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Governance and accountability in the public sector

Hon Lianne Dalziel

7 April 2003 Speech Notes

Governance and accountability in the public sector

Address to the Public Sector Governance and Accountability Conference

Wellington Town Hall

Wellington

9am

Thank you for the opportunity to speak to you today. I have been asked to outline the government's expectations and priorities for public sector corporate governance. There are two case studies that I want to use to highlight two different approaches, which reflect the expectations and priorities for government in this critical area.

However, before I do that I thought I would set the scene by providing an overview in terms of the governance and accountability issues in the context of the public service.

The term "corporate governance" has a classic private sector definition and is generally defined as the system or processes by which a company is directed and controlled in order to protect and maximise shareholder interests.

In the private sector context, there are now corporate governance models that recognise that positive results are best achieved when a wider set of stakeholder interests, including those of employees, is also taken into account. This helps ensure that the company operates for the benefit of society as a whole. Triple bottom line reporting and the approach of the emerging sustainable business councils around the world reflect this wider perspective.

However such views are anathema to certain purists, who argue that there is no wider role than maximising profit to shareholders.

I am sure that the existence of these different views impacts on people's response to the question whether private sector governance models are of any practical relevance in the context of the public sector environment.

If the broader view of corporate governance is accepted, and it is one that I favour, then it is not difficult to see that there are analogies between the relationship of a company board to its shareholders and, relationship between central and local government and the New Zealand public.

What makes the discussion around public sector accountability and governance interesting is what is essentially the "agency' role of the public service. It is the government that is accountable to the public for delivering on a broad set of outcomes, but it is the public service that is the delivery mechanism. Therefore the accountability and governance arrangements between the government as principal and its agent, the public service, will impact on the government's ability to deliver on its accountability to the public. The challenge lies in ensuring that the public service is geared to meeting the expectations of the government of the day, while maintaining one of New Zealand's proud traditions, and that is a politically neutral public service, charged with providing "free and frank' advice.

This sounds relatively clear-cut, however, speaking as a Minister, who now has a full term of experience, it was not as clear-cut first time round. There is an institutional knowledge base available within the public service that simply is not available to an incoming Minister. So when the department translates the government's policies into programmes for delivery, the success of that translation is very much dependent on a clear understanding of and a commitment to the outcomes being sought.

It is not surprising that the history of accountability and governance within the public service has shifted from measuring inputs, to measuring outputs, to matching outputs to identified outcomes.

I don't want to spend any time on traversing the history of the New Zealand Public Service, other than to say that we have a proud history, with a strong international reputation for being corruption free and guided by the rule of law. That being said, however, it would be fair to say that twenty years ago the New Zealand public sector was widely regarded as bureaucratic and inefficient. The 1980s represented a period of significant change, with the State Owned Enterprises Act, the State Sector Act and the Public Finance Act forming the basis for a shift to public sector responsiveness, efficiency and accountability.

Public sector governance arrangements have continued to evolve since that time to meet the changing needs of the government of the day and through the government to the community at large.

A key remaining weakness in the current regime is the lack of information on the effectiveness of the public sector. In essence, the current regime may be reasonably efficient in producing outputs, but the outputs may be the wrong ones in terms of desired outcomes. Unfortunately many people use the words "efficient' and 'effective' as if they were inter-changeable.

I remember watching an episode of "Yes Minister' once, when the Minister was taken to the most efficient hospital in Britain. He was introduced to the surgeons, the nurses, the orderlies and kitchen staff and shown the most modern facilities that could be imagined. Finally he whispered to Sir Humphrey "where are the patients' - to which Sir Humphrey replied "there are no patients, Minister, this is the most efficient hospital in Britain'.

An obvious problem lies in the link between government strategy and budget spending.

In 1998 the State Services Commission observed that budget allocations had a strong historical bias, which tended to militate against the short-term redirection of resources to new strategic priorities.

The desire for an efficient provision of outputs may end up being achieved at the expense of longer-term outcomes (which are inevitably harder to measure).

Review of the Centre

The government is committed to enhancing governance and accountability in the public sector by making it more outcomes focused.

This essentially recognises more explicitly the agency role of the public sector, and ensures that government's accountability to the public can be delivered through a public service that is clear about the government's objectives.

One of the government's current projects is The Review of the Centre. This is not about radical change. Rather, we are looking to make significant improvements that can be developed and put in place over a number of years.

The work now underway across the whole of government addresses the review's key recommendations -

- Achieving better integrated, citizen focused, service delivery;

- Addressing fragmentation and improving alignment; and

- Enhancing the people and culture of the State sector

In order to achieve these objectives we have:

- Established a new "Executive Leadership Programme' - which is a new senior leadership and management development programme for senior managers in the public service;

- Strengthened core public service capability, notably through a "whole-of-government" human resource framework based on good practice and policies, and broadening the State Services Commissioner's mandate to lead on values and standards;

- Undertaken research work on innovation, which will help the public service be more conducive to new ideas and solutions, through finding out "what works";

- Focused on finding solutions collaboratively and locally, through the new circuit breaker teams and proposed regional networks;

- Changed agency accountability and reporting systems to put more emphasis on achieving high level objectives and priorities; and

- Improved the governance of Crown entities to improve the clarity of relationships between Ministers, departments and Crown entities, which will assist whole-of-government action.

By "whole of government' I mean:

- reducing fragmentation between, and within, government departments and agencies, and encourage a more collaborative culture within the Public Service;

- integrating service delivery across departments and agencies, both centrally and regionally;

- establishing common understandings about the government's key policy directions and standards for systems, processes and policies across the whole of government;

- reviewing the Vote structure for funding to public services to ensure departments and agencies can be more responsive to policy and community initiatives across departments and agencies;

- achieving greater levels of cooperation between government agencies, in addition to the public management initiatives, to help achieve better ways of working and better results for New Zealanders; and

- working in a number of ways to bring agencies closer together so that the performance of individual agencies, and the whole of government, is more effective.

Managing for Outcomes

The "Managing for Outcomes" initiative is under way. Managing for outcomes requires departments to adopt a more strategic, outcome-focused and "joined-up' approach to planning, management and reporting while maintaining their current attention on delivering outputs. The new approach requires departments to focus on priorities - what's really important.

I thought a consideration of my immigration portfolio would be apposite. The New Zealand Immigration Service (NZIS) sits within the Department of Labour, and has both an operational and a policy focus. The question I originally asked was "how does NZIS become accountable for positive settlement outcomes, when only outputs have been traditionally measured'. Establishing a migration target and achieving it, by counting numbers approved and arriving in the country, says nothing about what happens to people after they migrate to New Zealand. The "doctor-driving-taxi' scenario was a measure of failure, not success.

This led me to the view that the quality of the immigration programme could only be measured by the quality of the settlement outcomes, and yet NZIS was not accountable for those. Apart from anything else, the costs of failure sat with other departments, for example, Work & Income, and of course with the migrants themselves.

The first step was to move away from the concept of a "target'. The NZ Immigration Programme now operates an approvals management system, which enables a cap to be placed on annual immigration numbers, without regarding this as a goal to be achieved. However, under the Managing for Outcomes Initiative, NZIS has been able to place its activities under two primary outcomes, with specific contributing activities.

- Increasing the capacity of NZ through immigration: attracting migrants who are able to contribute to the New Zealand economy and society; growing business and employment opportunities in NZ; minimising adverse impacts of immigration

- Positioning NZ as an international citizen with immigration related interests and obligations: promoting NZ's immigration related interests; providing a safe haven for refugees; fulfilling international obligations.

NZIS has had to adopt new policies and develop a new form of customised service delivery in order to prepare itself to shift from being a passive recipient of applications to an active recruiter of people New Zealand needs in terms of skills and talent and who we know can settle well. It is an exciting change in approach, and one that both the Department and I are using as an opportunity to update policies to ensure a settlement focus - success will be measured by results.

The outcomes focus has also enabled those working on immigration policy to think beyond the square, as we have a broader framework to operate within and are less constrained than when we were limited to a narrow set of outputs.

For example, it has enabled us to think more broadly about better using the information we gather when we experience "adverse outcomes', to improve our decision-making at the front end. An outputs focus has us counting the numbers of removals of overstayers. An outcomes focus has us identifying those who pose a risk of overstaying and managing that risk at the outset, so we have fewer overstayers to remove.

Crown Entity Governance

In 2003 the government will be introducing a Bill aimed at improving governance arrangements for Crown entities and enabling more aligned, whole of government action.

Crown entity governance, though, leads me to my second case study - the Building Industry Authority, because last week Cabinet decided that we would transfer the functions of the BIA to a government department. As you will know, the BIA is a Crown entity, which has come under a considerable amount of public and parliamentary scrutiny lately because it has been closely identified with the weathertightness problem.

What became increasingly clear is that while the public reasonably expected the government to address the regulatory failure that was highlighted by leaky buildings, the arm's length relationship between Ministers and a Crown entity meant that the government had little influence over the BIA. In this case, the principal-agent relationship was one of the problems.

The government, as the principal, had neither the information nor the authority to ensure that the strategy and actions of its agent, the BIA, were aligned to the interests and expectations of the government. This is a classic governance issue in both the private and public sectors.

In the case of building regulation, the government has decided that the best way to deal with the principal-agent problem is to remove the arm's length relationship with the regulator, through moving the functions of the BIA to a government department. This may not be the best solution in all situations where there is such a problem. The particular circumstances, which lead to this decision in this case, were that:

- there is high public expectation of direct political oversight of the building control system, particularly given that standards for buildings need to evolve to reflect changing societal expectations;

- there is a need for regular and ongoing contact between the regulatory authority and the Responsible Minister, certainly more than is desirable with an independent Crown entity;

- the regulator exercises significant regulatory powers, and in this context there is a need for appropriate Parliamentary accountability. For example, I as the responsible Minister should have to front up to Select Committees, rather than the Chairperson of the Crown entity;

The weathertightness issue provided important lessons on regulatory governance, and illustrates that no particular form of regulatory institution is sacrosanct. Form should indeed follow function.

Closing remarks

I hope this presentation has demonstrated the government's commitment to progressing a number of projects that are designed to review and enhance governance and accountability in the public sector, recognising the role of the public service as agent for the implementation and delivery of the government's policies. The Managing for Outcomes initiative is enhancing the capacity of the public service to truly meet those objectives. I am sure that you will agree that this is patently not change for change's sake.

Effective governance is crucial to the integrity of the public service, the institution of government and the maintenance of public confidence in both. It is also a fundamental component of economic growth and the well-being of society. The government is committed to ensuring that New Zealand's public sector governance regime continues to evolve, while at the same time continuing to provide a benchmark for international best practice.

Thank you again for the opportunity to speak to you today, and I wish you well for your conference.

ENDS


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