Public sector board processes

Public sector board appointments will be subject to a new review, with transparency, selection procedures, skills and standards all in focus, writes Louise Petschler GAICD. Debate on climate reporting rules is also underway. 

Senator Katy Gallagher, Minister for the Public Service, has announced a review of the appointment standards and processes for federal public sector boards. Former Australian Public Service Commissioner Lynelle Briggs AO, who recently served as a Commissioner on the Aged Care Royal Commission, has been appointed to lead the review.

The review, announced at the Chifley 2023 Conference in Canberra in February, will consider a range of matters on board appointments to federal government boards, authorities and tribunals, including:

• Selection procedures, including talent pools and qualifications and experience
• Transparency (including advertising of board roles)
• Clarity on the role of public sector boards
• Board conduct and processes, including whether standards applying to private and listed companies should apply
• Diversity, including gender and cultural diversity
• First Nations representation
• Geographic representation
• The role of ministers in appointments

The review will not examine current appointments or processes relating to specific individuals.

Announcing the review, Gallagher noted that being on a government board “should be about what you know, not who you know”, saying, “I look forward to Ms Briggs’ robust recommendations on how the government can put merit and integrity back at the centre of the public sector appointment process.”

The review follows criticism of political appointments to public sector boards, a concern that AICD and its members have raised across different jurisdictions and governments.

In 2022, the Grattan Institute released New politics: A better process for public appointments, claiming that state and federal governments are increasingly using public office to support political interests.

Grattan Institute found that 21 per cent of federal public sector board positions that are “well-paid, prestigious and/or powerful” were filled by appointees with direct political connections; with 12 per cent of similarly “powerful and prestigious” Victorian public sector board roles filled in the same manner.

The Grattan report also criticised political appointments to the Administrative Appeals Tribunal. Late last year, Attorney-General Mark Dreyfus KC announced the government would abolish the AAT and form a new appeals body with merit-based, transparent processes.

The public sector board appointment review aligns with the Federal Government’s commitment to strengthen the Australian Public Service (APS) announced in October last year. The APS Reform Agenda has four priorities:

• Embodying integrity in everything it does
• Putting people and business at the centre of policy and services
• Being a model employer
• Having the capability to do its job well.

As part of this broader reform the government has committed to picking up recommendations from the 2018 Independent Review of the APS — Our Public Service Our Future — chaired by David Thodey AO FAICD, including incorporating “stewardship” as a focus for the APS under the Public Service Act 1999 (Cth).

The board appointment review will provide recommendations to the minister in mid 2023.

Lynelle Briggs AO also spoke at the AICD’s Annual Governance Summit in March, in a panel session on delivering outcomes in the NFP Sector.

Climate reporting

Federal Treasury’s consultation on the framework for mandatory climate reporting closed late last month, with stakeholder input now under consideration. The Treasury paper invited views on issues including scope and phase-in, alignment with international standards, assurance and whether new “safe harbours” might be required.

The AICD has argued for a phased approach to mandatory reporting standards commencing with large listed entities (ASX 200) and large financial institutions (as proposed in the paper) with options to include additional large heavy emitters.

Feedback from our advisory committees and members shows that a climate reporting framework where directors are supported to drive comprehensive, good-faith climate disclosures is key.

Climate reporting requires disclosure of inherently uncertain information and scenario analysis as part of forward-looking statements. Scope 3 emissions disclosure is especially challenging, with data availability, quality and assurance challenges.

Given Australia’s strict liability settings and the absence of safe harbours for good faith and qualified disclosures, reporting entities and their directors are subject to a greater degree of legal risk than in some comparable jurisdictions.

External legal advice commissioned by the AICD (and shared with government) highlights that given the uncertain nature of climate disclosures, establishing “reasonable grounds” is likely to pose considerable difficulty for Australian directors in several areas. This is due to inherent uncertainties including dependencies on market dynamics, energy transition challenges and new technologies. Securities class actions risks also pose specific challenges for Australian listed entities and their boards.

However, legal opinion obtained by the Investor Group on Climate Change (IGCC), the Australian Council of Superannuation Investors (ACSI) and the Responsible Investment Association last month, argues a contrary view. The IGCC advice argues that standards modelled on the International Sustainability Standards Board (ISSB) draft standards should not increase liability exposure for directors who are diligent and properly supported by competent management.

However, new standards will require significantly more (and more detailed) climate reporting than is current market practice — and external assurance will be challenging.

The AICD (and other stakeholders) maintain that adjustments will be needed to achieve the aim of quality, transparent, comparable and comprehensive disclosures. Potential approaches could include a general forward-looking safe harbour statement, more targeted rules for scope 3 data, time-limited options as reporting matures and/or limiting enforcement to the regulator rather than private litigants.

Other jurisdictions are considering similar steps, and the ISSB is alive to the need to manage legal risks as new standards are phased in. The US SEC, as another example, has proposed new scope 3 safe harbours as part of introducing mandatory climate reporting — noting that the US also has an existing general safe harbour for all forward-looking statements, which Australia lacks.