RB Response To The Svensson Report
Reserve Bank Non-Executive Directors¡¦ Committee Response To The Svensson Report
1. Should the Chair of the Board be a non-executive?
1.1 Professor Svensson recommends that:
(a) the Chair of the Board
should be a non-executive director; and
(b) the non-executive Chair should be selected by the non-executive directors from amongst their number.
The NEDC supports both these recommendations.
1.2 That a non-executive director should be chair of the Board appears to be uncontroversial. Also, we think Professor Svensson¡¦s recommendation that the non-executive directors should select the Chair has considerable merit. The fundamental problem with direct appointment of the Chair of the Board by the Minister of the day is that it could be seen as undermining the monitoring independence of the Board and, indirectly, the Bank¡¦s operational independence.
1.3 We appreciate that, in the case of Crown Entities and State Owned Enterprises, it may be appropriate for the Crown to have a reasonably direct channel by which it can exercise its rights as stakeholder. But in the case of the Reserve Bank, explicit and transparent mechanisms have already been established in such a way that they ensure operational independence as well as democratic accountability. Those mechanisms are the PTA, the ¡§override provisions¡¨ in the Act, and the Funding Agreement. It is important that those mechanisms should not be weakened, or be perceived to be weakened, as could be the case if, in the future, any government were to have a ¡§private¡¨ channel through which it could bring influence to bear on the Governor. The Minister already appoints the non-executive directors who are charged with monitoring the performance of the Bank.
2. Should the Governors be removed from the Board?
2.1 We are of the view that the Governor, as the Bank¡¦s CEO, should be a member of the Bank¡¦s Board. This corresponds with usual corporate governance practice. Though the Bank¡¦s Board is mainly concerned with monitoring the performance of the Governor, corporate boards also monitor the performance of their CEOs, and this does not lead in those cases to the conclusion that CEOs should be disqualified from Board membership.
2.2 We also firmly favour the deputy governors remaining as Board members. Importantly, this ensures that there is more than a single channel by which information can flow from management to the Board. While, of course, the deputy governors could be present by invitation, there is an important difference between participating at Board meetings as a member of staff ¡§in attendance¡¨, and as a Board member with the responsibilities, and full speaking rights, that go with the office. For this reason, we would see removal of the deputy governors from the Board as a weakening of the overall accountability regime.
2.3 We also find it useful to have deputy governors at Board meetings from the standpoint of enabling us to observe the Governor¡¦s interaction with them (something that can be done more meaningfully when they participate as Board members rather than as staff), and with an eye to succession issues. In the latter regard, we are mindful that the deputy governor designated as Deputy Chief Executive would automatically stand in as Governor if the Governor was incapacitated. A further advantage from retaining seats on the Board for the deputy governors is that it helps attract first class candidates to those positions. And, in terms of best practice, provided the non-executive directors remain in a clear majority ¡V which will be the case ¡V there is no benefit from removing the deputy governors from the Board.
3. Should there be a Board Annual Report?
3.1 Professor Svensson has recommended that the Board should publish an annual report that evaluates the conduct of monetary policy. We support this recommendation in principle. If you agree with it, we propose that the Board¡¦s report draw on and summarise the results of our monitoring activities currently undertaken pursuant to s.53 of the Reserve Bank Act. That monitoring mainly involves reviewing the Bank¡¦s performance in terms of outcomes against the goals set, and the reasons for any departures from those goals.
3.2 We envisage that our report would normally be quite succinct, but we would not see such a report as necessarily being limited in its scope to monetary policy. Our monitoring responsibilities extend to all the Bank¡¦s functions, and also to the use of resources by the Bank. We suggest that an annual report from the Board would most appropriately be published as a Chairman¡¦s report (on behalf of the Board), and as part of the Bank¡¦s Annual Report.
4. Should there be an annual conference on monetary policy?
4.1 Professor Svensson recommends that the Bank fund an annual conference at which monetary policy in New Zealand would be evaluated. He suggests that such a conference should include a presentation of an annual review of the operation of monetary policy by an expert panel, a presentation of the Bank/Board¡¦s annual report(s), presentation of papers by invited experts, comments by Reserve Bank officials and independent experts from within and outside New Zealand, and opportunities for general discussion and debate.
4.2 The NEDC supports this proposal, though we think once every two years would be better. We would see particular merit in the participation being reasonably broad, to include sector and interest group representatives, and accredited financial media, as well as monetary policy experts.
5. Monetary policy decision-making
5.1 The NEDC does not support Professor Svensson¡¦s recommendation that an internal committee should be established to make monetary policy decisions. Rather, we remain of the view, as expressed in our submission to Professor Svensson, that the present single decision-maker arrangement is the best arrangement for New Zealand.
5.2 Professor Svensson recommends a Committee because he thinks it is too risky for monetary policy decisions to be left in the hands of an individual. We think this risk is overstated. Built into the present arrangement are a number of elements that protect against that risk. These are that:
„h The Governor¡¦s decision-making power is, in fact, quite constrained. He/she is bound by the Act and by the PTA.
„h There is a rigorous procedure for appointing the Governor, that involves both the Non-executive Directors¡¦ Committee (NEDC) and the Minister.
„h The Board (as required by s. 53 of the Act) keeps the Governor under constant review. In its monitoring, the Board is concerned to see the Governor is taking appropriate advice, is acting in a collegial manner, and is drawing information from the full range of sources, both internal and external.
„h The framework for monetary policy established by the Act requires a high level of transparency. This means that the Governor is subject to the disciplines of the financial markets, the financial media, and the public more generally. Parliamentary scrutiny is also provided by way of FEC hearings.
5.3 These disciplines and constraints substantially mitigate the ¡§single person risk¡¨ that Professor Svensson is concerned about.
5.4 Another concern, apart from single person risk, that might suggest the appropriateness of a committee is the need for a range of perspectives to be brought to bear on monetary policy decisions. The risk, it could be argued, is that policy becomes based too much on a single line of thinking, or a single, and perhaps not particularly well connected, view of the economy.
5.5 However, neither we nor Professor Svensson see this as a weakness under the present structure. Again, processes have been established to ensure that full information is captured in the decision-making process. These include:
„h As input to Monetary Policy Statements, each quarter the Bank contacts around 40 representative businesses and sector groups to gauge their current reading of the economy. The names of the organizations visited are now reported in each Monetary Policy Statement. (See appendix A for the list of organisations contacted during the preparation of the March 2001 Monetary Policy Statement.)
„h The non-executive directors have on-going business and other connections with the community, and are a source of information to the Bank on what is happening in the economy. (See Appendix B for the names and affiliations of the current non-executive directors.)
„h The Bank receives feedback from the community more generally through the Governors and other senior staff giving numerous¡§ off the record¡¨ and a few ¡§on the record¡¨ addresses to interested groups. These include attending Rotary and Lions club meetings, and meeting with industry and trade associations, in many cases in the regions. At the ¡§off-the-record¡¨ meetings, typically a short address will be given, followed by audience comment, questions and answers. (See Appendix C for a list of such engagements from 30 June 1999 to date.)
„h Three times a year, the Board meets outside of Wellington. On each of those occasions the Board, including the Governors, meets with a small group of local representatives over lunch or dinner, and a much larger group from the local community is invited to a cocktail function. At these functions, the Governors, senior Bank staff, and the non-executive directors interface with guests to hear views and receive information. A deliberate effort is made to include a diverse range of people from the local community. While most will be connected to business (small, medium and large), representatives from the health, social and community services, local government, church, and education fields are also invited. (See Appendix D for a list of the centres where this consultation has occurred in the last four years.)
„h Also, on two occasions, Dr Brash has travelled the country for a period of about two weeks to interface with small and medium sized businesses. These meetings have been arranged through the commercial banks, which invite their business clients in each of the centres visited. The centres visited on the last occasion were: Whangarei, North Shore City, Auckland CBD, West Auckland, South Auckland, Hamilton, Tauranga, Rotorua, Blenheim, Nelson, Greymouth, Christchurch, Timaru, Oamaru, Dunedin, Invercargill, Upper Hutt, Wellington, New Plymouth, Wanganui, Palmerston North, Gisborne, and Napier. Total attendance at these 23 meetings was approximately 5000.
5.6 On the basis of these activities, Professor Svensson assessed the Bank¡¦s efforts to interface and communicate with interested parties as follows:
¡§The Bank makes a huge effort in collecting information, data and informal views from a large number of businesses and organisations from all sectors of the economy, for instance by having its economists travelling and talking to people all over New Zealand. I doubt that there is a single business, organisation or authority that has better and more detailed knowledge about the state of the New Zealand economy. As far as I can judge the Bank puts at least as much effort into this as other central banks¡¨ (page 40).
5.7 Moreover, the Bank¡¦s internal processes include elements specifically directed to promoting diversity of thinking and views within the Bank. Amongst these are that:
„h At an early stage in the preparation of each Monetary Policy Statement, four or more staff are asked individually to prepare an analysis that would support a tightening of policy, and another analysis that would support a loosening of policy. The purpose is to prompt a broadening out of thinking, and to encourage ¡§testing of the boundaries¡¨.
„h In addition, towards the end of the process by which OCR decisions are made, each of the deputy governors and senior staff from the Economics and Financial Markets Departments, which make up a formally constituted OCR Advisory Group, individually prepare for the Governor their written advice.
„h From time to time, the Bank invites visiting central bankers and academics to observe the processes by which monetary policy decisions are made. These visitors have access to the relevant internal meetings. For example, each of the Professorial Fellows the Victoria University Foundation has brought to New Zealand (including Professor Svensson ) has observed the Bank¡¦s internal monetary policy meetings. Another example is that the Assistant Governor, Economics, from the Reserve Bank of Australia spent a week at the Bank during the preparation of the December 2000 Monetary Policy Statement observing the process.
5.8 There is, nonetheless, a question of whether including designated representatives from the community to participate in an advisory capacity during the decision-making process would strengthen even further the robustness of the decision-making process.
5.9 Our considered view is that it probably would not. One option would be to involve external parties with relevant professional expertise, such as market economists, in such a role. But, in these cases, conflicts of interest generally would make that not possible. Another would be to involve less-qualified people in an advisory role, but, as noted by Professor Svensson, non-experts easily become dominated by those with more expertise. Also, involving external parties in an advisory role close to the decision-making could result in a perception that the Bank¡¦s operational independence was being compromised.
5.10 For these reasons, the non-executive directors do not support either the option of institutionalising a monetary policy decision-making committee, or the alternative of forming an advisory committee with some external membership. With respect to the latter, we concur with Professor Svensson¡¦s view that ¡§(a)ltogether,¡Kit would be quite unsuitable for New Zealand to appoint external committee members¡¨ (page 53). While Professor Svensson arrived at this view in relation to a decision-making committee, his view was based on essentially the same considerations as those that we have identified. They appear to us to be as relevant to an advisory committee as they are to a decision-making committee, at least if the advisory committee was to operate close to the decision-making. And the alternative of keeping an advisory committee some distance from the decision-making would raise questions about how much value it would add.
5.11 In taking this view, however, we
underscore the value and importance of the Bank maintaining
an on-going programme of community, sector and regional
liaison. We would expect the Bank to continue to explore
options by which that programme can be enhanced and made
Companies and organisations contacted by RBNZ staff in the last week of January 2001
Barfoot & Thompson Limited
Briscoes (New Zealand) Limited
Canterbury Manufacturers Association Incorporated
Carter Holt Harvey Limited
Christchurch International Airport Limited
Click Clack Limited
Fisher & Paykel Industries Limited
FMS Chartered Accountants
H. W. Richardson Group Limited
Interlock Industries Group Limited
Kiwi Co-operative Dairies Limited
Landbase Trading Society Limited
LV Martin & Son Limited
Macpac Wilderness Equipment Limited
Mainzeal Property and Construction Limited
Mercer Stainless Limited
Napier City Council
New Zealand Council of Trade Unions
New Zealand Wool Board
Port of Napier Limited
Ports of Auckland Limited
Prepared Foods Limited
Registered Master Builders Federation of New Zealand Incorporated
Restaurant Brands New Zealand Limited
Reid Farmers Limited
Southland Times Co Limited
Sunbeam Corporation Limited
The Warehouse Limited
Tourism New Zealand
Vita New Zealand Limited
¡X plus a number of registered banks, government
departments, economic research agencies and industry
Non-executive Directors of the Reserve Bank of New Zealand
Paul Baines Company
Director: Chairman, Enterprise NZ Trust, Tower Investment
Savings Ltd; Director, Comalco NZ Ltd, Fletcher Challenge
Ltd, Gough, Gough & Hamer Ltd, Greenstone Fund Ltd, NZ Post
Ltd, South Eastern Utilities Ltd, Telecom NZ, Wrightson Ltd:
Trustee, Barnardos Children¡¦s Trust, Victoria University of
Wellington Foundation; Advisory Board member, NZ Institute
for the Study of Competition & Regulation.
First appointed 1 July 1999 - current term expires 30 June 2004.
Mr Paul Baines is based in Wellington.
Goulter Managing Director and Chief Executive Officer,
Auckland International Airport Limited; Director, HMSC-AIAL
Ltd Trustee, NZ Business & Parliament Trust, Auckland
International Airport Life Education Trust.
First appointed 9 February 2000 ¡V current term expires 8 February 2005.
Mr John Goulter is based in Auckland.
Viv Hall University professor: Macarthy Professor of
Economics, School of Economics and Finance, Victoria
University of Wellington; Board Member, New Zealand
Institute of Economic Research (Inc).
First appointed 1 March 1992 - current term expires 28 February 2002.
Professor Viv Hall is based in Wellington.
Paterson Chartered accountant: Consultant, Beattie Rickman;
Chairman, Crown Health Association, Waitemata Health Ltd,
Landcorp Farming Ltd; Director, Biomed Trading Ltd, Health
Benefits Ltd, Tower Insurance Ltd, Wrightson Ltd; Member,
Market Surveillance Panel New Zealand Stock Exchange;
Trustee, Barnardos Children¡¦s Trust, Donny Charitable
Trust, Wrightson Retirement Plan.
First appointed 1 February 1995 - current term expires 31 January 2005.
Mrs Alison Paterson is based in Auckland.
Richardson Economic policy consultant: Principal, Ruth
Richardson [NZ] Ltd; Chairman, Cardinal Pty Ltd, Morningstar
Pty Ltd, Kula Fund, icap Equity partners Limited, icap
Mezzanine Partners Limited; Director, Aoraki Corporation
Ltd, Centre for Independent Studies, Immuno-Chemical
Products Ltd, Oyster Bay Marlborough Vineyards Ltd,
First appointed 4 February 1999 ¡V current term expires 3 February 2004.
Hon Ruth Richardson is based in Christchurch.
Sir Gil Simpson Computer
programmer: Chief Executive Officer, Aoraki Corporation Ltd;
Member, New Zealand Business Roundtable, joint venture
partner in Canterbury Technology Park; Chairman,
Christchurch City Mission Foundation, E-Commerce Action
Team; President, The Royal Society of New Zealand.
First appointed 9 June 1997 - current term expires 8 June 2002.
Sir Gil Simpson is based in Christchurch.
Wilson (Chair) Company director: Chairman, Property Leaders
Australia Ltd, Property Leaders New Zealand Ltd, Property
Leaders Australia and New Zealand Ltd, New Zealand Guardian
Trust Company Ltd, New Zealand Guardian Trust Funds
First appointed 1 February 1990 - current term expires 31 January 2003.
Mr Bill Wilson is based in Auckland.
Reserve Bank New Zealand speeches 30 June 1999 to 19 March 2001
Included are on- and off-the-record speeches in New Zealand and on-the record off-shore speeches. These addresses are generally followed by opportunities for questions and comment from the audience.
Date Name Host Place On/off
1 July Murray Sherwin Association of Economists Rotorua On
8 July Don Brash Commentary on Third Hong Kong Monetary Authority Distinguished Lecture Hong Kong On
9 July Murray Sherwin Foreign Affairs Conference of International Law Experts Wellington On
12 July Murray Sherwin Rotary Club of Taumaranui Taumaranui Off
13 July Murray Sherwin Institute of Policy Studies International Conference Wellington Off
14 July Michael Reddell Wellington CETA Group Wellington Off
16 July Michael Reddell Economics teachers course at Massey University Palmerston North Off
19 July Don Brash Ravensdown Agri-business conference Christchurch Off
27 July Don Brash Phillips Fox clients Wellington Off
28 July Don Brash Rotary Club of Port Nicholson Wellington Off
2 August Don Brash Auckland Employers and Manufacturers Association Auckland Off
18 August Don Brash NZIER/Qantas Economics Award Auckland On
19 August Adrian Orr Professionals¡¦ Week business leaders lunch Wellington Off
20 August Michael Reddell Corporate Treasurers National Conference Rotorua Off
20 August Don Brash Wellington Regional Chamber of Commerce Wellington Off
25 August Adrian Orr Hugo Group Wellington Off
26 August Don Brash Bank of New Zealand corporate clients Auckland Off
26 August Adrian Orr Hugo Group Auckland Off
27August Rod Carr Auckland Branch Financial Planners and Insurance Advisors Auckland Off
31 August Don Brash Whangarei Employers and Manufacturers Ass. Whangarei Off
10 Sept Don Brash Pacific Basin Economic Council Auckland Off
14 Sept Don Brash Opening new WestpacTrust dealing room Wellington Off
14 Sept Rod Carr Capital Finance Planning clients Christchurch Off
20 Sept Michael Reddell National Economics teachers¡¦ refresher course Auckland Off
21 Sept Adrian Orr Karori Rotary Club Wellington Off
22 Sept Michael Reddell Society of Accountants Banking and Finance Group Wellington Off
24 Sept Rod Carr Financial Planners and Investment Advisors Wellington Off
28 Sept David Archer Porirua Business Development Society Porirua Off
29 Sept Rod Carr Financial Planners and Investment Advisors Palmerston North Off
1 October Rod Carr Financial Planners and Investment Advisors Auckland Off
8 October Murray Sherwin New Zealand Defence Force seminar Wellington Off
7 October Michaell Reddell Lecture to Economics 202 class Victoria University Wellington Off
13 October Rod Carr Clients of Wealthy and Wise Ltd Auckland Off
4 Nov Don Brash Asia Pacific Central Securities Depositories Group Wellington On
11 Nov Don Brash SEANZA banking supervisors Conference Auckland On
24 Nov Don Brash Orchid Exporters Ass Auckland Off
24 Nov Don Brash Phillips Fox clients Auckland Off
26 Nov Murray Sherwin NZ Timber Industry Federation Wellington Off
28 January Don Brash Canterbury Employers¡¦ Chamber of Commerce Christchurch On
28 January Don Brash Canterbury Manufacturers Ass Christchurch Off
9 February Don Brash Trans-Tasman Business Circle Melbourne On
12 February Don Brash Trans-Tasman Business Circle Sydney On
21 February Don Brash Salomon Smith Barney Investment Conference Auckland Off
1 March Don Brash Auckland Commerce teachers briefing Auckland Off
7 March Rod Carr Capital Financial Planners Nelson Off
15 March Don Brash Northern Employers and Manufacturers Ass Auckland Off
16 March Don Brash Financial Planners and Insurance Advisers Ass Hamilton Off
17 March Rod Carr PriceWaterhouseCoopers Financial Planners Palmerston North Off
17 March Don Brash Deutsche Bank Investor conference Auckland Off
17 March Don Brash IPAC Auckland Off
21 March Don Brash Waitakere Club Auckland Off
21 March Don Brash Auckland Chamber of Commerce Auckland On
22 March Don Brash PricewaterhouseCoopers partners Wellington Off
28 March Don Brash Upper Hutt Chamber of Commerce and Industry Upper Hutt Off
30 March Rod Carr BNZ rural clients Pukekohe Off
31 March Rod Carr Hamilton Rotary Club Hamilton Off
31 March Don Brash Tauranga Chamber of Commerce Tauranga Off
3 April Don Brash Auckland Chartered Accountants Public Practice Special Interest Group Auckland Off
18 April Murray Sherwin Tauranga Lions Tauranga Off
28 April Don Brash 19th EAOSEF General Assembly Wellington Off
2 May Don Brash Rotary Club of Wellington Wellington Off
10 May Don Brash Commerce Students Association, Auckland University Auckland Off
17 May Don Brash Wellington Chamber of Commerce Wellington Off
22 May Don Brash Auckland Rotary Club Auckland On
26 May Peter Ledingham/ John McDermott Finance, banking and property students, Massey University, Albany Auckland Off
26 May Murray Sherwin Probus Club of St Heliers Auckland Off
6 June Don Brash Belgian Financial Forum Belgium On
6 June Rod Carr Audit NZ managers training day Wellington Off
9 June Adrian Orr Maori Exporters Rotorua Off
26 June Don Brash Rural Women New Zealand AGM Wanganui Off
30 June John McDermott Finance, banking and property students, Massey University Palmerston North Off
5 July Murray Sherwin Agribusiness 2000 Conference ¡§Agricultural ¡V Global Opps¡¨ Hamilton Off
12 July Adrian Orr NZAE Conference Wellington Off
14 July Rod Carr Financial Planners and Insurance Advisors Assn Annual National Conference Wellington Off
17 July Don Brash Probus Club Hutt Valley Off
20 July Rod Carr AIBF Function Auckand Off
21 July Don Brash Property Council of NZ Auckland Off
24 July Rod Carr Wairarapa Business Community Rod Carr Off
2 August Don Brash Electralines Breakfast Forum Paraparaumu On
2 August Rod Carr Contractors¡¦ Federation Conference Napier Off
4 August Murray Sherwin J B Were clients (Australian Funds Managers) Wellington Off
18 August Don Brash Bell Gully clients Auckland Off
24 August David Archer Ord Minnett clients Wellington Off
6 Sept Don Brash Business Breakfast Seminar Series Christchurch Off
6 Sept Don Brash Public Policy Course, Dept of Political Science Christchurch Off
6 Sept Don Brash Walker Davey, Chartered Accountants Christchurch Off
11 Sept Murray Sherwin Meat Industry Association Annual Conference Auckland Off
11 Sept Don Brash Auckland International Airport Auckland Off
13 Sept Don Brash Rotary Club of Terrace End Palmerston North Off
13 Sept Rod Carr Axa Brokers and Advisors Auckland Off
14 Sept Rod Carr Axa Brokers and Advisors Christchurch Off
14 Sept Rod Carr AIBF Group Wellington Off
15 Sept Rod Carr Axa Brokers and Advisors Wellington Off
18 Sept Don Brash Pencarrow Rotary Club Eastbourne Off
22 Sept Michael Reddell VUW MPP students Wellington Off
26 Sept Don Brash British Trade Council Wellington Off
5 Oct Don Brash BNZ Corporate clients Auckland Off
5 Oct Don Brash American Chamber of Commerce Auckland On
9 Oct Rod Carr South Canterbury Grasshoppers¡¦ Club Ashburton Off
11 Oct Don Brash Japanese NZ Business Council Christchurch Off
18 Oct Don Brash Marlborough Chamber of Commerce Blenheim Off
18 Oct Don Brash Capital Financial Planning Nelson Off
31 Oct Don Brash Panel discussion ¡V EMA AGM re Currency Union Auckland Off
9 Nov Ian Russon NZ Society of Corporate Treasurers Wellington Off
11 Nov David Archer NZ Assets Management Conference Queenstown Off
22 Nov Don Brash Federated Farmers Timaru Off
23 Nov Michael Reddell Financial Planners and Insurance Advisors Assoc Auckland Off
7 Dec Don Brash Deutsche Bank presentation Auckland Off
7 Dec Rod Carr ASB Bank Auckland Off
11 Dec Michael Reddell NZ Banking Reform debate Wellington Off
13 Dec Murrary Sherwin Ravensdown Regional Office oepning Pukekohe Off
26 January Don Brash Canterbury Employers¡¦ Chamber of Commerce Christchurch On
26 January Don Brash Canterbury Manufacturers¡¦ Association Christchurch Off
5 February Rod Carr Wellington Rotary Club Wellington Off
27 February Clive Thorp 2nd Annual NZ Credit Law Conference Auckland Off
19 March Don Brash Havelock North Rotary Club Havelock North Off
Out of Wellington Board Meetings
Auckland, CBD (August)
New Plymouth (November)
North Shore City (September)
West Auckland (July)
South Auckland (July)
Auckland CBD (June)
Hawkes Bay (October)