Interview with John B. Davis, Jr.
The Role of a Fed Director
Published August 1, 1987 | August 1987 issue
John B. Davis, Jr., chairman of the Minneapolis Fed, and president emeritus of Macalester College, addressed the participants in the Economic Education Workshop.
The seminar, an annual spring event at the Minneapolis Bank, draws educators from throughout the Ninth District. "The most important duty of the board of directors of this or any institution, in my judgment, is to select the president," said John Davis in his opening remarks at the economic education workshop. "The president then has responsibility for the staff, but it is the president who sets the tone."
Davis spoke from first-hand knowledge, since he had served on the search committee in 1985 when it chose Gary Stern to head the Minneapolis bank. Such appointments are then subject to the approval of the Federal Reserve Board in Washington. In a sense, it becomes a "shared responsibility with the governors in Washington," said Davis, unlike most institutions where the board of directors has the sole responsibility for selecting the chief executive officer.
In the administration of the bank, said Davis, all report to the president with the exception of the auditor, who is answerable to the audit committee of the board of directors. "That is a wise course. It ensures that the prudential principle is secure and honored and the fiduciary burdens discharged effectively by all within the bank."
"In order to describe the function and role of the directors, I guess you should know who they are," Davis told the audience. There are three classifications of directors. Three of the nine must represent bankers. Consequently, the member banks of the Federal Reserve Bank elect three bankers (Class A directors). They are: a banker from Philip, South Dakota, one from Ontonagon, Michigan, and one from LaCrosse, Wisconsin.
In addition, the bankers elect three directors who are broadly representative of the community, such as business, agriculture, or education. Those three (Class B directors) are: the owner of Spruce Row Farm in Northwood, North Dakota, an executive officer with Northwestern Bell in Minneapolis, and the head of Mathers Land Company in Miles City, Montana"a land holding of some magnitude, I am told," said Davis. "I once asked Bill Mathers if I set up a lean-to on his property, how long would it take to find me, and he said his helicopter would spot me fairly soon."
"There are three other directors, known as Class C directors, of which group I am one. We are appointed by the governors in Washington on recommendation of the local Federal Reserve Bank. None of us can be bankers; one of the three is designated as chair and one as deputy chair of the board of directors. You can draw whatever conclusions you want from that, but the fact that I stand here as chairman of the board is not a one-in-nine chance. It's just a one-in-three chance."
The Minneapolis Fed has a branch office in Helena, Montana. It has five directors, three of whom are appointed by the Minneapolis bank. The other two, the chairman and vice chairman, are appointed by the governors in Washingtonagain, on the recommendation of the Minneapolis Fed.
Formal meetings of the board are held eleven times a year. At each meeting, three of the directors bring specific reports to the attention of the management and the other board members concerning the economic conditions in the area they represent.
Between board meetings, the executive committee meets, sometimes by telephone. One purpose of these sessions is to set the discount rate, on the advice of the president. This is the rate at which banks may borrow from the Fed. "This has significant implications for the flow of money within the district," Davis said.
Other specific duties of the board of directors include: reviewing and approving the bank's goals and objectives annually; ensuring that the bank is managed competently and in the public interest; serving as counselors and advisors; and stimulating a management climate which encourages a constant improvement of performance. Directors also have the responsibility for continuously monitoring bank processes, its management and staff, to ensure that the bank is responding to the specific and unique needs of the district.
Eileen McGuire, The Region
Goodbye Mr. Chips
John B. Davis prepares to step down at the end of this year as chairman of the board for the Federal Reserve Bank of Minneapolis. He will have served three years as presiding officer.
As a nationally known educator and administrator, Davis had served as superintendent of schools in Worcester and Lincoln, Mass. from 1959-66. For the following eight years he was superintendent of schools in Minneapolis, a time when the school system underwent some of the most sweeping changes in its history. It was during this period that Davis championed desegregation even before it was ordered by the federal court.
Initially a student of history as an undergraduate at the University of New Hampshire, Davis later refocused his interests in academics as he earned both M. Ed. and D. Ed. degrees from Harvard Graduate School of Education.
Over the years, Davis published articles in national journals and periodicals on a wide range of social and educational issues. He also served on countless panels, committees, advisory boards, and boards of directors.
But this impressive set of credentials, including the presidency of Macalester College, probably is not how Davis will be remembered by his colleagues at the Federal Reserve. A substantial and long-standing institution like the Federal Reserve, without proper guidance, may tend toward rigid hierarchy and classical bureaucracy. Davis recognized that and quietly promoted the opposite. He always takes time to introduce himself to employees and chatanyone from rank-and-file to the official staff; he cares about the culture of the institution; he communicates one-to-one. He has had a humanizing effect at the Fed and one that has made a difference. In board meetings, when discussions had turned from productive directions, Davis would redirect the process without heavy handedness. His greatest contributions flow from his personal style: considerate, courteous, and insightful. An eminently talented man, Davis will have left a mark on the Fed as a leader possessed of extraordinary intelligence, erudition, and compassion.
In a brief interview with a Region reporter, Davis shared some thoughts and observations.
Region: What's needed in education today?
Davis: What an assignment. The first thing that is needed is an attitude on the part of the student that learning itself is fun and necessary. Second, I guess, that there be a teacher capable of stimulating and interesting the student in the pursuit of his or her studiesand maintenance of that student to a standard.
Region: Have we lost the essence of classical education?
Davis: Someone said that there are no two things so dissimilar as to not have similarities and no two things so similar as not to have dissimilarities. The mark of the educated person is to be able to see the similarities in unlike things and to find the basis for integration of subject matter. That's the high calling of a teacher too. I am totally committed to the liberal arts.
Region: Looking at your curriculum vitae one finds such an impressive list of accomplishmentscommunity service, educational, intellectual. Have you always had a clear-cut motivation; has there been a master plan, or has it been a response to the next random pressure?
Davis: I don't think there is a simple answer. I've been the product of half the opportunity from my point of view. I did, after the war and upon my return, complete my baccalaureate degree. I decided I would teach and didone year in a high school in Laconia, New Hampshirehistory and assistant debate coach. The experiences there were so satisfactory from my point of view that I decided that if were going to be a good teacher, I had better do some advanced study. So I left after one year and was admitted to Harvard for my graduate work. I didn't go to Harvard right away, though, because I was invited to become assistant to the president at the University of New Hampshire in that intervening summer. So I had another exposure to the world of education as a young assistant to a very intelligent college president. I sat in his meetings and absorbed and did some of the left-handed things that I was able to do. So I deferred my graduate degree and never returned to public school teaching.
Region: Over the years, so many things. Pages upon pages listing your accomplishments. Most people would have stopped and said, "Now it's time for fishing." But you seem to always push on. Now you're working with the literacy program, inter alia. There seems to be a special motivation?
Davis: I have always had reasonable energy and intelligence. I remember as a beginner after service in Laconia, being one of the speakers called upon at Dumbarton Oaks and the emergence of the United Nations. My wife and I had charts and graphs which we developed, and we would go evenings to community groups and talk about the importance of the United Nations. I could still do my preparations for the classroom. I guess that energy level and reasonable intelligence have kept me in a fairly active mode.
Region: In your long and interesting trek, your path finally crossed with the Federal Reserve. What was your initial contact with the Fed?
Davis: I think I knew that the Fed was some great instrumentality of the maintenance of economic stability, but I had never had any contact with it until on one occasion, President Jerry Corrigan and Chairman Steve Keating came to my office and asked if I would consider the opportunity to serve as a Class C director. I responded affirmatively with some doubt as to whether would be confirmed. But here I am.
Region: When you first started at the Fed, did you have any expectations? What did you think you were getting into?
Davis: I knew I was getting into a learning situation. That was clear because no one could have entered with less experiential knowledge of corporate operationI'm distinguishing educational from corporate operationor financial matters. But I always knew what the bottom line was. And certainly I brought only the experience of 12 years as a member of a board of directors of mutual savings banksone in Worcester and then again at the Farmers and Mechanics Savings Bank in Minneapolis. I did expect, however, as has become reality, that the role of the board of directors was to oversee the operations of the bank, and I had some confidence about my ability to understand how it operated as an institution of human beings committed to goal orientation and accomplishments.
Region: Did the Federal Reserve meet your expectations?
Davis: Indeed it did. First with Jerry Corrigan and then as a member of the search committee for President Stern.
Region: How would you describe your leadership style with the board of directors?
Davis: I don't know how to describe it, but I can talk about it. I think in the history of my experience as a chief operating officer, I have established in my own mind that the participatory process has been for me the best method of ensuring the success of the operation. By participatory, I mean listening carefully, permitting discussion, hoping that there would be a degree of restrained controversy, debate, argumentationallowing it to run its course and then at a reasonable time, bring it back to focus and decision. The wisdom, it seems to me in the experiences I have had, has been with those who have been committed to the venture. I have always been the beneficiary of the commentary and the advice and counsel of those with whom I work. I have always encouraged full and wide participation.
Region: You've had the opportunity to become a Fed watcher close up. Now that you've had a good look, what would you change in a fundamental way?
Davis: The central issue that comes to mind has to do with the increasing question of whether or not we are going to be able to maintain leadership quality at the several significant operational levels within the bank from the president down to that major echelon of command officers...maintain that quality given the limitations we have on salaries. That's the key question. It's known, of course, that we are controlled to a significant degree by the "service motive"that is, the expectation that people who take on these assignments do it in the spirit of contributing as citizens to a governmental function which is so important. I subscribe to that, but there is nonetheless a market, and the market does govern. Now I think we have yet to face the issue of the service motive being diminished in the minds of persons in the command positions, but that day may come.
Region: The distinction is often made between effective and efficient. Is the Fed effective: are the functions appropriatemonetary policy, regulating the banking industry, and so forth?
Davis: Yes. I don't know how to better blend the efficiency and effectiveness. It calls for the constant surveillance of the operation by the administrative officers as well as interrogation by the board of directors. Do we need X number of people performing? Is there cost efficiency in mechanical/electronic substitutions of human endeavor? Are the instruments that communicate the story of the Federal Reserve Bank pertinent and pointed and of significant quality to command the attention of the member and nonmember banks of the 9th Federal Reserve District?
Region: Mr. Davis, your term of office at the Federal Reserve is about to end. What other irons are in the fire that you'd be willing to share?
Davis: I don't have anything to share. I have been reelected to the chair of the Minnesota Adult Literacy campaign. I have served almost three years in that role. I do a little consulting, and I guess the answer to your question is that I have my ear to the ground.
Region: After all of your wide-ranging experiences, personally what has brought the most meaning and value to your life? What has really paid off for John Davis?
Davis: I think I can answer unequivocally that one of the great rewards has been my family: my eight children plus a couple of others who lived with us for extended periods of time. They are happy, productive adults and that to me is a great reward. Our relationships are excellent. The second point I would make is for reasons that go far beyond my talent. The institutions to which I have given time, attention, and what intelligence I have, I guess on balance became better as a result of the time I spent there than they were prior to my arrival. But again I point out that I have been totally dependent for the course of action on the wise counsel of individuals with whom I have been working. I haven't always agreed with them, but I have been the beneficiary of their advice, and the product of that has been some improvement, some change in those institutions.
Region: A clever headline of a newspaper story about you read: "John Davis More Houdini Than Mr. Chips." The idea was that you were working magic with Macalester finances versus the Mr. Chips imagery of the university don, wearing tweeds, tortoise shell spectacles, and the pipe. What was your reaction to those characterizations?
Davis: I certainly smiled when I read the article and particularly had never thought of myself as a Houdini or as a Mr. Chips. Those are in a sense interesting characterizations. I don't quarrel with them because I think that everyone would love to emulate Mr. Chips, and it would be fun to pull a rabbit out of a hat. To the degree that I have been successful in those efforts, I am happy and I guess the record does stand.
Region: Thank you, Mr. Davis.
"Blueprint for Tomorrow's Education" by John B. Davis, Jr.