“Revolving Doors” are Just Doors; The Harm is in Who Walks Through Them


The information contained herein is based on public sources and the views expressed are my own. Statements should not be construed in any way to be the views or opinions of any entity referenced herein.

On September 19th, 2021, the New York Times published a report outlining how accounting firms craft favorable tax rules through the revolving door of employees between the “government and themselves.”[1] The report outlined how employees of massive accounting firms will join federal agencies and change policies in favor of the clients of their previous employers.[2] It continued to explain how that behavior is rewarded when the accounting firms hire their employees back after their time in government.[3] However, this time, they would either have a promotion, higher compensation, or both.[4] After the report was issued, Senator Elizabeth Warren of Massachusetts and Representative Pramila Jayapal of Washington issued requests seeking information from the Country’s biggest accounting firms about the revolving door between the firms’ tax groups and positions at the Treasury Department.[5] The request went as far as claiming that the accounting firms were abusing the public trust and taking advantage by using public service to create private profit.[6] While the concern about this practice is justified, it is also misstated.

Part of the solution offered by Senator Warren and Representative Jayapal is to increase lobbying and tighten post-government employment restrictions.[7] But still, the lobbying portion of the bill misses the mark.  It is essential to note from the outset that accounting firms typically lobby for their interest and not the interests of their clients.[8] As one analysis noted, “[c]ontrary to their clients’ desire for flexibility in accounting standards, the Big 4 advocate for less discretion and more objectivity in accounting principles as a means to reduce their litigation exposure.”[9] Moreover, during the pandemic, the Big Four accounting firms have cut back federal lobbying in 2021, even though the new Biden administration will be changing the Public Company Accounting Oversight Board (PCOAB) leadership.[10] It’s unclear if lobbying efforts directly impact the rulemaking for these firms as one study researching the impact of lobbying from the Big Four noted, “there is no systematic evidence on: 1) the incentives that shape Big 4 lobbying positions on proposed FASB standards (exposure drafts) or 2) whether Big 4 lobbying positions materially influence standard setting outcomes.”[11] Lobbying alone is not reliable enough and it is not the issue. The intermingling between the professional services firms and the government becomes problematic when the ethical safeguards and conflicts of interests are not respected once talent flows between the two industries.[12]

The desire to have individuals with government experience employed at large accounting firms can easily be attributed to the value of their expertise from the agencies and how that experience can allow for increased foresight by the employee to predict how the agency may view tax and financial practices.[13] An illustration of this benefit was shown in one study that noted “that accounting firms with worse PCAOB inspection results hire more PCAOB employees into senior-level positions – after which inspection results improve.”[14] In this context, the revolving door increases corporate compliance.[15] Furthermore, the revolving door does not spin in a single direction. Regulatory Capture is a concern amongst all agencies governing professional services as regulators can cater to the entities they are supposed to regulate in hopes of receiving lucrative jobs from those companies when they leave the agency.[16] This independence concern exists irrespective of the prior professional services experience of individuals working agency. This desire becomes problematic when large financial services companies do not just pay for the experience of those who worked for a regulator, but the issues arise when they also pay for the confidential information held by those agencies.[17] One example of this is when KPMG, a Big Four accounting firm, hired individuals at the PCAOB with the expectation that those individuals would bring a list of KPMG clients that the PCOAB would audit in the coming years.[18] KPMG was fined fifty million dollars by the SEC and had to undertake several actions to commit to correcting its culture including, hiring an independent monitor to review the company following the imposition of the fine.[19]

The issues with the revolving door are more closely caused by the behavior of those walking through it rather than the door itself. Perhaps Senator Warren and Representative Jayapal’s legislation may help deter unethical and illegal behavior by individuals both during and after their time working at federal agencies. However, it is important not to entirely lose the benefits that come with the flow of individuals between the government and private industry. The professional services firms benefitted from having higher quality work that can withstand regulatory scrutiny better.[20] The federal government also can benefit from hiring experienced individuals leaving the private industry who can bring a diverse experience to their agencies. Since the private sector often employs talented individuals right out of school, the flow of labor from the private industry to the government allows the government to tap into a highly educated labor force that they likely did not have access to before.[21] A balance must be struck between allowing the free flow of talent between the public and private employers while also protecting the public from having career professionals manipulate the rules in their favor without regard to the public’s interest in having an independent government.

[1] Jesse Drucker & Danny Hakim, How Accounting Giants Craft Favorable Tax Rules From Inside Government, N.Y. Times (Sept. 19, 2021), https://www.nytimes.com/2021/09/19/business/accounting-firms-tax-loopholes-government.html.

[2] Id.

[3] Id.

[4] Id. at 3.

[5] Jesse Drucker, Lawmakers seek details on accounting firms after a New York Times report, N.Y. Times (Oct. 5, 2021), https://www.nytimes.com/2021/10/05/business/accounting-firms-treasury-warren-jayapal.html.

[6] Id.

[7] Id.

[8] Christopher C. McKinnon, Note, Auditing the Auditors: Antitrust Concerns in the Large Company Audit Market, 11 N.Y.U. J.L. & Bus. 533, 556 (2015).

[9] Id.

[10] Amanda Iacone & Sam Skolnik, Big Four Cut Back Federal Lobbying Amid Pandemic, Bloomberg Tax (Jan. 22, 2021, 6:00 PM), https://news.bloombergtax.com/financial-accounting/big-four-cut-back-federal-lobbying-amid-pandemic.

[11] Brian Monsen, The Determinants and Consequences of Big 4 Lobbying Positions on Proposed Financial Accounting Standards, Acct. Rev. (Mar. 1, 2021), https://doi.org/10.2308/TAR-2019-0283.

[12] See Drucker, supra note 1 at 2.

[13] See Drucker, supra note 1 at 3.

[14] Colleen Honigsberg, The Case for Individual Audit Partner Accountability, 72 Vand. L. Rev. 1871, 1887-88 (2019).

[15] See id.

[16] Id.

[17] See Drucker, supra note 1 at 2.

[18] In the Matter of KPMG LLP, Exchange Act Release No. 86118 (June 17, 2019). The fine imposed was a result of both KPMG’s payment for PCAOB information and as a punishment for allowing their employees to share CPE test answers and manipulate testing software so that failing CPE grades appeared as passing in the software.

[19] Id.

[20] See Honigsberg, supra note 11.

[21] See Drucker, supra note 1.


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Fordham Journal of Corporate & Financial Law