Further to my post this morning, I’ve read a few more of the papers a bit more carefully.

It is still clear that when Rodger Finlay was appointed last October to the “transitional board” of the Reserve Bank and (from 1 July 2022) to the full Reserve Bank Board that no one (Treasury, Reserve Bank, Minister of Finance) seems to have been bothered by the stark conflict of interest between his twin roles as NZ Post chair (majority owner of 5th biggest bank in New Zealand) and the proposed role on the Board of the prudential regulatory authority. Any conflict was sufficiently unimportant (in the eyes of officials) that discussions were not documented, and ministers were not even advised of the issue in the relevant Cabinet and Cabinet committee papers.

To be fair, at that point it appears that Finlay’s term as NZ Post chair expired in the first half of 2022. But there seems to have been no discussion as to whether he would be reappointed, presumably because no one was bothered about the conflict. That reflects poorly on all involved – Treasury and Reserve Bank officials (junior and very senior), the chair of the Reserve Bank Board, Grant Robertson, and of course Finlay himself. A fit and proper person for the Reserve Bank Board role – the standard regulators apply to private sector appointees – would have immediately recognised the conflict (real and apparent) himself and made it clear that he could do one or other role but not both. Oh, and as I noted this morning, none of the other parties in Parliament raised any objections, or asked any questions, when Robertson consulted them about the RB Board appointment (as his new legislation required him to do).

I wrote my first post on the Finlay issue on 10 June 2022. It was the first piece drawing attention to the issue.

But it turns out that on 8 June 2022, Finlay’s reappointment as chair of the NZ Post board had been considered at the Cabinet’s Appointments and Honours Committee. His reappointment was confirmed at the full Cabinet on Monday 13 June 2022. In other words, just three weeks before the new Reserve Bank Board took office (and legal responsibility for bank supervision and prudential regulatory policy). And again, (other) ministers were not advised of the conflict (not even to note that a potential one had been recognised and arrangements were in place to manage it).

By this time, I’d had numerous emails from former senior central bankers astonished that the government was putting the chair of Kiwibank’s majority owner on the Reserve Bank Board. But apparently no ministers were at all bothered, as the reappointment to the NZ Post Board from 1 July 2022 was confirmed.

We know all this because a week or later there is a letter of apology from the Secretary to the Treasury to the Minister of Finance.

We know the reappointment was done on 13 June from this extract from a Cabinet paper from the acting Minister of State-Owned Enterprises

Poor Cabinet members. (Perhaps some should read my blog).

It does get worse. A journalist at the Herald had got interested in the story, and her story on Finlay ran on 21 June. For that story, she had asked around and had been told that Finlay’s term as chair of NZ Post was ending on 30 June 2022. As her story noted (and as I and other accepted) if so that made the situation less bad than it had first appeared, since although Finlay would have been on the transition board (and attending real RB Board meetings) while also chair of NZ Post he would not in fact be in both substantive roles at the same time.

That looks a lot like an active attempt by someone to mislead, since Finlay’s reappointment as NZ Post chair had been signed off by Cabinet on the 13th.

In the end it may be that what happened was more slipshod than a total abandonment of standards. That is suggested by this email dated 21 June (the day the Herald story appeared).

It seems likely, after last week’s announcement, that the redacted passages refer to the restructuring of the ownership of Kiwibank. After that restructuring is completed, and the Crown becomes the Kiwibank owner directly, there would be no conflict of interest between positions on the NZ Post and Reserve Bank Board. But that restructuring was only finally announced in mid August.

Slip-ups happen, but we should not skate over this one too quickly: Finlay’s reappointment to the Post position had occurred just a few days previously when presumably all involved at Treasury (and in the relevant ministers’ offices) knew that the ownership restructuring was not anywhere near announced, let alone done. That they failed to discuss the issue among themselves, that key figures failed to alert ministers and ministers to alert Cabinet, seems just consistent with the slack approach that had been taken on Finlay’s conflicts right back to October 2021. We don’t know whether the Governor knew of the Kiwibank ownership reshuffle plans, but either way there was still an onus on any Governor at all serious about avoiding actual or perceived conflicts, in the shiny new governance model, to have stamped his feet and insisted that Finlay’s situation be resolved. And, of course, there was Finlay himself – who, as far as we know, neither expressed nor felt any concerns.

The evidence suggests that sometime between 22 June and the end of the month Roger Finlay’s reappointment as chair of NZ Post was reversed. Perhaps ministers came to their senses and insisted on a rethink. Just possibly Finlay chose to stand down (the former seems more likely, since it is likely that the Herald story was the first time other ministers (including the PM) and their political advisers became conscious of the conflict issue, while Finlay had known of it for many months). In any case, by 1 July 2022, Finlay was no longer showing on the NZ Post website as board chair.

It all ends less badly than it might have, but it really should not be an acceptable standard of conduct from the Secretary to the Treasury, the Governor of the Reserve Bank, the Minister of Finance, or (now making regulatory policy including on fit and proper people in regulated institutions) Rodger Finlay. The twin appointments were never illegal (but should have been) but simply not being illegal does not make behaviours or appointments not improper. It is hard to think of any serious central bank anywhere where the possible twin government appointments (chairing the owner of a bank and serving on the regulatory authoritiy board) would be treated in such a slack and cavalier way.

This short post is mainly for those readers who don’t follow me on Twitter.

You may recall that a couple of months ago I highlighted as being highly inappropriate the appointment to the new board of the Reserve Bank (and the establishment “transitional board”) of Rodger Finlay, who was also chair of the state-owned enterprise New Zealand Post, which in turn was the majority owner of Kiwibank, the 5th largest bank in New Zealand.

The appointment was not illegal – itself a serious weakness in the new Act – but was clearly highly inappropriate in that the new Board was picking up responsibility for prudential supervision, most notably of banks.

When a couple of journalists got interested in the story, we were given to understand that Finlay’s term as chair of NZ Post would expire on 30 June 2022, and as the new Board only took legal responsibility for the Reserve Bank from 1 July 2022, that seemed to allay at least some concerns (about the situation looking ahead), even though it was clear that Finlay had been fully and extensively engaged with the activities of the Bank and the old Board during his “transition board” term, while serving as chair of Kiwibank’s majority owner,

Later that month, the rest of the appointees of the new Board were finally announced. It was a seriously underwhelming group of people, few of whom came anywhere near the sort of standard one should expect on the board charged with such considerable powers, including around the appointment and review of the Monetary Policy Committee. I lodged various Official Information Act requests for background material on the Board appointments, and this morning got back a (long) response from the Minister of Finance.

There might be a fuller post at a later date, but skimming through the documents, this succession of tweets (typos and all) captured the initial concerning aspects I spotted.

The key concern, at least to my mind, is that the papers make it clear that it was always intended that Finlay would continue serving as NZ Post chair (owner of Kiwibank) even once the new RB Board, on which he was serving making regulatory policy, took formal office, and that those who asked about this appear to have been actively misled.

It is concerning that this conflict was never drawn to the attention of Cabinet members considering the appointment, but that process failure itself appears to be primarily a reflection of the deeper problem that neither The Treasury nor the Reserve Bank appear to have considered the conflict to have mattered, either substantively or in appearance terms. There is text in the OIA release suggesting that Treasury and RB staff had discussed the matter at an early stage, but it doesn’t appear to have been treated very seriously in that there was no file note or record of those discussions kept, and no evidence of any discussion of the issues or risks with the Minister. The papers suggest they were having a great deal of difficulty getting able people to even consider appointment, and perhaps that meant standards slipped. They shouldn’t have.

Finally, one of the things that has interested me about the new RB legislation was the addition of the requirement that other parties in Parliament be “consulted” before Board appointments (including of the Governor) are made. In the release, there is a record of letters of consultation being sent to the other parties in Parliament. Sadly, there is no sign that any party raised any concerns about the Finlay appointment even though his chairmanship of NZ Post was explicitly mentioned in each of the consultation letters. I’ve been sceptical that the consultation requirement would mean anything much in practice, but it is sobering that no other party even appears to have raised the conflict of interest issue re Finlay, even when the letter was right in front of them. (For the record, National and ACT did send brief responses back to the Minister raising concerns about the later block of appointees announced in June.)

UPDATE: A further post on the same issues.

https://croakingcassandra.com/2022/08/29/rodger-finlay-revisited-2/