With calls for President-Elect Donald Trump to divest himself from his businesses, you might wonder: What ought business owners do when they find themselves in a position of government power that poses direct conflicts of interest between the advancement of the public good and personal enrichment?
Some critics have suggested that President-Elect Trump ought to liquidate the entirety of his business holdings, with any hardship imposed by this recommendation amounting to a trivial sacrifice in exchange for the highest office in the land.
The “hardship” imposed by mandatory selling is two-fold.
First, there is the possibility that you will receive lower than fair market prices because prospective buyers are aware of the forced sale. As a reference point, the P/E ratio at the time of sale for divestitures arising from antitrust mandates are 17% lower than merger activity that lacks such coercion. Forced liquidation of assets might mean that, say, a portfolio of real estate and licensing agreements with a fair market value of $3 billion might only fetch $2.5 billion in bidding with a timeliness limitation.
The second hardship is that many family business owners are obsessively focused on keeping their business within the family as a way to burnish their own legacy and ensure the same level of abundance for the generations that follow. Family-run businesses are imbued with a sense of life purpose and meaning, and a forced sale takes that away. At this level, the cash received from the sale has little significance–these people are usually so well off that the liquidity provides little satisfaction. A sale requirement takes away the very thing that makes these people tick. If the cost of public service is that family-owned businesses must be liquidated, we may limit the pool of potential public servants to lifelong bureaucrats/government employees and business leaders of the Fortune 500 executive / MBA mold. The public participation of entrepreneurs and business operators might decline, and America might suffer from the diminished voice of the business-builder.
The good news for business owners with public service ambitions is that ethical compliance is not limited to the forced liquidation of businesses. A middle ground does exist called an “ethical wall.”
The specific terms of an ethical wall may vary, but you generally do five things:
#1. You remove yourself from all decision-making roles in the business.
#2. You vest voting power in a trustee during the length of your public service.
#3. You create public logs documenting all conversations with the trustee and his agents, noting the time, place, and nature of the dialogue.
#4. You create public logs documenting all conversations between local / foreign government agents and the trustee and his agents.
#5. If you’re a public official, you sign a document agreeing not to advocate on behalf of your business interests throughout the duration of your public service.
In the case of President-Elect Trump, do I think this will happen? I am doubtful that he will initiate this of his own volition. I suspect he privately enjoys needling his Democratic foes over this, and I think it would take sustained criticism and perhaps even legislative threats from Republicans in Congress to force his hand into compromise. Given that this is the first time since 1928 that Republicans will have controlled the House, Senate, Presidency, and Judiciary, I am unconvinced that Republicans will use this clear runway to police their own.
And I should also stress that the legal requirements imposed on President-Elect Trump regarding the management of his businesses are unclear. No previous American president has sought to have the Supreme Court define the contours of the Constitution’s Emoluments Clause, and the lack of much precedent makes it speculative to say what a President can and cannot constitutionally do.
I suspect that the Supreme Court’s interpretation of the clause will be highly informed by their ideological priors.
Those with an originalist understanding of the Constitution that shows deference to Alexander Hamilton, John Jay, and James Madison will grant the president unfettered discretion to shape his affairs because Madison in particular was emphatic about the president operating independent of such congressional or judicial oversight. Madison wanted to create wide circles that would prevent congress or the judiciary from going on witch-hunts of the president.
Those with a living constitution view may impose upon the president the same ethical rules imposed on other public servants, viewing the elimination of potential corruption as a greater principle than maintaining the traditional free hand of the nation’s chief executive.
A caveat: The Roberts court has dodged a lot of controversial litigation by ruling that a litigant lacks standing to sue. It would not surprise me if some challengers to President-Elect Trump under an Emoluments Clause theory get blocked by the court as a threshold matter–the Supreme Court previously refused to consider whether gifts to President George Washington from French government officials violated the Emoluments Clause because it was brought by an American politician that couldn’t demonstrate a concrete injury he received as a result of the gift.
Some legal commentators have speculated that a harmed business competitor would have standing to bring an Emoluments Clause claim, but I am unpersuaded because this clause exists to prevent the public from civil servant corruption and does not exist to protect business owners from unfair competition. But we shall see.
The deciding vote may come down to the personal opinion of the late Justice Scalia’s replacement on the Supreme Court, suggesting that President-Elect Trump may focus on appointing a justice with a permissive view of presidential power under the Emoluments Clause.
But who knows? A lot of political events occurred this year that were beyond my powers of prediction, and it would be unearned arrogance for me to assume this one would be different.
However, I did want to point out that the calls for the liquidation of family businesses are not the only option. As the annual income of my readers has surpassed the $180,000 median mark, it is at least possible that one reader in my audience might one day have public service ambitions. If you own a business, you don’t have to sell it after your election. You can build an ethical wall, which is similar but different from a blind trust. It happens all the time, with recent high-profile use by California Democrats (Minority Leader Nancy Pelosi and Senator Dianne Feinstein have created such walls involving the business interests of their husbands, although Senator Feinstein’s ethical wall has come under scrutiny regarding a lucrative postal service deal for her husband.) You can follow the five steps above to create an ethical wall as a way to maintain family ownership of a business while pursuing government service.