Michael Reddell: Still waiting for a Governor

Today, 5 August, is five months since the shock resignation – or, as now seems much the most likely, engineered exit – of the then Governor of the Reserve Bank, who disappeared from office that very day, getting generously paid for several more weeks but not working until the official date his resignation became legally effective, 31 March.

Since then we’ve heard not a word of explanation from him and (more importantly, since they are still public officials) have been deliberately, actively, repeatedly, and still to this day obstructed and mislead by the Reserve Bank Board, notably the chair Neil Quigley, enabled by the Minister of Finance, and implemented (in respect of OIAs) by the temporary Governor, Christian Hawkesby.

Applications for the position of Governor closed a couple of months ago, so I guess we must assume that the selection and recommendation process is now fairly well advanced. The Board established a Governor Search Committee

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Being chaired by Rodger Finlay – who has no background in macroeconomics or regulatory policy, and who had a questionable start to his time with the Bank (still chairing the board of the company that owned the country’s fifth largest bank) – doesn’t inspire much confidence. And if Finlay appears like a decent general corporate governance type of person, recall that he has been deputy chair through a) the reappointment of Orr, b) the Board approving the Bank running spending levels last year far beyond what the Funding Agreement had envisaged or allowed, and c) (and so we learned yesterday) was part of the Board that allowed management to sign a new lease on Auckland offices last November, massively larger than the current office, with space for many more staff than they currently had, when i) the Bank was already spending more than their Funding Agreement had allowed, and ii) they (presumably) still had no real steer from the Minister of Finance as to what approved spending for 25/26 and beyond was going to be. [Oh, and he’s been party to the cover-up of the last five months.]

Quite a team he and Quigley must make. Not exactly a team to inspire any confidence in the wisdom of whoever they end up putting forward as a first nominee to the Minister of Finance, or a team that might assure a good potential Governor that he or she was going into a well-led governance structure. Responsibility for that is shared by those Board members and by the Minister of Finance who has continued to express confidence in Quigley (for reasons not comprehensible to anyone outside her bubble) and refused to proactively ensure vacancies were quickly filled by new able people.

We had a Governor resign once before. Don Brash announced his resignation and left office on 26 April 2002. Just under four months later, Alan Bollard was announced as the new Governor.

Defenders of the Board and Minister might point out that things are a little more complicated this time. By law, the Minister now has to consult with the other political parties in Parliament (in practice the Opposition parties, since the coalition parties will already have been involved through the Cabinet appointments process).

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The law does not require the Minister to change her mind if the other parties (some or all) disagree (perhaps strongly) with a nomination, although the statutory provision would be empty if she did not pay at least some heed to concerns expressed. (There is no sign Grant Robertson did – and it was his new provision – when he went ahead and reappointed Orr, over objections from both ACT and National in late 2022, but if the provision is to have any meaning at all, you’d hope there would be some serious reflection on any objections, especially when an incumbent is not involved.)

However, if the paper work is a bit more time-consuming now than it was in 2002, bear in mind that the appointment of Bollard was accomplished in less than four months even though Michael Cullen had rejected the Board’s initial nomination.

By law (see above) the Minister and government can only appoint someone the Board recommends. But that does not mean that the Minister has to accept any particular recommendation. That isn’t the empty provision people sometimes suggest. There have only been three new Governor appointments since the legislative model came into effect (in 1990) and Michael Cullen recorded in his autobiography that he rejected the then Board’s nomination of Rod Carr (deputy and at the time acting Governor).

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As was his perfect right to do. (The Board must have at least half-expected their nomination to be rejected as it was understood among senior management at the time that Helen Clark had made clear that she wasn’t going have any “Brash-clones” appointed.) I’ve long championed the much more conventional model in which the Minister gets to appoint their own preferred person as Governor directly (perhaps accompanied by scrutiny hearings by FEC before the person actually takes up the office).

But it was all done in less than four months, and it is now five months and counting since Orr left (and the Bank in 2002 was in nothing like the mess, or urgent need of new strong capable respected leadership that it is now). I hope the Minister is drumming her fingers and urging the Board to get on with it.

Quite who they might come up with remains a mystery, or whether the couple of new Board members this year might persuade their colleagues that whatever the Board has once seen in Orr he should be almost a benchmark antithesis of the sort of person who should be chosen.

I wrote a post a couple of months ago, shortly before applications closed, prompted by the advert for the job and what it suggested the Board might be after. As I have noted throughout, I don’t believe there is any obvious ideal candidate, and so inevitably compromises will have to be made (and in recruiting a person, the Board and Minister need then to have regard to the willingness and ability of the person to clean house and build a new and more capable second tier – we cannot for long be in a position where the deputy chief executive responsible for macroeconomics and monetary policy has (a) no background in the subject, and b) can’t intelligently comment on anything of substance other than from a script she has been given).

That said, straws in the wind aren’t terribly encouraging.

I’ve heard that a couple of very able applicants didn’t even get an interview (there is such an abundance of talent? Really?). And then there was media report (that I’d heard via markets people earlier) that a Bank of Canada Deputy Governor (they have many) was a strong possibility, perhaps even a frontrunner.

This would seem an ill-advised choice if it was really a direction the Board was considering taking. Gravelle seems to have no particular connections to New Zealand (other than a couple of conferences, one by Zoom), and comes from an organisation that – unlike the Reserve Bank of New Zealand – does not do banking (and non-banking) financial regulation and supervision, these days a big part of the Bank’s job. For all its undoubted analytical strengths, the Bank of Canada also has a quite different sort of monetary policy governance model (entirely internal) than New Zealand’s. And then there is the adverse selection issue: a person who was good enough to be a serious contender for Governor in his/her own country (G7 country and all that) would not be very likely to put themselves forward to be Governor of a much smaller, poorer, remote country’s central bank, a country with which they’ve had no particular ties. As a couple of people have put it to me, it is a bit reminiscent of the old imperial days – someone not quite up to being appointed Governor-General of Canada or Australia might still be handed down to New Zealand. And it is not as if parachuting in foreign appointees to top economic roles here has been a particular success story (see last two Treasury secretaries), nor in many ways was bringing back an expat after 15 years away to the Reserve Bank (even if Orr’s record makes Wheeler look less bad). Can we really have fallen so far that we can’t find a credible respected appointee at home?

Always possible I guess. Compelling choices certainly aren’t thick on the ground.

What of the temporary Governor, Christian Hawkesby? These were my comments a couple of months ago


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Much of which I would repeat today. But unfortunately since early June we’ve seen not just that Hawkesby has been a part of the obstruction effort re Orr’s departure (and if he is working to Board direction the fact that he has not been willing/able to insist on a more open approach is a poor reflection on any claim he has to be thought a worthy occupant of the permanent role. And then of course there was that last sentence. We now know that not only did he repeatedly sit alongside Orr while he (Orr) mislead Parliament, but that Hawkesby himself misled them just three months ago. He proved unable to even pass that low bar I mentioned in June.

I ended that earlier post speculating on some possible sorts of names I hadn’t seen mentioned in any of the media articles (bearing in mind that the advert had talked of the importance of both financial markets knowledge and CEO experience)

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Since Stobo is (a) an economist by training, b) has CEO experience, c) has financial markets expertise, and has been appointed to his current public sector role (chair of the FMA) by this government, and is a thoughtful and reflective person .you could see why he might be a strong contender if he wanted it (and was willing to give up his portfolio of directorships etc and media commentary). If one can’t have much confidence in the FMA, there’d definitely be worse people for the job.

But it is time to get on with it and get a new Governor in place. And then get on and refresh the Board, with a new chair to work with and oversee the Governor.

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.