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Home > About Us > Speeches & Papers |
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LEADERSHIP AND ACCOUNTABILITY Presentation to the AND Presentation to the By Wayne Cameron Much has been written in recent times about the nature of corporate governance and why it is important. It is hardly necessary for me, therefore, to traverse in my presentation what is available in an ever-increasing range of publications and from numerous websites. Yet despite the prevalence of this material, instances come to the surface, repeatedly highlighting the difficulties some have in applying these straightforward principles in practice. Yet good governance is really common sense. So why all the focus on governance? 1. Corporate failures. 2. Pressure to perform. 3. Emergence of new risks. 4. Regulators, standard-setters and investors (stakeholders) are increasingly requiring organisations to adopt best corporate governance standards. 5. Changes in the way the public sector conducts its business: • How many of you for example are involved in outsourcing? • What were some of the first things that you found you had to do? • Clearly define your service requirements. • But how many of you gave enough attention to your changed business relationships? • How did you ensure that the core public service ethical, informational, consultative and collaborative arrangements remain effective? Much of the public debate has centred on the corporates, and on issues unique to the corporate sector - I hope! - such as incentivised remuneration arrangements, related party abuse, conflict of interest issues. One of the important trends over the past year or so in the shift in focus in the debate from CORPORATE leadership and accountability to PERSONAL leadership and accountability. But we should not dismiss the debate as irrelevant. We have our share of governance issues to be concerned about as well. We should take this opportunity to make sure that we all learn from the debate and ensure that we in the VPS apply best governance practice at all times. What is corporate governance? “Corporate governance refers to the processes by which organisations are directed, controlled and held to account. It encompasses authority, accountability, stewardship, leadership, direction and control exercised in the organisation.” (ANAO) The Commonwealth definition supports this well-recognised definition, and translates in into the hotbed of public sector application. Public sector governance has a very broad coverage, including: • how an organisation is managed, • its corporate and other structures • its culture • its policies and strategies • the way it deals with its various stakeholders. The concept encompasses the manner in which public sector organisations acquit their responsibilities of stewardship by being open, accountable and prudent in decision-making, in providing policy advice, and in managing and delivering programs. Thus, corporate governance in the public sector is more complex, having to satisfy a broader range of political, economic, environmental and social objectives, according to a greater variety of requirements, influences and public expectations than does the private sector. This diagram is a modification of my Office’s annual plan. I share it with you to demonstrate how the elements of an effective governance structure are inter-related. I will now discuss each of the 4 pillars. 
Minister of Finance Directions require that: “A public sector agency ... have a financial code of practice setting out a cohesive statement of the agency’s internal processes to ensure probity in the agency’s management”. The guide goes on to set out what the agency code of practice must include: • Tendering, conflict of interest confidentiality, unlawful or unethical behaviour. • It also requires that each agency maintain appropriate structures and responsibilities to ensure compliance with the code. Those with governance responsibilities must establish the entity’s strategy and direction. Goals should be explicit about performance objectives and relate those objectives, supported by plans covering finance/costs, assets, technology and personnel requirements. Both long and short-term goals and objectives need to be supported by specific strategies for their achievement. It is important that strategy, policies and other directions be clearly specified, communicated and understood by those parties responsible for their implementation. Responsibilities and accountabilities must be clear. Departments – Strategy and direction will be developed by the respective secretaries/ministers in the context of government’s goals and desired outcomes. An example - Statutory bodies Parliament has established boards to oversee the management of the entity The board is responsible for setting corporate objectives, developing policies governing day-to-day operations, and overseeing the implementation of those policies through the CEO. The Crown has retained certain rights, usually espoused in legislation, which are exercised through the responsible minister, via: • to exercise control over the entity and determine its direction, as expressed in legislation • to appoint and dismiss members of the board • to approve the size, shape and scope of the entity’s operations • exercise other rights contained in legislation. The board is immediately accountable to the responsible minister for the performance of the entity. The minister is responsible for ensuring the entity is managed in the Crown’s interests, and so plays a key part in the governance framework for the entity. The Legal and Policy framework will be a key influence on a public agency’s ability to set strategy and direction – and understand them! They come from: • specific legislation • generic legislation – FMA, PSM etc. • core government policy – VGPB, Employment, OH&S, codes of conduct, MOF guidelines etc. • associated agencies – Privacy Commissioner, Auditor-General, Ombudsman I continue to be amazed at the number of those with governance responsibilities NOT familiarising themselves with the primary legislation of their organisation. Relationships with key stakeholders are very important in the public sector. There is a need to identify the key stakeholders and manage the quality of those relationships. Effective governance requires explicit role definition of key participants in the governance process, and the control, reporting and accountability structures established to facilitate communication, action and monitoring. Governing body members need a proper induction process to ensure that they are clear about their role and about that of management and the nature of the relationship with government, (usually the responsible minister), advisors and the department. Determinations should be made about powers and delegations. (This must be done in the context of the governing legislation.) The nature, timing and method of information flows need to be defined. A clear view is needed about what must be referred to owners (minister) for consideration or information: • business plan (including financial plans) – define nature, scope and location of business • strategy, policy, performance monitoring information • regular assessment of relevant risks and proposals with potential to impact on the risk profile of the organisation • investment/divestment considerations • information about the public profile. Structures in government must factor central information requirements into processes and relationships. Standards of behaviour • Leadership – Test against feedback/surveys. • Ethics - Look at patterns of behaviour, particularly in times of crisis. • Transparency and openness - The situational leader may be the best leader in the long run! • Integrity. Ethics are distilled through a mix of personal and corporate behaviours. That, in turn, raises questions about cultural fit. What kind of person do you want working with you? “Facts do not cease to exist because they are ignored.” (Aldous Huxley) Determine what should come to the executive/board - content and frequency - governing bodies should be monitoring the big things. Track against agreed goals, money, tasks and risk management activities. The monitoring and reporting systems need to be timely for senior management and the governing body when things begin to divert from planned outcomes. This means coherent data collection and reporting systems that need to be co-coordinated, integrated and accurate. There is some evidence that some entities continue to struggle in this area post-amalgamation. The lack of discipline about information requirements rank as the most common reason why difficulties develop and may frequently become terminal in organisations. The lack of complete information denies timely intervention to turn adverse circumstances around. Monitoring of risks needs to be targeted Different types of risk in the public sector, i.e. more than merely financial risk, also political risk - community confidence, social risk, environmental risk, public safety risk. Monitoring arrangements for an entity needs to reflect an assessment of the risks and opportunities facing the business, with a view to protecting and promoting the owner’s interests. Our March 2003 report Managing risk across the Victorian public sector – highlights some progress, but there is still some way to go – especially in internal awareness about what constitutes risk, and in reporting procedures – it’s a best seller! Pay attention to culture. When do you need to alert the minister about matters which may materially affect the Crown’s interests? New Compliance Framework issued under MOF Directions echoes Sarbanes/Oxley thinking of the US. New Victorian Framework • Embeds compliance in work practices • Integrates risk management into the Framework • Doesn’t, in my view, adequately encourage performance measurement and reporting • Developed based on AS 3806 and the 5 Elements in that standard • Culture and commitment • Systems and procedures • Resourcing and responsibilities • Reporting – internal, external and intra-government • Maintenance (Training and review) In bringing this presentation to a close, in my view, the pre-requisites for effective governance are: • establishing clear roles for each of the parties, and ensuring that all parties understand their own roles and those of the other parties • constructive relationships and accountabilities based on those roles • an effective governing body • effective monitoring arrangements, which reflect of balance between the interests of parliament, executive oversight and the autonomy of the governing body and/or management. • effective communications • good external reporting • sound risk management practices Organisations frequently fail when: • lack of sound goals • inadequate internal control and non-disclosure • dominance of individuals • lack of consistency and integration • deficiency of values, ethics • absence of arms-length approach to some transactions • lack of action by other directors to scrutinise/challenge the financial information • poor risk management and poor reporting to the board/executive team • not enough attention to people issues, e.g. roles/supervision and communications – “ Not to know is bad; not to wish to know is worse.” (West African proverb.) The purpose of my presentation to you has been to provide my perspective on what constitutes good governance. Good governance has been the subject of much consideration and public debate in recent times. And for good reason, e.g. recent report re First Mildura Irrigation Trust. The community is entitled to be assured that practices in the public and private sectors are as they should be, in order to maintain confidence. Where confidence is eroded, governments must act to re-establish confidence in our institutions – hence the Sarbanes/Oxley legislation in the USA, and CLERP 9 here in Australia. The public sector – as we are all too aware – is not immune from these winds of change and must collectively and individually re-examine its own practice to ensure that the community trust is maintained. Governments respond to these signals, e.g. Victoria’s new Compliance Framework. Much more guidance is around now - ANAO better practice guides. So why do all this? Efficiency – roles, goals and process Effectiveness – performance Probity – from a public sector perspective – we are all trustees Accountability – it is important that we openly account for our performance and use of public resources. Much of the governance debate has been about the rules – principles – but it’s not just about applying good governance principles, it’s also about the PRINCIPLED application of those principles. |