From the Annual Report of the State Services Commission for the year ending 30 June 2001.

Introduction

The role of the State Services Commissioner involves the holder of the office being in routine and regular contact with most of the players in the 'public management system', including Cabinet Ministers, the chief executives of government departments, and representatives of many other State sector organisations. It also gives the Commissioner the occasional opportunity to hear the (often strongly held) views of people from the private and voluntary sectors.

For these reasons, the Commissioner is likely to have a unique perspective on the 'public management system', the commonly usedterm for our arrangements for governing and managing State sector organisations; and, more particularly, on how well the organisations in the State sector, but especially departments, are performing in practice. It is perhaps for this reason that whoever holds the office of Commissioner has the opportunity, courtesy of the State Sector Act 1988, to share their views each year without restriction.

After four years as Commissioner, and especially after almost two years in which the State sector has been challenged to adjust to the expectations and style of a new administration, I would like to put on the record my current perspective on the sector. What I present here is necessarily selective not least because, despite the fact I hold the position of State Services Commissioner, I have responsibilities only for the Public Service and limited influence over the rest of the State sector. Also, it is unashamedly personal, being prompted in part by my appreciation that merely being in the position of Commissioner has shaped, and in some cases reshaped, my insights and opinions.

As our experience with the public management system increases, we see new strengths and weaknesses and reassess those previously identified. I am firmly in the camp of those who conclude from this process that the public management system, especially that part designed to preserve the political neutrality of the Public Service, is fundamentally sound. That was my view when I was appointed Commissioner. It remains my view today. Calls for radical change are misplaced. However, that does not excuse us from providing better value to the citizens of New Zealand by improving our performance.

Before I go on, I want to address a matter of significance.

Rankin v Attorney-General

The early part of 2001 saw the unprecedented action of a Public Service chief executive taking proceedings against the State Services Commissioner in the Employment Court. The action was triggered by my decision not to recommend her reappointment.

Background

Public Service chief executives are appointed under section 35 of the State Sector Act. The Act requires the State Services Commissioner to recommend a candidate to the Government and, should the Government agree with the recommendation, to appoint the candidate as chief executive. Section 38 of the Act limits the term of a chief executive to no more than five years, but says that chief executives are eligible for reappointment.

Section 36 of the Act allows the Commissioner to recommend an existing chief executive of a department to be reappointed for a further term.

On appointment or reappointment, each chief executive enters into an employment agreement with the Commissioner on behalf of the Crown. The agreement provides, among other things, that the Commissioner shall be a good employer, and shall inform a chief executive six months before the end of their term as chief executive whether or not they will be reappointed.

The term of office of the Chief Executive of the Department of Work and Income ended on 5 July 2001. In December 2000 I gave her formal notice that I would not recommend her reappointment.

Substance of the Case

The Statement of Claim filed in the Employment Court on behalf of the chief executive was, in my view, based upon three propositions:

• that I gave her an 'expectation of ongoing employment' within the Public Service and then failed to deliver on that promise;
• that I succumbed to unreasonable political pressure in my dealings with her during her three years as chief executive and, in particular, when deciding not to recommend her reappointment; and
• that I did not do enough to support her through the troubles that plagued both her and the department during her term as chief executive.

This is not the place to canvass again the arguments and evidence put before the Court. Although the action failed, the fact that it was taken in the first place, the fact that much of the evidence concerned discussions between various parties that would have otherwise remained private, and some of the findings by Chief Judge Goddard, mean that there are some important matters raised in this case that will need to be addressed.

Issues Arising

From my perspective as Commissioner, this case tested the following:

• the 'good employer' obligations of the State Services Commissioner;
• who is the employer, viz. the State Services Commissioner or the Crown defined more widely?;
• the respective obligations of Minister, State Services Commissioner and chief executive in the three-way relationship that characterises the employment of Public Service chief executives in New Zealand;
• the considerations that the State Services Commissioner can or ought to take into account in deciding whether to exercise his or her statutory prerogative to recommend the reappointment of a chief executive; and
• the process that should be followed by the Commissioner, particularly in terms of engagement with the chief executive, in deciding whether or not to recommend reappointment.

Before I deal with each of these below, I want to address another matter. There has been public comment about whether this case has irrevocably changed the nature of the relationship between Ministers, chief executives and the Commissioner, especially in terms of the trust, frankness and informality that characterise many of these relationships. The argument is that because much of the evidence in the Court concerned private discussions between the chief executive and Ministers, Commissioner and chief executive colleagues, people will in future be less open and more formal in their relationships.

I do not agree. I have two reasons for this view. First, this case was an aberration. I see no evidence that the combination of circumstances, events and personalities that led to this outcome are likely to recur. Furthermore, I do not think our system of public management could stand more than one such case without seriously undermining the ability of the Government and Public Service to operate effectively. This, in itself, provides a discipline on, and an incentive for, all parties to make our public management arrangements work.

Secondly, during the course of the case, I quoted a well known commentator on public management matters in New Zealand who said that the ideal relationship between a Minister and chief executive "is one of trust between two people linked inextricably, at least for a time". This is the quality of the relationship needed for good government. It was the situation that applied before the case. It applies still.

Good Employer

The undertaking of the State Services Commissioner to be a good employer has been incorporated in chief executive conditions of employment since the State Sector Act came into effect in 1988. This may be something of a hostage to fortune. A requirement to be a good employer is imposed on employers, in part at least, to counteract the imbalance of power between employer and employee. In a conventional employment relationship, the employee relies on the employer for: the specification of the objectives to be achieved; the budget to do the job; delegation of authority to take action or commit resources; and for all elements, physical and cultural, of his or her employment environment. That is not the case with Public Service chief executives.

Although the Commissioner employs them, they derive their authority from statute and delegations from Cabinet, their resources from parliamentary appropriation via Ministers, and their objectives through a process of negotiation with Ministers. The powers of the Commissioner are limited to: matters of appointment, reappointment and dismissal; setting terms and conditions of employment; and reviewing performance on behalf of their Responsible Minister. In most of these instances the Commissioner's power is exercised only with the concurrence of Ministers or the Governor-General in Council.

In these circumstances, what does being a 'good employer' mean? In my view, it involves the usual considerations of fairness, openness and due process, but tempered by the relative remoteness of the relationships between Commissioner and chief executives, and the ability of chief executives, as very senior public servants in charge of their own departments, to look after themselves.

Who is the Employer?

Both I and my predecessor have taken the view that, under the State Sector Act, the State Services Commissioner is the employer of Public Service chief executives on behalf of the Crown. The chief executive enters into an employment agreement with the State Services Commissioner. However, although the chief executive is employed by the State Services Commissioner, he or she works for their Responsible Minister. I can think of no other employment relationship where the terms employed by and works for are not synonymous.

This was an important consideration in the Employment Court for, although I was the Defendant, many of the concerns in the Plaintiff's Statement of Claim were about the actions of Ministers and colleagues.

The judge proceeded on the basis that "as a chief executive in the Public Service, the plaintiff was employed by the Crown". It followed that "the Crown is therefore answerable for the acts and omissions of every Crown agent who had any influence over the plaintiff's employment". This is a significant widening of the definition of 'employer'. The implication is that the actions of a range of people, not in any formal employment relationship with a Public Service chief executive, may be taken into account in any consideration of whether a Public Service chief executive has been treated fairly and properly. However, given the requirement under section 5 of the State Sector Act that the Commissioner act independently in matters relating to decisions on individual employees, the range of people who can influence the employment of a chief executive is necessarily small.

The Tripartite Relationship

From time to time I have had to balance two requirements: being fair and honest with a chief executive whom I have employed; and acting as an advisor to a Minister who is having difficulty in the working relationship with that chief executive. I regard it as an essential part of the State Services Commissioner's responsibilities to encourage, and sometimes to help broker, an effective working relationship between a Minister and a chief executive. If I were obliged to inform a chief executive on each occasion a Minister raised issues about a chief executive's performance, or sought assistance in helping to establish a better working relationship between them, Ministers would feel constrained about informing me of such matters, and opportunities for improving the performance of the Public Service would be lost. On the other hand, chief executives should legitimately expect me to advise them on areas of their performance or behaviour that might be barriers to effective engagement with their Ministers.

In practice, this is a matter of careful judgement, and of trust by both parties in that judgement, and in the Commissioner's discretion.

Consideration for Reappointment

In considering any chief executive for reappointment, I take into account three considerations:

• the job to be done, and the skills required, for the next two to three years;
• past performance of the chief executive as an indication of suitability for the job to be done; and
• whether the candidate has, or is likely to win, the confidence of the Responsible Minister and other senior members of the Government.

The last is a delicate, even tricky, matter. It requires careful judgement to determine the boundary between my forming a view about Ministerial confidence, and allowing improper political intervention in the appointment process. I have based my approach on the precedent established by my predecessor. In his 1991 Annual Report, in reflecting on the Hensley case, Don Hunn asserted that Ministers should expect the State Services Commissioner to recommend for appointment as chief executives people who not only, in the Commissioner's view, meet the requirements for the job, but are people whom the Government is confident will develop and implement their policies. Chief Judge Goddard confirmed that this was a legitimate consideration.

Reappointment Process

Section 36 of the State Sector Act allows the Commissioner to recommend a chief executive for reappointment without opening the vacancy for competition. The Act is silent on the process to be taken to arrive at a decision to make such a recommendation.

One possible option is that, as a chief executive's term of appointment will simply expire, the Commissioner need do nothing. He or she comes to a view not to recommend a candidate for reappointment. The term of office of the chief executive ends. (The only action required of the Commissioner is to notify the chief executive six months before the end of their term if they are not to be reappointed as required by their employment agreement.) Another option, based on an employment perspective, is that prior to deciding not to recommend a chief executive for reappointment, the Commissioner should inform him or her of the reasons why, and provide an opportunity for them to improve their performance, change their behaviour, or otherwise address the barriers to reappointment.

I have taken the view that in each case I need to make an explicit decision, weighing up matters that are relevant, setting aside what is not relevant, and reaching a decision independently. I need to do this in time to enable me to give six months notice of non-reappointment. My engagement with the chief executive, explicitly on reappointment or more generally, should be sufficient to enable me to make an informed judgement.

Chief Judge Goddard took the position, first, that procedural fairness requires the Commissioner to make an explicit decision, ie letting a chief executive's term expire with no active consideration of whether to recommend reappointment is not a proper course.

Secondly, he held that the good employer obligation requires the Commissioner, if the Commissioner is not going to recommend reappointment, to inform the chief executive of the reasons why, and give the chief executive an opportunity to address those reasons. The judgement leaves open whether that course includes providing time to demonstrate improved performance, or is limited to providing opportunity for the chief executive to make submissions to the Commissioner.

Conclusion

I intend to review the appointment and reappointment process, the employment agreements, and other formal interaction between Commissioner and chief executives. My intention is to ensure they reflect the findings of the Employment Court, and support the open and good faith approach to these relationships that has been one of the strengths of our system of public management.

Values

Before I discuss the parts of the public management system where I think change would improve performance, I want to address something more intangible but probably more important than accountability arrangements and structures, namely the values and standards we hold as public servants.

Regardless of the shape and structure of the public management system, public servants serve the government of the day with professionalism and integrity, valuing fairness, probity, due process, careful stewardship of resources and lawful conduct in all their actions. I have taken this for granted, as should every New Zealander who has contact with public servants as they go about their professional and public lives.

We are fortunate to be able to make that assumption, and we take it for granted that public servants should, and will, continue to demonstrate these values well into the future. When I was appointed as State Services Commissioner, after a long career mainly in different parts of the Public Service, I held, and made no attempt to question, that assumption. I did not feel I had reason to. Now I do.

Why should public servants uphold these values? Governments can function effectively only if they have the trust of their citizens. Government organisations, such as Public Service departments, are to most citizens the tangible expression of 'the Government'.

Citizens will trust the Public Service only if they believe that public servants make decisions fairly and impartially, spend money wisely, and that their behaviour is beyond reproach. The Public Service has myriad delegated powers and responsibilities. How that power is wielded and how those responsibilities are discharged can either erode or cultivate trust in the Public Service, and in the Government as a whole.

As I said in last year's Annual Report, New Zealand is not corrupt, and this year's Transparency International ratings keep us at the same high standard. A few high-profile cases of public servants abusing their power, and the public's trust, has made me take these values less for granted.

As public servants we need to debate, discuss and promote these values continuously. I, and the State Services Commission, need to be aware of the threats to these values, address them directly, provide leadership in their promotion, and opportunities to debate and discuss them.

First, the threats. International developments and developments in our own society test the efficacy of these values. Globalisation of crime has exposed some public servants to new temptations and pressures because they are the gatekeepers between New Zealand and the rest of the world. In some cases, the greater diversity of our society - and thus of the Public Service work force - has meant that loyalty to an employer has had to compete with loyalty to family or ethnic grouping. There is no room for complacency.

The transfer of service delivery functions out of departments into separate legal entities that have adopted, consciously or unconsciously, different corporate cultures probably has contributed to the change in long-established Public Service values in these organisations. I cannot accept this is right and proper, particularly when, as far as the public is concerned, all State sector organisations, regardless of their legal form, are part and parcel of the same business.

Accountability

Opinions differ about whether New Zealand's public management reforms were well designed, and about whether they have worked as intended. My comments here are about just three aspects of these arrangements: accountability and learning by doing; the distinction between accountability for outcomes and accountability for outputs; and the roles and responsibilities of Responsible Ministers.

Accountability and Learning by Doing

Managing most State sector organisations is hard. In some cases, the difficulties result from the complexity of the problems that have to be faced. In others, they result from the fact that hard compromises have to be made in the presence of multiple and sometimes incompatible objectives and constraints. In these circumstances mistakes are inevitable. Those mistakes probably will be more frequent and bigger if the policy option chosen is bold and innovative. And yet, because of the seriousness of some of the problems we face, we need to be bold and innovative and recognise that we must learn from the inevitable mistakes.

Our approach to accountability has made this more difficult than it need be. As a community we have developed an intolerance for failure that repeatedly manifests itself as a call for State sector managers to be dismissed if any mistake is made. Let me be very clear here. There are some behaviours that warrant dismissal with no prior yellow card. And, in the case of repeated failure of policy or operations, there is a threshold beyond which tough action is appropriate. But we seriously risk our ability to learn from our mistakes if we refuse to allow those who make mistakes the opportunity to apply the lessons they have learned.

Outcomes and Outputs

Since the 1980s, the public management system explicitly has drawn a distinction between outcomes (the social, economic, environmental and other goals a government is trying to achieve) and outputs (the things done by State sector organisations).

This distinction has been applied in an environment where the principal concern was to be clear about accountabilities. This concern manifested itself in a simple proposition, namely that managers in the State sector could be held accountable only for things they could control, or at least things they could control to a significant degree. Because outcomes are affected by many things, only one of which is the outputs of State sector organisations, it was decided that State sector managers should be held accountable only for delivering contracted outputs and not for outcomes. In this way the distinction between outcomes and outputs became a dichotomy; outcomes were to be the exclusive domain of Ministers, while outputs were to be the equally exclusive domain of State sector managers.

I have come to the view that when applied in this way, the distinction between outcomes and outputs can be unhelpful to, or even destructive of, the creative and supportive relationship that should exist between Ministers and the organisations through which they work. Ministers legitimately can look for help in articulating and refining outcomes, for help in identifying the best possible ways of pursuing those outcomes, for help in delivering the programmes and outputs that give effect to the outcomes, and for help in assessing what progress has been made in achieving those outcomes. These contributions can be made even if the Minister and the State sector organisation operate on the basis of a contract that reflects the outcomes/output dichotomy.

But two comments are warranted. First, the contract should be the end result of a productive and open engagement between Minister and chief executive, based on trust and a shared view of the end results to be achieved for our citizens. And secondly, there is a risk that the organisation, whatever its role, will focus on delivering against the contract regardless of whether or not that contract any longer entirely suits the circumstances that actually have emerged.

I am now convinced that departments and other State sector organisations need to be much more connected with what the government of the day is trying to achieve than is possible to achieve with a contract for outputs. One possible approach to this would be to hold State sector organisations accountable in terms of outcomes. By this I mean hold them accountable or giving advice on how best to pursue outcomes given the environment in which the Government will be operating and the identifiable risks to achieving the outcomes. And hold them accountable for 'thinking on their feet', that is for changing what they do as circumstances dictate (or for advising the Minister on what changes he or she should direct if there is no delegated authority). And, finally but no less importantly, hold them accountable if they fail to make changes that reasonably should be made.

This would require a different approach to contracting. First, instead of contracts specifying in detail exactly what outputs are to be provided in what volume and to what quality, they would focus on stating broadlyframed responsibilities including the responsibility to manage events as well as possible.

Secondly, contracts would bridge the gap between the Government's high-level and broadly-framed goals and the outputs of the contracted organisation by stating 'intermediate outcomes'. To bridge the gap, the intermediate outcomes would have to link compellingly to the Government's goals, allow progress towards those goals to be measured, and allow the effectiveness of outputs to be assessed.

This new approach to contracting has been used this year by the State Services Commission and a small number of other departments, culminating in the tabling of a new-style planning document in the House of Representatives viz. a Statement of Intent or SOI. An important feature of the SOI is that it is co-signed by the Responsible Minister and the chief executive. The joint signatures symbolise the desire to better connect outputs with desired outcomes, and the responsibility and commitment of the Minister to ensure that organisations have the capability needed to deliver. I am hopeful that this more creative and supportive approach to contracting will take hold, and that it will help avoid the problems of what has been called 'dry contractualism'.

Whatever form they take, one of the purposes of such planning documents is to provide a basis for accountability. Holding organisations and individuals accountable inevitably imposes compliance costs. Clearly we must ensure that these are not too burdensome. But, more importantly, we must avoid the 'compliance culture' that so easily emerges, the focus on specification, monitoring and reporting almost for their own sake rather than for the sake of improving the lot of New Zealanders. I am hopeful that, because of the better connection it establishes between outputs and desired outcomes, the new approach to contracting we are now pursuing will help us achieve this objective.

The Roles of Responsible Ministers

Every State sector organisation, whether it is a Crown entity, a department, a State Owned Enterprise or an Office of Parliament, has a Responsible Minister. The Public Finance Act 1989 defines the Responsible Minister of a State sector organisation as the Minister(s) responsible for its financial performance (or as its shareholder(s) if the organisation is a company). This definition suggests a very tightly defined responsibility for which Responsible Ministers must account to the House of Representatives.

Despite the narrowness of the legislative prescription, for many years now it has been appreciated that the responsibilities of Responsible Ministers extend beyond just financial performance. Over the years, several broader formulations of the responsibilities of Responsible Ministers have been put forward. A 1999 formulation endorsed by Cabinet and distributed as a Cabinet Office Circular was developed for Crown entities but applies more generally. It conveys the wide-ranging and potentially onerous responsibilities of Responsible Ministers in part by stating their interests as the holder of that office, namely an interest in:

• the strategic direction of the organisation;
• the organisation's capability, ie its ability to function effectively and to adapt to change;
• the organisation's integrity, eg whether it acts legally and behaves in a way appropriate for a public body; and
• the organisation's financial performance.

The Cabinet Office Circular states Responsible Ministers' specific responsibilities as being:

• oversight of the policy and legislative framework;
• conveying the Government's expectations;
• managing the Crown's relationship with the organisation;
• appointing and dismissing the governing body;
• oversight of Statements of Intent;
• monitoring;
• directing; and
• oversight of budget and capital decisions.

It is clear from this that, in a very real sense, Responsible Ministers are charged with acting as the steward of the nation's interest in State sector organisations. A Minister wishing to discharge the stewardship role actively and responsibly faces a considerable challenge even if, as usually is the case, they have access to professional support from their department. Where a Minister is responsible for a large number of organisations - and some Ministers are - the challenge multiplies.

In his 1996 report on Crown entity governance the Controller and Auditor-General noted that different Ministers approached their responsibilities very differently. The underlying message in part was that some Ministers were not discharging their stewardship role effectively. If only because of the competing and continuing demands on Ministers' time, it seems likely that this risk remains. Yet there is a need to locate political accountability clearly and decisively.

Two years ago I expressed my concern that in New Zealand we had tended too quickly and too readily to assume that changing structures in the State sector was the best way to address our problems. My purpose was not to counsel against ever making changes to structures. Rather it was to argue that we should do so carefully, and only when the easily underestimated costs and risks appeared likely to be more than offset by the easily overestimated benefits.

With the benefit of a further two years reflection, I now think that the multiplicity of organisations in some parts of the State sector is inconsistent with the onerous stewardship responsibilities we place on Responsible Ministers. In some cases, we should consider merging organisations. The mere fact there are multiple organisations in part of the State sector is not in itself a sufficient case for changing structures. We need to identify and assess the benefits and costs case by case.

Separating Policy Advice from Service Delivery: Temporary Expedient or Long Run Equilibrium?

One of the principles underpinning the State sector reforms of the late 1980s was that policy advice in an area of government business, and delivery of services in that same area of business, should be separated. The explicit rationale for such separations was to narrow and, hopefully, to enhance the focus of State sector organisations, and to eliminate the risk of the policy advice function being captured by those with an interest in particular sorts of delivery. In many cases the policy advice/service delivery separations involved transferring service delivery functions (and usually staff) from previously multi-function departments to single function Crown entities.

A common response when attention subsequently has been given to reversing some of the separations has been an audible groan. Perhaps that is for no other reason than a general weariness with, and wariness of, structural change. But this sort of response appears to signal a deepseated frustration - 'Why didn't you get it right in the first place?' For me the larger question should be: Is the expectation of permanence of structures that underpins the frustration at all realistic?

The separation of policy advice and service delivery functions can be successful only if the operational information needed for effective policy formation and evaluation is available to, and readily interpretable by, policy advisors. If this is not the case, any separation will over time seriously weaken the policy advice function. Even if the policy advisors initially know enough about operational matters for the separation to improve the quality of advice (less risk of capture with no offset from lack of understanding of operations), over time their knowledge and understanding will decay, as will the quality of their advice.

Our propensity for locating service delivery functions in Crown entities and policy advice in departments creates a further dynamic for three reasons.

First, the policy processes that have evolved over the years reflect the reality that, with a few exceptions, policy advice has been the domain of departments. Even if the foundation staff of a Crown entity were formerly departmental employees, there is a real risk that staff turnover will reduce the entity's familiarity with, and connection to, policy processes and thus policy. As a result, even if the separation initially results in tighter focus and more effective service delivery, that decay can mean that the Crown entity's service delivery operations will become inadequately informed by the policy of the government of the day.

Secondly, if the Crown entity is providing services to a definable sector and regularly interacts with it, there is a risk that the entity will progressively identify with the sector rather than continue to act as an agent of the Crown by giving effect to the Government's policy.

Thirdly, the emphasis on contracts as the dominant focus of the relationship between the policy developer and the service deliverer may have contributed to the decay in relationships. Information becomes a tradable good, asked for by the department acting as the Minister's contract manager in one capacity, but also needed by the same organisation to develop empirically-based policy advice. If the relationship is not managed in such a way that information flows between department and Crown entity in a positive way, then the relationship will decay. This can only have a negative impact on both the quality of policy advice and the efficacy of services delivered to the public.

I think some of our own recent experience confirms that the possibilities of decay stated above are more than an idle speculation. The net result is that separating policy advice and service delivery may well have an initial beneficial impact on both the policy function and on service delivery. But over time the separation may well create a situation where a reversal of the separation seems desirable. Permanence is, I fear, an unattainable holy grail.

Cooperation

You may get the impression from the previous pages that I look upon the public management system with a certain amount of pessimism. I do not. What concerns me most is whether the current system has the malleability to allow the people within it to behave and perform in different ways, in part to adapt to changes in government but also to changes in societal expectations.

Accountability could be seen as one method of achieving changes in behaviour. I do not believe that to be true. Allen Schick¹ said that in New Zealand there is the risk that the obsession with accountability and contracting means that some things may be overlooked because they cannot be contracted for. To my mind, this includes intangibles such as the way the Public Service acts and the manner in which it treats people.

Ministers and the public expect services to be provided in ways that are appropriate to the Public Service. What the public should see is State sector organisations behaving as the State Sector Act states - with a spirit of service to the community. Within the State sector we should act with respect for each other, in a spirit of collegiality and cooperation, and at all times with professionalism. I do not believe these intangibles can be contracted for.

That does not mean that I do not place high expectations on public servants, particularly chief executives, to behave in those ways. There has been some argument that the current public management system does not allow, let alone encourage, those behaviours, particularly cooperation. My recent experience is that this is not true. For example, over the course of the last six months Public Service chief executives have gathered together to work as a group to devise ways to improve the performance of the Public Service. The process, and the outcomes from it, have been rewarding for me in many ways. Not the least has been the further respect I have gained for my chief executive colleagues, and the way in which the spirit of service to the community, the core value enshrined in the State Sector Act, shapes and drives the way they do difficult, and sometimes thankless, jobs.

This recent experience is evidence, I think, of the importance of the State sector employing effective people with strong values because they can make an imperfect system work well (and resist the perverse incentives to over-elaborate the system within which they operate).

A Regional View

The views above are very much a perspective from the centre of our public management system. But there are fresh forces impacting on public management throughout New Zealand. The Government has shown interest and activity in regional matters. The concept and potential of e-government is just beginning to be recognised. As the rural economy has grown so, too, has a mood of buoyancy in the community at large and in agencies of public service in the regions. Recentralisation and structural changes continue to exercise managers and staff, and discussion about Public Service values continues unabated.

The story in the following section of my report is drawn from the observations and reports of my Regional Assistant Commissioners, who have a unique perspective on the Public Service at work, and thus of many public servants at the work face.

A Picture of Change

There is evidence of continuing change in the regions. This is now less to do with major organisational restructuring and more about changing roles and functions. Some of this change has been anticipated and/or implemented over a protracted period of time. This makes it difficult for employees to remain confidently focused on their work. Nevertheless there is a degree of congruence developing between the thinking of Ministers, whom I observe to be particularly well connected to the regions, and the operational perspectives of regional staff. The Government sees the regions as offering a rich harvest of alternative practical solutions to longstanding policy issues. The risk is that the solutions will remain untapped unless the age-old head office/regions divide is bridged.

Notable examples of change to organisational form still exist. Some of the pressure to restructure appears to come from the continuing northward drift of the work volume and the difficulty in finding straightforward ways for resources to follow. Structural change, particularly in rural and provincial areas, has often resulted in less physical access to government departments for the public, as well as reduced departmental relationships with their communities. Given that, the expanded Ministry of Education services are likely to be well received.

As a footnote, in this climate of continuous organisational change there is a risk that regional records will be lost and the government's archival responsibility undermined. That was a risk during the major changes from the mid 1980s to the mid 1990s. It remains an important obligation of regional managers to preserve the public record.

Public Service - Re-telling an Old Story

A challenge for departments is thinking about style and substance of service delivery - or, as some people say, "putting the service back into public service". Over the last 12 months some local innovative but ad hoc projects (eg use of mobile offices, multi-departmental road shows), which were developed to address the problem of citizen access to services in remote areas, have given way to the development of centrally driven initiatives. The Ministry of Social Policy's 'Heartland Services' and the Ministry of Economic Development's 'Areas of Acute Need' are two examples. The staff undertaking work on these projects are based in Wellington, and travel to the regions when required. Some regional managers in other departments have criticised the consultation processes and subsequent time commitments associated with the Ministry of Social Policy and Ministry of Economic Development projects. In my view this could reflect a gap in understanding on the part of both parties of each other's roles. Consistent with this are comments about the loss of capability in the regions. Generally, I reject this criticism. Although it is a risk, in my view it is the generation of new capability requirements that drives the perception of the loss of others.

Many public servants at the front line are challenged by the reality of not only offering those traditional ways of interacting with their communities, but also providing channels demanded by an increasingly 'IT savvy' population. New thinking is required to assist managers deal with this complexity.

The continuing trend, in some departments, of moving decisionmaking back to the centre can have two consequences - a perception by regional staff of loss of local control, and a constraint on their ability to be responsive to stakeholder relationships and citizens generally. That was the case 12 months ago. Since then there has been increasing Public Service recognition of the Government's expectations of local solutions to local problems. My impression, however, is that the balance of control remains very much at the centre. While there are good reasons for this it can have a debilitating effect on staff, who see it as a barrier to generating new thinking and, ultimately, effectiveness. Regional managers consistently tell my Regional Assistant Commissioners that they could respond better to local issues if they had more administrative or managerial flexibility. In my view, provided the regional managers are well versed in accountability requirements, in most cases greater levels of delegation to them would not pose undue risk.

The Policy/Operations Tension

I referred above to the separation of policy advice from service delivery. There is a regional dimension to that story.

Few head offices involve regional managers in strategic planning for their departments in any substantive way. Consequently, many regional managers have not had sufficient experience working within a policy framework, so have limited ability to articulate their ideas through their departments. This lack of connection means many are not able to see the 'big picture', especially the international challenges impacting on New Zealand. My Regional Assistant Commissioners have noticed that where agencies have a policy capability in the regions, even if minimal, then regional managers are better able to articulate the long-term issues and challenges than those who are limited to an operational focus. To the extent it is possible to include regional staff in the strategic planning process I think it is a good investment. It could also minimise the risk of field staff operating beyond the mandate given to them by the government of the day.

Several managers have expressed concerns that there is too little analysis of the key questions around relationships between head office corporate requirements and the field, and between generalists and specialists in a department. They report dissonance about matters such as the level of personal security required for front line public servants. Addressing these questions would lead to clarity of respective functions, roles and structure. At the moment the regional perspective is that too much weight is being put on process design without sufficient analysis of the regional context. A challenge for some regional managers in high profile departments or positions is managing in the goldfish bowl environment. There are two aspects to this. The first relates to regional managers handling locally occurring events. The second is when events at the centre require responses from regional staff. I acknowledge that many handle this very well indeed, sometimes with minimal head office support.

Finally, there could well be a degree of intellectual snobbery whereby 'policy' is viewed as more worthy than 'operations'. An indicator is the significant difference that exists in head office vs. regional rates of pay. As at 30 June 2000, for the occupation 'manager', in the Public Service, an overwhelming proportion of those earning over $80,000 were in Wellington (789 managers earned over $80,000 - 676 were in Wellington, 25 were in Auckland, 39 were overseas, 49 were in other regions). It was not until below $60,000 that the regions tipped the balance.

The Local Government Connection

Against a background of reduced physical presence and various boundary interpretations, local government is increasing the pressure on central government to coordinate delivery of services. Those territorial local authorities with research capability have developed their own databases, primarily for their own planning but also for their community advocacy role. Increasingly they are seeking partnerships with local Public Service managers. These range from full strategic alignment to a loose form of networking. This has become a burden for some managers for three reasons:

a. Central government regional boundaries are not aligned with local government boundaries, so that some managers are stretched to cover relationships with several councils;

b. There is no framework that sensibly regulates the workload for locally based Public Service managers attempting to implement the stated Government intention of developing a partnership with local government. Individual Public Service chief executives relate to local authorities on specific issues, occasionally coming together on projects like the Local Coordination Initiative. Managers in the regions are being asked by local government to break down silos and look at issues holistically. There is a risk of potential conflict for those managers trying to work to their department's priorities and style as well as coordinate on the ground; and

c. There is a risk of 'over-coordination' at the local level detracting from front line work. Silos are not a problem in and of themselves - they provide focus and clarity of purpose. But they need to allow the coordination of departmental work with local, citizen-focused delivery. At least seven government departments have coordinating groups in the regions, in addition to localised Public Service groups and the local government coordinating groups. The Regional Assistant Commissioners see a number of public servants, at quite junior levels, trying to respond in a coordinated way in the absence of ground rules or frameworks. Over the last 12 months an increasing amount of time has been spent in the regions on coordination. Some managers now report that they are limiting their attendance due to departmental priorities.

There are naturally occurring tensions between local and central government work in the regions. For example a council's planning policies might limit some departments' ability to respond to needs in the community while at the same time, the council could be urging departments to respond to those needs. This can have impacts on health, education, justice and social policies.

In my view Public Service departments and Crown entities should look for ways to reach agreed positions to respond constructively to the ambitions of a number of local territorial authorities. Public servants in the regions continue to invest much time in managing this aspect of the relationship as, I suspect, do some local government staff.

But there is good news. In general, public servants working in communities make practical arrangements to patch together disconnections in policy decisions made at the head office level.

Getting Our Story Right

Databases available to public servants working in the regions are often inconsistent in terms of collection, aggregation and analysis. They have expectations that more sophisticated IT and e-government arrangements will improve this situation. The Te Puni Kokiri (TPK) Regional Intersectoral Fora (RIFs) have highlighted the discrepant placement of State sector regional offices. The Taranaki/Wanganui/Manawatu area particularly demonstrates the absence of alignment. When regional offices report results from their areas, each department is describing a different area. I think more work on developing consistent information catchments has the potential to break down some barriers to the provision of effective social services. By being able to align information a clearer picture of issues and impacts could emerge, which in turn could help maintain public trust in government. In other words these misalignments can stand in the way of good news stories where they exist.

And they do exist. The TPK RIF in the Waikato has come up with what looks like a well thought out initiative for social sector departments to make a difference in Huntly. A so-called 'mini-RIF' has emerged at Patea, and is reported to be more successful than anticipated.

Social sector data is sometimes aggregated in ways that fail to provide information adequate for the design of improved services. Regional staff recognise the merits of these systems for day to day management, but consistently report that such systems compartmentalise rather than aggregate their work effort in a way that would assist them in future planning. As departments continue to be encouraged by the Government to look at preventative programmes, the lack of good data means that there is a lack of 'what works' knowledge.

Departments are at times unable to establish clear accountability and transparency in reporting results of programmes, especially when third party providers have been involved. This means that departments are not always able to say whether their investment in particular programmes has made a difference or not. This, in turn, can exacerbate the policy/operations divide.

Standards and Ethics

Adisturbing trend is the perception of increasing potential for low-level corruption. I referred to this at length in last year's annual report². The regional perspective is that corruption is most likely to occur when several factors come together: high turnover of staff; high staff-tosupervisor ratios; continuing low wage rates; and increased diversity in a workforce being given insufficient training in New Zealand Public Service standards. Diversity in this context can mean New Zealanders who enter the Public Service mid career, bringing a different set of values; and immigrants to New Zealand who bring their own experience of operating with a different set of values.

I have no sense of widespread, systematic embedding of Public Service values and ethics. It may be happening but most managers in the regions cannot clearly articulate how focused their departments are on this matter. Many managers in the regions have had extensive Public Service experience and are clear about expected standards of behaviour. Several have approached the Commission for assistance with presentations to staff that have an underlying message about the Public Service ethos. These efforts need to be systematic, and more visibly led from the top, rather than resting with individual managers.

I am told that public servants in the regions consistently expect that I, as Commissioner, will demonstrate leadership on ethical issues, backed up by action as needed. I am committed to doing this. This is a priority for the balance of my term as Commissioner.

Auckland is Different

There are forces or characteristics in Auckland that invite further scrutiny. There are obvious demographic features that go beyond sheer size. There are strong urban Maori groups, and large communities of Pacific and Asian peoples. Within each of these groups there are specific features, such as socio-economic or age factors, that differentiate them further.

The cost of living is perceived to be higher, especially for housing and transport. Many Auckland managers hold the view that remuneration decisions should recognise the 'Auckland factor'. Some say there should be a 15% loading paid to attract and retain competent public servants in the Auckland cities. In the end, size does matter with Auckland. At the hard end of social and justice sector delivery there is a relentless volume and intensity of work that is simply not equalled in other parts of the country. This has implications also for health, housing, transport and general infrastructure delivery. Public perception in Auckland may be leaning towards poor performance, if not failure, in these areas.

Conclusions

The Government's interest in the regions is in both current and expanded regional activity. This is articulated as local solutions to local problems. The Public Service must respond. Public Service delivery of Government programmes will be enhanced when policy development and implementation are more integrated.

Regional development, capacity building and a more structured relationship between local and central government mean regional managers are very stretched. They do not always receive as much support as they need, especially in staff training and development. Service to the citizens of New Zealand cannot be compartmentalised. No one department should forget that it is, individually, a part (albeit an important part) of the complete picture. Strenuous efforts must be made to connect Wellington to the regions and department to department. Only then will the true value of the Public Service effort be realised. For all the debate about systems, structures, contracts and accountability arrangements, a high performing State sector will not be achieved without good people.

For the balance of my term as Commissioner my priority will be restating and reinforcing the core values of the Public Service, and seeing that new arrangements are in place for developing our future leaders. In that way the Public Service can serve the Government and citizens well, and be a career of choice for talented and committed New Zealanders.

He aha te mea nui

He tangata, he tangata, he tangata.

Michael Wintringham

State Services Commissioner

¹ The Spirit of Reform: Managing the New Zealand State Sector in a Time of Change, Allen Schick, August 1996, Page 73.

² Annual Report of the State Services Commission for the year ended 30 June 2001, p. 1