Chapter 2 - Background to the proposed changes to Austrade
2.1
Austrade is only one of many statutory authorities
established by the Commonwealth Parliament.
What is a statutory authority?
2.2
A statutory authority in the Commonwealth sphere is a
generic term for a body established through legislation for a public purpose.[2] 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.[3] Enabling legislation enunciates
the specific set of arrangements under which a statutory authority will
operate.[4]
2.3
Mr Shaun
Gath noted that the statutory authority has
been a favoured legal structure in Australian public administration. He wrote,
however, that a statutory authority is, in some senses, a strange legal entity.
In his view:
It is neither the 'fish' of a department of state nor is it the
'fowl' of a traditional company. Rather, it is an entity vested with corporate
form (and hence a capacity to contract and interact with other persons in a
legally-binding way) by, or pursuant to, an act of Parliament other than
through the incorporation provisions of the Corporations
Act 2001.[5]
2.4
In recent years concerns have been expressed about the
proliferation of statutory authorities, the appropriateness of their structure
for their given functions, the selection process for board members and office
holders, their relationship with the relevant Commonwealth department and their
minister and the financial framework and accountability regime governing such
bodies.[6]
2.5
During the election campaign in October 2001, the Prime
Minister, the Hon John Howard MP, acknowledged that the government has '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'.[7]
The Uhrig Report
2.6
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.[8] 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.[9] 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.[10]
2.7
The terms of reference expected the review to develop a
broad template of governance principles and arrangements that the government
might 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.[11]
2.9
The review 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
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.[12]
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. [13] In Mr
Uhrig's view, a board did not provide the
appropriate governance structure for statutory authorities operating as service
providers or regulators.[14]
2.12
He noted that there are a number of circumstances in
which Parliament and government may choose not to provide a wide-ranging power
to act, instead, establishing a narrow set of outputs to be delivered by a
statutory authority. He explained that:
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.[15]
2.13
The report recommended that governance boards should be
utilised 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.[16] 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.
2.16
Mr Uhrig
explained in full:
Where it is not feasible for the Minister and/or Parliament to
delegate the full power to act, a governance board is not practical. This is
particularly the case in those authorities where Ministers play a key governance
role through the determination of policy and strategy. In these statutory
authorities the issues to be addressed are limited to the efficient and
effective performance of the activities specified through legislative parameters.
This is essentially a management-oriented task. The optimum governance structure
for most non-commercial authorities is that of an executive management that reports
directly to the responsible Minister. The executive management structure may be
headed by either one or more commissioners or a CEO. An executive management structure
provides a direct line of communication between the Minister and those performing
legislated functions, and the clearest and most direct line of accountability to
the Minister.[17]
2.17
He stated:
Bearing in mind the accountability of Ministers under the
Commonwealth system of government (derived from the Westminster
system) for many of the functions performed, it is impractical to delegate full
power to act in governance terms, particularly to individuals who are neither
accountable through elections nor through employment in the public service. The
responsibility of governments to govern and the role of Ministers in supervising
authorities highlight the importance of establishing governance arrangements that
reflect these requirements.[18]
The Uhrig Report also looked at the financial framework
governing statutory authorities.
The Commonwealth Authorities and
Companies Act 1997(CAC) and the Financial Management and Accountability Act
1997 (FMA)
2.18
The two relevant pieces of legislation covering the
financial management of Commonwealth bodies are the CAC Act and the FMA Act.
They are structured differently and impose different requirements on officers.
When introduced into Parliament in 1996, the then Minister for Finance, the Hon
John Fahey MP, spelt out the distinction between the two pieces of legislation:
In relation to financial administration, every Commonwealth body
falls into one of two categories, according to the basic legal financial status
that each body has. It either has the legal capacity, in its own right, by
virtue of its incorporating legislation, to acquire ownership of money or other
assets coming into its possession; or the body will function only as a
financial and custodial agent for the legal entity that is the Commonwealth,
without acquiring separate legal ownership of the money and assets it deals
with on the Commonwealth's behalf.[19]
2.19
Thus, the CAC Act applies to the operations of bodies
that are intended to be financially autonomous incorporated Commonwealth bodies
that can acquire legal ownership of money in their own right. This act contains
reporting, accountability and other rules that apply to Commonwealth
authorities and companies. On the other hand, the FMA Act applies to bodies
that are, financially, agents of the Commonwealth. It establishes the
regulatory, accounting and accountability framework for dealing with and
managing the money and property of the Commonwealth.[20]
2.20
The Uhrig Report also noted the significant differences
between the CAC and the FMA acts. These included:
-
CAC Act authorities are bodies corporate with
separate legal identities to the Commonwealth and hold money and other assets
in their own right.
-
CAC Act authorities do not have to comply with
government policy, including as it relates to the use of resources (for
example, Commonwealth procurement policy), unless specifically required under
sections 28 and 44 of the CAC Act.
-
The CAC Act is drafted to accommodate a board
structure, whilst the FMA Act assumes an executive management structure.
-
The FMA Act provides for clear lines of
accountability to the Minister for Finance and Administration in relation to
use of public money and other Commonwealth resources.[21]
2.21
These differences have direct implications for the
appropriate governance structure for statutory authorities. The Uhrig report
found that the FMA Act provides an appropriate framework for the proper
management of public money and property where these assets are owned or held by
the Commonwealth.[22] It stated:
The Act is concerned with bodies that form part of the core
Commonwealth financial framework and in comparison to the CAC Act, allows
government to more readily direct aspects of the financial management framework
of an entity.
The structure of an authority subject to the FMA Act is
generally not well suited to the inclusion of a governing board as the Act
vests authority and places responsibility on a single chief executive as the
head of the statutory authority. It can however, accommodate an advisory board
structure where the board might advise the chief executive in a non-binding
manner or with a relationship where it is subordinate to the chief executive.[23]
2.22
The Uhrig report recommended that the financial
frameworks generally be applied based on the governance characteristics of a
statutory authority, that is:
-
The Commonwealth Authorities and Companies Act
1997 be applied to statutory authorities where it is appropriate they be
legally and financially separate from the Commonwealth and are best governed by
a board. They fit the Board template.
-
The Financial Management and Accountability Act
1997 be applied to statutory authorities where it is appropriate they be
legally and financially part of the Commonwealth and do not need to own assets.
(Typically, this would mean Budget-funded authorities.). They fit the executive
management template.
2.23
In enunciating the government's principles for
determining the most appropriate structure and governance arrangements for
Australian government bodies, the Department of Finance reinforced the findings
of the Uhrig Report. It stated clearly that the government's policy shows a
preference to curb unnecessary growth of government bodies. It advised that if
there is a persuasive policy reason to form a new body, 'it is preferable that
bodies operate under the FMA Act':
These bodies are financially part of the Commonwealth, holding
public money that can only be spent under the authority of an appropriation
from the Australian Parliament. The FMA Act should especially apply to primarily
budget-funded bodies, regulators and bodies that raise public money under a
Commonwealth law.[24]
Criticism of the Uhrig Report
2.24
The Uhrig report came under some fierce criticism,
mainly from a number of academics.[25]
2.25
One of the main criticisms relevant to this inquiry is
that the report failed to take account of the many different functions and
tasks carried out by statutory authorities in the public sector. Professor
Wettenhall stated that the report showed 'a
very limited appreciation of the great variety of public tasks that are
undertaken by statutory authorities and other types of non-departmental public
body in this country'.[26] He was
concerned about the generalisation arising from a study of just eight cases.[27] It should be noted that Austrade was
not one of these cases. Professor John
Halligan and Bryan
Horrigan also referred to concerns about the
'amenability of all Australian public sector entities to pigeon-holing neatly
within one of the two basic 'Board' and Executive Management' templates.[28]
Independence
of statutory authorities
2.26
Another major criticism of the Uhrig report was the
lack of consideration given to the appropriate degree of independence allowed
to statutory authorities. Mr Paddy
Gourley was of the view that the report paid
'inadequate attention to the need for independence of functions performed by
statutory authorities and the course now being consequentially pursued by the
Government risks their politicisation'.[29]
Professor Wettenhall also commented that the report 'grossly underestimated the
need of several groups of authorities other than the commercials and
multi-ownership cases for a degree of independence from ministers that must
take them far from direct ministerial governance'.[30] Professor
John Halligan
and Professor Bryan
Horrigan asked:
How do you balance any need for operational autonomy and
independence for a statutory body with both departmental oversight and
appropriate ministerial policy influence and direction of it?[31]
2.27
The relevance of this question with regard to Austrade
is taken up in the following chapter.
Government response to the Uhrig Report
2.28
The government supported 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.[32]
2.29
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'.[33]
2.30
Deputy Prime Minister and Minister for Trade, Mr
Mark Vaile MP,
assessed Austrade against the principles and recommendations of the Uhrig
Report. The assessment found that Austrade as primarily a service delivery
organisation that is largely budget funded aligns closely with the executive
management template. The joint submission from DFAT and Austrade noted:
In accordance with that template, the assessment's key
recommendations were to: change Austrade's governance arrangements from a
governing board structure to an executive management structure; change Austrade's
financial framework from the Commonwealth
Authorities and Companies Act 1997 (CAC Act) to that of a prescribed agency
under the Financial Management and
Accountability Act 1997 (FMA); and employ Austrade staff under the Public Service Act 1999 (PS Act).[34]
2.31
Subsequently, on 5
January 2006, the Minister announced that Austrade would move to
executive management.[35] The following
chapter examines the specific provisions of the bill enabling that transition in
light of the recommendations of the Uhrig report and the criticism levelled at
its findings.
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