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Ethical Issues Forum


Cruising for an Ethical Bruising?

Editor's Note: This article is part of a series written by members of the CAS Committee on Professionalism Education (COPE) and the Actuarial Board of Counseling and Discipline (ABCD). The opinions expressed by readers and authors are for discussion purposes only and should not be used to prejudge the disposition of any actual case or modify published professional standards as they may apply in real-life situations.

Joe Fellows, FCAS, MAAA works for an international actuarial consulting firm. Although Joe works with several clients throughout the year, approximately 80 percent of Joe's time is spent consulting with the Acme Widget Company (AWC). AWC has been a longstanding and loyal client of the firm and Joe Fellows. The fees paid to his firm for work performed on behalf of AWC in large part dictate the amount of bonus Joe will receive at the end of the year. Joe estimates that, on an annual basis, AWC fees have accounted for approximately $20,000 of his personal bonus. Les Risk, the president of AWC, is Joe's main contact. Mr. Risk's wife, Patty, sits on the board of directors of the Bedford Hospital Authority. The Bedford Hospital Authority is a prospect of Joe's and is expected to send out an RFP for actuarial consulting services next month (with fees expected to be in the six-figure range).

Joe's company decided that they would like to express their appreciation to their largest clients by extending to each of them, and their significant others, an invitation to play golf at an exclusive PGA golf course. The golf outing is followed by a lavish dinner complete with gifts for each of the attendees and their spouses. The cost for the golf, dinner, and gifts is approximately $700 per client who attends the event. AWC is one of the clients designated to receive an invitation. Unfortunately, Les Risk and his wife do not like to play golf, and they have a prior engagement for the dinner portion of the evening, so they are unable to attend any part of the outing.

Joe feels that the AWC deserves some recognition for their contribution to the success of his actuarial consulting firm. He would also like to make a favorable impression on Patty Risk. Joe approaches his boss to ask for permission to send Les and his wife on a two-day cruise costing approximately $2,000. Joe makes the following statement to his boss: "In addition to showing our appreciation, the cruise is a great opportunity for Les to tell Patty that we are the best choice for the Bedford work." After some discussion, Joe's boss declines the request citing budgetary concerns and that the golf outing will far exceed the original cost estimate and that the $2,000 amount is considerably more than the $700 per client to be spent for golf and dinner. Despite his boss's decision, Joe decides to send Les and his spouse on the cruise anyway and pays for the cost of the trip out of his own pocket. His boss is unaware of his decision. Has Joe violated any professional standards?

No

There is no professional standard that specifically prohibits giving gifts to clients. Joe is not expecting any specific benefit from AWC as a result of his gift but is only expressing his appreciation for the past opportunity to work together. Further, Joe is simply making sure that Les is not neglected as a result of his scheduling conflict or his lack of interest in golf. While this may be a bit more expensive than normal, it is common practice for consulting firms to entertain their clients as a sign of appreciation and relationship building. Joe would pay for the cruise regardless of Patty's work affiliation and is not directly asking for any special consideration. While Patty will have to decide whether she can accept the gift, Joe has not violated any professional standard.

Yes

The special treatment that Joe is giving to Les and his wife casts a shadow of suspicion on Joe's gift. While Joe may not be explicitly asking for special consideration on the Bedford Hospital Authority RFP, the proximity to the RFP and the size of the gift could be interpreted as inappropriate. Under Precept 1 of the CAS Code of Professional Conduct, Joe is required "to act honestly, with integrity and competence, and in a manner to fulfill the profession's responsibility to the public and to uphold the reputation of the actuarial profession." Joe is using his client relationship with AWC as a backdoor way of asking Les to intercede so that Joe gains an unfair advantage with the Bedford RFP. Joe has violated Precept 1.