Add Jim Flaherty to the list of activist shareholders who are attempting to exert influence over corporate suites across North America.
The Finance Minister, on behalf of the government and taxpayers, is seeking control over the hiring practices of the Crown corporations that operate at arm’s length from politicians.
Bill C-60, the omnibus legislation that implements the provisions of Mr. Flaherty’s latest budget, includes language (Part III, Division 17) that would give cabinet an effective veto over salary decisions of Crown corporations, including the Bank of Canada, the Canadian Broadcasting Corp. and the Canada Pension Plan Investment Board.
“All of them are accountable to the taxpayers of Canada,” Mr. Flaherty told the House of Commons finance committee last week. “This makes entirely good sense to me.”
It makes less sense to the Friends of Canadian Broadcasting, which worries the proposal compromises the CBC’s journalistic independence. And it makes less than entirely good sense to Peggy Nash, the Toronto member of Parliament and New Democratic finance critic, who asked the finance committee to study the measure. (Her motion was rejected.)
Bill C-60 would, among other things, permit cabinet to order a Crown corporation to seek Treasury Board approval to hire non-union employees. And then, the Treasury Board “may impose any requirement on the Crown corporation with respect to the terms and conditions of employment of those employees.”
Ms. Nash is wary of the effect that provision could have on the Bank of Canada’s ability to go about its business without the worry of having to placate politicians. While the central bank is treated as a special case in many of the government’s administrative standards, Bill C-60 states explicitly that the hiring provisions would apply to the Crown corporation.
“There is a distinction between independence in some areas and accountability,” Mr. Flaherty said when Ms. Nash raised her concerns about the operational independence of the central bank and other institutions at last week’s committee meeting. “They can’t just go do what they want with taxpayers’ money.”
The Harper government already is facing questions from some economists about its respect for central bank independence. It chose Stephen Poloz as the next Bank of Canada governor despite overwhelming external support for Tiff Macklem, the central bank’s senior deputy governor. Yet it did so without offering a convincing explanation for shunning the prohibitive favourite, opening the door to suggestions that the appointment was political, especially since Mr. Flaherty took an unusually public role in the selection process. (“The first time he does something people don’t like, they are going to ask if he’s doing it because the minister wants him to,” said David Laidler, a professor emeritus at the University of Western Ontario and a former adviser at the Bank of Canada.)
Some will conclude that Ms. Nash is trying to exaggerate these concerns for her own political gain. After all, what is objectionable about institutions that do the people’s work while being answerable to the people’s representatives in Parliament?
At first glance, there is nothing wrong with it. But take a second look, and it becomes less clear that this issue is as clear-cut as Mr. Flaherty suggests.
The Bank of Canada’s mission, as set out with the government, is to keep inflation advancing at an annual rate of 2 per cent. Independence is fundamental to the way inflation targeting works. Executives and investors will base their decisions on a 2 per cent rate of inflation if they are confident technocrats will be guided by nothing else. The closer politicians get to the day-to-day operations of the central bank, the less the public can be sure monetary policy will be set without consideration of the election cycle.
No one thinks central banks should operate as free agents. In the case of the Bank of Canada, the government sets the direction of monetary policy by appointing the governor and signing off on the central bank’s policy mandate. The institution is supervised by a board of directors made up of government appointees.
Does adding veto over hiring decisions change anything? That’s what Ms. Nash wanted the finance committee to think through. And for good reason: It’s not difficult to invent a scenario under which Bill C-60 could be used to interfere with the Bank of Canada’s conduct of monetary policy.
Say the governor wanted to hire a talented banker who worked at an investment bank that had become the focus of public vitriol for its role in a global financial crisis. Would Cabinet interfere with the appointment if there were a public outcry? Or to prevent one?
It is impossible to rule out the possibility. Yet such a scenario hardly is far-fetched. Bank of Canada Governor Mark Carney hired Tim Hodgson, the former head of Goldman Sachs’s Canadian operations, as a special adviser in 2010. Would Mr. Carney have thought twice if he knew his internal appointments risked political censure? Again, there’s reason to wonder. And suddenly, we’re on a slippery slope: a simple “accountability” measure risks hurting the central bank’s reputation as an independent actor.
Perhaps there are good reasons for the government to shorten the tether of the Bank of Canada and other Crowns. However, the government has yet to explain why it’s necessary. Are the boards of directors of those institutions ineffective? Is payroll growth at Crown corporations out of control? Is cronyism rampant?
Or does the Prime Minister simply want to exert more influence over the quasi-independent arms of government?
Bill C-60 raises all these questions and more. Mr. Flaherty is a believer in accountability. He shouldn’t mind answering them.