Rogue Tory

by Denis Smith

  After almost four years of putting up with the fractious governor, Fleming and Diefenbaker had belatedly decided to confront him. Now they allowed their pentup frustration to cloud their political judgment. When Fleming sought information from his senior advisers about Coyne’s pension, he learned that the directors of the bank had amended the by-laws in February 1960 to revise the bank’s pension plan, and to raise the pensions of the governor and deputy governor to half their annual salaries; for Coyne, this provided about $6000 annually more than the general plan. The by-laws had been properly amended by unanimous vote, but the governor had neglected to publish the new pension by-law in the Canada Gazette as the act required. Fleming’s own representative on the board had not reported the change to him. Fleming found this information “devastating.” He reported at once to Diefenbaker, and on March 30 to cabinet. “My instructions to talk to Coyne and to propose his immediate retirement on full pension,” he wrote, “were straightway withdrawn. What I had unearthed appalled me, shocked cabinet and enraged the Prime Minister.”100

  Cabinet discussion that day was raucous – and, as usual, indecisive. Everyone seemed to agree that the pension decision, and Coyne’s acceptance of it without disclosure, had been “reprehensible.” Coyne would have to depart at once. Ministers were inclined to reverse the increase in the pension, but Fleming persuaded them that legislation to do so would result in the resignation of the entire board. The meeting concluded without a decision on how to proceed.101

  Fleming understood that legislation to dismiss Coyne would be politically dangerous. The same day he wrote to Diefenbaker: “I am concerned that if we introduce legislation in the House to amend the Bank of Canada Act we will be opening up a can of worms. The Grits would love a chance to debate at length relations between the Government and the Bank and the question of responsibility for monetary policy.”102 For four weeks over the Easter recess, Fleming and Diefenbaker avoided the issue in cabinet. On April 28 the minister raised it once more, without resolution. On May 1 there was another long discussion, in which the issue of cancelling the pension increase re-emerged. The minister warned that altering the by-law would threaten all the bank’s pensions. He called instead for an early decision to terminate Coyne’s tenure based on “his policy differences with the government, rather than on the by-law … I urged my colleagues not to take any action which would regain any sympathy for Coyne. Specifically I warned them not to make a martyr of him.”103 But just what Coyne’s “policy differences” were, Fleming did not make clear.

  Throughout May the minister juggled budget preparations with consideration of a Bank of Canada Act amendment to dismiss the governor. Fleming finally forced cabinet’s hand on May 27 with the suggestion that the bank’s quarterly board meeting in mid-June would be the appropriate time for the board to receive Coyne’s resignation and consider a successor. Cabinet agreed that Fleming should meet Coyne to ask for his resignation, but it made no decision about the governor’s pension.104

  The next day Fleming met Coyne in the minister’s office. “I told him that on the instructions of cabinet I was asking for his resignation prior to the board meeting on June 12.1 stressed his provocative speeches, the public controversy they had engendered involving the government, the irreconcilability of his ideas with the fiscal plans of the government, and the consternation of cabinet on learning of the unusual pension provisions made for his benefit and of his failure to disclose these to the government.” Coyne said that the board had acted on legal advice in amending the pension by-laws. He stood by the assertions in his speeches, but he regretted any possible embarrassment to the government. He asked whether his successor had been chosen, whether Fleming had discussed the appointment with the board committee charged with recommending an appointment, and whether he would receive his $25,000 pension.

  Fleming replied that there was no successor and that he had not discussed the matter with the board committee. To the third question, he responded with a pedant’s precision. “I felt bound to reply that the validity of the by-law was not beyond question, the government had been shocked on learning of it and had not yet reached a decision as to its position in regard to it. Perhaps events might have turned out differently had I been authorized to answer his third question affirmatively also, but cabinet was far from being in a mood to concede the pension.”105 The meeting was calm, and Coyne departed after telling Fleming that he would think over the request to resign. Fleming did not see Coyne again for two years, when “he walked past me without any glint of recognition” in the Royal York Hotel.106

  But he did hear from him. Two members of the board of the bank met with Fleming on June 2 and again the next day, seeking reconsideration of the cabinet decision. Fleming told them it was final. On June 8 Fleming reported to cabinet. He expected that Coyne would seek a vote of confidence from his board and fail to get it, and that he would probably resign while fully defending his actions. The minister told cabinet that “it was imperative” that he should announce Coyne’s successor in his budget speech on June 20. He recommended Louis Rasminsky, a deputy governor of the bank, and sought permission to offer him the job. Cabinet concluded that this would be premature. They preferred at least to await the board meeting on Monday, June 12.107

  By that morning Fleming had received four letters from Coyne, all dated June 9. His sources had reported that nine of the eleven directors of the bank had met informally on the weekend and agreed that if Coyne did not offer his resignation they would adopt a resolution requesting it. Coyne had asked for a meeting with them, but had failed to show. The nine directors, Fleming was told, were unanimous in their support for Rasminsky as the successor.108

  Coyne’s first letter dealt with the issue of reappointment and the request for his resignation. It challenged the cabinet’s procedure on the ground that, since the act required the board to recommend the appointment to cabinet, the first step should have been to discuss the subject with the board or its appointment committee before reaching a decision. On the request for his immediate resignation, Coyne professed his wish to assist a successor to take office “in the most efficient and co-operative way,” and saw no reason why a successor should not overlap with him during his last months in office. He insisted that there would be no question of any differences with govern ment policy: “The Bank has in fact always co-operated fully with respect to Government policies and measures.” He rejected any suggestion of impropriety in accepting the board’s decision to increase his pension, and laid out the legal position in a separate letter. Finally, he said that “it would be wrong for me by precipitate action” to resign before the board had considered his position on June 12.109

  Coyne’s second letter expressed his view, which he thought Fleming must already know, that the relationship of bank to government should be clarified in law to give “overriding responsibility for monetary policy” to the government. That had always been the case in fact, he said, but Fleming had confused it by publicly denying responsibility.

  You must have had in mind a very narrow definition of the term “monetary policy” because most people would say that the term monetary policy included many fields of Government action other than the particular field in which the Bank of Canada operates. In any event monetary policy must be affected in its operations and the central bank must be affected in its views on monetary policy by many actions of the Government, including the size of the Budget deficit or surplus and the borrowing requirements of the Government … the extent and volume of lending by the Government or by Government agencies … and the extent of regulation by Parliament or by the Government over activities of various categories of lenders, borrowers, banks, investment institutions, etc.

  Many people had told him, Coyne continued, that the doctrine that the government bore no responsibility for monetary policy was “bewildering and confusing.” He felt that Fleming’s statements might have created the impression that the bank was “a free-wheeling agency so independent that it can ca
rry on monetary policy contrary to the wishes of the Government,” a freedom Coyne had never accepted. If there were “sufficiently serious” differences between the governor and the cabinet on policy matters, “it would, in my view, be the duty of the Governor to resign.” The letter closed with a specific recommendation to amend the act by adding a provision from the Bank of England Act giving members of the government power to issue directions to the bank “as they think necessary in the public interest.”110

  Ministers nervously awaited the board meeting in Quebec City. At 2 pm a member of the board telephoned Fleming to say that “Coyne was in a truculent mood … but that if he were permitted to complete his term he would confine himself largely to administrative duties, making no more speeches; otherwise he would resist the request for his resignation.” Coyne wished to meet with Fleming to state his position, and asked the board to take no action. Here was an invitation to a settlement, but Fleming rejected it. “I said very simply that cabinet had made a decision and I had no authority to alter it … Perhaps I should have temporized, though I am certain that cabinet would not have modified its decision already unanimously taken.”111

  Coyne chose resistance. The board of the bank reconvened the next morning, prepared to adopt a resolution calling on the governor to resign at once. Instead, Coyne asked it to deal with other business while he left the meeting. After two hours he returned to inform the board that he had made a statement to the press and would not resign. The board then adopted the resolution calling for the governor’s resignation, “after prolonged consideration and with regret,” by a vote of nine to one. Coyne, in the chair, did not vote. The meeting was immediately adjourned as the conflict went public.112

  The governor’s press statement offered defiance to the government.

  On Tuesday, May 30 the Minister of Finance on behalf of the Government requested that I resign at once as Governor of the Bank of Canada without waiting for the end of my present seven-year term of office which expires December 31 this year. To aid me in my consideration of this matter he said the Cabinet were upset by the fact that the Bank’s Board of Directors had taken action in February 1960 to improve the conditions of the pension which according to the rules of the Bank’s Pension Fund had always been provided immediately on the termination of service of a Governor or Deputy Governor. He said the Government were considering what action to take in the matter of the pension, had not yet come to a decision, and wanted my resignation before they came to a decision.

  Mr. Fleming also said the Cabinet were of the view that I had failed to discharge the responsibilities of my office in allowing the Board of Directors to take the action they did take unanimously and after thorough consideration in amending the pension fund rules, an action which the Department of Justice had said was entirely within the powers of the Board.

  This slander upon my own integrity I cannot ignore or accept. It appears to be another element in a general campaign of injury and defamation directed against crown corporations, their chief executive officers and other public servants. I cannot and will not resign quietly under such circumstances.

  For the sake of future Governors of the Bank, and in the interest of propriety and decency in the processes of Government and in the conduct of public affairs, I feel myself under an obligation to ensure that this matter is brought into the open in order that it may receive full consideration and discussion.

  I may add that at no time has the Government expressed disagreement with the operations of the Bank of Canada under my management … There has likewise never been any occasion on which the Bank of Canada has failed to cooperate, so far as it was concerned in the matter, in support of Government policy. In financial matters we have always loyally played our part in carrying out positive Government policies.

  The Minister of Finance has suggested to me that another reason the Government wanted me out of the way was that they were preparing certain programmes which were apparently thought to be of such character that I would oppose them.

  This mysterious and alarming suggestion has not been clarified. Clearly I would be betraying the duties of my office to resign under such circumstances. It is for the Government to disclose to the public what it is they are planning to do. I have never opposed Government policy, and do not wish to do so. It is conceivable that at some stage and in some circumstances it would be the duty of the Governor of the Bank to resign on an important question of principle or policy, or on the other hand to make a strong public stand against some Government proposal. The Governor should not, however, resign merely because he is asked to do so. I continue to hope, in the present circumstances, that the processes of thoughtful consideration and discussion will enable the Bank to continue as in the past to take appropriate action within its own field of activity in support of the financial requirements and economic policy of the Government of the day.113

  Coyne immediately flew back to Ottawa, convened a press conference, and distributed copies of his four letters of June 9 to the minister.

  The government had lost control of events. Faced with a direct challenge to its authority and reputation, Diefenbaker and Fleming were both incapable of manoeuvre – even for their own political advantage. They could only engage the enemy head on. The next morning Fleming made what he called “a brief and dignified statement … packed with essential facts” in the House of Commons.114 He called Coyne’s statement “defiant and provocative,” and condemned his record as governor.

  During Mr. Coyne’s period in office, there has been a steady and deplorable deterioration in the relations of the Bank of Canada with the public. The Governor by a course of ill-considered action and a series of public declarations of policy on public issues quite outside the realm of central banking and by his rigid and doctrinaire expression of views, often and openly incompatible with government policy, has embroiled the Bank in continuous controversy with strong political overtones. Mr. Coyne’s rigid attitude on the maintenance of high interest rates is one example. The Government’s policy is expansionist aimed at the creation of more trade, more production and more jobs. The policies advocated by Mr. Coyne are restrictionist – restrictive of trade, restrictive of production and restrictive of jobs. The Government has exercised patience in the hope of avoiding further controversy, pending the expiry of his term of office on December 31st next, but its hopes have been frustrated by Mr. Coyne, and it can no longer postpone decisive action.

  Matters of high importance are awaiting decision and co-operative action by both the Bank and the Government. The need of teamwork between them and leadership by them has never been greater. It has become impossible to expect this kind of co-operation as long as the present Governor remains in office…

  Fleming said that he had told Coyne that the main reason for requesting his resignation was “that the Government was convinced that Mr. Coyne’s continuation in office … would stand in the way of the implementation of a comprehensive, sound and responsible economic programme designed to raise the levels of employment and production in Canada.” In addition, he had told Coyne that “the Governor was lacking in a sense of responsibility in keeping with his high office, in accepting an additional benefit worth $13,000 per annum for life without ensuring that the matter was brought to the attention of the Government.”

  Fleming concluded by telling the House “that the Government will shortly invite Parliament to take appropriate legislative action to meet the needs of the situation.” Coyne would be dismissed by act of parliament.115

  This was the essential statement of the case for dismissal: Coyne’s public statements had been “ill-considered” and had engaged the bank in public controversy; he had advocated views in conflict with the government’s current policies; he could not be expected to support government policy in future; and he had not informed the minister of his pension increase. On Pearson’s motion, the House went into an emergency debate on the subject. At its conclusion, Fleming derided the opposition parties for taking the part of
the governor, who could hardly be a martyr on a pension of $25,000 per year at the age of fifty.116

  Editorial comment was widely sympathetic to Coyne for wishing to defend his integrity, critical of him for defying the government’s request to resign, and contemptuous of Fleming for his inconsistency. The Montreal Star, while recognizing the need for a swift resolution of the affair, condemned the minister:

  If Mr. Fleming has had his troubles, he has been asking for them for a long time. It is quite true, as he told Parliament yesterday, that he and other ministers have openly disagreed with Mr. Coyne on such subjects as foreign investment. He must indeed have found Mr. Coyne’s speeches an embarrassment. But where Mr. Fleming was wrong, and where he remained obstinately wrong, was his refusal to accept responsibility for the country’s monetary policy. This, he repeatedly said, lay solely within the jurisdiction of the Bank of Canada – a point of view rejected by his predecessors in office who knew that effective management of currency and credit could only be achieved by the Government and the Bank working together…

  Mr. Coyne has said that he got no directives on this point from the Government … Without directives Mr. Coyne naturally pursued those monetary policies which seemed to him sound. Not everyone agreed with him. Many were bitterly opposed to them. Mr. Fleming remained superbly aloof…

  This is much more important than any petty argument over a pension plan, or indeed any matter arising from the wide-ranging, controversial speeches of Mr. Coyne.117