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Ouch! New law aims monkey wrench at cozy revolving door
By Ye Zhen |
March 11, 2013, Monday
|
Print Edition
Print Edition
TAO Geng, a former securities regulator, seized the opportunity to jump from government to the private sector before a new law imposing a strict cooling-off period on former securities officials comes into effect.
Tao quit as the office director of the Shanghai Bureau of the China Securities Regulatory Commission in December and took a job with Everbright Pramerica Fund Management Co in January.
The sudden career change has drawn controversy.
"There can't be fairness in China's stock market if there is this kind of business-government collusion," a comment on Sina Weibo said.
Some pointed out that Tao may have violated a current public service law that requires those who resign or retire from government jobs to wait two or three years, depending on the posts they held, before engaging in any related business operation in a private firm.
Tao tried to defend himself, saying his new role is advisory and he won't be participating in the day-to-day business activities of his new employer.
Actually, Tao is not first securities regulator to go through the proverbial "revolving door."
About 50 senior executives in more than 30 fund companies were formerly officials of the China Securities Regulatory Commission, the Southern Weekly reported.
Bypassing restrictions
To circumvent restrictions on public servants, former regulators usually serve in advisory or supervisory roles distanced from day-to-day business operations of their new employers until time limits lapse and they can shift to more hands-on roles.
However, the tougher new law may soon block that path.
It bans senior officials from the securities commission from taking any job for three years in the companies they once regulated. The ban is two years for more junior officials. The new law comes into effect on June 1.
There is no denying that old revolving door has been a bonanza for regulator officials lured by the higher salaries offered in the private sector.
The cozy relationship has also been beneficial to the companies that recruit them. Former regulators know the inner workings of the commission and can help navigate through red tape at cheaper costs.
More importantly, the "old boy network" of former regulators is a handy tool in a business environment where guanxi, or backdoor connection, is invaluable in getting things done.
The revolving door is a headache in many countries, where the flow of personnel between government and the private sector can compromise the image of regulatory agencies as independent bodies working in the best interests of the public.
A recent research done by the Project on Government Oversight, an independent non-profit organization in the US, sheds some light on the issue.
Based on a case study by the US Securities and Exchange Commission that involved interviews with current and former SEC officials and an analysis of thousands of federal records, the research found that "former SEC employees routinely help corporations try to influence SEC rulemaking, counter the agency's investigations of suspected wrongdoing, soften the blow of SEC enforcement actions, block shareholder proposals, and win exemptions from federal law."
Moreover, in a subtle way, the revolving door is likely to affect the decisions of current regulators who may go easy on violators because they don't want to damage their prospects of future employment.
Conflict of interests
Mary Schapiro, former SEC chairwoman, has expressed her concern about the conflicts created by employees "walking out the door and going to a firm, leaving everybody to wonder whether they showed some favor to that firm during their time at the SEC."
For the China Securities Regulatory Commission, the co-mingling of the regulators and the regulated could well foster irregularities and further undermine its already flagging public credibility. The commission is supposed to be probing a long list of alleged fraudulent issuances, false disclosures and insider trading among listed companies.
The new restrictions may help ease the adverse effects of the revolving door, but more needs to be done.
To improve the teeth of law enforcement, more severe punishment should be introduced for offenders, and that includes former regulators who breach restrictions.
Moreover, a transparent monitoring system should be developed to track information on former regulatory officials and keep their activities under public scrutiny. The oft-discussed establishment of a super regulator should be put back on the agenda.
In 2006, China considered setting up a financial regulatory body to sit above all regulatory bodies and keep an eye on them. Nothing has eventuated.
Tao quit as the office director of the Shanghai Bureau of the China Securities Regulatory Commission in December and took a job with Everbright Pramerica Fund Management Co in January.
The sudden career change has drawn controversy.
"There can't be fairness in China's stock market if there is this kind of business-government collusion," a comment on Sina Weibo said.
Some pointed out that Tao may have violated a current public service law that requires those who resign or retire from government jobs to wait two or three years, depending on the posts they held, before engaging in any related business operation in a private firm.
Tao tried to defend himself, saying his new role is advisory and he won't be participating in the day-to-day business activities of his new employer.
Actually, Tao is not first securities regulator to go through the proverbial "revolving door."
About 50 senior executives in more than 30 fund companies were formerly officials of the China Securities Regulatory Commission, the Southern Weekly reported.
Bypassing restrictions
To circumvent restrictions on public servants, former regulators usually serve in advisory or supervisory roles distanced from day-to-day business operations of their new employers until time limits lapse and they can shift to more hands-on roles.
However, the tougher new law may soon block that path.
It bans senior officials from the securities commission from taking any job for three years in the companies they once regulated. The ban is two years for more junior officials. The new law comes into effect on June 1.
There is no denying that old revolving door has been a bonanza for regulator officials lured by the higher salaries offered in the private sector.
The cozy relationship has also been beneficial to the companies that recruit them. Former regulators know the inner workings of the commission and can help navigate through red tape at cheaper costs.
More importantly, the "old boy network" of former regulators is a handy tool in a business environment where guanxi, or backdoor connection, is invaluable in getting things done.
The revolving door is a headache in many countries, where the flow of personnel between government and the private sector can compromise the image of regulatory agencies as independent bodies working in the best interests of the public.
A recent research done by the Project on Government Oversight, an independent non-profit organization in the US, sheds some light on the issue.
Based on a case study by the US Securities and Exchange Commission that involved interviews with current and former SEC officials and an analysis of thousands of federal records, the research found that "former SEC employees routinely help corporations try to influence SEC rulemaking, counter the agency's investigations of suspected wrongdoing, soften the blow of SEC enforcement actions, block shareholder proposals, and win exemptions from federal law."
Moreover, in a subtle way, the revolving door is likely to affect the decisions of current regulators who may go easy on violators because they don't want to damage their prospects of future employment.
Conflict of interests
Mary Schapiro, former SEC chairwoman, has expressed her concern about the conflicts created by employees "walking out the door and going to a firm, leaving everybody to wonder whether they showed some favor to that firm during their time at the SEC."
For the China Securities Regulatory Commission, the co-mingling of the regulators and the regulated could well foster irregularities and further undermine its already flagging public credibility. The commission is supposed to be probing a long list of alleged fraudulent issuances, false disclosures and insider trading among listed companies.
The new restrictions may help ease the adverse effects of the revolving door, but more needs to be done.
To improve the teeth of law enforcement, more severe punishment should be introduced for offenders, and that includes former regulators who breach restrictions.
Moreover, a transparent monitoring system should be developed to track information on former regulatory officials and keep their activities under public scrutiny. The oft-discussed establishment of a super regulator should be put back on the agenda.
In 2006, China considered setting up a financial regulatory body to sit above all regulatory bodies and keep an eye on them. Nothing has eventuated.
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