Speech by The Hon Lindsay Tanner MP
Minister for Finance and Deregulation
Canberra
Wednesday 14 October 2009
I would like to thank the Australian Institute of Company Directors for inviting me to give this opening address.
The AICD makes a conspicuous contribution to the improvement of corporate governance in Australia, particularly through conferences such as these and of course, through its flagship company director’s course.
I am pleased that an increasing number of Commonwealth public servants are undertaking this course – including some from within my own Department - because the content of the course has broad application across not just the private but the public and the not-for-profit sectors as well.
Good governance is central to the success of entities within each of these sectors, and my own ministerial role sees governance issues, in the context of Australian Government operations, on my desk on a daily basis.
So I would like to commend the AICD for choosing a conference topic that is of great importance - public sector governance.
There has been much public debate around governance in recent times. Nearly everyone has had a say about how various companies and institutions managed themselves into and through the Global Financial Crisis.
I don’t intend to add to that debate today except to say that I have little doubt that one consequence of this global crisis will be some fairly profound reflection on corporate governance and regulatory issues.
It should be a matter of pride for all of us that Australia’s reputation on this front has emerged intact, possibly even enhanced. Comparatively we have done very well.
But we now face a new challenge.
With other countries looking at how they can improve their own corporate governance and regulatory frameworks, we need to ensure that our own comparative advantage is preserved in the eyes of the international financial markets and corporate and private investors.
Maintaining good governance settings is a continuing task.
The same is true in Government.
The Australian Government is obliged to think about the design of its own business operations, its internal governance and regulatory framework, its accountability and reporting structures just like anybody else.
And it is within this space that I want to talk to you today.
I think the key themes to be addressed by this Conference are particularly apt to our current circumstances:
I have long advocated that a cornerstone of good governance in the public sector is openness and transparency, and this is one of the basic tenets of the Rudd Government.
Since we came to office almost two years ago, this Government has pursued a reform agenda in this area, aiming to improve the efficiency, transparency and accountability of government.
The long serving United State Supreme Court Justice from the early part of the 20th century, Justice Louis Brandeis famously said that “sunlight is the best disinfectant”.
It is in line with that quote that I have pursued an agenda to improve the transparency of Government budget and financial reporting since coming into office under the banner of ‘Operation Sunlight’.
This reform agenda has enhanced budget and financial management information and increased public accountability.
We’ve also reformed the Government Grants process, with new guidelines issued on 1 July of this year, to stop the kind of practices highlighted by the Auditor-General’s review of the previous Government’s Regional Partnerships program.
And we are currently seeking to improve transparency in a number of other areas, including political donations and of course, our reforms to Freedom of Information laws.
So that is the broad policy context – laying open the processes of government to better public scrutiny, making its decision-making more transparent and its reporting more understandable.
A pre-condition for improving transparency is having a solid understanding of the current landscape of government. You need to have a benchmark that allows for meaningful and beneficial analysis and assessment of the Commonwealth’s composition and its myriad of functions and responsibilities.
An important document to meet this need is the List of Australian Government Bodies and Governance Relationships.
I am pleased to have the opportunity today to launch the comprehensive third edition, which is current as at 1 October 2009.
I won’t say “don’t leave home without it” as people may draw conclusions about how well-rounded a person you are if they see you reading it in public, but it is a particularly useful reference and contains a mine of information on the Commonwealth public sector.
This new edition provides an up-to-date overview of the shape and structure of the Rudd Labor Government.
For those of you who follow these things, you will note that the number of Commonwealth entities, including separate government bodies and governance relationships, has reduced from 1,153 in the previous edition to 932 in the current edition, representing a decrease of 221.
Much of this decrease is attributable to the sale of Telstra and its subsidiaries, which resulted in a reduction in the Commonwealth sphere of over 170 companies.
However, part of the reduction is attributable to bodies that were merged with other bodies, divested to the private sector, or simply abolished.
The List provides standardised details of statutory and non-statutory bodies, statutory office-holders, companies, trusts and other entities – including subsidiaries of government bodies – that the Australian Government controls, or in which it maintains a direct or indirect governance interest through shareholdings, or the ability of a Minister to appoint directors.
It identifies separately-branded bodies that reside within departments of state – such as the Australian Antarctic Division within the Environment Department or COMCAR within my own Department.
The List provides assurance to Parliament – and its committees - about the arrangements for monitoring and reporting on all types of Commonwealth bodies – and this continues to be an important function.
The List is also a useful aid in tracking the proliferation of government bodies – something which I and my Department are keen to monitor.
Indeed, the process of preparing the List obliged all government departments to examine each and every body in their portfolio, which in turn highlighted the existence of some bodies that might otherwise “fall below the radar”.
The administrative structures of these agencies are, as you could imagine, extremely varied and a number have evolved in what you could describe as an ill-thought out manner over time.
A challenge that we as a Government face is to bring some consistency to their structure and their governance arrangements.
To achieve this it is crucial that we regularly review the governance structures of bodies to determine whether they continue to be appropriate as circumstances change, and government policies and functions evolve.
The indiscriminate creation of new bodies, or the failure to adapt old bodies as their circumstances change, increases the risk of having inappropriate governance structures.
This in turn jeopardises policy outcomes and poses financial risks to the taxpayer.
When determining the appropriate governance structure for a new function or activity, I have asked my colleagues to consider, in the first instance, whether it can be accommodated within an existing body.
While forming a new body may be attractive from many perspectives, including signalling a new presence to citizens and other stakeholders, consideration should always be given to the alternatives.
Incorporating a new function within a department is almost always the preferred option because of the difficulties a small body faces in meeting its own needs.
If, having scrutinised the need for a new agency, it is determined that it is in fact necessary to create one, the first preference is that it be an Agency under the Financial Management and Accountability Act.
The FMA Act is preferred as it means that the new agency will be financially part of the Commonwealth, which in turn confers a greater financial governance role on the Government than does the Commonwealth Authorities and Companies Act – or CAC Act.
The CAC Act should be considered where there is a genuine need for a governing board, and where it is appropriate for the Government to potentially have less control over the body’s finances – that is, there has to be a genuine need for it to be financially at arm’s length from government.
This is not to detract from the important role that CAC Act bodies play.
Many CAC Act bodies are iconic institutions and play a crucial role – the Reserve Bank, Australia Post, the CSIRO and the ABC – not to mention the cultural bodies such as the National Gallery of Australia and the Australian War Memorial.
The distinguishing features of CAC Act bodies are that they are financially and legally separate from the Commonwealth.
The governance structure of CAC bodies mirror those of a private sector company in that they are governed by a board of directors and those directors are subject to the same common law fiduciary duties as are board members in the private sector.
A primary reason for having a CAC Act body is that the activity concerned will usually be highly complex.
The activity of the body may be commercial or entrepreneurial in nature, and it will often entail subject matter for which there is insufficient expertise within the public service to adequately oversee it.
Accordingly, the Government will tap into expertise in the broader community by appointing people with strong technical and commercial backgrounds to serve on a governing board whose role it is to oversight the body concerned.
Given the important role these CAC Act bodies perform, it is crucial that people of high quality are appointed to their boards, and we are fortunate that many talented and prominent people are prepared to serve.
That said, there is potential to improve how we make our appointments.
Although the Government endeavours to appoint the most qualified and appropriately skilled people to board positions, the process can be ad hoc at times, potentially limiting the scope of appointments. A more strategic and structured approach will improve board appointments, and in turn improve government outcomes.
We also recognise the benefits of diversity on boards, in terms of gender, geography and professional background. Overcoming some of the hurdles to board diversity, such as prior board experience being a pre-requisite, is another area worthy of further consideration and an area the Government will be looking at as we examine ways of improving the management and performance of Government entities.
I invite the AICD to consider whether these are the sorts of issues on which it would like to engage with the Government.
The Government also has a role to play in wider issues of corporate governance. For example, it is important to note that directors of CAC Act companies are subject to the same directors’ responsibilities and liabilities as apply to private companies under the Corporations Act generally. The AICD has been running a long campaign for the harmonisation of directors’ liabilities across states and territories. Anecdotal evidence shows that overly onerous directors’ liability discourages candidates from standing as board members, increases the cost of directors insurance and diverts board time away from strategic decisions towards compliance and record keeping.
I have discussed these issues in detail with AICD, and with representatives of State and Territory Governments in the Business Regulation and Competition Working Group of COAG. I am committed to working with all stakeholders to streamline and harmonise directors’ liabilities. We don’t want to weigh down companies with unnecessary compliance costs and soaring insurance bills. And we don’t want to frighten away well-qualified potential directors. The challenge for all of us is to identify the prime targets for reform. Some liabilities imposed on directors are generic, and some apply to only a tiny number of companies. We need to focus on the major impediments to efficient corporate governance and management.
I trust the next two days will prove valuable for all of you as you explore some interesting and timely issues around governance in the public sector and I will look forward to hearing back from those of you in my department on how we can improve things in the federal sphere.
Thank you for your time.
-ends-
| Media Contact: | Website: |
|---|---|
| Nardia Dazkiw - 0418 144 690 | www.financeminister.gov.au |
