Appendix: Governance arrangements of Crown research institutes and State-owned enterprises

Maintaining a future focus in governing Crown-owned companies.

We outline below some of the specific differences in the governance and funding arrangements of CRIs and SOEs. Every CRI, SOE, and other Crown company (including their subsidiaries) is defined as a public entity for the purposes of the Public Audit Act 2001 and is therefore audited by the Auditor-General.

Governance arrangements for Crown research institutes

CRIs were set up under the Crown Research Institutes Act 1992 to carry out research for the benefit of New Zealand. CRIs provide a range of scientific and advisory services and operate as companies with a particular and distinct science or research purpose.

The governance structure is the same for all CRIs. The shareholding Ministers (the Minister of Finance and the responsible Minister, which is currently the Minister of Science and Innovation) appoint the Board, which is accountable to the shareholding Ministers for the CRI's performance.

Boards of CRIs are required to produce an annual statement of corporate intent, an annual report, and a half-yearly report, all of which the responsible Minister must present to Parliament for scrutiny.

Since 2009, CRIs have been required to hold annual general meetings with the shareholding Ministers or their representative. At these meetings, the Board describes and accounts for the CRI's activities during the past year.

CRIs are required to promote, and help to apply, the results of research and technological advances and to maintain their financial viability.

The report of the Crown Research Institute Taskforce (the Taskforce) in February 2010 led to considerable change for CRIs and for science research funding and policy agencies.19 The Government's objectives have been to:

  • increase the benefits from science-based innovation;
  • simplify funding and monitoring; and
  • move responsibility and accountability for investment decisions.

The changes included:

  • a statement of core purpose setting out the enduring purpose and focus for each CRI;
  • balance sheet reviews by the monitoring agent;
  • the requirement for each CRI to prepare its statement of corporate intent in close consultation with its sector groups, related businesses, and other end users;
  • moving significant funding from funding agencies to CRIs, so that each CRI Board receives core funding (direct Crown funding), with the amount and percentage varying for each CRI;
  • CRIs receiving an investment (and accountability) role in strategy and allocating resources;
  • a new set of key performance indicators for CRIs that give weight to the financial viability requirement and the requirement to deliver research that benefits New Zealand; and
  • moving the main responsibility for monitoring CRIs from the Treasury's Crown Ownership Monitoring Unit (COMU), first to the Ministry of Science and Innovation, then to the Ministry of Business, Innovation and Employment. (COMU retains a role monitoring how CRIs perform financially.)

Governance arrangements for State-owned enterprises

SOEs were set up under the State-Owned Enterprises Act 1986 (the SOE Act). As registered companies, they are bound by the requirements of the Companies Act 1993.

The SOE Act defines an SOE's main purpose to be as profitable and efficient as comparable businesses that are not owned by the Crown. Each SOE is required to be a good employer and to show a sense of social responsibility. Each SOE's accountability statement describes the SOE's specific purpose.

Part 3 of the SOE Act details specific accountability requirements and the information to be provided to shareholding Ministers and Parliament. An SOE is required to present an annual accountability statement and annual and half-yearly reports on the accountability statement to Parliament. The accountability statement:

  • is fundamental to a Board's governance responsibilities to the shareholding Minister;
  • discloses in advance the SOE's objectives and scope of operations, among other things, for the three-year period;
  • discloses the basis on which the Board will be held accountable at the end of the financial year; and
  • provides a basis for informed public debate about matters such as:
    • the corporate objectives of each SOE and the nature and scope of activities that they carry out;
    • any non-commercial obligations that the SOE accepts and the manner and amount of compensation; and
    • how profits should be used.

In the past, these information requirements were a significant difference between public sector and private sector companies. However, changes in the disclosure requirements of the Australian Securities Exchange suggest that expectations of the information disclosure by private sector companies are increasing and that the "gap" between public and private sector disclosure requirements is reducing.

An SOE has two shareholding Ministers the Minister of Finance and a responsible Minister (normally the Minister for SOEs). COMU is the monitoring agent for shareholding Ministers. It provides those Ministers with advice on SOEs' performance. COMU helps in appointing Board members.

In its 2013 report for the Treasury Review of Monitoring of Solid Energy, Deloitte set out the main changes in SOE monitoring arrangements from 2008 to 2013:

  • In 2009, shareholding Ministers introduced a regime for larger SOEs to keep the public informed on matters that could have a material effect on an SOE's commercial value. Deloitte reported that this was extended to all SOEs from 2012.
  • In 2010, COMU moved its focus from helping executives to more independently assess the Board and a move from a narrow "performance against plan" assessment to a broader performance focus supported by benchmarking and increased public scrutiny of performance.
  • In 2010, the Minister's letter of expectations set out a desire for Boards to modify dividend policies to become more commensurate with listed companies and for more consistent and improved payout levels over the years.20

19: In October 2009, the Government set up the Crown Research Institute Taskforce to work out how New Zealand could get the greatest benefit from CRIs. Crown Research Institute Taskforce (2010) How to enhance the value of New Zealand's investment in Crown Research Institutes, available at

20: Deloitte (April 2013), The Treasury: Review of Monitoring of Solid Energy, chapter 5, pages 17-31.

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