BANK AND STATE.

Dominion, Volume 6, Issue 1843, 1 September 1913, Page 5

BANK AND STATE.

POLITICAL CONTROL AND . PATRONAGE. MAT HAS ALREADY HAPPENED AND MAY. HAPPEN AGAIN. 'An Open Letter to the Hon. W. F. ' Massey.- ' ■ ■

Dear Sir,—ln . viow of events now transpiring, and especially having regard to impending legislation in connection with the Bank of New Zealand, and to statements .appearing in a recent letter from tho chairman to the Minister for finance, it may. not bo out of place to bring vividly beforo you somo matters, that occurred in tho past, and bearing particularly on the dangers likely to aaise from undue uolitical interference and abuse of patronage. 1 am aware that in openly, dealing .with such a. question I may subject myself to tho imputation of tearing down tho veil of secrecy that is supposed to obscure certain affairs of a more or. loss confidential nature, but against that there is a consideration of paramount importance— tho public interest—that may at times demand the relaxation of. obligations that would othorwiso bo - strictly observed. In positions of trust and responsibility such as I have held, the seal of confidence is imposed moro in respect, to maintaining inviolate tho rights of. individuals, and does not embrace matters of policy that might seriously affect tho public-.weal. In directing your attention, therefore, to cortain facts affecting tho interests of the community I shall in no sonso commit a breach of faith 'or treat loosely what is binding on conscience. I go back to the year 1898, when I gave up a responsible and comfortable position in Brisbane to assumo the duties connected with a special post created under the Bank of New Zealand Share Guarantee Act of 1894. In tho session of Parliament immediately following my arrival, for reasons that wero not confided to me, a measure wao introduced for tho purpose of amending the Act mentioned, providing, intor alia, for a reconstitution of tho board, which at that time consisted- of compotent men appointed by tho shareholders: A recommendation to continue their scr-' vices was set aside. The Bill as first drafted fixed tho number of tho board at nine, who were to bo selected from the four corners of the colony, thus introducing tho obnoxious elements of provincialism, and patronage. Please note that this was tho first attempt to obtain political control. On strong representations being made that such a' board would bo unwieldy, costly, and baneful, tho' number was reduced to Bix, four to bo appointed by the Government and two by the shareholders— that is the constitution of the board today. ' As illustrative of tho power of patronago and the wide area over which it may bo exercised—but to the gratification of a few as against the grievous disappointing of many—tho positions wero eagerly sought for, and producea a crop of applicants from far and near, with tho usual variety of qualifications. Ultimately, tho four seats in the hands of th'e patrons ivero disposed of by two local appointees and ono eaclifrom Canterbury and Otago.

The 'Chief Auditor was at that time invested with a power not previously held, enabling him to suspend any act or proceeding of the board, as a check on what might be regarded as hasty or insufficiently considered proposals. At the date to which I have referred —that is four years after the bank had received State support—some good work had'been accomplished, hut much, very much, remained to bo .done.. . Besides being in arrear with the statutory payments, the institution was encumbered with trading concerns not included in the dead land and station advances taken over 'by the Assets Realisation Board, consisting of a variety of businesses, such as tanneries, flour and timber mills, tramways, etc.. in New Zealand, and coal mines, cattle stations,and railways in Australia. It was evident that to secure healthy growth this mass of lifeless matter had to be removed. To continue to work such concerns in tile expectation ofjinally recovering the large amounts involved was perfectly hopeless, and,to attempt suoh a method led to tho very grave and just charge that an institution on whose behalf the taxpayers of' tho countr/ were liable to the enormous extent of 5J- millions sterling actually occupied the anomalous position of being in open competition with them in 'private enterprise. Tho continued prosperity- of tho country a ' visible increase in the earning power of the bank, and as the profits could, under tho .then oxisting conditions, bo applied only to statutory purposes, and no portion could meantime be appropriated for distribution among shareholders, it was olear that that part of the steadily augmenting income not required to meet obligations imposed by statute, furnished a very powerful incentive to get rid of thoso embarrassing encumbrances at almost any sacrifice that cotild be mot by tho surplus profits at disposal. In spite of conflicting opinions, and consequent unpleasantness, that course was adopted, not, howovor, without frequent but necessary recourso to the powers conferred. No ono can say to-day, in viow of the splendid position to which the bank lias attained, that tho steps taken, drastic though they may have been regarded by some at the time, were not abundantly justified. ~ (

_ My principal object in addressing you is to emphasise the dangers inseparable from political control and interference, and' the foregoing remarks thoroforo partake to some extent of the nature of a digression, but in a prefatory sense they are necessary as leading up to the main question.

I come now to tho year 1902, by which date, chiefly because of tho increasing prosperity of the country, the bank was 'in the position of having more than met all its statutory obligations, and therefore able to pay a dividend under the Bank of New Zealand and Banking Act, 1895, which sots out in Section 11 how' the profits of tho bank aro to bo distributed, and provides, inter alia, that a dividend not exceeding 5 per cent, per annum "shall" be paidto the proprietors of tho ordinary shares who have paid all instalments duo on their shares.

In my annual report to March 31 of that year, after making plain tho situation, payment of. the maximum dividend tlion permitted—s per cent. —was strongly recommended. Intimation was received that Cabinot had 'emphatically declined to allow a distribution of any portion of tho profits by way of dividend, and that in so deciding they had tho concurrence of tho Chairman of tho Board, who presumably would be supported by his nominco colleagues. Lot in now note what was involved in this autocratic intention to set aside the statute, and what wero some of the considerations that influenced my recommendation in favour of payment: (1) Tho shares of tho bank wero so utterly discarded by the public that thoy had not been quoted for eight years, a circumstance that very material) affpeted its prestige. (2) There wore between 22,000 and 23,000 forfeited shares on the bank's hands, and it was highly desirable to havo those restored if possiblo to tho register in the names of porsons who rrsuld be good for the liability, thus effecting the'doublo object of strengthening the position and/improving the Govern ment's own security. Tho decision to voto tho dividend would render any action in this direction hopeless, and the shares forfeited might well bo regarded is so much waste paper. (3) The croation, or I might say a to-

vival, of a healthy public interest in the bank, and thus accelerate beyond measuro the release of tho State from the heavy liability it had undertaken. These, apart from the imperative provisions of the statute, were weighty reasons against the ill-advised interference of Cabinet..' c Tho decision arrived at was not, however, quietly submitted to. Tho matter was fought out with somo determination, and finally the objection to -payment wag waived, and the responsibility for any consequences that might follow wero passed on to me, and that responsibility I had <no hesitation in accepting. What wero tho following consequences? Briefly, these: In a comparatively short space of time sharo quotations reached and passed par, the forfeited shares were all disposed of, the register strengthened, tho Government security improved, over £60,000 placed to reservo fund, and tho credit.of the bank re-establish-ed in the financial world on its own merits as a sound institution, irrespective of the support accorded by tho State.

Political interference would have negatived a proposal that by distributing the comparatively small sum of £21,000 resulted'in all this and brought at least £150,000 into tho coffers of tho bank I

Now I como to indicate a variety of ways by which political interference has a' prejudical tendency when'attempted to be exercised in connection with tho sensitive and delicate , relations that subsist as between a bank and that matter or thing known as public confidence.

Tho management of the Bank of New Zealand was not at any time unmindful of tho support accorded by tho Government, and was ever ready to render to tho State any service within reason. On ono occasion that I may mention when tho money markets wero practically closed to borrowing colonies it assisted to tho extent of half a million in underwriting a loan, was saddled with between 80 and 90 per cent of tho amount and subsequently wrote oli from profits about £35,000 for depreciation of the 6tock. Naturally a 'repetition of such a: transaction would not be likely to receivo favourable consideration, and later on when a request .to that end was preferred it met with a refusal, principally because at that timo a larger portion than was deemed advisable of the bank's funds was locked up in local Government stocks of various descriptions. Hero, tho. cloven hoof of persistent political domination began to appear. The banlf authorities were tauntingly informed that it was their concern if they tied up so much money in stock. This merely elicit,ed tho reply that tho stocks held were not voluntarily acquired for purposes .of investment,. but from time to timo to meet the requirements of tho Treasury.

When a banker is ■ suddenly confronted with a demand to find such a largo sum as £800,000 to retire stock maturing in two months', time it will be conceded that tho order is a big one, quite big enough, at any rate, to warrant him in expecting that ho should at least be consulted as to the ability of his ways and means to provide on short notice an amount of this magnitude. As it would not be. in accordance with good management to_ dislocate finances to such an extent as to seriously disturb relations with an army of customers, many of whom wore by predepending upon support, the insistent demand naturally met with a! refusal and this decision was conveyed with an expression of deep regret ■that "prudent management of the bank's affairs, wa-s evidently a matter of 110 consideration as against tho pressing exigencies of the Treasury." This candid, truthful, and .in the circumstances inevitable roply led to the invocatioir 'or the aid of the chairman to induce a .withdrawal on tho ground that the letter would become a public document and possibly embarrass the authorities'. " A peep into your pigeonholes will show that it is still on record, or should be.

Increasing public demand for land led necessarily to the acquisition of estates for settlement purposes and on occasion suitable properties under the control of -the Assets Realisation Board wero purchased to meet this demand. As a rule payment was largely mado by way of stock bearing a higher rate of interest than that borne by tho current debentures'of the board itself.

It was provided by statute that any securities held by' the Assets Board could- be demanded by the ■ bank for the purpose of utilising tho proceeds in tho redemption of an, equivalent amount of tho board's debentures.'

A demand under this statute for delivery to tho bank-.for the purpose-of giving effect to tlio law as it stood, of a big block of debentures issued in connection with ono of those purchases, was met by a. prompt refusal in writing; on grounds that can only he described as purely' personal and political. Authority obtained from the board of the bank by minute to press for delivery was followed by an application to the Court to compel production of tlho securities. This is a matter .of public record. An order was obtained, and then the securities wore handed over and proceeds applied in accordance with statute. Now, by way of emphasising tho difficulties and distractions that beset a man chaxged with the arduous task of administering tho alfairs of a great financial concern, when ho had to choose between his plain duty as regards tho weighty interests committed to him and mere subservience to political inffuences, let me state that a nominee director now on tho board had undertaken —a step for whidi lie had no authority whatever—that the letter, couched in peculiar terms, refusing to comply with tho perfectly legitimate request for tho surrender of the securities alluded to should bo returned. And this letter , constituted the only defence .tlio unfortunate official could set up for his own, protection in support of tlio course ho was compelled to adopt in tho bank's interests. Many more instances could be cited to make abundantly clear the mischievous results that might follow from the unduo exercise of rights assumed to bo conferred by a partnership between.tlho State and private enterprise, but I will content myself by 6aying that tho assumption of tjhisright did not merely stop at matters that affected policy; it also extended to interference with the staff, a courso of action that could only end in subverting all discipline and tho weakening of administrative power. What would be said of any man with a proper senso of his responsibilities, and regard for his own authority, wto would submit to important members of his staff being, without reference to him, summoned from the post of duty at tho call of a Minister, and again to be asked through a nominee momber of tho board to peremptorily dismiss a competent official because of supposed political leanings? Yet such things happened in my experience, and, if they occurred before, may they not happen again as a resu't of partnership between bank and State, with the mightier partner dominating control? I would fain hope not under your sway. But who may como after you?

' protest had to bo entered against such interference, and as _ regards t'ho effort to obtain tlho dismissal of an official, it was made quite clear that instead of being treated as desired, h« would havo tho fullest protection, and would only ba doalt with on a charge being laid, supported by tho nio3t ample proof of unfitness for retention in th# Eorvice. No more was heard of the_ matter. In tho' facc of such harassing and annoying conditions, think you, could any man entrusted with responsible duties calling for'his complete devotion, his untiring energies, and the fullest uso of bis faculties, successfully administer for any length of time? And, remember, good management is tho all-important matter.

I wonder if a further peep ia pigeon-

holes would discloso anything as to this.

In 1903 action had to bo takon through tho Legislature similar to that to bo cnacted during tho present session of Parliament.' The stock issued in 1894 had to bo provided fori by July, 1904.

liarly in 1903 the bank was invited to formulate its requirements. This was promptly attended to, and intimation given that all that was desired was an extension of the guarantee for one-lialf the original amount, nothing more. What happened is a matter of history. Many harsh and vexatious conditions were sought to be imposed. A largo interest was forcibly created in the bank on terms that were unmistakably inequitable, and without consultation with tho other; side. It was a pure case of violent entry.

What I wish particularly to direct attention to, however, is tho extraordinarily arbitrary way in which tlhe whole matter was conducted.

As I have already stated, the bank formulated its proposals early in the year. passed and not even the faintest sign oi tho intentions of tho Government appeared, The feelings of anxiety and insecurity occasioned by such unaccountable reticence respecting a matter that could have been sc simply arranged wero evidently not thought worthy of serious consideration, if indeed the weightier aspects of the situation over dawned upon tlie rulers of the day. Suffice it to say that tho tension became acute.

Information reached mo from an undoubted sourco that at 'tho eleventh hour a measure cf which the bank officials wore to be kept in ignorance was to bo forced through. An informal mooting of tho board was at once held, Subsequently a special meeting was convened; and my views wore submitted in a iott-or of wSiich tho following is a transcript. I direct special attention to the dato of that letter, indicating as it does the dying days of tho sion.

(Copy.) November 10, 1903. To tho Chairman and Board of Directors 1 . Gentlemen, —When about five months ago you were good enough to entrust- mo with tho management of the bank, I, as you are aware, accepted the position with some reluctance, ana conditionally on t'ho legislation necessary in consequence of the approaching termination of tho State guarantee being of such a nature as would bo unlikely to prejudice tho business of tho bank. As fax back as April 18 last, you, as a boaTd, at the request of tho Colonial Treasurer, formulated proposals indicating' tho lines on which, in your judgment, the relations between tiho bank and tho. Stato should bo continued. Up to tho present moment no intimation has roached you as to Whether or not your views have had any weight, with the Government. On the other hand, tiho Premier has on several occasions publicly alluded to various methods that would probably be resorted to in dealing with this matter. What I wisli now to bring pointedly nndor your notice is that "the delay is not only injuriously affecting the prestige of the bank, as evidenced by the fall in tho price of tho guaranteed stock, and. in othor ways known to you, but it is making good management v a matter of extreme difficulty. It is quite unnecessary for me to remind you of tho great responsibility invoked in the control of such an extensivo and valuable business as that with which wo havo to do, bound up as it is with every interest that makes for building up .tho prosperity of the colony. But. to havo added to thc-onerous nature of suoh a task the suspense ill which wo havo been hold for many months makes my position intoler'able, I regret to say, and I'moist ask j'ou to join with me in seeking without delay from the Premier a definite and final announcement of , tho course ho intends to pursue, or permit me, having regard to my health and reputation, to retire from tho post I now occupy, tho duties connectedvwitlh tyhich 1 could not, under suoh circumstances as aro apparently premeditated by the Government, discharge with credit to myself or advantage to tho bank. I ask you to do this because I havo it on good authority that the Premier contemplates legislating in, a.' manner t'hat willbosub.versivoof the best interests of the bank, and that he intends rushing'the Bill through without: giving' us an. opportunity of pronouncing an opinion on it. To my mind—and if 1 mistake not to yours also—all the delay and uncertainty in connection with im- ' pending legislation is porfectly inconceivable. There is positively no obstacle in tho way, no difficulty ito surmount. ,It stands to reason that' tho system, under which tho bank has attained to such a measure of prosperity that tho risk of loss to the State has been reduced

to a minimum, if not entirely effaced, should bo continued, and that any departure from that system, or any attempt to 'experiment under now conditions should be most carefully esrhewed, until at - all evonts the bank has purged itself of tho contingent liability that still attaches to it. ■' In support of this view the Premier has had the benefit of your advice and 'opinion, and you constitute the most competent tribunal to whom to appeal in such a case. Personally I have endeavoured to serve the bank and tho colony faithfully for tho past five years, and I have never at any time offored tho Premier advico or suggestion that would, so far as I could

judge, be in the smallest degree inimical to the well-being of State or shareholder, recognising no diversity of interest, a principle to which I have steadily adhered in tho discharge of the duties of the office I at present fill. My best efforts 'have always been directed, with you, to the careful consideration of such matters as would most likely conduce to the success of the bank (thereby making remote the contingency of loss to the country); improvo the .conditions of the unfortunate people who have suffered so heavily in the past, and justify tho confidence of those who subsequently became investors and gave added strength to the institution. At tho most the bank only occupies tho position of a debtor with the unquestioned right to freedom, and should the Government elect to decline to accord its support on existing lines—a courso it is dearly entitled to follow then, at least, it is in all fairness bound to givo tho shareholders tho amplest opportunity of making other arrangements within the time at their disPo3fJ,l. You and I claim the right to bo taken, in tho fullest senso, into tho Premier's confidence where tho future of tho bank is vitally concerned, and in keeping us at arm's length on this important question ho, unconsciously or otherwise, evinces a complete lack of appreciation of tho gravo responsibilities that devolvo'upon us at this juncture.

To you, irrospcctivo of tho source from which you derive your appointments, has been entrusted tho serious task of safeguarding the bank's interests; it is my duty and privilege to adviso you whoro those interests aro concerned, and that must bo my excuse for addressing yoii now at such length. i Yours faithfully, A. MACINTOSH, General Manager. I think enough has been said to illustrate the' dangers that may. accrue

from an alliance such as now exists between bank and State, created not by mutual consent, but by tho assertive action of a dominant power. That tho Government of 189-1 was forced, probably with reluctanco, and doubtless with great hesitation, into a connection with tho bank will not bo denied. But it was borno in upon them that inaction on their part would unerringly lead to national calamity, and they would havo been recreant to tho trust reposed in them had they failed to meet tho situation and grapple with it as they did. But the action then taken did not constitute partnership, it was purely one of guaranty and conferred 110' shadow of right of entry into possession while thero was ' full ability to release tho bond. For tho servico thus rendered they were amply compensated in tho sense of good work dono and, pecuniarily, by the interest obtained through tho preferred shares taken under tho Act of 1903.

It will, however, be concedcd that any Government present or future will be fully justified in taking every precaution, by retaining such limited representation as will at all events- furnish as effective a check as can bo devised, to provent, as far as it is humanly possible, a recurrence of what occurred in in 1894.' Thero are many people who speak and writo glibly about State banking. All I say is that if thero •is to bo a Stato Bank, well, lot it como, but thero is 110' reason why it should climb into position on the back of any enterprise founded by a section of the community. Let it como in, and stand and bo judged on its merits. There aro people who alfect toi sneer at private enterprise, but what would wo be to-day as a nation without it?

But; havo the advocates of State banking seriously considered or have they any knowledge of the thousana and one things -that may operate to malco an institution of this nature a curso instead of a blessing through the baneful influences that caii be brought to bear, and, I venture to say, influences that cannot be successfully resisted except at tho cost of heavy personal sacrifice? Have they ever pictured to themselves the circumstances of the man occupying the chief position in tho management with its attendant, cares having—in order to securo himself —to "run with tho hares and hunt with tho hounds," a courso intolerable to a high-minded individual? Any idea of asserting independence having to bo carefully weighed as against the less 01" bread and butter, and possibly tho plunging of a helpless family into indigence and despair, to say nothing of inferential injury to reputation, that—if 'I may'so put it —is tho stock-in-trade of the professional man. A struggle between duty, honour, and conscience 011 tho 0110 hand, and miserable subsorvicnco on the other. For there _is no tyrant more exacting pr vindictive than tho scheming politician, who would, making the most liberal allowances, bo misnamed statesman. • I have been through the mill of experience, and for offering resistanco to sueh matters as are sketched in tho preceding pages was informed witli a dramatic combination of politeness and emphasis that an engagement vouchsafed to me on acceptance of offico, and about to expire, would not bo renewed, That was my reward and I accepted it! No, I venture to say without fear of contradiction, that not even tho most complete armour of indepcndonco with which a man occupying a position of trust and responsibility can bo encased will secure him immunity from tlio treachorous attacks of the unscrupulous politician, and that is tho ono dangerous foaturo that will operate against tho successful conduct of any business into which this pernicious element entors. ' _ N Another dangeT to which I perhaps should refer is that arrogant exerciso of power that takes no count of tho law. When in 1903 I vacated tho offico of Chief Auditor, witli tho Mil consent of tho Government, to: talco up tho duties of General Manager, _ nothing was > dono in tho way of appointing a sue-' cessor in tho Auditorsliip, and although I made verbal request to be released I .was virtually forced into tho irregu- 1 lar -and. highly-illegal position of conducting the work attached to the vacant post in addition to the now responsibilities assumed. It was in vain that reference was made to tho anomaly. Matters went on in that way for six months. Certainly I discharged tho . duties conscientiously, but the situation, inasmuch as thero was a continued infringement of the law, had to bo ended. Thinking that this might bo accomplished. Dy sending in my written resignation, I adopted that course, merely receiving acknowledgment with tho announcement that my "resignation would bo accepted when my successor was appointed," and tlfat appointment was not made for nearly twelve months. ■ Thus, is political influence sometimes exerted even to the extent of ignoring tho law. One more remark ana I am done, aud it is simply by way of reiterating that thero is 110 escape from political influence as exerted in certain quarters; it for its goal without scruple of any kind and often in tho most subtle apd tortuous manner. I can speak with exceptional experience, fot I have learnt and folt what it is, and what it costs, to offer-; honest and determined resistance to it". It can, in tho caso of great commercial undertakings,. make good management, whicfh is absolutely essential to success, an utter impossibility by destroying peace of mind and making 1 lifo intolerable. When the Government of New South Walos, by Act passed in 1906, placed the StaAo Savings. Bank and the Advances to Settlors. Department under Commissioners, I had the honour to bo offered tho presidentship of that Commission.. So keenly did tho Government realise the dangers tha/t might arise from tlho. exerting of this influence, that tlie Commissioners were clothed with tho most complete independence that any Legislature could confer: life tenure, removal from offico only to be effected by resolu-, tion of both Houses of Parliament. Yet it was only by continual assertion of this independence that designing politicians coula be kept from the door. When- efforts to entrench tlhomselves failed, recourse would be had to dragging one, in a. metaphorical sense, on the floor of the Houso, and thero, under tho cowardly shelter of privilege, to receive tho full force of distortion and exaggeration. , I retained office •sufficiently long toassist in hreaMng down tho' evil and smoothing tho way for my colleagues and my successor, and was then fortunate enough to bo entrusted with a position where such influences do not intrude. If in anything I have said I can. arouse legislators and the community to a true sense of the dangers I haw endeavoured to depict, I shall bo more than satisfled. I am, etc., MACINTOSH.

AFTER TWENTY-ONE YEARS— ANOTHER REMARKABLE RHEUMO CURE.

There could l>e no greater proof of Rheumo's wonderful curative properties than the testimony of Mr. E. M. Rudman, of Collingwood Street, Nelson. His was indeed a chronic caso of Gout and. Rheumatism, yet Rheumo completely cured him. These aro his own words: "It gives mo much pleasure to be able to say that by using your wonderful medicine, RHEUMO, I have been completely cured of Gout and Rheumatism, of which I havo been a. sufferer for the past 21 years. I may say I linvrf not had tho slightest symptoms for the past two years, and feel convinccd it is a permanent cure." This is proof enough indeed, and should convinco you thai RHEUMO will euro you too. It matters not how long you have had your Gout and Rheumatism—give RITEUMO a trial and it will surprise you. It is a remarkablo specific for tho cure, of all uric acid troubles—Gout, Rheumatism, Sciatica, Lumbago, Gravel Stone and the like. Got a bottle to-day and prove Rheumo's efficacy for yourself. Of all cheinist3 and stores, 2s, Gd, and is, Cd, —Advt,