What are Crown entities?

Crown entities have various forms - statutory bodies or corporations (such as the Accident Compensation Corporation and the New Zealand Film Commission), companies (such as Radio New Zealand Limited and the nine Crown Research Institutes) and some are sole member entities (such as the Commissioner for Children).

There are approximately 2,780 Crown entities in total - about 2,600 School Boards of Trustees, and about 180 Crown entities of other forms. The relationship of Crown entities with the Crown ranges from close to distant.

What are the issues?

Crown entities are normally established under their own empowering legislation. The statutes are often silent on what role, if any, the Ministers of State Services and Finance might have to implement whole-of-government interests. The roles of key players (Ministers, Crown entity Boards, and departments) are often unclear.

Successive reviews (for example, reports of the Auditor-General, the Standards Board and the Review of the Centre) have expressed concern about the current Crown entity governance framework.

Improving the governance of Crown entities is important to improve performance. Establishing a clearer relationship between Crown entities and Ministers will enhance accountability, which in turn will lead to improved performance and achievement of Government's outcomes.

The Public Finance (State Sector Management) Bill

The Public Finance (State Sector Management) Bill is the culmination of legislative work arising from the recommendations of the 2001 Review of the Centre. The Government commissioned the Review because it wished to maintain and strengthen the Public Service and the wider State sector. The Review found that the foundations of the public management system were sound but recommended a number of changes to better respond to the needs of the future.

Improving the public management system involves integrated change on a number of fronts at once - in style, in process and system. Inevitably it involves legislative change to make sure that the legislative foundations are in place. This has led to the development of the Public Finance (State Sector Management) Bill.

Public Finance (State Sector Management) Bill content:

The Bill encompasses:

• Amendments to the Public Finance Act and the Fiscal Responsibility Act. Strengthening these fundamentally sound acts by improving the flexibility for the Executive in managing public finances, while retaining and improving accountability mechanisms to Parliament.
• Amendments to the State Sector Act. Extending the State Services Commissioner's mandate. This is central to strengthening integration, building capability and providing stronger leadership on values and standards in the State sector. It also makes provision for better developing future leaders of the State sector.
• Creation of a new Crown Entities Act. Improving Crown entity governance and accountability is central to achieving a greater focus on results. It also strengthens the integration of Crown entities with the rest of the State sector.

Taken as a whole, the elements of the Bill work together to support each other. The Bill is scheduled to be introduced in November 2003.

Further detail on the Bill can be found in this Parliamentary Briefing Document

Changes for Crown Entities - a summary

An important issue for the Review of the Centre was fragmentation in the State sector. The Review recommended a range of initiatives to address fragmentation and improve alignment of State sector agencies with the Government's objectives.

A major recommendation was to improve the governance of Crown entities, with particular attention to improving the clarity of relationships between Ministers, departments and Crown entities, and strengthening those elements of the public management system that enable whole-of-government action.

Classes of Entities
The Bill will create distinct classes of Crown entity.

• Crown Agents (Agents): non-company Crown entities that have a close working relationship with the government of the day - e.g., District Health Boards are Crown Agents.
• Autonomous Crown Entities (ACE); non-company Crown entities that do not need to have a high degree of ministerial control but are still required to have regard to the policy of the government of the day - e.g., the Retirement Commissioner would be an ACE.
• Independent Crown Entities (ICE): non-company Crown entities that operate at arm's length from the government, either because they are quasi-judicial or because they must operate, and must be seen to operate, independently - e.g. the Electoral Commission and the Human Rights Commission would be ICEs.
• Crown-owned companies (CrOCs), which are established under the Companies Act. The nine Crown Research Institutes are Crown-owned companies. School Boards of Trustees would be a separate class of Crown entity.

Standard governance requirements for each class would be established - such as appointment and removal of board members. Ministers' power to direct a individual Crown entity would depend on the entity's class - for example, a Crown Agent would be required to give effect to direction on Government policy in its area of business, but Ministers would have no power to direct an Independent Crown entity on its statutorily independent functions.

Responsible Ministers and Crown entity governing bodies
The Responsible Minister would have the power to direct individual Agents and ACEs on government policy in the entity's general area of business. A Crown Agent would give effect to that direction, and an Autonomous Crown entity (ACE) would have regard to it.

Cabinet would be empowered to direct entire classes of Crown entity on significant whole-of-government interests.

Accountability of the governing body is to the Responsible Minister. Appointment and dismissal provisions would differentiate among classes of Crown entity. For example, the governing body members of a Crown Agent appointed by a Minister would serve at the pleasure of the Minister.

Crown entity governing bodies would be subject to generic provisions on their duties, such as good employer and EEO provisions, a Code of Conduct, and collective duties.

Enhancing people and culture
The current provisions of the State Sector Act relating to the Senior Executive Service would be replaced by new arrangements in the Bill for senior management development in the Public Service.

The State Services Commissioner's mandate in respect of Crown entities would be clarified by the legislation. The Commissioner would also have a more specific mandate to set minimum standards of integrity and conduct.

Financial Management and Reporting for Crown entities
The Public Finance (State Sector Management) Bill will ensure better quality and more balanced reporting of Crown entity intentions and actual performance, with more attention to outcomes.

The Statement of Intent would become the centrepiece of the accountability relationship to government.

Investment, borrowing and derivatives provisions would establish a consistent approach between entities and powers appropriate for their circumstances. Crown entities would operate subject to a rules-based framework set by the Minister of Finance.

A letter of expectations from the Responsible Minister would clarify and strengthen the Board's understanding of the Minister's expectations of the Board and the entity. Crown entities would continue to prepare an annual report, including a Statement of Service Performance.

See related Cabinet Paper

See related Parliament Briefing Document on the Public Finance (State Sector Management) Bill