Sitting on a government board used to be apolitical, but government short-termism means the risks associated with board stability have now increased. Domini Stuart explains

    Sitting on a government board can be very rewarding. “As a director you have the ability to guide the efficient and effective delivery of public services for public benefit, often from a unique asset base, and there is enormous satisfaction in that,” says Lucia Cade FAICD, chair of South East Water and a director of Energy Pipelines CRC.

    But some directors might think twice about accepting the role. “You could be putting your reputation at risk,” says Steven Cole FAICD, managing director of Cole Corporate and an experienced director of both commercial and government boards. “Directors could find themselves on the wrong end of a political play which has no relevance to their performance but every relevance to their preparedness to stand their ground and discharge their responsibilities in good faith and to the best of their ability and judgement.”

    It is inevitable that, from time to time, a crisis or a period of renewal will trigger a shake-up on a government board. “It is not unusual for change to follow a review of legislation or possibly a change of government,” says Dr Ruth Shean FAICD, director general of the Western Australia Department of Training and Workforce Development. “New ministers are likely to want to place their stamp on board decision-making and may wish to select directors who have their confidence, especially when terms of appointment fall due.”

    When Mary-Ellen King GAICD was appointed to the board of the Australia Council for the Arts it had been attracting bipartisan support for many years. “All of the directors had joined on the assumption that this would continue,” she says. “The government’s decision to make very significant changes to its arts policy in 2015 came totally out of the blue.”

    These changes triggered a backlash across the sector. “Some people were very critical of the directors for not standing up and voicing a protest against the government and, specifically, the minister, which had an unexpected potential impact on their reputations,” King continues.

    “I don’t think anyone on the board thought that the reforms were a good idea but it is simply not productive for individual directors to speak out against government changes to the organisation they have been appointed to govern.”

    By chance, King’s own position was up for renewal and she decided not to re-apply. “It was my way of showing that I wasn’t comfortable with the changes – though I’m not sure I would have been invited as I had been appointed by the previous government,” she says.

    “The other directors still had time to run and I have nothing but respect for the fact that they stayed on. I’m sure that the best strategy was for the board to stick together and work with the government and the sector to make the best of the situation.”

    A series of catastrophes

    Government boards and committees have been involved in a number of high-profile catastrophes in the past few years. “This could have been the result of the extremely strict accountability requirements,” says Shean.

    “A government board not only reports to the chair, but also the minister and parliament. That’s a lot of scrutiny for every decision you make. But government boards undoubtedly do make unwise decisions occasionally and I have seen ministers replace whole boards with new members in an attempt to introduce a new culture. From a minister’s perspective, a board must add value. If a minister judges that the decisions made by any particular board are of questionable value, there’s no doubt that he or she will seek a change of chair, membership or brief.”

    Last year, the entire board of Victoria’s Country Fire Authority (CFA) was sacked after it failed to accept the government’s offer on pay and conditions.

    Former CFA chair, John Peberdy GAICD, has since raised concerns for independent governance in the state, calling for a halt to a spate of sackings which also included the boards of water authorities and Ambulance Victoria.

    “I hope we can have an end to the bloodletting of boards,” he told The Age. “We are people, not a commodity. We have to act as independent bodies.”

    Cade, who has been serving on government boards for more than a decade, says this hasn’t made her feel nervous, although she does know people who are. “I can understand that such experiences could make people fed-up with the job as well as concerned for their reputations as directors.

    “I am aware of a number of excellent, commercially-experienced directors who will not put themselves forward for a government board again,” she adds.

    There is also the matter of how much risk a director is prepared to take for little or no remuneration. While some large, state-owned corporations pay their directors six-figure fees this is very much an exception to the rule. For example, the Victorian Public Sector Commission reported that, in the last financial year, of the 33,025 directors on the state’s 3,351 public sector boards, 85 per cent were volunteers.

    “I don’t believe this has an impact on the number of people putting their hand up to join a government board,” says Peter Achterstraat AM FAICD, former auditor general of New South Wales and president of the Australian Institute of Company Directors’ New South Wales Division. “I’ve met dozens of people on government boards and I don’t think I’ve come across any who were influenced by the remuneration. They usually join a government board to add ‘public value’ and to give something back to the community.”

    Politics and power

    Realistically, a board can only remain apolitical if the organisation is discharging its obligations effectively – and the government so chooses. “It is important to remember that the organisation is delivering services to people on behalf of the community,” says Cade. “If people are dissatisfied they will complain and at the end of the complaint trail is the door of the minister who is ultimately accountable for the organisation. If the dissatisfaction of key stakeholders leads to organisational or industry dysfunction, the government might be called upon to take action. However, it’s hard to think of examples where, when the blood-letting has become public, this has increased public confidence rather than resulting in reputational damage to more than the departing directors. There are plenty of examples of this with non-government boards too.”

    Ministers are accountable to parliament for the operation of boards within their portfolios and the official relationship depends on the nature of the board. “Very often, the role of the minister is specified in the governing legislation, though sometimes other legislation may prevail,” says Shean. “When legislation is silent, the relationship with the minister is usually left to the judgement and wisdom of the chair and chief executive officer (CEO).”

    Unofficially, the relationship will be influenced by the calibre and skills of both the minister and the advisors chosen to provide portfolio advice. “As a director, the best working relationships are with ministers who have a genuine interest in the portfolio,” says Cade. “When the stars align and you have a committed minister and a government that is confident of its mandate to govern, great long-term policy positions can be developed that set the stage for success.”

    Devil in the detail

    Various types of government boards have different powers, levels of autonomy and purpose and operate across myriad sectors including water, catchment management, health and community services, education, transport infrastructure and services, environment, sport, arts and culture.

    “Different levels of independent regulation, particularly economic, and different shareholder structures create different challenges for their boards,” says Cade.

    “For example, those that are subject to annual revenue approvals from government have a more difficult time making decisions for the long term than those that operate under a regime of independent economic regulation, such as the Essential Services Commission in Victoria or the Independent Pricing and Regulatory Tribunal in New South Wales, where five-year agreements are common.

    “Another difference is that some organisations, such as some water corporations in Queensland, regional NSW and Tasmania, are owned by a collection of local government authorities. This makes shareholder engagement and shareholder approval more complicated as it has to be sought from multiple owners. This includes decisions about dividends and when significant capital investment is required,” she says.

    Cole suggests that 70–80 per cent of governance is based on a common domain across all organisational constructs. “The nuances lie in the remaining 20–30 per cent – and these differences depend on a very broad array of factors,” he says.

    “In the public sector this could include a board that has been appointed on a representational or political basis rather than merit, which will affect the overall balance of skills and experience. And the CEO might have been appointed by, and be primarily accountable to, the minister, the department or the Public Sector Commission rather than the board.”

    No easy ride

    There are still some directors who think that a government board might give them an easier ride. “People have been known to join a government board thinking they won’t have to do as much homework as they would on a private board,” says Achterstraat.

    “This is a big mistake. Government boards are responsible to the taxpayer and need to be taken every bit as seriously as any other, not least because if you make decisions which are not well thought out, your reputation is on the line. Directors also need to think carefully about possible conflicts of interests. You might be chosen for your expertise in a particular industry but this can create a conflict if you are contracting to, or dealing commercially with, the government.”

    Achterstraat has seen a continuing trend towards greater professionalism, though this still varies across the spectrum of organisations. “Certainly top level boards are much more professional than they used to be and the recruitment process is much more thorough,” he says. “The minister usually must approve both the selection criteria and the selection panel and then, unless there are exceptional circumstances, the vacancy will be advertised. These days, most directors are chosen for their knowledge, experience and skills.”

    There have also been changes to the structure of governance committees. “Departments such as those governing health and education generally have an audit and risk committee rather than a board,” Achterstraat continues.

    “When I was appointed as auditor general some 10 years ago, I noticed that many of those committees in New South Wales were made up entirely of the senior staff of that department. The government has now changed this so that they include a majority of independents, and this has been a very good step forward.”

    Shean believes that limitations within the skills, capacity and diligence of board members are far greater threats to the integrity of a board than the influence of a minister. “The right mix of skills is essential to good governance and this should be no more difficult to find for a government board than on any other,” she says.

    “However, it’s important to bear in mind that being expert in a given field does not mean that a person will contribute well on a board. And boards made up entirely of former public servants may not deliver sufficient breadth of decision-making. Representative boards are also a problem – trying to represent a sector rather than one’s own views can be a democratic nightmare.”

    Cade adds that a board of directors with the right commercial, customer, stakeholder and technology skills to drive innovation and excellence can add enormous value to the customers of government services and, therefore, society.

    “If our societal future prosperity and wellbeing is founded in how well government, society and the private sector can work together, as I believe it is, then being a director on a government boards is a good place from which to deliver that vision.”

    Things to consider before joining a government board

    Peter Achterstraat AM FAICD

    “Government boards range from very large, state-owned corporations to those with a purely advisory or fundraising function so you need to be clear about what sort of organisation you would be working for. You should then apply the same level of due diligence as you would before joining any other type of board.”

    Lucia Cade FAICD

    “It is important for directors to familiarise themselves with any issues the minister has with the organisation, and to understand their roles and responsibilities as outlined in the legislation that covers the entity and gives it its powers. I would also recommend checking the regard in which the organisation is held by its customers, or those who receive its services, as well as its other stakeholders. This will give a good indication of how well the organisation delivers on its purpose and what the key risks might be.”

    Dr Ruth Shean FAICD

    “Think carefully about whether you are prepared to act within the legislative mandate of that organisation. If you’re used to sitting on a corporate board you could be very frustrated by the constraints – and amending the legislation to gain extra powers is not a realistic option as this usually takes four to five years. You should also consider whether you would be happy to spend a large slice of your life with the others sitting around the board table, and whether they are the people you would wish to have next to you if the going gets tough and you find yourself ‘in the trenches’.”

    Steven Cole FAICD

    “Be aware that, although you may have no strong connections with a particular political party, a change of government can have consequences for the board. The new government may introduce a change in direction with which you disagree, or even decide to replace some or all of the directors. Some boards, such as the ABC, are intensely political. Serving on the board of such a great institution would be very rewarding but you would have to be conscious of how both sides of government work on influencing the board when they take office.”

    Mary-Ellen King GAICD

    “Prospective directors should not only check on the leadership of the agency and the financial and operational environment, they should also ask themselves if they are comfortable with the general direction which is being set by the government of the day. Unlike a commercial board, a government board or committee usually has a prevailing view which is exercised by the minister, and board members are bound to work within that view.”

    An insight into the number and range of government boards

    In New South Wales, government boards are divided into five main groups, each with up to 27 sub-levels.

    Group A – Boards of Governance: Primary Entities Boards of State Owned Corporations (SOCs), Trading Enterprises, Trusts and Public Financial Enterprises

    Group B – Boards of Governance: Secondary Entities Boards of Management, Authorities and Non-SOC Public Trading Enterprises

    Group C – Advisory Boards, Councils and Committees Ministerial Councils, Ministerial Boards of Advice and Management Advisory Entities

    Group D – Tribunals, Regulators, Selective Authorities and Quasi-Judicial Bodies Tribunal, Independent Commission, Quasi-Judicial Bodies or Authorities

    Group E – Registration, Licensing and Accreditation Entities Independent Registration, Licensing, Accreditation, Regulatory and Advisory Bodies

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