The following brief story would seem highly compatible with the "Capture Theory of Regulatory Agencies" that is associated with the names of economist George Stigler, and historian Gabriel Kolko. That theory suggests that regulatory agencies are frequently captured by the industries that they are intended to regulate.
One kind of evidence for the theory is that members of regulatory agency boards often are recruited from the industry, and often return to working for the industry after their terms are over.
The efforts of federal regulators to curtail cronyism on corporate boards have led to some odd outcomes. The case of Michael K. Powell, a new director of Cisco Systems, is a prime example.
Mr. Powell, the former chairman of the Federal Communications Commission, happens to be a son of Colin Powell, the former secretary of state. Cisco happens to have paid the senior Mr. Powell more than $100,000 to deliver two speeches in 2005.
Under guidelines established by the Nasdaq stock market, that connection disqualifies the younger Mr. Powell as an independent director, so he cannot sit on the company’s audit, compensation or governance committees. But by the same definition, Richard M. Kovacevich, the chairman of Wells Fargo, is an independent director of Cisco, even though his company has promised to lend Cisco $120 million.
The difference is that Cisco’s line of credit is deemed too small a part of Wells Fargo’s overall business to present a conflict of interest, while the payments to the senior Mr. Powell exceeded the allowable annual limit of $100,000 to any family member of an independent director.
Source of story:
The key Kolko book is:
Kolko, Gabriel. Railroads and Regulation, 1877-1916. W. W. Norton & Company, 1970.