Conflicts of interest, and public life and policy

Michael Reddell Banking, National Party

I have become increasingly concerned about the declining standards in New Zealand public life, where things that come close to corruption get justified or excused, with very little attention from main Opposition political parties or the media. Labour has been in government for the last six years, so many or most recent examples have featured Labour ministers or appointees (eg the Public Service Commissioner simply lying to the public, one of his proteges (who would not still be in office if ministers took standards seriously) who took lavish taxpayer-funded gifts etc when changing government jobs and was very slow to pay back the money when concerns started coming to light, a senior minister attempting to pressure Radio New Zealand re the employment of someone close to her (and then refusing all attempts to get the text of her remarks released), or Cabinet ministers left in office by the PM even as their spouses are soliciting business contracts from agencies the relevant minister has responsibility for – contracts that, by the nature of marriage, they are direct personal financial beneficiaries from). And so on.

But as the prospect of a change of government has increased, so has my level of concern that the leadership of the National Party has made fairly little of such episodes and tendencies, and in particular has refused to take a strong stance making clear that such behaviours would be dismissable offences under a National government and its Prime Minister. I am generally reluctant to quite concede Matthew Hooton’s suggestion that each MMP government is worse than the one before it, but when it comes to standards in public life it is increasingly hard not to think he is right (although whatever United Front interests/individuals are now going to be in Parliament I suppose we should be grateful there is no one quite as egregious as Jian Yang now in prospect).

I have also been on record for years being concerned about former senior ministers and Prime Ministers moving effortlessly from politics into highly-paid private sector positions. I’d rather we paid retiring senior politicians a decent pension than to never be quite sure that people were not governing with a view to their next appointment. Being Prime Minister should be a stepping-stone to….retirement, the grandkids, and perhaps doing good and charitable deeds.

This post was prompted by an article in The Post this morning, a feature interview with John Key about campaigning, the election, Christopher Luxon etc. It highlights another area of risk/threat, which I hope gets some scrutiny.

Were John Key simply a retired former Prime Minister now tending his garden, his golf or his helicopter (it gets a mention in the article) it would be no problem at all. He has real campaign experience and can offer some potentially useful insights on the man, campaigning and so on. Especially when we learn (to no one’s surprise) that

But John Key is also chairman of New Zealand’s largest bank, ANZ, something which features prominently and deliberately in the article.

and lest there was any doubt (could, just possibly, this be a personal office that just happened to be in the ANZ building)

It is the ANZ chairman’s office. Key could easily have arranged to have the interview over lunch in a restaurant, at home, almost anywhere really…..but he chose to have it in the office of the chair of the biggest bank in the country. His office, in that Bank.

Now, if one were an ANZ customer (I am as it happens) it might or might not bother one to have the chair of one’s bank so openly aligned with the (likely) incoming Prime Minister and his party. There is certainly no sign that Key has become an uncontroversial non-partisan figure in his late middle age. Personally, that aspect doesn’t really bother me.

What I’m concerned about is that big banks are heavily regulated entities (far too heavily in my view, but what is is), and – most importantly – entities where there is a very strong expectation that if they get into trouble governments will bail them out one way or the other. Bail-out decisions aren’t a matter for central banks but (and rightly) for elected governments (no one more so than the Prime Minister and the Minister of Finance). Not only that, but although much of the implementation of regulation is done at arms-length (Reserve Bank and FMA) much of the policy-authorisation requires ministerial say-so. Plus, of course, ministers appoint the boards of both the Reserve Bank and the FMA.

And so in a few weeks it seems we will have chairing the board of our biggest bank someone who describes himself (quite credibly from all else we’ve seen and heard over the years) as “quite close” to the new Prime Minister, with the new Minister of Finance one of his own former staff.

It is a really serious conflict, and one of those where even if all the individuals involved actually act honourably, always and everywhere, neither they (unconscious bias, subconscious motivations etc) nor the rest of us can be confident that would be so, most especially in times of stress and crisis.

Banks being run by close affiliates of senior political figures are a well-recognised risk in the banking regulation/supervision area. The risks here may be a bit different from those in some deeply corrupt developing countries – not, eg, a matter of soft loans to the politicians etc – but that doesn’t mean they don’t exist. Public confidence in our system relies on the public having good grounds for being sure that only the public interest is shaping major policy and regulatory interventions. No might how honourable the individuals concerned here might be (I am making no observation on that), we simply cannot be that confident when a close confidante of the (probable) incoming PM and MoF – and former leader of their own party – is chairing the biggest bank in the system. That is so in the stress events I most worry about, but it is also so around the more fevered politicised debate about bank profits and whether anything should be done about them.

I would note that this is not one of those problems that is either inevitable everywhere, or innate to a fairly small country like New Zealand. It is also a different issue than ones around wholly state-owned banks (dubious as the appointments of Bolger and Cullen to NZ Post/Kiwibank were). The issue is also not about whether Key might have some pre-politics expertise that otherwise equips him for an ANZ role.

If you check the main boards of the big Australian banks by contrast you will find no former Australian politicians on any of them (although Key is also on the main ANZ Board). And, as it happens, the ANZ main board also has on it a New Zealand citizen (albeit resident in Melbourne) – a long time ago even a Treasury official – with much more banking experience, and no obvious political party affiliations. The other big banks in New Zealand manage without such political figures in prominent Board positions.

I hope National has thought seriously about this looming issue (not really an issue while they were in Opposition) and has plans for how to handle it. Other political parties and the media should be asking questions now, because voters deserve to know (both on the specific, but also on the more general approach to standards in public life an incoming government would propose to take). The best we can hope for is high enunciated standards now, as things tend to corrode under the actual pressure of office.

It isn’t obvious what the solution should be from National’s end. The Prime Minister and Minister of Finance can hardly stand aside from bank crisis resolution issues, not just because potentially huge amounts of money will be at stake, but also because resolution is likely to be highly political and involve high-level haggling with the Australian government. Nor does recusing themselves from bank regulatory issues really work – some junior minister might get to make the formal decision, but junior ministers are ambitious to be senior ministers. Perhaps – yes this tongue in cheek – Winston Peters might have to be delegated that specific power, as I’m sure there is no love lost between him and Key.

Key could of course resolve the issue, and if he were to do so it would prove him to be an honourable person, by stepping aside from his ANZ roles if National is elected, recognising that otherwise the appearance of conflict will never go away, and neither he nor Willis/Luxon, nor the ANZ will ever be free of either controversy or suspicion. Even if all acted otherwise honourably in the presence of such a conflict.

But it needs to be addressed now.

UPDATE (2/10). Thinking about this issue a bit further, while it might not be a fully adequate solution one step Luxon and Willis could take is to cut ties with Key (no meetings, no texts, no nothing), for as long as he is chair of ANZ. That would be an indication that they took actual and perceived conflicts seriously.

For those still doubting there is an issue it was reported this morning that in an interview with Mike Hosking Luxon had made these comments. Much of it is probably empty pre-election rhetoric, but they are his own words…..”constantly monitoring” a bank chaired by his mentor, close adviser etc, about matters which aren’t delegated to independent agencies. Again, no matter how honourably all involved believed they were individually behaving, no one (including the people concerned) could really be verifiably confident of that. Hard lines have to be drawn when monitoring (in this case of politicians/private business figures etc) is impossible and the issues/entities not small.

16 thoughts on “Conflicts of interest, and public life and policy”

  1. Yes. The National plans to restore interest deductibility on rental property is an example of concern/question of influence – for example one could ask is, to what degree is ANZ’s book exposed to interest-only and/or highly leveraged mortgages on these sorts of non-owner occupied properties. Does such a policy cushion any fallout should house prices plummet further while rent rises remain difficult/unaffordable by the tenant market? The same issue arose with Simon Power; https://www.stuff.co.nz/national/politics/5767710/Simon-Power-to-head-Westpac-Private-Bank

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  2. With NZ and Australian house prices still in crazy bubble territory, you could imagine a bail-out of the ANZ a real possibility. Everything goes well until it doesn’t. Exactly what happened with the BNZ in 1990 – where Fay Richwhite put pressure on the Govt to save them – on the too big to fail theory. Bailing out the ANZ may well be the best thing to do and perversely having the former PM there might discourage the Govt to proceed – as it would seem to be very cosy. So an unnecessarily poor choice of chair from what ever way you look at it.

    Perhaps he should get some advice from Jenny Shipley about this?

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  3. A thoughtful article Michael. Thank you. In considering standards of public conduct, one first has to acknowledge the validity of Lord Acton’s theory that “power corrupts”. Probably always has and always will. The trick is, in all eras, to have systems in place to minimize this erosion of good conduct.
    I think you are right in suggesting the conduct of politicians (& others in positions of authority) has been deteriorating. I wonder why?
    I suggest there may be several factors. Firstly the introduction of MMP, a strange reaction to Muldoon’s excessive domination via FPP , has certainly brought it’s own set of distortions along with the possible benefits of proportionality. The reduction in electorates has reduced the influence and access of the average citizen to his/her elected MP. And the concept of List MP’s has undoubtedly increased the power of the Party resulting in fewer possibilities of elected Mavericks to question Party policies and increased subservience. Our members of Parliament today more represent Wellington to the region’s rather than the other way around!
    Secondly in this increasingly secular age, the influence of the church has diminished. Many would say that this is a good thing and I might agree in part. However, it leaves us with an ethos that Parliament is sovereign, or if one looks at the balance of power in reality, that Cabinet is sovereign. No suggestion of subservience to any “god”.
    At least in earlier years MP’s commonly attended church and received a jolly good weekly lecture on good moral practice. Where do children and younger adults receive their moral training today,…from magazines with lots of stories about starlets with large boobies? Or more probably from tv or the internet…all media not noted for promoting good behaviour!
    Thirdly we live in an age of increasing specialization. Politicians are less likely to have a varied background in life’s careers and lessons of hard knocks. It seems more politicans are arriving in Parliament with backgrounds more tailored to ambitions of holding public office. Often from university studies in “communication”, “political science”, etc., followed by service to the Party, eventual progress up the ranks of MPs to Cabinet rank, and with some expectation that on “retirement” from Parliament, one can find good employment in some publicly funded niche. “Networking” ie using friends and colleagues to advance is the name of the game, & principle skill of a career in public”service”.
    There are no doubt plenty more factors in play, (NZ’s small size and population for example) but whatever the reason I think you are absolutely correct in your observation. I think we need to improve our checks and balances. Your blog is a small but helpful contributor.

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  4. The weekly sermon from the pulpit has been replaced with the seven days a week twenty-four hours a day virtue signalling. “If I see it, I call it out.” has replaced “First, remove the beam out of your own eye, and then you can see clearly to remove the speck out of your brother’s eye.”
    I’m fascinated how the world has changed from the excesses of the sixties to our current prudish age. Modern hypocrisy has flourished as regular church attendance declined.

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      • If the specific issue is hippy -v- hypocrite then I prefer the former. In particular I never thought I would live to see the day when Banks would close accounts on the grounds of the perceived (non-criminal) wickedness of their customers. When I was brought up it was clear that medical staff would treat Mother Theresa and Adolf Hitler purely on the basis of their need.
        If the issue is conflicts of interest, then obviously you are right. I remember being shocked when Peter Jay was appointed to the post of Ambassador to the United States when his father-in-law was prime minister. In many ways Peter Jay was ideally suited but it was not right.

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  5. Perhaps we should be grateful we are a small nation and not susceptible to the shenanigans Australia has seen around PwC and KPMG, or is it Deloittes or EY, with heads rolling over consultancies worth ten billion dollars of taxpayers’ money over the past decade.

    Be that as it may, the question of trust you are raising goes to the heart of government everywhere. Your litany of recent unaddressed conflicts of interest and the one you anticipate should National win, embroider the distrust produced by our former P.M.s suddenly reversed decision around the 2021 mandate.

    Whether the Commission of Inquiry into Covid-19 will produce any meaningful disclosure is yet to be seen. What is already clear is that the creation of a two tier society through the anguish, loss and distrust which followed that decision, will be an albatross around the neck of whichever government, for years to come.

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  6. An effective Bill of Rights ,Magna Carta has been suggested but given the NZ Governments sovereign authority that is meaningless.
    Now Governments including local ( and their bureaucracy) don’t like the effect of a law they change it ,either by appeal to the courts , or creating new regulation ..There is a lot of delegated law ( or decisions made by regulation and court rulings)that has never ever been considered in cabinet.
    Since the demise of the Privy Council there is no effective relief available to those affected apart from appeal to the same political entities who made the decisions in the first place. This is a corruption of process.
    Decades back the biggest gift of Britain was the Commonwealth based legal system which protected every citizen no matter who. This was based on Christian values.
    Now that is gone there are few checks an balances on our decision making process so apparent conflicts of interest are relegated to those involved.
    The State is Omnipotent.

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  7. Hello Michael, Trying to stay out of the political fray, so my comments are focused on the governance and practicalities of a Code of Conduct & Conflicts Of Interest.

    (1) While those involved in lobbying need a cooling off period, it is unreasonable (and maybe illegal) for any politician, to have, what would be in effect a restraint of trade placed on them.
    (2) Neither is it feasible that there is some form of pension to compensate politicians for not returning/moving into the private sector -this would prove expensive and probably quite controversial in its application.

    If there were restrictions no doubt it would discourage many capable and skilled people in the private sector from entering into public service, as it will be perceived as being a one way ticket.

    The Key/Luxon/Willis situation is one that is covered off in 2.76 (g) in the Cabinet Manual, https://www.dpmc.govt.nz/our-business-units/cabinet-office/supporting-work-cabinet/cabinet-manual/2-ministers-crown-6

    You may not think it is perfect, but at least there are some procedural guidelines, and it is a situation where the perceived conflict is in the public domain. It’s those that are not disclosed where the issue is , a bit more sunlight is required -maybe along the lines of what is in the UK (and other countries) – although there are plenty of instances where that has been less than ideal.

    https://www.parliament.uk/site-information/glossary/code-of-conduct-for-mps/.

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    • Thanks for those comments John
      On your 1, I disagree. It is neither unreasonable (for some sorts of roles) nor would it be illegal, since it would be legislated. Note, however, I’m talking as much about culture as law
      On 2, I also disagree, but again am talking more about culture (my general idea that being PM should be a last serious).

      I don’t buy the deterrent line. For a start it depends on the role. For example, Chris Finlayson has gone back to the law (as Palmer did) with no evident problems/issues.

      I don’t think the Cabinet manual provisions really deal even remotely adequately with the sort of issues/risks I’m highlighting around Key/Luxon/ANZ. At best they could be interpreted as useful by a PM who had the highest ethical standards and demanded them from his ministers, but as we’ve seen in this govt it has done nothing to stop ministers continuing in office when their spouses have been pursuing business with entities the minister has responsibility for (while catching Michael Wood, who was silly and careless but prob no more), and will not deal with situations like those around ANZ. And while I take your point about ties/conflicts we don’t know about, that shouldn’t minimise the significance of those we do know about, particularly in terms of maintaining public confidence in the integrity of the system/individuals.

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