APPLIEDSCIENCE450ProfessionalEngineeringPractice

ConflictsofInterestandSelfInterestW.ScottDunbarPhD,PEng

Todaystopics

Conflictofinterest thedefinition someexamples whatAPEGBCandotherprofessionalassociationshavetosayaboutconflictsofinterest

Theroleofselfinterestinconflictsofinterest selfinterestinaction automaticversuscontrolledmentalprocesses

Theeffectofdisclosureofaconflictofinterest Aproblemtothinkabout

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3ConflictofInterest

Specialinterest

Aprofessional

Asituationinwhichaprofessionalhasaspecialinterestthatinfluencestheobjectiveexerciseofprofessionalduties

Professionalduties

symbolforaCoI

ConflictofInterest

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A more precise definition of a conflict of interest:

A conflict of interest is a situation in which some person P (whether an individual orcorporate body) stands in a certain relation to one or more decisions. On the standard view,P has a conflict of interest if, and only if,

1) P is in a relationship with another requiring P to exercise judgment in the other's behalf,and

2) P has a (special) interest tending to interfere with the proper exercise of judgment inthat relationship.

The kind of exercise of judgment required for a conflict of interest must involve P's havingconsiderable latitude and discretion in acting on behalf of the other party. The kind of"interest" that satisfies condition 2 is any influence, loyalty, concern, emotion, or otherfeature of a situation tending to make P's judgment (in that situation) less reliable than itwould normally be, short of P becoming incompetent.

Source: Davis M and Stark A, 2001. Conflict of Interest in the Professions. Oxford UniversityPress

5Theusualspecialinterests

Selfinterest job careergoals financial reputation

Financialrelationshipswithfamilyorfriends Loyaltytoagroup Emotionalconnection

Anythingthatrendersaprofessionalsjudgementlessreliablethanitwouldbeotherwise

6Professionalduties

Dutyofcareandstandardofcare Maintainconfidentiality Impartiality

e.g.,indecisions,evaluations,anddesignchoices Fiduciaryduties

dutyarisingoutofspecialrelationshipoftrust Thirdpartieswhomayrelyonyouradviceorjudgment

ItisimportanttoavoidCoIs

Theusualresults: Damagetoreputation,career,futurebusiness Damagetoworkcolleaguesorcompany Damagetotheprofession Criminalandcivilchargesinsomeextremecases

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Engineersareemployedfortheirexpertiseandskill

Adviceandjudgmentmustbereliable manymaydependonitandtrusttheengineertomakeunbiaseddecisions

8Aconflictofinterestisnot...

A conflicting interest:Janelikesherengineeringjob,butalsolikestoplaysocceranddrinkfoamy

brownfluids;shecannotdecidewhichshewantstodo.NotaCoI evenifprofessionalobligationsareinvolved

Conflicting legitimate obligations:Emilydesignswidgets.Shehasanobligationtothepublictomakesafe

widgets,butshealsohasanobligationtoheremployertoensurethatthewidgetsaremanufacturedatthelowestpossiblecost.

Theseobligationsshouldnotbeinconflict

An ethical dilemma or conflict:Honestyversushonestycausingharmoraconflictbetweenprofessional

dutiesandpersonalmoralsThisyouhavetosortoutyourself:Whatsparamounttoyou?

9Typesofconflictofinterest

potential actual

apparent

actual Looks,smellsandfeelslikeone itisone

Hmmm

Areasonableperson

Whatkinditisreallydoesntmatter theyareallbadnews.

Asetofevents

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COI:Scenario1

John is an engineer working for JayCo. For the past 50 years, John'sfamily has owned Bolts R Us, a company that makes bolts. JayConeeds to purchase 500,000 bolts for a large construction project.John recommends that JayCo purchase the bolts from Bolts R Us andbecause of this, John's shares in Bolts R Us increase by 15%.

DoesJohnhaveaconflictofinterest?

It would be difficult for John to argue that his recommendation was not affectedby the possibility of a financial gain. If not an actual COI, its close to it.

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COI:Scenario2

John is an engineer working for JayCo. For the past 50 years, hisfiance's family has owned Bolts R Us, a company that makes bolts.JayCo needs to purchase 500,000 bolts for a large constructionproject. His fiance could gain financially (and so could John) if herecommends that JayCo purchase the bolts from Bolts R Us.

DoesJohnhaveaconflictofinterest?

Being in a personal relationship with his fiance means there already is a potentialCoI. If John is not the person in JayCo who recommends bolts, at least an apparentCoI remains. Perception is everything.

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COI:Scenario3

John is an engineer working for JayCo. For the past 50 years, John'sfamily has owned Bolts R Us, a company that makes bolts. Ten yearsago, John had a fight with his family and has not spoken to themsince. John owns no stock in the bolt company. JayCo needs topurchase 500,000 bolts for a large construction project.

DoesJohnhaveaconflictofinterest?

More subtle, but the assumption is that John has forgotten all the bad feelingsand would be objective about ordering bolts from his familys company. If not, ?Its an apparent CoI.

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Whatisthis?

Companies A and B are competitors bidding on a developmentproject. Each forms a joint venture with Engineering Company C toprepare their bids.

IsCinaconflictofinterest?Ifso,whatkind?

BA

CBCBidACBid

possibleconflict:ACBCBit of potential and apparent CoI. If methods and costs are the same in both bids,then perhaps there is no problem. However, this is unlikely since A and B maywant to build the project differently.

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Andthis?

Engineering company EE is designing manufacturing plants for twocompanies X and Y that compete in the same market. The samepeople in EE will be working on both design projects.

Whatisthis?

Again this is somewhere between an apparent and potential CoI but if X and Yknowingly engage EE to do the design, it is a conflicting legitimate obligation. EEshould not allow the same people to work on the two projects.

Whatisthis?Andthis?

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What is this?

This is a joint venture between either A and C or B and C. Can costs and methods really be the same forboth A and B? If so, then there may not be a problem. However, suppose A wants to build things in adifferent way. Then what?

Also, can C really be impartial in such a situation and provide objective advice to both parties?

And this?

This is two different projects being designed by one company (EE) for two competing firms. Care mustbe taken that no proprietary information leaks from X to Y.

The situation could become an actual CoI if EE accepts favorable treatment from either X or Y. Forexample, suppose the contract between X and EE provides financial incentives to EE to accelerate thedesign work in order that X can get to market faster. Then EEs judgment could become biased.

These two cases illustrate how difficult it can be to determine what kind of CoI you are dealing with. Asstated before, the kind of CoI really doesnt matter because its the perception that counts.

Really no reasonable company in in the position of A, B, C, X, Y, or EE would deliberately get involved insuch situations unless they were crazy.

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Thisisverycommon

Company X is asked to provide a feasibility study for an industrialproject, including preliminary design, cost estimates, and economicanalyses. If the feasibility study is favorable, X knows that it may beasked to bid on the final design and/or construction management.

WhatshouldXdo?

X should take either the feasibility study or the possibility of bidding on theproject, not both. Because X knows they will be asked to bid on the final design,they may be inclined to favorably bias the feasibility study, or at least there maybe a perception that they will be biased. Such perceptions are not good.Sometimes these situations are unavoidable because the available talent andexperience is limited to a few companies.

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WhatAPEGBCsaysaboutCoIs

APEGBC Code of Ethics, Item 4:

[Professional Engineers and Geoscientists shall:]Act as faithful agents of their clients or employers, maintainconfidentiality and avoid conflicts of interest but, where suchconflict arises, fully disclose the circumstances without delay to theemployer or client.

WhatotherprofessionssayaboutCoIs

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BC Medical Association (only this):Avoid promoting, as a member of the medical profession, any service (exceptyour own) or product for personal gain.

BC Association of Social Workers (item 7):A social worker who engages in another profession, occupation, affiliation orcalling shall not allow these outside interests to affect the social workrelationship with the client professional judgment, independence and/orcompetence.

Law Society of British Columbia

has lots to say about COIshttp://www.lawsociety.bc.ca/publications_forms/handbook/handbook_toc.html

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CoIs arecausedby

Selfinterestor

Groupinterest

Interestsofothers

thebattlebetween

Letslookatselfinterest

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CoIs arecausedby

Heres an extreme example:

Extreme Utilitarianism: To achieve the greatest good for the greatest number, donate allsalary and assets to the poor.

This could be an overestimation of the benefits. Who is the poor? However, the mainpoint is that it is in major conflict with selfinterest so no one does it.

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Benefitsandcostsdependonobserver

Ifevaluationofbenefitsandcostsisdonebythesamepersonorgroup conflict

Forproponents:

Benefits CostsForopponents:

Benefits CostsInmostcasesthisisselfinterestatwork.

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TheFordPinto early70s

IntroducedtocompetewithJapanesecars

Weighedlessthan2000lbs,cost$2000

Fordetailsofthisstory:http://www.motherjones.com/news/feature/1977/09/dowie.html

Bu_tuglycar(butcheap) Butwithalittlework

TheFordPinto 197172

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Boltsonthedifferentialhousingwereveryclosetothegastank

Gastankdesignviolatedsafetystandards

During20mphcrashtests,thetankruptured,fireoftenresulted

Afix:rubberbarrierormovethetank.Costestimate:$11percar

Source:http://www.motherjones.com/news/feature/1977/09/dowie.html

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TheFordPinto 19721979

SeveraldeathsduetofirescausedbyrearendcollisionsofPinto

FiftylawsuitsfiledagainstFord majoritysuccessful

J.C.Echold directorofsafetyforForddefendedFordgastankdesigndecisionswithcost/benefitanalysis

TheutilitariancalculusofJ.C.Echold

Costs BenefitsSales 11 million cars

1.5millionlighttrucksSavings 180burndeaths

180seriousburns2,100burnedvehicles

Unit costs $11 per car$15 per truck

Unit costs $200,000perdeath$67,000perinjury$700pervehicle

Total costs 11 M $11+ 1.5 M $15= $137 M

Total benefits 180 $200,000+180 $67,000+2100 $700=$49.15M

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Estimatesofdeaths,injuriesanddamagebasedonstatisticalstudiesSource: http://www.motherjones.com/news/feature/1977/09/death.html

Conflict

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Andin1971alifewasworth

Future productivity lossesDirectIndirect

$132,000$41,300

Medical costsHospitalOther

$700$425

Property damage $1,500Insurance administration $4,700Legal and court $3,000Employer losses $1,000Victims pain and suffering $10,000Funeral $900Assets (lost consumption) $5,000Miscellaneous accident cost $200

Total $200,275

Source:

USNationalHighwayTrafficSafetyAdministration

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Incontext

The calculation was done as part of a submission by Ford to NHTSAto request reconsideration of proposed standards related to fuelsystems to prevent fires in the event of rollover and rearend impact.

Nevertheless,

the conflict between selfinterest and the interests of others ispresent and it weakens any argument Ford would be making forreconsideration of the standard.

If they made such an argument, they would be in an apparent CoI, atleast.

Incontext

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The memo in which this calculation was done was said to show Fords mentality about itstort liability it is cheaper to absorb the costs of tort judgments rather than to make safetymodifications to the Pinto. However, the memo was prepared for submission to the USNational Highway Traffic Safety Administration (NHTSA) as part of a request from Ford thatNHTSA reconsider a proposed change of standards related to fuel systems to prevent firesin the event of rollover and rearend impact. Also, the estimate of the value of life wasmade by NHTSA, not Ford.See Schwartz, G. T., 1991. The myth of the Ford Pinto case. Rutgers Law Review, 43, 10131068. (available on course web site)

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Theoutcome

June9,1978thecompanyrecalled1.5millionPintoscostoffix:$1percar

Improvementstotankdesignfinallyappearedin1979model

Sourcesofselfinterest

Automaticmentalprocesses Automaticprocessesleadtolatentbiases:

selfperception implicitprejudice favoritismofgroup

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Actuallyverypervasive,butoftendismissed

Originsareprimal,theprimitivelizardbraindealtonlywithsurvival,ausefulselfinterest

Theydomakelifeinteresting

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AutomaticandControlledMentalProcesses

Fast(parallelprocessing) Effortless Involuntary Notaccessibletointrospection

Slow(serialprocessing) Effortful Voluntary Accessibletointrospection

Automatic Processes Controlled Processes

Vision is an automatic process. It is impossible to choose not to see ifyour eyes are open.

The sources of selfinterest are inscrutable automatic processes. Tryto explain the processes by which your feelings about yourself,someone else or something arose.

AutomaticandControlledMentalProcesses

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Vision involves numerous parallel processese.g., edge and pattern recognition andretrieval of information from memory. Vision is also largely unaccompanied by any feelingof subjective effort, and does not detract from other similar processes (e.g., it is equallyeasy to speak with ones eyes open or shut, and likewise equally easy to see when one is oris not talking). Vision is also involuntary; except by blocking ones visual field, it isimpossible to choose not to see.The cognitive processes that give rise to vision are also almost totally inscrutable. Mostpeople, if asked to explain how it is that they can see whatever is in their visual field,would have a great deal of trouble answering the question. For example, people aregenerally not able to offer articulate insight into how their brains solve visual problemssuch as depth perception or face recognition.Moore, D. A. and Loewenstein, G., 2004. Selfinterest, automaticity, and the psychology ofconflict of interest, Social Justice Research, 17(2), 189202 (available on course web site)

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Whattheseprocessesdo

Professionalduties

Controlledprocesses

SelfinterestAutomaticprocesses

i.e.,youhavetothink tobeethicalandunderstandyourprofessionalduties

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Wheredotheseprocesseshappen?

Controlledprocesses inthefrontallobes

Automaticprocessesinthelimbicsystem

Thelizardbrain

Thethinkingpartofthebrain

Wheredotheseprocesseshappen?

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The limbic system is the first part of the brain to develop in human, ape, and reptileembryos. It is believed to be the primal form of the brain in humans. It developed tomanage 'fight' or 'flight' reactions necessary for survival. It supports a variety of functionsincluding emotion, behavior and long term memory. (The amygdala is known to play a rolein emotional processing.) Some structures of the limbic system are closely associated withthe sense of smell, another sense needed for survival.

The frontal lobes evolved in humans as social systems became more complex. Their role isto plan complex cognitive behaviors such as differentiate among conflicting thoughts,determine good and bad, better and best, same and different, future consequences ofcurrent activities, i.e., it is a source of controlled mental processes. The frontal lobes alsoplay an important part in retaining longer term memories which are not taskbased. Theseare often memories associated with emotions derived from input from the brain's limbicsystem. The frontal lobe modifies those emotions to generally fit socially acceptable norms.

So one part of the brain works to ensure the survival of its owner in the event of threatswhile another part works to ensure its owner can survive in the social system in whichhe/she lives.

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ConflictofProcesses

ControlledProcessesAutomatic

Processes

Decision

Usuallyprocessesworktogetherindecisionmaking,butconflictis

possibleleadingtobias

Theproblemofautomaticprocessing

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Automaticprocessingdoneunconsciously

its influence on decisionmaking is difficult toeliminate or correct and so

selfinterest often prevails even if conscious effort ismade to be ethical and professional

Conflictsofinterestareinevitable

Theproblemofautomaticprocessing

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Automatic processing is a survival mechanism if you had to think about everything, youwouldnt have time to respond to threats, for example.Mapping the Mind by Rita Carter (2000):

where [conscious] thought conflicts with emotions, the latter is designed by theneural circuitry in our brains to win.

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Howautomaticareyou?

100jellybeans

7redones

10jellybeans

1redone

Betmoneythatyouwilldrawaredjellybeanfromacan

Pickacan quickly

Howautomaticareyou?

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Although subjects reported that they knew that the objective probability was higher inthe jar on the right, they nevertheless were more likely to bet on the jar on the left.The controlled system conformed to the rules of probability while the more automaticexperiential system was swayed by the raw number of red beans in the jar on the left.Reference:DenesRaj, V., and Epstein, S., 1994. Conflict between intuitive and rational processing:When people behave against their better judgment. Journal of Personality and SocialPsychology, 66(5): 819829. (available on course web site)

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Very readable discussion ofthe way automatic processeshelp us survive, but alsocause us to make incorrectdecisions.

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Theeffectofcognitiveload

Theprefrontalcortexhaslowcapacityandsothebrainisalwaystryingtoshifttaskstoautomatic

Increasedcognitiveload

Fullcortex

Moreautomaticprocessing

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Theeffectofselfperceptionandacceptance

Selfperception ethical deserving competent

Acceptancebyothers

Comfortablewithbehaviorsbehaviors

Automaticprocessing

Theeffectofselfperceptionandacceptance

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It is logically impossible to be objective about oneself because the only way oneexperiences the world is through ones own senses. Also it is selfdeceiving to think one canbe objective about the effects of ones actions because the best one can do is imaginethese effects from ones own perspective.

Itiseasytoacceptanactionacceptedbyothers.

Example:KurzweilAppliedIntelligence

Manufacturerofvoicerecognitiondevices Salesrepsallowedtopostunsignedsalesafewdaysinadvancetomeetsalesandfinancialtargets anacceptedpracticetreatedasethical

Dealsnevermadefinal.Auditorsbeganchecking,founddiscrepancies

BernardBradstreet,CEOattrial: nailingdownthedetailsofthesalestooklongerthanexpected

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Example:KurzweilAppliedIntelligence

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This is not a conflict of interest case, but it does illustrate how acceptance by peers can leadto an automatic acceptance of behavior.See Maremont, M., 1996, September 16. Anatomy of a fraud. Business Week, pp. 9094.(available on course web site)

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Theeffectoflatentbiases

Age

Gender

Race

Sexuality

Nationality

Weight

Age

Gender

Race

Sexuality

Nationality

Weight

Automaticfeelings

TrytheImplicitAssociationtesthttps://implicit.harvard.edu/implicit/langchoice/canada.html

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Latentbiasesareeverywhere

Criminologicalstudiesfocusonstreetcrimeanddelinquency Resultisracistandclassiststereotypes

Windowsvs Androidvs Linuxvs iOS vs BB10: BiastoWindowsis(was?)becauseofmarketdomination

NorthAmericanengineersaremorefreethinkingandflexiblethanengineersfromothercountries Demonstrablyfalse

Welldressed,articulate mustbeaniceperson Lotsofcounterexamples

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Thisisverycommon again

Company X is asked to provide a feasibility study for an industrialproject, including preliminary design, cost estimates, and economicanalyses. If the feasibility study is favorable, X knows that it may beasked to bid on the final design and/or construction management.

WhatshouldXdo?

Feasibility studies are expensive so that the owner would only spend the money ifthere was a good chance the project was indeed feasible. If this is the perceptionbefore the study begins, how can the owner be sure that it does not lead to latentbiases (e.g., similar to acceptance) that would favor the feasibility?

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SoifyouseeaCoI coming

Trytoavoidit

Discloseittoallconcerned APEGBCcodeofethics,item4

Recuse disqualifyyourselffromanydecisions

Whataboutdisclosure?

Itisassumedthatwithdisclosure Theprofessionalisfreeoflatentbiasortheeffectsofselfinterest

ClientwillunderstandtheCoI andbeabletodiscriminatebiasedfromunbiasedadvice

But IstheeffectoftheCoI onaprofessionalsjudgmentanylessasaresultofdisclosure?

Doestheclientreallyhavetheabilitytodiscriminategoodandbadadvice?

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Experimentsandevidencesuggestthat

professionalswhodiscloseaCoI willknowtheiradvicemaybediscountedandmaythereforeexaggerateorspeaklouder

becomelesswaryofselfinterestaffectingadvicesincetheymayfeeldisclosuregivesthemamorallicencetosaywhattheywantandtheclientwillunderstand

andthatclientsofconflictedprofessionals donotknowwhattodowithdisclosureormaynotunderstandtheseverityoftheconflict

donotdiscountadviceasmuchastheyshould52

Experimentsandevidencesuggestthat

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The client may not have the ability to critically assess advice given by the conflictedprofessional. In fact, the client hired the professional for his/her expertise.

See Cain et al, 2005. The dirt on coming clean: perverse effects of disclosing conflicts ofinterest. Journal of Legal Studies, 34, 125 (available on course web site)This paper describes an interesting experiment. One group of people (estimators) wereasked to look at several jars of coins from a distance and estimate the value of the coins ineach jar. The more accurate their estimates, the more they were paid. Another group ofpeople (advisors) were allowed to get closer to the jars and give the estimators advice. Theadvisors, however, were paid according to how high the estimators' guesses were. So theadvisors had an incentive to give misleading advice. Not surprisingly, when the estimatorslistened to the advisors their guesses were higher. The remarkable thing was that evenwhen the estimators were told that the advisors had a conflict of interest they didn't care.They continued to guess higher, as though the advice were honest and unbiased. Fulldisclosure didn't make them any more skeptical.

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Andthis again

Engineering company EE is designing manufacturing plants for twocompanies X and Y that compete in the same market. The samepeople in EE will be working on both design projects.

Whatisthis?

Even if EE discloses the situation and it is accepted by X and Y, how can EE be sureit will have no effect on their design decisions or choices made for eithermanufacturing plant?

EE should have different people working on each project.

Questionsconsultingcompanieshavetoask

beforeanewcontractissigned:

Are there records of previous contracts to help identify potentialconflicts with new work being considered? big company, big database, complex search algorithms

Does anyone know what to do if they or someone within the firmis in a conflict? For example, the company may not have worked for a competitor of a new

client, but a current employee may have.

Who is responsible for contacting clients to report a conflict?

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Summary

Conflictsofinterestshouldbeavoided actual,potential,andapparent allbad sometimeshardtorecognize

Conflictsofinterestareinevitabledueto automaticvs controlledmentalprocesses latentbiases

DisclosureofCOIdoesnoteliminateormitigateCOI makesitmoredifficulttomaintaintheperceptionofobjectivity

Heresaquestion

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Subject to legislated restrictions, lawyers are allowed tocharge contingency fees in personal injury cases. Thismeans that their fees for legal work are related to theamount of the damages award (e.g., a percentage).

Should engineers be allowed to charge contingency fees?For example, should the fee be related to the benefits ofthe engineers work to the client?