What’s to stop Philip Lowe moving to a private bank after he leaves the RBA? It’s what his predecessors did

Surely Reserve Bank Governor Philip Lowe won’t move to a private bank after his term as governor ends next week.

After having chaired his last board meeting on Tuesday, there’s nothing to stop him, and – as shabby as it seems – he wouldn’t be the first.

There are three reasons why he shouldn’t join the board of or become chair of a private bank, all alluded to in the public service code of conduct.

One is concern that the former employee would reveal confidential Commonwealth information (which would be unlikely for someone as cluey as Lowe) or “provide other information that would give the new employer an advantage in its business dealings”, which would be more likely, even if unintentional.

Banks don’t seek out former Reserve Bank chiefs unless they think there’s something in it for them.

Another concern set out in the code of conduct is that the former employee would exploit their knowledge of the Commonwealth to lobby, or otherwise seek advantage for their new employer in dealing with the Commonwealth.

Banks such as Westpac, NAB, the ANZ and Macquarie Bank deal with the Reserve Bank all the time. It runs the payments system, it is responsible for the financial system, and it sets interest rates.

Every one of the four banks I just mentioned has employed either a former Reserve Bank Governor or Treasury Secretary.

Perceptions matter when a Governor moves on

Even where these high-profile hires don’t help the banks in their relations with the regulator, the public service code of conduct points to the “perception” that they will have a greater ability to influence regulators than other hires.

The third concern identified in the code of conduct – in my view the most important – has been labelled “ingratiation” by a public service specialist at the Australian National University, Richard Mulligan.

It’s the possibility that while still in the public service, the employee will use their position to go soft on an organisation (or type of organisation) they see as a potential future employer.

The Reserve Bank’s own code of conduct is silent on the question of taking up employment with the banks it regulates, although it does say that where there is a perception of conflict of interest, the employee has to discuss it with the relevant department head or governor.

The government’s lobbying code of conduct in place since 2008 purports to ban heads of department from engaging in lobbying activities relating to any matter with which they have had official dealings for 12 months after they have left office.

But former governors needn’t lobby, and 12 months isn’t long to wait.

Philip Lowe’s predecessor, the man to whom he was deputy, Glenn Stevens, finished up as Reserve Bank Governor in September 2016 and joined the board of the Macquarie Bank and Macquarie Group in December 2017. He has been chair of Macquarie Bank and Macquarie Group since 2022.

Stevens’ predecessor as governor, Ian Macfarlane, finished as head of the Reserve Bank in September 2006 and joined the board of the ANZ bank in February 2007.

The governor he replaced, Bernie Fraser, finished at the Reserve Bank in September 1996 and joined the board of the industry funds that became Australian Super in the same year, becoming chair of the super-fund-owned ME Bank in 2000.

Macquarie, Westpac, NAB. Governors get looked after

Ken Henry stepped down as head of the Australian Treasury (and a member of the Reserve Bank board) in April 2011 and in November that year joined the board of the National Australia Bank. In 2015 he was made its chair.

The man Henry replaced at the Treasury, Ted Evans, stepped down in April 2001 and joined the board of Westpac that year, becoming its chair in 2007.

I’ve dealt with each of these people while they were governors or treasury secretaries and I’ve never seen anything that made me doubt their integrity.

And yet in my view, none of them should have gone on to work for the type of organisations they used to regulate.

All of them were paid extraordinarily well. In 2021–22 Philip Lowe was on a package of $1.037 million including superannuation and a salary of $890,252.

None needed another high-paying job straight away, and (because of public service super) all had a generous income to look forward to in retirement.

I understand their need to continue to do interesting things, but I don’t think it’s too big a sacrifice to ask former regulators to do those things away from the types of organisations they had the privilege of regulating.

On retiring from the Reserve Bank in 1968, its first governor HC Coombs, chaired the Council for the Arts and the Council for Aboriginal Affairs. He made an ever-greater contribution to Australia without doing what the Japanese call amakudari, or “descending from heaven” to work for the organisations he once regulated.

A profile of the practice includes the admonition “don’t snicker”.

When Lowe took the governor’s job in 2016 I wrote a profile of him for The Age and the Sydney Morning Herald, speaking to former teachers and colleagues off the record. Repeatedly, unprompted, they mentioned his moral compass.

Lowe is about to turn 62. He has years of useful work ahead of him. I don’t expect him to descend from heaven to do it.

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Government grants sloppy, and perhaps corrupt

Before the last election the Turnbull government had an unofficial budget: $20 million for each electorate in play. It could be handed out as picnic tables, fire trails, skate parks, netball courts, disabled toilets, or anything else that made it look as if the government cared about the electorate.

A senior source told me it was clever – Turnbull had managed to cap the financial cost. Labor said little. It couldn't. In office it had done it itself.

That these sort of grants weren't what the Commonwealth was for, as was tacitly acknowledged as Treasurer Scott Morrison tried to keep a straight face in a press conference days before the vote.

Journalist Phillip Coorey had asked him why the Commonwealth was funding dunny blocks.

"People need them Phil, people need them," the Treasurer replied. Addressing community cohesion was important.

But not important enough to have an independent panel access applications and award grants on the basis of need. If that had happened it is highly unlikely that 20 per cent of the funds would have gone to electorates representing just 2 per cent of the population.

Labor used to have such a panel, although it didn't always follow its recommendations. In 2014 the Audit Office recommended that the Department of Infrastructure and Regional Development do the job. The government "agreed" with the recommendation, although it merely "noted" another that said applications should have to meet published merit assessment criteria.

In an almost ideal world we would have an independent body deciding on grants, in the same way as the independent Reserve Bank decides on interest rates, and for the same reason – the government can't be trusted. In an absolutely ideal world the Commonwealth wouldn't hand them out at all.

At a minimum we should have a Commonwealth anti-corruption commission. And we ought to outlaw bigger grants that are just as sloppy, allocated without tender.

In the budget the government awarded Fox Sports $30 million to "increase coverage of sports that receive low or no broadcast exposure". The criteria are so broad it'll meet them easily. The documentation released this month says it's a direct offer, "available only to Fox Sports Australia Pty Ltd".

In The Age and Sydney Morning Herald

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It's the small bribes that suck us in

The shocking thing about the gifts and favours uncovered by the NSW Independent Commission Against Corruption is that they are small.

Australian Water Holdings gave the Liberal Party $75,000 - a tiny sum compared to the $1 billion contract it was seeking. It sent the premier a $3000 bottle of wine. Its behaviour is typical. At the height of the ferociously fought battle over the plain packaging of cigarettes in 2010-11 British American Tobacco gave the Liberal Party $184,565. It did it in small parcels - $2200 to the NSW branch, $10,000 to the Victorian branch, a further $5500 to the NSW branch and so on.

Most political donations are even smaller. Away from politics they are puny. Doctors routinely get pens and free samples from drug companies. They cost the companies nothing compared to what’s at stake.

Yet they work. Equally shocking is the finding from laboratory experiments that small gifts achieve more than big ones. Truly.

A few years back professors Ulrike Malmendier and Klaus Schmidt from US National Bureau of Economic Research discovered that while a small gift persuaded the recipient to award contracts to the donor’s company 68 per cent of the time (instead of 50), a gift worth three times as much cut the response back to 50 per cent, which was no better than if there been no gift at all.

The finding has disturbing implications for legislators' attempts to wind back the impact of donations by limiting their size. It suggests they will achieve little.

The study is called You Owe Me. It could have been titled: ''When less buys more''.

Malmendier and Schmidt investigated a special situation, one in which a decision maker receives a gift intended to persuade him or her to select the donor’s product over another one for a third party. In the case of the government, that third party is the taxpayer. In the case of a doctor it’s their patient; in the case of a financial adviser, their client.

What’s special about that situation is that the cost of bad decisions isn’t borne by the person who makes them. It is borne by their client.

Malmendier and Schmidt deliberately designed their experiment to make it unlikely the gifts would have any effect at all. Gifts and bribes are usually thought to be influential only if the recipient knows they will see the donor again, or if the donor will find out whether or not they’ve selected the donor’s product.

In 15 rounds of experiments with 350 students they made sure neither condition applied. After the gift the recipient never saw the donor again and the donor never found out whether it had any effect.

And they made sure the recipients knew the gift is intended to influence them.

Yet they found the effects of small gifts were huge.

Even where the products offered by the donor were clearly worse than those offered by the non-donor the decision makers chose the the worse over the better product almost 50 per cent of the time, compared to only 10 per cent when there were no donations.

As the size of the donations increased their effectiveness waned.

Their explanation for the effectiveness of small donations is that they create a special bond, what they refer to as the “dark side” of our desire to be social. Put starkly, we find it hard not to be nice to someone who has just been nice to us, even if we know it’s a trick.

And we do seem to know. Asked whether the donors were trying to influence them or just being nice, almost all of the decision makers said the gifts were an attempt to buy influence. Doctors would doubtless say the same thing about gifts from drug companies.

Big gifts may be less effective than small gifts in part because they are so visible as to be unsettling. Few people like to admit to themselves that they being bribed.

The findings suggest that rules that require the disclosure of donations above a certain size are the wrong way around. They would have more effect if they focused on donations below a certain size. And making donations public has little effect. Another part of the experiment found the decision makers behaved in exactly the same way whether or not the client knew they had been accepting small gifts.

The implications go beyond politics.

Labor outlawed commissions for financial advisers in 2013. The Coalition plans to bring them back in a limited way by allowing banks to pay their staff ''volume-based'' bonuses of up to 10 per cent of their total wages.

It is an extraordinarily bad idea.

The small rewards the Coalition would allow may enable the banks to skew the recommendations of their staff more effectively than the big ones they would not. Small rewards are pernicious. They sneak in under our radar.

In The Age and Sydney Morning Herald

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Victory for The Age. Victory for investigative journalism.

Read all about it.

Here's how it all began.

Congratulations. It's paid off big time.

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