Conflict of Interest

Conflict of Interest Jilda Diehl Garton May 30, 2006

Overview • Definitions • Federal Regulations • Corporate Governance, Sarbanes Oxley, and Excess Benefits Transactions • State of Georgia Law • Georgia Tech Policy • Procedure & the Conflict of Interest Committee • Management Plans • Special Cases: STTRs & SBIRs • Human Subjects Research and the Institutional Review Board

OverviewEthics and Entrepreneurship Ethics and entrepreneurship are not incompatible and are, in fact, requisites one for the other.

Overview Research universities are concerned about financial conflict of interest because it strikes to the heart of the integrity of the institution and the public’s confidence in that integrity.

OverviewAAU Report, October 2001 Transferring university-developed knowledge to the private sector fulfills one of the goals of federally funded research, by bringing the fruits of research to the benefit of society. With this important technology transfer comes increasingly close relationships between industry and universities, which provide benefits but also increases the risk of academic research being compromised in two ways, through:

OverviewAAU Report, October 2001 • individual financial conflict of interest in science, which refers to situations in which financial considerations may compromise, or have the appearance of compromising, an investigator’s professional judgement in conducting or reporting research.

OverviewAAU Report, October 2001 (1 continued) The bias such conflicts may conceivably impart not only affects collection, analysis, and interpretation of data, but also the hiring of staff, procurement of materials, sharing of results, choice of protocol, involvement of human participants, and the use of statistical methods; and

OverviewAAU Report, October 2001 • institutionalfinancial conflict of interest, which may occur when the institution, any of its senior management or trustees, or a department, school, or other sub-unit, or an affiliated foundation or organization, has an external relationship or financial interest in a company that itself has a financial interest in a faculty research project.

OverviewAAU Report, October 2001 (2 continued) Senior managers or trustees may also have conflicts when they serve on the boards of (or otherwise have an official relationship with) organizations that have significant commercial transactions with the university.

OverviewAAU Report, October 2001 (2 continued) The existence (or appearance) of such conflicts can lead to actual bias, or suspicion about possible bias, in the review or conduct of research at the university. If they are not evaluated or managed, they may result in choices or actions that are incongruent with the missions, obligations, or the values of the university.

National Society of Professional Engineers Code of Ethics for Engineers II. Rules of Practice; Section 4. • Engineers shall disclose all known or potential conflicts of interest that could influence or appear to influence their judgment or the quality of their services. • Engineers shall not accept compensation, financial or otherwise, from more than one party for services on the same project, or for services pertaining to the same project, unless the circumstances are fully disclosed and agreed to by all interested parties. • Engineers shall not solicit or accept financial or other valuable consideration, directly or indirectly, from outside agents in connection with the work for which they are responsible.

National Society of Professional Engineers Code of Ethics for Engineers II. Rules of Practice; Section 4. • Engineers in public service as members, advisors, or employees of a governmental or quasi-governmental body or department shall not participate in decisions with respect to services solicited or provided by them or their organizations in private or public engineering practice. • Engineers shall not solicit or accept a contract from a governmental body on which a principal or officer of their organization serves as a member

Conflict of InterestFaculty Handbook 5.2 The mission of Georgia Tech includes both assuring that research conducted at the Institute benefits the public and assisting the State of Georgia in creating or retaining industry, creating jobs, and promoting economic development. Georgia Tech recognizes that employee participation in bringing their inventions…into public use through commercialization plays an important role in this mission.….Companies in which employees have such an interest may transact business with the Institute only after transactions are reviewed and found not to pose a conflict of interest or if the transactions are conducted under a written conflict of interest management plan as described in section 5.2.4.6

Definitions • Conflict of Interest • Conflict of Interest Committee • Conflict of Commitment • Excess Benefits Transaction • Family Member • Institutional Conflict of Interest • Institutional Review Board • Personal Conflict of Interest • Significant Financial Interest • Substantial Financial Interest • Transact Business

Definitions“Conflict of Interest” A conflict of interest occurs when there is a divergence between an individual's private interests and his or her professional obligations to the University such that an independent observer might reasonably question whether the individual's professional actions or decisions are determined by considerations of personal gain, financial or otherwise. A conflict of interest depends on the situation, and not on the character or actions of the individual.

Definitions“Conflicts of Commitment”Faculty Handbook 5.2 A conflict of commitment existis when an employee undertakes external commitments which burden or interfere with the employee’s primary obligations to the Institute. Conflicts of Commitment may arise out of consulting arrangements or with an entrepreneurial interest when a faculty member is involved in a start up company.

Definitions“Individual Conflicts of Interest”Faculty Handbook 5.2 Individual conflicts of interest may arise when an employee has the opportunity to influence research, academic or Institute decisions in ways that could lead to personal financial gain. The financial gain may be derived from owning stock in a company that is sponsoring research, from ownership interest or employment in a company that may benefit as a licensee of an invention, from the existence or expectation of entering into a consulting arrangement with a company sponsoring research.

Definition“Institutional Conflict of Interest”Faculty Handbook 5.2 Institutional conflicts of interest occur when the Institute, or one of its affiliated entities such as Georgia Tech Research Corporation, Georgia Tech Foundation or Georgia Advanced Technology Ventures, has a financial stake in the outcome of its research programs or licensed technology. The conflict may arise out of an equity interest in a start-up that licenses technology from the Institute or in the nature of royalties to be earned from licensing such technology.

Definition“Family” “Family” means at least the spouse and dependent children of the principal…..

Federal Regulations Federal regulations require that we have a written policy that includes written disclosures, not less than annually, of potential or actual conflicts of interest in the design, conduct and reporting of research and that we take steps to reduce, eliminate, or manage real or potential conflicts of interest and that the policy be enforced.

Conflict of Interest Policy • NIH Guide – Objectivity in Researchhttp://grants2.nih.gov/grants/guide/notice-files/not95-179.html • FDA "Guidance: Financial Disclosure by Clinical Investigators" (March 20, 2001)http://www.fda.gov/oc/guidance/financialdis.html • GAO "Biomedical Research: HHS Direction Needed to Address Financial Conflicts of Interest" (November 2001)http://www.aau.edu/research/gao.pdf (PDF) • NIH Guide - Financial Conflicts of Interest and Research Objectivity: Issues for Investigators and Institutional Review Boards, June 5, 2000http://grants.nih.gov/grants/guide/notice-files/NOT-OD-00-040.html • NSF - IMPORTANT NOTICE Investigator Financial Disclosure Policy: October 7, 1996 http://www.nsf.gov/pubs/stis1996/iin117/iin117.txt

Federal Regulations:Disclosures The existence of conflicts of interest and the steps used to reduce, eliminate, or manage such conflicts must be disclosed in writing to federal agencies. • NSF – upon request • NIH – at the time of the proposal • Other agencies – check with your OSP Contracting Officer

Federal Regulations:Human Research Volunteers The Institutional Review Board is required by federal law to review real and potential conflicts of interest in research that involves human subjects. This is a separate review.

Corporate Governance, Sarbanes Oxley and Excess Benefits Transactions4 • Tax exempt organizations are established for public purposes therefore, funds or other assets in their control must be used for their tax exempt purpose. • The IRS developed new penalties to address situations in which a tax exempt organization’s engages in transactions that excessively benefit private persons. • Excise taxes are imposed if a tax exempt organization provides an “excess benefit” to a “disqualified person” and if the benefit received by the disqualified person exceeds the value of the goods or services provided to the organization in return. 4. 26 CFR 53.4958

Corporate Governance, Sarbanes Oxley and Excess Benefits Transactions • “excess benefit transaction”: economic benefit is provided by a tax exempt organization directly or indirectly to or for the use of any disqualified person, and the value of the economic benefit provided by the organization exceeds the value of the consideration (including the performance of services) received for providing such benefit • “disqualified persons” those who have substantial influence over the affairs of the applicable tax exempt organization at any time during the five years preceding the transaction

Corporate Governance, Sarbanes Oxley and Excess Benefits Transactions • Safe Harbor" has three required steps: • full advance disclosure of the facts of a transaction and review by parties without a conflict of interest • consideration of Fair Market Value and comparability • documentation of the decision and the underlying facts.

Corporate Governance, Sarbanes Oxley and Excess Benefits Transactions • Taxes on disqualified persons. The excess benefit tax is imposed on each excess benefit transaction between the tax exempt entity and the disqualified person. This 25% tax is imposed and must be paid by the disqualified person. If the tax is not paid during the taxable period, an addition excise tax equal to 200% of the excess benefit is imposed. • Tax on organization managers. Managers of the tax exempt organization including officers, directors, and trustees, may be taxed 10% of the excess benefit transaction if the manager knowingly participated in the excess benefit transaction unless the manager’s participation was not willful and was due to reasonable cause.

State of Georgia Law The General Assembly adopted a series of statutes addressing business transactions between state officers and employees and state agencies or entities. These are found in O.C.G.A. Title 45. • O.C.G.A. §§ 45-10-20 through 45-10-28 are of particular interest.

State of Georgia Law In a 1926 case, Montgomery v. City of Atlanta, 162 Ga. 534, 546 (1926), the Attorney General of Georgia opined: One who is entrusted with the business of others will not be allowed to make out of the same a pecuniary profit to himself. This doctrine is based upon principles of reason, morality, and public policy. No public agent shall have the opportunity or be led into the temptation to make profit out of the public business entrusted to his care, by contracting with himself, directly or indirectly, in respect to such business.

State of Georgia Law:Code of Ethics1 In a 2004 opinion, the Attorney General of Georgia pointed out that the General Assembly has established a “Code of Ethics for Government Service” which lists a number of aspirational goals for all state officers and employees. These tenets include: 1. Found in O.C.G.A. § 45-10-1

State of Georgia Law:Code of Ethics1 • A government official should never use any information coming to him confidentially as a means for making a private profit. • A government official or employee should not engage in any business with the government which is inconsistent with the conscientious performance of his governmental duties. • A government employees is specifically prohibited from taking any official action on any matter where he knows or should know that he has a direct or indirect monetary interest in the subject matter of the transaction. 1. Found in O.C.G.A. § 45-10-1

State of Georgia Law:Conflict of Interest2 It shall be unlawful for any public official, or for any business in which such public official or a member of his/her family has a substantial interest, to do business with the agency s/he serves. However, 2. From O.C.G.A. 45-10-22.

State of Georgia Law:Conflict of Interest2 These provisions do not apply to: • Any transaction made pursuant to sealed competitive bids; • Any transaction that does not exceed $250.00 and when the aggregate of all such transactions does not exceed $9,000.00 per calendar year; • Any transaction involving the lease of real property if it has been approved by the State Properties Commission or the Space Management Division of the Department of Administrative Services. 2. From O.C.G.A. 45-10-22.

So you charges personal mileage to a federal grant, eh? That ain’t nothing! I gave the appearance of a conflict of interest!!

Of Bribes and Kickbacks The Appearance of a Conflict of Interest Bribe, n. A price, reward, gift or favor bestowed or promised, with the view to pervert the judgment of or influence the action of a person in a position of trust Kickback, n. A return of a portion of a monetary sum received, esp. as a result of coercion or a secret agreement

Of Equity and Royalties for InventorsThe Appearance of a Conflict of Interest • We look for potential CoI and then plan to reduce, eliminate, or manage the situation • Potential conflict of interest IS NOT necessarily “bad”

Sometimes it seems as though the role of Technology Transfer is to createConflicts of Interests • Faculty Start-Ups • License Technology from the Institution • Sponsor Research at the Institution • Involve students of the Institution • Conduct human studies • Institutional Conflict of Interest • If the institution owns equity, its decisions may not be viewed as unbiased • If an institution accepts funding from a company its research and decisions may not be viewed as unbiased

Georgia Tech PolicyUniversity Concerns The university3 must protect itself and its faculty, staff and students from any of the following allegations: • exploitation of students for private gain • undue personal gain from public funds • compromise of university priorities due to financial considerations • unfair access by a company to information or technology 3. From the Stanford University Conflict of Interest Policy http://www.stanford.edu/dept/DoR/Resources/coi.html

Georgia Tech PolicyUniversity Concerns The university3 must protect itself and its faculty, staff and students from any of the following allegations: • compromise of appropriate controls in the conduct of research such that research subjects could be harmed • use of university resources for private gain • adverse effect by those in leadership roles on the professional or academic advancement of colleagues, staff or students as a result of outside interests. 3. From the Stanford University Conflict of Interest Policy http://www.stanford.edu/dept/DoR/Resources/coi.html

Georgia Tech PolicyConflict of InterestFaculty Handbook 5.2 • Activities which constitute Conflicts of Interest where an employee has a Substantial Interest are unlawful. • The direct or indirect ownership of more than 25% of the assets or stock of any business. • Activities which constitute Conflicts of Interest where there is Significant Financial Interest are prohibited unless a plan to reduce, eliminate or manage the Conflict of Interest has been expressly approved and/or pursuant to the provisions of this policy. • A financial interest that does not exceed $10,000 in value and does not represent more than 5% ownership.

Conflict of InterestFaculty Handbook 5.2 • Annual Disclosure • April • Disclosure is also required on routing sheets for sponsored research proposals • Disclosure is also required any time circumstances change

Conflict of InterestFaculty Handbook 5.2 • Forms are reviewed by school chairs or lab directors. • If a management plan is needed, the form should be forwarded by the school chair to the Conflict of Interest Committee. • Randy Nordin • Jilda Garton • Ron Rousseau • Bob Nerem • Forms must be retained in departmental files. • Retention time varies with circumstances.

Georgia Tech Procedure and the Conflict of Interest Committee • The Department Chair performs the first review • form must be signed by the chair of the individual’s tenure-initiating unit or supervisor • If the individual is a chair, center director, dean, or other senior official, the next supervisory level must review and sign the form • Consulting and routine situations are generally handled by the first reviewed • This review is for accuracy, completeness of disclosure, fit with mission and objectives of the department and need for management of any potential conflict of interest

Georgia Tech Procedure and the Conflict of Interest Committee • The form is reviewed for completeness and signatures • If other circumstances are disclosed, more information is sought • Department chair’s recommendations are considered • A CoI Management Plan may be necessary

CoI Management Plans Management Plan: A written agreement that sets up a structure so that situations with potential conflicts of interest are monitored and managed to ensure that inappropriate actions or the perception of impropriety are prevented.

CoI Management Plans Conflict of interest management plans are generally considered to be open records under Georgia Law and would most likely be open records under the Federal Freedom of Information Act once they are submitted to the government.

CoI Management Plans • Limitations on who may serve as a PI on a sponsored project • Distinction between activities appropriate for consulting and for sponsored programs • Limitations on ownership of stock or stock options • Technology transfer or licensing provisions • Designation of responsibility for control of donated funds • Provisions for the use of university facilities • Provision for the employment of university students • Disclosure requirements • Relationship to other funded projects &/or proposals • Designation of parties responsible for review

Management of Institutional Conflicts of Interest A university’s institutional financial conflict of interest processes – for both financial holding-related conflicts and those involving senior officers – should follow a three-fold approach: • 1) disclose always; • 2) manage the conflict in most cases; • 3) prohibit the activity when necessary to protect the public interest or the interest of the university.

Special Cases: STTRs & SBIRs • PI for the company • PI for the award to Georgia Tech • Students • Level of ownership by Georgia Tech faculty, inventors, family • Relationship to ongoing and proposed research – whether federally or privately funded – in Georgia Tech • Time and Effort Reporting

Conflict of Interest