Washed-up suits should go on gardening leave

One would expect Samuel to advise clients on mergers, as well as providing advice on other corporate deals while at the firm.

Inevitably merger and other corporate deals raise competition law issues. Here it gets interesting as Samuel has intimate knowledge of the ACCC and its processes.

That’s extremely valuable knowledge to any party involved in a merger deal. That knowledge, however, puts Samuel in a very difficult position.

While Samuel would obviously be mindful of the potential for conflicts of interest and would naturally be putting in place processes to manage those possibilities, his quick move to a corporate advisory firm has raised eyebrows amongst some competition law heavyweights.

Even journalists who have generally been supportive of Samuel’s approach at the ACCC wrote pieces raising some obvious questions about the move.

Do you think it’s appropriate for an outgoing ACCC Chairman to announce that a week or two after he leaves he will be joining a corporate advisory firm that has existing or future clients that may need competition law advice?

Your answer will in many ways depend on whether you think that joining the corporate advisory firm places the outgoing ACCC Chairman in a situation where there is an actual or perceived conflict of interest.

Of course, conflicts of interest must not only be avoided in practice, but it’s perhaps more critical that any appearance of potential conflicts of interests is also avoided.

Avoiding an appearance of a potential conflict of interest is much harder as a government regulator, such as Samuel, would have accumulated an “insider’s view” of the government agency.

That knowledge is embedded in one’s mind and cannot easily be quarantined from one’s general thinking on the competition issues that may affect clients of the corporate advisory firm.

So while Samuel could at the advisory firm easily excuse himself from particular matters that were considered by the ACCC during his time there, there will other deals not previously considered by the ACCC but where his knowledge of ACCC’s internal processes could help successfully guide a client through those processes.

And what about the friendships that Samuel may have developed with particular ACCC staff members who may in future be involved in reviewing matters concerning one of Samuel’s new clients? One would imagine that Samuel would exclude himself in such curly situations, but one could also imagine that such situations leave him constantly looking over his shoulders.

So while avoiding actual conflicts of interest may be manageable, avoiding an appearance of potential conflicts of interest will be challenging in practice. That’s why ex-regulators typically go on what’s called “gardening leave” .

At its simplest, that’s where the person takes an extended break from any advisory work directly or indirectly related to the person’s previous regulatory position. Some may take up academic positions or undertake community or other unrelated work.

Most take the view that it’s far easier to do unrelated work than having to constantly look over one’s shoulders regarding actual or potential conflicts of interest. In some instances, the person may even be compelled to take gardening leave by the person’s contract or a relevant piece of legislation.

In fact, gardening leave is increasingly been required of, for example, partners at law firms when they leave the firm. Essentially, gardening leave is concerned to ensure that a person is unable to use any confidential information gained in a previous role for personal or financial gain.

For an ex-regulator gardening leave would be about avoiding awkward situations where questions may arise about actual or potential conflicts of interest.

Here the issue is whether it’s in the public interest to prevent an ex-regulator from moving straight into a private role that is directly or indirectly related to the person’s previous regulatory position. Interestingly, some ex-regulators have themselves been quite strident in suggesting that gardening leave should be required for ex-regulators.

One former ACCC Chairman, for example, has been reported as saying that the Federal Government should act on the issue

It’s not only ex-regulators that should be considered for gardening leave. Former Government advisers should also be considered, as should senior ex-bureaucrats. These people will all have had access to sensitive information and government networks which leaves them open to an actual or perceived conflict of interest.

Avoiding such risks is not only important for the individual involved, but also from a public interest point of view. In particular, there is a need to avoid any community perception that the individual may be profiting or otherwise benefiting from their time as a regulator, government adviser or bureaucrat.

In short, the individual involved should refrain for a certain period of time from engaging in any activity in which an actual or perceived conflict of interest may arise.

This period could vary between 3 and 12 months depending on the seniority of the individual, with the clear implication that an ACCC Chairman, senior Ministerial advisor, or Departmental head should go on gardening leave for a 12 month period following the end of their tenure.

For these individuals a 12 month period of gardening leave should be included in their terms of appointment. A further requirement could be that there is a limit on the term that such an individual can serve in the senior position.

For example, the ACCC Chairman should only be allowed to serve a single maximum term of 5 years. That would act to limit the person’s access to confidential information to a defined period of service which could then be quarantined to some degree by a 12 month period of gardening leave.

While some ex-regulators will undertake self-imposed gardening leave, it’s clear that different individuals take different approaches to the ethical issues surrounding actual or perceived conflicts of interest and, as a result, the public interest requires that a consistent benchmark regarding gardening leave be applied to all ex-regulators or ex-bureaucrats.