The Revolving Door From Government to the Boardroom: 6% of corporate board appointments this year have gone to political leaders, and a heightened political environment has intensified scrutiny.

Author:Tahmincioglu, Eve
 
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In May, news broke that former White House chief of staff John Kelly joined the board of Caliburn International Corp., the company that operates one of the biggest shelters for unaccompanied migrant children.

"During Kelly's tenure," a CBS article stated, "the administration pursued ambitious changes to immigration enforcement, and the average length of stay for an unaccompanied migrant child in U.S. custody skyrocketed."

Criticism of Kelly's appointment came swiftly on social media, including condemnation from presidential candidate Elizabeth Warren. "John Kelly pushed for family separation while in the White House," she wrote in a tweet. "Now he'll profit off of separating mamas from their babies. It's immoral, and under my plan to #EndCorruptionNow it would be illegal for someone like Kelly to do this."

Another political leader turned board member, New Jersey's former governor, Chris Christie, also got some heat for his appointment in September to the board of pharmaceutical firm Pacira Biosciences, Inc.

Before joining the board, Christie had an $800,000 consulting deal with Pacira, "less than a year after President Donald Trump's bipartisan commission on opioids and addiction, which Christie chaired, recommended policy changes the drugmaker sought," according to a POLITICO review of SEC filings. Pacira paid Christie, the review found, "as it lobbied for new Medicare rates to boost the financial prospects of its flagship product, a non-opioid painkiller used in surgeries."

The appointment of former speaker of the House Paul Ryan to Fox Corp.'s board in March, also made the headlines with reports he had a hidden agenda to undermine President Trump. Vanity Fair quoted a Fox News executive as saying "Paul is embarrassed about Trump and now he has the power to do something about it."

It's unclear how their appointments end up helping or hindering the organizations, shareholders, or society at large. What is clear is that political figures entering the boardroom today are under a bigger microscope than ever before. Even the relatives of politicians--most notably former vice president Joe Biden's son Hunter Biden and his foreign board appointments--are being scrutinized for their director roles.

In the past year, about 6% of the 700 board appointees to corporate boards at $1 billion-plus revenue companies tracked by Directors & Boards were political leaders, including former members of congress, cabinet officials, heads of federal agencies, military chiefs and state government heads, including governors.

While there are some restrictions on how quickly civil servants can become lobbyists, there are no restrictions on joining boards. Ryan, for example, left his Senate seat in January and joined Fox's board in March. By contrast, he was restricted from lobbying for a company for two years after leaving his Senate seat. House members are restricted for one year.

Board service can be a lucrative career path for former political leaders given the average total annual compensation is nearly $300,000, according to Willis Towers Watson's Global Executive Compensation Analysis.

Ryan will receive a total of $335,000 compensation for his board seat, which includes chairing the nominating and corporate governance committees. That compares to the $223,500 he was making as House speaker.

One study from researchers at Boston University and Harvard University titled "Capitol Gains: The Returns to Elected Office from Corporate Board Directorships," found that "holding elected office as a governor or senator results in a roughly 30 percentage point increase in future board service." And, the study found, these political leaders saw an additional $125,000 increase in their annual pay as a result.

Politicians heading to the boardroom is nothing new.

"It's common and appropriate for boards to target former politicians to serve as board members," points out Andrew Chastain, CEO of WittKieffer, a global executive search firm.

"A well placed former public servant can assist the board in making strategic decisions informed by rich understanding of the current environment," he continues. "While these board members may wield some political influence, what they really do is to check off an important strategic competency box--the ability to provide intelligence on how things work in the legislative arena, from Washington, D.C., to foreign and state capitals. Former political or government insiders ensure that governance decisions are made within the context of their political or legislative implications."

Indeed, the reason companies decide to tap former political figures for boards "is calculated," adds Doug Chia, president of Soundboard Governance, an independent corporate governance consulting firm, and a fellow at Rutgers Center for Corporate Law Governance. "There is a distinct purpose...

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