Lessons on Central Bank Governance from Charlotte Hogg, Deputy Governor of Bank of England who resigned…

It would have been least expected that one of the major issues which will trouble central banking is governance. How we keep seeing several such cases in recent years – NY Fed, Barbados Central Bank, India central bank and so on…

Now a new one has come up from the mother of central banking: Bank of England.  And this is a strange one.

Charlotte Hogg was a COO in the central bank for four years after many years in private sector. Based on her great track record, she was appointed Deputy Governor on 1 March 2017. But in just 14 days she has had to resign. Reason? She did not disclose her brother working at Braclays at the time of joining the Bank.

She says it was an honest mistake with no ill-intentions. But given a public job, there cannot be such mistakes and so she should resign:

Dear Mark and Anthony,

Last week I offered you my resignation in recognition of the fact that I made a mistake in not declaring my brother’s work on the forms that the Bank requires. It has become clear to me that I should now insist. As I have said, I am very sorry for that mistake. It was an honest mistake: I have made no secret of my brother’s job – indeed it was I who informed the Treasury Select Committee of it, before my hearing.

But I fully accept it was a mistake, made worse by the fact that my involvement in drafting the policy made it incumbent on me to get all my own declarations absolutely right. I also, in the course of a long hearing, unintentionally misled the committee as to whether I had filed my brother’s job on the correct forms at the Bank. I would like to repeat my apologies for that, and to make clear that the responsibility for all those errors is mine alone. I have not shared confidential information or misused it in any way. I do not have any financial relationship with my brother and I am utterly committed to the safeguarding of confidential information and the separation of a home and work life.

However, I recognise that being sorry is not enough. We, as public servants, should not merely meet but exceed the standards we expect of others. Failure to do so risks undermining the public’s trust in us, something we cannot let happen. Furthermore, my integrity has, I believe, never been questioned throughout my career. I cannot allow that to change now. I am therefore resigning from my position. I will, of course, work with you through any transition.

BoE accepted her resignation with deep regret.

Though what is more interesting is how she was grilled at the Parliament hearing:

At Ms Hogg’s appointment hearing on 28 February, the Committee asked about the interests declared in her questionnaire response, which included her statement, “my brother works for Barclays as a Director in Group Strategy”

Kit Malthouse: One final thing from me is that you have declared some conflicts of interest. Obviously you have family connections in the industry, so what measures have you agreed with the Bank to manage those?

Charlotte Hogg: My only connection at the moment, which you are referring to, is my brother, who is part of Barclays’ strategic planning group. He has been for a number of years. I do not discuss work with him and he does not discuss it with me. We mostly talk about his children. [ … ]

Chair: Let us go back to an answer you gave to Kit Malthouse a moment ago. You said that, with respect to conflicts of interest with your brother, you do not discuss business with him and that that should be enough to allay concern of any conflicts with your work on the PRC particularly, which has direct responsibility for regulating Barclays. Have you discussed the reply you just gave with the Governor?

Charlotte Hogg: I have always declared, from the moment I joined the Bank, all of my potential conflicts of interest. I would be more than happy to discuss it with Mark if he wants to. I am pretty sure he is aware of it. [ … ] Charlotte Hogg: [ … ] I am in compliance with all of our codes of conduct. I know that; I helped to write them.

Further:

Court confirmed that there were multiple opportunities when Ms Hogg could have declared her brother’s role: Helen Goodman: How many opportunities has she had to declare that her brother works at Barclays?

Anthony Habgood: When she joined, whenever she has attested to that code, which I guess we brought in 18 months ago or something like that, so probably two or three and she has not attested to that. [ … ]

Chair: [ … ] we went through several hoops when she first arrived in the Bank and then these two or three further opportunities to address this on a code that she herself had written. In evidence to us she said she knew she was compliant because she helped write the code. But it took parliamentary scrutiny and the requirements of parliamentary scrutiny to elicit a response that she should have given several years ago. It does not look good, does it, Mr Habgood?

Anthony Habgood: It does not look good. I agree with you—it does not look good. Chair: To use the phrase of Mr Fried, it does not look like leading by example, does it, Mr Habgood?

Anthony Habgood: It does not look like leading by example, no. Helen Goodman: There was the occasion when she took up her initial appointment. There were the annual attestations—there might be a couple of those—and then there was the application for the job.

The whole hearing document is a great read. Tells you how important central bank governance is against what quite a few believe in India.

Seeing all this drama in recent years, one realises how much stress we put on monetary policy framework, policy etc but so little on governance matters. Take for instance Indian central bank which is undergoing such a transition amidst huge hype. But the more important issues of governance and appointment matters remain under a wrap. It isn’t clear how various people are appointed on central bank (other regulators as well) nor we get to read about their discussion with government on matters. In Bank of England on the other hand, these things are common and central bankers are grilled for their decisions.

It was very rare when the media covered (got to cover?), Indian central bank head grilling over demonetisation. But noting much came out of it as it was just picked from sources. The thing should have been televised or transcript put for viewing later.

The so called best practices about running institutions is as much about governance as it is about policies. High time we focus on former as well..

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