Chapter 2 - The Uhrig Report and the proposed changes to EFIC
2.1
The Export Finance and Insurance Corporation is only
one of many statutory authorities established by the Commonwealth Parliament.
2.2
In its previous report on proposed changes to Austrade,
the committee provided a detailed discussion on Commonwealth statutory
authorities and the Uhrig Report.[5] The
following section contains a shortened account of this discussion in order to
provide background to the proposed legislation.
What is a statutory authority?
2.3
A statutory authority in the Commonwealth sphere is a
generic term for a body established through legislation for a public purpose.[6] Such bodies undertake functions of
government or provide services to the community on behalf of government. There
are over 160 Commonwealth statutory authorities, many of which do not share the same characteristics. Differences
are found in their governance structures; their status as legal entities
separate from the Commonwealth; the extent of their independence from political
influence and departmental controls; their level of accountability to
government and the Parliament; and the financial management legislation that applies
to them.[7] Enabling legislation
enunciates the specific set of arrangements under which a statutory authority
will operate.[8]
2.4
In recent years concerns have been expressed about the
proliferation of statutory authorities, the appropriateness of their structure
for their given functions, and the selection process for board members and
office holders. Questions have also been raised about their relationship with
the relevant Commonwealth department and their minister and the financial
framework and accountability regime governing such bodies.[9]
2.5
During the election campaign in October 2001, the Prime
Minister, the Hon John Howard MP, acknowledged that the government had 'an
obligation to ensure its dealings with Australian business are efficient, fair
and transparent'. He announced that a re-elected Coalition government would
'focus on improving the structures and the governance practices of its
Statutory Authorities and Office Holders, with particular attention being paid
to those that impact on the business community'.[10]
The Uhrig Report
2.6
Consistent with this undertaking, in November 2002, the
government commissioned a review of the corporate governance of statutory
authorities and office holders. The main objective in undertaking this review was
to improve the performance of statutory authorities and office holders and
their accountability frameworks.[11] Mr
John Uhrig, a
well known business leader and former Chairman of Rio
Tinto and Westpac, was appointed to conduct the review. He was to analyse the
existing governance arrangements for statutory authorities and office holders
and to identify reforms that might assist in improving the performance of these
bodies, without compromising their statutory status.[12] The review was to address the
selection process for board members and office holders, the mix of experience
and skills required by boards, their development and their relationship to government.[13]
2.7
The terms of reference asked the review to develop a
broad template of governance principles and arrangements that the government may
wish to extend to statutory authorities and office holders. In determining the
most appropriate structure and governance arrangements, it was to have regard
to the 'unique status of the Commonwealth as owner or shareholder, as the
sovereign government and the source of regulatory authority'.
2.8
The government wanted statutory authorities and office
holders assessed against these principles and then to implement reforms that
would be taken on a whole-of-government basis.[14]
2.9
The Uhrig report produced two governance templates
which clearly delineated between statutory authorities whose major activities
were commercial and those undertaking regulatory and service provision
operations.
Board template—for authorities
undertaking commercial operations
2.10
In considering whether boards would provide effective
or appropriate governance for statutory authorities, the Uhrig Report found
that for a board to perform effectively, the government must delegate to it the
full power to act. It stated:
In addition to internal strategy setting, the board should be
responsible for the supervision of management, the oversight of risk and the
ability to appoint and terminate the CEO. In situations where it is feasible to
delegate the full power to act, such as commercial operations, a board will provide
an effective form of governance.[15]
2.11
Thus, the board template was judged to be better suited
to operate under a management structure that requires powers akin to those of a
publicly-listed company board.[16] In Mr
Uhrig's view, a board did not provide the
appropriate governance structure for statutory authorities operating as service
providers or regulators.[17]
2.12
He noted that there were a number of circumstances in
which Parliament and government may choose not to provide a wide-ranging power
to act, instead, to establish a narrow set of outputs to be delivered by a
statutory authority. He explained:
In these circumstances a parallel can be drawn to closely held
companies where a limited delegation of power, and the influence of a limited number
of parties controlling the entity, indicate that an independent board may not
provide the best governance. In circumstances where government is not providing
a broad delegation it is likely that holding either chief executives or
commissioners directly accountable for performance will produce better
governance.[18]
2.13
The report recommended that governance boards should be
used in statutory authorities only where they can be given the full power to
act.
2.14
Mr Uhrig
then sought to identify an alternative governance structure for statutory
bodies where it was deemed not proper or possible for the minister to delegate
full responsibility. The Uhrig Report developed an executive management
template to accommodate such statutory bodies.
Executive management template
2.15
The executive management template has a more limited
governance structure headed by a Chief Executive Officer (CEO) who is directly
responsible to the relevant minister. It recognises that the role of the
Minister in the governance of some statutory authorities may be considered to
be equivalent to that of a single owner of an organisation who would retain the
right to direct the management on critical success factors, making a board
redundant.[19] It assumes that full
delegation of power is not appropriate and that the executive management group
will be governed by the minister with support and advice from the department.
The CEO bears the full responsibility and accountability for the governance and
management of his or her agency.
Government response to the Uhrig Report
2.16
The government approved of the two templates developed
by Mr Uhrig.
According to the Minister for Finance and Administration, Senator the Hon
Nick Minchin:
Both templates detail measures for ensuring the boundaries of
responsibilities are better understood and that the relationship between
Australian Government authorities, Ministers and portfolio departments is
clear.[20]
2.17
He announced that the government would implement the
governance templates recommended in the report. The aim was to establish
'effective governance arrangements for statutory authorities' and achieve
'clarity in roles and responsibilities'. Ministers were directed to assess the
statutory authorities within their portfolios against the governance templates.
Senator Minchin explained
that the selection of the appropriate template would depend on the degree to
which the authority 'has been delegated full power to act'.[21]
2.18
EFIC was assessed as part of the implementation of the
government's response to the Uhrig Report and the government's undertaking to ensure
that Australia
has 'the most effective accountability and governance structures across the
whole of government'.[22]
2.19
The following chapter examines the specific provisions
of the bill in light of the recommendations of the Uhrig Report and the government's
intention to establish effective governance arrangements for its statutory
authorities.
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