Rulings (rather like the American Medical Association’s [AMA’s] Opinions).

AICPA’s professional ethics committee adopted Interpretations of Rules of Conduct “after exposure to state societies, state boards, practice units and other interested parties” The Interpretations of Rules of Conduct are intended “to provide guidelines as to the scope and application of the Rules but are not intended to limit such scope or application” Ethics rulings are formal rulings made by AICPA’s professional ethics committee applying the rules and their interpretations to a particular set of facts. AICPA members who depart from ethics rulings in similar circumstances will be “requested to justify such departures”⁴⁷

Two of the Code’s principles bear on conflict of interest. The first, titled Integrity, states that “to maintain and broaden public confidence, members should perform all professional responsibilities with the highest sense of integrity” and includes a reference to observing the principles of objectivity and independence in its final subparagraph. The other relevant principle, titled the Public Interest, requires members “to act in a way that will serve the public interest, honor the public trust, and demonstrate commitment to professionalism” Acknowledging that members may encounter conflicting pressures, this principle advises that, when resolving such conflicts, members recall that when they “fulfill their responsibility to the public, clients’ and employers’ interests are best served”⁴⁸

Although these two principles clearly bear on conflict of interest, it is the fourth principle (titled Objectivity and Independence) that addresses conflict of interest most directly. It states: “A member should maintain objectivity and be free of conflicts of interest in discharging professional re sponsibilities. A member in public practice should be independent in fact and appearance when providing auditing and other attestation services”⁴⁹

The general rule, therefore, is that all CPAs should always be free of conflicts of interest. An even higher standard is set for CPAs in public practice. That is, when a CPA is performing certain services in public practice, the CPA should maintain objectivity in appearance as well as in fact. Public practice is defined as the performance for a client of accounting, tax, personal financial planning, litigation support, and other professional services for which practice standards are promulgated by AICPA. (The closest medical equivalent to a CPA’s public practice is a physician’s publication of research or the testimonials or other public statements that an individuals makes as a physician.)

Four subparagraphs follow this principle. The first discusses, in a fairly philosophical way, objectivity (describing it as “a state of mind” and imposing the obligation to be “impartial, intellectually honest, and free of conflicts of interest”) and then independence (“precludes relationships that may appear to impair a member’s objectivity in rendering attestation services”). After noting the variety of roles that an accountant might play in society, including teaching, the second subclause states: “Regardless of service or capacity, members should protect the integrity of their work, maintain objectivity, and avoid any subordination of their judgment” The principle is thus fairly strict: CPAs should at no time enter into relationships that might even appear to impair their objectivity. The third subclause focuses on accountants working in public practice, stating that to protect their independence (the appearance of objectivity), they should be continually assessing “client relationships and public responsibility” and “should be independent in fact and appearance” The effect of this subparagraph is to require constant vigilance of the possible impact of interactions with clients on the CPA’s (actual and apparent) commitment to the public interest. The fourth subclause applies to members not in public practice (e.g., members employed by a company rather than acting as an external accountant or auditor). That subclass concedes that CPAs not in public practice “cannot maintain the appearance of independence” but nevertheless imposes on them “the responsibility to maintain objectivity in rendering professional services”

More detail in the form of rules, interpretations, and ethics rulings follow at Sections 101 (Independence) and 102 (Integrity and Objectivity).⁵⁰ Section 101 begins with the rule that a member in public practice shall be independent according to the standards set by state boards, state CPA institutes, the U.S. Securities and Exchange Commission, and PCAOB, among others. The interpretation for this rule then describes the circumstances under which independence will be considered impaired. Situations of impairment include the following: when the accountant, during the period of professional engagement, holds or commits to acquiring a financial interest in the client; when the accountant has a loan to or from the client or in some circumstances when the accounting firm, one of its partners, or a partner’s immediate family members hold an ownership stake in the client; and when the accountant’s firm or a partner or employee of the firm was simultaneously a director, officer, or employee of the client. (The last prohibition applies not simply during the period of the professional engagement but during the whole period covered by the financial statements being prepared by the accountant.) When in doubt about whether a particular circumstance might cause independence to be questioned, the section asks that members “evaluate whether that circumstance would lead a reasonable person aware of all the relevant facts to conclude that there is an unacceptable threat to the member’s and the firm’s independence” (emphasis added).

Fourteen additional interpretations follow, and that number is far too many to cover in any detail here. It will be enough to note here that the net cast is fairly wide. Section 101 captures a number of situations involving the accountant; the firm; colleagues; family members; close relatives; or current or previous financial, employment, ownership, or management relationships with the client. The interpretations also differentiate between direct financial interests (such as ownership and investment interests) and indirect financial interests, including some holdings through mutual funds. In one of the Ethics Rules accompanying Section 101, the question of the CPA’s acceptance of gifts or entertainment from a client is posed. The answer is that the acceptance of gifts or entertainment from a client that the CPA is auditing will be considered to impair objectivity, unless the value is “clearly insignificant to the recipient” The ethics ruling is less restrictive when the client is not an “attest client” (i.e., one for whom the CPA performs auditing or other attestation services), although even in such cases the CPA is required to assess whether accepting the gift is reasonable, given the nature, value, timing, and frequency of the gift.

The overall aim of the independence rule and its interpretations and ethics rulings at Section 101 is to ensure that audits of companies will be carried out by accountants and accountancy firms who provide no other financial services to the company, are not investors in or directors of the company, do not and have not recently worked for the company, have no other financial or other ties to the company, and are otherwise free of any appearance suggesting to a reasonable person a loss of objectivity. Despite its detail, this section has been criticized for failing to address one particular threat to independence (and objectivity): the significance of the client company’s audit fees to the bottom line of the accountant or the firm.⁵¹ One observer points out that Arthur Andersen’s Houston, Texas, office received $1 million per week from Enron while it was auditing the company: “[The] livelihoods of several audit partners and several hundred audit firm employees depend[ed] on keeping a client happy”

Section 102 (Integrity and Objectivity) is far briefer than Section 101 and applies to all CPAs in all of their work (i.e., not simply to CPAs performing audits). It begins with the rule that “in the performance of any professional service a member shall maintain objectivity and integrity, shall be free of conflicts of interest, and shall not knowingly misrepresent facts or subordinate his or her judgment to others” Although the rule is concerned with the misrepresentation of fact as well as conflict of interest, the interpretations for the rule offer a definition of conflict of interest: “a conflict of interest may occur if a member performs a professional service for a client or employer and the member or his or her firm has a relationship with another person, entity, product, or service that could, in the member’s professional judgment, be viewed by the client, employer, or other appropriate parties as impairing the member’s objectivity” Note that the relationship need not be financial or familial, and it need not actually impair the CPA’s objectivity—it is enough that it could, in the member’s judgment, appear to impair his or her objectivity.

In contrast to Section 101, which provides no way to manage the impairments to independence that it covers, Section 102 suggests that disclosure and consent may be acceptable ways to manage conflicts of interest “if the member believes that the professional service can be performed with objectivity, and the relationship is disclosed to and consent is obtained from such client, employer, or other appropriate parties” (emphasis added). The interpretation explicitly states that concern about independence in certain professional engagements, such as audits and reviews, as expressed in the previous rule (Section 101), cannot be addressed by disclosure and consent. The discussion ends with an explicitly nonexhaustive list of situations that ought to raise independence concerns, including when the CPA has a significant financial interest in or is on the management of a company that is a major competitor of the client for which he or she performs management consulting services, when the CPA is asked to perform litigation services for a case filed against one of his or her clients, or when a CPA provides services for several members of the same family with opposing interests. These are all situations in which the usual public reliance on the auditor’s work is absent.

Enforcement of Ethics Rules

The AICPA Code of Professional Conduct focuses on the impact of existing and preexisting relationships (whether of the accountant, firm, colleagues, and sometimes, members of the family) on the accountant’s objectivity and independence. Objectivity and independence are particularly protected when the accountant is auditing a client for the public’s benefit. When offering any service except external auditing, a CPA might be able to disclose a conflict of interest to the client and proceed with the client’s consent, but this option is simply not available in a public audit (or other attestation) situation. The reason for the focus on independence from clients (a matter of appearance), from the CPA’s personal interests, and from the interests of the CPA’s firm, colleagues, and family during audits (and other attestation services) in particular is that a CPA performing an external audit has a primary obligation to the public. Indeed, the second principle in the Code of Professional Conduct, titled The Public Interest, states that the public relies “on the objectivity and integrity of certified public accountants to maintain the orderly functioning of commerce”

The rules and practices of CPAs, therefore, are fairly strict when it comes to preserving independence and avoiding even the appearance of conflict of interest. It is important to note, however, that like architects and engineers but unlike lawyers, accountants are able to work for competing clients, often but not always with the knowledge and consent of both parties.⁵² The rationale for this difference is that accountants are able to perform an audit of one client without disclosing (or even relying on) information about the other. It would be much harder for a lawyer to adequately represent two competing clients without using the confidential information of one against or in favor of the other.

The preamble to the AICPA Code of Professional Conduct neatly describes how it is enforced: “Compliance with the Code of Professional Conduct … depends primarily on members’ understanding and voluntary actions, secondarily on reinforcement by peers and public opinion, and ultimately on disciplinary proceedings, when necessary, against members who fail to comply with the Rules”

Members of AICPA are on notice that they must be prepared to justify any departure that they make from the Code of Professional Conduct. AIPCA’s Professional Ethics Executive Committee interprets and enforces the AICPA Code of Professional Conduct. The committee investigates allegations of unethical conduct by both its members and the members of almost all state CPA organizations through its Joint Ethics Enforcement Program (JEEP).⁵³ JEEP has existed since the 1970s and was created in recognition of the fact that the codes of many state CPA societies are identical or similar to the provisions of the AICPA Code of Professional Conduct and that it is common for a CPA to be a member of both AICPA and one or more state societies. JEEP therefore provides an efficient mechanism for enforcing ethics rules consistently across the United States.

Violations of the Code of Professional Conduct can result in a CPA being expelled, suspended for a period of 1 or 2 years from AICPA or from the local CPA society, directed to complete specified CPE courses, or directed to take other action (e.g., submit subsequent work papers for continued monitoring). All decisions to expel or suspend a CPA are made public through publication on AICPA’s website. Very few of these decisions (just 4 of over 150) during the past 3 years included a finding of a breach of the rules regarding independence. AICPA can also publicly admonish a member who has violated the Code of Professional Conduct. AICPA’s ethics committee can also conclude, upon investigation, that there is no evidence of a violation of the Code of Professional Conduct and therefore dismiss the case or simply close a case for lack of evidence or some other reason.⁵⁴

The enforcement mechanisms of suspension, expulsion, and public admonishment seem designed to place the public and colleagues on notice that the CPA does not comply with the Code of Professional Conduct and to publicly embarrass the CPA, whereas requiring completion of CPE courses or submitting reports and work papers seems to aim to reeducate the CPA. Because a CPA does not need to be a member of AICPA or a state CPA organization, a finding of violation of AICPA’s Code of Professional Conduct is not itself sufficient to withdraw the CPA’s license to practice. Only the state licensing boards can suspend or revoke a CPA’s license.

One important lesson from the recent history of public accountancy is that a failure to address conflicts of interest led to federal regulation of conflict of interest in one important aspect of CPA practice: the auditing of publicly listed companies. Investor confidence in the objectivity and independence of auditors and therefore in the truthfulness of public companies’ financial statements was considered an important enough goal—given the huge financial stakes involved—to warrant federal legislation and the establishment of a federal oversight body, the PCAOB. A second important lesson is that maintaining objective and independent judgment is not easy. Accountants primarily maintain their objectivity by avoiding most situations that present a conflict of interest. They also maintain their independence by avoiding most situations that could reasonably appear to present a conflict of interest.

NCARB on Conflict of Interest

Architects resemble physicians, lawyers, and accountants in not being able to practice (that is, advertise, sign drawings, or otherwise publicly present themselves as architects) without registering as one (that is, being given a state license to practice). Beginning in 1919, registration boards have maintained a nonprofit group to provide a number of services to the profession: a standardized test for admission into the profession, standards for work experiences that a new graduate of an accredited architectural program should have before licensure (Intern Development Program), self-administered continuing education courses, and so on. NCARB’s code of ethics (Rules of Conduct) is just one of these services. Adopted in 1977 (and amended since), the Rules of Conduct are designed to provide hard-edged rules for discipline (once a state board adopts them). Besides the nominal “Rules”—five titles numbered with Arabic numerals—the code includes (1) actual rules under each rule (numbered with a decimal), (2) a brief commentary after most of these rules, and (3) a long introduction (40 percent of the entire 10-page code). Although the NCARB code does set a somewhat lower standard than the (shorter) AIA code, it generally does so by silence rather than by providing a formal rule significantly different from the corresponding AIA rule. The AIA issues ethics opinions much as AMA does; NCARB does not. A state registration board may, however, issue an opinion as part of disciplinary action against a particular architect.

Conflict of interest is plainly important in the practice of architecture. The second of the five major divisions in NCARB’s Rules of Conduct is titled Conflict of Interest; the third major division, although it is titled Full Disclosure, is in part (Rule 3.1) about responding to conflict of interest. The other divisions of the code—Competence (Division 1), Compliance with Law (Division 4), and Professional Conduct (Division 5)—have no connection with conflict of interest.

The overall strategy in these provisions is clear. Conflict of interest should generally be avoided, but when avoidance is not possible or at least not reasonable, the conflict must be fully disclosed to all appropriate parties and their consent must be won before the architect can proceed. Interestingly, the term “conflict of interest” is not used in any of the specific rules; its definition is, in effect, the rules under that title. All of the relevant rules (including Rule 3.1) are (primarily) concerned with financial interests. There are four rules under Rule 2, Conflict of Interest.

Rule 2.1 applies to ordinary compensation for services. An architect “shall not accept compensation for services from more than one party on a project unless the circumstances are fully disclosed to and agreed to … by all interested parties” Both disclosure and agreement are to be “in writing” The commentary explains that architects may sometimes find it hard to avoid receiving payment from two parties—for example, when ordering a large number of windows from a supplier later produces a rebate check. The architect cannot simply accept the rebate (even if it comes as a surprise) but must first inform the client (and other interested parties) of the payment and the reason for it. The architect cannot accept the payment unless at least the client (and any other interested party) approves. The commentary explains that the “bifurcated loyalty” that such a rebate threatens is “unacceptable unless all parties have understood it and accepted it” The commentary does not limit the “parties” to the client. This is because in many architectural projects several parties may be affected by the payment, such as the engineering firm typically present at any large project, the developer (who may be the immediate client but who is, in fact, a stand-in for the ultimate owner), the ultimate owner (who may be one or more individuals or a legal entity), and even the contractor or subcontractor who must work with the rebated supplies. The commentary can even be interpreted as including the window supplier’s competitors among those who must be informed of the payment and the reason for it. They are certainly “interested parties” They are at a competitive disadvantage if they are not also making such rebates.

Behind Rule 2.1 is a conception of architects as having a relatively settled loyalty to the client that everyone dealing with the client relies on. An unusual payment (such as the rebate described above) unsettles the situation. There is no question here of the supplier buying the architect’s loyalty with the rebate (as there would be if the payment were a bribe or kickback). The problem is that “money talks,” and even architects cannot gauge how much they will listen the next time that they place an order of that sort. Their judgment that their professional judgment will not be affected is not relevant. That, too, is now under suspicion.

Disclosure of the payment makes it possible for all interested parties to redefine their relationship to the architect to take account of this unusual feature. The client may, for example, require the architect to hand over the entire rebate (as well as ask other suppliers whether they will meet the com petition). However, because the architect’s fee is often a percentage of the total cost of the project, this solution may not be the best. It would create a “perverse incentive” The architect would, in effect, be punished for saving the client money. The architect would have an incentive to avoid suppliers who give rebates. The client might then prefer to split the rebate with the architect, or they might work out some more complicated arrangement—of which all interested parties should be made aware to ensure that their trust in the architect’s judgment is not misplaced.

Rule 2.2 concerns financial interests apart from payments, for example, stock in a potential supplier or a loan to a contractor. The architect must assess whether the interest (direct or indirect) is “substantial enough to influence his or her judgment in the performance of professional services” (whether or not it does or would in fact influence it). Architects thus have some discretion under this rule (as they do not under Rule 2.1). The rationale for allowing some discretion (concerning whether an interest is substantial enough) is that avoiding all financial interests seems too much to ask. For example, an architect with money in a large investment fund that holds a few shares of stock in one of the companies she or he is dealing with has an interest in that company. Is revealing such an interest worth the trouble? Should architects be required to avoid investing in any fund that might (on a given day) invest in a potential supplier? That seems too much to require, so long as the architect reveals any interest substantial enough to affect her or his judgment. Of course, when in doubt, the architect should reveal the interest. Rule 2.2 seems to work because it governs only interests other than payments, because architects seldom invest in suppliers and because most architects work in a small world (mostly developers or builders rather than individual clients) in which a substantial investment in a supplier would soon be known.

If the interest is enough to influence the judgment, the architect must fully disclose it in writing to the client or employer (thus creating a paper trail). If the client or employer objects to the business association or the financial interest, the architect must either terminate it or offer to give up the commission or employment. The client or employer may have good reason to accept the bifurcated loyalty that the business association or financial interest in question creates, but the decision is the client’s or the employer’s (or both, when an architect has both a client, the person who has hired the firm, and an employer, the architectural firm). That decision should be made only with all the relevant facts laid before the decision maker in a form that the decision maker can understand. If the architect is unwilling to make full disclosure, she or he must resign from the job. There is no middle way (no way to manage the conflict) without full disclosure and consent.

Rules 2.3 applies to any payment made in return for specifying or endorsing a supplier. Strictly speaking, this rule does not concern conflict of interest but concerns bribes, kickbacks, and other side payments that buy the architect’s judgment. Architects are simply forbidden to solicit or accept such payments. The brief commentary notes that this rule is “absolute”; that is, it admits of no exception, even when all the relevant parties would agree to the payment after full disclosure. So, for example, an architect cannot have an agreement with a supplier that she or he will recommend a certain window frame even if she or he fully informs the clients of that agreement and the clients say, “Fine” Why? Although many of the payments in question are in fact illegal, the rule is indifferent to their legality. Even legal payments for specifying or endorsing a supplier (say, lending one’s name to an advertising campaign) are forbidden. What explains this striking departure from architecture’s standard strategy of allowing conflict of interest when the relevant parties consent after full disclosure?

The answer seems to be this: conflict of interest threatens professional judgment. It makes it less reliable than it would otherwise be. Sometimes such threats cannot be avoided or cannot be avoided at reasonable cost. Those relying on the architect’s judgment then have the right to weigh the costs and benefits and decide whether to take the risk. In contrast, an agreement to specify or endorse a product does not threaten professional judgment. It does something much more dramatic. The architect has, in this respect, signed away judgment. By the agreement, the architect gives up future judgment of the appropriateness of the product in question. The agreement with the supplier prejudges the matter. The architect cannot both claim the power of an architect in that respect (the right to use her or his judgment to decide what is appropriate in that case) and follow an agreement prejudging the case.

Side payments for endorsement are also, in one respect, unnecessary. The client or employer derives no benefit whatsoever from them, and (generally) the architect does not need them to survive or prosper. They are simply not an essential part of practicing architecture.

This explanation of Rule 2.3 treats it as something other than a rule concerned with conflict of interest. Selling one’s judgment does not, in general, create a conflict of interest (that is, it does not threaten professional judgment). However, sometimes it does. For example, if Person A is paid to endorse a product as part of an advertising campaign, Person A will have a greater tendency to specify that product than he or she otherwise would. That tendency is what makes Rule 2.3 in part a rule concerned with conflict of interest. Forbidding endorsements for pay eliminates one sort of conflict of interest.

Rule 2.4 concerns the architect acting as adjudicator, that is, as the interpreter of building contract documents or the judge of contract performance. When acting in this role, an architect is to “render decisions impartially, favoring neither party in the dispute” The commentary makes clear that it is customary in the construction industry for the architect, even though he or she is paid by the owner and owes loyalty to the owner, to settle disputes between the owner and a contractor, subcontractor, or supplier concerning whether work has been performed as the contract requires or whether the contract requires this or that. When acting in this capacity, the architect must (according to NCARB) act impartially. If the architect does not believe himself or herself to be capable of acting in that way, he or she “may appropriately decline to act in those two roles” (as the agent of the owner and as a judge between the owner and an adversary). The architect’s role in such circumstances has a threat to independent judgment built into it (an interest but not a “special” interest). Both architects and those they work with are aware of that threat to independent judgment. They have traditionally tolerated it since the alternative is whatever delay is necessarily consequent on seeking a truly impartial judge far from the work site. Nonetheless, the architect must at least believe himself or herself to be able to render impartial judgment. If the threat to impartiality is significant enough that the architect doubts his or her own judgment, the architect may (and, indeed, should) decline. Interestingly, the rule is not satisfied if the architect merely believes himself or herself to be impartial; the architect must actually render an impartial decision. If the decision is obviously biased, the architect would be subject to discipline under the rule, even though the architect believed himself or herself to be impartial.

Like Rule 2.3, Rule 2.4 is an absolute rule (although the commentary does not say that explicitly). The rationale for its absoluteness is also much the same as that for Rule 2.3. The point of asking the architect to judge between the owner and those working on a site is to receive quickly (something approaching) impartial judgment (a judgment informed by the architect’s knowledge of construction, the documents, and local custom). If the architect were known to be partial, his or her value as a judge would be much reduced. The rule preserves the usefulness of architects in settling such disputes (an efficiency serving everyone’s interests in the long run). Like Rule 2.3, Rule 2.4 is (primarily) concerned not with conflict of interest, strictly speaking, but with something closely related, that is, the typical outcome of judgment free of conflict of interest (as well as of bias and prejudice): an impartial decision.

The last of NCARB’s conflict of interest rules is Rule 3.1. It requires an architect making a “public statement on architectural questions” (that is, speaking publicly in a professional capacity) to “disclose when he or she is being compensated for making such statement or when he or she has an economic interest in the issue” So, for example, an architect paid by a developer to testify on behalf of a project would have to state that she or he is being so paid. An architect writing a journal article on behalf of a certain manufacturer’s product would have to disclose ownership of even a single share of stock in that company. For public statements, the standard of disclosure is more demanding than for statements to client, employer, or other private person. (The term “substantial enough” in Rule 2.2 has no counterpart in Rule 3.1.) The commentary explains why the standard is so demanding: to preserve “the probity which the public expects of the architectural profession,” architects are “not allowed under the circumstances described in the rule to disguise the fact that they are not speaking on the particular issue as an independent professional but as a professional engaged to act on behalf of a client” or with a judgment perhaps arising from the wrong sort of interest (a private interest rather than the public interest). The public is entitled to know that the architect might have a certain bias (or even that, from the public’s perspective, might seem to have a certain bias), a legitimate bias if it is disclosed but otherwise an illegitimate bias. If architects routinely made public statements in the service of clients without acknowledging that service or in the service of a private interest (however small) without acknowledging that service, their public statements would eventually lose the power that comes from their being thought to be independent. The public statements would be regarded as unreliable (as, indeed, they would be).

This rationale is as interesting for what it leaves out as for what it includes. Like most professions, architecture recognizes itself as having an obligation to serve the public interest (an obligation that may not belong in hard-edged rules but appears, for example, in Canon II of the AIA code). The NCARB commentary might therefore have appealed to this obligation in support of a rule governing public statements (protecting the public). Instead, the commentary appeals to the interest that the profession itself has in maintaining its reliability (“the probity the public expects”) both to explain and support the rule.

AIA on Conflict of Interest

The NCARB rules just discussed are the hard-edged rules concerning conflict of interest that state registration boards use to decide whether to discipline a licensed architect. We turn now to the AIA’s code. Like AMA, the AIA is a voluntary organization. Also like AMA, it no longer is an organization to which a majority of the profession belongs. Yet, just as no AMA member wants AMA to discipline her or him, so no AIA member wants the AIA to discipline her or him. An AIA member charged with wrongdoing will generally hire a lawyer to present her or his side at the National Ethics Council (NEC) and, if the AIA member loses there, may seek redress in the courts. At least as much as physicians, architects live by their reputations. For that reason, an NEC-appointed hearing officer collects evidence and the full NEC (minus the hearing officer) decides the case in secret. However, for any serious discipline (censure, suspension, or expulsion), the ultimate deci sion is made public (the architect’s name disappears from the membership role, and the architect can no longer be listed as an AIA member). The NEC publishes its decision in the form of a judicial opinion, stating the facts found, the penalty, and the rationale for it, without identifying the parties. The NEC also issues interpretations of the code (Advisory Opinions).⁵⁸

The AIA code (2007) is about half the length of NCARB’s and devotes proportionally much less space to conflict of interest. Canon III (Obligations to the Client) provides the overall framework for conflict of interest. AIA members should “exercise unprejudiced and unbiased judgment when performing all professional services” Ethical Standard 3.2 (titled Conflict of Interest) simply states the general strategy for avoiding tendencies to bias and prejudice. Members should “avoid conflicts of interest in their professional practices and fully disclose all unavoidable conflicts as they arise” There are only two disciplinary rules under this ethical standard. The second rule, Rule 3.202 (render decisions impartially), merely restates NCARB’s Rule 2.2 (with a briefer commentary), but the first rule, Rule 3.201, adds something new.

Rule 3.201 prohibits AIA members from rendering professional services if their “professional judgment could be affected by responsibilities to another project or person, or by [their own] interests” The only exception to this prohibition is (the usual) “unless all those who rely on the Member’s judgment consent after full disclosure” Rule 3.201 understands “interest” as including more than financial interest. Any “responsibility” to another project or person that could affect a member’s judgment is an interest for the purposes of this rule (as is any self-interest, even if it is not financial or familial). The commentary underscores the point. The rule is, it says, “intended to embrace the full range of situations that may present a Member with a conflict between his interests or responsibilities and the interests of others” The commentary goes on to give an equally wide reading of “all those who rely” Those entitled to disclosure “may include a client, owner, employee, contractor, or others who rely on or are affected by the Member’s professional judgment” An AIA member who cannot appropriately disclose a “conflict directly to the affected person must take steps to ensure that disclosure is made by another means” (Direct disclosure may not be possible because the client is, for example, an individual who is out of town or an organization whose officers are hard to reach; sending notice is not equivalent to “appropriate disclosure”) If a member cannot make adequate disclosure of a conflict of interest (directly or indirectly), he or she cannot render the professional services in question. The member must decline or withdraw.

In addition to the rules under Rule 3.2, there are at least two rules in Canon II (Obligations to the Public) that are (at least in part) concerned with conflict of interest. Rule 2.103 forbids an AIA member from serving in a public capacity to “accept payments or gifts which are intended to influence their judgment” This rule covers bribes (payments made in exchange for some future illegal service) but not kickbacks (a payment for a referral or some other favor already done). The rules cover more than bribes, for example, a dinner or a gift of theater tickets of whatever value given with the intention of influencing judgment. This additional coverage is what justifies discussion of this rule as concerned with conflict of interest.

This is another absolute rule. It is nonetheless unusual in one respect. It is the intention of the payer or giver, not its likely consequence or the recipient’s intention, that determines whether the payment or gift is prohibited. The rationale for this approach to payments and gifts is obvious. An architect serving in a public capacity will, in the ordinary course of life, receive many payments and gifts. Prohibiting them all would be unreasonable, but some should be prohibited. For example, no one wants to forbid a gift from the architect’s mother or brother-in-law that is part of the normal exchange of gifts among family members. (Such gifts would seldom be given with the intent of influencing the architect’s professional judgment.) In contrast, the AIA would, presumably, want to prohibit a gift from a potential developer hoping to reduce the hostility of an architect toward a project that he or she has in mind when that architect is a member of the local planning commission.

Rule 2.301 is concerned with public statements on architectural issues. It is (almost) identical to NCARB’s Rule 3.1. Although there is no commentary, its placement under the canon concerned with obligations to the public suggests that its rationale is a bit different. Architects perform a useful service whenever they inform the public of their judgments on architectural issues. They perform a useful service whether they speak disinterestedly or on behalf of a client or interest. However, the service performed is different. Rule 2.301 requires architects to make clear which service they are performing so that their audience, the public, can evaluate it using the appropriate criteria. The underlying rationale is not so much to protect independent judgment as it is not to mislead the public concerning what it may reasonably expect of the judgments offered. The public’s trust in what architects say depends in part on knowing who they are working for when they say it.

Background Institutions

Engineering is divided into four major disciplines (as well as many smaller ones): civil, mechanical, electrical, and chemical. These are more closely related to each other than medicine is to such other health care disciplines, such as dentistry or osteopathy. That is, they are generally taught in departments of the same school; the curricula are similar, especially in the first 2 undergraduate years; the schools have the same accreditation body (ABET, Inc.);⁵⁹ and students receive the same first degree upon graduation, a B.S. (with different majors). Nonetheless, engineering has never created the equivalent of AMA. Instead, there are five major societies. One each for the major disciplines: the American Society of Civil Engineers (ASCE), the American Society of Mechanical Engineers (ASME), the Institute of Electrical and Electronic Engineers (IEEE), and the American Institute of Chemical Engineers (AIChE). The fifth major society, the National Society of Professional Engineers (NSPE), cuts across these four. Its members are (primarily) Professional Engineers (PEs). A PE is an engineer (of any discipline) licensed by a state (in much the way that lawyers, CPAs, architects, and physicians are), but only about a fifth of all U.S. engineers are so licensed. The rest, who work in large organizations, do not need a license to practice because of what is known as “the industrial exemption” Although they are not PEs, they are full members of the engineering profession.⁶⁰ The five major societies (along with many of the smaller ones) frequently cooperate ad hoc as well as maintain many permanent bodies, of which ABET is among the oldest and the most important.

This complexity reappears in the codes of ethics governing engineers. Except for a brief period a half century ago, each of the five major societies has had its own code (as have many of the smaller societies); and, as if this were not enough ethical complexity for one profession, ABET (or its predecessor) has had a separate code (which has not been amended since 1977),⁶¹ one that most engineering societies have endorsed.

Although the relationship among these codes is complex, it is not muddled. The NSPE code⁶² is designed (like architecture’s NCARB code) primarily for adoption by state licensing boards. Its rules are supposed to be appropriate for use in a disciplinary hearing. In contrast, the ABET code is designed to guide individual engineers. ABET has no enforcement procedure whatsoever (and does not even have a committee to issue advisory opinions) and, apparently, no interest in having its code enforced through any formal procedure. The ABET code thus functions much as the AIA’s Ethical Standards do and should therefore be more demanding that the NSPE code. In fact, today it is as often less demanding than more demanding.

Until the 1980s, ABET’s code was clearly the most important in engineering. Most engineering societies, including two of the major ones (ASME and ASCE), had adopted it as their own (either the 1977 version or one of its predecessors). In the last decade, however, its importance has declined dramatically. Some societies have amended their codes now and then, to the point that there are now important differences between those codes and ABET’s code. Some of the differences arise from the adoption of provisions that the NSPE adopted; some arise from local innovations (which other societies may or may not have followed). In addition, some societies (most notably, the IEEE) have abandoned the ABET code altogether.

The NSPE code now seems destined to become the de facto standard of the profession (in part because the ABET code has gone so long without amendment and the IEEE code lacks sufficient detail to provide much guidance). The NSPE code is now much more often reprinted at the back of a text in engineering ethics than any other code. Although it is distinct from ABET’s code, NSPE’s code resembles it in layout and language because both derive from the “unity code” of a half century ago. Only the IEEE has an independent code (2000)⁶³—which some other engineering societies, including the AIChE (2002), have followed. The IEEE code is quite short (260 words) and applies to IEEE members (not to engineers), an important distinction because many IEEE members are not engineers but are computer scientists, physicists, mathematicians, or the like.

This survey confines its review of engineering’s methods of dealing with conflict of interest to three codes, those of the IEEE, the NSPE, and ABET, the most important (and distinctive) in U.S. engineering. For all the small differences among these three codes, there is a fundamental agreement about how to deal with conflict of interest.

IEEE Code

The one sentence on conflict of interest in the IEEE code expresses that fundamental agreement succinctly. IEEE members are to “avoid real or perceived conflicts of interest whenever possible, and to disclose them to affected parties when they do exist” The IEEE strategy for dealing with conflict of interest (avoidance whenever possible and disclosure whenever avoidance is not possible or has failed) is similar to that identified for architects but nonetheless differs in two important respects. First, the requirement of avoidance applies not only to “real” conflicts of interest but also to “perceived” ones. Perception—that is, the appearance—of a conflict of interest is treated as being just as bad as the reality. The underlying idea seems to be that an engineer’s professional judgment (or, rather, an IEEE member’s professional judgment) should be above suspicion. Even perceived conflicts should therefore be avoided (whatever the underlying reality about the interests in question). The underlying reality does not matter to those who would like to rely on an engineer—until it is disclosed and the false appearance is dispelled.

The second important respect in which the IEEE strategy differs from that identified for architects is that there is no indication of what is to be done after disclosure (for example, there is no requirement of consent before continuing). The other engineering codes do provide guidance concerning this question, although the particulars vary a good deal, depending on the circumstances in question. The IEEE has a committee to prepare guidelines to supplement its code.

NSPE Code

The NSPE code is divided into three main parts: a brief, four-sentence preamble; the body of the code, which consists of Part I. Fundamental Canons, Part II. Rules of Practice, and Part III. Professional Obligations; and an addendum (which may be ignored here) that quotes a 1978 federal court decision on competitive bidding and the response of the NSPE Executive Committee. The fundamental canons (about 3 percent of the code) contains three sentences relevant to conflict of interest (in language dating from one of the first engineering codes): “Engineers, in the fulfillment of their professional duties, shall: … 3) Issue public statements only in an objective and truthful manner. 4) Act for each employer or client as faithful agents or trustees. 5) Avoid deceptive acts”

The Rules of Practice (which accounts for a quarter of the code’s 2,400 words) has six main rules, each of which corresponds to one of the Fundamental Canons. The specific rules under a rule (designated with lowercase letters) are applications or elaborations of the prefacing rule. There are 3 rules under Rule II.3, 5 under Rule II.4, and 2 under Rule II.5, for 10 rules in all. All but two of these (Rules II.3a and II.3b) concern conflict of interest (more or less). In addition, Professional Obligations (about 40 percent of the code) contains six more rules related to conflict of interest. In all, about a fifth of the entire code is concerned with conflict of interest. Apparently, the NSPE takes conflict of interest very seriously. A detailed review of the provisions shows that they cover a surprisingly large number of specific issues.

ABET Code

The ABET code consists of two major parts: the Code of Ethics proper, which is a short document (210 words), and the much longer Suggested Guidelines for Use with the Fundamental Canons of Ethics (2,667 words). The Code of Ethics is divided into Fundamental Principles (which have much the same content as the NSPE preamble) and Fundamental Canons (which have much the same content as NSPE’s Fundamental Canons). The ABET guidelines correspond to the rest of the NSPE code (Parts II and III).

For the purposes of this paper, the only significant difference between the two codes (apart from the guidelines) is that ABET’s Fundamental Canon 4 has been amended to append to the language of the NSPE code a comma and the words “and shall avoid conflicts of interest” Most engineering codes of ethics now include that amendment, the result of a scandal in the middle 1970s that ended in a $7.5 million judgment against ASME.⁶⁵ Some volunteers in one of ASME’s standard-setting bodies, although faithful agents and trustees of their employer (as Fundamental Canon 4 then required), had a conflict of interest when acting as members of the committee. Because the engineers involved were members of ASME, as well as volunteers, ASME had not been their client or employer (in the ordinary sense of these terms). They had not (it seemed) violated Fundamental Canon 4 (or any other rule in effect at the time). Yet, most engineers thought that they had clearly done something that an engineer should not do. Since Fundamental Canon 4 did not seem to cover the case, although it should have, ABET revised Fundamental Canon 4 (adding the reference to conflict of interest), and most other engineering societies followed (with the notable exception of NSPE—which dealt with the problem by adding or amending rules under its equivalent of Fundamental Canon 4).

ABET Guidelines

Although the ABET Guidelines were explicitly designed for use with the Fundamental Canons, they are an independent code in structure (and they were in fact the body of the code itself until 1977). The guidelines consist of seven main divisions, each of which is identical to one of the code’s Fundamental Canons (and carries the same number). Under each of these are lettered sections and sometimes numbered subsections interpreting or applying the canon. Many of the sections are identical in language to provisions of the NSPE code. Some differ in ways not important here. For example, ABET Rule 3d differs from NSPE Rule III.3c in using “engineering matter” rather than “technical matter,” by requiring engineers to identify themselves (as well as the party for whom they are speaking), and requiring them to describe any “pecuniary interest” that they may have in what they are about to say (rather than just any interest). In what follows, we ignore such small differences, focusing on rules that add something important to what we found in the NSPE code. There are only two such rules. They are, not surprisingly, both under Canon 4 (the canon explicitly concerned with avoiding conflict of interest).

Rule 4a of ABET’s code differs from its NSPE counterpart (Rule II.4a) in requiring engineers to “avoid all known conflicts of interest” (rather than simply to disclose them) and to disclose promptly to their clients or employers the rest, what the NSPE code identified as “potential” conflicts of interest: “any business association, interests, or circumstances which could influence their judgment or the quality of their services” (emphasis added). This guideline makes explicit what we had found implicit in NSPE’s Rule II.4a. The ABET rule may, nonetheless, be less demanding than its NSPE counterpart. If the adjective “business” applies to “interest” and “circumstance” as well as to “association” (a natural reading), then Rule 4a does not require disclosure of all conflicts of interest but only those arising from business associations, business interests, or business circumstances.

The theme of avoidance is carried through the rest of the conflict of interest provisions under Rules 4b to 4g—all of which, except for Rule 4b, are (more or less) identical to the rules in the NSPE code (and, in fact, date from some of the earliest codes of engineering ethics). The exception, Rule 4b, forbids engineers to “knowingly undertake any assignments which would knowingly create a potential conflict of interest between themselves and their clients or their employers” The two uses of “knowingly” suggests not only sloppy editing but also a great concern that engineers not be blamed for undertaking such assignments inadvertently. The requirement of knowledge is a break with the ABET code’s general policy, which is to require avoidance or disclosure without providing for the excuse “I did not know” (In other words, engineering codes generally treat ethical conduct as a question of competence for which “I did not know” is an admission of wrongdoing and not an excuse.) There is only one other use of “knowingly” in the entire code, one of which is unrelated to conflict of interest (Rule 6a, avoiding association with a disreputable business). Rule 4a’s knowledge requirement (like the use of “conflict of interest”) is new to the 1977 code. However, it is an innovation that some other codes have followed. For example, Rule 4b in ASME’s current code (2002) is simply a cleaner version of ABET’s: “Engineers shall not undertake any assignments which would knowingly create a potential conflict of interest between themselves and their clients or their employers”

Conclusions from Survey of Engineering Codes

For engineering, then, conflict of interest is a threat to the profession’s usefulness (the reliability of its judgment) as well as to its honor and reputation. For most purposes, the best response to an actual or potential conflict of interest is to avoid it as soon as one learns of it. In a few cases, recusal is allowed (or required); in others, those cases in which (1) disclosure allows the public, client, and employer an adequate response and (2) the engineer cannot be replaced or cannot be replaced at reasonable cost, tolerance of a conflict of interest is allowable. However, it is only allowable. Even then, there is a risk to all who rely on the engineer’s judgment that the engineer’s judgment will not be as good as it should be (and would be but for the conflict of interest). Disclosure is not a cure-all.