Linda Chen is a Senior VP for Client Management at Rippon and Morgan, a boutique investment bank that provides securities underwriting and advisory services for major corporations, both public and private. Ms. Chen oversees dozens of investment bankers who work with clients to develop initial public offering (IPO) strategies, merger and acquisition plans and corporate bond covenants, among other services. Her team also works closely with another team of broker-dealers at Rippon to buy and sell securities associated with the work her team does on behalf of their corporate clients.
The work Ms. Chen performs with Rippon reflects a high level of expertise that is recognized not only in the financial services industry, but also by policy makers and university think tanks. She understands capital markets very well and has taken a very careful approach to understanding companies across different industries.
As a result of this recognition, Ms. Chen has served on the Board of Trustees of a regional, private university, the University of the Northwest for seven years. She is now Chair of the Board’s Endowment Subcommittee, which makes decisions about investment strategies for the University’s endowment. Historically, the University has a well-diversified portfolio of investments, across different asset classes, industries and geographic locations. The University has taken a relatively passive approach to investing compared to other universities, relying extensively on the direction provided by an outside asset manager that Ms. Chen trusts. Ms. Chen nonetheless reviews the work of the asset manager regularly and is, on some occasions, involved in developing joint investment recommendations.
Given Chen’s roles as an investment banker and trustee, why would someone reasonably think that Linda is involved in a conflict of interest? Describe and explain why she is involved in a conflict of interest and what type of conflict she’s in. What can be done to respond to and manage this conflict of interest? Provide at least two concrete steps that Linda, the University or Rippon and Morgan could do to effectively and responsibly manage this conflict of interest.
In an short essay of 3 to 4 pages provide a critical response to these questions. In your answer you should draw upon the relevant assigned readings, as well as any other class readings you find appropriate. In your answer should be focused, clear and precise, using examples or specific illustrations where appropriate.