Should Lawmakers be Banned from Participating on Public Company Boards? Not Necessarily

Following Democratic control of the House, a new resolution was passed in January as a means to limit lawmakers’ control over public companies. Specifically, the resolution amended the Rules of the House of Representatives to ban House lawmakers’ membership on public company boards, with exceptions for nonprofits and board positions that do not provide compensation. (H. Res. 1043). Other rules passed at the same time direct the House Committee of Ethics to address conflict of interest concerns arising from lawmakers’ participation in other company roles. (Andrea Vittorio, Bloomberg Law). Although a similar ban and exceptions have existed for members of the Senate, until now there were no equivalent rules for the House.

The new rules are the response to an incident that occurred late last year, when Republican House member, Chris Collins, was indicted for insider trading, allegedly in connection with his position on the board of Innate Immunotherapies. (Rachel Koning Beals, MarketWatch). According to the complaint, Collins disclosed nonpublic information to his son regarding the failure of Innate’s product in a “do or die” scientific trial, allowing him to sell off his stock and avoid more than $570,000 in losses. (Alan Feuer & Shane Goldmacher, The New York Times). At the time, Collins was the only member of Congress known to be sitting on a public company’s board. (Andrea Vittorio, Bloomberg Law).

In the aftermath of Collins’ indictment, many ethics lawyers voiced concern regarding lawmakers’ ability to serve on public company boards. (CBS News). For example, government ethics lawyer Kathleen Clark said a major concern is that these lawmakers may feel a sense of loyalty to the company, thereby enticing them to share confidential information acquired on Capitol Hill with the public company. (Id.)

Former House general counsel Stan Brand, however, believes that lawmakers’ board participation is irrelevant. Instead, he said, it matters what lawmakers do with the information they have access to. (Id). With that in mind, perhaps strengthening laws against insider trading (like the 2012 Stop Trading On Congressional Knowledge Act) would do as much good as a potential ban on board membership.

Should lawmakers be able to serve as board members for public companies? The best answer is “it depends.” Insider trading and disclosure of nonpublic information to gain an advantage is obviously a major concern. However, given the apparent rarity of such scenarios, strengthening laws against insider trading would more directly target the root of the issue.