Chapter 3: Key relationships

One of the primary purposes of the Crown Entities Act 2004 (CE Act) is "to clarify accountability relationships between Crown entities, their board members, their Responsible Ministers on behalf of the Crown, and the House of Representatives" (s. 3 CE Act) in order to assist good governance of the entity.

In simple terms this could be summarised as:

• The Responsible Minister is accountable to the House of Representative
• The governing board of the entity is responsible to the Minister, recognising that elements of this will depend on the category of entity concerned, usually through the chair
• The entity's chief executive is responsible to the board
• The staff of the entity are responsible to the chief executive.

Crown entity board members need to clearly understand the different roles, responsibilities and accountabilities of each party. This will facilitate the establishment and maintenance of mutually constructive and positive working relationships.

Relationship with Ministers

The role of the Responsible Minister is to oversee and manage the Crown's interest in, and relationship with, the entity, and to exercise any statutory responsibilities.

Under s. 27 of the CE Act, Ministers have powers with regard to all entities on matters of strategic direction, targets, funding, performance, reporting and reviews. The Minister needs to exercise these powers in a way that recognises any statutorily independent functions.

Under s. 133 of the CE Act, the Minister has the power to request information:

• The board of a Crown entity must supply to its Responsible Minister any information relating to the operations and performance of the Crown entity that the Minister requests.
• The board of a Crown entity must supply to the Minister of Finance any information requested by the Minister in connection with the exercise of his or her powers under Part 4 of the CE Act.
• Section 133 is subject to s. 134 of the CE Act. Section 134 provides for where there is a good reason to refuse to supply information requested by a Responsible Minister, for example privacy of a person. However the reason must outweigh the Minister's need to have the information in order for the Minister to discharge ministerial duties.

The Minister is responsible to the House of Representatives for the performance of the entity and answers to the public for any problems or controversies arising in connection with the entity by responding to questions, and participating in debates and reviews. The Minister also tables in the House an entity's statement of intent and annual report and

appears before select committees where the Minister may be asked to comment on an entity's activities. However, the entity itself is also accountable to the House of Representatives for its own actions (see the chapter on Planning and reporting).

"No Surprises" approach

Boards are expected to engage constructively and professionally with their Minister, which is enhanced when there is a free flow of information both ways, by regular formal and informal reporting and discussion, and through an open and trusting relationship.

The enduring letter of expectations from Ministers to Crown entity boards (www.ssc.govt.nz/expectations-letter-crown-entities-dec08 ) expects boards to adopt a "no surprises" approach with their Responsible Ministers. Any protocols adopted in this respect need to recognise that what a board considers to be "business as usual" may be seen by the Minister to come within the requirement of "no surprises".

"No surprises" means that the Government expects a board to:

• be aware of any possible implications of their decisions and actions for wider government policy issues;
• advise the Responsible Minister of issues that may be discussed in the public arena or that may require a ministerial response, preferably ahead of time or otherwise as soon as possible;
• inform the Minister in advance of any major strategic initiative.

Relationship with the chief executive and entity staff

All decisions relating to the operation of a statutory entity must be made by, or under the authority of, the board in accordance with the Crown Entities Act 2004 and the entity's Act (s. 25 CE Act).

Where a chief executive has been employed, the management responsibilities within a Crown entity are usually delegated to the chief executive. It is important that the board and the chief executive are clear about the boundaries between governance and management and what duties have been delegated to the chief executive.

While the relationship between the Minister and the board is through the chair, this is not always practical given geographical differences. Board members and the chief executive must be clear about who has contact with the Minister and the Minister's office. Where a chief executive is meeting regularly with the Minister, protocols should be set in place around this including feedback given to the board on all meetings.

The board and chief executive should also be clear on who is the public face of the entity. If this role is shared, protocols are required.

The chief executive and other senior managers of a Crown entity are likely to be in regular attendance at meetings of a board and its committees; when and how often is a matter for each board to decide. Board members may also wish to meet with senior managers and staff to assist with their understanding of the organisation and its operation. Protocols on how board members engage with staff should be in place because staff members may misunderstand a board member's statements on a matter as a direction and therefore give undue priority to those comments over other work requirements.

Relationship with the monitoring department

The CE Act provides for Ministers to monitor Crown entity performance against the entity's strategic direction, as agreed with the Minister and set out in the Statement of Intent (SoI) and, where there is one, the output agreement or Memorandum of Understanding. Ministers are usually supported in this engagement with Crown entities by departmental officials who in this role are known as the 'monitoring department'. While the legislation does not define such a role, monitoring departments provide a Minister with information about a Crown entity's performance, ensure the Crown entity's approach is consistent with government goals, and support the appointment process for board members.

The guidance for departments on how to monitor an entity is available at: www.ssc.govt.nz/guidance-depts-crown-entities-may06/.

Parliamentary select committees

Crown entities are accountable to the House of Representatives (s.3 CE Act). One mechanism for scrutiny is through parliamentary select committees. The most regular contact Crown entities are likely to have with select committees is for financial reviews, inquiries, and occasionally as when making submissions on bills. Board members should be particularly aware of:

• Examination of the Estimates: The estimates are the Government's request for appropriations/authorisation for the allocation of resources, tabled on Budget day. Crown entities do not attend the select committee when it examines the estimates, but Responsible Ministers and monitoring departments may be questioned about the intended activities and expenditure of an entity that receives appropriations from the Crown.
• Financial Review: The financial review is of the entity's performance in the previous financial year and of its current operations. The review can include any public organisation, whether or not it receives appropriations from the Crown. The select committee will provide written questions for answer, but if the entity is asked to appear, further questions may be asked on the day.

Board members and entity staff who appear before a select committee do so in support of ministerial accountability. Generally, the chair and the chief executive will represent an entity at select committee hearings although this is a matter for the board to decide. The board is answerable to the Responsible Minister, who is in turn accountable to the House of Representatives for the operations of the entity.

Representatives of a Crown entity appearing before select committees have an obligation to manage risks and spring no surprises on the Minister. This applies even when they appear on matters which do not involve ministerial accountability, such as when exercising an independent statutory responsibility or appearing in a personal capacity. Board members and employees who wish (or are invited) to make a submission to a select committee on a bill on behalf of their entity are expected to discuss the matter with their Responsible Minister.

Guidance on appearing before select committees needs to reflect the material contained in Officials and Select Committee Guidelines: www.ssc.govt.nz/officials-and-select-committees-2007/. Within that guidance, the term 'official' includes board members and employees of Crown entities.