It can be hard to know quite what to make of the Governor of the Reserve Bank, even setting aside the substance of his policy choices and formal policy communications.
I’ve been puzzled almost from the start. When his appointment was announced two years ago this week, my post began with several positive aspects I saw in the appointment. His communications skills were always both a potential plus but also quite a risk.
What of his communications skills? He can be hugely entertaining, and quite remarkably vulgar (an astonishingly crude analogy involving toothbrushes springs to mind). Just the thing – perhaps – in an old-fashioned market economist. Not, perhaps, the sort of thing we might hope for from a Reserve Bank Governor. …..No doubt he will rein in his tongue most of the time – and perhaps he has calmed down a bit with age – but it is the exceptions that are likely to prove problematic.
And what happens when some journalist or market economist riles him? Perhaps a journalist might ask him about how he would approach an episode like the Toplis affair? You (and I) might like to hope things would be different, but I have in mind an episode from Orr’s time as Deputy Governor…..
There has been lots of flakey stuff over the 20 months he has been in office, including his run-in with Gerry Brownlee, the tree-god nonsense Orr has championed, and plenty more.
But the focus in the last year was the far-reaching proposals Orr came out with, having done nothing to lay the ground in advance, for greatly increasing minimum capital requirements for locally-incorporated banks. Again, my focus here isn’t on the formal process or policy content – although had those been done better the confrontations and style issues might never have come to the fore.
Over the course of the year we had reports of the Governor openly claiming anyone who disagreed with him was in the pocket of the banks, that any locals who knew something about the issue didn’t need to be listened to because they were “bought and paid for”. the shocking treatment of veteran journalist Jenny Ruth at a Bank press conference, reports of angry phone calls from the Governor to submitters who disagreed with him, and so on. Much of this was captured in a series of articles by Stuff journalist Kate MacNamara, from which this snippet is taken
But other observers were not surprised. Details of [Victoria banking academic Martien] Lubberink’s experience were already circulating in Wellington and industry sources say they match a pattern of hectoring by Orr of those who question the Reserve Bank’s plan.
“There is a pattern of [Orr] publicly belittling and berating people who disagree with him, at conferences, on the sidelines of financial industry events,” said one source who’s been involved in making submissions to the Reserve Bank on the capital proposal.
There have also been angry weekend phone calls made by Orr to submitters he doesn’t agree with.
“I’m worried about what he’s doing.”
The source said some companies have “withheld submissions,” for fear of being targeted by Orr.
“They’re absolutely scared of repercussions. It’s genuinely disturbing,” he said.
The Governor has a great deal of formal and informal power over banks.
As I’ve noted previously, I hadn’t had any such encounters myself although last weekend the Herald’s Hamish Rutherford reported on these strange Orr comments at FEC from a while ago.
The MacNamara articles and letters written to the Reserve Bank Board at about the same time by me and another former Reserve Bank official Geof Mortlock seem to have brought things to something of a head.
From the Governor’s side, there was first the weird press release he corralled his entire senior management team into issuing, apparently attempting to close down concerns about him by suggesting people were unfairly attacking Reserve Bank staff, when most of any concerns were about the Governor’s own stewardship.
Having previously been rather dismissive (the Board chair fobbing off the journalist with a “no formal complaints received” line), we know the Reserve Bank’s Board discussed the issues, including my letter, (without the Governor in attendance) at its meeting on 18 October. The minutes indicate that the Board chair was to hold a separate meeting with the Governor after that. There are unverified reports that the meeting was quite a fiery affair, but whatever the truth of those reports, there have clearly been some behavioural changes since. As Hamish Rutherford reported, at FEC 10 days ago, Orr simply refused to answer a question about his own conduct
That seems pretty extraordinary from a senior public official, paid by the taxpayer, questioned by a parliamentary committee. Doesn’t exactly speak of the transparency Orr sometimes (but only in generalities) talks about.
But there has clearly been some change. All observers have noticed that in the three press conferences he has done in the last six weeks, Orr has mostly been on his best behaviour (the odd grumpy aside apart). Of course, he has mostly had it fairly easy, because on all three occasions the assembled journalists avoided asking uncomfortable questions about these conduct issues – as if they saw the role of the media being to not discomfort the powerful. But it was a different Orr on display.
And in conversation this week I learned that Orr had actually apologised for one of the more egregious episodes earlier in the year. That deserves at least some credit. If Orr has learned some lessons and altered his style, in an enduring way, that would be welcome, and would be good for him, for the institution, and for us. There are, however, reasons to doubt that.
Last week, again in the Herald, veteran columnist Fran O’Sullivan ran an interesting piece on the Orr antics and the (alleged) way the Board had encouraged him to come him to heel.
Adrian Orr took a self-denying ordinance eight weeks ago and took a public back seat on the controversial bank capital debate as criticism from Australian banks, media, former Reserve Bank staffers and even a business think tank threatened to engulf him and fatally puncture his authority.
It was a timely move, and one the Neil Quigley-led Reserve Bank board had wanted to see. A cordon sanitaire was effectively wrapped around the Reserve Bank governor — and his deputy and an assistant governor thrust forward to continue the public discussion.
Her illustration was a particular event in late October, organised by INFINZ, where Orr had been due to speak.
The behind the scenes play became obvious to me when at short notice Orr pulled out of a discussion between him and Rob Everett — CEO of the Financial Markets Authority — which I was due to facilitate at this year’s Infinz conference.
There was no way the subject du jour of bank capital changes would have been avoided in a discussion focused on the “Regulators’ perspective and market reform”. Orr knew that and would not have expected otherwise.
The excuse for the no-show was unconvincing.
The event had been billed for weeks and knowing Orr (as I have over several decades) there was no way he would not have shuffled commitments to turn up unless a not-so-subtle choke chain had been applied.
Except that it may not have been so.
I had seen reports of this line that Orr had been muzzled and had pulled out of various events and didn’t know what to make of them. So I lodged an Official Information Act request, asking the Bank for
details of any external speaking engagements, or contributions to written publications, where the Bank had initially indicated that the Governor would speak but which, during October 2019, were either rescheduled, cancelled, or assigned to some other Bank staffer.
The Bank was typically tardy in replying, extending beyond the statutory 20 days, but the reply finally came yesterday. The full documents – which includes other stuff- is here
Orr concerns OIA December 2019
Included in the document is an email chain, involving the Bank and the Minister’s office about a meeting the Minister wanted, culminating in this extract from an email from Orr to the head of INFINZ, dated 17 October.
Seems pretty conclusive to me.
And so, a detached observer with a generous cast of mind might reasonably have thought that what was going on was something like this: perhaps after a discussion with the Board the Governor had privately reflected on the previous few months and concluded that perhaps he hadn’t been at his best – not best serving either his interests or the Bank’s – and had decided to adopt a more open, welcoming of challenge, stance, even expressing some regret for some of what had gone on earlier in the year.
But then there was the NBR article. Earlier in the week I saw the NBR headline and tweeted it thus
But not having an NBR subscription, I didn’t give it any more thought.
But someone showed a copy of the article/interview to Eric Crampton of the New Zealand Initiative (who didn’t have a subscription either). It turned out to be a fairly extraordinary attempt either to rewrite history, or to come clean at last, about the Governor’s reaction to the Initiative’s report, released early last year, on the performance of various regulatory agencies including the Bank. That report had been based on a late 2017 survey of big business stakeholders (in the Reserve Bank’s case mostly banks). You can read Eric’s post here.
As a reminder, the feedback on the Reserve Bank was pretty scathing (my summary – including a few caveats of mine – here), notably in contrast to the feedback on the Financial Markets Authority. But it related to a period before Orr was Governor and so should have been valuable input to the new Governor, and to the Board in holding the Governor to account.
And a few days later, it seemed that that might be exactly how the Governor was treating it. When Hamish Rutherford asked Orr about the report, his response prompted a post from me, “Full marks to the new Governor”.
That is an excellent start: fronting and recognising the issue, to the public, to staff, and to the heads of regulated entities (people who completed the survey).
I’ve been critical enough of the Bank – and have offered plenty of unsolicited advice as to how the place can be improved (by law and by culture/performance). I’ve also been a little sceptical of Orr, prior to him taking up the role. But this is an excellent start. It is only a start of course, and perhaps he really had no choice but to adopt such an approach in response to feedback so dire. And actions will need to follow, to change future outcomes. and that will take time and lot of commitment. But I’m not going to grudge him praise today.
Well done, Governor.
But in that interview with NBR, as reported by Eric, Orr is now telling a quite different story.
“When I turned up as governor [in March last year] and I walked into this vacuum, the first thing I received was a NZ Initiative report on how we don’t ring, we don’t write, we don’t come to see you, we don’t explain … this damning report where they’d interviewed eight people.”
The report was the NZ Initiative’s Who guards the guards report from April last year, which found fault with the RBNZ’s governance.
“I felt the bank had almost become a free hit and it was fine just to criticise or throw things at the bank,” Orr. said
“So I deliberately removed the ‘free’ component of that to say ‘well hang on, if you say that, expect to be questioned’.
“We are humans behind this concept called the central bank. You can’t just abuse us. It’s hashtag not ok.
“That we wanted to be open, accessible, and not put up with abuse, came as the biggest shock to the usual customers or the usual behaviour.”
For a start, while the number of people surveyed for the Reserve Bank component of the survey was small, they were people from institutions with direct exposure to and experience of the Reserve Bank as regulator. And it was a pretty careful survey, asking the same questions to people from businesses exposed to a wide range of regulatory institutions. I talked to the lead author of the report at various stages, from planning to commenting on the draft report. I knew the Initiative had some scepticism about the governance structures for the Bank, but I’m pretty sure they were surprised – as was I – by the depth and intensity of the feedback on the Bank. It wasn’t just the reaction you expect the regulated to have to the regulator: the Bank stood out as a particularly poor performer, in the survey measures and in the specific comments.
And it wasn’t a matter of “abuse” either; these were specific concerns, sometimes about longserving key individuals, but much more about the entire regulatory culture of the institution (senior management empower and set the culture for the rest of the organisation). The April 2018 Orr seemed to believe that, but now we have to wonder if he was simply making stuff up to sound good to Hamish Rutherford (and perhaps even the banks) when all the time his own instinct was that a dismissive counterpuncher. If you are powerful public body, you have to expect, and be able to cope with and respond constructively to, criticism. But Orr – both here and in that earlier FEC quote – seems to regard it as almost an act of lese-majeste. They have laws against that in Thailand, but we are a free and open democracy, in which the powerful have to expect – and ideally should welcome – vigorous scrutiny. And when the governance model is a single decisionmaker one – as it still is on regulatory matters – then inevitably a fair amount of criticism may come to focus on an individual.
And so as we end the year, I’m left with the impression that nothing has really changed. Orr is as thin-skinned as ever – full of bonhomie among those who willingly orbit his sun, but as unwilling (perhaps unable) as ever to cope with challenge, dissent, and alternative perspectives. Instead of ever engaging with specific criticisms – about tone, style, process, let alone content – we just get repeated attempts to suggest that people are “abusing” him, or attempts to play distraction by suggesting that people are unfairly abusing his staff. Sure, he seems to have mostly reined in his tongue for a month or two, but there is little sign that he has really learned anything much from the last year – other perhaps than that he has mostly gotten away with it. The Herald , after all, yesterday listed him as one of their five ‘business heroes’ for the year (strange on multiple accounts, but in case they hadn’t noticed the Reserve Bank is not much of a business).
Martien Lubberink of Victoria University, one of those who caught Orr’s ire earlier in the year, responded to Eric’s post about the NBR article this way
Orr will always be seen as the Governor with anger management problems, an aberration among his peers.
(I think he was meaning among international central bankers and supervisors.)
Sadly, that sounds about right. There is little sign of the sort of gravitas, seriousness, intellectual heft or any of the other qualities we should look for in the holder of such a high and powerful office. Or that one would expect to see in other countries.
The Minister of Finance has gone on record, unprompted, as being right behind the Governor. We are awaiting decisions on (a) the second stage of the Reserve Bank Act review, including issues around governance and (b) the new chair of the Reserve Bank Board – both might emerge next week (Quigley’s term ends on 31 January and there aren’t many Cabinet meetings between now and then), but as he has reached those decisions I hope Grant Robertson and his colleagues have privately reflected on the quite severe limitations of the Governor Quigley and his colleagues – rubberstamped by the Minister – have delivered us.