State sector reform may undermine governance in Crown entities, warns Institute of Directors

The Institute of Directors (IoD) warns proposed state sector reforms may undermine good governance in Crown entities.

The State Sector and Crown Entities Reform Bill amends two previous Acts and is designed to increase accountability and transparency in the public sector, but may have the opposite effect.

“Changing the requirement for Crown Entity boards to gain the written consent of, rather than consult with the State Services Commissioner, will undermine the role of the board and its relationship with the responsible Minister,” says Felicity Caird, General Manager of the IoD’s Governance Leadership Centre.

“Appointing and managing the CEO is one of the most important functions of a board. This includes setting a CEO’s terms and conditions of employment, including remuneration. Guidance from the State Services Commissioner as representative of the Government is important. However Crown entity boards are part of an ‘arm’s-length’ decentralised governance model that benefits from having boards that bring diversity of skills, experience and thought, and robust debate. The proposed changes shift control to a more centralised model. We are concerned that this diminishes the board’s ability to carry out its core governance and monitoring function, including holding the CEO to account”, says Caird.

“This is likely to deter experienced directors from putting themselves forward to sit on state sector boards. We need to attract talented, experienced directors to help lead the delivery of state services and outcomes that benefit all New Zealanders and that contribute to our economic growth.”

The State Services Commissioner already provides guidance on the remuneration of state sector CEOs, providing salary bands and recommended remuneration increases. If the board’s proposal falls inside the Commissioner’s guidance (for example on the level of remuneration) then it can decide the matter. If the board recommends remuneration or salary increases outside of this amount, then they must consult with the responsible Minister. In the 2016/7 year, 80% of proposals for remuneration fell within the range of the Commissioner’s guidance, and the Commissioner agreed with 16% of the remaining proposals. Only three boards did not follow the recommendations of the Commissioner.

The current requirements are generally working well and we are concerned the proposed changes will have unintended consequences by undermining the role of boards of Crown entities.

The Bill also extends the Commissioner’s inquiry and investigative powers in the state sector. There are a number of other officers such as the Auditor General, and these changes could add significant costs, duplication and complexity to the system.

To read the IoD’s Submission on the State Sector and Crown Entities Reform Bill, please click here.

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