If anyone can empathize with the disappointment that Carolyn Wilkins must be feeling about being passed over for the top job at the Bank of Canada, it’s Tiff Macklem, the man who just beat her to it.

Macklem was the presumptive front-runner in 2013, when he was Mark Carney’s top deputy, only to lose out to an outsider himself — the current governor, Stephen Poloz. In fact, an insider hasn’t been given the job since 1994, when a new government promoted Gordon Thiessen amid a dispute about how much control lawmakers should have over monetary policy.

The lesson of the Bank of Canada’s modern history is that the finance minister always gets his pick — all men so far — no matter who is favoured by insiders or the board in its “independent” search process.

Finance Minister Bill Morneau had been considering Macklem for the job for two years, when the topic of transition first started coming up in discussions at the department, according to a person familiar with the minister’s thinking at the time. The two men weren’t friends, but the finance minister was impressed with a resume that included top management stints at both the Bank of Canada and government, along with his experience as a crisis manager.

It wasn’t clear whether Macklem still wanted the job, however. He felt humiliated by his rejection years earlier, and had been telling friends as recently as a few weeks ago he was happy at the University of Toronto, having recently signed an extension as dean of its business school.

Early on in the process, Morneau’s instructions to the board were to undertake an exhaustive search for a governor. By the end of February, the selection committee had invited a short list of candidates for interviews in Ottawa — including at least two current members of the governing council, according to people familiar with the process.

The Crisis Hits

The list was then whittled down to two, who were asked to make presentations to the full board.

A letter published Friday by the head of the selection committee suggests Macklem was one of the two finalists. The other was Wilkins, according to people familiar with the events. The interviews took place around March 10, said one person, just as official Ottawa was beginning to be seized by the coronavirus pandemic. On March 13, the Bank of Canada made its first emergency interest rate cut since the 2008-2009 crisis in a coordinated move with the government, which announced the first plank in its virus stimulus package.

The crisis held up deliberations for weeks, including a critical meeting between Morneau and Claire Kennedy, the board member leading the search. As recently as April 10, Prime Minister Justin Trudeau told reporters a decision had not been made.

Wilkins had backers within the prime minister’s office, who at first were unconvinced by Morneau’s championing of Macklem, according to three people familiar with the discussions. Wilkins, the most qualified woman ever to contend for the post, also had the support of Poloz, who had been grooming his top deputy for the job for years -- just as Carney had groomed Macklem.

Wilkins’ critical role in the central bank’s response to the crisis -- which occurred after her final interview with the board -- helped her. She won praise from both the Liberal government and Bay Street. Markets saw her as the front-runner.

One government official involved in the deliberations said that while there were “comprehensive” discussions between Morneau and officials at the prime minister’s office, a consensus did emerge around Macklem. Still, three former officials described the outcome as a victory for Morneau.

Macklem said he was informed that he got the job Thursday. By Friday morning, he was at Morneau’s side at his introductory press conference in the capital.

Carney’s Backing

While Macklem and Morneau are not known to be close friends, they’ve been running in the same Toronto circles for years. After his 2013 defeat, Macklem landed as dean of the Rotman School of Management, while Morneau became part of Trudeau’s first cabinet in 2015 as finance minister, responsible for Canada’s mostly Toronto-based banks.

Their professional lives began to cross. Morneau appointed Macklem, who is on the board at the Bank of Nova Scotia, to chair a panel on sustainable finance in 2018. That same year, Macklem would score a $25-million investment from the government for a seed startup program run by his business school.

Macklem also had prominent champions in Ottawa and corporate Canada. None was bigger than Carney, who remains influential in government circles. In an email to BNN Bloomberg television, Carney said: “It is tremendous that he will serve our country during this critical time.”

Macklem’s position at Scotiabank, where he leads its powerful risk committee, gave him close first-hand knowledge of how the industry works.

“Tiff possesses a keen understanding and deep expertise of monetary policy and the integral role the Bank of Canada plays in promoting our country’s economic well-being as well as sustaining the strength of our financial system,” Dave McKay, chief executive officer of Royal Bank of Canada, said in a LinkedIn post.

Political Minefield

While finance ministers have always downplayed their involvement in selecting a governor, it’s become a tradition in Ottawa they get the final say. Poloz got the job in 2013 despite reports at the time the central bank’s board actually preferred Macklem. The government felt he had a more compelling story about how monetary policy needed to be more supportive of growth, an appealing pitch to then-finance minister Jim Flaherty.

The politics around governor appointments is perhaps a natural outcome of having a fiercely independent central bank. Elected lawmakers get only one chance every seven years to put their stamp on an institution that makes critical decisions that affect the well-being of all Canadians.

But there is also a personal element to it. Ottawa can be a lonely place for finance ministers, who are often forced to push back against funding demands from other ministers. They see central bank governors as objective-minded allies who often validate their positions.

Over the next few years, Morneau and Macklem will get to know each other even better.

It’s not just the crisis that will bind them. Given the growing importance of fiscal policy and the central bank’s financing of government debt, the biggest change of the Macklem era may be the deepening relationship between the bank and government. It’s a political minefield the next governor will need to navigate and will require a versatile set of skills.

Macklem will need to be politically savvy enough to engage with government officials while avoiding taking sides in policy debates outside the central bank’s purview.

Macklem was an accomplished economist well before he advanced up the management ranks at the Bank of Canada. Based on his remarks Friday, he plans to continue relying on his technical chops to adhere to the central bank’s two-per-cent inflation target as the anchor of the Bank of Canada’s independence.

“We will use our tools as necessary in a way that respects our mandate and I am confident the government will respect our independence,” Macklem said, in French.