Holding the Bank to account
Mystique and obscurity were considered key ingredients in running a successful central bank operation, and that attitude persisted right until the financial crisis.
Alan Greenspan, the f ormer Federal Reserve chairman, was infamous for his impenetrable comments, along the lines of: ‘I know you think you understand what you thought I said, but I’m not sure you realise that what you heard is not what I meant.’
In the chastened world after the meltdown, that sort of thing will no longer do. A portrait of Norman by the artist Augustus John used to hang in the Monetary Policy Committee (MPC) meeting room until Carney had it moved – a gesture that seems symbolic.
As Kevin Warsh, the Federal Reserve governor who has been reviewing Bank processes, pointed out yesterday, we have come a long way from the ‘never explain, never excuse’ attitudes of Norman’s era.
Central banks, post- crisis, are expected to be much more transparent and accountable. Quite right too. The Bank has enormous powers and its decisions have a profound impact.
The deployment of unconventional tools such as forward guidance makes it all the more important for people to be able to understand the Bank’s communications on rates.
That has been a bit of a problem. Forward guidance in its original form has been abandoned in any case because unemployment fell far faster than expected, but there has also been mixed messaging over recent months.
The tone of the quarterly Inflation Report, presented by the Bank’s in-house staff, sometimes seems at odds with the MPC minutes, which include the views of external members of the ratesetting body.
So Carney’s overhaul, reducing the number of MPC meetings to eight a year, four of them aligned with the Inflation Report, makes sense. A practical problem is that the media, economists and markets may be overwhelmed by a vast amount of information that they struggle to digest.
There is still also plenty of scope for confusion to be created by committee members, who seem to be forever making speeches.
Ian McCafferty, who has been voting for a rate increase, is the latest to hold forth.
Perhaps MPC members could try to hold back.
Moves to improve the Bank’s governance, so that its Court will more
Putting the Boot in
STEFANO Pessina, the Italian billionaire at the helm of Alliance Boots, is cementing control of his vast, transatlantic merger with US chain Walgreen.
On paper, this is a takeover by Walgreen. In practice, Pessina is in command.
This became even more obvious following the announcement by Walgreen chief executive Greg Wasson, 56, that he is retiring to make way for an older man – Pessina, who at 73 will become acting CEO of the combined group.
Jim Skinner, whose claim to fame is turning around the McDonald’s burger chain, is stepping in as executive chairman.
Wasson fell out with Pessina over the Italian tycoon’s hopes for a ‘tax inversion’ – where the Walgreen headquarters were to be moved to Europe, possibly the UK, to save
ONE of Mark Carney’s most famous predecessors, Montagu Norman, governor during the Depression, used to go to great lengths – including travelling under a false name – to evade the media of his day. closely resemble a normal company board, are sensible. Carney has also agreed to the release of Court minutes for the 2007-2009 period when his predecessor Lord King was firefighting the worst financial crisis for generations. That will make fascinating reading. huge sums in corporate tax. This idea, to Pessina’s disgust, had to be abandoned for fear of a consumer boycott in the States.
Wasson may also have been destabilised by some investors who, according to US reports, had lost confidence in him and preferred Pessina and his Boots executives to take the reins.
Critics of the deal question why shareholders are paying a premium to be taken over by Alliance Boots, and argue they should not have to buy a whole company to get a new management team.
It is true that Pessina’s methods do not follow the standard corporate governance playbook.
When he took over Boots in the UK, in an enormous transaction backed by private- equity house KKR, many feared a typical slashand- burn approach, but were proved wrong.
Even his worst enemy would have to admit that the Italian is a formidable business builder. The risk is that it may be hard to find a successor when the time comes.
Pessina may not want to occupy the CEO’s chair for the long term, but whatever his job title, there can be no doubt who is in the driving seat.