Policy Paper Series 2 - Fixing the Revolving Door Between Government & Business

FIXING THE REVOLVING DOOR BETWEEN GOVERNMENT AND BUSINESS POLICY PAPER SERIES NUMBER TWO

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Transparency International (TI) is the world’s leading non-governmental anti-corruption organisation. With more than 90 Chapters worldwide, TI has extensive global expertise and understanding of corruption.

Transparency International UK (TI-UK) is the UK chapter of TI. We raise awareness about corruption; advocate legal and regulatory reform at national and international levels; design practical tools for institutions, individuals and companies wishing to combat corruption; and act as a leading centre of anti-corruption expertise in the UK.

Acknowledgements We are grateful to Dr Elizabeth David Barrett of Oxford University for researching and drafting this policy paper. It is based on the TI-UK report ‘Cabs for Hire’ published in April 2011. We would like to thank the European Commission - Directorate-General Home Affairs for funding this Policy Paper series as part of an EU-wide European National Integrity Systems project coordinated by Transparency International.

Publisher: Transparency International UK Editor: Chandrashekhar Krishnan First published April 2012 © 2011 Transparency International UK. All rights reserved.

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With financial support from the Prevention of and Fight Against Crime Programme.

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A public official taking a job with a company that s/he was previously responsible for regulating was rated as potentially corrupt by 80% of respondents

Several scandals in recent years have revealed that the current system for regulating the revolving door is weak and in urgent need of reform

INTRODUCTION In 2010-11, TI-UK carried out a comprehensive survey on the prevalence of corruption in the UK. In a Report divided into three parts1, entitled respectively National Opinion Survey (‘the Survey’), Assessment of Key Sectors (‘Key Sectors Assessment’), and a National Integrity System Assessment (‘NIS Assessment’), the nature and extent of corruption in the UK was examined. The Report was accompanied by an overview entitled Overview and Policy Recommendations (‘Overview’).

The Survey of public perceptions of the most corrupt sections of British public life carried out for TI-UK in 2010 revealed that the revolving door between government and business comes a close second in the public’s ranking of potentially corrupt activities.

A public official taking a job with a company that s/he was previously responsible for regulating was rated as potentially corrupt by 80% of respondents, a close second to the 86% who rated a peerage for a businessman who has been a large political party donor as potentially corrupt. A survey conducted by YouGov in January 2012 found that 69% of respondents agreed that it was “too easy for former ministers to get jobs that allow them to make improper use of their time in government”.

TI-UK believes that the revolving door between government and the private sector can be of benefit to both sectors, provided the system for regulating movements of personnel is sufficiently transparent and robust in order to ensure that there is no cause for any suspicion of impropriety. Unfortunately, several scandals in recent years have revealed that the current system for regulating the revolving door is weak and in urgent need of reform. This Policy Paper examines major public policy concerns in relation to the revolving door and makes several recommendations for reforms. The Paper draws upon the TI-UK 2011 Report, ‘Cabs for Hire – Fixing the Revolving Door between Government and Business.’

WHAT IS THE ‘REVOLVING DOOR’?

The term ‘revolving door’ refers to the movement of individuals between positions of public office and jobs in the private or voluntary sector, in either direction2. This has become more common in recent years because Ministers and crown servants often leave public office at a younger age than used to be the case. Those in public service have become more eager to learn from corporate experience, and often feel a need to bring in external expertise to assist in increasingly complex areas of government activity.

But private-sector enthusiasm for employing public officials also appears to have increased.

1. http://www.transparency.org.uk/publications 2. The term ‘public office’ is used as a generic term to refer to all positions in the executive branch of government, including Ministers, civil servants and other ‘crown servants’ such as those employed in the police force or armed forces. This generic term is used when discussing the revolving door in general terms. However, when discussing rules applying in the UK, it is necessary to make reference to particular groups within this broad definition, since different sets of rules apply to individuals occupying different roles, eg, Ministers and crown servants. This Report also briefly considers the revolving door as it pertains to the legislative branch, specifically to Members of Parliament.

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WHY IS IT CAUSE FOR CONCERN? Moving through the revolving door can be beneficial to both sides, improving understanding and communication between public officials and business, and allowing sharing of expertise. However, the revolving door brings risks that government officials will be influenced in their policy or procurement decisions by the interests of past or prospective employers.

Conflicts of interest arise particularly for individuals in government who have responsibilities to regulate business activity or who are charged with procuring goods or services from the private sector. Business is often keen to employ former public officials largely because of what they know about the outlook for future government policy and spending.

Conflicts of interest related to the revolving door can take many forms, for example: •

Public officials might allow the agenda of a previous private-sector employer to influence their government work, being overly sympathetic to a sector that they have a responsibility to regulate.

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Public officials might abuse their power while in office to favour a certain company, with a view to ingratiating themselves and gaining future employment.

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Former public officials who accept jobs in business might influence their former government colleagues to make decisions in a way that favours their new employer.

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Former public officials might use confidential information to benefit their new employers – for example, during procurement procedures.

Where such conflicts occur, they not only undermine public confidence in government.

They also waste government time and taxpayers’ money. In 2011, the privatisation of the UK search-and-rescue helicopter service had to be cancelled because of allegations that one of the companies bidding for the contract had been granted access to commercially sensitive information by former Ministry of Defence staff during the bidding process3. Years of government work were lost while the RAF, Fleet Air Arm and the coastguard were left to rely on ageing helicopters for their high-risk work.

A series of high-profile scandals suggest that the ACoBA regime is not working

RECENT CASES SUGGEST THAT CURRENT RULES ARE WEAK In the UK most public officials and politicians recognise the potential for conflicts and try hard to avoid them. They understand that, even if they are behaving with integrity in their relations with business, just the appearance of close ties can arouse suspicions and undermine trust. Accordingly, they maintain a professional distance from business contacts and scrupulously declare their interests.

3. ‘Rescue helicopter sell-off grounded’, Financial Times, 8 February 2011.

See http://www.ft.com/cms/s/0/9ff80082-32fd-11e0-9a61-00144feabdc0.html#axzz1EanMljf1

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Senior civil servants and ministers are required to consult the Advisory Committee on Business Appointments (ACoBA) before taking up appointments. ACoBA can impose waiting periods on individuals, so that they cannot take up appointments until a certain period after leaving office, and can advise that appointments should only be taken on condition that the individual will not engage in lobbying former colleagues. However, the Committee is only an advisory body. There is nothing to stop individuals from ignoring its advice.

A series of high-profile scandals suggest that the ACoBA regime is not working. In March 2010, Channel 4’s Dispatches documentary showed secret recordings of several MPs and former Ministers offering their influence and contacts to journalists posing as representatives of a potential corporate employer, interested in hiring them for lobbying work. One former Cabinet Minister, Stephen Byers, said “I’m a bit like a sort of cab for hire” and offered examples of how he had used his influence and contacts in the past4.

The list of Ministers and civil servants that have taken lucrative consultancies or directorships with companies that have relationships with their old departments continues to grow.

BBC Radio’s File on Four recently reported on the case of Mark Britnell, a former Director General of Commissioning at the Department of Health, who in September 2009, three months after leaving his position, became Global Head of Healthcare at KPMG. Having been responsible for designing new ways of commissioning healthcare whilst in government, Britnell was now on the other side, working for a company that was bidding for many of the contracts that resulted from his reforms. KPMG has since won at least three such contracts.

Some senior officials appear to have reacted not by cutting their ties to business, but simply by making greater efforts to cover them up

Britnell had sought advice on his career move from ACoBA, as he was required to do, and the appointment had been approved subject to a three-month waiting period.

However, when Britnell’s successor at the Department of Health also joined KPMG a year later, he did not have to seek ACoBA approval, apparently because he had only served as ‘acting’ Director General of Commissioning5. This is an unacceptable loophole in the rules.

Another recent case concerns defence company BAE Systems. In February 2011, it hired former British envoy to Saudi Arabia Sir Sherard Cowper-Coles as its international business development director, focusing on the Middle East and south-east Asia6. He had left the Foreign Office only four months previously, and had previously played an important role in high-level government decision-making that resulted in the Serious Fraud Office terminating its investigation into BAE Systems over a Saudi arms deal in December 2006.

Transparency International UK’s 2011 ‘Cabs for Hire’ Report lists several more examples of former ministers and senior civil servants taking positions with companies to which their Departments had awarded contracts while they were in office.

4. The episode of Dispatches was called ‘Politicians for Hire’ and was broadcast on 22 March 2010. See http://www.channel4.com/programmes/dispatches/episode-guide/series-57/episode-1 for more details, or http://www.channel4.com/news/articles/politics/mps+for+sale+what+will+byers+influence/3587067 for a Channel Four news report on the main findings.

5. This case was reported by BBC Radio Four’s File on Four programme on this topic broadcast on 26 July 2011 (programme number: 11VQ5007LHO), where it was raised by Tamasin Cave of the Alliance for Lobbying Transparency.

6. ‘BAE Systems hires Britain’s former envoy to Saudi Arabia’, The Guardian, 18 February 2011.

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Perhaps most worryingly, despite public outrage and efforts by the government to tighten the rules in recent years, some senior officials appear to have reacted not by cutting their ties to business, but simply by making greater efforts to cover them up. In January 2012, the Sunday Times revealed that many former ministers and civil servants had set themselves up as private consultants, which allowed them to exploit a loophole in the rules and avoid public scrutiny of their relationships with business, because they were not required to identify their clients. They are required to gain approval of their consultancy position from ACoBA, but do not have to list their clients7. Fourteen former ministers set themselves up as consultants in 2010-11 compared with just one in 2005-06.

Certain regulators are particularly high-risk, yet seem to slip below the radar screen

Individuals who have worked in the ministries of defence and health – areas where government is a key buyer of goods and services – are naturally attractive to companies seeking to gain an advantage over their rivals

Where information about the clients of these consultancies has come to light, it has frequently revealed relationships which, even if no wrongdoing has been proven, blatantly fail to meet the ‘appearance standard’. For example, former defence secretary Geoff Hoon has helicopter manufacturer Augusta Westland among his consultancy clients. In 2005, while Defence Secretary, he approved a £1 billion contract to this company, which was controversially declared a ‘preferred bidder’ despite claims that other companies could have provided better value-for-money helicopters in a shorter time-frame. Gillian Merron, a former health minister, lists Cool Milk among her clients, a company which is financed by the Department of Health to provide school milk to children under the age of five.

In January 2012, following a change in the rules on reporting interests in the House of Lords, former cabinet minister Lord Mandelson moved his consultancy company, Global Counsel, from ‘category 1: directorship of a public or private company’ to ‘category 2: remunerated employment’. This meant that he was not required to disclose the sources of the company’s income, i.e., the consultancy’s clients. A member of the sub-committee on Lords’ conduct reportedly commented that Lord Mandelson and other members appeared to have “failed to comply with the spirit of the rules”8.

Some areas of government are more problematic than others. Moreover, certain regulators are particularly high-risk, yet seem to slip below the radar screen. Individuals who have worked in the ministries of defence and health - areas where government is a key buyer of goods and services – are naturally attractive to companies seeking to gain an advantage over their rivals. A disproportionate number of applications to ACoBA relate to these sectors. It would therefore be desirable to devote special attention to assessing the risks in these sectors and impose longer cooling-off periods on individuals who take revolving door jobs. Avenues that facilitate lobbying should also be closed off.

For example, it has recently come to light that hundreds of security passes to the Ministry of Defence’s London headquarters have been granted to defence contractors, including individuals from BAE Systems, Boeing, Thales and Lockheed Martin9.

TI-UK welcomes the government’s May 2010 decision to ban former Ministers from engaging in lobbying for two years after leaving office and the similar provision for civil servants of level SCS3 or above in the new Rules. However, ultimately this issue is best addressed through tighter regulation of lobbying in general.

7. ‘Loophole lets former ministers hide links to business; Politicians acting as consultants have raised new fears over cash for influence’, The Sunday Times, 15 January 2012.

8. ‘Mandelson uses Lords loophole to shield clients’, Financial Times, 30 January 2012.

See http://www.ft.com/cms/s/0/5899ab7c-4b49-11e1-88a3-00144feabdc0.html#ixzz1n1exR7Mj 9. ‘Arms companies are given access to the heart of MoD’, The Times, 28 December 2011.

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FIXING THE REVOLVING DOOR

Recent changes to the rules – including the ban on former Ministers engaging in lobbying for two years after leaving office and the mandatory referral of special advisers’ applications to ACoBA – are welcome.

The Public Administration Committee’s (PASC) current inquiry into the Business Appointment Rules is particularly timely. It should recommend comprehensive reforms in order to reduce the risk of conflicts vof interest and restore public confidence.

We have identified six key problems with the current system.

1. First, as the PASC Issues and Questions Paper10 points out, neither the Ministerial Code nor civil servants’ terms and conditions of employment are directly enforceable after an individual leaves office.

Furthermore, since ACoBA is a purely advisory body, compliance with its advice tends to be a matter of goodwill and acceptance by the individual and new employer of the benefits of being seen to be behaving with propriety.

2. Second, ACoBA lacks the resources to assess specific risks in individual cases or to monitor compliance.

Many of the appointments that it approves seem problematic to outside observers and fail to meet the ‘appearance standard’. Since ACoBA does not have resources to investigate the risks or powers to monitor compliance with its advice, the public cannot trust that its decisions uphold public integrity.

3. Third, ACoBA is not currently bound to publish reasons for its advice and the data that it does publish is inadequate to allow public or media scrutiny, not least because it does not publish information on applications that have been withdrawn. This lack of transparency raises doubts about the criteria ACoBA uses to make its decisions and arguably adds to uncertainty for the individuals going through the process.

4. Fourth, the current composition of ACoBA leaves it open to criticism that it is not representative of UK society. This is highly unfortunate for an institution charged with a scrutiny role. Although ACOBA is currently recruiting two lay-persons, this is not enough to counter criticism that the body is perceived to be a group of ‘insiders’ who rubber-stamp the appointments of their colleagues.

5. Fifth, ACoBA’s remit is restricted to former ministers and senior public officials.

The future employment of MPs is not currently subject to formal scrutiny. Some argue that this is sensible, because MPs do not have the same decision-making and spending powers as civil servants and ministers.

However, some MPs do have considerable individual influence. Committee chairs can determine the subject and nature of inquiries, call witnesses, question them aggressively or not. MPs also have considerable power to influence and lobby in particular circles where they take an interest and in their own constituencies.

6. Sixth, certain types of post-public appointments arguably slip under ACoBA’s radar, including jobs with NGOs and charities. Yet these organisations can also be recipients of government money and contracts, and they are set to play an even bigger role as the idea of the ‘Big Society’ is translated into public policy.

The PASC has recently noted that the Big Society agenda will increase “the potential for movement of employees between the traditional public, private and third sectors, thus leading to potential conflict with the Business Appointment Rules.”11

10. ‘Business Appointment Rules: Issues and Questions Paper’, Public Administration Select Committee, January 2012.

11. Ibid

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RECOMMENDATIONS Transparency International UK concludes that: •

The revolving door is broken and needs to be fixed.

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A critical component of any solution is the establishment of a new, independent, effective body, with the power of monitoring and sanction, to replace ACoBA.

How can government draw in and benefit from external expertise without giving rise to concern over propriety and undue influence? TI-UK believes that this objective of striking a balance between the benefits of the revolving door and preventing abuses of the system can be achieved by putting in place a more transparent, robust and enforceable system for regulating the revolving door between government and business.

Unless urgent reforms are implemented there is a growing risk of conflicts of interest and corruption (defined by TI as the abuse of entrusted power for private gain) as public procurement from the private sector increases and the downsizing of government leads to greater movement of senior personnel to the private sector.

TI-UK believes the following recommendations, if implemented, would help to reduce the risk of conflicts of interest and make the revolving door work to the benefit of government, the private sector and UK society more broadly:

1. The ACoBA should be replaced with a new statutory body with sufficient resources and powers to regulate the post-public employment of former Ministers and crown servants. The rulings of this new body should be mandatory and enforceable. It should have the power to investigate complaints about individuals who appear to have disregarded its advice.

2. The composition of the new body should be more representative of UK society - for example, by including representatives of civil society.

3. The new body should disclose full information about the procedures for assessing applications and the reasons for its judgements.

4. The new body should begin its work by carrying out a thorough audit of all positions under its remit, to assess potential risk areas. New rules could then be drafted to reflect the severity of risk associated with particular roles (e.g. those that involve major decisions on public procurement of goods and services from the private sector). For example, in the case of individuals who have had responsibility for procurement decisions, the current ban on lobbying should be extended to three years. For high-risk government departments (e.g. defence), and in exceptional situations, it may be necessary to impose lifelong restrictions on employment in the associated industry.

5. The period during which former Ministers and crown servants must undergo scrutiny for appointments in the private sector should be extended from two years to three. The implications of this change for recruiting individuals to government should be fully assessed.

6. The remit of regulation should be extended to include appointments to non-commercial entities.

7. The Independent Parliamentary Standards Authority should draw up post-public employment rules for MPs taking into account differences in the incidence of conflict-of-interest risk between various roles, and being sensitive to the job insecurity that elected MPs face. Consideration of this issue should be linked to an examination of the remuneration of MPs. 8. Parliament should enact legislation as soon as possible in order to make it mandatory for individuals and organisations engaged in significant lobbying activity to register and disclose information on their activities.

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