"A child's learning is the function more of the characteristics of his classmates than those of the teacher." James Coleman, 1972

Wednesday, August 11, 2010

What Shelton's Waiver Tells Us About the Gates Foundation and DOE

Just one day after his inauguration, President Obama issued an executive order outlining his Ethics Pledge. The Ethics Pledge is designed to establish baseline expectations about the behavior of top officials. It is also designed as a way to ensure the public trust and deter both real and perceived conflicts of interest.

The executive order banned lobbyists from entering government and put restrictions on all other individuals entering government. During his campaign, then-Senator Obama was clear about closing the “revolving door on former employers”. Section 1, paragraph two of the Ethics Pledge states:

2. Revolving Door Ban – All Appointees Entering Government – I will not for a period of 2 years from the date of my appointment participate in any particular matter involving specific parties that is directly and substantially related to my former employer or former clients, including regulations and contracts.

As one DOJ Ethics Official put it:

A major purpose behind this restriction [paragraph 2] is to ensure that political appointees not leave the public with the appearance that any official actions they take are influenced by their former employers rather than by the interests of the United States.

Note how the DOJ Ethics Official says the purpose is to prevent even the appearance of a former employer influencing an appointee.

But there are always exceptions to the rules, and waivers can be granted to permit appointees to have contact with their former employer. Section 3 notes a waiver may be granted if it is decided:

(i) that the literal application of the restriction is inconsistent with the purpose of the restriction, or (ii) that it is in the public interest to grant the waiver.


Section 3(b) The public interest shale include, but not be limited to, exigent circumstances relating to national security or to the economy.

A recent USOGE report states:

Finally, ten agencies and the White House had granted a total of 22 so-called “reverse revolving door” waivers as of December 31, 2009. These waivers allow appointees to participate in matters in which their former employers or clients had an interest. In all cases, agencies and the White House deemed these waivers essential to the appointees’ ability to carry out their duties.

I decided to look at the majority of these waivers and see if there were any noteworthy patterns.  The so-called “reverse revolving door” waivers for Executive Agency appointees (17 in total) are outlined below and categorized along with similar cases. I established the following categories based on my review:

1. Tangential to the Appointed Position

2. No Money Involved

3. Former Employer is a Governmental/International Organization

4. National/Economic Security Purposes

5. Gates Foundation

I conclude with a discussion about the final category, the Gates Foundation, particularly the waiver for James H. Shelton III, Assistant Secretary for Education and Improvement, and, to a lesser extent, Margot Rogers, the Secretary’s Chief of Staff (Note: Rogers has since left her post and Joanne Weiss, former COO of NSVF and head of the Race to the Top, is now Duncan's Chief of Staff). I have focused on these two appointees because they hold important positions; their waivers allow for the most extensive contact with their former employer; and their background in philanthropy raises some interesting questions.

While I am not aware of any other analysis of waivers for Executive Agency appointees, various media outlets have picked up on the Gates Foundation’s significant involvement in federal education policy: Michelle McNeil of EdWeek noted multiple Gates employees filling the Department of Education; Sam Dillon of the New York Times reported on the foundation’s role in helping some states write their Race to the Top application, including complaints the foundation was trying to hand-pick eventual winners; Dana Goldstein of The American Prospect wrote about the i3 fund and how much of the federal agenda is “borrowed” from the philanthropic community; Libby Quaid and Donna Blankinship of the Associated Press began one article with, “The real secretary of education, the joke goes, is Bill Gates,” and noted the foundation’s growing influence on education policy; Erik W. Robelen and Michele McNeil noted in EdWeek that some observers suggest the Education Department and philanthropic organizations are “collaborating to an extend that may well be unprecedented”; Clay Holtzman of The Puget Sound Business Journal noted the similarities between the foundation’s agenda and the federal Department of Education’s agenda; and a recent Washington Post headline read, "Gates Foundation playing pivotal role in changes for education system”.

Below is my analysis.

1. Tangential to the Appointed Position

Eric Holder, Attorney General [Waiver]

Holder was granted a limited waiver of the restrictions of paragraph 2 allowing him to participate in the United States v. Theodore F. Stevens case. Holder needed the waiver to participate in the investigation because his former law firm, Covington & Burling, represented one of the attorneys under review. However, the firm did not take on this case until after Holder’s departure. The Stevens case was certainly not insignificant considering the charges, but it was hardly a central part of Holder’s position. The AG’s limited waiver applied to only a small sliver of the appointee’s role.

Lanny A. Breuer, Assistant Attorney General in the Department of Justice [Waiver]

Breuer was granted a limited waiver for the same reason as Holder and Ogden. His former law firm, Covington and Burling, represented one of the attorneys under investigation in the Steven’s case, but Breuer was not involved in the case.

David Ogden, Deputy Attorney General of the United States [Waiver]

Granted a limited waiver for the same reason as Breuer and Holder. Ogden’s former firm, WilmerHale, represented one of the Department of Justice attorneys under investigation, and his wife, Ann Harkavy, is also a partner at WilmerHale. Ogden’s waiver, however, says Harkavy will not receive a share of any settlement resulting from the Steven’s case. Additionally, WilmerHale did not begin representing the attorney in question until after Ogden had left the firm.

These three appointees were granted limited waivers allowing them to participate in one specific (albeit important) case. The United States v. Theodore F. Stevens case, however, is a very small part of their new positions.

2. No Money Involved

Aaron S. Williams, Peace Corps. Director [Waiver]

Before his appointment as Peace Corps. Director, Williams served on the National Peace Corps Association Board of Directors. His limited waiver allows him to communicate with and speak at Peace Corps events, but the waiver also states:

Under terms negotiated with and agreed to by the Office of White House Counsel, this waiver does not extend to your participation, during the applicable two-year period, in any present or future Peace Corps cooperative agreement, contract, or other funding mechanisms between Peace Corps and NPCA, nor to any other particular matters that would directly and predictably affect NPCA’s financial interests.


That NPCA is presently the only nationwide group representing RPCVs significantly reduces the likelihood of perceived partiality at the expense of similarly situated groups. Moreover, most particular matters involving parties relating to NPCA are not likely to involve highly controversial issues.

A clear barrier prevents Williams from participating in financial matters that would impact NPCA. Additionally, NPCA is the only group representing interested parties (former Peace Corp volunteers), and there is a lack of serious controversy in this area.

Charles F. Bolden, Jr., Administrator of National Aeronautics and Space Administration [Waiver]

Bolden previous served as a consultant to SAIC and was on the board of directors for GenCorp. His limited waiver states:

I authorize Mr. Bolden to participate only at the policy or program level in particular matters involving SAIC and/or GenCorp. This waiver is deemed applicable only in those limited circumstances when such a policy or program matter involves SAIC and/or GenCorp as a party and rises to the level of Administrator review. The authorization does not remove the bar on engaging in one-on-one meetings or communications with either entity as set forth in Executive Order 13490. This waiver does not authorize Mr. Bolden to participate in contracting matters, including contract determinations, involving SAIC or GenCorp as a party or to participate in those particular matters involving specific parties in which he participated as a consultant for SAIC or as a director for GenCorp.

Bolden’s limited waiver establishes clear boundaries for how he can be involved in matters related to SAIC and/or GenCorp. It is entirely reasonable – and beneficial – to allow for exceptions like this one so individuals with extensive knowledge about particular issues can serve in government. The ban on participating in contracting matters involving SAIC and/or GenCorp as a party and the ban on one-on-one communications prevent the appearance that Bolden could act in the interest SAIC and/or GenCorp.

Joseph Main, Assistant Secretary of Labor for Mine Safety and Health [Waiver]

Main was previously employed by the United Mine Workers of America (UMWA). He was granted a limited waiver to:

…facilitate Mr. Main’s meetings or communications with miners since he will not be first required to determine whether any miner participating in the meeting or communication is an authorized miner representative or local UMWA official who may be deemed to qualify as his ‘former employer’.

Without the waiver, Main would be prevented from communicating with any UMWA members. This would be detrimental to all parties involved. The waiver also stipulates:

This waiver is limited to enable Mr. Main to meet or communicate with any authorized miner representative or local official of the UMWA, either individually or in a group setting, concerning any matter relating to mine safety and health. In all other situations and respects, the restrictions of Section 1, paragraph 2 of the Order will apply. Specifically, Mr. Main will abide by these restrictions [paragraph 2] when the meetings or communications involve any: 1) pending litigation in judicial or administrative tribunals to which the UMWA or UMWA Career Centers is a party or represents a party; 2) grant determinations in which either the UMWA or UMWA Career Centers is an applicant; or 3) any particular matters involving specific parties in which Mr. Main’s previously participated as a consultant to the UMWA and UMWA Career Centers, including regulations and mandatory safety and health standards.

The limited waiver also notes it will “enable him to effectively carry out his duties as Assistant Secretary of Labor for Mine Safety and Health.” For the most part, Main’s waiver simply allows for more communication, and there are limits set on how his role in the Labor Department could directly impact UMWA.

Naomi Walker, Associate Deputy Secretary in the Department of Labor [Waiver]

Walker held numerous positions in the ALF-CIO prior to joining the Department of Labor. As Associate Deputy Secretary, Walker is responsible for outreach to and communication with labor organizations. Her limited waiver states:

It should be noted, however, that this position has no regulatory or enforcement responsibilities, nor does it have authority to award contracts or grants on behalf of the Department.


As stated earlier, this waiver is limited to enable Ms. Walker to have individual communications with the ALF-CIO on particular matters of general applicability as defined in Section 3(h) of the Order.

Walker is only permitted to have individual communications on particular matters of general applicability. Her waiver concludes:

In particular, she will abide by the restriction in Section 1.2 of the Order prohibiting, for a 2 year period from the date of her appointment, her participation in any particular matter involving specific parties that is directly and substantially related to the AFL-CIO, including regulations and contracts.

These restrictions prevent the appearance of a conflict of interest, and severely limit Walker’s communication with her former employer.

3. Former Employer is a Government/International Organization

Charles Collyns, Assistant Treasury Secretary for International Finance [Waiver]

Collyns worked at the IMF prior to his appointment to Assistant Treasury Secretary for International Finance. His waiver notes the IMF is not a private company but rather an international organization of which the United States is a member.

Carmen Lomellin, Permanent Representative to the Organization of American States [Waiver]

Lomellin previously worked for the Inter-American Commission of Women at the Organization of American States (OAS), an international organization with representatives from many countries. Her background with OAS gives her unique tools to “significantly advance U.S. interests within the organization and hemisphere.”

Stephen J. Rapp, Ambassador at Large for War Crimes Issues [Waiver]

Rapp previously served as the Independent Prosecutor of the Special Court for Sierra Leone and the United Nations. His waiver states:

Because the United Nations is an international organization consisting of many countries, including the United States, and the Sierra Leone court is a tribunal tasked with creating a forum for the trial of violations of international humanitarian law, the interests of these organizations are generally consistent with the interest of the United States. The United States provides significant funding to both the United Nations and the Sierra Leone Court and is the largest single contributor to both. Also, because neither organization is organized for the purpose of generating a monetary profit, there is no concern that you would take official action motivated to increase the revenues of either of these organizations.

The Designated Agency Ethics Official also noted the importance of Rapp’s appointment outweighs any concerns that a reasonable person may have. It is also important to note the United States was the primary funding source for both of Rapp’s previous employers.

4. National/Economic Security

Ashton Carter, Under Secretary of Defense for Acquisition, Technology, and Logistics [Waiver]

Carter provided Textron with strategic consulting advice. The only weapon system he provided specific advice to Textron was the Sensor Fuzed Weapon, which was last funded in 2007. The rest of his advice was more general in nature, but still related to the future of military technology, strategy, and weaponry.

The waiver states that a reasonable person may question his impartiality:

Furthermore, while a reasonable person with knowledge of the relevant facts may question your impartiality in matters relating to Textron, I have made a separate determination, pursuant to 5 C.F.R. § 2635.502, that the Government’s interest in your ability to participate in these matters, given the critical responsibilities associated with your position as DoD’s chief acquisition official, outweighs the concern that a reasonable person may question the integrity of DoD’s programs and operations.

Exigent circumstances relating to national security is one the reasons a waiver can be issued in the public interest.

Malcolm O’Neill, Assistant Secretary of the Army for Acquisition, Logistics & Technology [Wavier]

O’Neill worked for Lockheed Martin before being appointed Assistant Secretary of the Army for Acquisition, Logisitics & Technology. His experience in engineering, acquisition, and management are considered fundamental to the Army’s mission and it is in the public interest to have his advice. Additionally, the waver states:

This waiver does not permit your involvement in any particular matter which will have a direct, predictable, and substantial affect on Lockheed Martin’s financial ability, including its ability or willingness to continue paying your defined benefit plan benefits.

Although the waiver is quite permissive, there are still some restrictions on O’Neill’s involvement with his former employer.

Philip R. Reitinger, Deputy Undersecretary of National Protection & Program Directorate [Waiver]

Reitinger was formerly employed by Microsoft, Software Assurance Forum for Excellence in Code (SAFECode) and the Information Technology Information Sharing and Analysis Center (ITSAC). Both programs work with the US Government on issues of cybersecurity, and Reitinger’s experience is vital to these missions. The waiver also states:

Mr. Reitinger’s responsibilities will not include matters related to award of contracts to his former employer or others;

His role is mostly communication and coordination, not the awarding of grants or other transfer of funds. Director of Homeland Security Janet Napolitano also explained:

Despite a diligent search, no candidate has been identified who would not bring similar conflicts with him or her.

A reasonable person with relevant facts would be unlike to perceive a conflict of interest considering Reitinger is not distributing funds; all other eligible candidates had similar conflicts; and it is in the interest of national security to issue Reitinger a waiver.

Herbert M. Allison, Assistant Secretary of Financial Stability, Department of Treasury [Waiver]

Allison was President and CEO of Fannie Mae prior to his work in the Department of Treasury. He was appointed to the position by the Bush administration (and confirmed by the Senate) to run the TARP program.

Allison’s waiver notes his minimal financial ties to Fannie Mae (only a standard life insurance policy). Additionally, the fact that Allison headed Fannie Mae at the request of the United States Government removes some questions about partiality. It is certainly not a stretch to consider it a matter of national economic security and in the public interest to have someone with Allison’s background involved in important decisions related to the housing market.

5. Gates Foundation

Rajiv J Shaw, Under Secretary for Research, Education and Economics [Waiver]

Shaw worked for the Gates Foundation in a variety of roles before being appointed to Under Secretary for Research, Education and Economics at the USDA. A major part of Shaw’s work will involve the Global Food Security Initiative, a public-private partnership involving multiple agencies and non-governmental entities (including the Gates Foundation). Shaw’s waiver allows unlimited contact with the Gates Foundation, and makes only one stipulation: he is not permitted to be involved in any “grants or procurement contracts given by USDA to the Gates Foundation, or in any similar transactions that would result in a transfer of Federal funds to the Gates Foundation.”

Margot Rogers, Chief of Staff, Department of Education [Waiver]

Rogers served as Deputy Director of Education Programs at the Gates Foundation before becoming Secretary Duncan’s Chief of Staff. Her waiver states:

Margot Rogers shall not be restricted from participating in any particular matter involving specific parties that is directly and substantially related to her former employer, the Bill and Melinda Gates Foundation.

The waiver states it is in the public interest to appoint Rogers to the position, but no further explanation is given.

James H. Shelton, III, Assistant Deputy Secretary of Innovation and Improvement, Department of Education [Waiver]

Shelton worked at the Gates Foundation before being appointed to head the Office of Innovation and Improvement. His waiver is nearly identical to Rogers, but there are some subtle reasons Shelton’s waiver is of greater concern.

Shelton’s waiver is different than other appointees for a variety of reasons:

Philanthropy: Public, Private, or Public-Private?:

The Gates Foundation is a privately run non-profit organization, which puts it in a unique category. Much of the intent of the revolving door ban was to prevent appointees to use their new position to benefit their previous employer (generally for-profit companies). Given the Gates Foundation’s role as a philanthropic organization, they more closely resemble the U.N. or IMF than Lockheed Martin or Textron. Unlike the U.N. or IMF, the Gates Foundation is not an international organization with broad representation and is not funded (even partly) by the United States Government. Considering the Gates Foundation does not have a profit motive and is fantastically wealthy, it is unlikely a former Gates Foundation employee would use their new position to funnel money to their former employer. They could, however, show favoritism towards projects supported (either currently or in the future) by the Gates Foundation, a kind of mind meld that does not necessarily serve the best interest of the public. This is particularly relevant because the Office of Innovation and Improvement directs competitive grants instead of simply formula-driven funding streams.

Shared Funding:

Unlike some appointees with permission to contact their former employers (Williams, Bolden, Main, and Walker), Shelton overseas an office with a substantial budget and disperses grants to numerous outside organizations. While a transfer of funds from the Department of Education to the Gates Foundation is practically unthinkable, there are other ways Shelton’s unlimited contact with his former employer could impact the awarding of grants to third party applicants. For instance, the “Innovation Fund” (also known as i3) states eligible applicants must, “demonstrate that they have established partnerships with the private sector, which may include philanthropic organizations, and that the private sector will provide matching funds in order to bring results to scale.” Even Allan Golston, President of the Gates Foundation's United States Program, commented on the problematic partnership between philanthropic organizations and competitive grants. On requiring 20% in matching funds to be eligible for i3 funds, Golston told EdWeek:

[Such a match] “is unworkable in its demands of philanthropic organizations: It makes philanthropies de facto gatekeepers for the applicants by requiring the match at the time of application; it privileges those organizations that already have relationships with large foundations”

Golson’s remark that philanthropies are the “de facto gatekeepers for the applicants” holds particular weight considering his position at the Gates Foundation.

Another competitive grant program operated by the Office of Innovation and Improvement, a $50 million charter replication and expansion program, awards bonus points to applications with access to outside funding, including philanthropic organizations. It is highly likely that Gates-funded applications will apply for these funds, especially considering the foundation’s widespread support of charter schools and alternative teacher training programs.

Emerging Relationship:

The relationship between the Department of Education and philanthropy is rather immature. This stems partly from the relative youth of the Department of Education; partly from the recent emergence of new philanthropic organizations with a greater interest in education policy; and partly from the shift to competitive grant programs. Other agencies have issued limited waivers allowing departments to utilize some of the top minds in their respective fields, but clear restrictions establish a firewall between appointees and their former employer.

Ogden, Breuer, and Holder were granted waivers that applied only to one very small part of their new position. Shelton and a few others, namely O’Neill and Carter, are on the other end of the spectrum: their waivers pertain to a much bigger percentage of their work. Additionally, Shelton’s role at the Office of Innovation and Improvement is remarkably similar to his role at the Gates Foundation. As a March 17th, 2009 posting by Mike Petrilli on the Fordham Foundation’s blog points out, Shelton’s office was modeled after private philanthropies, including the Gates Foundation. Petrilli previously served as the Associate Assistant Deputy Secretary in the Office of Innovation and Improvement under President George W. Bush, and is on record claiming, “It is not unfair to say the Gates Foundation’s agenda has become the country’s agenda in education."

Although not specifically mentioned in his waiver, it is possible that Shelton could receive a waiver allowing extensive contact with his former employer if education issues are considered a national security or economic concern (and many would categorize it as such). It is also important to keep in mind that section 3(b) of the Ethics Wavier does not limit the definition of “in the public interest” to strictly national security or economic issues.

The USOGE report also says the White House "deemed these waivers essential to the appointees' ability to carry out their duties."  Given the expansiveness of the waivers for Shelton and Rogers, this seems to imply the head of the OII and the Secretary's Chief of Staff could not conduct their duties without communicating with the Gates Foundation.  This is testament to the expansive nature of the Gates Foundation, and the growing influence of philanthropies over the DOE.  

In summary, Shelton’s waiver is exceptional for a variety of reasons: its expansiveness and the lack of an explicit barrier preventing him from transferring public funds to the Gates Foundation (even if this is a highly unlikely scenario); his role in charge of an office with grants awarded on a competitive basis; the high degree of continuity between his employment at the Gates Foundation and his role in the DOE; the unique classification of philanthropy as a non-governmental, non-profit, privately run organization with limited membership; and the explicit partnerships between his office and philanthropic organizations, including the co-funding of education programs. 

It is not a stretch to imagine that a reasonable observer with relevant facts might raise questions about Shelton’s involvement in various competitive grants. Considering the emerging relationship between the federal education department and new philanthropies (or venture philanthropies), we ought to be asking ourselves if waivers like Shelton's are institutionalizing and legitimizing potential conflicts of interest. This is particularly important given the change from formula-driven funding to competitive grant programs.

Others may dismiss this kind of analysis or criticism as some sort of loony conspiracy theory, but there's little doubt the Gates Foundation is a major player in education circles these days.  America will never ban philanthropy (nor should it), but it would likely be beneficial to continually reexamine the role of philanthropy in a democratic republic.  

[Thanks to Marc Dean Millot for providing guidance, criticisms, and support for this post. Any and all errors are mine, not his.]

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