A temporary Governor: is it lawful?

And so we have confirmation that Graeme Wheeler is leaving his position as Governor when his current term expires, a couple of days after the election.  (Reserve Bank statement, and Minister of Finance statement.)

That is less newsworthy than the solution the Board and the Minister have come up with –  the appointment of current Deputy Governor (and deputy chief executive) Grant Spencer as acting Governor for six months, to allow the search and appointment process for a new permanent Governor to conclude after the election, when the shape (and policy orientation) of the new government is known.  Spencer will retire at the end of that acting period, and will not again seek permanent appointment as Governor (having sought the role unsuccessfully in 2012).

It is a pragmatic solution, and not that out of line with the one I had proposed –  that Wheeler be invited to stay on for perhaps a year, to allow the appointment to be made by the new government.  It would be interesting to know why that didn’t happen –  was Wheeler not willing, or the Board or Minister not interested?  No doubt, Spencer will be a safe enough pair of hands for six months.

But there are other unanswered questions.  For example, is this a solution envisaged by the Act?     The only previous appointment of an Acting Governor was when Don Brash resigned to go into politics, and Rod Carr was appointed as acting Governor while the selection process for a permanent successor took place.  There is a clear need for acting Governor provisions in such cases –  Governor can resign, die, or otherwise become incapacitated (and can even be removed for cause by the Minster).

But here is the relevant statutory provision (section 48)

If the office of Governor becomes vacant, the Minister shall, on the recommendation of the Board, appoint—

(a) a director of the Bank; or
(b) an officer of the Bank; or
(c) any other person—

to act as Governor for a period not exceeding 6 months or for the remainder of the Governor’s term, whichever is less.

As I have read that section, it envisages an acting Governor to complete a Governor’s term. not to provide a temporary Governor when it is inconvenient to appoint a permanent one.

That interpretation seems consistent with two other aspects of the Act.  First, Governors must be appointed for an initial term of five years (although subsequent extensions can be for shorter terms).  Parliament made that choice deliberately, presumably to help emphasise that the Governor was to operate at arms-length from the government.  If, by contrast, an acting Governor could keep on being appointed for terms of six months at a time, it would allow the intent of the Act, operational autonomy, to be eroded if the government determined on such an approach, without coming back to Parliament to amend the law.

And second, the PTA provisions of the Act clearly tie in to the fixed term appointment of a Governor –  and in that context an acting Governor filling in for an unexpected vacancy (as Rod Carr was in 2002) simply carries on with the PTA the substantive Governor had had in place.  There is no provision in the Act for a PTA with an acting Governor –  and the existing PTA is personal to Wheeler, and expires with his term in September this year.

Steven Joyce’s statement says that

Mr Joyce and Mr Spencer have agreed that there will be no change to the Policy Targets Agreement for the period Mr Spencer will be acting Governor.

Which might be fine for practical purposes.  But that isn’t the way the law was written.  In legal effect, there is likely to be no PTA in place during that interregnum,and that isn’t how the Act should operate.

I welcome the fact that the authorities have recognised the significance of the issue that the governor’s term expired just after the election  (it is a point I have been making here for more than a year, including this post).  And in practical terms, no harm is likely to be done by having Spencer as acting Governor, but I remain uneasy as to whether this specific solution is legal, or consistent with the spirit and intent of the Act.

More generally, it highlights again the desirability of a more throughgoing review of the governance provisions of the Reserve Bank Act.  That should not be a particularly partisan issue –  more like an opportunity for some sensible reflections and revisions in light of 27 years experience with the current framework, changes in the role of the Bank, changes in the governance of other core government agencies, and changes in the understanding of how mechanically (or not) monetary policy can be run (and monitored).

UPDATE: Just to be very picky, the Minister’s statement says Spencer will act from 27 September 2017 to 26 March 2018.  But –  unless I have badly misread something –  Wheeler took office on 26 September 2012, and therefore his five year term appointment must expire at the end of 25 September 2017.   Easily remedied, but it looks a little careless.


8 thoughts on “A temporary Governor: is it lawful?

  1. indeed, (unless of course they wanted to reveal it pro-actively). It is probably a point touched on in the Treasury advice on this appointment. Perhaps I might request that.

    Lawyers, in any case, tend to deliver the advice that suits the client when they can, and in this case the interpretation adopted probably suited Treasury, the Board, the Minister (and Grant!)


  2. I agree with your interpretation, Michael.
    To me, it is clear that the appointment of Mr Spencer is outside the scope of the Reserve Bank Act, pragmatic though the decision to make the appointment may be.
    How much would it cost to seek a judicial review of Joyce’s decision?
    Perhaps it could be crowd-funded!


  3. Hmm. It doesn’t look to me at odds at all with the Reserve Bank Act. The appointment looks clearly in line with s48(1), and the agreement on a PTA between Joyce and Spenser fits fine with s9(1), though for that purpose it would have been more properly phrased as a PTA of its own rather than saying it’s the old one running on.
    I’m also not sure about there being such a clear link between the 5 year term of the governor and the PTA. S9(4), for example, allows the Minister and the Governor to revisit the PTA at any time and by agreement vary or substitute it.


  4. I’d like to think your interpretation was correct, altho mine is the way I’ve read the Act for years. The first part of 48(1) needs to be read with the final half sentence. Since 9(1) only refers to appointment as Governor – not acting Governor – I use this provision to back my interpretation.

    Re the length of PTA, yes the PTA can be changed by mutual agreement, but there always has to be one, and they only relate to the term of the Governor who makes the PTA.

    In practice, it probably isn’t a huge issue, but it would have been more clear cut lawful (ie no doubt at all) if GW had just been given a six month extension. That they didn’t go that way suggests some questions journos should be asking both of him, the Board chair, and the Minister. Perhaps GW was keen to just get on with a career as a Board director – the clock is ticking at his age – but it isn’t the only possible explanation.

    All a good reason for the pro-active release of the relevant papers by the Board, MOF, and Treasury.


  5. Thanks. Now clarified. There probaly will be some party-specific preferences – some of our more leftwing parties would probably favour people representing sectors on decisionmaking committees etc, and some others would prob favour technocrats, but the bigger choices (committee vs individual) aren’t inherently ones where either main party would have a natural ideological or partisan view.


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