Any public company with a member of Congress sitting on its board can probably buy that farewell card and schedule the departure happy hour now. If amendments to House ethics rules proposed last week by Reps. Kathleen Rice (D-NY) and Tom Reed (R-NY) pass, the lower chamber will prohibit its members from serving on the boards of directors of publicly held companies. (The Senate already has a similar prohibition in place.)
This all started with a representative from New York, who appears to have been rather less concerned with ethics rules. Rep. Chris Collins (R), who maintains his innocence, was indicted last week on charges of insider trading in the stock of Innate Immunotherapeutics Limited. Rep. Collins is a former board member of Innate, its one-time largest shareholder, and a vocal champion of the stock on Capitol Hill. He was still on the board last year when he got word that the company had failed a critical trial for a multiple sclerosis treatment. Allegedly, Rep. Collins tipped off his son, allowing the son (a fellow shareholder) to liquidate 1.4 million shares before the stock dropped more than 90 percent when the news went public.
This story has led to a lot of talk about the wisdom of allowing members of Congress to serve on public boards. It’s a welcome development–but also rather strange, for a couple of reasons. First, Rep. Collins’ status as a congressman is merely incidental to this story. The alleged crime is a straight-up insider trading charge, and not a claim that he traded on knowledge he gained as a lawmaker. In this instance, Rep. Collins did not abuse his status as a congressman; if anything, he abused his status as a corporate insider. Yes, the fact that he was an elected representative adds admittedly irresistible color to the story–including the fact that he learned the inside information via email while attending a White House picnic–but it is otherwise not terribly relevant.
Second, we probably should have had this discussion a year ago, when, believe it or not, we went through a lot of this before. Back in May 2017, Politico published something of a bombshell report: “Reckless Stock Trading Leaves Congress Rife with Conflicts.” That expose on stock trading among members of Congress focused particular attention on investments in Innate Immunotherapeutics by five representatives, including Rep. Tom Rice (R-GA), the then-nominee for Secretary of HHS. (He would later graduate to other scandals.) It noted that Rep. Collins is the one who had “tipped [Price] off” to the investment. By June, when Rep. Collins was checking his email at the White House picnic, he was already under investigation by the Office of Congressional Ethics over his investment in Innate.
It’s surprising, then, that this subject did not catch on before. It is at least worth asking whether the ban on board memberships is gaining momentum now because it is a relatively easy reform for Congress to implement. Certainly, it is less painful to implement than a law that would make information on Congressional investments transparent and accessible by the general public. That law was passed in 2012, it was called the STOCK Act, and Congress quietly gutted it a year later.
Regardless, the House proposal is probably good news in the end for public companies. They will avoid any appearance of favoritism, and reduce their regulatory risk, by cleaning House.