Comment

An unprotected and risky revolving door

Jonathan Coleman is the latest senior minister to switch from politics to business. Victoria University's Bryce Edwards argues we have a revolving door risk that needs managing.

In announcing his resignation from Parliament, former Minister of Health, Jonathan Coleman, was brazenly unapologetic about shifting straight from his health portfolio into working for the private health group, Acurity. He explained he had received a lucrative approach from a private provider in the industry sector he has been overseeing as a Cabinet Minister, and more recently as an opposition spokesperson.

The shameless switch barely warranted a mention in the reports about his retirement, and there was little questioning from the media about the ethics of such a shift or whether Coleman faced any conflicts of interests in going almost straight from Health Minister to running a private health company.

Perhaps we have become used to the idea of politicians moving into business after retiring from politics. Over the last year, four major figures from the last government have left politics with the stated intention to shift into high-powered business roles. John Key stepped down as PM, and in April last year left Parliament, and is now a director for Air New Zealand and ANZ bank, both here in New Zealand and in Australia. Bill English is currently searching for business opportunities, after leaving earlier in the month, and Steven Joyce leaves this week, also keen to go back into business.

A new phenomenon of career-hopping politicians

We never used to have this phenomenon of senior politicians going into business – at least not on the scale we are seeing today. Partly this is because of the whole way political careers are changing. Traditionally, politicians came into power after having careers in other industries. Political activity was more of a post-employment role, rather than a stepping stone to a more highly-paid business job. In fact, many former PMs died in office, or went into retirement.

Now politicians enter Parliament and make it to the top jobs at a younger age. So, whereas in the past, former PMs tended to be much older and would retire from public life entirely once departing politics, our younger, former PMs and ministers expect to move on to other endeavours. We’ve seen Mike Moore and Helen Clark on the political world stage, Jim Bolger heading various government entities, Jenny Shipley take up directorships, and now Key and English also move into the commercial world.

Why post-political business careers are a problem

In many other comparable countries politicians have also been engaging in various business activities after their political careers are over. Most infamously, Tony Blair has been involved in all sorts of incredibly lucrative business engagements, especially in the Middle East, an area he played a pivotal role in destabilising. Many other British former ministers have also shifted into business activities upon retirement. Political lobbying is a particularly common career path all over the world for former politicians. The term of “revolving door” is usually used in this regard – the idea of a politician (or high public official) shifting between public and private roles with ease.

Everywhere this trend has emerged, questions normally follow about conflicts of interest. Possibilities for this to occur abound. First, ex-politicians might make use of their influence and contacts to help their businesses. For example, will Jonathan Coleman, in his new job, ever simply call up his former officials in the Ministry of Health on behalf of his new employer?

Second, former politicians can make use of insider information in their new business quests. All sorts of sensitive information is gained about an industry and government regulation that can give a business an advantage in the sector that the ex-politician is now working. So, will Steven Joyce work in any areas that his former MBIE or Treasury agencies gave him detailed or confidential briefings on?

But perhaps most problematic of all, is the potential for politicians to become somewhat accustomed to conducting their public duties with a heightened awareness of future private sector employment prospects. This might taint their decision-making.

Former Reserve Bank economist Michael Reddell has written a must-read blog post about Retired politicians in demand. He examines the trend for recent National ministers to take up board directorships, and says when there is a trend for regulators to become the regulated, there is a danger politicians might start to anticipate future employment when doing the regulating.

Here’s his main point: “Whatever the sector, a Cabinet minister who legislates/regulates in ways which are welcomed by the regulated industry are much more likely to find the post-politics doors open than one who regulates in a way the industry finds costly or inconvenient. It isn’t just an issue in banking – it could be telecoms, or electricity, or transport, export education or whatever. I’m no great fan of most business regulation, but it exists – and the community as a whole has made a decision that such regulation is necessary or desirable. If so, it is easy to envisage cases of a conflict between the public interest and the private interests of the regulated entities.”

Reddell adds: “Public service shouldn’t be stepping stone to wealth, via regulated industries, either. If the stepping stone is there, the risks to good government are real. It would concern me if Bill English quickly shows up on a bank board, or even the board of a commercial entity much affected by specific government regulation/legislation.”

He also points out how many former senior politicians are now working as directors for Chinese businesses operating in New Zealand, or other related entitles (including Ruth Richardson, Jenny Shipley, Don Brash, Chris Tremain and John Key). Reddell suggests “their positions put them in a situation where they have to think very hard if ever once they considered taking a stand against an aggressive expansionist repressive dictatorial state (from which, directly or indirectly, they are remunerated).”

The need for reform

With the accelerating trend of politicians shifting into the private sector, many countries have taken steps to regulate this activity. A 2014 OECD report showed that a third of its 24 countries had restrictions on the lobbying activities of former politicians. A “cooling off” period is normally required before politicians can go into any business areas that relate to their political work. In Canada, for example, MPs have to wait five years before they can shift into industry in the way that Jonathan Coleman is now doing.

Similarly, in Britain former ministers are also subject to a cooling off period, and must get permission to go into new jobs from an Advisory Committee on Business Appointments.

Here in New Zealand there are no such rules. The only restrictions seem to apply in the immigration area, due to the scandal over former immigration minister Philip Field who was jailed for corruption. This led to a restraint of trade clause in the Immigration Advisers Licensing Act 2007, which prohibits ministers (and high level officials) from becoming immigration advisers in the year after leaving office.

As more and more New Zealand politicians go on to careers in industries they once regulated, we need to follow international best practice, and lay out some rules for handling the situation better than the “free for all” that currently exists.