From regulated to regulator: Transparent transitions – Canadian Government Executive

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August 20, 2012

From regulated to regulator: Transparent transitions

Governments are challenged to meaningfully mitigate the effects of the financial and economic crisis. What policies and practices are needed to weather the storm?

Governments in general do not currently possess the full range of requisite skills to deal with all the facets of the economic downturn and the loss of confidence in financial markets. Two policy areas need immediate response.  

The first order of business is to revisit the various laws and regulations that cover the banking and financial services sector, to understand their impact on what has happened. After a decade of deregulation, governments will be playing a far more activist role in the regulatory regimes of the financial and other sectors. There is a short timeline in which to make a positive difference.  

Policy makers have learned that the business sector has become more complex through globalization and technological change. As a result, the second order of business is to acquire a more sophisticated set of antenna and policy tools with regards to the financial services and manufacturing industry. Senior levels of government need dispassionate and informed advice on these sectors and on the public policies being fashioned as part of the stimulus packages.

Since the expertise to advise government will most likely be drawn from the sectors that are going to be regulated and/or receive government cash infusions, potential conflicts of interest need to be addressed – especially given the public’s declining trust in government, the growing unpopularity of the Harper government which is increasingly being perceived as a poor steward of the economy, and skepticism about corporate greed and excessive bonuses being paid to CEOs of failing organizations.  

The federal and provincial governments have historically never made a virtue of attracting private sector executives. However, they are now making a special effort to recruit a new cadre of executive level private sector experts to fill the expertise gap. As these experts move from regulated to regulator, trust and conflict of interest issues need to be transparently addressed.   

As a starting point, many newly recruited public servants from the private sector will have conflicting loyalties with their former employers. These will include issues such as financial and personal interests that have the potential to create a conflict of interest, continuing relationships with previous employers, and future employment interests in their former private sector organization, sector or as a lobbyist in their area of expertise.

Moreover, to avoid any allegations of wrongdoing that alone could undermine the government’s ability to be effective, each jurisdiction should articulate a set of principles that serve as an ethical guide. At a minimum, these should include clear and uniform rules regarding potential conflicts of interest and public reporting requirements. There should also be sufficient scrutiny, oversight and enforcement powers to ensure the rules are followed by all those who are engaged in advising government.

Before private sector recruits are hired, every effort should be made to encourage the divestment of interests and the use of blind trusts for assets, and discourage appointments of people who might find themselves in frequent impartiality conflicts. And the recusal rules to bar appointees from dealing with matters involving their former organizations should be strengthened.  

Moreover, governments should, as a matter of principle, make public the relevant elements in a person’s work history that might create a potential conflict of interest. Finally, all recruits should cease all outside professional activities (remunerative or non remunerative) that might create a conflict of interest.  

At the outset, recruits should also agree to post employment rules: 1) recuse themselves from matters that involve their former organization; 2) be prohibited from seeking employment with organizations that may have benefited from policies developed during their tenure in government; and 3) have an appropriate cooling off period.

While these conditions might seem unnecessarily onerous, experience in many OECD countries suggests that this will be crucial to establish the appropriate working environment for newly recruited managers from the private sector during this difficult economic period.

David Zussman is Jarislowsky Chair in Public Sector Management in the Graduate School of Public and International Affairs at the University of Ottawa and president of the Canadian Association of Programs in Public Administration (dzussman@uottawa.ca). 

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