Academic journal article Policy Review

The False Promise of "Full Disclosure"

Academic journal article Policy Review

The False Promise of "Full Disclosure"

Article excerpt

THE ENRON "SCANDAL" has raised several fascinating issues related to disclosing information and potential conflicts of interest. For example, an accounting firm that receives consulting fees from a company it is paid to audit may be less likely to report financial problems with that company. But contrary to conventional wisdom, simply not allowing that firm to consult will not necessarily solve the problem. The accounting firm will still have potential conflicts so long as it is getting paid by other firms to monitor their performance. In the past, accounting firms have used professional standards as a way of helping to ensure their reputation. In addition, they have tried to have a diverse client base, so the costs of losing one client would not be overwhelming.

Similarly, academics and pundits receiving monetary compensation from a company may be more likely to give that company's policy positions a favorable review. One solution to this problem is to have these folks come clean by identifying their conflicts of interest. Unfortunately, as we shall see, this is easier said than done and is likely to have unintended consequences.

Consider, for example, the problem of conflicts of interest in the context of funded research and opinions that are disseminated to the public by journalists, academics, and individuals affiliated with think tanks. This is a broad topic and one with which I have some personal experience as a scholar and a consultant to business and government. (1) My purpose is to evaluate the pros and cons of disclosing potential "conflicts of interest." "Full disclosure" may be a laudable goal, but is difficult to define and, therefore, not very useful. In addition, some disclosure norms imposed by the media are not likely to be very helpful in promoting useful information for their audiences, and will likely have unintended adverse consequences. The problem is not that disclosure is necessarily bad, though it may lead to bad outcomes in certain situations. Instead, the problem is that too often, the media and the public use partial disclosure as a substitute for critical thinking.

The nature of the problem

PAUL KRUGMAN -- ONE of the best known economists in academia -- received $50,000 for serving on an advisory board to Enron. Krugman, of course, was not alone. For example, Larry Lindsey, President Bush's chief economic advisor, was reported to have received the same amount.

Defending himself in his New York Times column (January 25, 2002), Krugman noted that he complied with the Times' conflict of interest policy. When he agreed to write for the paper, he resigned from the Enron board. In addition, Krugman noted the potential conflict posed by his Enron advisory role in a Fortune piece he published three years ago.

Krugman's level of disclosure, however, did not seem to satisfy Andrew Sullivan -- an excellent journalist. On his website, andrewsullivan.com (January 25, 2002), Sullivan took Krugman to task for not noting the amount of money he received. Sullivan noted, "You'll notice one detail missing from Krugman's apologia -- the amount of money he got. Why won't he mention it? Because it's the most damning evidence against him." He thinks "the reading public has a right to know" such information.

Sullivan raises an important question: What does the public have a right to know about a person's opinion or findings? That is, what should academics and pundits be required to say about their remarks or research when presenting it in public?

Sullivan thinks that full disclosure is the key. He made the point specifically with respect to talking heads: "What this is about is the enmeshment of some of the pundit class in major corporate money. It seems to me that an integral part of a journalist's vocation is independence -- independence from any monetary interests that could even be perceived as clouding his or her judgment. …

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