Appendix 1 - Joint submission on behalf of the Department of Foreign
Affairs and Trade (DFAT) and the Export Finance and Insurance Corporation (EFIC)
Introduction
1. As part of the Government's response to
the Review of the Corporate Governance of
Statutory Authorities and Officeholders (the Uhrig Review), Deputy Prime
Minister Vaile assessed the Export Finance and Insurance Corporation (EFIC)
against the principles and recommendations of the Uhrig Review.
2. EFIC is responsible for facilitating
and encouraging Australian export trade by providing insurance and financial
services and products to Australian exporters and overseas investors. It provides these services in "the
market gap" where the private sector lacks capacity or willingness to participate.
3. EFIC is primarily a commercial
organisation. It charges its clients fees and premiums and earns interest on
its loans and on the investment of its capital, reserves and working capital.
EFIC aims to make a profit after covering operating costs, interest expenses
and any claims or losses incurred in the business. This profit is used partly
to pay a dividend to the Commonwealth and partly to build up EFIC's reserves to
enable it to run on a sound financial footing.
4. EFIC forms part of the portfolio of the
Department of Foreign Affairs and Trade. The Minister for Trade, the Hon Mark
Vaile MP, is responsible for EFIC. EFIC
has a board management structure. EFIC's management conducts EFIC's operations
under the supervision of the Board.
5.
This structure is
complicated by what can be described as the "hybrid" nature of EFIC's
governance arrangements. EFIC's legislation provides for two distinct platforms
from which Australian exports can be supported. These platforms are EFIC’s Commercial
Account, and the National Interest Account.
6.
In the case of the
Commercial Account, the risks underwritten are carried by EFIC as a
corporation. The Minister is not able to direct EFIC to obtain the Minister's
approval for a particular transaction nor to direct EFIC to enter into a
particular transaction. Most of EFIC's transactions are written on EFIC's
Commercial Account.
7. In the case of the National Interest
Account (NIA), the Minister can direct EFIC to enter into, or approve of EFIC
entering into, a facility if he or she believes it would be in the "national
interest" to do so. NIA transactions tend to involve financial commitments
that are too large for EFIC's balance sheet, risks that EFIC considers are too
high to accept prudently on its own account, or transactions that would be
commercially acceptable if EFIC did not already have significant exposures to a
country or entity. Although decisions relating to the national interest are
taken by the Minister and EFIC receives a fee for managing the NIA, EFIC's
legal position in a national interest transaction is as principal, not agent.
8. Under the templates outlined in the
Uhrig Review, EFIC's status as a commercial organisation with a board having a
high degree of power to act aligns it closely with the board template. As a
self-sustaining, primarily commercial organisation it is appropriate for EFIC
to retain its status as a Commonwealth authority under the Commonwealth Authorities and Companies Act 1997. The effect of the
Bill will be to change EFIC’s governance arrangements resulting in EFIC’s board
management structure reflecting more closely the board governance model set out
in the Uhrig Review. The Bill will have no financial or
regulatory impact and EFIC’s mandate and functions will not be affected. The EFIC Board has been consulted on the proposed changes and has agreed
to them.
Summary of amendments
9. The amendments contained in the Bill provide
for:
- the EFIC Board to have the
power to appoint the Managing Director and Deputy Managing Director after
consultations with the Minister.
- the removal of the Managing
Director of Austrade from the EFIC Board.
-
the size of the EFIC Board
to be limited to between six and nine members.
-
the quorum of a meeting of
the EFIC Board to be reduced to three.
-
appointments to the EFIC
Board (other than in respect of the Government Member) to be limited to three
years and the introduction of a limit of two terms (or three terms for EFIC
Board members who serve as Chairperson).
Rationale for the proposed amendments to the Export Finance and Insurance Corporation Act
1991
10. The amendment providing for the EFIC
Board to have the power to appoint the Managing Director and Deputy Managing
Director after consulting the Minister is consistent with the board template of
the Uhrig Review concerning appointment and termination of the chief executive
officer of a statutory authority (pages 80–85, especially page 84). Under the
current Act, the Managing Director is appointed by the Minister after the
Minister has received a recommendation by the Board. According to the Uhrig Review,
a board cannot be effective without the power to appoint and terminate a chief
executive officer.
11. The amendment providing for limiting the
size of the EFIC Board to between six and nine members is consistent with the
Uhrig Review’s comments relating to board size (page 96). A board of this size
is also considered to be consistent with the size, complexity and risks of
EFIC's operations. Under the current Act, the minimum number for the EFIC Board
is nine and maximum number is eleven. According to the Uhrig Review, private
sector best practice suggested an optimal board size of between six and nine
members as “Boards of this size seem more easily able to create an environment
of active participation by directors”. The Uhrig Review states that Boards of
fewer than six members may have difficulty meeting their statutory obligations
due to workload pressures and a lack of breadth of views. The amendment
reducing the quorum for a meeting of the EFIC Board to three (from five) arises
from the reduction in the size of the board.
12. The amendment providing for appointments
to the EFIC Board to be limited to three years and the introduction of a limit
of two terms (or three terms for EFIC Board members who serve as Chairperson)
arise from the Uhrig Review’s comments concerning board tenure (pages 100–101).
Under the current Act, Board members may serve a maximum term period of five
years with no limit to numbers of terms for directors. Term limits are intended
to improve Board performance by introducing “greater experience and/or fresh
thinking”. According to the Uhrig Review, this practice is consistent with the
rotation requirements for the Australian Stock Exchange listing rules and
Commonwealth Government Business Enterprise arrangements. Allowing a director serving as chairperson an
additional three year term is to provide continuity of direction for the
entity.
13. The amendment providing for the removal
of the Managing Director of Austrade from the Board is consistent with the
Uhrig Review’s comment concerning the appointment of public servants to boards (page
99). Consistent with this but not requiring legislative amendment to the Export Finance and Insurance Corporation Act
1991, is the intention to discontinue the practice of appointing the
Secretary of the Department of Industry Tourism and Resources to the EFIC
Board.
14. The Uhrig Review allowed for retention of
the Secretary of the related department on boards where “there are special
circumstances which require it”. In view of the special circumstances
pertaining to EFIC's role in the management of the National Interest Account the
Government has decided to retain the Secretary of the Department of Foreign
Affairs and Trade as the Government member of the Board. The retention also recognises the
contribution of the Government member to country risk assessments which form an
important part of Board deliberations, is the most efficient means of ensuring
EFIC’s compliance with its market gap mandate, and ensures that Board decisions
are taken within the framework of a deeper understanding of the Government’s
foreign and trade policy objectives.
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