The appointment of Stephen Poloz as the new governor of the Bank of Canada raised many eyebrows, since most observers expected deputy-governor Tiff Macklem to succeed Mark Carney. Yet, this is not the first time that the governor has been selected from outside of the Bank of Canada (even though within the federal civil service) rather than an insider.
Mark Carney came from Finance Canada (previously at Goldman Sachs), beating out internal candidate Paul Jenkins. David Dodge, then deputy minister of health (and previously deputy minister at Finance) edged out Malcolm Knight, who was the leading Bank candidate at that time. Mr. Poloz has been at Export Development Canada and Mr. Macklem had experience as associate deputy minister at Finance.
All these individuals are highly talented people drawn from the federal civil service, a testament to the quality of our bureaucracy. Nonetheless, a fascinating question is to ask: Why can’t an insider at the Bank of Canada succeed in becoming the next governor?
Many private and public sector entities face the question of whether to draw leadership from within or outside of an organization. The argument for drawing talent from the within the organization is that it affords stability and familiarity with processes and strategies. Inside promotion is an incentive to leading managers to perform better, since they know they can make it to the top in their career.
Going outside to find the CEO enables an organization to reinvigorate itself with fresh ideas and approaches. It is also important to find new leadership if the organization is not doing well and needs to be fixed.
The Bank of Canada has performed well as an organization, so it would be hard to argue that it is a failing entity needed to be fixed up. Other qualities may be sought to go outside for leadership.
The governor’s job does require an astute leader with a strong background in economics. He or she has to show good judgement and leadership as well as being able to communicate well to the public, since monetary policy can have a profound impact on the economy. Both Mr. Macklem and Mr. Poloz are up to snuff in this regard.
The job awaiting the new governor will certainly have its challenges. In the aftermath of the 2008-09 financial crisis, economies face a painfully slow growth path with a significant expansion in assets held by central banks. At some point, we will move to an elevated level of growth with a pick-up in inflation at the global level. A governor will need to decide on an appropriate monetary policy stance that is well-timed to avoid inflationary expectations being embedded in the economy. A clear issue is whether to stay with the current approach to inflation targeting at 2 per cent or look to other approaches to conduct monetary policy perhaps focused on asset price movement or nominal GDP growth (neither of which would necessarily be good policy).
Perhaps, a different approach to monetary policy is on the make – or not.
Jack M. Mintz is the Palmer Chair, School of Public Policy, University of Calgary.
An earlier version of this column said that Mark Carney had beaten out Malcolm Knight and that David Dodge had edged Bill White. This version has been corrected.