revolving door

Overview

Previous work

The revolving door phenomenon has been a concern at least since the late 1800s, when attempts were made to restrict the movement of individuals between the government and private sector. In the United States, the federal government enacted the first conflict of interest and ethics laws, including imposing cooling-off periods, in the 1950s.

There was renewed public interest in the 2010s with research by Andrew Baker, Simon Johnson and James Kwak, and with the 2008 crisis, when prominent government figures insinuated that previous and future hirings in the financial sphere manipulate the decision-making of eminent government members when it comes to financial matters.

Governments hire industry professionals for their private sector experience, their influence within corporations that the government is attempting to regulate or do business with, and to gain political support (donations and endorsements) from private firms.

Industry, in turn, hires people out of government positions to gain personal access to government officials, seek favorable legislation/regulation and government contracts in exchange for high-paying employment offers, and get inside information on what is going on in government.

In fact, the regulator, while in office, takes actions and makes decisions enabling him to cash in later when joining a firm he has regulated. These actions are termed as bureaucratic capital. It is essentially inside knowledge of the system, including any loopholes that might exist. 'Bureaucratic capital' also consists of a good relationship with the lower-level bureaucracy. 'Bureaucratic capital' therefore enables the bureaucrat to cash in later thereon, after exiting the public sector and joining a firm in the sector he previously regulated. Thus, the bureaucrat can abuse the previous position to increase income in a legal way.

The lobbying industry is especially affected by the revolving door concept, as the main asset for a lobbyist is contacts with and influence on government officials. This industrial climate is attractive for ex-government officials. It can also mean substantial monetary rewards for the lobbying firms and government projects and contracts in the hundreds of millions for those they represent.

Consequences

Scientific papers have demonstrated the consequences of the revolving doors practice and the side effects of those movements are numerous. These can be beneficial either for the companies or for the regulatory bodies.

Authors, such as David Miller and William Dinan, have claimed that there are risks when going in and out of revolving doors. The consequences of this movement can be a conflict of interest or the loss of confidence in the regulating institutions. Another possible side effect of the revolving door practice is that regulators could give away confidential information held by the financial institutions, which would give companies the possibility to get access to information and people involved in the decision-making process of regulating authorities. Revolving doors can also lead to unfair competition advantage as well as an unfair distribution of influencing power. Economic distortion can be explained through the fact that so-called too-big-to-fail firms generate their power in the market through the mechanism of the revolving door and not through salient choices. This is due to the fact that big companies have more money than smaller ones and can thus allow themselves to hire more revolvers.

Another aspect of the revolving door practice is that regulators might be incentivized to push for softer regulation in order to gain access later on in the private sector. Vice versa, regulators can also be influenced to demand stronger stances in policy fields that will benefit the regulator if he aims at a future career in the private sector.

Furthermore, revolving doors make it easier for regulatory agencies to find adequate and qualified workers.

In practice, banks can gain unlawful advantages by legally and illegally manipulating the different stages of policy-making. They can have an impact on the formulation, adoption and implementation of laws, public policies or regulations in different ways:

Firstly, if (former) Members of Parliament have links to private companies, they can have an influence on the adoption of laws and regulations in their favour. Moreover, they may be reluctant to vote on proposals that would harm corporate interests.

Jurisdictions

Regulation relating to this phenomenon and the related issues of lobbying and the funding of political parties varies considerably around the world. Here are details for a few sample jurisdictions:-

Australia

In Australia, this is a significant public debate as many state leaders have become private consultants for corporations. There is no legislation against doing so.

In 2015, Port Darwin in Australia's Northern Territory was leased for 99 years to Shandong Landbridge, a Chinese company closely aligned with the Chinese Government's trade policy. The deal was approved by Minister for Trade and Investment Andrew Robb, a member of the governing Liberal Party. In 2016, Robb left politics and accepted a "consultant" position at Shandong Landbridge, with an $880,000 per year salary. In 2019, Robb left the position, shortly before a new "foreign interference" law took effect in Australia.

European Union

There are different rules applied regarding the institution/agency/body involved.

The general principle is the following: the Staff Regulation and Article 339 of the Treaty on the Functioning of the European Union apply to all EU officials. However, each institution/body/agency has to adopt its own internal rules and to annually report on the implementation of art. 16 Staff Regulation addressing the revolving doors problem.

This Staff Regulation addresses the rights and obligations of officials, such as their duty of impartiality and loyalty (art. 11). Therefore, the Appointing authority shall examine if there is no conflict of interest undermining the EU official's independence either when recruiting them or when they come back after a break. Moreover, EU officials must not have any direct or indirect involvement in matters that may impair their independence (art. 11 a). Also, if they are engaging in an outside activity (paid or unpaid) or any assignment during their mandate, EU officials must seek the authorization of the Appointing authority. It shall be refused if it impairs with the EU officials' duties or the institutions' interests (art. 12b). Finally, EU official's duties to integrity and discretion continue to stand even after leaving service (art. 16). There is a cooling-off period of two years within which they must notify their intention to engage in a new activity to their institution, aiming at constraining the revolving door problem. Finally, EU officials shall refrain from any unauthorized disclosure of information received in the line of their duty (art. 17). Article 339 TFEU highlights the obligation of professional secrecy, during and after EU officials' services.

The commissioners are chosen according to their general competence, European commitment and independence "beyond doubts". They are also subject to different duties such as independence, integrity and discretion regarding the acceptance of certain benefits and or appointments during and after their mandate (art. 17 §3 TEU + 245 TFEU). If those duties of integrity and discretion are breached, they may be subject to judicial proceedings leading to the suspension of their pension and/or other rights or to be compulsorily retired (art. 245 + 247 TFEU).

The Commission established its own Code of Conduct in 1999. It was revised already in 2011 and then "reformed" after the Barroso Case in 2017 (cfr infra). This last version has been applied since the 1st February 2018. The key features concern the declaration of interest, transparency, the cooling-off period and the "new" Independent Ethical Committee.

France

A law in the penal code of France governing public officials who move between the public and private sectors requires a three-year wait between working in the government and taking a job in the private sector.

Hong Kong

In 2008, the appointment of Leung Chin-man as executive director of New World China Land led to much controversy. Leung was previously a senior civil servant and administrative officer in charge of lands. His appointment as an executive director of a subsidiary of a land developer led to allegations of collusion of interests and delayed interests. He resigned after two weeks, and the territory's Legislative Council had, for years, an inquiry into the matter.

Japan

Amakudari (天下り, amakudari; "descent from heaven") is the institutionalized practice where Japanese senior bureaucrats retire to high-profile positions in the private and public sectors. The practice was increasingly viewed as corrupt and a drag on unfastening the ties between private sector and state which prevent economic and political reforms.

In April 2007, a law to phase out amakudari prohibits ministries from attempting to place bureaucrats in industry with implementation in 2009. However, the law also removed a two-year ban that prevented retiring officials from taking jobs with companies with which they had official dealings during the five years before retirement.

The term's literal meaning, "descent from heaven," refers to Shinto myths of gods descending from heaven to earth; the modern usage employs it as a metaphor, where "heaven" refers to the upper echelons of the civil service, the civil servants are the deities, and the earth is the private-sector corporations. In amakudari, senior civil servants retire to join organizations linked with or under the jurisdiction of their ministries or agencies when they reach mandatory retirement age, usually between 50 and 60 in the public service. The former officials may collude with their former colleagues to help their new employers secure government contracts, avoid regulatory inspections and generally secure preferential treatment from the bureaucracy.

Amakudari may also be a reward for preferential treatment provided by officials to their new employers during their term in the civil service. Some government organisations are said to be expressly maintained for the purpose of hiring retiring bureaucrats and paying them high salaries at taxpayers' expense.

In the strictest meaning of amakudari, bureaucrats retire into private companies. In other forms bureaucrats move into government corporations (横滑り yokosuberi, lit. 'sideslip'), are granted successive public and private sector appointments (渡り鳥 wataridori, lit. 'migratory bird') or may become politicians, including becoming members of parliament (政界転身 seikai tenshin).

Political scientists have identified amakudari as a central feature of Japan's political and economic structure. The practice is thought to bind private and public sector in a tight embrace and prevent political and economic change.

New Zealand

There is no major legislation against revolving door practices in New Zealand, but some ad hoc provisions exist in relation to certain industries. For example, a scandal in which MP Taito Phillip Field was jailed for corruption in relation to improper use of his government position to benefit from helping people with immigration applications was influential in the creation of a restraint of trade clause in the Immigration Advisers Licensing Act 2007. The Act prohibits Ministers of Immigration, Associate Ministers of Immigration and immigration officials from becoming a licensed immigration adviser for one year after leaving government employment.

There is also no cooling off period for public officials before they can enter the lobbying industry in New Zealand, allowing politicians and Parliamentary staffers to immediately become lobbyists after leaving office. Kris Faafoi joined a lobbying firm just three months after leaving Parliament, where he had been justice and broadcasting minister. Gordon-Jon Thompson took a leave of absence from his lobbying firm to work as chief of staff to Prime Minister Jacinda Ardern for four months before returning to his lobbying firm.

Transparency International (TI) criticized the lack of oversight in the New Zealand lobbying industry in a November 2022 report as lax.

Singapore

Similar to Japan's "amakudari" concept, Singaporeans use the phrase "parachuted generals/ officials" to refer to the tradition of high ranking generals of Singapore Armed Forces landing in executive posts in statutory boards and large government-linked corporations. For example,

Ng Yat Chung, former Chief of Defence Force, became CEO of Singtel which is the largest telecommunication operator in the country.

Desmond Kuek, former Chief of Army, became CEO of SMRT which is the main public transport operator of the city-state.

Bey Soo Khiang, former Chief of Defence Force, became CEO of ST Engineering.

United Kingdom

The movement of senior civil servants and government ministers into business roles is overseen by the Advisory Committee on Business Appointments (ACOBA), but it is not a statutory body and has only advisory powers. The Channel Four Dispatches programme 'Cabs for Hire', broadcast in early 2010, which showed several sitting members of Parliament and former ministers offering their influence and contacts in an effort to get lobbying jobs, has generated renewed concern about this issue. A Transparency International UK report on the subject, published in May 2011, called for ACOBA to be replaced by a statutory body with greater powers to regulate the post-public employment of former ministers and crown servants. It also argued that the committee should be more representative of society.

United States

"Under current law, government officials who make contracting decisions must either wait a year before joining a military contractor or, if they want to switch immediately, must start in an affiliate or division unrelated to their government work. One big loophole is that these restrictions do not apply to many high-level policy makers..., who can join corporations or their boards without waiting."

According to recent scholars,:There are two main views regarding the importance of former government employees in the lobbying industry. The first view contends that revolving door lobbyists are valuable because "Washington is all about connections." In this view, experience in government allows former officials to develop a network of friends and colleagues that they can later exploit on behalf of their clients....A second view, often put forward by lobbyists themselves, is that the importance of individuals with prior government experience is due to higher innate ability and/or human capital accumulation. The higher expertise of revolving door individuals can refer to policy matters, the inner

workings of the legislative process, or even the preferences of particular constituencies.

Examples of individuals who have moved between roles in this way in sensitive areas include Dick Cheney (military contracting), Linda Fisher (pesticide and biotech), Philip Perry (homeland security), Pat Toomey, Billy Tauzin (pharmaceutical industry), Dan Coats, John C. Dugan, a Department of the Treasury official in the administration of President George H. W. Bush who pressed for banking deregulation and repeal of Glass-Steagall Act, then as counsel to the American Bankers Association lobbied for the Gramm-Leach-Bliley Act of 1999 repealing key provisions of the Glass-Steagall Act, and then starting in 2005 returned in a senior government role as Comptroller of the Currency, and former FCC commissioner Meredith Attwell Baker (media lobbying). High-profile Democratic Representative Dick Gephardt left office to become a lobbyist and his lobbying agency, Gephardt Government Affairs Group, earned close to $7 million in revenues in 2010 from clients including Goldman Sachs, Boeing, Visa Inc., Ameren Corporation, and Waste Management Inc.

Many former commissioners of the Securities and Exchange Commission and SEC employees have also been employed by private firms in the industry they once regulated. Former chairman Jay Clayton currently serves on the board of Apollo Global Management as the lead independent director. Citadel Securities has employed numerous former SEC employees, including Stephen Luparello as its general counsel and adviser, Ryan VanGrack as its deputy chief legal officer, David Glocker as its chief compliance officer, and Gregg Berman as director of research. As of 2021, Robinhood Markets employed former commissioner Daniel M. Gallagher as chief legal officer, former chief of staff to the chairman Lucas Moskowitz as deputy general counsel, and staff attorneys Justin Daly and Benjamin Brown as lobbyists.