PUBLIC SECTOR BOARDSand responsibilities, appointment of members, induction, training, board processes and appraisal of performance. Overall Findings and Conclusions Constraints on

PUBLIC SECTOR BOARDS

Boards governing statutory authorities in Western Australia

Report No 9 – November 1998

W e s t e r n A u s t r a l i a

A U D I T O R G E NA U D I T O R G E N E R A LE R A L

PERFORMANCE

EXAMINATION

© 1998 Office of the Auditor General Western Australia. All rights reserved.This material may be reproduced in whole or in part provided the source is acknowledged.

4th Floor Dumas House

2 Havelock Street

West Perth WA 6005

Telephone: (08) 9222 7500

Facsimile: (08) 9322 5664

E-mail: [email protected]

http://www.audit.wa.gov.au/

A U D I T O R G E N E R A L


The Office of the Auditor General is acustomer focused organisation and is

keen to receive feedback on the qualityof the reports it issues.

Through Performance Auditing enable the Auditor General

to meet Parliament’s need for independent and impartial

strategic information regarding public sector

accountability and performance.

MISSIONMISSIONof theof the

Office of the Auditor GeneralOffice of the Auditor General

VISIONVISION

Office of the Auditor GeneralOffice of the Auditor Generalof theof the

Leading in Performance Auditing

Report No 9 – November 1998

PUBLIC SECTOR BOARDS



A U D I T O R G E N E R A L

AUDITOR GENERAL

Western Australia

THE SPEAKER THE PRESIDENTLEGISLATIVE ASSEMBLY LEGISLATIVE COUNCIL

PERFORMANCE EXAMINATION — PUBLIC SECTOR BOARDS – Boards governing

statutory authorities in Western Australia

This Report has been prepared consequent to examinations conducted under section 80 of the

Financial Administration and Audit Act 1985 for submission to Parliament under the provisions

of section 95 of the Act.

Performance examinations are an integral part of my overall Performance Auditing Program and

seek to provide Parliament with assessments of the effectiveness and efficiency of public sector

programs and activities, thereby identifying opportunities for improved performance.

The information provided through this approach will, I am sure, assist Parliament in better

evaluating agency performance and enhance Parliamentary decision making to the benefit of all

Western Australians.

D D R PEARSON

AUDITOR GENERAL

November 18, 1998

Contents

Executive Summary 1

Background 1

Overall Findings and Conclusions 1

Summary of Recommendations 3

Introduction 4

Background 4

Objectives and scope 6

Roles, Responsibility and Accountability 8

Clarifying the roles of boards 8

Representational Members 11

Recommendations 12

Appointment, Training and Remuneration 13

Appointments 13

Induction and Training 15

Remuneration 17

Recommendations 18

Board Performance 19

Recommendation 21

Performance Examination Reports 22

1


Executive Summary

Background

The Western Australian public sector includes about 640 boards with a total

of about 6 000 members. Many boards are limited to an advisory role. More

than 130 statutory authorities have governing boards that are accountable

to Parliament for the performance of the agency. Departments and some

other agencies are directly controlled by a Minister and do not have boards.

This examination concentrates on governing boards.

The main reasons for governance by a board rather than direct control are:

� establishing a degree of independence from government;

� providing additional skill and experience; and/or

� ensuring that interest groups have high-level input.

Public sector agencies are increasingly adopting more commercial and

business-like approaches to improve the effectiveness and efficiency of

services. Accountability is being strengthened by means of output-based

management and greater emphasis on performance indicators.

The principal governance issues addressed in this examination are:

� the special circumstances constraining public sector boards compared

to their private sector counterparts; and

� the opportunities for improved practice including clarification of roles

and responsibilities, appointment of members, induction, training, board

processes and appraisal of performance.

Overall Findings and Conclusions

Constraints on public sector boards

In a private company, shareholders elect the board, which then set policy

and direction, oversee the management of the company and are responsible

for its performance.

Accountability and power structures are more complex in the public sector.

Policy is set by government and board members are usually selected by the

Minister. Ministerial directions can countermand the wishes of the board at

Auditor General WA

PUBLIC SECTOR BOARDS»»

2

Executive Summary

any time. Chief Executive Officers are formally employed by the Minister for

Public Sector Management and so are not ultimately answerable to the board.

There are numerous restrictions, requirements and standards that apply

exclusively to the public sector.

The board, as the accountable authority, carries the legal responsibility for

the performance of the agency, but its capacity to control that performance

may be significantly less than for a private sector counterpart.

Issues for public sector boards

Boards vary widely in all aspects, such as size, committee structures,

appointment methods, the conduct of meetings and the degree of contact

with the Minister. In general, boards are alert to a changing operating

environment and the need for increased commitment and expertise. There

are many examples of good practice by some boards that could be usefully

adopted by others.

Four main areas were identified where boards should assess their current

situation and, as appropriate, seek to make improvements.

Roles and responsibilities – Most boards would benefit from a formal

clarification of their role. Legislation is usually quite unspecific about duties

and relationships between Ministers, boards and agency management.

Memorandums of understanding or charters should be agreed to ensure that

roles and responsibilities are adequately defined.

Appointments – Boards should identify the skills and expertise required of

their members. Appointment processes should explain why individual

members were chosen. There is presently no general obligation to advertise

vacancies, set selection criteria or document the reasons for appointments.

Members appointed as representatives of external bodies may face difficult

conflicts of interest.

Induction and training – Most board members have private sector

backgrounds. New members need rapidly to understand the public sector in

general and their agency in particular. Almost half of surveyed members

reported that induction was inadequate. Few boards provide formal training

and development programs for members.

3


Executive Summary

Board performance and appraisal – All boards should review their governance

practices. There are many options in matters such as committee structures,

meeting procedures, information and the degree to which the board initiates

and directs or relies on agency staff. Few public sector boards are yet

attempting to appraise their own processes and performance.

Summary of Recommendations

�� Boards should develop memorandums of understanding or charters that

detail the roles and relationships of the board, agency management and

the Minister.

�� Legislation establishing a new board or reconstituting an existing one

should ensure that membership is on the basis of relevant expertise and

experience rather than on representational status.

�� Board appointments should specify the required criteria and the

appointment process. Decisions should be adequately documented.

�� Boards should develop a comprehensive induction package for new

members that presents an agreed position on the role of the agency and

the roles and responsibilities of board members, as well as reference

material.

�� Boards should formally assess and satisfy the on-going training needs

of members.

�� Government should provide board members with full information on

the remuneration criteria and categories, including any policies regarding

relativities to the private sector, to ensure that decisions on remuneration

are transparent and understood.

�� Boards should periodically arrange special sessions to review their

practices, processes and performance.

Auditor General WA


4

Introduction

Background

Departments and statutory authorities

Government agencies provide goods and, more commonly, services to the

community which are either not provided by the private sector because to

do so would not be economically viable, or where there is a perceived public

benefit in equity and universal access to the service.

Many services are provided by departments operating under the direct control

of a Minister. It is the responsibility of these departments to help develop

government policy as well as provide public services.

Other services are provided by statutory authorities whose responsibilities

are prescribed in legislation. These authorities act ‘at arm’s length’ from

government, although there is still a responsible Minister. In these cases,

the Minister can formally direct the authority but must account to Parliament

for doing so.

The reasons for providing a service by a department or a statutory authority

vary. As a general rule the services provided by statutory authorities remain

the same regardless of the government of the day. Some degree of

independence from direct government control is considered desirable, such

as in the case of regulatory bodies. Some authorities operate as businesses

in which case government control is perceived to be minimal, operating as

a reserve power.

Statutory authorities are usually governed by a board that oversees

management and is the accountable authority under the enabling legislation.

Boards are not all the same, either in the way they are constituted or in what

they are expected to do. The boards of statutory authorities tend to be

governing boards: that is, they are the decision-makers for the agency they

govern and are held responsible for those decisions.

However, there are a large number of boards that do not have a governance

role but act as advisory bodies to government. Governing and advisory boards

both can provide community or industry input and expertise. They may both

comprise people from private and public sector backgrounds. However, only

governing boards are held responsible for the actions of the agency.

Departments areDepartments are

direct ly control led bydirect ly control led by

the Minister…the Minister…

…but statutory…but statutory

authorities are generallyauthorities are generally

governed by boards.governed by boards.

5


Introduction

This performance examination and its findings relate only to governing

boards. While they may share some characteristics of governing boards,

advisory, judicial and regulatory boards are explicitly excluded from the

examination.

Boards in the public sector

The three main reasons for having boards are:

� to provide a governing body with operational independence from

government to achieve defined outcomes;

� to provide an additional pool of expertise, often from members with

distinguished and senior experience in related industries, and/or;

� to provide a channel for the views of interest groups to be voiced.

A database maintained by the Ministry of Premier and Cabinet currently lists 640

boards and committees with nearly 6 000 members. These boards consist of:

Category of board No.

Trading, Marketing and Executive Authorities 137

Educational, Cultural & Research Authorities 24

Regulatory Authorities 75

Quasi-Judicial Authorities 21

Trustees 23

Advisory Committees 311

Other 49

Total boards 640

The 137 trading, marketing and executive boards equate closely with the

Statutory Authorities listed in Schedule 1 of the Financial Administration

and Audit Act 1985. The boards listed in that Act generally constitute the

governing boards, and the findings in this report are limited to these bodies.

Differences between public and private sector boards

In the private sector, the board sets the strategic direction, management

gives effect to that direction, and shareholders provide support through

their investment and operate as a general check on the performance of the

Boards can prov ideBoards can prov ide

independence,independence,

expert ise and a voiceexpert ise and a voice

for interest groups.for interest groups.

There are 640 publ i cThere are 640 publ i c

sector boards ofsector boards of

var ious types.var ious types.

Pr ivate sectorPr ivate sector

governance isgovernance is

simpler…simpler…

Auditor General WA


6

Introduction

organisation. While there can be grey areas between the various roles,

particularly between the board and management, the relationships are not

as complex as in the public sector.

In the public sector, the government is responsible for the setting of policy

and usually has wide powers to intervene. Management is responsible for

the day-to-day running to provide effective and efficient services in the pursuit

of government policy. The ultimate ‘shareholders’ are the electorate who

have infrequent opportunities to vote and no direct authority over the affairs

of any single agency.

The public sector board often finds itself balancing between managing an

agency and setting strategic direction. Similarly, management finds itself

balancing between a board that is responsible for the agency’s performance,

and a Minister responsible for the portfolio, and the Minister for Public

Sector Management who is the manager’s employer.

Examination objectives and scope

This report focuses on the governing boards of Statutory Authorities listed

in Schedule 1 of the Financial Administration and Audit Act 1985. While the

examination sought information via discussions with the Chief Executive

Officer and the Chairman of the Water Corporation, the government-owned

corporations, including Water Corporation, Western Power and AlintaGas

were excluded from the examination.

A number of key issues that have the potential to affect the performance of

governing public sector boards were examined, including:

� roles, responsibilities and accountability relationships;

� appointment, induction and training of board members; and

� board practices and processes.

The objective was to identify obstacles to good governance and recommend

changes that should contribute to better board performance.

…publ ic sector boards…publ ic sector boards

face dif f icult balancingface dif f icult balancing

acts.acts.

7


Introduction

A number of issues relating to corporate governance and public sector boards

were excluded from the examination, but remain matters for debate, including:

� which agencies should have governing or advisory boards;

� whether a governing board should have the power to appoint and dismiss

the Chief Executive Officer of the agency; and

� assessments of the quality of performance of individual boards.

The main elements of the examination were:

� detailed enquiries at 13 agencies, including review of board papers and

interviews with chief executive officers and board chairs;

� a postal survey distributed to all the board members of the 13 agencies;

and

� summary information from more than 80 other boards.

Auditor General WA


8

Roles, Responsibility andAccountability

� The enabling legislation for most of the agencies reviewed does not

clearly define the relative roles and relationships between the board,

management and Minister.

� Most respondents to a survey of board members indicated that some

clarification is required.

� This lack of clarity is particularly noticeable in ‘systemic boards’, where

a separate agency shares some responsibility for the system. In these

cases, some clarification of responsibility is urgently needed.

Clarifying the roles of boards

Legislation does not clearly define board/managementrelationships

In most cases, the legislation establishes the board as the accountable

authority, outlines its powers and functions, and identifies any specific powers

of direction the Minister may have. Enabling legislation usually provides for

the employment of staff to assist the board in carrying out its work, but is

normally silent on the relative roles and interrelationships of the board and

management.

For most of the agencies reviewed, the enabling legislation does not clearly

define the specific roles of the board, management and Minister. More than

70 per cent of the respondents to a survey of board members reported

confusion or lack of clarity in the roles of the board, management and the

Minister.

The ambiguity of board and management roles is common throughout the

world. In 1997, internationally recognised authority on corporate governance

issues, John Carver, wrote: “It is rare to find a board-executive partnership

wherein each party’s authority has been clarified. A vast gray area exists.

When a matter lies in the uncertain area, the safe executive response is to

take it to the board. Instead of using the opportunity to clarify to whom the

decision belongs, the board simply approves or disapproves. The event has

been settled, but authority remains as unclear as it was before”.

Legislation does notLegislation does not

clear ly def ine boardclear ly def ine board

and managementand management

roles.roles.

9


Roles, Responsibility and Accountability

Despite an overall lack of clarity, all boards should accept some core

responsibilities, including:

� setting, monitoring and reviewing the agency’s strategic direction;

� monitoring and reviewing the agency’s strategic performance;

� ensuring that strategic, operational and financial risks are defined and

managed;

� establishing that adequate reporting systems are in place to comply

with ethical and statutory requirements and to meet the board’s

information needs;

� monitoring and appraising the performance of the Chief Executive Officer;

and

� reporting to the Minister and keeping him or her informed.

The Chairperson of the board has a particularly important role, both in running

the business of the board and liaising with management and the Minister, as

well as other key stakeholders. A greater commitment of both time and

energy is usually expected of the Chairperson, which is reflected in levels of

remuneration.

‘Systemic’ boards present additional difficulties

The failure of an agency to clearly define the role of the board and management

can lead to conflict in decision-making and frustration among board members.

A board member commented: “With no clear definition of board responsibility,

there is a tendency for the board to become too involved with management

issues, rather than strategy – and it takes too much time.” The uncertainty

about where a board’s responsibility starts and ends can lead to tension

with management, other executive agencies or the Minister.

Additional questions concerning roles, responsibilities and accountabilities

arise in ‘systemic’ boards, where there is a funder/purchaser-provider model,

with both reporting to the same Minister. Examples include the Health

Department and the various health services boards, and the Department of

Training and the TAFE boards.

Al l boards have someAl l boards have some

core responsibi l i t ies.core responsibi l i t ies.

Lack of clarity aboutLack of clarity about

roles can lead toroles can lead to

conflict and frustration.conflict and frustration.

‘Systemic’ boards may‘Systemic’ boards may

face extra diff icult iesface extra diff icult ies

about their respect iveabout their respect ive

ro les andro les and

responsibi l i t ies.responsibi l i t ies.

Auditor General WA


10


The most conspicuous example is the relationship between the Health

Department and the Metropolitan Health Services Board (MHSB). Where,

for instance, does the power reside for opening or closing a major metropolitan

facility (such as an emergency department or cardio-thoracic surgery unit)

or contracting out the management of public hospital facilities?

An additional complication affecting the MHSB is the dual role of the CEOs

of individual hospitals, who are now required to balance the interests of the

hospitals they lead with the overall management and performance of all

metropolitan hospitals. The examination has been advised that the MHSB is

currently undergoing a review. It is understood that the roles of the Health

Department, MHSB, and the individual members of the MHSB will be

considered within that review.

Boards need to clarify their roles

The government corporations provide Statements of Corporate Intent and

Strategic Development Plans which provide them with an opportunity to

specify the relative responsibilities and roles of the board and of management.

In the absence of such clarification within documents of this nature or within

the relevant legislation, a way forward is to produce board charters or

memorandums of understanding. Some boards have sought to clarify and

document the roles, responsibilities and accountability relationships within

their jurisdiction. Examples include:

Busselton Health Services Board – has produced terms of reference and a

draft constitution with comprehensive standing orders.

South West Development Commission – has clearly stated: “The Board does

not manage the Commission. This is the role of Management and any request

for staff involvement in Board or Board sub-committee affairs must be directed

through the Chief Executive Officer.” The governance role of the Board has

been defined as including:

� developing and facilitating strategies;

� providing support for community organisations, especially local

government; and

� authorising grants for community development activities.

CEOs who also serveCEOs who also serve

on h igher leve l boardson h igher leve l boards

may have conf l ict ingmay have conf l ict ing

interests.interests.

Boards should c lar i fyBoards should c lar i fy

and document theirand document their

roles and accountabil ityroles and accountabil ity

relat ionships.relat ionships.

11



Insurance Commission of Western Australia – operates as a governing board

of a commercial enterprise. Decision-making responsibilities are

unambiguously set out in a detailed delegation manual, which requires the

board’s periodic endorsement and review.

The absence of clear agreements and statements of what business is

appropriate for a board leads to some unusual focusing of board effort. For

example, the documented proceedings of one board included only one minor

item on human resources issues for a complete year. During the same time

there was extensive debate about whether expenses should be paid to spouses

accompanying members to a conference, and whether the board should

contribute a modest sum to commissioning a work of art.

Representational Members

Representational members face conflicts of interest

Some boards still include members who are appointed as representatives of

external stakeholders. There is clear potential for conflicts of interest to

arise for such members.

Corporation’s law and all related rules make it clear that any board member’s

primary responsibility is to the board on which they serve. The Public Sector

Management Office’s 1997 guide to board membership ‘Getting on Board’

states: “Duty of loyalty to the board overrides any responsibility a member

may have to represent the interests of a particular group or sector.”

The Statutory Corporations (Director’s Liability) Act states: “A director or a

former director must not, whether within or outside the State, make improper

use of information gained by virtue of his or her position as such to gain,

directly or indirectly, an advantage for himself or herself or for any other

person or to cause detriment to the corporation.” Contravention of this

section is a criminal offence and carries severe penalties.

Representational members have a value on advisory boards, but their presence

on governing boards is questionable.

Boards may spendBoards may spend

undue time on relativelyundue time on relatively

trivial matters.trivial matters.

Some boards haveSome boards have

members represent ingmembers represent ing

external stakeholders.. .external stakeholders.. .

…who may face conflicts…who may face conflicts

of interest becauseof interest because

their prime responsibilitytheir prime responsibility

is to the board.i s to the board.

Auditor General WA


12


How TAB addressed representational boards

The Totalisator Agency Board (TAB) affords an example of an agency where

the problems caused by representational members were recognised and

successfully resolved. Previously, the TAB membership included

representatives of the Western Australian Turf Club, Trotting Association,

Greyhound Association, as well as the TAB Agents’ Association.

In 1994, the Public Accounts and Expenditure Review Committee undertook

an inquiry into the TAB. One of its key findings was: “The TAB has lost sight

of its main purpose. The evidence suggests that partisan interests are

distracting members from carrying out the functions of the board which are

vital to ensure that it provides the service that is necessary for the

maintenance of a viable racing industry.”

The Committee recommended that: “The TAB Betting Act 1960 be amended

an the Board reconstituted. The new Board should be appointed by the

Governor and should comprise no more than seven members selected on the

basis of business/commercial expertise and industry experience, but excluding

current officials of any principal club.”

The Board is now appointed entirely on qualifications and experience.

Legislation provides for appointments to be made by the Minister, with the

Chair providing advice as to relevant skills and experience for the Board.

Requirements are expected to change as the agency evolves. Criteria for

membership is no longer detailed in the legislation.

Recommendations

�� Boards should develop memorandums of understanding or charters that

define the roles and relationships of the board, agency management and

the Minister.

�� Legislation establishing a new board or reconstituting an existing one

should ensure that membership is on the basis of relevant expertise and

experience rather than on representational status.

The TAB recognised andThe TAB recognised and

resolved the problem ofresolved the problem of

representationalrepresentational

members bymembers by

reconstituting the board.reconstituting the board.

13


Appointment, Training andRemuneration

� Most boards are not formally consulted about the skills and experience

they would like in new members.

� Appointments to boards are generally by nomination with little or no

supporting documentation available to the board explaining the selection.

� Twenty per cent of board members surveyed were unclear about the

legal obligations and liabilities they carry.

� Induction is given limited attention by most boards and was regarded

as inadequate by almost half of members surveyed.

� Few boards have formal approaches to identify and satisfy training needs

of their members.

� Remuneration is considered low by most members and the fee structure

for members is not widely understood.

Appointments

The basis and process of appointing board members

An effective governing board needs members offering an appropriate blend

of qualities, skills and experience. The board is the accountable authority

and should be the chief driving force behind the agency. Any perception that

board members have undemanding and largely rubber-stamping roles is wholly

at odds with the modern view of public sector governance. However, as

recently as 1995 the Commission on Government considered it worthwhile

to recommend that: “Appointment to public sector boards or committees

should be on the basis of suitability and experience.”

Boards are in a position to advise on the skills and experience that they need

to maintain board balance and competence. In practice, there is little formal

consultation with boards about preferred skills when new members are

appointed.

Boards need a mix ofBoards need a mix of

ski l ls , qualit ies andskil ls , qualit ies and

experience in theirexperience in their

members…members…

…but boards are rare ly…but boards are rare ly

consulted about theconsulted about the

skills they seek…skills they seek…

Auditor General WA


14

Appointment, Training and Remuneration

In most cases, the Minister or the Governor appoints members. Only seven

out of 80 surveyed statutory authorities reported any formal board role in

selection. The rigorous rules relating to the appointment of the majority of

public sector staff do not apply to board members. In particular, there is no

general requirement to define selection criteria, advertise for applications

or document the reasons for appointment decisions.

Methods of appointing members

The Commission on Government recommended the use of selection panels

for board appointments to assess applicants, conduct interviews, recommend

preferred candidates and record the reasons for their decisions. While

consistent with the principle of open government, competitive selection

may not be the most efficient and effective method of appointing all board

members.

There are two distinctive approaches to filling board vacancies:

� headhunting – where suitable people are identified and offered the post;

or

� competitive selection – where applications are invited and assessed

against a set of criteria.

The Department of Commerce and Trade, in filling vacancies to the various

regional Development Commissions provide one good example of an open

selection process. Positions are advertised and criteria for the position are

defined. A selection committee ranks candidates and forwards this

information to the Department. The documentation supporting the

appointments is kept on file and is thus supportable. While this process will

not be the most appropriate in all cases, the documentation of decisions and

the transparency of the process represent good practice.

…and usual ly have no…and usual ly have no

formal role informal role in

appoint ing newappoint ing new

members.members.

Competit ive select ion,Competit ive select ion,

whi le fa ir and open,whi le fa ir and open,

may not always bemay not always be

appropr ia te .appropr ia te .

Some agencies areSome agencies are

closely involved inclosely involved in

board memberboard member

appointments.appointments.

15



Induction and Training

Induction

Almost half of board members surveyed agreed they had not received adequate

induction.

The government’s database indicates that the majority of new board members

come from private sector backgrounds. Induction programs will help

individuals to settle into their roles, so improving the performance of the

board. If induction is poor, new members may be slow to contribute

effectively. They may also be confused and frustrated by the additional layers

of accountability and the possibilities for political intervention in the public

sector.

A comprehensive induction program should cover at least the following:

� special features of the public sector;

� legal responsibilities and liabilities of individual members;

� introduction to the agency and its services; and

� explanation of the role and processes of the board and the responsibilities

of individual members.

It is essential that members are aware of their potential legal liabilities and

take steps to remedy any weaknesses that would make it difficult for them

to carry out their duties properly. The risks to agencies and individual

members are real. For example, after a spectacular corporate collapse, the

Chairman of the National Safety Council (NSCA) in Victoria was found to be

personally liable for $97 million of its debt. He and other directors were

judged not to have maintained adequate controls over the Chief Executive

Officer.

The judgement stated: “The stage has been reached when a director is expected

to be capable of understanding his company’s affairs to the extent of actually

reaching a reasonably informed opinion of its financial capacity.” Courts are

expecting higher standards when dealing with issues of acting with due

diligence and in good faith.

Induction is widelyInduction is widely

regarded asregarded as

inadequate. . .inadequate. . .

…and i f poor may…and i f poor may

reduce thereduce the

effect iveness of neweffect iveness of new

members.members.

Induct ion programsInduct ion programs

should have a numbershould have a number

of core elements.of core elements.

Members need to beMembers need to be

aware of their legalaware of their legal

responsibi l i t ies andresponsibi l i t ies and

liabil it ies.l iabil it ies.

Auditor General WA


16


The Centre for Corporate Governance said of the NSCA judgement: “As a

result of this judgement, any director who cannot read a set of financial

statements is now at a great risk of personal liability” and further commented:

“Today, no committee member, councillor, director, etc of a company,

association, etc should agree to be appointed without being fully aware of

their duties and their personal liability.” A former Chairman of the National

Companies and Securities Commission warned that: “A director may delegate

his authority, but may not delegate his responsibility.”

The Ministry of Premier and Cabinet has provided a useful guide to the

individual responsibilities and liabilities of board members in its ‘Getting

on Board‘ publication. Despite this and the other good practice guides, 20

per cent of the members surveyed reported that they did not have a full

understanding of their legal responsibilities and liabilities.

Training

The need to train and develop staff is universally accepted and is recognised

in legislation. However, there appears to be little acknowledgment that board

members, who collectively carry the responsibility of the agency’s operations,

may need on-going training.

In the board members survey, 74 per cent of respondents agreed that there

was a need for more training, yet none of the agencies reviewed have a

process for systematically identifying the training needs of members. Some

training has been provided centrally for board members for specific purposes.

For example, with the introduction of the Statutory Corporations (Director’s

Liabilities) Act, four sessions were held in February 1996 to assist board

members understand their legal obligations. However, there appears little

on-going monitoring of directors’ training needs within agencies.

There are several areas where individual and collective training needs of

board members should be regularly reviewed, including:

� specific skills such as the ability to understand financial statements and

non-financial performance information;

� changes to legislation that will affect the agency’s operations or

obligations;

Board members mayBoard members may

delegate author i ty butdelegate author i ty but

not responsibi l i ty.not responsibi l i ty.

Ministry of PremierMinistry of Premier

and Cab inet hasand Cab inet has

produced a usefu lproduced a usefu l

gu ide for boardguide for board

members.members.

Board tra ining needsBoard tra ining needs

are rare lyare rare ly

acknowledged…acknowledged…

…although most…although most

members say they needmembers say they need

training.training.

Training needs shouldTraining needs should

be rev iewed in severa lbe rev iewed in severa l

areas .areas .

17



� significant public sector trends, such as output based management,

contracting out and industrial relations; and

� emerging issues of general significance, such as electronic commerce

and the potential uses and impacts of new technology.

Remuneration

Remuneration of public sector board members is generally modest and lower

than for non-executive members of private sector boards. Typically, the

Chairperson of a statutory board is expected to spend about 45 days a year

on board duties and other members about 30 days. The vast majority of

members receive less than $10 000 per year in fees. Total fees for a board of

seven to ten members are likely to be about the same as the salary of a

single middle to senior manager.

The Ministry of Premier and Cabinet through the Public Sector Management

Division has developed formulae for determining board fees. Remuneration

is based on the nature of the board, its impact on government and the level

of competition it faces.

The suggested fees are discretionary and there remains a level of inconsistency

in board remuneration. Only 28 per cent of the respondents to the survey

considered that the remuneration was adequate, given the workload and

responsibilities faced.

The government could offset some of these concerns by making the basis of

the remuneration rates known to board members and placing their board

into the appropriate category of impact and board type.

Most board membersMost board members

earn under $10earn under $10 000000

per year for about 30per year for about 30

days work.days work.

Only 28 per cent ofOnly 28 per cent of

members regard theirmembers regard their

remunerat ion asremunerat ion as

adequate .adequate .

Auditor General WA


18


Recommendations

�� Board appointments should specify the required criteria and the

appointment process. Decisions should be adequately documented.

�� Boards should develop a comprehensive induction package for new

members that presents an agreed position on the role of the agency and

the roles and responsibilities of board members, as well as reference

material.

�� Boards should formally assess and satisfy the on-going training needs

of members.

�� Government should provide board members with full information on

the remuneration criteria and categories, including any policies regarding

relativities to the private sector, to ensure that decisions on remuneration

are transparent and understood.

19


Board Performance

� There is little self evaluation or performance appraisal of their own

performance undertaken by boards.

� Meeting length and the format and nature of papers appear often to be

determined by past practice or management information needs rather

than identified board needs.

Few boards review their own performance

“Rare is the company that does not periodically review the performance of

its key contributors – whether they be individuals, work teams, business

units, or senior managers. But one contributor usually escapes such review,

and that one is arguably the most important - the corporate board.”

Source: Conger et al, Harvard Business Review 1998

There is a tendency to equate the performance of a governing board with the

performance of the agency, thus excusing the board from separate scrutiny.

However, boards have numerous choices on all aspects of how they conduct

themselves. A poorly run board may waste time, spend disproportionate

effort on minor matters, fail to provide strategic leadership and have

inadequate methods for monitoring agency performance. All boards should

make appraisals of how they conduct themselves.

Very little evaluation of board performance was seen in the agencies visited.

Only 30 per cent of respondents to the member survey considered that their

board’s self-appraisal was adequate. It is reasonable to assume that the

same conclusion applies widely throughout the Western Australian public

sector.

There are some exceptions. At least one board arranges one special meeting

each year with a reduced normal agenda to allow ‘brainstorming’ sessions

on governance issues such as:

� future directions and functions in tourism, industry and education;

� specific regional issues and task setting for members; and

� board processes and functions.

Boards o f ten escapeBoards o f ten escape

any review of theirany review of their

own per formance…own per formance…

…despite the…despite the

numerous opt ions theynumerous opt ions they

have about howhave about how

business is conductedbusiness is conducted

Most members agreedMost members agreed

that board self-that board self-

appraisa l wasappraisa l was

inadequate.inadequate.

A special annualA special annual

meet ing can be usedmeeting can be used

for board se l f -for board se l f -

appraisa l .appraisa l .

Auditor General WA


20

Board Performance

Opportunities for continuous improvement

Agencies are expected to seek continuous improvement in all operational

matters. Boards should adopt a similar attitude to their own activities. This

report has already commented on roles and responsibilities, appointments,

and induction and training. Additional areas where all boards should

periodically review their procedures include:

Meeting frequency and duration – Board meetings typically take place once a

month and last for up to three hours. A few boards regularly meet for five to eight

hours at a time, probably too long for focused discussion and decision-making.

Meeting agenda and papers – Some papers for board meetings run to hundreds

of pages and are superfluous and potentially obstructive to business. All

boards should insist on executive summaries and information condensed to

their own needs. In some cases, papers serve more to conceal than reveal

matters that might be of concern to the board.

Board sub-committees – Many boards have a number of sub-committees

chaired by members. This can be an excellent way of improving

communications between the board and agency staff and assigning specialist

functions to members.

Member involvement with management and operational units – Members

who typically spend less than a day a week on agency business may have a

limited understanding of services. A policy of associating members with

operational divisions, perhaps on a rotating basis, is one way of improving

the relationship and understanding between members and agency staff.

Board/agency communication – All boards should consider how they

communicate their vision and key decisions to the agency. Staff can reasonably

expect to be informed about all issues that might affect their current or

future roles.

Delegation of functions – Boards must decide what matters they consider

their own business and what can be delegated to agency staff. In particular,

boards need to decide how much strategic planning and direction setting

should be handed over to agency staff, for later board endorsement, and how

far the board wishes to lead these key tasks.

Boards should seekBoards should seek

continuouscontinuous

improvement in a l limprovement in a l l

aspects of theiraspects of their

operat ions.operat ions.

21


Board Performance

Value adding – Finally, but most importantly, all boards should carefully

consider what value they are adding to the agency they nominally or actually

govern. From the formal record of many board proceedings it is impossible

to make a clear judgement about whether the board is leading the agency or

merely noting and endorsing what is done by agency staff. The critical

question for boards to ask is: what has happened differently and for the

better because of our contribution?

Recommendation

�� Boards should periodically arrange special sessions to review their

practices, processes and performance.

Auditor General WA


22

Performance Examination Reports

1996

Improving Road Safety May 1, 1996

The Internet and Public Sector Agencies June 19, 1996

Under Wraps! – Performance Indicators of Western Australian Hospitals August 28, 1996

Guarding the Gate – Physical Access Security Management within the

Western Australian Public Sector September 24, 1996

For the Public Record – Managing the Public Sector’s Records October 16, 1996

Learning the Lessons – Financial Management in Government Schools October 30, 1996

Order in the Court – Management of the Magistrates’ Court November 12, 1996

1997

On Display – Public Exhibitions at: The Perth Zoo, The WA Museum and

The Art Gallery of WA April 9, 1997

Bus Reform – Competition Reform of Transperth Bus Services June 25, 1997

Get Better Soon – The Management of Sickness Absence in the WA Public Sector August 27, 1997

Waiting for Justice – Bail and Prisoners in Remand October 15, 1997

Public Sector Performance Report 1997 November 13, 1997

Private Care for Public Patients – The Joondalup Health Campus November 25, 1997

1998

Selecting the Right Gear – The Funding Facility for the Western Australian

Government’s Light Vehicle Fleet May 20, 1998

Weighing up the Marketplace – The Ministry of Fair Trading June 17, 1998

Listen and Learn – Using customer surveys to report

performance in the Western Australian public sector June 24, 1998

Do Numbers Count? – Educational Financial Impacts of School Enrolment August 19, 1998

On request these reports may be made available in an alternate format for those with visual impairment.

Documents

PUBLIC SECTOR BOARDSand responsibilities, appointment of members, induction, training, board processes and appraisal of performance. Overall Findings and Conclusions Constraints on