Part 4: Understanding Crown entity performance

Improving value through better Crown entity monitoring.

In this Part, we discuss:

We expected that monitoring departments would:

  • use a wide range of information to assess and evaluate the performance of Crown entities;
  • identify risks to the performance of Crown entities and the wider sector;
  • provide reliable and accurate advice to responsible Ministers about those risks and a Crown entity's performance more generally; and
  • provide advice to responsible Ministers about using available levers to improve Crown entity performance.

Summary of findings

We looked at a range of monitoring reports to responsible Ministers. We found that they did not capture a full view of the Crown entity's performance. They generally lacked depth of analysis, did not report enough about risks, did not report on board performance regularly, and offered limited advice about actions that responsible Ministers could take when Crown entities were not meeting expectations.

From the information provided in monitoring reports, we could not see how monitoring departments could make a well-informed and reliable judgement on Crown entity performance. Both monitoring departments and Crown entities need to produce quality performance information to properly advise the responsible Minister on Crown entity performance.

Requesting or developing better quality information, especially on risks, would enable monitoring departments to help a Crown entity avoid an issue before it occurs. When issues do occur, there is no clear escalation process.

A well-functioning board is integral to the Crown entity monitoring system. However, when information on board performance is not routinely collected, it is difficult to determine how well a board is functioning. Monitoring departments should regularly seek to understand how effectively a board operates and report this to the responsible Minister.

Monitoring departments need to better understand the Crown entities they monitor

A monitoring department's ability to add value is highly dependent on its knowledge of the sector that the Crown entity is part of.

It is important that monitoring departments understand:

  • the Crown entity's environment and regulatory context;
  • the nature and scope of the Crown entity's role and functions;
  • which organisations the Crown entity needs to work with to carry out its functions;
  • the structure of the Crown entity; and
  • the Crown entity's strategic objectives.

Crown entities told us that some monitoring departments did not have a thorough understanding of their issues or their business. Several Crown entities said that limited understanding was one of the biggest challenges of working with their monitoring department.

We accept that some Crown entities fit more naturally with the scope and mandate of their monitoring department than others. However, in our view, a critical part of the monitoring department's role is to build relationships with the Crown entity and understand the context it is working in. Crown entities might equally benefit from better understanding the scope and mandate of their monitoring department.

We strongly encourage monitoring departments and Crown entities to work together to build this knowledge and understanding. In our view, having secondments or joint induction sessions (where staff from each organisation have an opportunity to share information) is likely to be useful.

Better quality performance information is required

We expected that monitoring departments would have a good understanding of their Crown entities' key performance measures. We expected that monitoring departments would collect and analyse a range of information to develop an understanding of Crown entity performance and the likelihood of each Crown entity achieving its strategic objectives. We expected that monitoring departments would use this understanding to advise the responsible Ministers.

When performance objectives were not being met, we expected that there would be agreed escalation processes in place. We expected that the monitoring departments would provide advice to responsible Ministers about what options were available to improve performance.

We also expected that monitoring departments would also form a view about the effectiveness of Crown entity governance by, for example, requesting that Crown entity boards carry out regular reviews of their performance.

We reviewed monitoring reports of nine Crown entities written between 2019 and 2021 (29 reports in total). We found that, generally, the reports:

  • lacked independent analysis and relied too heavily on information provided by Crown entities;
  • did not report enough about the risks each Crown entity is facing in delivering its outcomes or whether Crown entities were adequately managing risks;
  • did not report about the performance of Crown entity boards in a timely way; and
  • offered limited advice about actions that the responsible Minister could take when Crown entities were not meeting expectations.

Reporting to responsible Ministers lacks analysis

We expected that monitoring departments would use the information reported by the Crown entity, combined with information from other sources, to assess a Crown entity's operational and strategic performance. We also expected to see:

  • an assessment of whether the performance information adequately provided a picture of current performance;
  • clear identification of any areas of poor performance, with reasons provided; and
  • a summary of any actions being taken to improve performance.

In our view, this is the minimum level of information required to provide advice to responsible Ministers.

In the monitoring reports we reviewed, a red-amber-green scale was applied to different aspects of the Crown entity performance information, such as financial performance and progress towards performance expectations. Guidance from Te Kawa Mataaho in It Takes Three recommends that monitoring departments make their own assessment of these same aspects of a Crown entity's performance. However, we found this assessment was usually based on, or relied heavily on, a self-assessment by the Crown entity.

All the monitoring departments we surveyed told us that they use other sources of information as well as the information that Crown entities provide. However, we did not see evidence of how monitoring departments use this other information in the monitoring reports that we reviewed. In most cases, the monitoring reports appeared to largely repeat the information a Crown entity provided without adding significant insight to it.

Few reports and briefings we reviewed were forward looking. Monitoring departments rarely drew information together in briefings to reach conclusions about significant issues facing a Crown entity or environmental changes that could affect a Crown entity's future performance.

In our view, monitoring departments need to provide an independent assessment of the information from Crown entities. It might be helpful if monitoring departments tested the information from Crown entities against information from other sources, such as customers and stakeholders, or compared the information with that from other entities.

There is likely to be information that the Crown entity already holds that could provide more comprehensive performance advice to responsible Ministers. This could include audit and risk committee reports, risk registers and frameworks, or workforce planning and other capability strategies.

Monitoring departments should have a good understanding of the range of information a Crown entity holds. In our view, monitoring departments should review these sources to ensure that they are consistent with externally reported performance information. We expect Crown entities to be open and transparent about this information with their monitoring departments.

Information sharing is an integral part of Crown entity monitoring. In our view, information sharing works better when monitoring departments and Crown entities work together to develop their monitoring framework, and establish clear expectations of one another and their roles and responsibilities (see Part 2).

Monitoring reports do not include adequate information on risk

We expected monitoring reports to include a robust assessment of a Crown entity's risks. Where risks are clearly identified, responsible Minsters should be advised about how effectively these are being managed and mitigated. Te Kawa Mataaho's It Takes Three states that the monitoring department should "seek information to identify risks to the entity, to facilitate risk monitoring and response" as well as "scan for and act on emerging risks that may require a response". We did not see evidence that these activities were regularly happening.

Monitoring reports we reviewed typically included:

  • a summary of the Crown entity's activities for the quarter;
  • financial information describing whether the Crown entity is on budget;
  • non-financial performance information, including information setting out how many of the Statement of Performance Expectations measures are on target; and
  • a summary of risks the Crown entity faces.

However, monitoring departments do not appear to have a routine method for gathering information on risk from, or about, Crown entities. We saw monitoring departments rely on an individual's knowledge of the sector and relationships with the Crown entity to understand potential risks.

Relationships with people working in the sector can provide useful information about a Crown entity's performance. However, relationships alone are not a reliable method for identifying the risks a Crown entity faces.

Ideally, the monitoring department would have its own framework for thinking about the risks that Crown entities face. The monitoring department should also use its regular engagement with the Crown entity and review of relevant documents to monitor and record key risks over time. This would assist the monitoring team in determining whether the risk is increasing or decreasing. It would also help the monitoring team decide when to raise a risk for discussion with the Crown entity, when to keep their own leadership informed, and when it might be necessary to brief the responsible Minister.

It is not clear whether mechanisms to address performance issues are effective

Responsible Ministers have a range of ways to influence the performance of Crown entities. These are sometimes called "performance levers". Monitoring departments advise responsible Ministers on the most appropriate levers to use. It Takes Three identifies several levers available for Ministers to use, including:11

  • meeting with staff or board members;
  • writing a letter of expectations;
  • requesting information;
  • directing the board chairperson to a particular action;
  • leading a process to amend legislation;
  • altering the monitoring regime;
  • commissioning a review of the Crown entity's performance; and
  • changing board members.

The most common lever we saw responsible Ministers use was the letter of expectations. Generally, the responsible Minister would use this letter to inform the Crown entity that they expect performance targets to be met, if the Crown entity had not met the target the previous year.

We did see examples of other performance levers being used. In one example, a Crown entity faced significant financial pressures. The monitoring department advised the responsible Minister about the levers they could use for addressing this issue. The levers included more intensive monitoring and new performance measures.

One responsible Minister told us that telling the Crown entity to improve generally works (in their view, instructing the Crown entity worked about 80% of the time). In the other instances, they would have a direct conversation with the board chairperson. When asked what they would do if the direct conversation did not work, the Minister said they were not sure because so far it has always worked.

However, staff from both Crown entities and monitoring departments told us that the current levers are ineffective. We heard that when a Crown entity is not performing, the monitoring department feels it can only inform the Crown entity to improve performance either through a letter or in a meeting as other levers are perceived as too drastic. In our view, monitoring departments should consider what other actions are appropriate to help the Crown entity address the cause of poor performance.

Where there are disagreements between monitoring departments and Crown entities, we did not see a clear escalation process for how those issues would be addressed. Only 43% of Crown entities surveyed said they had an agreed process with their monitoring department for resolving any issues or disputes.

Most of the monitoring departments we spoke to could not identify a clear escalation process to resolve an issue or dispute. In some cases, monitoring departments were not clear about when an issue should be escalated to responsible Ministers.

For example, in one situation we heard that neither the board nor the monitoring department advised the responsible Ministers of bullying and harassment complaints in a Crown entity until they were reported in the media. This is despite the board and the monitoring department acknowledging that they were aware of these issues for some time. Although it is not the responsible Minister's role to deal with employment matters, they do have an interest in understanding the risk this could present to the performance of the Crown entity and the reputation of the public sector.

In our view, there would be value in monitoring departments and Crown entities having more discussions about how to escalate risks rather than waiting for poor performance to trigger an intervention. These could involve senior management having more discussions with Crown entity chief executives, Ministers' offices, or even central agencies, where appropriate.

Information on board performance is not routinely provided to responsible Ministers

Understanding and managing risks to the Crown entity is important for effective governance. Monitoring departments need to gather information to understand whether governance in the Crown entity that they are monitoring is being carried out effectively. They should report this information to the responsible Minister.

A well-functioning board is critical to good Crown entity performance. We expected that board evaluations would be carried out regularly to understand whether it is functioning effectively and to identify improvements in board performance.

Te Kawa Mataaho recommends that both internal and external evaluations should be carried out by Crown entities. We expected that monitoring departments would use the results of these evaluations to keep responsible Ministers informed about board performance.

Two-thirds of Crown entities we surveyed had carried out a board review, and most of these were done in the last two years. More than half were external reviews. In our view, this is positive.

However, we could not see evidence that the results of board evaluations were consistently reported to responsible Ministers. In the monitoring reports that we reviewed, we found little reference to board evaluations. We saw advice about individual board member performance, but these were generally raised during reappointment processes (about once every three years).

It appears that unless the Crown entity volunteers the information, poor performance of a Crown entity board or an individual board member can continue for a significant length of time without the responsible Minister being aware, and without the issue being addressed.

Monitoring departments should regularly ask Crown entities to carry out board evaluations. Information from these evaluations will enable them to form advice about whether the Crown entity's governance is effective.

As well as formal board evaluations, monitoring departments could assess the effectiveness of governance in other ways, including by:

  • obtaining board papers to understand whether the board is being made aware of, and/or actively seeking, information about strategic risks;
  • checking the quality of risk monitoring and mitigations; or
  • ensuring that internal risk and assurance plans are in place (without overstepping the governance role of the board).

Advice to responsible Ministers is integral to their understanding of Crown entities' performance

Crown entity boards are primarily accountable for Crown entity performance. However, advice from the monitoring department is important for Ministers to adequately understand how a Crown entity is performing.

Responsible Ministers need to be aware of the risks a Crown entity faces and the effects this might have on meeting strategic goals or on operational performance. Responsible Ministers should also have a clear understanding of how board members are contributing to the performance of a Crown entity. Without this knowledge, it can be difficult for a responsible Minister to know if a Crown entity board is effectively delivering on strategic objectives.

Recommendation 4

We recommend that monitoring departments improve the quality of performance reporting about Crown entities, ensuring that reports to Ministers provide an independent view on:

  • a Crown entity's strategic and operational performance;
  • how the Crown entity is managing risk;
  • the potential impact of risks on both performance and outcomes; and
  • the results of regular board evaluations in a timely way.

11: The full list of performance levers available to responsible Ministers is available at