Procedure for Managing Conflicts of Interest

Procedure for Managing Conflicts of Interest

Details

Release Date: 
March 12, 2014
Responsible Offices: 
General Counsel

Document Information

Scope | Managing | Failure to Manage | Serving on Boards | Approval Process | Submittal 

The following outlines the procedure to obtain approval from the Office of General Counsel and your Executive Vice Chancellor for a component institution's plan for managing potential conflicts of interest related to research sponsored by, or Board Intellectual Property licensed to, an entity in which an employee owns an interest or serves and an employee, officer, or member of the Board of Directors. The procedure does not negate the need for an employee to fully comply with the policies of the component institution or any funding agency, such as the NIH or NSF, which may have its own conflict of interest regulations, or to comply with other state or federal law that applies to these or related issues.

Scope of Procedure and Definition of Conflicts of Interest

 Conflicts of interest may arise when an employee participates in the business of, or has a financial interest in, a company that conducts business with a component institution in the area of the faculty members' responsibilities. This may happen in corporate sponsorship for research and in technology transfer. This procedure addresses both of these circumstances through examination of possible conflicts between what may be best for the University and what may be best for the employee and the company, where a company desires to sponsor research or license intellectual property belonging to the Board.

 Conflicts of interest in the conduct of scientific research manifest themselves in two different, but related, ways: conflicts of interest and conflicts of commitment.

  • Conflicts of interest occur if the employee's significant financial interest in a sponsor or licensee causes bias in the design, conduct, or reporting of research or educational activities.
  • Conflicts of commitment arise when an employee's activities on behalf of such a sponsor or licensee company detract from the employee's teaching, research, clinical, or administrative duties.

Either of these conflicts may lead to, or be accompanied by, the inappropriate transfer of state resources or assets to the sponsor or licensee company for its exclusive benefit. For example, a faculty member may hire an institutional employee to provide services to a licensee company, may operate a campus laboratory as though it were the company's laboratory, operate a business from a campus office, utilize the work of a graduate student for the sole benefit of the company, or assign University inventions to the company.

 Merely owning an equity interest or participating in the business of a sponsor or licensee introduces only a potential for conflicts of interest. These procedures are designed to keep a potential conflict of interest from developing into an actual conflict of interest.

Managing Potential Conflicts of Interest

 The Texas Legislature provides a legal mechanism for addressing potential conflicts of interest that may arise when a University employee involved in the development or creation of intellectual property acquires equity in, or serves as a board member, officer, or key employee of, a company that sponsors the employee's research or licenses the intellectual property. In exchange for permission to be involved with a company in this way, and if such involvement is permitted by the employee's component institution, the employee and the institution must successfully manage the potential conflict of interest to reduce or eliminate the likelihood that actual conflicts will arise.

 The employee and institution should take the following steps to prevent actual conflicts of interest:

  • Disclose all potential conflicts of interest. Disclose both financial interests and participation in the sponsor or licensee company as an employee, officer or director as required by Texas Education Code Section 51.912 and the Regents' Rules and Regulations, Rule 90103: Equity Interests and Series 90104: Business Participation.
  • Identify factors that may mitigate the likelihood of actual conflicts of interest. For instance, whether a sponsor or licensee is publicly or privately held can affect the employee's status as a "key" employee. Also, a significant difference between the research emphasis of the sponsor or licensee and that of the employee may reduce the likelihood of actual conflicts of interest.
  • Implement effective management strategies to minimize development of actual conflicts of interest.

    -- Assign independent departmental personnel to monitor the employee's research activities.

    -- Require administrative review and approval of the employee's research projects that are subject to potential conflicts of interest.

    -- Require modification of research plans or transfer portions of research to independent researchers, if necessary, to avoid actual conflicts of interest.

    -- Consider divestiture or withdrawal from conflicted activity, if necessary, to avoid actual conflicts of interest where management appears unlikely to succeed.

  • Carefully review sponsorship and license terms. Be aware of indications that the arrangement may not be an arm's length transaction. Look for the following:

    -- grants of an equity interest to an employee that provide disproportionate compensation: (a) relative to the standard share of royalties a faculty member might receive for technology licensed to an unrelated company, or (b) relative to the services provided;

    -- licensing of inventions covering basic research that may cause the licensee to compete with the institution for grant funding;

    -- the present or near-term capacity to perform the essential functions outlined in the company's business plan;

    -- contracts-back to the institution of development work, which suggests that the technology could not have been licensed to a company in an arm's length transaction (exception: unique facilities).

Failure to Manage Potential Conflicts of Interest

 If attempts to manage potential conflicts of interest fail and actual conflicts develop (if there is actual bias in the design or reporting of research, derogation of employment duties, or transfer to a sponsor or licensee of state resources for the company's exclusive benefit):

  • The employee must disclose actual conflicts in all oral presentations and publications resulting from the conflicted research.
  • The employee must divest significant financial interests and/or sever the relationship with the sponsor or licensee, or withdraw from conflicted institutional activity.
  • The employee will be subject to appropriate internal disciplinary action.
  • The employee may be subject to applicable civil and criminal liability.

Duties and Obligations of Employees Serving on Boards of Directors

 Before you agree to be a company's director, you should understand your duties and obligations. By fulfilling them in good faith, you can avoid conflicts of interest and possible personal liability for company difficulties related to actions you take as a board member. Before you accept a board positions, be sure you understand what will be expected of you. Directors owe a fiduciary duty to their company. This fiduciary duty includes a duty of loyalty to the company and a duty to act with care in carrying out responsibilities.

  • Duty of Loyalty - What is the duty of loyalty to the company? It means that you must set aside your personal interests and make company decisions on the basis of what's best for the company, not what's best for you. The company is trusting you to do this. In practice, this means you must recognize when your and the company's interest are in conflict, advise the other directors of the conflict and abstain from voting on the matter. For example, you cannot vote on whether your company enters into a contract with you or between the company and another entity in which you have a material interest or position of responsibility. Also, you must not take advantage of an opportunity that belongs to the company by exploiting it for yourself. Finally, you must never compete with the company. For example, you must not take business or customers away from the company or take its trade secrets or other confidential information.
  • Duty of Care - The duty of care means that you have to make your decisions only after you have done what a reasonable and prudent person in the same or similar circumstances would do. What does a reasonable and prudent director do?

    -- attends meetings

    -- actively participates by reviewing relevant reports and other materials, asking questions and investigating if unsatisfied with others' answers

    -- consults professional advisors when necessary

    -- understands any relevant laws, regulations, and company rules

    If you perform these duties and make your decisions based on your good faith judgment about what is best for the company, the courts will not hold you liable if it turns out that your judgment was in error. In summary, keep your company's interests before your own, make decisions in good faith, that is, fully informed, and with due consideration for the impact of the decision on the company, and you will likely avoid personal liability for the results of the actions you take as a director.

Approval Process for Plan to Manage Potential Conflicts of Interest

 Texas Education Code Section 51.912 requires that the Board approve an employee's business participation in a licensee company. The Regents' Rules and Regulations, Rule 90103: Equity Interests and Rule 90104: Business Participation delegates this authority to each component institution President and requires compliance with these procedures, which requires the appropriate Executive Vice Chancellor approve the employee's holding equity or participating in the business of a licensee. To assure that appropriate steps are taken in each case to minimize the likelihood of conflicts of interest, review and approval by the Office of General Counsel of the institutional plan to manage conflicts is required prior to approval by the Executive Vice Chancellor in accordance with the following procedures:

  • Approval and execution of the transaction document. Any agreement that raises potential conflicts should be approved and executed in advance, in accordance with the procedures that apply to all sponsorship, license, and option agreements, subject to the additional requirement that the Office of General Counsel and Executive Vice Chancellor approve the institution's plan to manage the potential conflicts of interest. If the institution's management plan is rejected, the agreement will be cancelled until such time as a revised plan has been approved.
  • Employee Certification. Employees must indicate to their institution's Chief Administrative Office by a written letter:

    -- that they have read and understood this procedure and the institutional plan;

    -- that they have disclosed and will continue to disclose their financial interests and business participation, as required by law;

    -- whether any mitigating factors apply; and

    -- the steps they will take to reduce or eliminate the likelihood of actual conflicts of interest.

  • Institutional Certification. The Chief Administrative Officer of the employee's institution must indicate to the appropriate Executive Vice Chancellor by a written letter:

    -- the component institution's and the employee's names;

    -- basic details of the associated transaction, if any;

    -- whether the associated agreement contains standard liability safeguards (e.g. warranties and indemnifications);

    -- any previous related institution transactions;

    -- all relevant dates;

    -- a clear and concise summary of those aspects of the related transaction that raise potential conflicts of interest (i.e. details of equity and/or business participation in a company by a faculty member or the Board);

    -- mitigating factors, if any; and

    -- the steps the institution will take to reduce or eliminate the likelihood of actual conflicts of interest.

  • Approval of Conflict Management Plan. Upon the review and approval of the Office of General Counsel and receipt of the employee's and institution's certification letters, the appropriate Executive Vice Chancellor will approve the plan to manage potential conflicts of interest.
  • Annual Disclosure. The employee and institution must disclose potential conflicts of interest, both financial interests and participation in the sponsor or licensee company as an employee, officer, or director, in accordance with all applicable federal and state laws, and the Regents' Rules and Regulations.

Submitting a Conflict of Interest Management Plan to UT System for Approval

 Texas Education Code Section 51.912(a) requires that the Board approve an employee's business participation in a licensee company or research sponsor. In the Regents' Rules and Regulations, Rule 90103: Equity Interests and Rule 90104: Business Participation, the Board delegates this authority to each component institution President and requires compliance with the Procedure for Obtaining Approval of Plan to Manage Conflict of Interest.

 Generally, sponsorship and license agreements, even ones that raise conflict issues, do not have to be submitted to the Office of Academic Affairs or the Office of Health Affairs Office for approval. Pursuant to the Regents' Rules and Regulations, these agreement are reviewed by the Office of General Counsel and signed by the Chief Administrative Officer or designee at the institution. However, final approval of agreements that raise conflict of interest issues is contingent on approval of the plan to manage the conflict of interest. Keep the original signed copies of the agreement at your office until approval of your plan to manage the conflict of interest has been received from the appropriate Executive Vice Chancellor.

 Procedure

  • Read the Procedure for Obtaining Approval of Plan to Manage Conflict of Interest
  • Develop a plan for managing the conflict of interest, which should include the following information:

    -- A brief outline of the terms of sponsorship or the "deal" in the license agreement

    -- Name of the employee(s) (including department and title), the facts that raise the conflict of interest issues, whether the employee currently holds equity in the company or will be holding equity in the future, and whether the employee currently serves or will serve on the company Board of Directors, Scientific Advisory Board, etc.

    -- A description of the institution's plan to manage the potential conflict of interest to reduce or eliminate the likelihood that actual conflicts will arise--address each point outlined in Managing Potential Conflicts of Interest above

    -- A description of the steps taken and an explanation of the basis for any conclusion that management appears unlikely to succeed--see Failure to Manage Potential Conflicts of Interest above

    -- A request for approval

  • Prepare a letter from your President to the appropriate Executive Vice Chancellor requesting that your attached plan to manage a conflict of interest be reviewed and approved
  • The Office of Academic Affairs or the Office of Health Affairs will notify you when your management plan has been approved.
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