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Changes to make CRIs ‘Engines of Growth’

Hon Dr Wayne Mapp

Minister of Research, Science and Technology

29 March 2010 Media Statement
Changes to make CRIs ‘engines of growth’

Changes aimed at ensuring New Zealand gets the best from its Crown Research Institutes (CRIs) were announced by the Government today.

“These changes are the most significant in the sector in 20 years,” Research, Science and Technology Minister Wayne Mapp said. “CRIs will be working for the benefit of New Zealand as a whole, not just for the benefit of the individual CRI.

“Science and innovation are key drivers of the Government’s economic agenda set out by the Prime Minister last month. The eight CRIs are a cornerstone of the science that underpins New Zealand’s economic and environmental wellbeing,” he said.

The changes include:

• greater clarity on the role and purpose of each CRI

• strategic and longer-term funding for CRIs

• strengthening CRI board accountability.

• a set of balanced performance indicators that will enable CRIs to better account to both the sectors they serve and the Government.

“The new long-term strategic funding in particular is a huge change which will enable CRIs to better align with sectors and produce better science.

“On the Government side, the merger of the Ministry of Research, Science and Technology and the Foundation for Research, Science and Technology will allow a far more efficient combination of policy, strategy and funding,” the Minister said.

“CRIs are at the heart of innovation. Through innovation we will lift the economy and deliver more jobs, better pay and better living standards for New Zealanders. The changes we are announcing today will make the CRIs powerful engines of growth.

“We have dealt with the key issues highlighted in the 2007 OECD report. It must have been obvious to the previous Government that reform was required but it has taken a change of Government to do it,” he said.

The changes are based on the recommendations of the Crown Research Institute (CRI) Taskforce report, released on 4 March. The taskforce was asked to examine how CRIs can best deliver on national priorities and respond to the needs of research users, particularly industry and business. It was chaired by Neville Jordan, executive chairman of Endeavour Capital.

Dr Mapp said work would begin immediately on implementing the changes.

Link to Cabinet paper: CRI Taskforce Final Report: Government Response

Summary of Government’s response

The Government endorses the overall intent of the recommendations of the CRI Taskforce. The Government agrees that it should:

• provide greater clarity on the role and purpose of each CRI

• provide greater certainty of funding for CRIs

• strengthen CRI board accountability

• put in place balanced performance indicators that help measure the success and national benefit of the CRIs. In discussion with each CRI shareholding Ministers will determine an appropriate rate of return on equity, taking into account the cost of capital to the Crown.

The Government will start work immediately on delivery of these outcomes.

Implementing the recommendations will require a significant behavioural shift in the CRIs, in particular a reduction in the use of competition to drive performance, and a shift of responsibility to the CRIs’ boards to lead and be held accountable for their results. The Government expects to see CRIs form closer relationships with research users, an improved focus on science quality through the use of science review panels, and greater collaboration and partnerships with other research institutions.

The recommendations create an opportunity to position CRIs as a critical part of the Government’s economic growth agenda over the next five to 10 years.

The Minister of Research, Science and Technology has asked the Ministry of Research, Science and Technology (MoRST) to begin work immediately on implementing the taskforce’s recommendations. MoRST will work with Treasury, the Foundation for Research, Science and Technology and other Government agencies on implementation.

MoRST will:

• work with CRI stakeholders to produce an initial set of Statements of Core Purpose for CRIs and Statements of Corporate Intent

• map existing funding streams on to the proposed new funding arrangements and establish suitable contracting arrangements for CRIs

• review Government procurement practices with respect to CRIs and other research providers

• commence work on developing a set of key performance indicators and methods for conducting rigorous independent evaluations

• develop requirements for the establishment of independent scientific advisory committees and end-user panels by CRIs

• use the CRI board appointment process to examine current board make-ups with a view to ensuring boards have the relevant experience required to manage the change process

• identify opportunities for legislative change which is either desirable or required to embed the recommendations for the long term.

These changes along with recent decisions on Government science investment priorities, the merger of MoRST and FoRST, and the upcoming Budget represent the most significant change to CRIs and the wider Research Science and Technology system in almost 20 years. This is the first time CRIs, their role and purpose have been reviewed as a whole since they were established in 1992

The work to implement the changes is expected to be completed by 1 July 2011, although some aspects will be finished well before then. MoRST will provide stakeholders with further details of the structure and timing of the implementation by mid-April.

Q&As on the Government’s response

1. What was wrong with the old CRI system?

CRIs have the potential to be powerful engines of economic growth, transferring new knowledge to key New Zealand sectors.

The main factors impeding CRI performance relate to their funding, ownership and governance arrangements. This is demonstrated in several ways:

It has been unclear if a CRI’s objective is to create value for itself, as a company, or to generate value for New Zealand.

There appears to have been undue emphasis on producing outputs that individual CRIs can capture in their statements of revenue and balance sheets, rather than on research that contributes to the wellbeing and prosperity of New Zealand.

There have been multiple lines of accountability that dilute the CRIs’ sense of purpose and direction.

CRIs have been heavily dependent on competitive contracts, which are often short-term relative to the timeframe in which science produces results. This makes it difficult for CRIs to operate strategically.

Funding and governance arrangements have positioned natural partners such as universities and firms as competitors.

2. How will the Government provide greater clarity on the role and purpose of each CRI?

The Government will work with each CRI to develop a statement of core purpose which will define the exact role each CRI should play in delivering benefits to New Zealand. These documents will recognise the distinctive role of each CRI.

3. How will the Government provide greater certainty of funding for CRIs?

The Government will fund each CRI to achieve its core purpose. To deliver these core purposes, Government will provide certainty of funding by providing a greater level of CRI funding directly to CRIs, on a long-term basis. Greater certainty of funding will be accompanied by a commensurate shift of responsibility to CRIs’ boards to lead and be held accountable for their results.

4. How will the Government strengthen CRI board accountability?

Board accountability is a central to CRIs’ performance. Government will strengthen board accountability by asking CRIs to have open annual general meetings, and will annually monitor and evaluate performance against the companies’ core purpose and statement of corporate intent.

5. What performance indicators will be put in place to measure the success and national benefit of CRIs?

The Government will measure the extent to which the benefits of CRIs’ ideas contribute to the wealth and wellbeing of New Zealand; and introduce measures to ensure CRIs remain financially viable and accountable for all Government funding. Measures of scientific excellence will be assured through greater use of expert science panels. In addition, a percentage of CRI core funding will be put “at risk”, subject to performance against agreed milestones.

6. Is the Government going to remove the requirement for CRIs to deliver profit?

The Government does not own CRIs to make a “profit”. However, it does expect them to remain financially viable so that they continue to operate, meet their obligations and replace assets.

CRIs will continue to be asked to demonstrate their financial viability by showing a rate of return on equity. As a result of the report’s recommendation, shareholding Ministers will meet with each CRI to determine an appropriate rate of return on equity, taking into account the cost of capital to the Crown.

7. How are the changes going to be implemented?

Implementation will begin immediately, with most changes expected to be in place by 1 July 2011.

Cabinet endorsed the overall intent of the CRI Taskforce’s recommendations in March 2010. The Minister of Research, Science and Technology was given overall responsibility for implementing the recommendations. The Ministry of Research, Science and Technology (MoRST) was directed to lead the implementation of the policy changes required, working with CRIs and other Government agencies.

Implementation will be overseen by a ministerial reference group chaired by Minister Mapp.

MoRST will project manage the work streams arising from the taskforce recommendations, reporting to the Minister and the Ministerial reference group on deliverables. Each work stream will be led by officials from either MoRST, the Foundation for Research, Science and Technology, Treasury’s Crown Ownership Monitoring Unit (COMU) or the Ministry of Economic Development (MED).

CRI staff and other stakeholders will have the opportunity to engage with these work streams as they progress through collaborative work and consultation


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