Michael Reddell: $35m per annum and this is the sort of “engagement” we get?

It has been yet another bad week from the Governor of the Reserve Bank. He was on the defensive about the huge change of policy view between May and July/August, and instead of smiling and ruefully admitting that perhaps the May MPS wasn’t one of their best, we saw repeated episodes of thin-skinned bluster and defensiveness, whether at his press conference, in radio interviews (eg with Hosking) and – perhaps most egregiously since public officials are answerable to Parliament – his reactions to questions from the chair of FEC on Thursday morning. People who refuse to ever acknowledge a mistake are very dangerous, including because it tends to go with a very real unwillingness to learn (including from mistakes).

It was a bad (but perhaps pardonable – I was reading this week my own ambivalent posts at the time, here and here) call to have appointed him in the first place, and a scandalously bad one (a decision that Grant Robertson and Jacinda Ardern should be accountable for) to have reappointed him in 2022. By then, not only were the policy failings (worst core inflation in decades, billions of dollars in losses to taxpayers from punting in the bond market) evident, but the Governor’s thin-skinned bullying operating style was all too evident. It was Robertson and Ardern who’d added the requirement to the Reserve Bank Act that other political parties in Parliament needed to be consulted on a gubernatorial (re)appointment, and when the two main Opposition parties opposed the reappointment that should have been the last straw. Reserve Bank Governors wield so much power (with so little effective accountability) that we should expect a holder to be some one who commands confidence/respect (which doesn’t mean agreeing on everything) across the spectrum. Orr clearly hasn’t for some years now.

Well before last year’s election I pointed out (I’d been asked by various people) that any incoming government was going to be stuck with Orr unless he went voluntarily. There were plenty of things that could be done to build pressures (change the board chair, change the Board charter, use letters of expectation including to put pressure on the Bank’s bloated spending and so on), but in law removing the Governor of the Reserve Bank was a great deal harder than removing (say) a board member or chair from some routine crown entity. On balance, and in most circumstances, that is probably a good thing, even if it creates hard situations like the present, in which we are left with a Governor who commands no respect, but isn’t going anywhere. He is pretty secure in his position until his second and (by law) final term expires in March 2028. Apart from anything else, even if a brave government thought it had found grounds for dismissal, Orr could challenge any such decision in the courts and no sensible government would risk months of uncertainty like that for any but the most egregious breaches.

As a reminder, these are the grounds on which a Governor can be removed

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It is actually harder to dismiss a Governor now than it was pre 2019, because in those earlier decades the Governor was the sole decision maker and so (in principle at least) it was easier to sheet home to him personally policy failures (inflation, $11 billion or so of losses). These days, while he is clearly the dominant voice (3 of the MPC work for him, and he has an effective veto on the appointment of the outsiders), policy decisions (and failures) aren’t his personally. The single decisionmaker model wasn’t great (not used anywhere much else in our system of government) but it did leave it very clear who was responsible.

Bad as Orr’s behaviour is – and we’ve seen it again this week, including his astonishing performance in the last few minutes of his FEC appearance – I’ve always been sceptical that anything since March 2023 (when his current term started) really rose to the level of (see 92(1)(a) above) “misconduct’ or “neglect of duty”. It might be the sort of rude and dismissive behaviour one would not tolerate from a teenager, but would a court really regard it as “misconduct”? It seems unlikely.

I also had a look at 92(1)(e). Here is what it says (applies to all MPC members)

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The Code of Conduct for the MPC is required by law but decided by the Bank’s Board. Much of it is about managing or preventing conflicts of interest, but it also includes this section

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Unfortunately, it is very inward focused (for a committee that wields a great deal of external-facing power and (notional) accountability). But did the authors of this document, five years ago, really envisage that they’d have an MPC member (in this case the Governor) who would repeatedly mislead FEC, be utterly dismissive of any challenging questions from MPs at FEC, who’d never ever admit a mistake, and whose usual response to disagreement or challenge would be thin-skinned bluster, supported only by simply unsupportable assertions (the sort of thing younger generations seem to use the word “gaslighting” for)?

And, in any case, given what we know of how Orr operates in public around monetary policy (avuncular and engaging when not challenged or disagreed with; the complete opposite otherwise) and reports of how he treats staff who dare to disagree, how likely is it that Orr operates in MPC in the way described (“treating others’ contributions with respect at all times, and exchange ideas freely to promote excellence in MPC’s deliberations”)? And has (5th bullet) there really been evidence that, over five years, he has continually sought to improve the effectiveness of his contribution as an MPC member and spokesman? If so, it certainly isn’t evident in his public-facing activities.

Note that the Code of Conduct requirements also have to be read subject to the MPC Charter, a document issued by the Minister and the Governor jointly (a weird arrangement when the Governor himself is one of those supposed to be governed by it). The Charter includes this section

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Does anyone get the impression that, whenever challenged, Orr ever operates in a way that would show respect for the “reputation of the Reserve Bank”? If anything he has been the primary agent of driving down that institution’s reputation.

Both documents (Code of Conduct and Charter) look as though they could do with updating, to make it clear that the expectations of behaviour apply in outward-facing activities, engaging with Parliament, commentators, journalists etc, as well as inward. But once again, Nicola Willis has shown no sign of doing anything about the Charter, or putting in place a better board chair who might overhaul and extent the Code of Conduct.

As things are currently written I still reckon it would be a stretch to conclude that Orr had reached the dismissal threshold, and not worth the prolonged uncertainty and legal risk around attempting dismissal (in the unlikely event, on evidence to date, that Luxon and Willis cared a jot about anything other than claiming personal credit for the OCR starting to come back down). But even on what is written – in fact even without anything written – it should be clear that Orr’s conduct in office simply does not meet the basic standards we should expect from a powerful and (notionally) accountable public office holder. Frankly, it doesn’t meet the behavioural standards of a well brought up teenager. And that is so whatever you think of the actual narrow conduct of monetary policy (inflation, LSAPs, subsidised funding for lending and all). It is hard to think of any area of New Zealand public or private life where such conduct might be acceptable, let alone in one so powerful. If it is reminiscent of anyone in public life elsewhere it is Donald Trump. By accident the other day, I stumbled on this comparison from Orr’s now handpicked deputy from March 2018.

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I guess that was the upside of the (pre-PM) Johnson. It didn’t end well, but he was easier to remove than Orr.

Digging around in this stuff yesterday I was reminded of a post from a few weeks back, prompted by reading the Bank’s plans and budgets. There was this chart

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They claim they are going to spend $35 million this year on “engagement with the public and other stakeholders”. It remains a complete mystery what this huge sum of money is actually being spent on. 27+ comms staff don’t even come close to costing that much.

This is what they tell us they are seeking to achieve

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Quite how “Parliament…is supported to conduct effective oversight of RBNZ” when they have repeatedly misled Parliament and the Governor’s own style is frosty and dismissive around any sort of serious challenge or questioning is beyond me. How is the reputation of the Bank advanced when, as he did this week, the Governor not only denies the evidence of everyone’s eyes (there really was a very big change of view in a very short period of times) but suggests that anyone who didn’t buy his interpretation didn’t really deserve to be called a commentator? We don’t bring up our kids to behave like that. But for this Governor of the Reserve Bank……? They spend $35m of our money on what, for what?

If we can’t get rid of the Governor for another 3.5 years – and even if the government wanted to they probably can’t if he wants to stay – perhaps we could at least insist on a small amount of that $35 million being spent on some remedial training programmes for the Governor. I’m pretty sure not a single media training programme, or government relations firm’s advice on handling select committees, would counsel anything like the Governor’s style/conduct. And they would be right to take such an approach. It is simply unacceptable behaviour from anyone, let alone someone with so many question marks around the narrower technical performance of the powerful institution he leads at our expense.

Michael Reddell spent most of his career at the Reserve Bank of New Zealand, where he was heavily involved with monetary policy formulation, and in financial markets and financial regulatory policy, serving for a time as Head of Financial Markets. Michael blogs at Croaking Cassandra - where this article was sourced.