Improving Prospects for Service in the Second Obama Term

Robert Rizzi and Benjamin Hendricks

Corporate Counsel

11-13-2012

This is the last in a series of columns from attorneys at O'Melveny & Myers LLP, examining the intersections of the political and legal worlds in and around the 2012 election.

After more than a million television commercials, a parade of debates and interviews, and over 100 million votes cast, we now know that President Barack Obama will be keeping his job for the next four years. However, many of those who work for him will be leaving. Big names, like Secretary of State Hillary Clinton and Secretary of Treasury Timothy Geithner, have expressed their intentions to retire. Hundreds of other executive officers will likely follow their lead, opening up a new round of appointments and confirmations for the president's second term.

These new appointees face a difficult process that is nasty and brutish, and rarely if ever short. Based upon direct experience advising individuals through the nomination and confirmation process in the first Obama term, this new generation of Obama appointees will likely face the following issues:

1. Nannies, Chauffeurs, and the IRS: Almost every administration has a nominee fall by the wayside because of tax problems. Nominees most commonly fail to pay social security and other taxes for household workers. Others, like former Senator Tom Daschle, forget to pay taxes on the value of business perks, like the use of private planes or chauffeur services. Secretary Geithner also faced questions over unpaid self-employment taxes. In President Obama's first term, the Office of White House Counsel focused like a laser on tax issues, reviewing years of tax returns and disqualifying individuals for relatively common infractions. It is safe to assume that this draconian emphasis on tax compliance will continue in the president's second term. Any individual with ambitions to serve in government, especially in positions subject to the oversight of the Senate Finance Committee, should immediately review any possible tax issues with his or her accountant and tax attorney. To the extent possible, any issues should be rectified before the individual is nominated, and especially before he or she becomes a headline in the newspapers, the subject of a Senate hearing, or a punchline on late night TV.

2. Avoiding the Appearance of Conflicts—Resignation and Divestiture: Many people who played an active role in the campaign (including through fundraising) may reasonably expect to be in line for positions in the second Obama administration. Many of these individuals, however, have complex financial holdings, including investments in private equity and hedge funds (not to mention Swiss bank accounts and Cayman Islands companies!) that may conflict with government ethics regulations. Mortgages or other obligations owed to banks, especially banks that were "too big to fail," have also become hurdles in the modern political arena. As dozens of appointees in the first Obama term can attest, prospective ambassadors and agency officials will confront comprehensive and often illogical government ethics regulations, with particular focus on financial conflicts of interest—real or perceived. These laws often require extensive (and expensive) disclosure of financial ties, recusal from matters that may impact their financial interests, and divestiture of financial investments, including those of spouses and dependent children. Negotiating the necessary steps to avoid conflicts of interest, in the form of a so-called "ethics agreement," may require the assistance of private counsel to help the nominee understand the nature of the commitments and to minimize unnecessary damage to his or her portfolio.

3. Beware of Twitter and other "Paper Trails": The Obama administration requires prospective political appointees to turn over all relevant emails, to disclose Twitter and other social media handles, to report blog postings, to give the White House access to Facebook pages, and to disclose more traditional publications, such as law review articles and speeches. Involvement in litigation, such as securities class actions or derivative cases, can also form a negative "paper trail." The White House wants to catch and respond to potentially embarrassing communications and other searchable materials before a reporter or Senate committee staffer gets ahold of them. Prospective appointees should be cautious of any public communications and flag problematic communications early in the nomination process.

4. Going Through (and Around) Senate Confirmation: The Senate has not been kind to many Obama appointees. During the 112th Congress, the Senate only confirmed 57 percent of the names sent to Capitol Hill. Individual Senators often wielded their unusual power over confirmations by unilaterally—and often anonymously—placing holds on nominees. Things may only get worse during the President's second term. After the 2012 election, Republicans now hold 45 seats in the Senate, retaining sufficient votes to filibuster any appointee's confirmation. During the first term, President Obama countered the Senate's reluctance to confirm nominees by pushing the limits of his recess appointment power under the Constitution, Art. 2 § 2. There is little doubt that the White House will continue to deem recess appointments necessary as appointees are used as political footballs in larger battles between the two branches of government. Recess appointments, however, only last until the end of the Senate's next session, at which time the president must submit (or resubmit) a nominee. Recess appointees may also be required to forgo pay under certain circumstances. See 5 U.S.C. § 5503(a). Thus, even the most qualified prospective nominees should be prepared for a long, frustrating, and possibly fruitless fight in the Senate.

Serving as a political appointee can be a hugely rewarding experience, but getting into the position is often not. As President Obama looks to rejuvenate his staff for a second term, those hoping to be appointed should start preparing now by dealing with possible tax problems, preparing for the loss of income from investments and jobs, flagging problematic communications, and bracing for a drawn-out Senate confirmation. Taking these steps is essential for a (relatively) smooth appointment and confirmation—something for which the prospective nominee, and the president, will be grateful.

Robert Rizzi is a partner in O'Melveny & Myers LLP's Washington D.C. and New York offices and head of the tax practice. For the past 10 years, his practice also has included advising senior executive branch appointees on "vetting" and related matters. Benjamin Hendricks is a litigation associate in O'Melveny's Washington D.C. office.

See also: “Navigating the Nomination Process for Political Appointees,” CorpCounsel, September 2012.