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Markets missed Flaherty’s clues on next Bank of Canada chief

A supposedly unexpected event can sometimes appear quite predictable in the rear-view mirror.

Take the choice of Stephen Poloz to replace Mark Carney as Bank of Canada governor. Everyone, it seems, figured the job would go to Tiff Macklem, Mr. Carney's trusted senior deputy. Mr. Poloz, chief executive of Export Development Canada, was considered a dark horse candidate.

And yet Finance Minister Jim Flaherty dropped some important clues during the long search that began last November when Mr. Carney said he was leaving for the Bank of England.

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The clearest indication the government was leaning heavily toward a bank outsider came in a Jan. 25 interview with Bloomberg Television from the World Economic Forum's annual meeting in Davos, Switzerland.

Asked by Bloomberg host Erik Schatzker what he wanted in a new governor, Mr. Flaherty responded: "Someone who understands the capital markets is quite important."

Someone with a "banking background?" like Mr. Carney, the interviewer pursued.

"Yes. Mark has been very helpful, very influential over the past couple of years. So I think someone from that background adds something to what the government does, yes."

It's hard to reconcile Mr. Macklem's résumé with the job description Mr. Flaherty offered in Davos. Mr. Macklem spent his entire career in government as an observer of the capital markets, but was never a player like Mr. Carney, who spent 13 years at investment bank Goldman Sachs.

Mr. Macklem must surely have known then he would not get the job.

But others may have missed the cue because they were looking more at surface issues, notably how Mr. Flaherty looked and sounded, not what he said.

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He appeared tired, his face puffy and flushed, and at times slurred his words. This, he disclosed later, was due to a rare skin disease and the side effects of medication, a powerful steroid.

Lost was his clearest indication of the kind of central bank chief he wanted – a banker with private-sector experience.

Then there was the Bank of Canada recruitment ad placed in newspapers and magazines, seeking someone with "a highly developed understanding of the financial sector, both institutions and markets, domestically and internationally." The bank wanted someone who would "lead through persuasion" and had "the courage to take a stand to support principles and policies."

The government wanted someone closer to the personality of a Mark Carney, over the discrete and introverted style of Mr. Macklem.

And then, there was the fact that the previous two governors came from outside the bank. Mr. Poloz makes it three in a row, establishing a clear trend. Throw in the Conservative government's mistrust of Ottawa mandarins, and Mr. Macklem's candidacy was doomed.

Mr. Poloz's "surprise" appointment has triggered suggestions of interference in the bank's independence, apparently because the government rejected Mr. Carney's understudy.

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There is a good case to make that the selection process is flawed, offering Canadians no opportunity to evaluate what kind of bank governor they're getting for the next seven years.

But to his credit, Mr. Flaherty was clear from the outset that he would be closely involved in choosing Mr. Carney's successor. The choice was ultimately his and the cabinet's to make, as the Bank of Canada Act spells out.

Enter Mr. Poloz, a macroeconomist by training. Like Mr. Macklem, his first job was at the Bank of Canada. But he's also a banker, managing a $30-billion loan portfolio and more than 1,000 employees. The EDC, a Crown corporation, is a significant financial market player, offering specialized financing to exporters and investors, in Canada and around the world.

Mr. Poloz joined the EDC as chief economist. Before that, he spent three years as managing editor of Montreal-based International Bank Credit Analyst, where he helped clients with multibillion-dollar portfolios invest their money.

Financial market background? Check.

International experience? Check.

Leadership? Check.

His selection should not have shocked anyone.

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About the Author
National Business Correspondent

Barrie McKenna is correspondent and columnist in The Globe and Mail's Ottawa bureau. From 1997 until 2010, he covered Washington from The Globe's bureau in the U.S. capital. During his U.S. posting, he traveled widely, filing stories from more than 30 states. Mr. McKenna has also been a frequent visitor to Japan and South Korea on reporting assignments. More


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