When Regulators Hire Industry Experts, Does That Sharpen Oversight — or Soften It?

Favoritism toward former employer fades over time

Regulatory agencies often draw scrutiny for the “revolving door” — when people rotate between public and private sector jobs. This phenomenon creates a trade-off. Hiring individuals from regulated industries provides regulators with expertise to improve regulation and ensure compliance with existing laws and regulations. The risk is that the same hires can use their power to influence regulatory actions that benefit their former or future employers.

A 2021 New York Times report outlined some examples. The report described how U.S. Treasury Department staff members who were previously tax lawyers at the “Big Four” accounting firms (Deloitte, KPMG, EY, PwC) drafted regulations that benefited their clients. The staff members then returned to their former Big Four employer with a promotion and corresponding salary bump.

In recent research, my co-authors and I look beyond such obvious and egregious conflicts of interest. We examine something subtler: when, say, regulator A reviews the financial statements disclosed by a firm that previously had been audited by regulator A’s former employer. We find that even these indirect ties weaken oversight. For example, an accountant at the SEC who previously worked for Deloitte is less likely to detect an error in a firm’s financial statements when the firm’s accountant is Deloitte. The same goes for indirect ties to KPMG, EY, PwC, and other firms.

What’s novel here is that this happens even when the regulator has no personal stake, no financial incentive, and no ongoing relationship with the firm or auditor. The good news is that this bias fades over time. As industry-based regulators gain multiple years of experience, their old professional identities weaken and new norms take hold.

Although there are rules that restrict the revolving door between the public and private sector (“cooling off periods”), these policies typically cover a short period (1-2 years) and primarily relate to direct ties. Our research suggests that these restrictions may underestimate how long — and how far — professional loyalties can extend.

Drucker, J. and D. Hakim. 2021. “How Accounting Giants Craft Favorable Tax Rules From Inside Government.” The New York Times. Available at https://www.nytimes.com/2021/09/19/business/accounting-firms-tax-loopholes-government.html.

Kubic, M., Silva, R., and Toynbee, S. 2026. “Conflicted Regulators: Indirect Revolving-Door Connections in SEC Filing Reviews.” Forthcoming at The Accounting Review.