(Bloomberg) — French and Swiss finance firms are more likely to have former politicians as board members than their European peers, underscoring the close links between policy making and the world of money in the two nations, an Ernst & Young study showed.
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A third of financial services companies headquartered in Switzerland and 30% of firms in France have at least one board member with ministerial or parliamentary experience. That compares with just 14% of German firms, 13% of Italian firms and 11% of UK firms, according to EY’s European Financial Services Boardroom Monitor, which tracks directors across the MSCI Europe Financials Index.
Former politicians are increasingly in demand on the boards of companies as businesses navigate heightened global tensions and election-fueled political uncertainty. However, the cozy relationship between European political institutions and the private sector has long sparked criticism from transparency groups and concerns over conflicts of interest.
“There are connections between financial elites in every single European country, if not every country in the world,” said Nicolas Véron, a senior fellow at Bruegel, a Brussels-based think tank. He said the trend in his native France illustrates “the paucity of the boundary between political and financial elites” who often share a “common origin” of education and training.
The European Parliament has warned that the so-called “revolving door” phenomenon connecting politics and finance could result in “risks that can damage the democratic fabric of society” unless the movement between the two spheres is closely regulated.
José Manuel Barroso, Portugal’s former prime minister, was the subject of an ethics probe by the European Commission when he accepted a role as a senior adviser and non-executive chairman of Goldman Sachs Group Inc.’s international business less than two years after his term as president of the European Commission ended in 2014. Barroso was subsequently cleared of any conflicts.
Though he wasn’t on the board, the episode sharpened awareness of the potential dangers of former politicians bringing their intimate knowledge of the political system to lucrative roles at banks. No European firm has appointed a director with ministerial or parliamentary experience in the past 12-month period, EY found.
And it’s not just board members. Banks and finance firms have also been known to hire external political expertise.
Former UK prime minister Tony Blair’s reported £2 million ($2.5 million) annual contract as a senior adviser to JPMorgan Chase & Co. came less than a year after he stepped down as leader of the country. The UK’s former foreign minister William Hague also landed a job advising Citigroup Inc. in 2017 at a time when Wall Street was preparing to navigate the UK’s departure from the European Union. He joined Mervyn King, former governor of the Bank of England, who is also an adviser to the bank.
Central Bankers
The current period of elevated interest rates and focus on monetary policy has boosted demand for central banking experience, said Omar Ali, leader-elect at EY Global Financial Services.
“For firms managing capital ratios, major liabilities, risk books and investment strategies across the global economy, the wealth of experience that former decision-makers from central banks bring to bear can be invaluable,” Ali said.
During the past 12 months, 9% of companies monitored appointed a director with central banking experience, EY found.
Steps have been taken in Europe to remedy some of the controversy surrounding revolving doors. The EU’s latest Code of Conduct for Commissioners, which came into force in February 2018, limits the activities of former commissioners for the first two years after the end of their term. Former members must notify the Commission of any new professional activity during this period.
Despite the concerns, many argue that the exchange of expertise across financial institutions remains an indispensable way to build trust between Europe’s public and private sectors.
“While there can be risks to political appointments, and the level and nature of experience varies widely, it’s clear that European chairs of financial services companies see political and public office experience as a valuable part of building a resilient board,” said EY’s Ali.
Other findings from the report:
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Across Europe, over eight in 10 European financial services firms have at least one board director with experience of a parliamentary, civil service or government-appointed role; 21% of firms have at least one director who has been a member of parliament or a government minister
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More than a quarter of firms (3% of all directors tracked) have at least one director with experience of a central banking role
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Across all board directors monitored, 4% have held a role at a multilateral global agency – either at the United Nations, the International Monetary Fund, the OECD, or the World Bank — this equates to 30% of European financial services firms
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Banks are marginally better equipped with political and macroeconomic expertise than insurers and asset managers. More than nine in 10 (91%) banks have at least one board member with experience in a civil service or government-appointed role, compared with 79% of asset management firms, and 64% of insurance firms
–With assistance from Laura Noonan.
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