Part 8: Making board appointments

How government departments monitor Crown entities.

Ministers have a statutory responsibility for appointing, or recommending the appointment of, board members for the Crown entities within their portfolio.

Having a cohesive board with the right mix of skills, experience, and knowledge is a fundamental requirement for achieving good performance within a Crown entity. The role of departments that are asked to support Ministers in identifying and appointing board members is an important one.

In this Part, we discuss how the departments:

Key messages

Each department needed to carry out various tasks in supporting the responsible Minister to identify and appoint board members. Many of these tasks required close attention to detail.

MCH performed well against our expectations. MCH’s documents that we reviewed showed attention to detail and early planning of appointment processes. MCH also provided ongoing support to board members and chief executives of Crown entities.

MED and DIA need to improve their planning, including attention to detail for appointment processes. In a few cases, appointments were made late, or particular details of appointment processes were overlooked.

We have made two recommendations in this Part. They relate to carefully planning appointment processes, advising candidates of the requirements for information disclosure, and collecting all the disclosure information to carry out the checks required by the Act.

Planning for appointment processes

In a few cases, MED and DIA did not carry out satisfactory planning for appointment processes.

Identifying and appointing candidates to the board of a Crown entity usually involves consulting with a range of parties as well as various other activities. Most of this work needs to be carried out in a particular sequence of steps. The SSC has prepared a guidance document1 to help those with responsibility for carrying out this work.

These requirements mean that those tasked with carrying out appointment processes, including monitoring departments, need to plan carefully so that requirements are met.

We identified several cases where DIA and MED did not carry out board appointment processes effectively or efficiently because they did not do enough planning.

In one case, DIA did not identify that a board member’s term had ended until nearly five months after the event. DIA has put in place a system to better monitor the end of board members’ terms for each Crown entity and other agencies that it monitors.

In two other cases, MED started the appointment process early, but did not progress it as quickly as it needed to. In one case, this resulted in the appointment narrowly missing the period of restraint before a general election. In the second case, it meant that there was a gap of about thirteen months between the end of a board member’s term and their reappointment.

None of the situations described in paragraphs 8.11-8.12 are desirable. They introduce a risk that statutory requirements for the number of board members are not met. Delays between board members finishing and their successors starting may result, for a time, in an increased workload for a smaller number of board members, and a reduced set of competencies on the board.

In several of these cases, MED and DIA were fortunate that board members agreed to stay on the board (section 32 of the Act provides for a member to stay in office after the expiry of their term of office, and sets out the circumstances in which this may happen).

Taking the period of restraint into account when planning for board appointments

By convention, successive governments have sought to avoid making significant appointments during the period of restraint – usually the three months leading up to a general election.

MED and DIA did not take the period of restraint into account when planning appointment processes. This meant that appointment processes were not as efficient as they could have been.

MED started and made good progress on an appointment before it realised that the appointment would be made during the period of restraint. MED continued with the appointment, but the board member was appointed for only one year, which is a shorter term than the maximum allowable term.

If MED had identified at the outset that the appointment would be made during the period of restraint, it could have asked the outgoing board member to stay in office until after the election and then started the appointment process. This may have been more efficient than running two appointment processes in two years, and would have meant that MED avoided processing an appointment during the period of restraint.

For one of the Crown entities that DIA monitors, a board member’s term expired during the period of restraint in 2005. The member agreed to remain in the position until an appointment process could be started after the election. When DIA arranged the member’s reappointment, the new term expired during the period of restraint before the 2008 General Election. Therefore, once again, DIA had to delay the appointment process and ask the member to stay longer in the position. DIA could have avoided this by arranging a shorter term for the board member.

Monitoring departments need to consider when general elections are likely to be held, and take this into account when planning and carrying out board appointment processes.

How the Ministry for Culture and Heritage plans for appointment processes

MCH has been proactive in starting planning for board appointment processes early. We saw several cases where MCH had started the process of identifying candidates and advising the Minister early, and had also set out time frames for the appointment process.

The documents we reviewed showed good attention to detail during the planning of appointment processes. For example, MCH took the period of restraint into account when planning appointment work for 2008. It also considered diversity requirements for board appointments early on in appointment processes.

MCH has a dedicated staff resource for carrying out board appointment processes, and appointment terms typically end in June and July. Therefore, it can carry out the same appointment task (for example, consulting with other agencies about diversity on boards; inducting new board members) for several board members, rather than one at a time. Information we reviewed showed that MCH was using this opportunity to be efficient in carrying out its monitoring work.

Crown entities’ views about board appointment processes

Representatives from Crown entities we spoke with had different views about whether the departments carried out board appointment processes effectively. Representatives from three of the Crown entities thought their monitoring department generally did a good job with this.

Representatives from two Crown entities said that there had been some issues with timeliness of appointments. We also saw information on file showing that the chairperson of one Crown entity’s board had noted concern about the late start of a new board member. A representative from another Crown entity told us that they had concerns with the monitoring department’s planning for board appointments because half the terms of the entity’s board members were due to end in 2009.

It is important that departments monitor when appointment terms are due to end. They need to start planning for the processes of appointing a Crown entity’s board members early so that board can continue to operate effectively with the appropriate number of members.

Recommendation 8
We recommend that the departments plan carefully before they start board appointment processes, taking into account the steps and timing required for the appointment and any contextual information relevant for that appointment.

Identifying knowledge, skills, and experience required on the board

The departments did some work to assess the knowledge, skills, and experience needed on boards, but the quality of this work varied.

When monitoring departments are asked to identify candidates for a Crown entity’s board, they need to consider:

  • the knowledge, skills, and experience that are needed on the board for it to be effective;
  • the mix of knowledge, skills, and experience on the existing board;
  • any legislative requirements for promoting diversity in the board membership; and
  • any legislative requirements that prescribe specific attributes of board members (for example, the Securities Commission board must include a barrister or solicitor of at least seven years’ practice).

It is also desirable for monitoring departments to consult with the responsible Minister and the Crown entity’s chairperson about the qualities they want in board candidates. This is because the Minister has the ultimate responsibility for appointing, or recommending the appointment of, board members. The chairperson is likely to have the clearest understanding of how well the board is performing.

The departments carried out some of the work we expected in identifying requirements for new board members. In most cases, they had at least identified the knowledge, skills, and experience required for board members. The departments had sometimes sought information from the chairpersons about this, and sometimes provided advice to the responsible Minister. We saw evidence that the departments were aware of the legislative requirements that set out the skills that board members must have. We also saw examples of the departments consulting with other agencies (for example, Te Puni Kōkiri and the Ministry of Women’s Affairs) about diversity requirements for board memberships.

The departments had done some work to take this information into account when considering candidates for board appointments. The quality of this work was variable. In the best examples, the records contained a clear assessment of the skills and knowledge gaps on the boards. These records are likely to help the departments in considering future board appointments.

Collecting disclosure information from board candidates

MED and DIA did not always collect all the disclosure information they needed to.

Under the Act, board candidates must provide the responsible Minister with information about their eligibility to be a board member, and information about actual and potential interests they have in matters relating to the Crown entity. This requirement applies to new candidates and to existing board members seeking reappointment.

We saw evidence that MCH and MED sought information from board candidates in keeping with the requirements of the Act. DIA sought some, but not all, of the information required under the Act.

In many cases, the departments provided the candidates with details of the legal requirements about the necessary disclosures. This is good practice, which we encourage departments to always follow.

MED encountered some problems obtaining relevant information about a candidate’s interests for one of the entities we reviewed. It was not able to collect all the information it needed to meet the requirements of the Act.

The disclosure provisions of the Act form basic checks to help identify and manage any potential conflicts of interest, and to be transparent. The quality of the public record and the information provided to the Minister can become significant. Therefore, it is important that MED and DIA collect all the information needed to carry out the checks required by the Act.

Recommendation 9
We recommend that the departments provide clear advice to board candidates about the information they must disclose under the Crown Entities Act 2004, and collect all the information needed to carry out the appointment checks required by the Act.

Inducting new board members

DIA could do more work to ensure that new board members receive induction information.

New board members for Crown entities may be unfamiliar with government requirements, processes and procedures, the functions of the entity, and their duties as a board member. Monitoring departments need to ensure that new board members receive induction information about these matters and the Minister’s expectations of them.

In most of the cases that we reviewed, MCH and MED had ensured that new members of each Crown entity’s board had received induction information covering much of the information we expected. For example, MCH had been involved in running induction workshops for new board members.

DIA carried out little work to ensure that new board members received induction information. This is an area that it could improve on.

In one case, MED prepared letters of expectations from the Minister to new board members. The letters clearly set out each member’s role, the Minister’s expectations for their appointment term, and some work the Minister wanted them to carry out in the short term. The letters focused on making improvements within the Crown entity. We commend MED for this work.

Representatives from six of the selected Crown entities told us that they saw inducting new board members as their own responsibility. This is not an unreasonable expectation, because the entity and the board should have the best first-hand knowledge of the entity and the board’s working style. However, monitoring departments may be better positioned to provide information to new board members about monitoring arrangements and government requirements, processes, and procedures for Crown entities. We expect monitoring departments to ensure that it is clear who is responsible for providing the different elements of induction information to new members, and that the information covers all the areas it needs to.

Providing ongoing support to board members and chief executives of Crown entities

MCH provided considerable ongoing support to board members and the chief executive of each Crown entity.

MCH has provided ongoing support to assist the board members of Crown entities in their governance role. For example, it has a dedicated internet site for board members to access information on governance, including an online manual about governance issues. It has also prepared newsletters for board members on governance issues.

We were told that MCH organises monthly meetings for the chief executives of Crown entities.

We received very favourable comments from some chief executives and chairpersons about the work MCH does to induct and support board members and to facilitate meetings of chief executives.

It is clear that MCH has put much effort into providing ongoing support to the chairpersons and chief executives of the Crown entities it monitors. In doing so, MCH has documented a substantial amount of in-house knowledge on governance matters within its manual and newsletters. This places MCH in a strong position to continue providing responsible Ministers with support on governance matters. We commend MCH for this work.

1: State Services Commission (2006), Board Appointment and Induction Guidelines.

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