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Upton Speech To Public Service Managers

PUBLIC SERVICE SENIOR MANAGERS CONFERENCE
30 September 1999
HON SIMON UPTON
MINISTER OF STATE SERVICES


It is a pleasure for me to be here today to acknowledge the efforts of public servants, in what have been difficult times.

Last year I presented this conference with a picture of how New Zealand's demographically driven social spending was projected to place considerable pressures on core government spending. As a consequence of that fiscal reality, and in the absence of an informed strategic debate about capability, I said we risked degrading the effectiveness of the core public sector.

I advocated at that time a more strategically informed ownership regime closely aligned with the government's medium to long run goals. Not surprisingly, the fiscal story has not changed significantly since last year, but while we have still got a long way to go, the implementation of sharper strategic priorities and the establishment of new cross-portfolio teams and outcome indicators has been a positive step in the right direction. My crusade against short-termism is a battle with the reality of politics itself and I would not expect political behaviour to change just because we improve our systems. But they should make it harder to ignore the consequences of short-sighted trade-offs.

Today I’d like to say more about the sustainability of the public service. There is a new twist to that story that I will come to shortly, but before I do I'd like to reflect on the current environment that public servants currently find themselves in, namely an election year.

An Election Year

In what is a classic example of opportunism, some members of parliament have resorted to attacking the public service as a means of gaining public exposure that would not otherwise be forthcoming.

Making an allegation in the House is an inexpensive means of gaining media attention. It imposes real costs on the time of officials and Ministers. If the matter raised is found to be serious, then these costs are properly incurred and public parliamentary accountability is seen to have done its job. Unfortunately ill-informed or mischievous claims in the House consume the same amount of time and resources as genuine ones. The more outlandish they are, the more attention they attract. That, like it or not, is one of the prices we pay in a democratic society.

In my view, scrutiny of the executive should be exercised with respect for the principles of natural justice and an understanding of the constitutional conventions that apply to public servants.

An election year ushers in a renewed interest in matters of public administration. Like the changing of the seasons, Parliamentarians have awoken from hibernation to engage in a ritual bout of scandalising.

In contrast to other times of the year, when Parliamentarians actually have the opportunity to focus their minds on the real issues of strategy and administration through Select Committees, in the months before an election considered scrutiny gives way to indiscriminate target practice.

All sorts of statements have been made, without any regard for the collateral damage inflicted on the public service or the applicable constitutional conventions.

I was absolutely appalled earlier this year by comments made by Opposition politicians which implied that public servants need to be ideologically safe to retain their place should there be a change in government. I was equally dismayed by Mr Maharey's sweeping claim that - "Perhaps the worst feature of the modern public service is the pathetic standard of advice offered to politicians". This, from a formerly measured academic.

I have responded to these comments publicly. But I am profoundly aware that you as professional and apolitical public servants don't have that same opportunity. There is no challenge or glory in criticising someone, who is bound by constitutional convention not to respond in the same manner. Attacks like these are intolerable.

The deal is very simple: in return for impartial, professional, free and frank service to the government of the day (and any future government), politicians should avoid targeting public servants personally. That said, senior public servants must and should always expect to have to account for their performance and use of taxpayer funds. But you are not required to please, in a servile, political sense.

I feel compelled to offer an apology to you on behalf of some of my fellow Parliamentarians who have little knowledge or regard for their civic responsibilities and current constitutional conventions. You should not let the fervour of electioneering claims and counter-claims distract you from your work and the many achievements you have secured. I regret that they are likely to be overshadowed by other events in the current silly season.

Reflections on the reform

Other comments made about the public service and the public management system have been rather more thoughtful.

I think of people as diverse as Professor Jonathan Boston from Victoria University and Mr Kerry McDonald from Comalco. They point to considerable reflection on the last 15 years of economic restructuring.

In the realm of public administration some have sought to characterise the debate as being about whether the public service has become captured by a private sector managerialist ethic. Coupled with this assertion is the claim that traditional public service ethics and standards have been somehow sacrificed in the process of adopting new management practices.

Undoubtedly some values and belief systems have changed with a new management culture. But there is no reason innovative management ideas and better ways of doing things should automatically displace expectations of public service. The 'means' of public administration may well change, but the 'ends' for which the public service exists and the underlying values that define its existence are not dependent upon ever-changing management fads.

The values of integrity, impartiality and faithful service to the public good and the government of the day are deep rooted. If anything, those values are constantly reaffirmed both in contemporary events and throughout the history of our civil service.

The Treasury’s swift and conscientious response to the Treasurer Winston Peters’ call for a compulsory superannuation scheme is just one recent example of the public service providing an outstanding product to the government of the day (albeit one that I thoroughly disagreed with).

It may come as a surprise to some commentators to learn that the use of private sector management techniques did not begin in 1988 but have always been an element of our public service. Indeed, one of the motivating factors for the landmark Public Service Act 1912 was the influence of new ideas in American management such as Frederick W Taylor's science of management.

Whether it was Zero based budgeting in the 1960s, Programme Budgeting in the 1970s, MBO or McKinsey's 7 S's in the1980s, TQM in the late 1980s or the balanced scorecard and Business Excellence Model of the current decade, private sector management ideas have always pervaded the public service. Not all of the ideas will be useful or relevant - good judgement and common sense should be the yardstick of new ideas and their applicability.

It is simply absurd to seek to insulate the public service from innovative management ideas, regardless of where they have originated. Such a view will only lead to an ineffective and intellectually bankrupt public service.

We can’t avoid open and interactive debate about ideas drawn both from overseas and from within the private sector. While New Zealand looked to business management ideas in the United States in 1912 the process has come full circle. It is now the American administration that looks to New Zealand's public service experience as a source for inspiration. Our influence is strongly reflected in Donald Kettl's five-year report-card for the "reinventing government" programme.

Change will be a continual part of New Zealand's public service but the reason why it is an evolutionary rather than revolutionary process is that the public service has at its core a constant set of defining values.

While I'm not sure that I'd use the same metaphor as Michael Wintringham, I share the Commissioner's wish to make intelligent enhancements to public sector managerial practice. I will leave it to others to decide, whether "Putting mags on the family Vauxhall victor" is an accurate portrayal of that process.


Public service incidents

Those who believe that the golden age of public service lies back in the 1960s are given to point to a few incidents over the last year as evidence of how public service values have been displaced by a new orthodoxy. Despite its currency in contemporary politics, the baby has most definitely not been thrown out with the bath water. In fact quite the opposite is the case.

The fact that such matters have been taken so seriously is a sign of the system's good health. The fact that there has been such a strong resolve to present the facts and address problems is support for this view. The attention that these matters attract is evidence of how deep-seated our concerns are for the integrity of the public service.

However, the reality of human nature is that in a public service of 32,000 there will always be a few instances of poor judgement, and inappropriate behaviour. The public, and often the media, do not wholly appreciate the subtleties of purchase and ownership Ministers, Crown entities and non-Crown entities and the accountability distinctions that come with these labels. Unlike private companies, incidents in one agency of the public service, or for that matter the wider state sector, will tend to tar us all with the same brush.

We must maintain vigilant standards to guard against these risks and an open clear process for resolving them.

There will even, dare I say it, be instances (similarly rare) of poor judgment and inappropriate behaviour within the ranks of the 200-or-so departmental and Crown Entity chief executives. The same is true of the wider New Zealand community.

Some have suggested that we need much more detailed rules to determine what can and can't be done, and that the State Services Commission should audit compliance with them. I wouldn't dismiss the possibility of further prescription out of hand, but I am reluctant to advocate it across the board since it inevitably reimposes the deadening effect of centralised bureaucracy and reduces the responsibility of chief executives to account for themselves. The existence of rules is no guarantee of their application, and the more there are, the greater the likelihood they will be observed in the breach.

In a recent letter to departmental chief executives I had this to say: "faced with public disquiet, there is a temptation to become evermore prescriptive about what is and isn't appropriate. But that would be to reduce the issue to a technical "paint-by-numbers" approach. What we need is the conscientious application of an ethic that puts taxpayers' interests first on all occasions. If you can defend your actions according to this test you will have our support … The collective interest in maintaining public confidence in the integrity and good sense of the public service is paramount."

In short, all public servants have to demonstrate a strong sense of responsibility and accountability to the taxpaying public. Public servants and politicians (unlike their private sector counterparts) operate in the full glare of parliamentary scrutiny, media scrutiny and subject to the Official Information Act. It's a system designed to expose the truth and when it does, it's working. But I reject the further conclusion that because human failings are exposed from time to time the system is decaying. As an MP of 18 years' standing, I know that there is far greater transparency and accountability than there ever was when I arrived in Parliament in 1981.

But if there is a broad criticism to be made, it is that Ministers and officials have not made sufficient traction on the ownership interest. In a similar vein I also wonder whether the over reliance on chief executives rather than organisations as a whole needs re-balancing.

Reliance on the Chief executive as Superperson

The statutory machinery behind our public administration focuses almost exclusively on an individual, the chief executive. Bilateral purchase agreements and CE performance agreements reinforce that emphasis. The clear lines of accountability are admirable. But a question arises about the relative emphasis we place on the performance of an individual as distinct from the organisation of which he or she is a part.

I think there has been an almost myopic focus on the role of the chief executives as the fundamental determinant of departmental performance. This view emphasises the selection of the "right" chief executive packaged with an appropriate and credible incentives regime to extract the desired performance. The assumption is that if you can clearly specify the expectations and put in place clear accountability and supporting incentives, the rest will largely fall into place.

I don't subscribe to this view. I think it is overly simplistic. It removes from consideration a dynamic relationship with a range of stakeholders and contributors, including the organisation as a whole. While there are certainly individuals who have outstanding leadership skills and the capacity to influence change beyond what might be construed as normal boundaries, they are part of a large beast - the Crown – with all the perversity of decision making that predominates in the goldfish bowl of politics. Of course, strategic leadership and entrepreneurialism are important ingredients of organisational success. But Chief Executives are not totally autonomous agents – and neither are departments self-contained silos.

Ministerial oversight of Chief Executive performance needs to be balanced by more emphasis on examining the health of the organisation. The focus for this engagement should be the Strategic Business Plan. It should provide assurance to the Minister that the Department/Ministry is pulling together the necessary skills and tools to deliver his strategic objectives. It should also, conversely, expose the Minister to the consequence of his Government's purchase decisions.

While we have been pre-occupied with the efficient allocation and use of land, labour and capital as a means of fiscal control, there has been much less attention paid to intangibles. By intangibles I mean those things such as knowledge, institutional memory, integrity and strategic leadership that until recently barely rated a mention.

In the same way that the private sector is placing greater focus on the intangible determinants of shareholder value, there is a growing realisation that there is a disproportionate emphasis on financial indicators when what often matters is not easily measured by financial outturns or GAAP. We should be equally cognisant of the non-financial dimensions that influence performance within the core public sector. A truly meaningful Strategic Business Plan is in my view the avenue for advancing that cause.

I would argue that the public service as a whole needs to breathe life into SBPs. They should enjoy an equal status with purchase agreements. If that means jettisoning some of the other compliance documents we presently generate, so be it.

Governance

A symptom of our preoccupation with the role of managers and the incentives that apply to them is the frequency with which restructuring is used as a management response. Most thoughtful commentators share Michael Wintringham's and my own view that restructuring has tended to be overused. But the real question has to be why Governments have reverted to this instrument so readily?

While regrettable, part of the answer is that new governments may be tempted to "stamp their brand" on the administration by reverting to structural change as a means of signalling change, regardless of whether the issue really is a structural one.

A more theoretical explanation (derived from the private sector) is that restructuring provides an opportunity to improve performance. This is brought about by reallocating resources to their most productive use, particularly if there are economies of scope or scale to be utilised. In the event that poor performance is attributable to management failure, restructuring also allows for the replacement of poorly performing managers.

More particularly, the threat of restructuring provides managers with incentives to perform to pursue shareholder objectives rather than their own. The theory often falls short however when the actual transaction costs and disruptions associated with pursuing such exercises are often underestimated and the anticipated gains do not always apply. In this last respect there appears to be a high degree of comparability with recent public sector experience.

But unlike private sector owners, the same set of governance arrangements and incentives are not available to Ministers. Compared to their private sector counterparts Responsible Ministers are significantly underpowered. This is because:

 Ministers do not appoint Chief Executives, or employ them:

 the disciplines on management applied through the operation of capital markets are not in force (no one is trading shares in the State Services Commission or examining its performance as a means of assessing value for example);

 exiting ownership or even purchase in the core state is not a realistic option, or certainly not one that can be activated easily.

Public interest

So often when we try to explain the way the public service operates we migrate to a completely alien language of inputs, outputs, outcomes and a veritable Babel’s tower of crown structures. Trying to explain things in these terms is futile. Sometimes I wonder whether we have ourselves, been captured by these concepts at the risk of misunderstanding a more complicated reality.

After more than a decade of acquainting ourselves with the nuances of the system, we may need to ask whether the model and reality are in sync with one another. We may focus on inputs outputs and outcomes, but most of the political and media interest this year has focussed on the nitty-gritty of specific management decisions.

As far as the public is concerned, it's not just what you do that matters, it's how you go about doing it. We think very carefully about the former - the government's grand economic or social strategies – but perhaps we have not paid enough attention to the latter. Your management decisions are of public interest, and in particular their effect on public confidence in the state and its institutions.

Sometimes the public interest is camouflaged or poorly expressed in repetitious and narrowly defined demands for greater efficiency, when what is actually being sought is something quite different. The concern is instead rooted in the demand for high quality judgement and standards of behaviour being exercised by public officials.

Public service departments could be more technically efficient if they did not have to follow policy consultation procedures, contestable tendering out procedures and instead adopted other short-cuts. This however would be to adopt management behaviours that are not consistent with public expectations. This year more than any other, emphasises the fact that the public is interested in the ‘means’ of public administration just as much as it is in the system's desired ends.

Positioning the SSC

These issues are essentially a component of what we know as the ownership interest. As most of you will be aware, I have reservations about how we are currently managing the ownership interest relative to the purchase interest.

A share of the blame for the neglect of the ownership interest rests with Ministers, who are often neither trained nor adequately supported in assuming the role of a responsible owner. Improving the performance of Ministers is problematic, especially where Ministers change portfolios and positions within short periods of time. The baton also tends to be hurriedly passed amongst Ministers allowing only a brief time for them to become acquainted with the portfolio.

In that context I can only reiterate my comments to you last year, that you as senior public service managers that must bear the cross for keeping an eye on the long run ownership interest. In the same way that mangers have embraced the positive aspects of new management ideas and concepts, you must continue the evolution towards improved ownership management.

To institutionalise that commitment to the long run ownership interest the Government has taken affirmative action in charging the State Services Commission with the role of being a principal adviser on ownership matters. The decisions that have been taken by Cabinet reflect a considered response to eighteen months of work.

I can think of more populist, knee-jerk measures we could have proposed. But the Government has looked beyond the next month or two and is seeking a more sustainable solution designed to lift the quality of ownership analysis and advice that Ministers receive.

The strengthening of the State Services Commission as the Government's own principal ownership adviser will not occur overnight. Indeed it will involve the assembling new skills and capabilities which will take time to bed down.

I expect a more organic approach to ownership monitoring from the Commission in the future. It will focus on the unique ownership issues confronting each department rather than approaching all departments through a standardised template and generic monitoring systems. It will also be more forward looking with less emphasis on recounting the pros and cons of the past year's efforts.

I think this will allow a much richer and more useful engagement for all parties concerned. At the end of the day there is only so much the SSC can do. It will not be intervening in your day to day management decisions, and the demands on chief executives have not lessened. But the SSC will be asking questions of your organisation, and in some cases offering Ministers alternative points of view.

What we need is to move towards is a situation where every year the Minister and the Chief Executive take time out to discuss the Strategic Business Plan – and to leave each other in no doubt about the agency’s state of health and where the future of the agency lies.

The Commission will continue to recognise that annual output performance against the purchase agreement is important, but it will increasingly be looking at the implications of today's purchase agreements two, three or more years down the track

The Commission's newly focused role will provide Ministers and the public with a greater degree of assurance about the future capability of the public service and secondly, to secure public confidence in those institutions.

Conclusion

I don't deny that there are significant challenges ahead for the Commission to earn its place as a principal adviser on ownership issues. It sits alongside a broader challenge for the public service as a whole – and that relates to the extent to which it can attract people, which are its key resource. It goes without saying that if the public service develops a poor reputation it will struggle to attract the best people.

It doesn't follow, however, that staying out of trouble will be sufficient. A survey conducted in the United Kingdom of the so-called Y generation of 16-21 year olds confirms this group's overwhelming disinterest in pursuing careers in the public service. Whereas a career in local government or the civil service was the most popular career choice in the 1970s, today just 1% of this group say they would even contemplate such a move. I don't imagine it's much different with New Zealand's youngsters.

Faced with this news, some on the political right might may well be dancing in the streets to herald the demise of the public sector. Those like me, of a more Hobbesian and sceptical view of human nature will be less comfortable. Governments are necessary: they can't do everything but what they attempt, they must be able to do well. The reality is that talented young New Zealanders have a world of opportunities before them – many of them very lucrative – and few want to join some sort of monastic public priest hood. The public service has a real job on its hands to stay in the race.

I want to assert a positive and constructive role for the core state. To my mind, a disproportionate focus has been given to organisations on the fringes of the core state be they Crown entities or SOEs rather than the public service. If some of them were privatised we could remove the distraction.

It is about time the core state - the state that will always be with us - has its day in the sun. There is an urgent need to place the role of the public service in a positive context and to reassert the contribution that the public service can make to the peace, prosperity and security of New Zealand.


ENDS

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