Two Big Reasons Hillary Clinton Isn’t Taking Elizabeth Warren’s Revolving-Door Dare

Sen. Elizabeth Warren publicly challenged presidential candidates two weeks ago to support a bill intended to limit the revolving door between Washington and Wall Street.

The Financial Services Conflict of Interest Act would prohibit government officials from accepting “golden parachutes” from their former employers for entering public service.

Within days, Democratic candidate Martin O’Malley endorsed the legislation, and Sen. Bernie Sanders became a co-sponsor. But presumed Democratic front-runner Hillary Clinton has not said where she stands.

One possible explanation for Clinton’s lack of interest in banning golden parachutes is that she tolerated them when she ran the State Department — for two of her top aides. Robert Hormats and Thomas Nides previously worked as executives for financial firms Goldman Sachs and Morgan Stanley, respectively. Both received benefits tied to their Wall Street employment contracts for entering public service.

Hormats, who served as undersecretary for economics, energy and agricultural affairs from 2009 to 2013, was a managing director for Goldman Sachs for over 25 years. As he wrote in his 2009 letter to the Office of Government Ethics, “Before I assume the duties of the position of Under Secretary, Goldman Sachs will accelerate and pay out my restricted stock units, pursuant to written company policy.” Those unvested restricted stock units, which would have been forfeited had Hormats left Goldman for another Wall Street firm, are valued at between $250,000 and $500,000 on Hormats’ disclosure form.

Nides, a six-figure bundler in Clinton’s past and present presidential campaigns, worked for Fannie Mae, Credit Suisse and as a top executive at Morgan Stanley from 2005 to 2010. He became deputy secretary of state for management and resources in January 2011, replacing Jack Lew, who had himself received a golden parachute from Citigroup for entering government service. Nides received a payout on Morgan Stanley restricted stock units worth between $5 million and $25 million, according to his financial disclosure. His Morgan Stanley compensation plan “allows for acceleration of payout … if employee is required to divest of interest in order to comply with federal, state or local government conflict of interest requirements.”

Nides and Hormats are not alone in what has become a depressingly standard practice in recent years. But Clinton’s unusual control over staffing at the State Department makes her directly responsible for these particular golden parachutes, at a time when she wants to gain control over staffing of the entire executive branch.

“I would say these are textbook examples,” said Michael Smallberg of the Project on Government Oversight, which has closely followed this issue. “I would raise concerns on how these payments affect the officials’ views, not only toward their former employers but the industry more broadly.”

Sometimes Wall Street firms tie bonuses explicitly to entering government, as in Jack Lew’s case. But often the inducement to executives is subtler, as through accelerating their deferred compensation, which would be forfeited if they joined a rival.

Deferred compensation takes a long time to vest and is used to keep executives from leaving their firms. But several companies have explicit policies, described in their SEC disclosures, that allow unvested stock options and other deferred benefits to automatically pay off if executives leave for government service.

In the wake of the Enron scandal, when executives siphoned $53 million from their stock plans before the company collapsed, a 2004 tax law banned the acceleration of deferred compensation. But Congress made an exception for public service. This makes it easier for private-sector candidates for executive branch positions to divest from their firms and comply with federal ethics laws.

Critics charge that this incentive leads to a disproportionate number of former financial executives in policymaking positions. “It’s a subtle effort at regulatory capture,” said Craig Holman of Public Citizen, who has endorsed the legislation to ban golden parachutes. “It’s about making sure the regulator has a positive view of the bank, making sure they have the obligation of indebtedness.”

Clinton did not force her aides to give up these accelerated payments, unlike President Obama, who did ask his now-U.S. Trade Representative Michael Froman to surrender the $4 million in bonuses he received from Citigroup for joining the government. As secretary of state, Clinton fought to choose her own staff, bringing in several campaign loyalists, including these former Wall Street executives.

When Clinton left the State Department, Nides returned to Morgan Stanley as a vice chairman. He is reportedly a leading candidate for a high-level position in a Hillary Clinton White House. “The fact that (Nides) came from Morgan Stanley, went back, and is now rumored for a senior position shows how concerns about the revolving door aren’t just hypothetical,” said Smallberg. Hormats, also a fundraiser for Clinton’s prior presidential campaign, now works for Henry Kissinger’s consulting firm.

Progressive groups find Clinton’s association with Nides and Hormats concerning. Nides once served as chairman for the Securities Industry and Financial Markets Association, one of Wall Street’s top lobbying groups and a fierce opponent of the Dodd-Frank financial reform. He also helped then-president Bill Clinton sell NAFTA to Congress in 1993. Hormats, an advocate for Social Security privatization and deregulation of the financial sector, was part of a small group of economists and policymakers who met with Clinton last December to discuss her campaign’s economic strategy. He has been called Clinton’s “economic guru,” and used his position at the State Department to advocate for U.S. multinationals.

The Clinton campaign did not respond to repeated requests to clarify their position on the Financial Services Conflict of Interest Act, or to address concerns about Nides, Hormats and their golden parachute payouts.

In addition to banning golden parachute payments, the bill, introduced by Sen. Tammy Baldwin, D-Wisc., would extend the lobbying “cooling-off” period for officials rotating out of government from one to two years, and force policymakers to recuse themselves from decisions that would benefit their former employers.

Warren issued her dare during an address to progressives attending the annual Netroots Nation convention. “It’s a bill any presidential candidate should be able to cheer for,” she said. “We don’t run this country for Wall Street and mega corporations, we run it for people.”

Kurt Walters of Rootstrikers, a progressive anti-corruption group that has endorsed the revolving door bill, said Clinton “should give a clear answer on whether she still believes it’s okay for Wall Street executives to receive golden parachutes worth millions of dollars for going into government positions.”

Two other Democratic presidential candidates, Jim Webb and Lincoln Chafee, also declined to comment on the legislation. Republican candidate Jeb Bush has proposed extending the lobbying ban for members of Congress to six years, though he did not include executive branch officials in that prohibition.

Clinton has attempted to disassociate herself from the banking industry in recent speeches, decrying “quarterly capitalism” and promising crackdowns on financial fraud. In a Facebook chat last week, she vowed to appoint “tough, independent-minded regulators.”

But her history with Nides and Hormats “complicates Clinton’s statements about Wall Street and her ability to distance herself from powerhouse firms,” Smallberg said. Holman, of Public Citizen, said Clinton could help herself by endorsing the revolving-door legislation. “She’s got a real image problem,” Holman said. “If she were to support this bill, it would go a long way.”

This week, Martin O’Malley criticized Clinton’s Wall Street ties in a radio interview in New Hampshire. “Her closeness with big banks on Wall Street is sincere, its heartfelt, long-established and well-known,” O’Malley told Concord News Radio. “I don’t have those ties. I am independent of those big banks on Wall Street.”