December 01, 2005 | Graham

Rethink the RBA board

I met Rob Gerard once. We bought an investment property in a development where Gerard Industries was one of the tenants. I ended up doing some negotations with Gerard over a lease. There is no doubt that a man who involved himself in a small matter (in the context of the size of his operation) of a few hundred thousand dollars, would have been intimately involved in the tax planning of his company.
This makes the Treasurer’s justification that Gerard can remain on the Reserve Bank Board because he had no “personal” tax problems, laughable. The corporate veil may act to shield from legal liability but it cannot turn an unethical act into an ethical one.
But then, it is likely that the Treasurer, or if not him, some other key decision maker, knew the full extent of Gerard’s problems. If the government hadn’t known, then its response to the revelation of Gerard Industries’ tax problems would have been quite different. It wouldn’t have immediately gone on the front-foot to defend him, but would have spent time assessing the new information, and most likely pressured him to stand aside, whilst it was half-hearted in its defence. A bit like the way John Howard dealt with John Brogden.
This would have been the case, even though Gerard had donated over one million dollars to the Liberal Party.
No doubt the Federal Government will justify this instance of cronyism on the basis that the ALP did the same thing with the board when they were in power. And they did. Why else, for example, was Janet Holmes a Court put there? She might have been rich, but it was sexually transmitted wealth generated by the share speculation of her husband Robert, not her own doing. Her own business dealings have been less than successful, but she was a high profile Labor Party supporter.
They might also say that the real decisions are made by the Governor of the Reserve Bank and his employees, so it doesn’t really matter who is on the board. There is truth in both these charges, which raises the whole question as to whether the board in fact discharges its duty as a board, and if it doesn’t, why it is there.
The deeper issue here is whether the corporate structure of the Reserve Bank is really appropriate for its task. The members of the board who are not professional bankers or economists are Jillian Broadbent, Robert Gerard, Frank Lowy, Donald McGauchie and Hugh Morgan. They have the numbers over the professionals who are Ian McFarlane, Glenn Stevens, Ken Henry and Warwick McKibben. When you examine their business interests all have massive positions in movements in interest rates because of how they might affect their businesses. Not the sort of people you want running a bank.
Contrast our board with the board of the US Federal Reserve. They are all drawn from the professions and banking. They serve once-only 14 year terms. They have to be nominated by the President and approved by Congress. And it appears to be a full-time job.
Labor and Liberal have made a hash out of our Reserve Bank Board, even though the results under McFarlane have been some of the best that we have seen. While it is less politicised under Howard than under Keating (remember Keating’s boast to have it in his pocket), it is still too politicised for a country that has every right to claim to be first world.
For the moment the RBA scandal has diverted attention from the public relations problems with the IR legislation, but it has the potential to reinforce them. One way of demonstrating that this government isn’t just in the business of protecting its mates would be to sin bin Gerard, and announce a complete change in the way that the RBA conducts itself, moving it closer to the US model.
If Costello has the ticker to be leader, he will do something like this. Costellos is in the best position to fix it because he is the responsible minister. He also needs to do something to prove his credentials and cure his image problem. Fix a problem like this with some innovative thinking and tough judgements against Liberal “mates” and he can simultaneously appeal to the battlers, who are suspicious of him, as well as the elites, who are also suspicious of him.
Should the government not do anything about Gerard it will add to the impression that favours and preferment can be bought from it. While that might be good for fundraising, it’s bad for the country.

Posted by Graham at 8:50 pm | Comments (3) |
Filed under: Australian Politics


  1. insightful. thankyou.

    Comment by Jennifer — December 2, 2005 @ 2:11 pm

  2. We just were not suppossed to know about it. What about involvement in “catch tim”. This man was as about as fit for the position as Howard is fit to be PM.

    Comment by david — December 2, 2005 @ 4:18 pm

  3. If RBA executives make the crucial RBA descions as Graham points out why have outsiders on the board?
    If the RBA needs real time practical advice and exposure to business sentiment it would be much better to revert to its earlier format have having an advisory council. In this way information could flow into the bank without the risk of privledge information flowing out.
    Rather than the advisers being appointed as a gift of the PM they could be appointed by Parliament with nominations advertised or suggested by the Governor.
    This process would greatly improve transparency and allow public and proper due diligence on the suitability of nominees. If any scoundrels did get involved or got into trouble after their appointment the reputation of the bank would largely be quarantined by their status being only that of a consultant not a Principal of the Bank.

    Comment by Shann Turnbull — December 2, 2005 @ 7:47 pm

RSS feed for comments on this post.

Sorry, the comment form is closed at this time.