The Revolving Door From Government to the Boardroom
By Eve Tahmincioglu and Barbara Wenger

6% of corporate board appointments this year have gone to political leaders, and a heightened political environment has intensified scrutiny. 

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, especially if the company is in an industry where government relations are important.”

It can be a negative for the company as far as the potential for an immediate PR problem and, in the long run, if the directors are only there for their political influence but they don’t have the skill sets or experience a board needs, that impacts board effectiveness, he explains.

He offers two past examples of political leaders in board seats that didn’t work out well for companies or society: former defense secretary James Mattis, former secretaries of state George Shultz and Henry Kissinger, among other politicos were board members of the defunct, blood-testing sham company Theranos; and in the early 1990s, the appointment of Wendy Gramm — the Commodity Futures Trading Commission chair who played a role in lifting governmental oversight of energy contracts that Enron and other companies had — to Enron’s board.

It makes sense that businesses would want people who had previously served in prominent government positions on their boards, explains Jordan Libowitz, a spokesman for Citizens for Responsibility and Ethics in Washington. “Where it seems to raise eyebrows lately,” he adds, “is people going from cabinet-level positions to the boards of companies that deal directly with the type of issues they oversaw just months before in the government. It’s an ethics problem.”

The following is a partial list compiled by Directors & Boards of additional noteworthy political leaders who have entered the boardroom in the last year, including everyone from members of Congress to top military leaders to governors.

James Mattis

Former Defense Secretary

Director, General Dynamics

James N. Mattis, the 26th United States Secretary of Defense who resigned last year, has been reappointed director for one of the biggest defense contractors in the world, General Dynamics.

Mattis, 68, is currently the Davies Family Distinguished Fellow at the Hoover Institution at Stanford University.

“Jim is a thoughtful, deliberate and principled leader with a proven track record of selfless service to our nation,” said Phebe Novakovic, chairman and chief executive officer, in a statement. “We are honored to have him on our board.”

Mattis, a former four-star Marine general, resigned over policy differences with President Donald Trump. In his resignation letter made public he wrote:

“Because you have the right to have a secretary of defense whose views are better aligned on these and other subjects, I believe it is right for me to step down from my position.”

Mattis commanded troops at all levels during his 43-year career as an infantry Marine, retiring in 2013. His major command assignments included U.S. Joint Forces Command and NATO’s supreme allied commander for transformation. He served in the Persian Gulf War, the War in Afghanistan, and the Iraq War. At U.S. Central Command, he directed military operations of more than 200,000 military personnel across the Middle East.

It’s unclear what he will be paid for his service this time around, but a 2018 General Dynamic filing of director compensation shows a total — including stock and pay — of about $280,000.

Mattis previously served on the General Dynamics board of directors 2013-2017. A company proxy from 2016 listed Mattis’ total compensation for fiscal year 2015 at $264,000.

When he left the board to become secretary of defense, “he promised to divest all stock associated with his seat. He also forfeited stock holdings and options that had not yet vested at the time he rejoined the government, which must have added up to several hundreds of thousands of dollars, based on financial disclosure forms,” according to a Washington Post article.

Jeff Flake

Former U.S. Senator

Director, Taylor Morrison Home Corp.

Jeffrey Lane Flake, who most recently served as a U.S. senator from Arizona, has been named to the board of homebuilder Taylor Morrison Home Corp.

Flake — who joins the recently expanded board from seven to eight members and will serve on the nominating and governance committee — was tapped for his political chops.

In a joint release, chairman Taylor Morrison and CEO Sheryl Palmer said Flake’s leadership and unique public policy will be an asset as the company navigates a complex regulatory environment.

A Republican, Flake previously served in the U.S. House of Representatives from 2001 until 2013 and served on the appropriations, natural resources, judiciary and foreign relations committees. During his time in the Senate, Flake served on the committees on energy and natural resources, foreign relations and judiciary.

He is known as a vocal critic of President Donald Trump, and there was much speculation he’d run against him. But Flake announced he wouldn’t be seeking the presidency, and as of December 2018, he had voted with Trump’s position on legislative issues 84% of the time.

As a director at Taylor Morrison Home, Flake’s pay includes “the company’s standard compensation provided to all the company’s independent directors for service on the board — currently a $75,000 annual cash retainer, an additional $10,000 annual cash retainer payable to members of the nominating committee and an annual equity award with a grant date fair value of $140,000 and payable in the form of restricted stock units,” according to the firm’s SEC filing about the appointment.

“I’m excited to join the board of this top Arizona-based company,” Flake said. “Taylor Morrison has an unrivaled reputation for quality and trust in the communities that it builds across the country. I look forward to joining this very talented group of directors and supporting the company in its focus on strategic growth and enhancing the customer experience.”

Flake is a New York Times best-selling author and a frequent commentator on public policy. He serves as a contributor to CBS News, where he also partners with the network on a series called “Common Ground.” In the fall of 2019, he became a resident fellow at the Kennedy School of Government at Harvard University.

Kathleen Sebelius

Former Department of Health

and Human Services Secretary Director, Exact Sciences

Kathleen Sebelius, who served as President Barack Obama’s secretary of the department of health and human services 2009-2014, worked to pass and implement the Affordable Care Act., was appointed to the board of Exact Sciences.

She served as governor of Kansas 2003- 2009 and TIME named her one of “America’s Top Five Governors.” She is also CEO of Sebelius Resources LLC, a strategic consulting firm that advises private companies, nonprofit organizations and financial investors. 

According to the company’s SEC filing, Sebelius will receive approximately $77,000 annually, plus a restricted stock award valued at $375,000.

 “Secretary Sebelius understands the value of detecting cancer earlier, as well as the systemic challenges and opportunities to improve health care,” said Kevin Conroy, chairman and CEO of Exact Sciences in a statement. “Throughout her time in public service, she always kept the needs of patients in the forefront. As we work to deliver life-changing innovations in earlier cancer detection, her experience and perspectives will be essential to helping us develop practical next-generation tests for the screening, diagnosis and monitoring of cancers.”

“Detecting cancer at earlier stages improves outcomes and the quality of care delivered to millions of Americans. By finding disease, or the precursors of disease, early, we can avoid costly, acute-care situations that take a tremendous toll on patients, families and our economy,” Sebelius said in a statement. “It’s exciting to see these kinds of advances coming to market and to have the opportunity to take part in Exact Sciences’ efforts.”

Sebelius currently serves on the boards of biopharmaceutical companies Dermira Inc, and Myovant Sciences Ltd. She continues policy work with the Kaiser Family Fund and co-leads the Health Strategy Group for the Aspen Institute.

Orrin Hatch

Former U.S. Senator

Director, Predictive Technology

Predictive Technology Group, a firm that uses data analytics for disease identification and subsequent therapeutic intervention, appointed former U.S. senator Orrin G. Hatch to their board.

“We are pleased that Senator Orrin Hatch and Ronald Barhorst have chosen to join Predictive’s board, bringing their wealth of experience and proven expertise in governance, regulatory, commercial, legal and financial matters,” said Bradley C. Robinson, CEO of Predictive Technology Group, in a statement. “Their extensive backgrounds and experience are ideally suited for contributions to Predictive as we continue to mature and evolve as a publicly reporting company.”

Hatch, 85, is about 20 years older than all the five other directors on Predictive’s board, will receive $490,000 in total compensation.

“I’m excited to join Predictive and support its mission of delivering needed personalized care to millions of individuals through the commercialization of industry-leading breakthroughs in both genetics and cellular therapy,” Hatch said.

Hatch is an attorney and served as a U.S. senator from Utah for 42 years, retiring in 2019 as president pro tempore of the Senate.  He was the longest-serving Republican U.S. Senator in history.  He served as either the chair or ranking minority member of the Senate Judiciary Committee 1993-2005. He previously chaired the Senate Committee on Health, Education, Labor, and Pensions and also served as chairman of the finance committee.

In his farewell address to the Senate, Hatch warned his colleagues, “All the evidence points to an unsettling truth: The Senate, as an institution, is in crisis or at least may be in crisis. The committee process lies in shambles. Regular order is a relic of the past. And compromise — once the guiding credo of this great institution — is now synonymous with surrender.”

Kelly Ayotte

Former U.S. Senator

Director, The Blackstone Group

Former senator Kelly Ayotte joined the board of The Blackstone Group, bringing the number of female directors to two out of 11 total board members.

Ayotte represented New Hampshire in the U.S. Senate from 2010 until her narrow defeat by Gov. Maggie Hassan in 2016. The race was widely seen as one of the most competitive races in the country at the time.

According to a Blackstone SEC filing, Ayotte will receive a $150,000 a year and, effective May 13, 2019, a grant of deferred restricted common units with a value of $210,000.

During her tenure, Ayotte served on the Senate’s budget, commerce, homeland security and governmental affairs, armed services, small business and entrepreneurship, and aging committees. She chaired the Armed Services Subcommittee on Readiness and the Commerce Subcommittee on Aviation Operations. Previously, she served as New Hampshire’s first female attorney general, first appointed by a Republican governor and twice reappointed by a Democratic governor. She also served as deputy attorney general, chief of the homicide prosecution unit, and as legal counsel to Governor Craig Benson.

Commenting on the appointment, Stephen A. Schwarzman, Blackstone chairman, CEO and co-founder, said in a statement, “During her career in public service, Kelly distinguished herself with a willingness to work cooperatively to solve complex challenges. This judgment, combined with her leadership experience in a number of policy areas relevant to Blackstone’s business, will add great value to the firm.”

Ayotte said in a statement, “Blackstone’s ability to navigate the complex and changing world to remain a perpetual industry leader is a testament to the vision and strength of its people. I look forward to contributing to the firm’s continued success, which benefits so many around the world.”

She currently serves on the boards of Caterpillar, News Corp, BAE Systems, Boston Properties, and Blink Health. She also serves on the advisory boards of Microsoft, Chubb Insurance and Cirtronics, as well as a number of nonprofit boards.

Deborah Hersman

Former Chairman of the National Transportation Safety Board

CEO of the National Safety Council

Director, NiSource Inc.

Deborah Hersman, the former chairman of the National Transportation Safety Board and CEO of the National Safety Council, has joined the board of NiSource. She is chief safety officer at Waymo, the self-driving car technology subsidiary of Alphabet Inc. She served from 2014 to 2019 as president and CEO of the National Safety Council. She spent 10 years at the NTSB as chairman. Previously, she served in a professional staff role for the U.S. Senate Commerce, Science and Transportation Committee.

.Jan E. Tighe

Retired Vice Admiral and Deputy Chief of Naval Operations

Director, Huntsman Corp.

Jan E. Tighe, who retired in 2018 as vice admiral serving as deputy chief of naval operations for information warfare and as the 66th director of Naval Intelligence, joined Huntsman Corp.’s board. Previously, she was commander of U.S. Fleet Cyber Command and U.S. 10th Fleet, where she was the first woman to command a numbered Fleet. She currently is a member of the national security sector advisory committee of The MITRE Corp. and is a member on the strategic advisory group of Paladin Capital Group.

Clark K. Ervin

Former Inspector General of Homeland Security

Director, Care.com Inc.

Clark K. Ervin, the former inspector general of homeland security and the state department, joined the Care.com Inc. board. He is a partner in the government investigations and white collar practice group of Squire. Before private practice, he was inspector general of the state department under President George W. Bush, who subsequently appointed him founding inspector general of the then newly created Department of Homeland Security. At the state level, he served as assistant secretary of state of Texas and as deputy attorney general. Clark founded the homeland security program at the Aspen Institute.

Kenneth J. Phelan

Former Department of the Treasury Chief Risk Officer

Director, Huntington Bancshares Inc.

Kenneth J. Phelan, the retired U.S Department of the Treasury chief risk officer, has been named to Huntington Bancshares Inc.’s board. He also served as acting director for the Office of Financial Research, an independent bureau within the treasury department charged with supporting the financial stability oversight council and conducting research about systemic risk. Prior to treasury, he was chief risk officer for RBS Americas and for Fannie Mae after it was placed in conservatorship.

Mignon Clyburn

Former FCC Commissioner

Director, Charah Solutions, Inc.

Mgnon Clyburn, who served as a commissioner of the FCC 2009-2018, including as acting chair during the last five years of her tenure, was appointed to the board of Charah Solutions, Inc. She served 11 years on the public service commission of South Carolina and nearly 15 years as publisher of Charleston’s Coastal Times. In 2019, she was appointed to the newly created National Security Commission on Artificial Intelligence.

Scott Gottlieb

Former Commissioner of the Food & Drug Administration

Director, Pfizer Inc.

Scott Gottlieb, the former commissioner of the U.S. Food & Drug Administration, joins Pfizer Inc.’s board. He is also a resident fellow of the American Enterprise Institute. He served as 23rd commissioner of the FDA from 2017 to 2019. Previously, he held several roles in the public and private sectors, including serving as FDA’s deputy commissioner for medical and scientific affairs and as a senior adviser to the administrator of the Centers for Medicare and Medicaid Services.

Brian E. Sandoval  

Former Nevada Governor

Director, Coeur Mining Inc.

Two months after leaving his job as governor, Brian E. Sandoval joined Coeur Mining Inc.’s board. He served as Nevada’s first Hispanic governor 2011-2019. Prior to being elected governor, he was a state assemblyman, the youngest chairman of the Nevada gaming commission, attorney general and a federal court judge.

Dirk A. Kempthorne

Former Idaho Governor

Director, Robert Half International Inc.

Dirk A. Kempthorne, former Idaho Governor, joined the board of Robert Half International. He served as U.S. Senator for the state of Idaho 1993-1999. He was governor of Idaho 1999- 2006, and 2006- 2009, he was U.S. secretary of the interior. He currently is president of The Kempthorne Group, a consulting group.

Betty Sapp

Former Director of the National Reconnaissance Office (NRO)

Director, Ball Corp.

Sapp is a former director of the NRO, a joint Department of Defense-Intelligence Community organization that she joined in 1997. In 2012, she was named director of the NRO and was the first woman to hold that position. She also served as deputy under secretary of defense for the Intelligence Dept. Previously she spent 17 years with the United States Air Force, serving in various acquisition and financial management positions on space and satellite programs.

 


Issue: 
2019 Fourth Quarter

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