Governor of New South Wales
In September 1917 he was recommended and appointed as the next Governor of New South Wales, succeeding Sir Gerald Strickland, and arrived in Sydney, New South Wales on 17 February 1918. Despite a reduction by Premier William Holman in the Governor's allocated funds, the Davidsons entered enthusiastically into the round of vice-regal duties. For her work with the Red Cross Society, both in Newfoundland and New South Wales, Lady Davidson was appointed as a Dame Commander of the Order of the British Empire (DBE) in 1918, and in August 1920 presided at a meeting to inaugurate the State branch of the Girl Guides' Association. As Governor, he was made a Knight of Grace of the Venerable Order of St John of Jerusalem (KStJ) on 25 October 1916 and a member of the Savile Club, London.
In January 1920 the Labor Premier, John Storey, sought Davidson's approval concerning additional appointments to the New South Wales Legislative Council. Though he was of the opinion that the size of the Upper House ought not to be increased, in August Davidson approved the nomination of sixteen new members. On the 20 December 1920, Storey's successor, James Dooley, and his cabinet resigned after having lost a vote in the New South Wales Legislative Assembly a week before. Davidson then commissioned the Leader of the Opposition, Sir George Fuller, as Premier. However, as Fuller did not have a majority, his attempts to form government failed. After serving as Premier for seven hours, Fuller requested a double-dissolution from Davidson. Davidson refused, on the basis that Dooley still had a majority in the lower house, and Fuller resigned. Davidson then re-commissioned Dooley, who was granted a dissolution. Upon Dooley's defeat in the March 1921 elections, Davidson wrote to the Secretary of State for the Colonies, Winston Churchill, of his "Labour friends: they were likeable men, upright and simple, and not ashamed to take advice". In September 1922 it was announced that his term of office would be extended until March 1924.
While still in office, Davidson died of cardiovascular disease at Government House, Sydney on 16 September 1923. After lying-in-state at St Andrew's Cathedral, Sydney and a full state funeral, he was buried in South Head cemetery, where in 1925 a memorial was erected by public subscription. On the news of his death, the Sydney Morning Herald paid tribute to his "Splendid record of Empire service" and noted that "the whole community shares a common and heartfelt sorrow at the passing of the one of the most distinguished and popular of His Majesty's overseas representatives".
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