Secondments would provide regulators with greater expertise, but potential conflicts of interest must be carefully handled.

Asymmetry of resources between regulated and regulator was, and remains, a major hindrance to better regulation. Regulators are charged with regulating institutions with access to significantly greater capital, talent and information. One manifestation of resource disparity is the ‘revolving door’, where regulated firms hire regulators or where people in industry join an industry regulator for a few years and then resume their career in industry.

We often hear concerns about this revolving door, most notably in the US, but also in the UK. The argument is that it gives industry too great an influence on the regulators, generating lax regulation and giving industry an easy ride. This has been labelled the quid-pro-quo effect, alleging weaker legislation arises that improves individuals’ employment potential. Many suggested the use of insider information and the ability to influence the regulatory environment in such cases was a cause of the financial crisis. 

Revolving door

The proponents of this revolving door argue that the benefits of deep industry knowledge, intellectual skills and practical leadership expertise adds to personal leadership abilities and enables more effective regulation. There is merit to this argument if the flow between regulator and regulated was even, but it is not. Furthermore, while the evidence supporting the negative views is mixed at best, there remains a valid question of public trust and confidence that needs addressing.

Disparity of resources is structural and unavoidable. However, one of its most negative by-products, the imbalance between the capacities to absorb information, can partially be addressed through balanced reciprocal secondment arrangements. We know benefits are to be gained from having a different perspective in life. We know poor regulation can arise without an understanding of the practical implications. This is why financial regulators have advisory bodies on which representatives of industry sit.

However, to truly gain the impact of another perspective one needs to sit in the other’s shoes. Secondments from the private sector to the regulator create this and, indeed, the Financial Conduct Authority Practitioner Panel has recommended it more than once.

Building public trust

The simplest starting point is to maximise transparency through a code of practice. Such a code would set out all the elements described here and be published annually with the core programme’s details: the parties on secondment, the departments they work in, the organisations they came from, the primary work performed and the value of that work – anticipated and delivered. 

This code of practice must be consistent with the culture of the recipient regulator to ensure implementation and also to recognise that the same principles (such as confidentiality) also apply to the regulator’s full-time employees. It is a question of professionalism and relevant secrecy laws.

Parties to the secondment need to identify in writing any conflicts of interest, both in the context of clients or relationships as well as by clarifying the desired outcomes each party has for the secondment. This enables open discussion to put in place mechanisms to manage any conflicts. This might include information firewalls, but at its simplest would be acknowledgement of the requirement to respect client confidentiality as exists for full-time employees of both organisations in any event. It may be appropriate to restrict the type or areas of work a secondee can perform after they return to their home employer; a form of non-compete clause. An employer may need to accept that such restrictions can only be identified during the secondment.

Several steps can be taken to increase the probability of a successful outcome, which also increase the likelihood of spotting unexpected conflicts of interest. Forums should gather regularly at which the parties discuss what they are working on uniquely from their different perspectives. In other words, the agenda includes the question ‘from your personal and professional perspective, what are your opinions on this subject?’.

Secondees should meet regularly with external mentors whose responsibilities include asking the secondee to explore the ethical challenges they have experienced during the secondment and how have they addressed them. This ensures an active approach, not a reactive and assumptive approach to ethical challenges. We cannot prevent participants having inherent biases due to their backgrounds – it is this difference that we want to benefit from – hence we must take steps to acknowledge this and maximise the value generated.

By creating a publicised secondment programme with a transparent code of practice, regulators can ensure a broad range of external parties are involved so they gain the perspectives of all relevant stakeholders: from advisors, to clients, to industry. These straightforward and uncontroversial initial steps would enable effective secondments and hence, we propose, better regulation.

Phil Renshaw is researching secondments at the IFS University College, funded by the Henry Grunfeld Foundation; Michael Dickmann is a professor of international human resource management at Cranfield School of Management; Abby Ghobadian is a professor of organisational performance at Henley Business School.

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