The main issue to be managed in these portfolio arrangements is acknowledging the independence of each agency and the legal responsibilities of each agency head, while addressing the need of the minister for assistance with coordination, coherence and oversight. Some agencies have considerable statutory or commercial independence, while others are less independent of the minister to whom they are responsible.
The authority of the portfolio secretary is determined largely by the attitude of the minister: the extent to which the minister turns to the secretary for assistance and advice. Most ministers I have worked with do not consciously deny agency heads access to them, but find it necessary in the management of their time and priorities to limit such meetings. For the most part, the agency heads can just get on with their jobs, happy not to have the minister breathing down their necks, but the limited direct interaction with ministers can lead to the minister and the agency head relying on the department and the departmental secretary as intermediary from time to time.
A related issue concerns when functions should be performed outside the department and the appropriate governance arrangements for agencies performing such functions. New Zealanders appositely call this issue ‘signposting the zoo’. Notwithstanding its limitations, the Uhrig Report has helped, in my view, to clarify some of the key issues and options. Before that report, and despite the efforts of my team advising on corporate strategies, there was limited coherence among the array of portfolio agencies in Health. These included statutory bodies, executive agencies and companies, some under the Financial Management and Accountability Act, others under the Commonwealth Authorities and Companies Act, some under the Public Service Act and others with their own employment powers.
Another important issue relates to appointments. For most of my time as secretary, under Labor and Liberal governments, I was not confident of the integrity of the appointments processes. Despite efforts to use formal selection advisory processes and search arrangements, political favouritism was often a dominant factor. Most such appointees were competent, but not the best for the job, and the process left the likelihood of some political trade. Fortunately, the Rudd Government has strengthened the role of portfolio secretaries and the Public Service Commissioner in advising on these appointments and ensuring a more merit-based approach.
Table 7.2 Shareholder value or gift of the government: the appointment of the chair of Health Services Australia
When the chair of the Health Services Australia (HSA) board, Rae Taylor, came up for reappointment, I strongly supported him given the company’s successful transition to that point from a bureaucratic business. There was still considerable risk about the company’s continuing financial viability and I was concerned that if Taylor left we could also lose the CEO, Vanessa Fanning, who was performing extremely well, and shareholder value could collapse.
While I eventually convinced the two ministers concerned, it was clear that they viewed the chairman’s position not so much as a key to the company’s success, but as a prize—a potential gift to a friend of the government. They were certainly not seized with the possible impact on shareholder value if the appointment process was not handled well. For my part, I felt the portfolio—and the public—had been most fortunate in obtaining the services of Taylor, a former secretary and former CEO of Australia Post, whose remuneration was a fraction of what his time was worth; I also knew he did not regard the HSA responsibility as a prize, but as a burden he was willing to continue to bear.
Another issue involved in portfolio management is the handling of conflicts of interest. The Uhrig Report recommended that secretaries not be on executive boards of agencies. I am not convinced this is always the best approach, though it might be in most cases.
Table 7.3 Should secretaries be on agency boards?
When the HIC had a board, I was initially not a member and then became one. The chairman was of the view that my membership represented a conflict of interest, though most of the others felt my involvement assisted greatly in ensuring the strategic direction of the HIC was consistent with the government’s policies on Medicare. The chairman, with his private sector orientation, was looking to ‘increase the return on the HIC’s assets’ (in systems and staff) by widening the HIC’s (essentially government) business; I saw this as merely another set of new policy proposals to extend Medicare benefits that would need ministerial and cabinet agreement. I firmly believed this difference of view was best settled within the board rather than escalated into a damaging conflict requiring the minister (to whom both the board and I were responsible) to intervene. Conflict of interest? Perhaps, but where was it best managed?
A clearer conflict of interest arose when the purchaser–provider arrangement with the department was being negotiated. I absented myself from the relevant board discussions and delegated to a deputy the negotiation responsibilities of the department. Was this adequate management of the conflict? I think so, but the case here is less clear (subsequently, based on Uhrig, the purchaser–provider arrangement itself was dropped—a mistake in my view).
In the Defence department, where I was a deputy secretary, I also observed the different approaches of two companies being privatised: Australian Defence Industries (ADI) and Aerospace Technologies of Australia (ASTA). ADI had a very able board with no departmental members or observers and was extremely anxious to keep the department at arm’s length and, as it saw it, to avoid conflict of interest. ASTA’s board was probably not as strong and it included a senior departmental officer. ASTA’s sale went smoothly with close cooperation, independent assessment contracted by the department, careful coordination with the Department of Finance before cabinet took its final decisions and transfer of the sale itself to the Asset Sales Task Force. ADI’s process could not have been more different. Arguments over conflicts of interest continually delayed and escalated issues, forcing the conflicts up into the cabinet room, where it was clear that it was the board along with its CEO, not the Defence Minister (the main buyer of products) or the Finance Minister (the other ‘owner’ of the company), that was the odd man out.
Sometimes conflicts of interest, such as in the sale of ADI mentioned in Table 7.3, cannot be totally avoided but must be balanced. What is always essential is that they are openly identified.