A Principles Level candidate asked me for an interpretation of the following ethics related question from one of the practice exams:
Angela Schneider, an equity analyst at Isotonic Asset Management, joins the board of trustees of the Lightship Foundation, a large nonprofit organization. She does not inform Isotonic about this commitment because her service on the Lightship board is uncompensated and will not interfere with her regular job. In addition, she thinks that Isotonic would exert pressure on her to influence Lightship's selection of investment managers. Under the CIPM Association Standards of Professional Conduct, has Schneider violated her duty of loyalty to her employer?
B. Yes, because she must act for the benefit of Isotonic.
C. Yes, because she must disclose that she has a conflict of interest with Isotonic.
My first comment is that I suggest that candidates respond to any type of interpretative question with what they feel is the BEST answer. At the Expert Level, this applies to questions on Ethics and questions related to the GIPS standards. It may seem like more than one of the multiple choice options available to you COULD be correct, but candidates should try to identify the best possible answer.
Next, I would eliminate answer “C.)” from consideration, because it is not established that Ms. Schneider has a conflict of interest with Isotonic. It is stated that her work on Lightship’s board of trustees will not interfere with her regular job. She is not required to use her position to influence Lightship’s selection of investment managers, and in fact, it may be advisable for her not to do so. Duties to one’s employer does not cover taking advantage of one’s personal relationships for the benefit of one’s employer.
I would also eliminate answer answer “B.)” from consideration. It is true that Ms. Schneider must act for the benefit of Isotonic in her work activities, but her work on the board of trustees of Isotonic is not part of her work activities
Thus, the correct answer is “A. No.”
Note: It might appear to candidates that the actions of Ms. Schneider are a violation of the “Additional Compensation Arrangements” section of the Standards of Professional Conduct under Standard IV (Duties to Employers). I would say that answering “Yes” (i.e., choosing answer B. or C.) because of this should not be done for the following reasons:
The question specifically points you to another
section of the Standards of Professional Conduct; i.e., “Loyalty” – thus the
question is not about “Additional Compensation Arrangements.”
- Ms. Schneider is not compensated for her work on Lightship’s board of trustees.