Date: 08/14/2009

Business Ethics


Votes: View--> Action Taken:

01:25 PM -- Business Ethics

Senator Carroll called the meeting back to order

01:31 PM

The committee watched a video of a channel 7 investigation into Pinnacol.

01:38 PM -- Dr. Kevin O'Brien, Daniels College of Business at the University of Denver

Professor O'Brien gave a summary of his background and described some best practices for companies (Attachment I). He discussed the federal Sarbannes-Oxley requirement for companies to have adopted both a code of ethics and provisions for whistleblowers. His presentation included sample codes of ethics and whistleblower provisions. He presented the federal Internal Rrevenue Service regulations for executive compensation, noting that some expenses like athletic skyboxes are not completely deductible as legitimate business expenses. He also noted that Pinnacol would not be subject to an audit by the IRS, as a tax exempt organization.

Attachment I.pdf

01:54 PM

Sen. Harvey asked whether certain expenditures were unethical, even if not illegal. He specifically noted the practice of the owner of Tokyo Joe's in inviting his best employees and their families to join him at his house in Maui each year. Dr. O'Brien responded that he could not comment on the ethics, but only bona fide business expenses could be deducted under the tax code, while special fringe benefits given to employees should be considered taxable compensation to the employee receiving the benefit.

02:05 PM

Ken Ross asked whether the professor had reviewed specific documents of Pinnacol, including the code of ethics. Dr. O'Brien replied that he had reviewed Pinnacol's annual report as well as documents on Pinnacol's and the state's website, noting that he did not find Pinnacol's code of ethics online. Mr. Ross noted that the Sarbannes-Oxley law did not apply to Pinnacol ,but he also offered to provide his company's code of ethics. Senator Mitchell asked Dr. O'Brien if he had been asked to review any of Pinnacol's information prior to the committee.

02:12 PM

Rep. Pace asked how the state could provide for more accountability, since Pinnacol board members seemed to be accountable only to policyholders (customers) after being appointed by the Governor. Dr. O'Brien noted that one option is to make it a private entity. Another is to limit the scope of Pinnacol's activities to the residual market, and prevent it from competing with other companies. Dr. Parry and Senator Carroll asked more detailed questions about accountability. Dr. O'Brien replied that better disclosure of executive compensation is a good first step. He also noted the importance of the Open Records Act in seeking information for any political subdivision of the state.

02:19 PM

Rep. Gerou asked about a scenario regarding professional ethics for a legislator. Mr. Simon asked about the 2003 State Auditor's Office report on executive compensation. Senator Mitchell and Mr. Ross asked whether Dr. O'Brien was aware that both the open records and open meetings laws apply to Pinnacol.