Governance -The e-Manual

For the members of boards of the MCH family of boards.

Contents

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Welcome

Part 1: Crown Governance

Part 2: Roles of a Board

Part 3: Boards in Action

An Introduction to the Ministry for the Culture and Heritage ‘family’ of boards

The Ministry for Culture and Heritage has a very strong commitment to enhancing governance by the boards of the agencies funded through the Ministry.  The nature of the boards that we are involved with ranges from Crown Agents through Autonomous Crown Entities and Independent Crown Entities to other organisations. There are many differences but from a governance perspective these agencies also have a lot in common.

The government has devolved responsibility for its cultural support to a variety of Crown entities and other organisations. This ‘arm’s length’ relationship is an important feature of our system. It means, though, that while Ministers remain accountable for the public resources, they depend on the funded agencies ensuring that they deliver value for money. A key to this arrangement working well is that boards provide effective governance.  This Governance e-Manual is intended to promote this.

This electronically based and regularly updated e-manual is designed to highlight key principles and to illustrate how these apply to our family of boards. Each topic is augmented by appropriate website links and appendices.

This e-manual has been written with a focus on the requirements of board members of our Ministry-funded boards. We acknowledge and appreciate the feedback from board members at our workshops and also, from comments on early drafts that were sent to some board members.

We welcome an interchange of ideas and views with board members. If you have any questions, comments or suggestions in respect to this e-manual please contact our Governance team at:

All Ministers and the Ministry for Culture and Heritage appreciate the significant contribution that all board members make to cultural organisations and the nation. Your efforts are appreciated and are important.  We hope that this e-manual assists you in undertaking this challenging but rewarding role.

Acknowledgement

This Governance e-Manual has been written for the MCH family of boards by the Governance team of the Agency Group at MCH to encourage New Zealand best practice governance particularly as applied to Crown entities and Crown-connected boards.

This manual has been resourced from our own governance experience on, and working with, boards, feedback from the many chairs, members and CEOs we have dealt with, input from our colleagues and other relevant material.

 We especially acknowledge the excellent sources of good practice material in two manuals published by members of the MCH family of boards: Nine Steps to Effective Governance: Building High Performing Organisations (SPARC second edition 2007) and Getting On Board: a governance resource guide for arts organisations (Creative New Zealand, second edition 2003).  Both these publications were edited by Graeme Nahkies of Boardworks International.

The Appendices

Each topic has its own appendix with links to websites that have relevance to the topic. We can not and do not endorse any of the material on the websites and, indeed, it will change from time to time. The links simply are provided as a resource for members who wish to explore a topic more fully.
Access to linked documents may seem to be difficult if they are in PDF form. If the document doesn’t open when you have pressed CTRL and clicked, it may be sitting on the baseline of your computer. Simply click on the highlighted block and the document will come up.

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The MCH family includes:

Arts Organisations

* Ministers appoint to the above organisations and the Ministry for Culture and Heritage supports the appointment and governance processes.
** Ministers are not involved in the appointments to these entities but the Ministry for Culture and Heritage has a monitoring role on behalf of Ministers and assists boards if requested by them.

Heritage Organisations

* Ministers appoint to the above organisations and the Ministry for Culture and Heritage supports the appointment and governance processes.
**   Ministers are not involved in the appointments to these entities but the Ministry for Culture and Heritage has a monitoring role on behalf of Ministers and assists boards if requested by them.

Broadcasting Organisations

*   Ministers appoint to the above organisations and the Ministry for Culture and Heritage supports the appointment and governance processes
*** Ministers appoint to these Boards and the Ministry for Culture and Heritage monitors the Charter aspects of these two ‘public’ broadcasters and also assists the Crown Company Monitoring and Advisory Unit (CCMAU) on appointments.

Sports Organisations

* Ministers appoint to the above organisations and the Ministry for Culture and Heritage supports the appointment and governance process.

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A Guide to the Alphabet Soup

Throughout the Crown-connected cultural sector there is a wide use of acronyms. Listed below are some of the more common ones that you may come across in your governance role. Many of these are used in this manual.

  • ACH -  Arts, Culture and Heritage (This term used in reference to Ministers).
  • APH - Appointment and Honours Committee - the Cabinet sub-committee which reviews all appointments and reappointments to Crown entity boards
  • CCMAU -  Crown Company Monitoring Advisory Unit - works in governance and monitoring with Crown companies and Ministers
  • CE Act - Crown Entities Act 2004
  • CEO - Chief Executive Officer
  • CNZ - Creative New Zealand
  • DFSNZ - Drug Free Sport New Zealand
  • DHB -  District Health Board
  • DIA - Department of Internal Affairs
  • DPMC - Department of Prime Minister and Cabinet (includes Cabinet Office)
  • HPT  - (NZ) Historic Places Trust
  • LGNZ - Local Government New Zealand
  • MCH - Ministry for Culture and Heritage
  • MHC - Māori Heritage Council, part of the Historic Places Trust
  • MOSS - Minister of State Services
  • MOU - Memorandum of Understanding – part of Minister/agency relationship process
  • MPIA - Ministry of Pacific Island Affairs
  • MWA - Ministry of Women’s Affairs
  • NZFANew Zealand Film Archive
  • NZFC - New Zealand Film Commission
  • NZOA - NZ On Air
  • NZSO - New Zealand Symphony Orchestra
  • NZMC - New Zealand Music Commission
  • OAG - Office of the Auditor-General
  • OIA - Official Information Act
  • PQs  - Parliamentary Questions – questions asked by MPs which require answers from Ministers
  • RFP - Request for Proposal
  • RNZB - Royal New Zealand Ballet
  • SOI - Statement of Intent
  • SPADA - Screen Production and Development Association
  • SPARC - Sport and Recreation New Zealand
  • SSC - State Services Commission
  • TMMTT - Te Māori Manaaki Taonga Trust
  • TPK  - Te Puni Kōkiri
  • TWT - Te Waka Toi - Māori Arts Board, part of Creative New Zealand.
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Part 1: Crown Governance

The Devolved Model

What is it?

Throughout the public sector and in the cultural sector in particular, some responsibilities of government are devolved to agencies. Normally these are Crown entities and are covered by the Crown Entities Act 2004 but they can also be independent organisations that have a Crown connection. All these agencies have an obligation to operate legally, financially and ethically in a manner consistent with their status as public or other organisations receiving substantial taxpayer funding.

Why is this model common in the cultural sector?

Successive governments have taken the view that cultural activities undertaken by the state should be seen as operating, day to day, independently of Ministers.  That means that within the confines of the relevant laws and enabling documents (such as Deeds of Trust or Incorporated Society constitutions), the decisions about the way our culture should be supported should be made by properly informed and qualified persons.

Government’s support in the cultural sector through its entities

In 1975 a ministerial portfolio for the Arts was established and, around 15 years ago, the Ministry of Cultural Affairs, now known as the Ministry for Culture and Heritage, was formed. A brief survey of the Government’s historical role in the Cultural sector written in 2008 is included in the Appendix. On behalf of Ministers, the Ministry funds or has a relationship with the boards listed under the MCH family (refer to previous page). For monitoring and support purposes, the boards are divided into the categories of Arts, Heritage, (public) Broadcasting and Sports.  There are now around 25 boards in the Crown cultural sector with which the Ministry has a relationship and to whom all or some of the characteristics of the devolved model apply.

Devolved does not mean Divorced

The fact that there are entities under the devolved model does not mean that Ministers can divorce themselves from all responsibility. The Constitutional framework of New Zealand results in Ministers still being accountable. For Crown entities this has been underlined by the Crown Entities Act. Board members need to be constantly aware of this ‘ownership interest’ that Ministers have.  A brief overview of New Zealand’s constitutional arrangements is contained in the appendix.

The crucial role of the board

The government must be able to have confidence in the performance of these agencies and in particular their boards. A skilled and committed board is crucial to the success of these entities whether they are formally or informally connected to the Crown.

This e-manual is aimed at helping provide board members of our family (refer to list) with the relevant knowledge, information and best practice references and resources to be part of a skilled and committed board.

Crown Governance –The Devolved Model - Appendix

Web links

  • An electronic copy of the Crown Entities Act 2004 is available at:
    http://tinyurl.com/5skhzp
  • In a paper prepared for the Conferenz 6th Annual Public Law Forum in 2004, the then Assistant Auditor General, Robert Buchanan and Sector manager, Office of Auditor General, Colleen Pilgrim, delivered an informative analysis of the Devolved model in ‘Transparency and Accountability in Government Decision-Making: Devolved Service Delivery’:
    http://tinyurl.com/2m4ual
  • The Australian Government commissioned John Uhrig AC to review the Corporate Governance of Australian Statutory Authorities and office holders. An executive summary, the full report and links to related releases and updates is at:
    www.finance.gov.au/governancestructures/
  • An Australian perspective of the Devolved model (in this case in respect to Tertiary Education Institutions) is at:
    http://tinyurl.com/398nrj
  • A 2004 discussion of the evolution, similarities and differences of Crown governance in Australia and New Zealand by the Chair of the NZ Securities Commission, Jane Diplock is at:
    http://tinyurl.com/34d7wu
  • The Cabinet Manual provides an excellent overview of New Zealand’s constitutional framework of which the devolved model is a part:
    http://tinyurl.com/38r4d2

Documents

  • A brief overview of the Crown Entities Act 2004 is here
  • A table outlining the 3 categories of Statutory entities under the Crown Entities Act 2004 is here
  • A brief overview of New Zealand’s constitutional arrangements is here
  • A brief Survey of the Government’s historical role in the Cultural Sector and included in a 1998 Issues paper published by the Ministry is here
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Appointments

Who appoints?

To Crown Entities
Appointments to the boards of most Crown entities in the cultural sector are made by or on behalf of the responsible Minister. Board members of the Broadcasting Standards Authority are appointed by the Governor General on the advice of the Minister of Broadcasting.  The method of appointment for each entity is detailed in the Crown Entities Act 2004 and the entity’s own enabling legislation.

To non Crown Entities
For those entities that are not formal Crown entities, methods of appointment range from Ministerial appointments (National Pacific Radio Trust) through appointments by existing board members (Royal NZ Ballet) to appointments by an electoral college (NZ Film Archive).  The method of appointment is outlined in the organisation’s enabling documentation which is often a Deed of Trust.

The role of MCH
The Ministry for Culture and Heritage supports Ministers in the appointment process. If requested, the Ministry manages the process of board member appointment on behalf of the relevant Minister, following appropriate protocols and guidelines.  The Ministry also maintains a nominations database.

The criteria
For appointments to boards under the Crown Entities Act 2004, Ministers may appoint (or recommend) persons who have “the appropriate knowledge skills and experience appropriate to that board’s objectives and functions”. The Act also provides for the need for diversity on the board. Similar criteria are usually in place for non-Crown entities in the cultural sector.

The prerequisites
 Prior to an appointment, proposed members for a Crown entity must make three statements – the “triple disclosure”. They must consent in writing to the intended appointment, certify they are not disqualified to act as board members and disclose the nature and extent of all interests. The prerequisites for intended members of non-Crown entities will depend on their enabling documents but the three requirements for Crown entity members do provide a useful guideline for best practice when there are no prescribed requirements.

The procedure
Most appointments recommended by Ministers go before the Cabinet Appointments and Honours Committee (APH) and then through Cabinet and Caucus.  If it proceeds through these channels, the appointment is then actioned by a formal notice (or a formal letter of appointment) which, for Crown entities, is publicly gazetted.

Remuneration
Ministers are, for most agencies, responsible for setting the remuneration under the guidelines of the Cabinet-approved Fees Framework. Exceptions to the framework may be made after consultation with the Minister of State Services. Remuneration of members of Crown entities is now disclosed in the entity’s Annual Report.  Crown entity members, therefore, should be aware that your board income is in the public domain.

Appointments - Appendix

Web links

  • The Cabinet Office has published “Guidance for Members of Statutory, Commercial and Other Bodies Appointed by the Crown”:
    http://tinyurl.com/2jxt52
  • The Ministry has a Board Appointments and Governance section of our website at:
    www.mch.govt.nz/agency/boards/
  • A recently updated edition of the SSC Board Appointment and Induction Guidelines is at:
    http://tinyurl.com/35ucv8
  • The details of the Fees Framework are at:
    http://tinyurl.com/2yzk97
  • A 2003 Cabinet Office Circular addresses the issue of the need for diversity in Crown appointments:
    http://tinyurl.com/2n7frf
  • The Cabinet Office guidelines relating to the appointment of public servants to Crown boards (which are discouraged) are at:
    http://tinyurl.com/29vqlx
  • Our colleagues at the Crown Company Monitoring Advisory Unit (CCMAU), who are responsible for appointments to Crown company boards, have a very useful summary of a Crown appointment process at:
    www.ccmau.govt.nz/appointment-process.html
  • The Ministry of Women’s Affairs has an outline of its appointments role at:
    www.mwa.govt.nz/women-on-boards
  • Te Puni Kōkiri’s registration process for its nominations database can be found at:
    http://tinyurl.com/28qgs9
  • The Ministry for Culture and Heritage welcomes suggestions from the members of its family of boards of people you wish to nominate. A form can be downloaded at:
    www.mch.govt.nz/agency/boards/
  • A background paper from the State Services Commission during the time of the preparation for the Crown Entities Act provides some useful background in respect to Crown Entity appointments from a central agency perspective:
    http://tinyurl.com/22cvwa

Documents

  • An outline of the disqualification to act as a board member requirement and the Conflict of Interests criteria, both for Crown entity boards, is available here
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The Principles of Good Governance as applied to Crown Cultural Agencies

Some Applicable Principles

The Securities Commission, in 2004, published a list of Principles of Good Governance and below is a 2007 adaptation for the Crown cultural sector.

  • Board members should observe and foster high ethical standards.
  • There should be a balance of independence, diversity, skills, knowledge, experience, and perspectives relevant to the organisation among board members so that the board works effectively.
  • The board should use committees where this would enhance its effectiveness in key areas while retaining board responsibility.
  • The board should demand integrity both in financial and general reporting and in the timeliness and balance of disclosures on entity affairs.
  • The remuneration of directors and executives should be appropriate to a public organisation and board fees and allowances should take the Fees Framework (or Remuneration Authority criteria) into consideration.
  • The board should regularly verify that the entity has appropriate processes that identify and manage potential and relevant risks.
  • The board should ensure the quality and independence of the external audit process.
  • The board should foster constructive relationships with stakeholders that encourage them, when appropriate, to engage with the entity.
  • The board should respect the interests of stakeholders within the context of the entity’s ownership type and its fundamental purpose and be cognisant of the entity’s Crown connection and consequent responsibilities.
  • The board shall be the ‘Guardian’ of any cultural responsibility given to it under legislation or appropriate enabling document (a number of arts, culture, heritage, sports and broadcasting entities’ enabling documents and enactments have specific cultural freedom provisions).

Other ‘Best Practice’ Resources

There are a number of very good relevant ‘Best Practice’ governance resources that are useful for the MCH ‘family of entities’. These include those listed in the Appendix.

The Principles of Good governance - Appendix

Web links



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The Key Government Relationships for Crown Boards

Introduction

As a general principle, boards are the ‘stewards’ for the key stakeholders, the relevant Minister(s). Ministers, as key stakeholders, are accountable to the public interest and that interest has a particular dimension in respect to accountability and responsibility to Parliament. The Ministry acts as the agent of the Minister. (The key internal relationships for boards are discussed under Governance /management interface.)

The Ministers

The relationship between a board and the responsible Minister is usually through the Chair of the entity who may fully or partly delegate this role as appropriate. Board members need to be conscious of the Chair’s ‘link’ role.

For most cultural sector Crown-connected boards, the Memorandum of Understanding between the Board and the Minister helps set out the particulars of how the Board/ Minister relationship operates in practice for your entity. (This is detailed further in the Topic ‘Statements of Intent, Memoranda of Understanding, Annual Reports and Annual Financial Statements’.)

For Crown Entities, the Minister’s roles and responsibilities are detailed in the Crown Entities Act and include:

  • Ensuring that an effective board is in place to govern the Crown entity through the appointment, reappointment and removal of board members;
  • Participating (through the appropriate mechanisms) in setting the direction of the entity;
  • Monitoring and reviewing the Crown entity’s performance and results;
  • Managing risks on behalf of the Crown.

As the ‘responsible’ Minister, the Minister is responsible to Parliament for the entity and this includes relevant oral and written parliamentary questions (PQs).

The Ministry

As the agent of the Minister, the Ministry for Culture and Heritage (MCH) will work with your entity as detailed in the State Services Commission Guidance to Departments in relation to Crown Entities (see web link in appendix): Roles include

  • ensuring that the entity has identified the intended results for New Zealanders;
  • monitoring performance against expected results and outputs;
  • promoting coordination of Crown entities within the Minister’s portfolio;
  • advising the Minister on the entity’s capability to achieve the desired results;
  • advising the Minister on the merits of Crown entity budget initiatives;
  • ensuring that there are appropriate board member appointments, inductions, governance support, Crown entities strategic direction/planning processes and relevant documentation.

Other relationships

All entities are subject to an annual audit carried out (for Crown entities) under the auspices of the Auditor General. Crown entities and other Crown-funded agencies may also be subject to a Parliamentary select committee review. Crown entities will also deal with SSC particularly in respect to Chief Executive appointments and reviews and remuneration.

The Key Government Relationships for Crown Boards - Appendix

Web links

  • A 2006 State Service Commission Guide has an overview of Crown entity roles and relationships:
    http://tinyurl.com/38sygy
  • A Treasury view in its 2005 Briefing to the Incoming Government (which outlines the perspective of a Central Agency) is at:
    http://tinyurl.com/3xx8mo
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Strategy-related Statutory Documents

 Statements of Intent, Memoranda of Understanding, Annual Reports and Annual Financial Statements

Introduction

The board has an interest in, or responsibility for, all statutory documents.

There are three strategic related documents that Crown entities are required to present on an annual basis. These are the Statement of Intent (SOI), Memorandum of Understanding (MOU)and the Annual Reports which include the Annual Financial Statements, the Audit report and the Statements of Service Performance and Responsibility.

These documents are in the name of the board and are usually signed off by or on behalf of the board. While they have their equivalent in the private sector, the special requirements of Crown governance result in a set of documents unique to the Crown.

Statements of Intent (SOIs)

SOIs are medium-term strategic statements that enable the Crown to participate in the setting of an entity’s intentions and undertakings.  Set out for Parliament those intentions and undertakings provide a basis for the entity’s performance to be assessed. As strategic documents they are very much ‘owned‘by the board and boards should ensure they are actively kept up-to-date on the development, confirmation and monitoring of the SOI.  

The key requirements for SOIs are set out in the appendix.

Following the principle that an SOI enables the Crown to participate in the setting of an entity’s intentions and undertakings, Ministers play an important role in the development of these documents.

Drafts of the SOI must be provided (usually in April) to the responsible Minister who may make comments which the Board must take into consideration before finalising the SOI. The final Statements of Intent for Crown Entities are then presented to Parliament by the Minister. Underlining the importance of SOIs as a key board document is the requirement that, for a Crown entity, they should be signed by two board members.

The Crown Entities Act states "The Board of a statutory entity must ensure that the entity acts in a manner consistent with its… current statement of intent”.

Memoranda of Understanding (MOU)

While the Statement of Intent is a medium-term 3-5 years document, the MOU covers a one-year period, is specific for that year and arises out of the expectation meetings (and/or letters of expectation) that Ministers have with each agency. In our cultural sector, MOUs include a ‘No Surprises’ requirement and an undertaking for the board to carry out a regular performance evaluation.

Annual Reports

These are signed off by two board members on behalf of the full board and must be presented to the Minister within 15 working days of the board receiving its Audit Report. The Annual Report includes Statements of Service Performance and Responsibility, the Audit Report and the Annual Financial Statements. Full details of the report’s requirements are in the Appendix to this topic.

Strategy-related Statutory Documents - Appendix

Statements of Intent, Memoranda of Understanding, Annual Reports and Annual Financial Statements

Web links

Documents

  • A list of the SOI requirements of the Crown Entities Act 2004 is here
  • A background memo for board members ‘Crown Entity Annual reports-the Board’s role’ is here
  • A MCH paper on annual report guidance under Crown Entities Act 2004 is available here
  • A typical ‘No Surprises’ clause is here
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Official Information Act Requests, Parliamentary Questions, and Select Committee Appearances

Introduction

As stated, Ministers as key stakeholders are accountable to the public interest. That interest has a particular dimension including Select Committees, Official Information Act requests (‘OIAs’) and Parliamentary Questions (‘PQs’). These all form part of the governance geography in the public sector and although board members may not be directly involved they need to be aware of these and similar requirements. Governors with private sector backgrounds need to be especially aware of these as they form part of some of the unique features of Crown governance.

Monitoring

It is good practice for boards to have a regular report at board meetings on OIAs and PQs and for suitable procedures to be in place to enable the Chair or another board member to be aware when the subject of an OIA or PQ is such that it should be drawn immediately to board attention (and possibly board action).

OIAs and PQs

Official Information Act requests are commonly made by Members of Parliament (particularly when in Opposition), their Research Units, the media and interested members of the public. Requests can be made to Ministers, their departments and often directly to the entity concerned. If it is to the former, then information may be sought from the entity.

Parliamentary questions are put by Members of Parliament to the responsible Minister who may ask the entity to provide appropriate information. The questions may be in writing and, if so, there is a reasonable time to answer. They may be Questions for Oral Answer for which notice will only usually have been received on the morning of the day the question will be asked in the House.  In the latter case it is important that procedures are in place to enable accurate information to be provided in a very short time frame.

The information received may be used by Members of Parliament, particularly those in Opposition parties, to ‘’expose and oppose’’ in the public domain.

Parliamentary Select Committees

The most common exposure for Crown entities to select committees is in ‘Financial Reviews’ of an entity. These reviews give select committees the opportunity to review your entity’s performance. Reviews are usually on a 3-5 year reporting cycle so it would be usual for your entity to have to appear before a select committee only occasionally, if at all. The exception is a high public profile organisation such as Television New Zealand.

The purpose of the review is to ensure that public funds are used effectively or that the Government’s ownership interests are managed appropriately. The select committee will provide written questions in advance, but further questions may be asked on the day.  It would be usual for the Chair and the CEO to represent the entity at Select Committee hearings. Boards should be given a full report of any review.

Further details of Select Committee procedures are outlined in the Appendix.

Official Information Act Requests, Parliamentary Questions, and Select Committee Appearances - Appendix

Web links

Documents

  • A summary of the Privileges Committee decision in 2006 on issues of privilege when appearing before a select committee is here
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Part 2: Roles of a Board

Governance / Management Interface

Introduction

The understanding of the respective roles of a board (governance) and the team led by the CEO (management) is a significant part of good governance.  The general principles of good governance apply to the MCH family of boards albeit with a ‘Crown governance’ flavour.

Governance

For boards such as the MCH family of boards, the role of governance can be described as the process by which the Board sets the strategic direction and priorities, sets board policies and management performance expectations, identifies and manages risk, monitors and evaluates organisational achievements in order to exercise its accountability to the organisation and it’s stakeholders.   Above all a board should ‘add value’.

Management

Management staff are led by the organisation’s Chief Executive (or a similar title). They are responsible for the day to day operational activities of the organisation. They should work within the organisation’s strategic direction and within the parameters delegated by the board. Through the CEO (who is an important interface), they are accountable to the board and as such must provide suitable reporting to enable the board to effectively monitor their performance. It is good governance to ensure that an entity has in place a clear protocol that sets out the communication channel for board members with management/staff. The CEO is the key to this.

Effective Governance

For MCH boards, the steps for effective governance might include:

  • Regularly scanning the environment , beyond the organisation, to ensure that what it is attempting to achieve remains relevant and achievable;
  • Establishing a framework for identifying and managing risks;
  • Within the entity’s brief under its enabling legislation (e.g Broadcasting Act and Crown Entities Act) or equivalent (such as a Deed), and taking into consideration the environmental scan and risk identification, defining the organisation’s strategic direction. This will include its formal Vision, Mission and Strategy and the Statement of Intent;
  • Developing a governance ‘umbrella’ that clearly sets delegations and parameters for operational activities. These would often be in a Board Policy Manual;
  • Ensuring, in the Statement of Intent and other documents, that appropriate key outcomes and results are specified and that resources have been allocated;
  • Appointing, supporting and evaluating the Chief Executive and, in the case of Crown entities, ensuring that the appropriate consultation with the State Services Commission has occurred in respect to CE appointments, evaluation and remuneration;
  • Communicating with the organisation’s stakeholders particularly Ministers, the Ministry and central agencies (a role often delegated to the CEO) to ensure they are kept appropriately informed and are able to fulfil their responsibilities towards the entity;
  • Ensuring that the board complies with contractual and statutory requirements and with the board’s own policies;
  • Setting standards for, and evaluating, the board’s own governance performance in accordance with any requirements in the organisation’s MOU; and
  • Ensuring that Ministers or other “appointers’’ are aware of the appropriate balance needed, in the board’s view, for succession planning.

Governance / management Interface - Appendix

Web links

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Risk Awareness

Introduction

In any organisation, risk awareness is a key governance element. An organisation’s strategy should be formulated only after a thorough and relevant identification of risk.  In the Crown governance context the ‘risk geography‘has its own unique features as well as the more familiar risks applicable to all.

A board’s role in relation to risk

Board members need to ensure an appropriate and relevant ‘risk aware’ approach is in place and that the special features applicable to the Crown sector are understood by the board. The board’s approach needs to be one of strategic risk management.

A prudent board will regularly and systematically review the risks facing its organisation. There should be clear policies in place that clearly define the boundaries within which the Chief Executive and management operate and the board should also be satisfied that there are contingency plans in place to deal with risks that cannot be controlled or mitigated.

What is risk?

Some relevant statements applicable to boards include:

  • “There are events that your board cannot fully foresee that may make your organisation’s tomorrow much different than it is today.” ‘Getting on Board, a governance resource guide’, Creative New Zealand, 2003.
  • “Risk Management is the process by which the Board (and Chief Executive) ensures that the organisation deals with uncertainty to its best advantage.’’  Nine Steps to Effective Governance, second edition SPARC, 2007.
  • “The chance of something happening that will have an impact upon objectives.’’ Standards NZ; AS /NZ 4360.

The risk geography for Crown boards

Some of the unique features for Crown boards include:

  • The Official Information Act, Parliamentary Questions and Select Committee appearances which ensure that much of a Crown-connected organisation’s operations are subject to a wide scrutiny that is in the public eye.
  • The special reporting requirements for an organisation that are contained in the organisation’s own legislation (or enabling documents such as a Deed of Trust) and other enactments (e.g. Crown Entities Act, Schedule 4,Public Finance Act). This can mean that the nature and the scope of information differ from the requirements in other sectors.
  • Conflict of Interest requirements are more prescribed in the Crown sector due to the ‘accountability to the public’ responsibility of Crown organisations.
  • The need for high standards and a clear code of ethical behaviour is an integral feature of Crown governance. To the public, perception can be reality. For Crown boards a simple question may be: “Could this be a future headline?’’ or “What would this look like on the front page?”

Risk Awareness - Appendix

Web links

  • Managing Risk is discussed on the Te Puni Kōkiri governance website at:
    http://tinyurl.com/25flxe
  • The Risk Management and Compliance Framework for the University of Canterbury is at:
    http://tinyurl.com/5plgth
  • Risk management in the Crown sector is discussed in a recent State Services Commission report in regard to “Cost escalations in a regional prisons development project”. The report relates to a government department but many of the principles stated and observations made will be of interest to Crown sector board members:
    http://tinyurl.com/yqwajy

Documents

  • ‘Integrating Risk Management as a Fundamental component of Strategic and Government planning processes’;  Paper presented at IIR ‘Corporate Governance in the Public Sector Conference ‘ February 2006, here
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The Strategic Role

Introduction

A fundamental role of any board is that of strategic governance, namely:

  • To set the strategic direction of the organisation;
  • To help plot the organisation’s path through an uncertain future;
  • To ensure the organisation achieves what it should.

(Refer ‘Nine Steps to Effective Governance’ SPARC 2004 p56)

These requirements are continuous and ongoing. Strategy should not just be confined to an occasional strategic retreat or an impromptu discussion.
In the Crown sector there are also a number of specific requirements for a board to follow in respect to strategic planning. These are noted below.

Risk awareness

Before formulating or confirming the strategic direction, a board should have an effective system in place to help it identify potential barriers to success. A board should regularly review the main strategic and operational risks facing the organisation.

Strategic direction

Having a strategic direction requires an answer to the following core questions:

  • What is our purpose?
  • What is our vision?
  • Is it still relevant?
  • What is the “spirit” of this organisation?
  • What is important to us?
  • Where is the organisation at, at present?
  • Where do we want to get to?
  • What do we want to become?
  • How do we want to react with each other and the outside world?

(Refer ‘Nine Steps to Effective Governance’ SPARC 2004)

Crown governance requirements

Under a separate topic heading we have identified a number of strategy-related mechanisms for the Crown sector. These include the strategic requirements of the entity’s own legislation or enabling document, the Crown Entities Act, and Statements of Intent and related documents.

Strategic partnership

Sometimes, boards will abdicate their role in strategic planning and leave it entirely up to management. The only involvement such a board may have is to act as a ‘rubber stamp’. At the other extreme is a board with total dominance of the planning process and which freezes out any management input. In practice, strategic planning should be a partnership between a board and management.

‘Management needs the board to set the direction and confirm the design of the business.  The board needs management to develop the second tier strategies and to design the operational framework for the implementation of the (strategic) direction.’

‘Strategic Planning is a Partnership’, Good Governance #53, October 2006

The Strategic Role - Appendix

Web links

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The Role of the Chair

Introduction

In any board, it is the role of the chair to ensure that the board is exercising sound governance and has appropriate policies and structures in place. The chair is not the “Boss’’ in the traditional sense but, rather, is a “first among equals”.

A good chair has a focus on welding a board and the CEO into an effective leadership team.

It is common for any chair to have to publicly represent the board and its policies. In the Crown sector this can be very important as the work of Crown-connected organisations is often carried out under a public spotlight and there can be intense public interest in matters relating to Crown organisations. The role of the then Creative New Zealand Chair, in 2004, in publicly representing his organisation’s views on issues arising over New Zealand’s participation in the Venice Biennale is an example in our sector.

Key roles for chairs in Crown governance

In the Crown sector, in addition to their usual functions, chairs have a set of key activities relating to their role.  For agencies in the Crown cultural sector these may include:

  • Being consulted, as appropriate, by Ministers in respect to future appointments and board balance;
  • Leading any formal entity discussions with Ministers, particularly on budget and planning cycles (including SOIs, letters of expectations);
  • Generally acting as a facilitator in respect to ensuring the Minister and other key stakeholders are aware of the board’s views and activities;
  • Signing off on formal governance documents (Statement of Intent, Annual Reports, Memoranda of Understanding);
  • Attending any Select Committee appearance by the entity;
  • Ensuring that the Minister is kept informed under the “No surprises”‘ obligations;
  • Ensuring, in the case of a Crown entity, that appropriate Interest registers are in place and that appropriate dispensation is given under s.68 of the Crown Entities Act;
  • Representing the board in formal chief executive reviews and, in the case of Crown entities, the required discussions with State Services Commission in respect to CEO appointments and performance reviews;
  • Ensuring either personally or by delegation that relevant OIAs and PQs are monitored at board level;
  • Having in place, in the case of Crown entities, appropriate procedures in accordance with Schedule 5 of the Crown Entities Act 2004 (Schedule 5 provides a framework for Board procedures).

Note: In some instances, if the chair is not available or is conflicted, the above roles may have to be delegated and, in any case, there are sometimes requirements for another board member to be involved.

The Role of the Chair - Appendix

Web links

  • The role of the chair and the related best practices of good governance are outlined by Rick Bettle of the Institute of Directors at:
    http://tinyurl.com/2f2vat
  • A useful summary of the key functions of a chair is contained at this website which is from an American religious organisation. Like all commentaries from a specific focus it is the principle that is relevant rather than every detail or comment:
    www.atcmag.com/v6n1/article2.asp
  • Under the heading ‘Getting to the Heart of Governance’, a Unitec study has examined the role of chairs of school boards in the NZ education sector:
    http://tinyurl.com/3cc9vm
  • From the USA, the Oregon School Boards Association provides a very helpful checklist of the attributes of a good chair together with some useful links to key functions of chairs in its system:
    www.osba.org/meetings/chair/index.asp
  • A booklet outling the roles and responsibilities of board chairs and members from an American viewpoint (remember American boards often have a fundraising role which is reflected in commentaries such as this one) is at:
    www.brodyweiser.com/pdf/boardchair.pdf
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The Role of a Member

Introduction

All board members of any type of board have a ‘fiduciary duty’. This is their responsibility to act in a position of trust on behalf of others and in an appropriate manner.
The enabling document (e. g. Trust Deed, Constitution, Act of Parliament) of the particular entity sets out the responsibilities that apply for that entity.
The Crown Entities Act 2004 has a clear list for Crown entities. These are discussed below.

The board member’s “hat”

When carrying out their role, board members must ensure they are wearing their “hat” as governors. All board members have clear responsibilities to the entity and to Ministers and they must avoid acting otherwise. Their role is as detailed under the earlier topic – Governance/Management interface:

“(The) Board sets the strategic direction and priorities, sets board policies and management performance expectations, identifies and manages risk, monitors and evaluates organisational achievements in order to exercise its accountability to the organisation and its stakeholders.”

The duties of members under the Crown Entities Act 2004

As stated above, those members who are on statutory boards are subject to listed responsibilities under the Crown Entities Act 2004.

Collectively, members owe duties to their responsible Minister.  These duties are to:

  • Act consistently with objectives, functions, statement of intent and output agreements,
  • ensure that functions are performed efficiently, effectively and consistent with the spirit of service to the public, and
  • act in a financially responsible manner.

In addition members have individual duties to both the responsible Minister and to the entity. These are to act:

  • in compliance with Crown Entities Act and the organisation’s own Act
  • with honesty and integrity
  • in good faith and not at the expense of the entity’s interests
  • with reasonable care, diligence and skill
  • in a manner that does not disclose information.

Being a member of any board is a significant responsibility. It is a responsibility that is not confined just to meetings. Members also need to ensure they have the time and the ability to prepare for key issues, events and meetings.

The Role of a Member - Appendix

Web links

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The Board and the CEO

Introduction

Governance commentators regularly observe that “the most important thing that any board does is to appoint a CEO”. The nature of the relationship between a board and its CEO is a key to the success of the entity.

For Crown entities the formal relationship between a board and the CEO is subject to an advisory role of the State Services Commission. This SSC involvement is often a surprise to newly appointed chairs and board members.

Key elements* in a successful board/CEO relationship

*adapted from ‘Nine Steps to effective Governance: the Chief Executive’: SPARC 2005.

  • Having clarity from the board and the CEO in respect to their respective roles with both understanding the need to support the other, the differences between governance and management and their mutual expectations;
  • Ensuring there are in place appropriate and robust reporting and information systems so that the CEO knows what the board requires and that the board has confidence in what is being reported;
  • That there is a fair and ethical process for chief executive performance evaluation;
  • A good and clear working relationship between the chair of the board and the CEO;
  • The CEO helping the board to understand the risks faced by the entity.

The role of SSC in respect to Crown entity CEO appointments and remuneration

The Crown entities in the MCH family of boards are all required to consult the State Services Commission in relation to the terms and conditions of employment of Chief Executives. The chair of any Crown entity who wishes to appoint a new CEO should contact the SSC very early in the appointment process. Similar arrangements should be in place for reviews and any proposed changes of employment conditions. The SSC provides practical advice and has a wealth of experience in this area. The SSC has access to relevant data and surveys which can be very helpful to a board.

The Board and the CEO - Appendix

Web links

  • An example of a CEO limitations policy can be downloaded from the SPARC site at:
    http://tinyurl.com/2m8mel
  • Two examples of Chief Executive position descriptions for a board to consider are on the Te Puni Kōkiri Governance site at:
    http://governance.tpk.govt.nz/docs/tools/CEOJDs.doc
  • Boardworks International, a New Zealand based governance consultancy, has a very interesting perspective on the board/CEO interface in its article ‘Eight basic expectations a Chief Executive has for his or her board’:
    www.boardworksinternational.com/board4.htm
  • Compass point, an American website dedicated to good governance in not-for-profits but with some relevance to our sector, looks at a position description for executive directors:
    http://tinyurl.com/22xlp7
  • Monitoring chief executive performance is a focus on the Te Puni Kōkiri site at:
    http://tinyurl.com/22trl8
  • Compass point also outlines the essential principles for evaluating the CEO/executive director at:
    http://tinyurl.com/yozwom
    (Please scroll down to relevant section)
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The Board’s Monitoring Role

Introduction

As identified in the Governance/Management Interface topic, the monitoring and evaluation of organisational activity by a board is a vital role in respect to a board’s stewardship. The monitoring and evaluating should be against pre-established criteria, and should tie in with the entity’s strategic plan and other key documents including any enabling legislation. In Crown-connected organisations the monitoring priorities and focus should reflect any Statement of Intent and/or Memorandum of Understanding.

Criteria

Monitoring by a board is an activity that can cause suspicion amongst management who may see it as an opportunity to unreasonably interfere in operational activities. Board members may see the same function as simply carrying out their role. Therefore, having clear pre-established criteria is very important to ensure that the monitoring is organised, informed, relevant and fair. The CEO is key to management’s reporting as was stated in the CEO/Board relationship topic:

'Ensuring there is in place appropriate and robust reporting and information systems so that the CEO knows what the board requires and the board has confidence in what is being reported'

The Crown dimension

An entity’s Statement of Intent and Memorandum of Understanding will contain some key accountabilities to Ministers and other stakeholders. Board members will want to ensure that these are reported on and that the information is in a form that board members can monitor. Most entities also have their own enabling legislation (e.g. Broadcasting Act) which also sets out requirements that boards need to monitor. Many Crown boards operate in sensitive areas with the possibility of regular headlines, parliamentary questions/debates and select committee appearances a part of their life. Crown-connected boards, therefore, will want to ensure the Crown perspective is appropriately covered in their monitoring role.

Some monitoring approaches and tools

Outcomes: Boards tend to receive a mass of data that is very output-related. For ‘best practice’ the information should be outcome rather than output related. Boards usually need much less paper but far more of a tie-in to the strategic and operational outcomes of the entity.

Dashboard:  A simple method whereby some key reporting items are reported on at previously agreed intervals and show progress in the form of Red, Amber or Green Lights so a board can, at a glance, be aware of progress (or the lack of it) on an issue.

SOI/MOU Links:  The Statement of Intent and the Memorandum of Understanding for an entity will detail a series of outcomes and activities that are in the public domain, are often expected by Ministers and can be subject to any review undertaken by a parliamentary select committee or other review.
No Surprises:  Nearly all entities in the MCH family of boards will have a written “no surprises’’ undertaking with their Ministers. Management need to be aware of this and ensure their boards are informed of issues arising at the appropriate time.

Review of monitoring priorities

A board’s strategic plans, operating environment and personnel will change from time to time. It is useful to have a regular review of the key priorities for reporting and monitoring. After a review the key areas of board involvement can be placed In the Annual Work Plan (see the topic ‘Developing the Board Work Plan’). The important area of financial monitoring and reporting is the subject of the next topic.

Board’s Monitoring Role - Appendix

Web links

  • The monitoring role is well discussed from a Māori organisation perspective at:
    http://tinyurl.com/yuwhkl
  • The monitoring and related roles and functions of the Board of Auckland Airport are contained in the company’s Board Charter at:
    http://tinyurl.com/2x6fr7
  • ‘Enhancing the Board’s Monitoring Role ….without micro managing’ is discussed in an informative discussion piece from the Canadian Association:
    www.axi.ca/TCA/Mar2004/featurearticle.shtml
  • "The success of the Board depends on how effectively and continuously it monitors the company's progress against stated goals’’ states Shri Balasubramanian, the Chair of the Company Law Board of India, in a useful traverse of the monitoring responsibilities of corporate boards:
    http://tinyurl.com/37a36s

Financial Monitoring and Reporting

Introduction

A very important part of the Board’s monitoring role is in respect to the entity’s financial management. In respect to financial responsibilities, while management has the day to day operational role, the board has the governance role of overall responsibility.  Financial monitoring and reporting can be particularly daunting for non Accountants on boards.

Seven Factors to be aware of.

For the MCH family of boards (and other crown connected organisations), there are seven key factors to be aware of. We briefly summarise these below. They are dealt with in greater detail in a very relevant memorandum in the appendix which has been prepared by Chartered Accountant and experienced Crown entity board member, Roger Taylor of Wellington. These factors are particularly relevant to Crown entities but the principles apply to other Crown connected boards. The headings below are also dealt with, in a general sense, throughout this manual. The references below are specifically in regard to financial monitoring and reporting.

Letter of Expectations

This document (when applicable) from the relevant responsible Minister sets out, within the appropriate parameters, the main expectations for the forthcoming financial year. Board members need to be aware of its contents as other subsequent documents including Budgets and business plans need to be consistent with and flow from the Letter of expectations.

Statement of Intent

The SOI is a strategic document and, for Crown entities, it is in a prescribed form. It covers a three year period. Again board members need to be cogniscant of this document as it impacts on the form and substance of financial plans and reporting.

Memorandum of Understanding

The MOU is the third document in a trio that defines the relationship between the entity and the Minister. From a financial perspective, board members need to ensure that there is consistency between these documents and other financial requirements.

Annual Budget and Business Plan

The board signs off these documents which detail the ways the entity will achieve the requirements set by the above documents.

Monthly Reporting

Management will provide monthly reporting to the board, if requested, and it will provide the record of how the entity is meeting its financial objectives. The reports will include the period end profit and loss, balance sheet and cash flow statement.

Risk Management

Risk management is dealt with as a separate topic but it clearly has a special relevance to financial oversight. Many boards have an Audit and Risk committee to ensure appropriate monitoring.

Annual Financial Report

The financial report is signed off (for Crown entities) by two board members and includes a statement of objectives and service performance.

Financial Monitoring and Reporting - Appendix

Documents

  • The memorandum prepared by Chartered accountant, Roger Taylor is here
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Part 3: Boards in Action

Succession Planning and Formal Consultation

Introduction

While many of the boards in the MCH family are appointed by Ministers there is still a need to ensure that the composition of a board at any particular time reflects the future needs and challenges for the entity.

Ministers like to be aware of what a board believes are some of the skill and other ‘gaps’ that do exist or could exist in the future.

A number of MCH-related boards are not appointed by Ministers, but by the board itself (e.g. Royal NZ Ballet) or some other mechanism (e.g. NZ Film Archive which has a College of Convocation).

As well as the board’s informal role in future membership, a number of entities are subject to formal consultation with named persons and groups.

So for many entities, some form of succession planning consideration is still desirable even when Ministers appoint, while other entities are subject to formal consultation and others are responsible for their own appointments and need to ensure appropriate planning is in place.

Some appropriate opportunities

Boards in the MCH family who are appointed by Ministers have a number of opportunities to focus on succession planning. First, most undertake a regular (usually annually) board evaluation (see ‘Board performance evaluations’) and this is a good opportunity to advise Ministers of their views. Second, most boards and in particular the chair, have regular meetings with their responsible Ministers. Before an appointment round begins, chairs usually ensure that the board’s views are known to Ministers.

Crown Entities Act criteria

The Act requires a Minister to only appoint to Crown Entities persons “with the appropriate knowledge, skills and experience to assist the statutory entity to achieve its objectives and perform its functions”. Ministers must also take into account the desirability of promoting diversity in the membership of Crown entities.

Formal consultation

Examples of formal consultation in our sector include the Historic Places Trust Board being consulted on appointments to the Māori Heritage Council, public interest and broadcasting interest groups being consulted in respect to two separate appointments to the Broadcasting Standards Authority, and the Minister of Maori Affairs being consulted on some appointments to the Historic Places Trust and Creative New Zealand. When formal consultation is involved, Ministers take this into account in terms of the appointment timelines. In New Zealand consultation is more than merely informing a party of a decision or intention. However, the party does not have any right of veto. Rather, the Minister receives and considers views and takes these into account.

Succession Planning and Formal Consultation - Appendix

Web links

  • A Needs matrix designed to assist in succession planning can be downloaded from the SPARC site at:
    http://tinyurl.com/3bpbof
  • The New Zealand School Trustees Association in partnership with the Ministry of Education has produced: ‘A Board's Guide to Effective Succession Planning’ which is available at:
    http://tinyurl.com/3xnkoj
  • “Succession planning is a lot more than the latest HR buzz phrase – it is increasingly business critical. So why doesn’t it get the attention it deserves?’’ states the NZ Management magazine (June 2007). While focused on management succession planning, the article sets out a series of principles and questions that are also applicable to governance:
    http://tinyurl.com/5nv24g
  • A useful discussion of succession planning can be found in the online Wikipedia at:
    http://en.wikipedia.org/wiki/Succession planning
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Developing the Board Work Plan

Introduction

A common feature of any ‘best practice’ board is the existence of a well-thought-out ‘board work plan’. This involves identifying the key board considerations and actions required in a board’s year and ensuring they are allocated to a relevant meeting(s). This enables both management and the board to be aware and to plan their approach. While work plans are often drafted by management, they are board documents and need to be ‘owned’ by the board. The chair or a delegated board member should oversee the final contents of the work plan.

A Sample Work Plan

Attached is a work plan for a made-up entity –the Cultural, Heritage and Broadcasting Commission. This work plan is based around a 1 July -30 June financial year – some entities may prefer a calendar year approach. For the purposes of this example the Commission is a Crown entity (and therefore formally subject to the Crown Entities Act requirements) and meets 10 times a year (the number of regular meetings for governing boards in our MCH family range from 6 to 11 per annum).

Boards wishing to use this sample work plan will need to adapt it to their requirements and circumstances, including the actual number and duration of meetings they have.

Ensuring an appropriate approach for Crown-connected boards

The Crown Entities Act 2004 has underlined a Crown entity board’s responsibilities. In particular there are quite prescribed processes for a Statement of Intent (see separate topic). It can take a while for some new processes to flow through to proper practice.  In the attached sample we have placed a particular emphasis on those Crown-connected responsibilities that a board should be involved in. All boards should consider this approach.

In respect to SOIs, the involvement of the board should be regularly timed throughout a financial year. The sample work plan has identified other issues for appropriate board consideration such as a review of Conflicts of Interest policy and procedure (particularly important following some recent Court decisions), board self-evaluation (now required by most Memoranda of Understanding) and the Budget bid timetable.

Other work plan items

As well as the matters listed in the attached sample there will also be significant issues relevant to the entity and other key reports.


Download sample Board Meeting and Reporting Work plan (pdf)

Developing the Board Work Plan - Appendix

Web links

Board Meetings

Introduction

A board meeting is the most tangible evidence of a board’s governance and should be stimulating, challenging and satisfying to the participants. Meetings should concentrate on:

  • Desired strategic achievements and understanding of the environment and issues impacting on the entity’s ability to achieve its goals and
  • The risk factors that impede or disrupt the entity from achieving the desired results.

(Board Meetings: from ‘9 steps to effective Governance’; SPARC P 42)

So board meetings should focus on governance issues as above rather than operational minutiae. Members should also ensure that they are well prepared for meetings. Often, it is the preparation and other work undertaken outside of a formal meeting that ensures good governance at the meeting.

Work plan tie in

A key to effective board meetings is to ensure that there is an effective and relevant work plan in place (refer ‘Developing the board work plan’ topic). This provides a framework for the board and helps ensure an appropriate governance-orientated approach.

Crown Entity Act provisions in respect to meetings

Paragraphs 6 to 15 of Schedule 5 of the Crown Entities Act 2004 set out a series of provisions related to board meetings for most Crown entities. These include:

  • The methods of holding meetings include assembly together and, also, audio, audio/visual and electronic options if all have access to the technology and a quorum of members can simultaneously communicate;
  • A quorum is half of the members for even-numbered boards or a majority of members for odd-numbered boards (note the BSA has its own specific provisions);
  • The board can have unanimous written resoloutions in lieu of a resolution at a meeting; and
  • The board may appoint committees and if they are mandated to perform any of the board’s functions and powers, the committee must have at least one member of the board.

Meetings and the role of the chair

In board meetings a chair’s role is very important. Good chairs will be involved in the work plan and in the agendas for each meeting. They will ensure that there is a strong governance focus in all board activities. Chairs should also:

  • Ensure that discussions are on topic and within discussion time
  • Elicit information and watch for lost attention
  • Model supportive behaviour
  • Manage any conflict
  • And summarise accomplishments.

Meetings with or without the Chief Executive

In respect to most of the boards in the MCH family, the chief executive is not a board member but usually attends meetings.   It is common for boards to have a board-only period (around 30 minutes) at all or some of its meetings. When this occurs the chair should ensure that there is an appropriate briefing for the CE afterwards. The board should also be alone when the chief executive’s performance is being discussed.
Because a board meeting is the board’s forum (rather than the chief executive’s), the CE role in respect to meetings is as the board’s primary consultant.

Board Meetings - Appendix

Web links

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Board Committees

Introduction

It is common in the MCH family for a board to have a number of committees. The most common are Finance and Audit Committees and Remuneration Committees.  Depending on the organisation both may have different names. Other entities have a variety of committees that are specific to their needs. The Arts Board, for example, has a Pacific Arts committee while the NZ Film Commission has a Sales Agency Advisory Committee.

Committees should exist for a reason

Most of our entities are not overloaded with committees and the sector reflects a strong prevailing ‘best practice’ view that board committees should only exist where they are necessary and can ‘‘help the board do board work’’. Board committees should also be subject to a regular review as to whether they should continue to exist (see ‘Work Plan’ topic).

Crown Entity Act requirements for committees

Members of Crown entities should be aware that clause 14 of Schedule 5 provides for the board, by resolution, to appoint committees:

  • To advise it on any matters relating to the entity’s functions and powers that are referred to the committee by the board; or
  • To perform or exercise any of the entity’s functions and powers that are delegated to the committee, if the committee includes at least one member of the board and any other person or persons that the board thinks fit. (So Crown Entity boards must ensure that if they want a committee to perform or exercise a board function and/or a power, as distinct from simply advising, that at least one board member is on the committee.)

Committee members of Crown entities must also disclose, in a manner similar to that required of board members, any interests they may have.

Some key principles for board committees

The guidelines below apply to any board committee of a Crown entity or otherwise.

  • The terms of reference and the membership criteria for the board committee should be clear;
  • The board chair is often an ex-officio member of any board committee;
  • There should be explicit reporting requirements and expected outcomes (and out puts);
  • The existence and time span for all committees should be subject to review annually.

Discussions on the role and terms of reference for board committees are outlined in the web links in the Appendix to this topic.

Board Committees - Appendix

Web links

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Conflicts of Interest

Introduction

Conflicts of Interest are an important issue for any board as the Board is seen as setting the tone for an organisation.

For Crown-connected boards, ensuring that a Conflict of Interest is properly identified and managed is essential as the public regards Crown boards as acting in the public interest and are very critical of any perceived breach, regardless of whether the breach is real.

Formal Crown entities are now subject to a prescribed Conflicts of Interest regime under the Crown Entities Act 2004. Those Crown-connected organisations that are not covered by the Crown Entities Act still have onerous responsibilities under both common law and their entity’s enabling documents (Deeds of Trust, other Acts of Parliament, etc).

For all Crown boards - What is a Conflict of Interest?

The Office of the Auditor General in 2006 stated the following: "A conflict of interest arises where two different interests intersect.” In the public sector, a conflict of interest exists where a person’s duties or responsibilities to a public entity could be affected by some other separate (and usually private) interest or duty that they may have. Conflicts of interest can have both legal and ethical dimensions.

One way of considering whether a conflict of interest may exist is to ask: “Does the issue create an incentive for the person to act in a way that may not be in the best interests of the public entity?’’ If the answer is in the affirmative a conflict is possible”.

For Crown entities – the definition of ‘interested’

Board members of Crown Entities should be aware of the very wide scope of what ‘interested’ means under the Act. A person is interested in a matter if he or she:

  • May derive a financial benefit from the matter;
  • Is the spouse, defacto partner (whether of the same or different sex), child or parent of a person who may derive a financial benefit from the matter;
  • May have a financial interest in a person to whom the matter relates;
  • Is a partner, director, officer, board member, or trustee of a person who may have a financial interest in a person to whom the matter relates;
  • May be interested in the matter because the entity’s Act so provides; or
  • Is otherwise directly or indirectly interested in the matter.

Some Best Practice procedures:

  • A register of interests, regularly updated
  • Identification (often by Management) and noting of interests in preparing agenda
  • Interest disclosure to be first item at each meeting
  • Affected member leaves room for discussion/decision

Further and useful commentaries on Conflicts of Interest rules are outlined in the attached Appendix to this topic.

Conflicts of Interest - Appendix

Web links

  • The Auditor General has provided some recent guidance for public bodies on Conflicts of Interest. This includes some case example and a list of recent Court decisions:
    www.oag.govt.nz/2007/conflicts-public-entities
  • Richard Baker, the research and policy manager of the Institute of Directors in New Zealand was part of a panel who participated in a Radio New Zealand, National discussion on the Auckland regional DHB case. A transcript of the discussion is at:
    http://tinyurl.com/37cce9
  • Another Institute of Directors article focuses on Trust and Conflict of Interest:
    http://tinyurl.com/2stywt
  • A law firm (Buddle Findlay) bulletin describes some of the Conflict of Interest requirements under the Crown Entities Act 2004:
    http://tinyurl.com/36upwp
  • The Wellington City Council has provided an update on Conflicts of Interest for Community Board members. The update relates to the Local Authorities (Members Interests) Act 1968 but it is a useful summary:
    http://tinyurl.com/32rrm8
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Duty Not to Disclose Information

Introduction

The duty not to disclose information is specifically covered by the Crown Entities Act and so applies to board members of Crown entities in our ‘family of boards’. It has been the subject of recent judicial scrutiny and, in one case (Auckland regional DHBs case), our courts have indicated that certain sets of facts that breach the duty could also breach the principles of natural justice. These can apply to all public bodies. Therefore, boards of Crown-connected organisations that are not Crown entities should still be aware of the key principles. We have included this duty as a separate topic because of the recent importance given to it by the courts.

Crown Entities Act provisions

S. 57 of the Act addresses the situation when board members have, in their capacity as a member, information that would not otherwise be available to them. The Act provides that the board member should not disclose, make use of or act on that information.

Some exceptions

The first set of exceptions is when disclosure, making use of or acting on the information is:

  • in the performance of the entity’s functions; or
  • as required or permitted by law; or
  • in accordance with subsection (2); or
  • in complying with the requirements for members to disclose interests.

The second set (“subsection 2’’) applies, if:

  • the member is first authorised to do so by the board; and
  • the disclosure, use, or act in question will not or be unlikely to, prejudice the entity.

A High Court view

The High Court in the Auckland regional DHBs case has looked very carefully at this duty. In that case a pathologist (‘the doctor’) was a board member of the Auckland DHB. That DHB joined with others in the region to tender out specified pathological services. The doctor was an executive of the company that placed a proposal in response to a Request for Proposal. It was successful while the previous provider missed out and then brought a court action. At the time of the tender, the doctor had declared an interest and had stood aside from consideration of the contract. However, the judge found, as a matter of fact, that the doctor had, as a board member, become privy to the thinking of the DHBs’ leading board members, employees and consultants who were involved in the review of laboratory services and the ensuing RFP process.  The judge also stated that the doctor was intimately involved in the development of the regional DHBs’ thinking on laboratory services for a 12 month period. The court stated that the ‘information‘ the doctor had was not of the traditional type of trade secrets or hard facts but nevertheless was information under S 57 and the use of that information was wrong. The judge held that the regional DHBs, upon becoming aware that the doctor would be involved in a proposal, should have refused to entertain any bid involving the doctor.

What board members need to consider

This case is subject to an appeal and the result of that appeal may be different from the initial High Court view. However, the case does have ramifications for board members who are often involved, as board members, in RFPs, tenders and funding decisions. Board members must ensure that they do not in any way make use of information that is gained as a board member for any private purpose in which they have an involvement. The fact that an interest has been declared may be irrelevant in respect to this duty.

Duty not to disclose information - Appendix

Documents

  • The requirements of S.57 of the Crown Entities Act are outlined here
  • A copy of part of the decision in the Auckland regional DHBs court case is here
  • A key topic commentary from the May 2007 edition of Governance e News on this topic is available here
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Board Performance Evaluation

Introduction

Board performance evaluations are now very common and are often enthusiastically welcomed by board members who see them as an excellent way of taking stock of their board’s governance. Most entities in the MCH family have a requirement under their Memorandum of Understanding to conduct an annual evaluation and to provide the Minister with a summary and a list of actions to address key issues raised.

Purpose of board performance evaluation

The purpose of a board performance evaluation is to identify opportunities for the board as a whole and individual board members to improve their governance performance over time.  Ideally, evaluation should be against objective, pre-agreed criteria.

Discussion topics

Many boards have a yearly or six-monthly review based around a series of discussion topics that are relevant to them. Some relevant topics for boards to discuss are:

  • Does the board make good use of its meeting time, ensuring that its focus is on topics that are important and constitute a worthwhile use of the board’s time? (refer to topic ‘Board Meetings’)
  • Does the board design its own agenda, preferably on a longer term, annual basis? (Refer to topic ‘Developing the Board Work Plan’)
  • Does the board set standards for its own performance and assess itself against those expectations at least annually?
  • Are there clear expectations for the performance of the chair? (refer to topic ‘The Role of the Chair’)
  • Is the work done in committees (if any) focused on the board’s governance responsibilities or does this relate more to operational functions? (refer to topic ‘Board Committees’)

(From Board Performance Evaluation,'Getting on Board’; Creative New Zealand, p 80)

Board evaluation examples

Examples of some generic templates are included in the Appendix. As stated above, it is best that these are adapted to ensure they are relevant to the entity’s situation.

Board Performance Evaluation - Appendix

Web links

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Effective Induction

Introduction

Ensuring that there is an effective agency induction programme and a programme of ongoing development for boards is a very important goal for the Ministry.  MCH sees this as very much a partnership involving the entity, the Ministry and other key providers.
As a general observation, members appointed to a Crown board often have a strong knowledge of the sector, or have considerable governance experience or have a good understanding of the Crown/public sectors. It is only seldom that appointees have considerable experience in all three areas. A comprehensive induction programme helps to balance this.

The entity’s role

The chair of a board (or, at their request the CEO) usually oversees an induction programme for new members. This should include new members being briefed on:

  • current issues affecting the entity;
  • recent financial statements, board reports and minutes;
  • the ‘constitution’ of the entity, the strategic direction of the organisation and housekeeping matters (e.g. an organisational chart and key contact details for board members and key staff);
  • Board policies;
  • the board’s work plan; and
  • a list of terms used by the entity and common in reports to the board.

Meetings for new board members should also be organised with the chair and the chief executive.
Each entity should have a regularly updated induction pack.

The Ministry’s role

The Ministry has a strong commitment to supporting newly appointed members. The Ministry runs a series of new member workshops and has an objective of each new member being able to participate in a workshop within six months of their appointment. The workshops have an emphasis on applying best practice governance principles to the realities of Crown governance in our sector.

Ongoing development

The Ministry’s commitment to ongoing support includes;

  • regular workshops for boards and board members
  • a regularly updated Governance e-Manual
  • a Governance e-News four times per year
  • memoranda and updates on relevant governance topics.

Effective Induction - Appendix

Web links

  • SSC’s guideline and commentary on inductions is at:
    http://tinyurl.com/2nvow9
  • The Ministry of Health (NZ) has published a governance guide for board members of Primary Health Organisations and induction and training for members is covered in Chapter 2.6:
    http://tinyurl.com/597h74
  • The Boroondara City Council in Victoria, Australia has produced a 3 page guide on ‘Developing an effective induction process’ for board members. Available at:
    http://tinyurl.com/2tyhhn
  • Recommendations to the board of a United Kingdom government entity (the Countryside Agency) covering board evaluation and induction programmes provide a good example of how one entity has approached these topics:
    http://tinyurl.com/2sjv36
  • The Northern Ireland Voluntary Development Agency provides a DIY guide for inducting new committee/board members. The website also contains a very helpful set of governance worksheets and example documents:
    http://tinyurl.com/2mdmuw

Documents

  • A set of overheads for the MCH new members workshops is here
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Board Governance Policies

Introduction

It is important that each board has a regularly reviewed set of policies that provide a framework for its governance role. Crown-connected entities have a number of requirements best expressed in policies as a consequence of the Crown Entities Act 2004, the entity’s enabling legislation and other requirements such as deeds of trust.

The Public Eye

In recent years there have been a number of high profile cases that have highlighted the need for comprehensive and robust Board policies. The Auditor General’s report into the expenses treatment of the Chair of three public entities, Dr Ross Armstrong, the similar inquiry into expenditure of organisations related to Donna Awatere – Huata MP and the SSC review of Chief executive credit card expenditure are all examples of the high public focus these issues have. Ministers have an expectation that boards will have appropriate practices in place.

What should policies cover?

This will depend on the nature of the board but a policy manual could include:

  • Board’s terms of reference
  • Code of Conduct
  • Policymaking protocol
  • Chairs/board members’ role description
  • Board member induction
  • Conflict of Interests / Duty not to disclose information
  • Meetings protocols
  • Board committees
  • Board remuneration and expenditure
  • Sign off authorities
  • Board / chief executive linkage

Board Governance Policies - Appendix

Web links

  • The board policy manual for the board of the NZ Drama School (Te Kura Toi Whakaari O Aotearoa) is at:
    http://tinyurl.com/2gxgbc
  • The Institute on Governance (Canada) has a set of policies for boards at:
    http://tinyurl.com/28yte3
  • A set of sample board policies can also be accessed from the website of the CommunityNet Aotearoa website:
    http://tinyurl.com/28yte3
  • The Austin Community College District (Texas USA) has a comprehensive set of board policies which, although produced for a United States education environment, do also provide some useful example for specific policy areas:
    www.austincc.edu/board/policies/
  • The Office of the Auditor General undertook a very important review in respect to the Chair of 3 entities. It raises relevant issues to be addressed in appropriate board policies:
    www.oag.govt.nz/2003/armstrong/
  • A very useful bibliography of best practice expectations in the public sector has also been compiled by the Office of the Auditor General and is at:
    www.oag.govt.nz/2005/twoa/appendix2.htm
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Principles of Natural Justice

Introduction

A number of entities within the MCH family have a quasi-judicial role and therefore the principles of natural justice clearly apply to them. The Broadcasting Standards Authority is an example of an entity with such a role. The principles may also apply to other boards in some situations as most of our boards are ‘public bodies’. Boards should be aware of and familiar with the principles.

Natural justice - a brief description

New Zealand has inherited many of the principles of the English legal system, some of which go back to Roman law which is where natural justice principles came from. They were regarded as principles that were 'natural’ or self-evident and originally related to two main maxims:

  • ‘the right to be heard’ and
  • ‘no person may judge their own case’.

Today a public entity is required to be independent and impartial and the procedure is required to be fair.

How the principles may be relevant

The decisions of a body such as the Broadcasting Standards Authority are regularly reviewed by the courts and the principles applied.

Other entities, particularly those involved in assessing tenders or applications for funding, also need to be aware that they may be subject to a judicial review.

A judicial review is when an interested party applies to a court (usually the High Court of New Zealand) for a decision of an entity (usually a public body) to be reviewed and set aside. Such a situation causes uncertainty for the entity, is often prolonged by appeals, and can cause significant negative public relations perceptions.

Examples of situations are in the Appendix.

Principles of Natural Justice - Appendix

Web links

  • The Right to Justice under s.27 of the New Zealand Bill of Rights Act is detailed at:
    http://tinyurl.com/6fmjns
  • The Office of the Clerk of the House of Representatives (New Zealand) has produced an informative paper 'Natural Justice before Select Committees’ which has a brief summary of both natural justice principles and the New Zealand Bill of Rights Act. The paper also addresses the title topic which will be of interest to Crown entities appearing before select committees:
    http://tinyurl.com/3dbm53
  • A recent SSC update on entities appearing before select committees that has specific reference to Natural Justice is at:
    http://tinyurl.com/2k8u6n

Documents

  • Some examples of natural justice in practice can be found here

Page last updated: March 9, 2009

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