In the recent report of the Independent Expert Advisory Panel, and subsequent Treasury advice, on the Reserve Bank Act, one of the things that surprised me was the way both groups (independent advisers and Treasury) simply seemed to take for granted the current role of the Board of the Reserve Bank and seemed to assume that the Board had done its role well and effectively. The issue is simply not raised in the respective reports, even though the role of the Board is quite unusual – whether in a domestic public sector role, or in comparison with overseas central banks and financial regulatory agencies. And so even though the government is proposing changes to the decisionmaking structure for monetary policy (and probably, later, for the financial regulatory functions) there is simply no serious analysis at all questioning whether, in light of experience, the role of the Board remains appropriate. And that is even though few people I’ve ever discussed the matter with – some ex-Board members apart perhaps – thought that the Board was doing effectively a useful job on behalf of the Minister and the public. At the Treasury-convened consultation meeting I attended, no one had a good word to say for the Board.
I’ve outlined the nature of my concerns previously (most recently here). The Board has very little power – other than in the appointment of the Governor – and no resources of its own (that latter issue is touched on in the reports), and – whatever the merits of the unusual model on paper – it has ended up, over decades, serving mostly as providing cover for successive Governors. Even though their role is largely to review the Governor’s performance, in 15 years of publishing Annual Reports they have never once uttered even a modestly critical comment of the Bank or the Governor. Since no one is perfect, that track record just reinforces the conclusion that the Board adds little or no value – for the public, although no doubt it has proved useful to troubled Governors. They provided no protection for Stephen Toplis or the BNZ when Graeme Wheeler deployed his entire senior management team to attempt to silence an independent critic. And they egged on Graeme Wheeler when he used his official position, and public resources, to attack me for drawing to his attention, and publicising, what proved to be a leak of the OCR.
With different people, perhaps it could do a better job, but the institutional incentives militate against that ever happening – the Board is simply too close to management (the Governor himself is a member), and even the name (with suggestions of a corporate board) works against a proper conception of an arms-length body providing serious review, challenge, and scrutiny of a very powerful public agency. Awkward individual members – and there has often been at least one, sometimes with hobbyhorse issues – aren’t much more than a nuisance with no outlet. In my view, far more fundamental change is needed: either turn the Board into a proper decisionmaking body (as with a typical Crown entity), abolish it, or if arms-length review and scrutiny is the goal, the relevant entity needs to be established outside the Reserve Bank, with independent resources and an independent mindset, and no sense that their role is to champion the Bank.
But in the Independent Expert Advisory Panel’s report there was a sentence – the very last one in the body of the report – that caught my eye.
114. The Board has a code of conduct. The Panel recommends that this be reviewed in light of the legislative changes.
So I asked the Board for a copy of its code of conduct. Apparently, there isn’t actually a document of that name, but the assumption is that the Panel was referring to a document rather grandly described as the “Charter for the Board”, which they released to me in full.
When I see the word “charter” I have in mind something that those who founded an entity might have issued, establishing and empowering the entity (dictionaries seem to back that interpretation). Google tells me that, for example, there is a Radio New Zealand Charter, actually included in statute. It is described thus
The Charter is an important document which sets out our operating principles.
It defines what we do so that everyone – staff, listeners and other stake-holders – can easily understand our objectives and what we are expected to provide for the New Zealand taxpayer.
and is readily available, for all to see, on the website.
The Reserve Bank Act sets out what the Reserve Bank Board is supposed to do. The Minister of Finance’s letter of expectation to the Board can fill that out a bit.
The Reserve Bank Board’s “charter” doesn’t seem to have any status, except a set of agreed arrangements among the people who happen from time to time to find themselves serving together as the Board. No wonder the independent panel loosely termed in a “code of conduct”.
Most of the document probably isn’t of much interest, but a few bits (and a few omissions) caught my eye. First, there was the secrecy. From the very first line
This Charter is confidential to RBNZ staff and directors. It must not be released to external parties without approval from the Chair of the Board or Governor.
Given that the Board exists solely to serve the interests of the Minister and the public, surely it would be normal, and natural, for a document of this sort to be routinely available on the website? The Wellington City Council, for example – a notoriously OIA-averse body – manages to have its code of conduct for councillors readily accessible. What, one wonders, is the Board trying to protect? Probably nothing – it is just the mindset.
There are questionable assertions (emphasis added)
The Board may advise the Governor on any matter relating to the performance of the Bank’s functions and the exercise of its powers. The Governor is not required to act on the Board’s advice, but is required to have regard to it.
Nowhere in the Act, that I can see, is there a requirement for the Governor to “have regard” for the Board’s advice – a term that itself has legal meaning. A Governor might be foolish to simply ignore advice from the Board, but the Board is set up primarily to review the Governor’s performance, not to provide advice on policy or management issues.
The “Charter” goes on
Where advice relates to matters of significance, the Board may give that advice to the Governor in writing, having first discussed the matter with the Governor in a Board meeting.
The Board will maintain a record of any formal Board advice given to the Governor.
That is interesting. I have asked for copies of any such written advice. I suspect there will have been none, but time will tell.
I’ve noted previously that the Board has no independent resources. It doesn’t even appear to have a general right to whatever Bank information it considers it requires
The Governor will ensure that the Board has access to information, Bank staff and other resources that the Governor, in consultation with the Chair, considers the Board may require to perform its functions effectively.
In other words, the Governor determines what resources the Board has access to, even though the Board’s prime role is to scrutinise and hold to account the Governor. Sure he is supposed to consult with the Chair – and in practice can’t totally play hard-ball (since the Board could then conclude he wasn’t adequately doing his job), but the initiative and blocking veto rests with the Governor, not with the Board.
And they have a whole section on public communications, in which this is the most important clause.
The Governor has sole responsibility for the external communications of the Bank. The Chair and/or Deputy Chair, where required by statute or regulation such as by the Finance and Expenditure Committee of Parliament, may speak in those capacities. In no other circumstances shall a Non-Executive Director speak for the Bank or comment publicly on the conduct of the Bank’s functions.
In other words, no Board member – chair, deputy chair or not – will ever speak in public except when required by law to do so. In this clause, the Board appears to be agreeing among themselves that, as a matter of principle, they will never speak – even via the chair – to any media in response to inquiries (whether about their processes, Annual Reports, OIA releases, or anything else or about their activities). How can this possibly be consistent with open government?
The clause must be music to the ears of management. Back when the current governance model was first set up, one of the big internal concerns was that the Board would become an independent source of commentary on monetary policy (it was why, at the time, the Governor still chaired the Board – even though it existed to hold him to account). And it seems quite right that Board members should operate under a policy of not offering running commentary on individual OCR – or LVR – decisions, or the state of the economy. But for the Board members to broaden that out and simply refuse to respond to, say, media inquiries on their own conduct, including their reviews of the Bank’s actions and performance, should be quite incredible. It should be unacceptable. These people are ministerial appointees, paid to serve the Minister and the public, and should be subject to scrutiny, and willing to make themselves (perhaps primarily through the chair) openly accountable – not just when compelled to by law.
They might, for example, reasonably be challenged by a journalist over their apparent failure to comply with the basic provisions of the Public Records Act. There are, it appears, no records of the process the Board undertook, over 15 months, leading to the appointment of the new Governor. It is a pretty basic statutory requirement, which the Board is not exempt from. (Curiously, in the Board’s charter there is no general commitment, or requirement, to keep proper records, or the comply with statutory provisions such as the Official Information Act or the Public Records Act.
But the omission that really did surprise me, at least a little, was that there was nothing in this “Charter” or code of conduct, about the handling of conflicts of interests. Even the Act recognises that such conflicts are possible.
In considering the appointment or reappointment of a person to the office of non-executive director of the Bank, the Minister shall have regard, in relation to that office, to
- that person’s knowledge, skill, and experience;
- and the likelihood of any conflict between the interests of the Bank and any interests which that person has or represents.
The Act prohibits anyone who is “an employee of a registered bank or a licensed insurer’ from serving as a director, but there are few other restrictions. For example, people who are Board members of regulated institutions are not prohibited from serving on the Reserve Bank Board, nor are people who serve as professional advisers (eg lawyers) to regulated institutions. Someone who works for a payment system provider, or a clearing house – or who is on their Board, or a consultant to such entities – could have a clear conflict in respect of the Reserve Bank’s physical currency or NZClear operations.
These aren’t just hypotheticals. One of the current Board members is also a member of the board of directors of a major insurer – and the Reserve Bank, in addition to its ongoing supervisory and regulatory responsibilities in that sector, is now dealing with the recent failure of an insurance company, and the role of the Reserve Bank.
I suspect the Board does have some internal practices regarding the handling of all sort of potential conflicts of interests – and they themselves can’t control who the Minister of Finance chooses to appoint. But they look like the sort of thing that should be properly documented – and disclosed – in any sort of code of conduct, or “Charter” for a major public agency. The concerns are attentuated to some extent by the fact that the Board has few decisionmaking powers, but they have the right to offer advice on any of the Bank’s responsibilities and assert – see above – that the Governor is required to have regard to their advice. And the members all have privileged access to information on both monetary policy and (probably particularly) regulatory policy. I’m not sure what the appropriate boundaries are – given the role of the Board as it stands – but I hope the Board does, and can articulate their policies and practices.
The Board has not done, and is not doing, a good job. It is set up by Parliament to serve our interests – public, Parliament, and Minister – but constantly seems to see itself mostly as a servant, and defender, of Bank management. Those are two quite different roles. The so-called Charter adds a little more to the list of concerns, and the reasons why the government, as part of the current review, should more seriously consider far-reaching structural change, reconfiguring the role of the Board and the way that public-funded review and assessment functions are undertaken. The current model isn’t working, at least for anyone other than Bank management.