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Download (124.75 KB)Sydney NSW 2000
www.companydirectors.com.au
ABN 11 008 484 197
T: +61 2 8248 6600
F: +61 2 8248 6633
E: contact@aicd.com.au
2 May 2019
Mr David Thodey AO FAICD
Chair, Independent Review of the APS
Department of the Prime Minister and Cabinet
PO Box 6500
Canberra ACT 2600
Via Email: apsreview@pmc.gov.au
Dear Mr Thodey
Re: Independent Review of the APS
Thank you for the opportunity to provide a submission in relation to the Independent Review of
the APS (Review).
The Australian Institute of Company Directors (AICD) has a membership of more than 44,000
including directors and senior leaders from business, government and the not-for-profit sectors.
The mission of the AICD is to be the independent and trusted voice of governance, building the
capability of a community of leaders for the benefit of society.
This submission responds to governance related topics raised within your Priorities for Change
document (Interim Report).
Common Purpose
The AICD supports the recommendation that the APS have a “common purpose and vision that
unites and inspires the APS”. In January 2019 we released our revised not-for-profit (NFP)
Governance Principles of which the first Principle is ‘Purpose and Strategy’. Further detail is
available on the AICD website here.
This Principle states that “the organisation has a clear purpose and a strategy that aligns its
activities to its purpose”.
We consider that following the establishment of a common purpose, individual APS departments
and agencies should be able to clearly articulate how, in achieving their own aims, they are
helping to achieve that higher-level APS purpose.
Performance goals: genuine transparency and accountability for delivering outcomes
As outlined in the Interim Report, of key importance is the need to have clear and appropriate
performance measures linked to the “common purpose”, and further, clear and appropriate
performance measures for each entity.
Anecdotally we have heard that not all departments and agencies are well equipped to report
against their performance goals - particularly for non-financial measures, that are at the core of
policy development and program delivery. Having audit and risk functions with capacity to provide
confidence in the reporting of non-financial performance is an important consideration for
departments and agencies across the APS.
It is also vital to have clarity on where responsibility lies within each department and agency for
reporting against the overarching common purpose statement.
The roles and responsibilities of boards, advisory boards, and Ministers
Related to the concept of clarity and purpose are clearly demarcated reporting lines and
responsibilities. In particular, we understand there can be difficulties where an organisation has
an external board as well as a responsible minister that they are accountable to. Further there is
a need for those in APS non-executive director positions to have a very clear understanding of
what is expected of them, and any limitations on their responsibilities.
While we understand that the enabling legislation for a department or agency generally sets some
of this out, direction and practical guidance could be provided to heads of departments and
agencies, and APS non-executive directors, in managing this tension of organisations having
‘more than one master’. Such clarity can support leaders in executing their functions confidently
and with integrity. This is somewhat addressed below in relation to statements of expectation
(SOE) which can be delivered by ministers and statements of intent (SOI) issued by departments,
agencies or regulators.
In relation to the Review’s consideration for an advisory board to the APS Commissioner, again
we would encourage clarity around the nature of advisory boards and the expectations of those
involved where recommendations are made by such a board.
More generally, it may be useful to have guidance indicating circumstances in which advisory
boards, or indeed independent boards (see below regarding ASIC and APRA), should be utilised
in public service governance structures.
Consideration of a requirement for key regulators to have board oversight
Effective governance frameworks support effective accountability, and the AICD through various
submissions, has recommended that key regulators (specifically, ASIC and APRA) be supported
with the implementation non-executive boards.
From an international perspective, there are a number of examples of such regulators with board
structures in place, including the Financial Conduct Authority and the Financial Reporting Council
in the UK, and the Financial Markets Authority in New Zealand.
A recent report on oversight of regulators, “Who Guards the Guards” prepared by The New
Zealand Initiative in 2018, points to evidence that suggests that the model creates better internal
checks and balances on regulatory decision-making than alternative governance models.
Indeed, Commissioner Hayne in his Financial Services Royal Commission final report
commented that both ASIC and APRA would benefit from having non-executive directors
including through the likely improvement in the scope and quality of internal oversight that such
individuals would bring.
ASIC
The 2015 ASIC Capability Review Final Report commented on ASIC’s governance arrangements
(in particular, Commissioners having both an executive (management) and non-executive
(governance) role). While it acknowledged the model’s strengths (including close alignment
between operational and strategic decision-making), it also noted that it results in a number of
key challenges and tensions including potential erosion of the strength of internal accountability
and lack of bandwidth for Commissioners to focus on strategic issues and external engagement.
The AICD has advocated for a change in ASIC’s governance structure to improve accountability
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and culture and suggested that having a board with a majority of non-executive directors will
provide greater oversight, objectivity, independent thinking and external perspectives to ASIC.
APRA
The Financial Services Royal Commission final report suggested that the appointment of non-
executive directors may be an issue for consideration in an APRA capability review. Again, the
AICD believes that having a board with a majority of non-executive directors would strengthen
oversight, objectivity and independent thinking, and bring external perspectives to APRA – all
objectives that APRA itself considers to be important, including in its prudential standards.
SOEs and SOIs
We also note that relevant ministers have the power to give a direction in writing to ASIC or APRA
about policies and priorities. The report on the 2003/2004 Review of the Corporate Governance
of Statutory Authorities and Office Holders (Uhrig Review) recognised that these powers are
rarely used, and recommended that:
• Ministers should issue SOEs to their portfolio bodies to clearly articulate the
Government's expectations of each body; and
• The body should respond to the Minister in a Statement of Intent (SOI) which outlines how
it proposes to meet the Minister's expectations.
In Uhrig’s view, this would ensure that ‘individuals responsible for the performance of statutory
authorities clearly understand the expectations of government including the outcomes for which
they would be held accountable’. Uhrig’s report contemplated that SOEs and SOIs should be
subject to review on an annual basis, or more regularly where appropriate. We support the use
of SOEs and SOIs to help manage mutual expectations, while noting the importance of them
being regularly reviewed to ensure they remain current and fit for purpose.
Secretaries Boards and Head of Service
We support collaboration and information-sharing at the most senior level of the APS though the
‘Secretaries Board’ to support effective policy development and program delivery. Further we
note that the Interim Report seeks to enshrine the Secretary of the Department of Prime Minister
and Cabinet in legislation as the APS’ defined head of service, and install them in the role of
Secretaries Board Chair.
Typically the Chair of a board is a ‘first amongst equals’, and while this is generally in reference
to a non-executive board, some clarity around the role and responsibilities of the Chair in this
context may assist.
Consistency in naming conventions
Re-naming of the Secretaries Board should also be considered, given that a board is traditionally
understood to be an entity tasked with oversight function rather than management function.
We also note that across the APS there is significant variance in the naming of senior positions
and titles. Departments, agencies and regulators have their executive head known as Secretary,
CEO, Director and Chairman. For example the (executive) head of the Australian Prudential
Regulation Authority (APRA) is known as Chairman, and the executive team as ‘members’.
This inconsistency can at times create confusion, and may warrant further consideration given
this review aims to address ‘clarity of purpose’ and ‘clear roles and responsibilities for the APS at
its most senior levels’.
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Clarity and confidence in the appointment and expectation of secretaries and government
boards
We note that the APS mission is to “be an apolitical public service that acts with integrity in all it
does, and is efficient and effective in serving the government, the Parliament and the Australian
public.”
As such we support measures to improve the “confidence in the appointment, performance
management and termination processes for secretaries”. While recognising that it is the
responsibility of the Prime Minister to make such decisions, we consider that a more transparent
approach may provide greater confidence in the process.
We would also welcome equivalently robust appointment processes for boards of government
organisations. There are various past examples of newly elected governments refreshing entire
APS boards. Confidence may be enhanced in the process for appointments to government
boards and any board renewal where there is a transparent process, justification for any changes
– for example against a skills matrix (as one of many measures) – and performance monitoring
against a clear set of expectations.
The AICD’s 2017 and 2018 Blueprint for Growth publications canvass issues of short-termism’ in
public sector governance and emphasise the need to “modernise systems of government to
support longer-term policy decisions.” Frequent changes in leadership across the APS can work
against sound long-term policy planning and consistent, effective governance.
Culture setting and tools for measuring culture
Entities from all sectors are increasingly recognising the importance of culture in terms of
performance and risk management. In the private sector, public revelations of corporate
wrongdoing including through the Financial Services Royal Commission have demonstrated that
poor culture often leads to misconduct that can damage stakeholder interests as well as the
reputation and standing of institutions.
Regulators have also had a heightened focus on accountability of those in positions of leadership
through measures such as the Banking Executive Accountability Regime (BEAR) in recent years.
We note that the Interim Report states that “strong accountable leaders are key to successful
change”, a point reiterated by Hayne when he states “clear accountability is vital to effective
governance” Where ownership of outcomes and culture can be apportioned to senior executives
in the APS strong performance may be expected to follow. Of note is that Commissioner Hayne
recommended that a BEAR type arrangement be applied to both ASIC and APRA to help drive
greater accountability.
The AICD teaches that the heart of contemporary governance is the issue of values, and the
question of what is right and wrong. These matters are inextricably linked to organisational
culture. One of the most critical drivers of culture is leadership of the organisation.
The AICD understands that organisations are increasingly looking at ways of measuring culture.
Some include culture audits, staff engagement surveys, senior executive and board interaction
with staff, and analysis of various wellness and metrics including: staff turnover; staff training;
performance management; learning and ongoing development; WHS incidents, near-misses and
accountability; whistleblowing incidents/complaints; breaches of codes of conduct; risk metrics;
Innovation (e.g. new products, speed to market); and remuneration.
AICD resources and services
The AICD provides an array of free resources across all aspects of governance some of which
may be useful to APS departments, agencies, regulators and boards. The AICD also provides
tailored public sector governance courses through our Foundations of Directorship program. This
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program canvasses the fiduciary duties, responsibilities, liability, and general roles of APS
directors, including directors of public sector corporate entities.
The AICD also has capacity to provide tailored courses to APS departments, agencies and
boards.
Next steps
If you would like to discuss any aspect of this submission, please contact me or Amber O’Connell,
Advocacy Manager, on 02 8248 8424 or via aoconnell@aicd.com.au.
Yours sincerely
LOUISE PETSCHLER
General Manager, Advocacy
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