Part 3: Governance in government departments is different

Reflections from our audits: Governance and accountability.

3.1
The public sector has many forms of governance. In this report, we have discussed councils in local government and boards in Crown entities and State-owned enterprises. The governance structures for these entities is clear, at least in theory. The governance structure for government departments is less clear. We have often been asked how governance works in government departments.

3.2
The governance of departments is shared between the responsible Minister and the chief executive. In practice, chief executives have dual roles as both governors and managers of their departments. This duality is also present in the roles of departmental leadership teams, which are expected to function as both governance and management bodies. The challenge associated with having these dual roles – the need to be clear about when to act as a governor and when to act as a manager – needs ongoing attention.

3.3
In understanding these particular arrangements, it needs to be remembered that constitutional conventions and norms play an important role in guiding how the system of public service responsibility to Ministers works. The public service is politically neutral; it serves the Government of the day and its neutrality is protected by the State Services Commissioner. In New Zealand, senior public sector leaders do not change because a new government is elected.

Ministers' role

3.4
The Cabinet Manual sets out the role, responsibilities, and powers of ministers (this relates to the element of good governance: roles and responsibilities). The manual also sets out the relationship between Ministers and the public service, and in particular with chief executives. Among other responsibilities, Ministers:

  • make significant decisions and determine government policy collectively, through the Cabinet decision-making process (clarity of purpose – element 1);
  • determine both the policy direction and the priorities for their departments (clarity of purpose – element 1);
  • are supported by and (to varying degrees, depending on the nature of the entity) direct officials in the State services and the wider State sector (good leadership – element 3);
  • are members of Parliament and accountable to the House for their policies, their performance, and the performance of entities within their portfolios (clear accountabilities – element 6); and
  • have a political role in maintaining government stability, which requires maintaining close working relationships with all other parties as issues arise (effective relationships – element 5).

3.5
In general terms, Ministers are responsible for determining and promoting policy, defending policy decisions, and answering in the House on both policy and operational matters. A department must provide information to its Minister about its strategic intentions. However, Ministers should not be involved in their departments' day-to-day operations.

Ministers' relationships with chief executives

3.6
The formal relationship between Ministers and the public service is governed primarily by the State Sector Act 1988 and the Public Finance Act 1989. The relationship is also governed by convention, important aspects of which are set out in the Cabinet Manual.

3.7
The main point of contact between the Minister and a department in the public service is the chief executive. Chief executives are responsible to their portfolio Ministers, under section 32 of the State Sector Act 1988, for:

  • carrying out of the functions and duties of the department (including those imposed by statute or by the policies of the Government);
  • tendering advice to their own Minister(s) and other Ministers;
  • the general conduct of the department; and
  • the efficient, effective, and economical management of the department.

3.8
Chief executives are responsible to their responsible Ministers for the financial management and performance of their departments under section 34 of the Public Finance Act 1989. This is important for accountability and relies on effective risk management and good information systems and controls.

3.9
Also, the 2013 amendments to the State Sector Act 1988 set out chief executives' responsibilities for the stewardship of:

  • the department or departmental agency including of its medium- and long-term sustainability, organisational health, capability, and capacity to offer free and frank advice to successive governments;
  • assets and liabilities on behalf of the Crown that are used by or relate to (as applicable) the departmental or departmental agency; and
  • the legislation administered by the department.

3.10
There are also system-wide stewardship expectations for chief executives set by the State Services Commission to:

  • collaborate with others to improve service delivery and the achievement of outcomes; and
  • create a larger and deeper pool of leaders with the skills and experience to fill senior positions in the public service and the wider State services, now and in the future.

3.11
As well as the core expectations of chief executives, in late 2015, two areas of performance were singled out for stretch system-wide stewardship expectations: delivery of results and people leadership.

3.12
We expect these changes to the public management system will drive new governance arrangements, such as cross-agency and network governance, which we highlight in Part 6.

3.13
In summary, departmental chief executives have dual roles as both governors and managers of their departments. Some also have functional leadership responsibilities. Chief executives need to balance the strategic view with "business as usual" activities. This involves balancing how they develop and maintain the long-term capability of the department with the day-to-day management responsibilities of running the department and delivering the advice, programmes, and services to meet the Government's policy objectives.