Board directors of government business enterprises and private companies may share similar obligations, but power lies elsewhere, writes Professor Pamela Hanrahan.
In late May, the Senate Environment and Communications References Committee released its report into the standing aside (and subsequent removal) of Christine Holgate from her role as chief executive officer of Australia Post. The report brings into sharp focus the difficult and sometimes compromised position of directors on the boards of government business enterprises (GBEs) when they face political pressure to act on matters that fall within their governance responsibilities.
The Senate Committee’s inquiry into Australia Post is described in the Coalition members’ dissenting report as “a highly politicised exercise”. Few would dispute that characterisation — of either the inquiry itself, or the events on 22 October 2020 that precipitated it. Holgate’s answers to ALP Senator Kimberley Kitching’s questions in Committee on the morning of 22 October — about the 2018 gifting of Cartier watches to four Australia Post executives — provoked the Prime Minister to say in the house at 2.40pm that Holgate “has been instructed to stand aside and, if she doesn’t wish to do that, she can go”.
The Australia Post board met later that afternoon. At 5.25pm, Australia Post’s shareholder ministers announced a departmental inquiry into the matter and that the CEO “will be standing aside from her position for the duration of the investigation”. Australia Post chair Lucio Di Bartolomeo gave evidence that Holgate agreed to stand aside in a telephone call at 5.50pm that day, which Holgate has disputed.
There is no disagreement that the communications minister asked Di Bartolomeo to stand Holgate aside. However, despite agreeing to that request, Di Bartolomeo gave evidence this had not been taken as a “formal direction” from the minister under the Australia Post legislation. This led the majority members of the Senate Committee to conclude that, while the Australia Post legislation “clearly designates the board as the responsible authority in relation to any action to remove, or stand aside, the managing director of Australia Post”, the board “took action to stand Ms Holgate aside because the shareholder instructed, or requested, it to do so — not because the board was concerned about her actions or her performance, and not as a result of any disciplinary action, or investigation by Australia Post”.
Government business enterprises
Non-executive directors serving on government boards, including GBEs, operate in a unique governance framework. This framework differs between the states and the Commonwealth, and between the different states. Directors’ legal responsibilities can derive from a combination of duties under the Corporations Act 2001 (Cth), overarching GBE legislation, and individual enabling legislation for the particular entity.
The Commonwealth owns nine GBEs, comprising two corporate Commonwealth entities (including Australia Post) and seven Commonwealth companies (including NBN Co and Snowy Hydro). Commonwealth GBEs are governed by the Public Governance, Performance and Accountability Act 2013 (Cth) (PGPA Act) and rules made under it, and (where applicable) their individual incorporation statutes.
Similar arrangements exist in the states and territories. For example, NSW has eight state- owned corporations (SOCs) covering energy, water, ports, property and forestry, set up under the State Owned Corporations Act 1989 (NSW) and separate enabling legislation. Queensland owns 11 — in energy, ports, water and finance — grouped under the umbrella of the Government Owned Corporations Act 1993 (Qld). Western Australia’s 27 government trading entities (GTEs) include energy, water, ports, property and forestry entities. The governance arrangements for WA GTEs are currently being revised, following the findings of the Langoulant review in 2018.
Typically, GBEs are established as corporations with one or more ministers (usually the Treasurer and the relevant portfolio minister) as its shareholders. The Commonwealth describes its relationship to its GBEs as “similar to the relationship between a holding company and its subsidiaries”, with features including “reporting and accountability arrangements that facilitate active oversight by the shareholder” and “action by the shareholder in relation to the strategic direction of its GBEs where it prefers a different direction from the one proposed”.
Commonwealth Department of Finance guidance for directors of GBEs says that “shareholder ministers have an oversight role which extends beyond that of a private sector company shareholder”. Often, the enabling legislation gives the relevant minister power to direct the board — a power shareholders in commercial companies do not have. Section 49 of the Australia Post legislation allows for the communications minister, after consultation with the board, to “give to the board such written directions in relation to the performance of Australia Post’s functions as appear to the minister to be necessary in the public interest”. The direction must be laid before both houses of parliament. Section 50 goes on to provide that, “Except as otherwise provided by or under this or any other Act, Australia Post and its board are not subject to direction by or on behalf of the Australian government”.
The board “took action to stand Ms Holgate aside because the shareholder instructed, or requested, it to do so — not because the board was concerned about her actions or her performance, and not as a result of any disciplinary action, or investigation by Australia Post
The basic governance structure for GBEs assumes that the board will be accountable to the shareholder ministers, and the shareholder ministers to the parliament. The board “provides stewardship, strategic leadership, governance and oversight of GBEs, while also acting as a bridge between Commonwealth policymaking and operational implementation by GBEs”. It “has ultimate fiduciary responsibility for the performance of the GBE, and [is] fully accountable to shareholder ministers”.
In addition to their Corporations Act duties, directors of Commonwealth GBEs have statutory duties relating to proper oversight. This “resembles the obligation of a director of a private company, with an overlay of stewardship of public assets which is distinctive to Commonwealth entities and companies”. Under PGPA Act s15 and related guidance, directors have a duty to govern the GBE in a way that promotes the proper use and management of public resources, the achievement of its purpose and the financial sustainability of the entity. “Proper” in this context means efficient, effective, economical and ethical.
The Senate Committee’s majority report into Australia Post is critical of what it considers a “concerning lack of independence” in its board, which includes members with clear political ties to the Coalition. This is said to be indicated by “the readiness of the current chair and board to submit to an informal ‘directive’ from the shareholder to remove the CEO without following Australia Post’s own policies, or the regulatory requirements imposed on them”. There was no suggestion that the minister could, or did, give the board a formal direction relating to the CEO’s ongoing appointment under the Australia Post legislation. The propriety of the board’s acceding to the minister’s informal directive was therefore squarely in the frame for the Senate Committee.
Predictably perhaps, the majority recommends abandoning the current board structure for Australia Post in favour of one comprised of politicians, and nominees of employees and post office licensees This is not a solution — but it is a warning that the current governance model for GBEs is open to challenge when there is a perception (justified or not) that directors’ independence from political interference is compromised.
Pamela Hanrahan is a director of Landcom, a state-owned corporation in NSW.
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