Adam Posen’s attack on the management and culture of the Bank of England may be the strongest yet, but it is by no means the first – and won’t be the last – criticism of a persistent and dismaying lack of robust governance at the UK central bank.
What is astonishing is that despite countless warnings – three independent reviews, several newspaper editorials and sundry MPs’ warnings – the central charge that the governor is over-mighty and under-governed still stands.
It’s more than three years since the court of directors, the nearest the bank has to a board, was reformed to make it smaller, less ceremonial and, in theory, more capable of mounting a challenge to Sir Mervyn King. But, as Mr Posen, who served on the BoE’s monetary policy committee until August 2012, told members of parliament on Tuesday:
Supervision of the executive was very lax and there was a very strong culture and precedent that, if the governor or the broader bank executive made a decision to do something … then it was seen [that] there was no point in challenging them.
The bank is not the only economic institution that has suffered criticism of a culture that tends towards dangerous group-think. The International Monetary Fund and the UK Treasury (also criticised by Mr Posen for not taking the governor to task) were both prone to a lack of challenge and insularity, according to recent reports into why they failed to perform well in the run-up to and immediate aftermath of the financial crisis.
The UK is more often than not held up as a model of good corporate governance, one of the central principles of which is that an independent chairman and directors should have the power to rein in over-mighty executives. As Bob Garratt, the governance expert, wrote in a letter to the FT in November 2012: “If you strip out the overblown rhetoric and grandstanding, then the Bank is a company and must be treated as such. It may be one of our oldest but this does not exempt it from company law.”
It is, frankly, embarrassing that Britain’s highest profile institution of economic governance – which will soon receive a new governor, Mark Carney, and even more powers to oversee the financial system – still seems to have a free pass to ignore governance principles to which almost all listed companies in the land adhere.
