Weekend Analysis
Lawmakers' moonlighting affair is an inconvenient truth for private equity
November 21, 2021 View comment (1)
Not for the first time, the relationship between politicians and their corporate connections has come under scrutiny.
The latest focus has been the more than 30 members of the British Parliament who supplement their public income by moonlighting as consultants in the private sector and the potential conflicts of interest that come with it.
Ethical gray areas aside, these relationships are not only legal but common practice, and not just in the UK. For better or worse, however, the ensuing uproar has raised the public's ire about the coziness between public servants and the private sector, and the whole affair could impact the private equity industry and investors' attempts to do business with key decision-makers.
The roots of the latest furor begin with Owen Paterson, an MP who last month was caught breaking lobbying rules for members of Parliament while working as a consultant for Randox, a drug company that was paying him £8,333 (about $11,200) a month for 16 hours of work. Randox had won a lucrative contract to provide the government with COVID-19 test kits during the pandemic. Paterson was also paid £12,000 a year from a VC-backed food processing company, Lynn's Country Foods.
Under parliamentary rules, MPs are permitted to have second jobs, as long as it is disclosed, but they can't lobby on behalf of their employers. As such, the Parliament's committee on standards recommended a 30-day suspension for Paterson, a member of Prime Minister Boris Johnson's Conservative Party, for what it called an "egregious case of paid advocacy."
Johnson's Teflon-like quality means that his government has been able to shrug off much bigger scandals than this. As such, Paterson's actions would have likely been forgotten had he accepted the recommended punishment. Unfortunately, Johnson decided to try and shield his colleague with an ill-advised attempt to retroactively change the rules around lobbying.
The public reaction to Johnson's move was one of outrage. Paterson resigned under pressure, and his former colleagues in the Conservative Party—including Johnson—were forced to desperately backpedal and withdraw their support.
But the damage is done, and the focus has now shifted from one member's indiscretion to the entire practice of paid consultancy work in politics. Now every relationship is under the microscope. And people are trying to determine whether politicians are peddling advice or influence.
Inevitably, MPs with private equity connections have also been sucked into the debate. Among them are lawmakers like Richard Fuller, who made headlines for collecting as much £300,000 advising Investcorp, and Andrew Mitchell, who has worked with such firms as Investec and Kingsley Capital Partners while representing his constituents.
In other examples, Epic Private Equity paid John Redwood £5,000 a year for 12 hours' work as a member of its advisory board. And Pembroke, a venture capital trust, has paid Jonathan Djanogly £25,000 a year for around 32 hours' work. Disclosures from previous Parliaments have also revealed that firms such as Blackstone, BlackRock and Bridgepoint have worked with MPs.
In some cases, the payments were for expertise or advice. In others, it was fees for speaking engagements. Often the relationship is entirely legitimate, but that usually doesn't matter in the court of public opinion.
The Paterson debacle now represents a watershed moment that has given momentum to a campaign that could spell the end of sitting MPs working as consultants who advise private companies on public affairs. It could also cast a negative light on private equity's role in public life at a time when things like PE takeovers of UK companies and taxation on carried interest are hot-button topics in the political sphere.
On both sides of the Atlantic, private equity's relationships with lawmakers haven't just been cozy, but in some cases symbiotic. Many a firm's employee rosters read like a who's who of Capitol Hill and Whitehall heavyweights. The most notable example is The Carlyle Group, which, by basing itself in Washington, has made a name for itself by recruiting from the top echelons of policy-makers and elected officials—President George H.W. Bush and Prime Minister John Major both worked with the firm after leaving office.
London's current brouhaha centers on the norms and peculiarities of a British institution. But the dilemma could have consequences for private equity that go beyond maintaining links with powerful people. It could also invite heightened regulatory scrutiny in the UK when the asset class is already fighting battles on many fronts.
Featured image by Drew Sanders/PitchBook News
The latest focus has been the more than 30 members of the British Parliament who supplement their public income by moonlighting as consultants in the private sector and the potential conflicts of interest that come with it.
Ethical gray areas aside, these relationships are not only legal but common practice, and not just in the UK. For better or worse, however, the ensuing uproar has raised the public's ire about the coziness between public servants and the private sector, and the whole affair could impact the private equity industry and investors' attempts to do business with key decision-makers.
The roots of the latest furor begin with Owen Paterson, an MP who last month was caught breaking lobbying rules for members of Parliament while working as a consultant for Randox, a drug company that was paying him £8,333 (about $11,200) a month for 16 hours of work. Randox had won a lucrative contract to provide the government with COVID-19 test kits during the pandemic. Paterson was also paid £12,000 a year from a VC-backed food processing company, Lynn's Country Foods.
Under parliamentary rules, MPs are permitted to have second jobs, as long as it is disclosed, but they can't lobby on behalf of their employers. As such, the Parliament's committee on standards recommended a 30-day suspension for Paterson, a member of Prime Minister Boris Johnson's Conservative Party, for what it called an "egregious case of paid advocacy."
This article appeared as part of The Weekend Pitch newsletter. Subscribe to the newsletter here.
Johnson's Teflon-like quality means that his government has been able to shrug off much bigger scandals than this. As such, Paterson's actions would have likely been forgotten had he accepted the recommended punishment. Unfortunately, Johnson decided to try and shield his colleague with an ill-advised attempt to retroactively change the rules around lobbying.
The public reaction to Johnson's move was one of outrage. Paterson resigned under pressure, and his former colleagues in the Conservative Party—including Johnson—were forced to desperately backpedal and withdraw their support.
But the damage is done, and the focus has now shifted from one member's indiscretion to the entire practice of paid consultancy work in politics. Now every relationship is under the microscope. And people are trying to determine whether politicians are peddling advice or influence.
Inevitably, MPs with private equity connections have also been sucked into the debate. Among them are lawmakers like Richard Fuller, who made headlines for collecting as much £300,000 advising Investcorp, and Andrew Mitchell, who has worked with such firms as Investec and Kingsley Capital Partners while representing his constituents.
In other examples, Epic Private Equity paid John Redwood £5,000 a year for 12 hours' work as a member of its advisory board. And Pembroke, a venture capital trust, has paid Jonathan Djanogly £25,000 a year for around 32 hours' work. Disclosures from previous Parliaments have also revealed that firms such as Blackstone, BlackRock and Bridgepoint have worked with MPs.
In some cases, the payments were for expertise or advice. In others, it was fees for speaking engagements. Often the relationship is entirely legitimate, but that usually doesn't matter in the court of public opinion.
The Paterson debacle now represents a watershed moment that has given momentum to a campaign that could spell the end of sitting MPs working as consultants who advise private companies on public affairs. It could also cast a negative light on private equity's role in public life at a time when things like PE takeovers of UK companies and taxation on carried interest are hot-button topics in the political sphere.
On both sides of the Atlantic, private equity's relationships with lawmakers haven't just been cozy, but in some cases symbiotic. Many a firm's employee rosters read like a who's who of Capitol Hill and Whitehall heavyweights. The most notable example is The Carlyle Group, which, by basing itself in Washington, has made a name for itself by recruiting from the top echelons of policy-makers and elected officials—President George H.W. Bush and Prime Minister John Major both worked with the firm after leaving office.
London's current brouhaha centers on the norms and peculiarities of a British institution. But the dilemma could have consequences for private equity that go beyond maintaining links with powerful people. It could also invite heightened regulatory scrutiny in the UK when the asset class is already fighting battles on many fronts.
Featured image by Drew Sanders/PitchBook News
Comments:
Thanks for commenting
Our team will review your remarks prior to publishing.
Please check back soon to see them live.