Ban on Officers Serving on Boards Expands
The absolute bar on such service is now expanded to cover all flag officers — pay grades O-7 through O-10 — instead of being limited to pay grades O-9 and O-10.
This new policy also provides an occasion to revisit ethics rules related to service on boards, and examine how those rules have been applied in recent cases. Military officers and corporate leadership covered by the department’s ethics rules should understand these restrictions before offering or accepting any board position.
A review of these restrictions is especially important in light of recent ethics interpretations that have deemed improper leadership of non-profit military auxiliary associations by department personnel under governing ethics standards, even where such leadership roles have been fulfilled by base commanders.
The under secretary of defense for personnel and readiness issued a memorandum Nov. 30 recognizing four categories of personnel subject to the bar on outside service: regular component and reserve component officers in grades O-9 and O-10; regular component officers at the O-7 and O-8 levels; reserve component officers at the O-7 and O-8 levels; regular component officers, O-6 and below; and regular component E-9 enlisted personnel serving in a leadership position that spans an entire installation, such as base commander or base sergeant major.
The purpose of the expansion to include O-7 and O-8 personnel is “to avoid any suggestion of impropriety that a military leader’s participation in the management of certain outside businesses suggests governmental endorsement or sanction of the business.”
This memorandum also defines companies that “do business” with the department as those named on the annual $25,000 list of entities that receive more than $25,000 in Defense Department contracts or grants. This list includes traditional defense contractors, colleges, universities, think tanks and non-profits that receive grants or contracts. The memorandum identifies companies that “focus their business principally on military personnel” to include insurance companies, financial planning companies and credit unions or banks whose primary clientele are military members.
The bar on the first category — regular and reserve component officers at the O-9 and O-10 levels — is absolute: no service on corporate boards that do business with the department or focus their business principally on military personnel.
Under the second, new category O-7 and O-8 grade officers in the regular component are also barred from service on a corporate board if the business is with the Defense Department or is catering to military personnel.
The third category — reserve component officers at the O-7 and O-8 who serve over 179 days of the preceding 365 consecutive days on active duty — are also barred from outside service. Reserve O-7 and O-8 officers who have not served 179 days of the preceding 365 on active duty are not prohibited.
Lastly, regular component officers at O-6 and below, as well as regular component enlisted personnel at E-9 who have an installation-wide leadership role, are barred from outside service absent an ethics determination by an appropriate ethics official that there is no “appearance of implied governmental endorsement or sanction of the commercial activity by the member’s board service.”
To summarize, all active duty O-7s through O-10s, reserve O-9s through O-10s, and reserve O-7s and O-8s who serve a substantial portion of the year on active duty cannot serve on an outside board of directors, which goes also for any officer or E-9 with installation-wide leadership responsibility, absent an ethics determination.
This prohibition on board of directors membership is similar to DoD 5500.07-R, Joint Ethics Regulation, which states that a “DoD employee may not serve in a personal capacity as an officer, member of the board of directors, or in any other similar position in any non-federal entity offered because of their DoD assignment or position.”
Under the regulation, a non-federal entity is defined as “a self-sustaining organization . . . that is not an agency or instrumentality of the federal government. Membership of these organizations consists of individuals acting exclusively outside the scope of any official capacity as officers, employees, or agents of the federal government.”
Judge advocates also rely on both the personnel memorandum and the Joint Ethics Regulation in opinions that bar senior military leadership of non-profit military auxiliaries. For example, the command judge advocate at Naval Base San Diego issued an ethics opinion to its commanding officer and executive officer recommending against their service as president and vice-president, respectively, of the Surface Navy Association’s San Diego chapter. The association is a non-profit group founded to “promote greater coordination and communication among those in the military, business and academic communities who share a common interest in Naval Surface Warfare and to support the activities of Surface Naval Forces.”
Traditionally, the presidency and vice presidency of the chapter had been held by the commanding officer and executive officer. Despite this tradition and the association’s “close military nexus,” the judge advocate found that the leadership ran afoul of the relevant ethics rules.
According to the judge advocate’s opinion, because the appointment of the officers to the association leadership roles occurred simultaneously with their ascent to these positions, the appointment was “because of their DoD assignment or position” and thus violated the Joint Ethics Regulation. Furthermore, the judge advocate found that the association was a company that did business with the Defense Department and focused its business primarily on military personnel. Accordingly, leadership of the chapter by a flag officer would violate the department’s personnel office memorandum.
The judge advocate’s opinion also pointed out that leadership of the chapter could violate ethics rules against devoting work hour time to non-military business and the misuse of military resources such as support staff or email distribution lists on behalf of a non-military entity.
The upshot here is clear: The expanded rules provide but one example of the Defense Department hard at work to avoid an appearance of impropriety. This, in turn, has led to rules and interpretations that may impact and alter traditional functions and the facilitation of forums, like the Surface Navy Association, that historically have enhanced dialogue between military officers and the defense industry.
Jim D’Agostino is a shareholder and Ryan Bradel is an associate in Greenberg Traurig LLP’s government contracts practice group. The views expressed are solely those of the authors.