By TT Ram Mohan
Mervyn King, former Governor of the Bank of England, has taken up a position as a senior advisor to Citigroup, Financial Times reports. The Financial Times report notes the following:
“Lord King has repeatedly criticised banks and bankers in the wake of the financial crisis, both during his tenure as governor, up to 2013, and since. He has described bankers as “incompetent and greedy”. In 2009, he told a parliamentary committee that – vast amounts of money beyond the dreams of ordinary people paid to bankers had engendered a reckless culture in the City of London. A year earlier, he bemoaned as “unattractive” the fact that so many top graduates were drawn to the City rather than other more worthwhile careers“.
King follows in the footsteps of former US Treasury Secretary who hopped on to Citigroup after his stint as Treasury Secretary. Financial Times mentions other such instances in recent times:
- Former EU President Jose Manuel Borroso has joined Goldman Sachs as chairman, a move that the French president Francois Hollande called “morally unacceptable”
- Former British PM Tony Blair got a juicy $2 million a year contract from JP Morgan
- Former Fed Chairman Ben Bernanke took up an advisory position at Pimco, the bond trading house
Those who have served in government or with regulatory agencies are in demand for obvious reasons. They can iron out problems with regulators or they can make phone calls that open doors on the strength of the relationships they have acquired while in government. The problem this poses is two-fold. One, it’s not healthy for an ex-regulator or government servant to use his contacts to sort out regulatory issues of a private party. Another, more critical issue is: what degree of independence can one expect of a regulator or government servant while in service when it comes to dealing with important financial institutions? Who would not want to curry favour in the knowledge that a heft contract awaits on retirement on exit?
Thus, the ‘revolving door’ syndrome poses a serious threat to the framing of laws and regulations. How do we deal with it? An outright rejection may not be an answer because it could prevent talent from coming into government or regulatory agencies. Many argue that since jobs in government or in regulation are not well paid, there is every justification for those who have done these jobs to encash their expertise in the private sector by taking up advisory roles or serving as ‘independent’ directors.
It’s worth noting that RBI governors in general have conducted themselves much better.
Y V Reddy faded gracefully into retirement and D Subbarao preferred a Fellowship at NYU to private sector offers. I recall Dr Subbarao being quoted as saying that he found that the terms offered to him seemed to have more to do with his association with the RBI than with the nature of the assignment offered to him. C Rangarajan served the government in various capacities and steered clear of the private sector.
I suppose one way to deal with the revolving door problem would be to give regulators a substantial payment (say 100 per cent of their salary) for, say, three years after they have stepped down in exchange for their committing not to associate with the private sector at the time they take up positions in regulatory agencies. Again, some may not be willing to join even on these terms but at least this goes some way towards addressing the problem.
TT Ram Mohan is the Professor of Finance and Accounting Area, Indian Institute of Management Ahmedabad.
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