APPENDIX J
PREEMPLOYMENT REQUIREMENTS AND POSTEMPLOYMENT RESTRICTIONS1

The attractiveness of government service to scientists and engineers is often diminished by professional losses, such as the need to interrupt research, an irreversible career shift toward management, or time away from a fast-moving field. Thus, some science and technology (S&T) leaders are naturally resistant to recruitment efforts.

For scientists and engineers who are willing to consider presidential appointments, a key barrier to the willingness to take the next step is the unduly complex and pre-employment requirements and postemployment restrictions.

Pre-employment Requirements: The need for reasonable regulations to promote ethical conduct in government is clear, and most ethics laws—especially those requiring public financial disclosure and prohibiting federal employees from participating in matters in which they have a financial interest—are necessary. But recent efforts to achieve a scandal-proof government can deter talented and experienced S&T personnel from taking senior government positions.

The financial consequences of accepting a presidential nomination or appointment can be severe, particularly for senior people in the science, engineering, and health career fields who

1  

This discussion is from the National Academies 2000 report on this topic. The Office of Government Ethics was consulted with respect to updating legal citations.



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Science and Technology in the National Interest: Ensuring the Best Presidential and Federal Advisory Committee Science and Technology Appointments APPENDIX J PREEMPLOYMENT REQUIREMENTS AND POSTEMPLOYMENT RESTRICTIONS1 The attractiveness of government service to scientists and engineers is often diminished by professional losses, such as the need to interrupt research, an irreversible career shift toward management, or time away from a fast-moving field. Thus, some science and technology (S&T) leaders are naturally resistant to recruitment efforts. For scientists and engineers who are willing to consider presidential appointments, a key barrier to the willingness to take the next step is the unduly complex and pre-employment requirements and postemployment restrictions. Pre-employment Requirements: The need for reasonable regulations to promote ethical conduct in government is clear, and most ethics laws—especially those requiring public financial disclosure and prohibiting federal employees from participating in matters in which they have a financial interest—are necessary. But recent efforts to achieve a scandal-proof government can deter talented and experienced S&T personnel from taking senior government positions. The financial consequences of accepting a presidential nomination or appointment can be severe, particularly for senior people in the science, engineering, and health career fields who 1   This discussion is from the National Academies 2000 report on this topic. The Office of Government Ethics was consulted with respect to updating legal citations.

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Science and Technology in the National Interest: Ensuring the Best Presidential and Federal Advisory Committee Science and Technology Appointments often accept stock in private firms—especially small technology companies—as compensation. Such stocks are often not publicly traded and thus afford no ready outlet to sell the shares. In addition, much of the value of such stock depends on long-term growth of the company after substantial investment in research and development. Depending on the stage of the company’s growth, forced divestiture at an arbitrary time can mean selling the stock before it has appreciated. Similar situations can occur when people have been compensated with stock options in a company and are required to divest themselves of all interests in that company. In some instances, the option has not vested yet and cannot be sold. In others, a substantial downturn in the market value of a particular stock can mean that the value of a stock is lower than the option’s exercise price at the time when a person is required to divest. That difficulty cannot be readily resolved by a blind trust. Nor can a company ordinarily advance the vesting schedule in favor of an employee; such an action could be tantamount to paying the employee to go into government service and thus constitute a violation of the criminal code. Congress attempted to mitigate losses for those who are forced to divest themselves of stock by allowing them to “roll over” the value of such stock into an acceptable diversified fund. But that is only a partial solution. It is true that the person is not forced to recognize the capital gains on the stock until after the sale of the fund and can thus defer capital gains as though there has been no sale at the time. That does nothing however, to alleviate the adverse effect on those forced to liquidate stock or stock options at inopportune times, those who do not have a ready market for their stock, or those whose options are not vested. Although the Office of Government Ethics (OGE) regulations implementing this roll-over statute give employees a reasonable time in which to divest, the period generally may not exceed 90 days. As a result of interpretations of 18 U.S.C. 208, nominees

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Science and Technology in the National Interest: Ensuring the Best Presidential and Federal Advisory Committee Science and Technology Appointments are also forced to divest themselves of any financial interest in companies that might have business before their agency. That law requires that a government employee refrain from personal and substantial participation (even through supervision of a subordinate) in any matter in which he or she or his or her spouse, minor children, partners, or prospective employers have a direct and predictable financial interest. To impute a child’s, spouse’s, or partner’s interests to a person is to cast a broad net of financial interests. Agencies have authority to waive criminal prosecution in cases where a holding is not deemed to be substantial. In addition, although an agency might be willing to waive the requirements, a Senate committee may still require the person to sell the offending stock before the agency even has an opportunity to consider the waiver. Many congressional committees have taken the position that it could be challenging for people to do their jobs if they have to refrain from making decisions regarding the companies in which they might have a financial interest. Thus, nominees are required to divest themselves of their stock or any other financial interest in order to secure an appointment. Often, it is that strict approach by the oversight committees, rather than differing interpretation of the statutes or regulations, that causes disparate treatment of presidential appointees. In an effort to mitigate the effect of the prohibition on holding stocks in companies that might do business with a nominee’s agency, the statutes and regulations authorize the use of two types of financial vehicles that avoid the appearance of conflict of interest: qualified blind trusts and qualified diversified trusts. A qualified blind trust is one in which the investor has no knowledge of the assets. A qualified diversified trust is one that the OGE has judged to hold a widely diversified portfolio of readily marketable securities and to be free initially of securities of any entities that have substantial activities in which the nominee has an interest. With respect to using both types of trusts, the forced sale of existing financial holdings that do not meet the criteria outlined

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Science and Technology in the National Interest: Ensuring the Best Presidential and Federal Advisory Committee Science and Technology Appointments above and reinvesting in one of the authorized trusts at what could be an inopportune time can still pose a problem. Because a blind trust is considered blind only with regard to trust assets about which a person has no knowledge (see section 2634.403, Code of Federal Regulations, Title V), nominees desiring to put their holdings into a blind trust must first sell all their current assets. And any legal or other fees required to establish the trust must be borne by the nominee. Postemployment Restrictions: In its 1992 study of this issue,2 the National Academies committee reported that presidential recruiters, as well as scientists and engineers who have been approached by recruiters, found that the laws restricting postgovernment employment have become the biggest disincentive to public service. Overlapping, confusing, and in some respects overbroad measures that were suspended with the passage of the 1989 Ethics Reform Act have come back into effect, and there is constant pressure to broaden the restrictions further by banning officials involved in specific procurement actions from working in any capacity for any competing contractors for 1 or 2 years. Confusion often results from Sec. 207, Title 18 of the US Code which indicates that a government employee’s options may be judged by the degree of involvement in an agency’s specific contracting actions. For example, a former government appointee might be barred from employment with a company with which that person had “personal and substantial” responsibilities for dealing while in government or with a company whose activities were “under his/her responsibility.” Such relationships can be difficult to determine, and their interpretation can vary among employers or attorneys. The degree of involvement also governs the period, after 2   Committee on Science, Engineering, and Public Policy. 1992. Science and Technology Leadership in American Government: Ensuring the Best Presidential Appointments. Washington, D.C.: National Academy Press.

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Science and Technology in the National Interest: Ensuring the Best Presidential and Federal Advisory Committee Science and Technology Appointments government service, during which a former employee must not “communicate [with his or her former agency] with intent to influence” various actions. That might not bar a person from employment itself, but it bars such communication. Some people can avoid that difficulty in their postgovernment employment, and some cannot; it depends on the type of job one had in the government, the nature and extent of involvement with contracting, and the nature of the postgovernment job. In particular, a person is barred forever from any communication or appearance before the government with the intent to exert influence on behalf of another person with regard to any particular matter involving a specific party in which he or she participated personally and substantially as a government employee. One is prohibited for 2 years from communicating or appearing before the government on any particular matter involving a specific party that was pending under one’s responsibility. Senior officials are also prohibited for 1 year from appearing before or communicating, on behalf of another, with their former agencies. The basic features of those restrictions are statutory and afford little flexibility. For a scientist or engineer, that can mean the inability to seek a research grant from an agency even if that agency had been a primary source of support before government service. (In this case, however, the scientific community is assisted by the exception allowed for persons representing degree-granting institutions of higher learning. In addition, an agency is allowed to make an exception for communications that furnish scientific or technologic knowledge.) There are additional limitations on procurement personnel in the Department of Defense (DOD), but their application to senior appointees is fairly narrow. To be subject to them, an appointee would have to have been the government’s primary representative in the negotiation or settlement of a claim in excess of $10 million or have personally and substantially participated in a decision-making capacity through direct contact with a contractor.

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Science and Technology in the National Interest: Ensuring the Best Presidential and Federal Advisory Committee Science and Technology Appointments The latter would be highly unusual for any person at the senior level. Variations in Pre-employment Requirements and Postemployment Restrictions: Another concern is that variations in pre-employment requirements and postemployment restrictions among agencies, departments, and congressional committees create an environment of uncertainty and inequity for appointees. Standards of ethical conduct are specified for all employees of the federal government pursuant to Executive Order 12674. In theory, this uniform set of standards applies equally to all employees, including presidential appointees. In practice, however, there are many variations among the agencies and departments that employ the appointees and the Senate committees that approve them. Such variations (and their interpretations) are extensive and constitute a source of uncertainty and sometimes inequity for those considering nominations to positions that require Senate confirmation. For example, agencies, departments, and Senate committees may issue or impose their own supplemental standards of ethical conduct. Appointees with the power to award or approve contracts with private firms can encounter variations that are both specific and complex. For example, appointees to the DOD are subject to supplemental rules that can have a serious effect on their financial interest by requiring divestitures that are not limited to companies in the appointees’ direct purview. So, for example, the director of defense research and engineering is typically required to shed any holding in any company that does business with DOD—not only those likely to have research and development contracts. That encompasses a large universe of companies when one includes all the firms that sell through the commissaries, all the utility companies that DOD buys power from, and so on. In addition, one may be required to divest oneself of

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Science and Technology in the National Interest: Ensuring the Best Presidential and Federal Advisory Committee Science and Technology Appointments holdings that are so common among Americans as to be customary. For example, employees of the Environmental Protection Agency (EPA) who work in or with the Office of Mobile Sources are prohibited from holding stock in any automobile manufacturer (such as General Motors). Similarly, employees who work in or with EPA’s Office of Pesticide Programs are prohibited from holding stock in any company that manufactures pesticide products (such as Monsanto). There is an exemption, however, for holdings in diversified funds. Senate committees have their own standards for judging ethical conduct. Each Senate committee receives its initial information on nominees from OGE. It may then ask for additional information with regard to candidates, their spouses, and their children and ask for remedies of any conflicts or potential conflicts it perceives. Those remedial measures include recusal agreements, divestitures, resignations, waivers, and qualified trusts. Additional details about supplementary requirements can be found at the OGE Web site: http://www.usoge.gov/usoge006.html#supplemental. Shared Executive and Legislative Responsibility: The executive and legislative branches share the responsibility of reducing pre-employment requirements and postemployment restrictions, which can be obstacles to public service for S&T leaders. As is apparent from the description above, both the executive and legislative branches are the source of pre-employment and postemployment restrictions. A full list is provided at the OGE Web site. Some specific examples follow. Executive Orders Executive Order 12674 of April 12, 1989. Principles of Ethical Conduct for Government Officers and Employees. Executive Order 12731 of October 17, 1990. Principles of Ethical Conduct for Government Officers and Employees.

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Science and Technology in the National Interest: Ensuring the Best Presidential and Federal Advisory Committee Science and Technology Appointments Legislation Ethics in Government Act of 1978, Pub.L. 95-521, 92 Stat. 1824-1867. Ethics Reform Act of 1989, Pub. L. 101-194, 202, 103 Stat. 1716, at 1724. Statutes 18 U.S.C. § 207. Restrictions On Former Officers, Employees, and Elected Officials of The Executive And Legislative Branches. 18 U.S.C. § 208. Acts Affecting A Personal Financial Interest. Regulations 5 C.F.R. Part 2634. Executive Branch Financial Disclosures, Qualified Trusts, and Certificates of Divestiture. 5 C.F.R. Part 2635. Standards of Ethical Conduct for Employees of the Executive Branch.