Tillerson Ethics Plan Foreshadows Knotty Trump Confirmations

EghtesadOnline: Rex Tillerson’s disclosure that he stands to receive a $180 million cash payout from Exxon Mobil Corp. if he becomes the next U.S. secretary of state offers a preview of the thorny ethical questions that may be raised this week over a presidential cabinet stacked with wealthy tycoons.

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08 January 2017

And with confirmation hearings scheduled for Tillerson and eight other appointees of President-elect Donald Trump, the head of the federal office that helps ensure compliance with conflict-of-interest rules told lawmakers his agency is hard-pressed by too much work and too little time, Bloomberg reported.

Tillerson ironed out an agreement with the State Department under which Exxon would pay the cash into an independent trust for him, a move designed to separate his financial interests from the oil company that he led as chairman and chief executive officer until he stepped down Jan. 1. Some compensation specialists question whether Exxon departed from its official compensation policies to extend its former leader a special arrangement; the company says it hasn’t. Regardless, Tillerson’s ethics filing last week foreshadows the complexity that will attend a busy week of hearings.

“This schedule has created undue pressure” on ethics officials “to rush through these important reviews,” wrote Walter M. Shaub Jr., director of the federal Office of Government Ethics, in a letter to Democratic senators. “More significantly, it has left some of the nominees with potentially unknown or unresolved ethics issues shortly before their scheduled hearings.”

‘Unvetted Nominees’

While he didn’t name any particular appointees, Shaub’s letter said: “In fact, OGE has not received even initial draft financial disclosure reports for some of the nominees scheduled for hearings.” Senate Minority Leader Charles Schumer, who released Shaub’s letter Saturday, said in an e-mailed statement that the letter constituted evidence that Senate Republicans are trying to “jam through unvetted nominees.”

Senate Majority Leader Mitch McConnell’s office had no immediate response Saturday evening. Jessica Ditto, a spokeswoman for Trump’s transition team, said in an e-mailed statement that the transition process is running smoothly. “In the midst of a historic election where Americans voted to drain the swamp, it is disappointing some have chosen to politicize the process in order to distract from important issues facing our country,” she said.

Disclosures Posted

During the rush of a presidential transition, it’s not unusual for appointees’ financial documents and ethics agreements to be filed only shortly before confirmation hearings begin. By this time during President Obama’s transition in 2009, OGE had approved disclosures and ethics agreements for eight of 15 cabinet members.

As of Saturday evening, disclosures for only four of Trump’s picks had been posted to OGE’s website -- meaning the agency has signed off on them. One of them, Mike Pompeo, whom Trump wants to appoint as Central Intelligence Agency director, is below the level of a cabinet member.

“What’s novel about this administration is the sheer number” of high-level appointees with extensive financial interests, said Lawrence Noble, general counsel of the Campaign Legal Center.

Billionaire Wilbur Ross, Trump’s pick for Commerce secretary, led investments in 178 companies while running his private-equity firm -- and has been tapped to lead an agency that helps oversee compliance with trade laws and agreements. Steven Mnuchin, who’s up for Treasury secretary, is a former partner at Goldman Sachs Group Inc. who held shares in CIT Group Inc. worth more than $100 million when he resigned from the company’s board on Dec. 2. Andrew Puzder, tapped to head the Labor Department, has been since 2000 chief executive officer of CKE Restaurants Inc., which operates and franchises fast food restaurants at 3,300 sites in 42 states and 28 countries. The restaurants’ costs are tied to wage-and-hour laws that Puzder’s department would oversee.

Two of Trump’s cabinet picks are billionaires; four more are worth at least $100 million each. Of that group, only Tillerson has had his financial disclosure and ethics agreement made public so far.

In those documents, which were released Wednesday, Tillerson says he will divest from 156 different entities in more than a dozen countries within 90 days of his confirmation. Separating from the oil and gas giant where he worked for roughly 40 years will be more complicated.

At the heart of Tillerson’s issue with Exxon are more than 2 million restricted shares of stock and restricted stock units that he has accumulated. The shares aren’t scheduled to fully vest for about 10 years.

Ethics rules prohibit Tillerson from keeping the stock, but liquidating it isn’t simple. That’s because Exxon’s compensation policy states that the company only accelerates payout schedules for restricted shares if the executive who owns them dies.

Two-Year Requirement

A further complication: By law, Tillerson would have to recuse himself from decisions involving Exxon for at least a year. But federal ethics rules say that when companies change their policies to award former employees a payment of $10,000 or more, that recusal period must double to two years.

For Tillerson, that could significantly curtail his work as the nation’s top diplomat: Exxon explores for oil and gas on six continents and has business interests in almost every country in the world, according to the company’s website.

Exxon, Tillerson and the Office of Government Ethics agreed on a solution: Exxon will pay about $180 million cash into an irrevocable trust, which will pay Tillerson according to the same 10-year schedule that applied to the restricted shares, said Exxon spokesman Alan Jeffers.

‘Long-Tail’ Design

Using that mechanism would preserve Tillerson’s ability to cash in on his shares. And federal ethics officials agreed that it didn’t trigger the extended recusal period. That’s because, even though the restricted shares will be cashed out early, Tillerson himself won’t get the proceeds on an accelerated schedule, thereby adhering to Exxon’s policy.

“It is our position that we have not accelerated the payouts,” Jeffers said. “The schedule of payments to Rex has not changed.”

Alan Johnson, a compensation consultant in New York, said Exxon was deviating from its policy. The company has “a very long-standing policy of not delivering stock early -- the whole design is long-tail,” he said. “They are making an exception.”

Democrats also criticized the arrangement. “President-elect Trump made a commitment to ‘drain the swamp’ in Washington by reducing the influence of special interests in government, but this egregious payout deal is nothing more than a golden parachute that flies in the face of his campaign promise,” Senators Elizabeth Warren of Massachusetts and Tammy Baldwin of Wisconsin said in a joint statement. “The American people can’t afford to have our Secretary of State in the pocket of powerful corporations and special interests.”

Still, Stan Brand, an ethics lawyer at Akin Gump Strauss Hauer & Feld, said that Tillerson’s arrangement did seem to separate his interests from Exxon’s. “It sounds like they found a way to deal with that,” he said.

And he noted that the federal ethics process, which is designed to unwind complex entanglements, has worked well for scores of people since the law authorizing it was passed in 1978.

“While these people are extraordinary in terms of aggregate wealth, these are not issues that haven’t been confronted before,” Brand said.