3 MANAGEMENT OF THE STATE - THE STATE SECTOR ACT 1988

Introduction

Having altered, through the 'corporatisation' processes, the structure and nature of the core Public Service - by extracting or abolishing the most significant commercial departments and activities - the Government's focus turned to the efficiency and effectiveness of Public Service management and performance.

Before the legislation - centralised control

Prior to introduction of the State Sector Act the Public Service was a single entity - all employees, regardless of which department they were working for, were part of 'the Public Service' and were employed by the State Services Commission. The Commission appointed the departmental 'permanent heads', and controlled the pay, conditions and promotions of all staff, as well as accommodation, organisational structures, and office systems - including computing services. The Public Service was a 'career service', with incentives to encourage and reward long service.

The appointment and promotion systems were examples of this, generally recognising seniority - as well as competence - and favouring serving officers over all but the most outstanding external applicants. There were elaborate appeal and review systems to ensure that appointments and promotions followed the letter of the law. The Public Service became accustomed to prolonged, arduous bureaucratic processes that seemed sometimes to be designed not to reward productive behaviour.

The spirit of the legislation

The State Sector Act 1988 was designed to introduce into the Public Service many of the positive features and incentives of the private sector. The key principle was that managers, if they were permitted to make all input decisions - pay, appointments, organisational structures, production systems, etc - would respond by accepting personal accountability for producing substantially higher quality outputs - the goods and services provided for the Government and other users. Specification would be critical - both suppliers and purchasers would need to be certain about the quality, quantity, timing and price of the goods and services to be traded.

The Public Service was also to be opened up to all comers - with the particular object of transplanting into departments the energy, imagination and commitment evident in much of the private sector managerial corps. All vacancies - from the heads of departments to office clerks - were to be advertised.

The Act accordingly made the heads of departments 'chief executives', employed by the State Services Commissioner under fixed term contracts. These chief executives became fully responsible for running their departments - employing the staff, determining pay and conditions (under delegation from the Commissioner and within general parameters set by the Government), determining the most appropriate structural arrangements, and determining the most efficient production systems - including numbers of employees.

The Act also set up a triangular relationship between each departmental Minister, the chief executive as head of the department, and the State Services Commissioner as the chief executive's employer. This arrangement recognised the practical need for chief executives to be responsible to their Ministers for the conduct of departments and for giving effect to the Government's programmes, but very importantly to also retain and reinforce the principles of an apolitical and professional Public Service.

Each chief executive became responsible to the appropriate Minister for:

• The carrying out of the functions and duties of the Department (including those imposed by Act or by the policies of the Government); and
• The tendering of advice to the appropriate Minister and other Ministers of the Crown; and
• The general conduct of the Department; and
• The efficient, effective, and economical management of the activities of the Department.

Each chief executive has a personal 'Performance Agreement' with the appropriate Minister as well as a 'Purchase Agreement' which specifies the outputs to be supplied by the department to the Minister. Each chief executive also has a distinct employment relationship with the State Services Commissioner, specified in an employment contract. The Commissioner is responsible for assessing the performance of the chief executive, and implicitly for guiding the chief executive in improving and enhancing personal efficiency and effectiveness.

While the focus of this chapter is on the Act as it applies to the Public Service, various parts of it apply to the wider 'State sector', which is -

The Act covers human resource management and general management practice, including requiring State services employers to be 'good employers', to promote equal employment opportunities and efficiency in the organisations that make up the Service, and to ensure that employees are imbued with the spirit of service to the community.

Good Employer Principles

• good and safe working condition
• an equal employment opportunity programme
• the impartial selection of suitably qualified persons for appointment
• recognition of
• • the aims and aspirations of the Maori people
  • the employment requirements of the Maori people
  • the need for greater involvement of the Maori people in the Public Service
• opportunities for the enhancement of the abilities of individual employees
• recognition of the aims and aspirations and the cultural differences of ethnic or minority groups
• recognition of the employment requirements of women
• recognition of the employment requirements of persons with disabilities

The Act also defines the appointment and functions of the State Services Commissioner and departmental chief executives, and delegation of functions by Ministers, the State Services Commissioner and chief executives.

The functions of the State Services Commissioner

Although the Act does not specify it, the Commissioner is, by virtue of the functions of the position, the head of the Public Service. The principal functions of the Commissioner are:

The appointment and governance of chief executives

The appointment and governance of chief executives are amongst the most important functions of the State Services Commissioner. The efficiency and effectiveness of each department and of the Public Service as a whole depends heavily on the Commissioner's ability to recruit experienced, well-qualified and able chief executives, and to create governance conditions which ensure their best possible performance. The governance of chief executives encompasses recruitment, induction, remuneration and contract management, performance assessment and improvement, and end-of-term contract renewal or exit.

The appointment process is prescribed in some detail in the Act. In the normal course of events the process will lead to the Commissioner's recommended appointee being accepted by the Government, but should that not be the case provisions exist to enable the Government to make its own appointment - although the fact that it is a 'political appointment' is required to be officially notified. So far these provisions have not been used by the Government.

Chief executives are appointed for an initial term of up to five years with reappointments, where continuation is considered the best option, for up to a further three years. Since the first appointments were made in 1988 15 chief executives have completed their initial terms and been re-appointed, nine have been appointed to other chief executive positions part-way through their terms, and eight have retired or resigned, either to take new career opportunities outside the Public Service, or for personal or other reasons.

'Collective interests'

One of the concerns about devolved management on the scale of the State Sector Act was that it would risk an end to the concept of a unified Public Service. Chief executives took to their new independence with such relish that it seemed for a time that these concerns might be well-founded. As time has gone by, however, an equilibrium has been restored. Government remains after all a single business and departments and their chief executives clearly do need to work co-operatively in policy development, advice to the Government, and delivery of services - and need to share responsibility too, for 'collective interest' matters such as senior management development, human resource policies generally, and maintenance of ethical and professional standards. A unified Public Service continues to exist, although on a devolved and strategically co-ordinated rather than a centrally-regulated basis.

Summary

The State Sector Act has radically altered the way the Public Service looks and operates. The change to fixed term contracts for chief executives has been mirrored in employment arrangements throughout departments - particularly since the Employment Contracts Act 1991 - and there is now a pronounced emphasis on performance. Chief executives know specifically what they are expected to deliver through their performance agreements and purchase agreements, and tune and drive their departments to perform accordingly. Performance expectations are specified and actual performance is formally assessed at individual levels throughout most departments.

This has led to considerably more structural change in departments - and turnover of personnel, especially at senior levels - than was the case before 1984. Incoming chief executives tend to want to reshape their organisations to meet their own preferences and priorities, and some make further refinements and re-tunings as time goes by. A number of departments have been through several restructurings in the last eight years, each of which has generated transaction costs . These sorts of structural modifications do appear to be an integral part of the new environment.

Chief executives and managers have undoubtedly relished the freedom and opportunities that the new environment has given them. Numerous decisions that were once webbed in bureaucracy - to employ staff, change establishments, buy motor vehicles, rent accommodation, for example - have now become more or less routine. New processes, systems and approaches have been introduced, and people with ideas and energy are encouraged and rewarded. The Public Service has shaken off the dull, stodgy uniformity of the past, and many departments now have much more of the appearance and style - and 'client orientation' - of the private sector.

While impressions about the effectiveness of the reforms embodied in the State Sector Act are overwhelmingly positive, there are some concerns. The level of organisational change referred to above, while acknowledged to be part of the new environment, does undoubtedly have its costs, not the least in terms of institutional experience and knowledge, and continuity - traditional strengths of the Public Service.

High quality private sector managers have not been attracted into the Public Service in anything like the numbers that must originally have been expected. One factor is quite clearly remuneration - the Public Service has lagged well behind the private sector - but behind that the fact seems to be that the some very fundamental differences remain between the essential functions of senior management in the two sectors.