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A lack of concern for apparent conflicts of interest is causing a collective migraine for Republican leaders on Capitol Hill. But Federal Trade Commission members are finding that scrupulous avoidance of impropriety can cause headaches, too. In an effort to avoid the ethical pitfalls created when Washington professionals cycle between government service and private sector jobs, FTC Chairman Deborah Majoras has diligently recused herself from major proceedings involving clients of her former law firm Jones Day, where her husband, John Majoras, still works. There is unwanted fallout. Because Jones Day is one of the most prominent antitrust firms, she is likely to recuse frequently. Coupled with recusals by fellow commissioners and an open FTC seat, her situation has set up an odd predicament in which votes on some major FTC proceedings are eligible to be cast from only two of the FTC’s five seats. That was the case last week when the FTC by a 2-0 vote approved Procter & Gamble Co.’s purchase of Gillette Co. It’s unclear whether Majoras must recuse herself from as many proceedings as she has. Because the rules are hazy, she appears to be playing it safe. “It might be better if there were some agreed-upon standard,” says Wayne State University Law School Professor Stephen Calkins, himself a former FTC general counsel. “Allowing people to decide for themselves could be difficult. That’s inevitably going to lead to criticism that you are either too lax or too critical.” Chairman Majoras declined to comment for this story. The complications at the FTC arise as congressional Republicans were rocked last week by investigations of possible insider trading by Senate Majority Leader Bill Frist of Tennessee and the indictment of now-former House Majority Leader Tom DeLay of Texas. The likelihood of two-vote decisions forced Majoras to change the agencies’ definition of the quorum required to allow a vote to go forward. Typically, three commissioners, a majority of the five-person panel, is needed for a quorum. Under a change the commissioners approved Sept. 2, quorum will now be considered a majority of the sitting commissioners “not recused from participating.” Conceivably, that means even a single commissioner could constitute a majority if every other member is recused on a particular proceeding. The rule change, unanimously approved without a notice of proposed rule-making, took effect Sept. 8. The first decision under the new rule was announced Friday when two commissioners approved Procter & Gamble’s $57 billion purchase of Gillette, with some divestitures required. In that decision Majoras and Democratic Commissioner Pamela Jones Harbour were recused. The two voting commissioners, Republican Thomas Leary and Democrat Jon Leibowitz agreed on how to proceed with the deal. But the possibility of a split between the two commissioners reveals how voting with a diminished lineup hampers the FTC’s ability to carry out work optimally. Had the pair voted to block the deal, the merger would nevertheless have been cleared with a single vote in favor because no acquisition can be blocked without a majority of the voting members. The problem of manpower at the FTC is caused by a combination of Washington’s “revolving door” among government and private sector jobs, politics and the frequent complications power couples cause. The FTC has been short one commissioner since Orson Swindle stepped down at the end of June. Majoras has been scrupulous in efforts to avoid the appearance of impropriety. In addition to the Gillette sale, she has recused herself from Valero Corp.’s purchases of both Kaneb and Premcor earlier this year. She has also refrained from involvement in Johnson & Johnson’s pending purchase of Guidant Corp. Jones Day has done work for Valero and P&G, as well as for Abbott Laboratories, which has a stake in the outcome of the J&J/Guidant deal. She has even avoided participation in difficult cases where the FTC’s Office of the General Counsel has suggested that she could vote on matters if she wanted. Majoras’ recusals complicate the problem because she is the agency’s chairman. Former FTC officials say the chairman’s power lies in the ability to steer matters through the process and to influence staff input. When the chairman is recused, they warn, some matters could founder. So far, however, no issues have bogged down, FTC lawyers say. In fact, they have “become accustomed to working without the chairman” one agency attorney adds. In most cases, the chairman must be recused from cases represented by a former law firm throughout the first year in office. But because her husband is also an equity partner in Jones Day, possible conflicts of interest will linger past her first anniversary in the job unless John Majoras drops his equity status in the firm. The lingering ties to Jones Day could affect deals in other ways. Antitrust lawyers say third parties who want to build roadblocks for a merger could hire Jones Day to trigger a Majoras recusal. Until the empty Republican seat is filled, any Majoras recusal would make it more likely that commission Democrats could block a matter. The potential for gaming the system to upend mergers “is just too depressing for words,” Wayne State’s Calkins says. Harbour’s recent two recusals are based on her marriage. Her husband is an intellectual property lawyer who does work for Johnson & Johnson. The company’s interest in the outcome of the P&G/Gillette deal was the basis for her recusal in that matter, and she also does not participate in any matter where J&J is a party. Copyright �2005 TDD, LLC. All rights reserved.

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