On the way out

Tony Featherstone reports on the many challenges faced by public sector directors as more and more government bodies get the axe as part of the Smaller Government Reform Agenda.

Emeritus Professor Margaret Seares AO FAICD knew the Education Investment Fund Advisory Board was in trouble when the National Commission of Audit recommended in March that it be abolished or kept in a different form after due consideration.

The board met with the federal government to state its case the week before the federal Budget was delivered in May. But on Budget night, Seares and her six fellow non-executive directors received a letter that the fund would be closed and their services were no longer required from that point. As board closures go, it was as blunt as it gets.

The $3.5 billion of uncommitted funds in the Education Investment Fund, one of Australia’s three nation-building funds, have been rolled into the government’s new Asset Recycling Fund. The advisory board that oversaw vital investment in education infrastructure since 2008 was no longer needed.

Seares is far from alone in losing a non-executive directorship on a government board. The Commission of Audit recommended 482 of 696 non-principal government bodies (including councils, boards and committees) be abolished, merged, consolidated in a government department or reviewed.

The first phase of the Smaller Government Reform Agenda, implemented after the September 2013 federal election, axed 40 government bodies.

The second phase, to be implemented this financial year, will cut another 36.

The government will consider the third and most comprehensive phase of the consolidation of government bodies in the 2014-15 Mid-Year Economic and Fiscal Outlook (MYEFO) statement.

A long list of prominent non-statutory advisory boards have already been abolished – the Climate Commission, Energy Security Council, the Pharmaceutical Benefits Pricing Authority and the National Gambling Regulator, to name a few.

The Australian Charities and Not-for-Profits Commission (ACNC), the Clean Energy Finance Corporation, and Climate Change Authority will also be abolished when legislation is passed.

Many other government enterprises or bodies will be absorbed into their relevant government departments, merged, consolidated, privatised or, in many cases, axed.

Other bodies earmarked for abolition in the 2014-15 Budget include the Australian Renewable Energy Council, the Corporations and Markets Advisory Committee (CAMAC), National Water Commission, and the Council of Australian Goverments (COAG) Reform Council.

For directors, that means hundreds of fewer positions on federal government advisory boards. The consolidation of government boards at a state and territory level in coming years has also soured the outlook for directors seeking government directorships.

It is hard to find many positives for government advisory boards in this climate, says public-sector governance and transport expert, Dale Budd OBE FAICD.

“The rationalisation of government departments and bodies in the Budget went further than I expected. That said, I don’t disagree with the thrust of the rationalisation: governments have set up more and more organisations over the years, and there has been a proliferation of too many new entities, some with their own boards,” says Budd.

“The motto of the previous government seemed to be, ‘if in doubt, set up a new organisation - an authority, a council or a board’. The move to return more of these government bodies to their departments is perfectly reasonable.”

Budd, chief of staff to former Prime Minister Malcolm Fraser, expects even fewer government board positions in coming years.

“Even in the states and territories there are shrinking opportunities for directorships of government enterprises. As the states privatise port, electricity or other assets, the boards of their organisations will change once in private ownership.”

Budd adds: “Directors with a desire to work on government boards will find it harder to get good positions; there are not a lot of new government bodies and boards being formed that you could point someone towards. And the few significant government enterprises that still exist, such as Medibank Private, are expected to be privatised, meaning fewer government board roles again.”

Budd says losing a directorship of a government enterprise should not be considered a “black mark” on a director’s resume.

“I would not expect it is a hard thing to recover from, career-wise. If you are a victim of government policy that has affected a lot of other organisations, people will understand. It is a fact of life that government bodies and boards often change when governments change.”

Professor Seares, for her part, accepts that directorships of advisory boards, or those for statutory bodies, can be tenuous, as governments change office or as a procession of ministers handle a portfolio. The Education Investment Fund had four Labor ministers and one Coalition minister in eight years.

She is more concerned by the government’s process to abolish boards.

“There was no effort to ask the Education Investment Fund board to come together and give the government a departing brief about what had worked well or what had not. You literally get a letter saying it’s over, and that’s it.”

Seares says the lack of a proper board handover perpetuates problems.

“I’ve seen examples where governments do things to an organisation without telling the board first.

“There is no formal handover, so the public service ends up creating the same old wheels again because the government has not drawn on the board’s collective knowledge to ensure the same mistakes are not made again.”

Seares has been on more than a dozen statutory or government advisory boards over the past two decades, in a distinguished career in the arts. She has had good experiences, notably as the former chairman of the Australia Council for the Arts for a four-year term in the late 1990s.

Her more recent government board work has been less satisfying.

“It is my observation over many years on government bodies, across both sides of politics, federal and state, that not enough respect or due courtesy is paid to boards, particularly those that have volunteer directors. The boards have become more politicised and there is less interest in the value of independent governance.”

Seares says it makes no sense to cut back on government boards when the public service is being heavily rationalised.

“Surely, if a minister wants frank and fearless advice from people with long experience and diverse backgrounds, you have more, not fewer, boards. I have great respect for public servants and have seen the benefits of strong boards working with public servants on issues.

“I wonder how the government can get the same quality of independent advice with far fewer boards now.”

Like many directors of government bodies, Seares was not there for the money. She and her fellow directors received a small sitting fee for each day’s work on the Educational Investment Fund. She joined the board out of a desire to help strengthen Australia’s educational infrastructure.

“You join these boards because you believe you can make a difference in an area you are passionate about,” says Seares.

“You work hard on your duties, fly around the country and are then told by letter that your services are no longer required, as of that day.

“To be honest, I’m starting to be turned off roles for government advisory boards, because their directors are not always treated as well as they should be.”

Fewer federal and state boards will be a disappointment for directors who join government boards as a stepping stone to a public or private company directorship, or to develop another skill-set.

Such boards can help directors build their knowledge of government process, networks and policy understanding, and make them more attractive to large public-company boards. They are also an outlet for directors who want to give back to the community, in areas such as health, the arts and education.

And although such directorships typically pay lower fees than the private sector, income from government boards is important for many directors and potentially a significant financial setback for those whose organisations closed abruptly.

Accompanying the drop in government board positions is an expectation of higher performance – and most likely higher workloads – from boards that remain.

Peter Achterstraat FAICD, an Adjunct Professor at the University of Sydney’s Graduate School of Government, says a “perfect storm” is ahead for directors at the federal level, after the move to amalgamate entities, from the introduction of the Public Governance, Performance and Accountability (PGPA) Act 2013 (which puts more onus on organisations to operate commercially).

Achterstraat says: “My concern is that when entities are amalgamated and savings are sought, it is often back office functions that are arbitrarily cut, with no account taken for appropriately managing the emerging risks. In times of uncertainty and budget cuts, morale often falls, performance drops and fraud levels often rise.

“It is essential that appropriate governance arrangements are put in place to harness the benefits of the changes, rather than allow the agency to be exposed to potential risks.”

Put another way, directors who maintain their government board positions could face greater risk as their entity is amalgamated or closed and as more is expected of the organisation.

“The work for directors of federal entities could become a lot more demanding, although potentially also more rewarding,” says Achterstraat, who is a former Auditor General of New South Wales.

Achterstraat says the PGPA Act has upsides for boards, provided it is well understood and implemented. “I see real benefits arising from the introduction of the PGPA Act. If implemented well, there is the potential for improved governance arrangements, increased productivity and increased job satisfaction for directors and officials.

“However, I am concerned that if entities fail to understand and implement the key elements of the PGPA Act, they will retreat into a risk-averse culture and treat governance as simply a big ‘C’ compliance exercise rather than as a strategic tool to increase performance. If this occurs, there will be many lost opportunities.”

The PGPA Act will have little bearing on directors who have already left or are likely to leave their government boards.

Nor will it help those governing or leading organisations with uncertain futures, as the government decides whether to abolish them.

The ACNC is likely to be among the higher-profile casualties from the Budget.

The Coalition took its commitment to abolish the ACNC to the last federal election. If the Senate passes a Bill later this year, it will cease operations.

ACNC Commissioner Susan Pascoe AM FAICD typifies the value that boards and executive teams add during times of uncertainty or when handovers are required.

“The first thing I and the other two ACNC Assistant Commissioners did was to make an absolute commitment to staff that we will be there right to the end,” says Pascoe.

“If I am the last person to leave, and have to take the shingle down, so to speak, then so be it.”

The ACNC advisory board has 13 members.

Pascoe says boards need to think about staff retention when the organisation’s fate is unclear. The ACNC had 17 per cent attrition in 2013-14, about double the previous figure, although still an excellent result.

“It is natural that people start looking for another job when it looks like the organisation will be abolished,” she says.

“But our staff members have been incredibly impressive during this period of uncertainty. If the ACNC is abolished, they are determined to hand over our work in the very best shape.”

Budgeting becomes another challenge for executive teams and advisory boards when the organisation’s duration is uncertain, says Pascoe.

“The ACNC’s budget could not be guaranteed beyond the May federal Budget, so we had to do a much tighter, shorter, focused budget to June 30. You have to manage on very short-term timelines, given it may not be until late September or early October that we know what will happen to the ACNC.”

Pascoe has long experience on government statutory and advisory boards, having been a full-time commissioner with the Victorian State Services Authority, a commissioner with the 2009 Victorian Bushfires Royal Commission and having worked on many government reviews over the years.

That experience underpins her philosophical view of government body closures.

“I’ve been around long enough to know this is how the world works.

“I appreciate that new governments have different priorities, but it would be great if our democracy could get to the point where there is bipartisan support on critical issues, such as regulating charities, and not having organisations that do good work for the community being buffeted by election cycles.”

Although the government’s intention to abolish the ACNC was well flagged, Pascoe will be disappointed if the organisation cannot continue its work in some form.

“The most important thing is that robust charity regulation continues, in whatever form it takes, and that there is an up-to-date, independent charity register, free from commercial or political decisions, to help the community assess charities.”

Should the ACNC close, Pascoe will likely take a break and spend more time with her grandchildren before returning to her consultancy. More work on government reviews, an area Pascoe enjoys, and other board roles, are potentially on her agenda.

Professor Michael Kidd AM MAICD, a prominent healthcare expert and board director, is also well versed in the challenges of government boards. He chaired government advisory committees under the past eight federal health ministers and is a director of the national depression initiative beyondblue, Therapeutic Guidelines, the Channel 7 Children’s Research Foundation, Flinders Fertility, FCD Health (a primary care provider in the Northern Territory) and president and chairman of the World Organization of Family Doctors.

Kidd is also a non-executive director of General Practice Education and Training (GPET), which manages three training programs on the federal government’s behalf. The Budget announced that the Department of Health will absorb GPET’s essential functions at the start of 2015. GPET’s 12-member board will no longer be required.

The decision to consolidate GPET was well-flagged, principally through the Review of Australian Government Health Workforce Programs, announced as part of the 2012-13 federal Budget and led by former senior NSW public servant Jenny Mason. GPET always worked closely with the Department of Health, so its absorption into the bureaucracy is perhaps an easier transition that many government bodies face.

Even so, Kidd is disappointed for staff members who may leave and for the organisation itself.

“It is natural to be disappointed when an organisation that does lot of good work for the community, and has lots of good people, is wound up,” he says.

“But your responsibility as a director continues until the day you leave and everyone on our board wants to ensure GPET’s functions are handed over to the Department of Health in the best possible shape, so that its good work continues in another form.”

He adds: “As a director of a government-owned company, you understand that you serve for a fixed term and at the pleasure of the government of the day. It is an honour to serve the nation in this way and you accept that government priorities change over time.”

Kidd says strong governance is vital when government bodies are merged into other departments.

“The chairman’s role is even more important during times such as these,” he says.

“He or she has to support the CEO, who in turn has to support staff, to ensure a high standard of ongoing work continues right up until the handover. There is a significant risk that staff start leaving or the organisation cannot carry out its core functions. The board needs to ensure this does not happen, by working with management to oversee a smooth, professional transition.”

Kidd says the transition period can be stressful for directors, management and staff.

“Our board has had more meetings and a lot needs to be done in a short period. But that is part of being a director. We can look back on the way GPET brought all the key players who are involved in general practitioner training together, and be very proud of its work.”

Other directors who leave advisory boards of government bodies, either abruptly through closures or over a longer transition period, may have a similar sense of satisfaction in time. For Seares and other directors who were told on Budget night that their board no longer existed, the process has been less than satisfactory.

The problem is not that government boards have been rationalised, but rather that decades of collective knowledge, experience and passion of dozens on government advisory boards is not being drawn on to ensure past mistakes are not repeated.