Stephen Bottomley, Consultant
Politics and Public Administration Group
11 April 2000
Vision in Hindsight
Vision in Hindsight is a Department of the
Parliamentary Library (DPL) project for the Centenary of
Federation.
The Vision in Hindsight: Parliament and the
Constitution will be a collection of essays each of which
tells the story of how Parliament has fashioned and reworked the
intentions of those who crafted the Constitution. The unifying
theme is the importance of identifying Parliament's central role in
the development of the constitution. In the first stage, essays are
being commissioned and will be published, as IRS Research Papers,
of which this paper is the third.
Stage two will involve the selection of eight to ten of the
papers for inclusion in the final volume, to be launched in
conjunction with a seminar, in November 2001.
A Steering Committee comprising Professor Geoffrey Lindell
(Chair), the Hon. Peter Durack, the Hon. John Bannon and Dr John
Uhr assist DPL with the management of the project.

Centenary of Federation 1901-2001
|
Contents
Major Issues
Introduction
Why are Government Business
Enterprises Created?
What are Government Business
Enterprises?
Factors Behind the Creation
of GBEs
Commercialisation v
Accountability
Recent History of GBE
Accountability Reform
The Present GBE Accountability
Framework
Conclusion
Endnotes
References
Major Issues
Authors note: This paper was finalised in
November 1999.
This paper reviews the accountability
environment of Commonwealth government business enterprises (GBEs)
and assesses the role of Parliament in that environment. GBEs face
two sets of demands which can have conflicting effects. These
demands can be described as commercialisation and parliamentary
accountability. Commercialisation has been a prominent part of
government policy in recent years. It requires government business
enterprises to be able to perform effectively in the private
sector. On the other hand parliamentary accountability demands that
these entities should respond to requirements of open government.
Despite their significant historical and contemporary role in the
system of public government, a continuing question has been how
GBEs can best be located within a framework of Parliamentary
accountability. The conclusion drawn in this paper is that despite
the considerable attention which has been given to the question of
GBE accountability, the role of Parliamentary accountability still
requires greater attention.
To a considerable extent the accountability
problem for GBEs stems from the fact that they are hybrid
organisations; they have features of both private and public sector
organisations. Like private companies, they engage in
profit-seeking commercial activity, often in competition with
private sector businesses. Like public sector agencies, they are
required to execute government policies, often in the form of
delivering non-commercial services (or 'community service
obligations'). For the purposes of this discussion, a GBE is said
to have three characteristics:
-
- its principal function is to engage in commercial activities in
the private sector
-
- it is controlled by government, and
-
- it has an independent legal existence from government and the
executive.
The accountability problems which are posed by
GBEs arise from the tension between the first two characteristics:
GBEs are public bodies which engage in private sector activity. The
difficulties in devising and applying appropriate accountability
mechanisms arise from the tension between the last two
characteristics: how does government effectively control an entity
which is legally independent of it and, consequentially, how does
parliament retain control over these entities? In particular, the
legal independence of GBEs has two consequences. On the one hand it
offers the advantage that a GBE can operate with some degree of
organisational, operational and budgetary independence from
government. On the other hand it creates a barrier to the usual
mechanisms of parliamentary accountability and control,
necessitating the creation of special accountability mechanisms.
This applies whether the GBE is a statutory corporation or company
incorporated under the Corporations Law.
The concept of accountability itself gives rise
to a number of questions which must be answered in the particular
context of GBEs. For example, what conduct satisfies the criterion
of accountability? To whom should accountability be provided? When
should accountability be provided?
Regarding the first question, different criteria
which can be used in assessing whether a GBE is being
'accountable'. A GBE might be said to be accountable if it provides
accurate information about its financial (and possibly its
performance) activities when it is required to do so. Here the
demands of accountability and commercialisation are likely to
conflict because a GBE may want to keep commercially sensitive
information confidential rather than disclosing it in a public
Parliamentary forum. This problem is exacerbated if, on a stronger
view of accountability, a GBE is required to explain or justify its
actions to Parliament.
Secondly, further accountability problems arise
when one considers the varying requirements of different
accountability audiences. This is apparent in the case of GBEs
which are incorporated as Corporations Law companies. This was
illustrated at the first general meeting of Telstra Ltd in 1998
after its one-third privatisation, where many questions were
directed at the perceived conflict between the board's
responsibilities to the minority private shareholders and to the
Government as majority shareholder. In instances where the
shareholders of the GBE are Government Ministers and a director of
the GBE is a departmental officer, it might be said that the
accountability of the director to the shareholder is similar to
that of an officer to the Minister, and that no separate
accountability obligations should therefore apply. But although the
people involved are the same, the fact remains that they occupy
dual roles with each role attracting different accountability
issues.
Thirdly, there is an issue as to when the
accountability requirements should apply. Should they apply before
significant policy or resource decisions are made, during the time
policies are being implemented and resources are being used, or
after these events? Different accountability timeframes will apply
depending upon who the accountability audience is, and on the
method by which that accountability is conveyed. For example,
accountability of GBEs to the public will be after the event, while
accountability to the portfolio Minister will require disclosures
of policies before they are implemented by the GBE.
Making these accountability choices with regard
to GBEs creates a dilemma. The dictates of commercialisation,
particularly where the entity is required to compete in a private
sector market, will demand that certain issues be kept
confidential, and that the entity should be allowed greater freedom
than other governmental entities from parliamentary accountability
mechanisms.
The existing accountability framework for GBEs
is constructed from a number of different but interlocking
mechanisms. This multiple approach has the advantage of covering
different aspects of GBE operations but it also has the
disadvantage of possible inconsistency and lack of cohesion. Not
all of these accountability mechanisms involve the Parliament
directly. Indeed, it is more accurate to say that Parliamentary
control over GBEs is most often indirect and after the event.
One of the principal methods for ensuring the
accountability of GBEs has been to locate them within the general
structure of ministerial responsibility to Parliament. In simple
terms, this means that staff in a GBE are accountable to management
who are in turn accountable to the board of directors. The
directors are accountable to the relevant portfolio minister who,
in turn, is accountable to Parliament for the performance of GBEs
in that portfolio. Problems can arise at different points along
this accountability chain. For example, in a Corporations Law GBE,
if a director is appointed from the Minister's department,
conflicts may arise between the director's autonomous duty to the
company and his or her obligations to the department. This may
impede the extent to which that director reports to the
Minister.
Another set of accountability mechanisms is
supplied by statute. One such source is the Commonwealth
Authorities and Companies Act 1997 (Cwlth). Added to this, a
company GBE will be subject to requirements in the Corporations
Law. In some cases a company GBE will be also subject to further
specific statutory requirements, as with Telstra Corporation Ltd
and the Telstra Corporation Act 1991 (Cwlth). A statutory
corporation GBE will have accountability requirements imposed by
its incorporating statute.
Strong arguments can be made for the view that
by itself the accountability environment which is created by the
Corporations Law is insufficient for the public governance
environment in which GBEs operate. For example, while the immediate
shareholders in a GBE may be Ministers, in a wider sense the
ultimate 'owners' of the enterprise are the members the taxpaying
public, and their ownership is not voluntary and it is not
transferable. Moreover, while GBEs may be subject to competitive
market pressures for goods or services, an underperforming GBE is
not subject to the threat which is, in theory, posed by a potential
takeover of the organisation, as occurs in the private sector.
The Auditor-General also has a role in GBE
accountability, serving as an important public symbol for the
public nature of GBE activity. There are, however, limitations on
this role. Under the Auditor-General Act 1997 (Cwlth) the
Auditor-General may only conduct a performance audit of a
wholly-owned Commonwealth company that is a GBE if requested to do
so by the Finance Minister, the responsible Minister or the Joint
Committee of Public Accounts and Audit (ss. 16-17). The argument
used to support this limitation is that the pressures of market
competition and the enforcement of performance targets are an
effective substitute for scrutiny by the Auditor-General.
In general, the key GBE accountability
mechanisms which are identified in the paper tend to rely on
executive monitoring and to under-emphasise the role of
Parliamentary control and accountability. This is consistent with
the three-pronged requirements of commercialisation,
corporatisation and privatisation. Whether it is consistent with
the requirements of public and parliamentary accountability is
debatable.
The history of government in Australia suggests
that it is unlikely that GBEs will disappear from our public
landscape. What is needed, therefore, is continuing attention to
the accountability framework within which these entities operate.
An important step in that process is to systematise the gathering
and publication of information about GBEs and wider government commercial
operations.
Introduction
At the end of the twentieth century
commercialisation (allowing or requiring government agencies to
charge for the goods and services they produce) and corporatisation
(the adoption of private sector management models and legal
structures) have become firmly established policies at the
Commonwealth and State level of government.(1) Government business
enterprises (GBEs) are one of the clearest illustrations of these
two trends in modern public governance. This paper examines the
place of Commonwealth GBEs within the wider framework of
parliamentary and public accountability. The need for such an
inquiry is underlined by the scale of GBE activity and its
contribution to economic and social well-being.
Ironically, despite the prominence of GBEs, it
is difficult to obtain a clear picture of the overall significance
of GBE activity. This is partly because there is no universally
accepted way of defining the term 'GBE', and partly because
comprehensive and up-to-date figures are difficult to obtain.
Nevertheless, it is possible to give some idea of the dimensions of
the GBE sector. According to the Australian National Audit Office
(ANAO), in 1995-96 Commonwealth GBEs generated nearly $21 billion
in revenue, provided dividends of $1.6 billion, controlled assets
of approximately $41 billion and produced an average return on
assets of 12.8 per cent.(2) The same ANAO Report noted that 'a
number of GBEs play a central role in the economy and dominate
certain strategic industries, including postal services and
telecommunications'.(3) Australia Post, for example, had a gross
revenue of $2.9 billion, making it one of Australia's top 40
corporations in 1995-96.
Clearly, GBEs are a prominent aspect of the
modern system of extended government. Indeed, Professor Paul Finn
(now a Judge of the Federal Court) has dubbed this area of activity
the 'fourth arm of government'.(4) It is useful to remember,
however, that while the scale and range of modern GBE activity is
significant, government reliance on GBEs is not just a recent
phenomenon. Professor Roger Wettenhall, a leading observer, notes
that '[t]he Australian States and New Zealand were pioneers in the
English-speaking world in the use of State enterprise for
developmental purposes and, during the 19th and earlier 20th
centuries, they built up large networks of public enterprises'.(5)
Wettenhall goes on to mention the importance of railways in these
early developments. This was also noted by the High Court in
Deputy Commissioner of Taxation v State Bank of New South
Wales:
The activities of government are carried on not
only through the departments of government but also through
corporations which are agencies or instrumentalities of government.
Such activities have, since the nineteenth century, included the
supply on commercial terms of certain types of goods and services
by government owned and controlled instrumentalities with
independent corporate personalities. Railways are a notable
example. As early as 1906, in The Federated Amalgamated
Government Railway and Tramway Service Association v. The New
South Wales Railway Traffic Employees Association ... (1906) 4
CLR 488, this Court recognised that the railway undertakings of the
colonial governments carried on by incorporated Railway
Commissioners were instrumentalities of those governments, ibid.,
per Griffith CJ at p. 535. Likewise, banking activities were
conducted by corporations under legislation enacted by the colonial
legislatures before federation ...(6)
Professor Ross Cranston has characterised the
growth of public enterprise in Australia in the 19th century as
being the product of economic necessity: '[t]he distances to be
covered, and the absence of large local capitalists, placed the
onus on government to develop railways and communications'. In
contrast, during the early 20th century, 'Labor politicians saw
government enterprise and nationalization as the means of combating
monopoly and achieving social justice'.(7)
Cranston gives two examples which illustrate the
point. Amalgamated Wireless (Australia) Ltd was a company with a
share capital of one million pounds, a bare majority of which was
held by the Australian Government, the rest being held by private
shareholders. In the 1920s and early 1930s this company had a
monopoly over radio and telegraphic services between Australia and
other countries in the British Empire as a result of agreements
negotiated by the Australian Government. In the 1950s the
Commonwealth shareholding was sold by the Menzies Government. The
second example concerns the Commonwealth Oil Refineries company, in
which the Commonwealth held a bare majority of the issued shares.
According to Cranston, this company was formed originally to
conduct an oil refinery in order to free Australia from the
'stranglehold of foreign corporations'. In 1924 its activities were
expanded to include domestic distribution of its petroleum
products. As Prime Minister Bruce put it in Parliament, 'I should
indeed be surprised to find the House not agreeing that the company
should be so self-contained as to be in a position to do its own
distributing in competition with other suppliers of the refined
products of oil to the people of Australia'.(8)
Whatever the benefits of GBE activity may be in
terms of returns to government or efficiency of service delivery,
the continuing question has been how to locate GBEs within a
framework of public or Parliamentary accountability. The argument
which was put by the Royal Commission into government commercial
activity in Western Australia is just as appropriate at the
Commonwealth level:
The public is entitled to insist that government
be conducted openly and that it be, and be seen to be, accountable
for its actions. Nowhere is the need for this more apparent than
when it undertakes initiatives which put public funds and resources
at risk.(9)
The conclusion that is drawn in this paper is
that despite the considerable attention which has been given to the
question of GBE accountability, the role of Parliamentary
accountability still requires greater attention.
Why
are Government Business Enterprises Created?
There is no single rationale that explains the
creation of all GBEs. As a general proposition, however, it is safe
to say that a GBE will be created when Government wishes to conduct
some form of commercial enterprise at arm's length from the usual
departmental structures and processes.
What this means is that the question 'why are
GBEs created?' breaks down into two more particular questions: 'why
does Government want to engage in that particular commercial
activity?' and 'why must it be conducted in the form of a GBE?' A
detailed answer to the first question lies beyond the scope of this
paper but reference can be made to historical and contemporary
demands. The National Commission of Audit noted in its 1996 Report
that:
Governments became involved in [commercial]
areas for several reasons: the private sector was seen as incapable
of delivering the required products or services; the community
considered it appropriate that government should own a firm that
operated as a natural monopoly; or the government wanted to fulfil
a community service obligation (CSO).(10)
Referring to contemporary developments, the
Joint Committee of Public Accounts (JCPA) noted in 1995 that:
The recent extension of commercialisation has
occurred in the context of broader changes in public sector
management which are designed to increase the efficiency and
effectiveness with which resources are used. ... The proponents of
commercialisation claim that it provides greater incentives to
manage costs and improve the quality of the goods and services
provided.(11)
The second question is addressed in detail under
the next heading of this paper.
What are Government Business Enterprises?
As noted already, the term 'government business
enterprise' (or GBE) is used widely, but there is no single,
generally accepted definition that attaches to the term. Yet if we
are to make any headway in discussing the accountability
environment of GBEs it is important to understand what is being
referred to. This is because GBEs are hybrids. They have features
of both private and public sector organisations. Like private
companies, they engage in commercial activity with the goal of
profit-making, often in competition with other private sector
companies. Like public sector agencies, they are required to
execute government policies, often in the form of delivering
non-commercial services (or 'community service obligations'). In
theory, then, there are choices to be made about adopting primarily
public or private styles of accountability regulation for these
entities. Attention to the definitional question can help to
clarify this choice of regulatory regime.
In some instances the problem of definition has
simply been side-stepped. For example, the accountability
mechanisms which are found in the Commonwealth Authorities and
Companies Act 1997 (Cwlth) (the CAC Act) apply only
to those specific GBEs which are prescribed by regulation for the
purposes of the Act. The regulations to the Act list
13 organisations which have been classified as GBEs for this
purpose, although some of these have since been either fully
privatised or wound up.(12) The remaining GBEs in the list include:
the Australian National Railways Commission; Australian Postal
Corporation; Defence Housing Authority; Employment National
Limited; Export Finance and Insurance Corporation; Snowy Mountains
Hydro-electric Authority; and Telstra Corporation Limited. This
definition by prescription approach avoids the problem of
identifying clear criteria, although it does give some indication
of the type of organisation with which this paper is concerned.
We need, however, to go further than listing
examples. We need to understand why a particular organisation might
be included in, or omitted from, such a list. A review of the
recent literature suggests that the following three characteristics
are considered to be essential in classifying an organisation as a
GBE:(13)
-
- its principal function is to engage in commercial activities in
the private sector
-
- it is controlled by government, and
-
- it has an independent legal existence from government and the
executive.
The accountability problems which are posed by
GBEs arise from the tension between the first two characteristics:
GBEs are public bodies which engage in private sector activity. The
difficulties in devising and applying appropriate accountability
mechanisms arise from the tension between the last two
characteristics: how does government effectively control an entity
which is legally independent of it and, consequentially, how does
parliament retain control over these entities? Common to these
problems is the fundamental assumption that GBEs are the
responsibility of government and, therefore, parliament, and that
they should be subject to some form of public accountability.
To identify the accountability and control
problems more clearly it is useful to look at these three
characteristics in a little more detail.
Commercial Activities
With regard to the first, the term 'commercial
activities' refers to 'the sale of goods or services for financial
return in an open market, that is, in a market where the consumers
of the goods or services are not limited to government-funded
bodies'.(14) It should be noted that not all GBEs engage in
commercial activities in the same way. Some are monopoly suppliers
of goods or services (such as Australia Post), while others (such
as Telstra Ltd) operate in competitive markets with private sector
companies.(15) Commercial activity need not be the only activity of
a GBE but it will be its principal activity. This therefore
excludes from our definition agencies which are primarily
regulatory authorities, such as the Civil Aviation Safety
Authority. It also allows that GBEs will often be required to
discharge community service obligations (that is, provide goods or
services at subsidised or less than market prices and which might
therefore not be provided if the GBE operated on a purely
commercial basis). For example, Australia Post is required by s. 27
of the Australian Postal Corporation Act 1989 to
provide a standard letter service at a single uniform rate of
postage within Australia. Similarly Telstra Ltd is required to
deliver a number of 'universal service obligations' which are
specified in the Telecommunications Act 1997 (Cwlth). The
JCPA has reported on the tensions which exist between the
commercial orientation of GBEs and the requirements of providing
uneconomic public services.(16)
Government Control
There are also variations on the second
factor-Government control. The question of control lies at the
heart of accountability. What do we mean when we talk about
Parliamentary control of GBEs? 'Control' is a nebulous term-it can
be exercised generally or in relation to specific issues; it can be
exercised permanently or intermittently; it can come from inside
the GBE or be imposed from outside. It can be actual or potential
(sometimes control is exercised by the threat or potential of
actual control). And it can be a combination of these factors.
Two methods of control that have been used in
relation to GBEs are the appointment of government officers to the
board of management (as occurred, for example, in the Australian
Technology Group Pty Ltd) or direct ownership. Some GBEs are
controlled by virtue of being wholly owned by the Commonwealth.
Other GBEs are partly owned by private sector interests, often as a
step towards the full privatisation of the entity (again, at the
time of writing Telstra Ltd is an obvious example). In partly-owned
GBEs there is a question about the level of ownership which is
necessary to give the Commonwealth control over the entity. That
is, what level of Commonwealth ownership is necessary for an entity
to be classified as a government business enterprise?
There are no precise answers to this question. As we move along the
scale from 100 per cent ownership through 50 per cent to
minority government ownership we encounter entities which are more
properly regarded as private, although the point at which this
happens will vary depending on the company. One attempt at a
categorical answer was recommended by the Administrative Review
Council, relying on a test which is similar to that found in the
Corporations Law (s. 46) for defining the relationship of holding
company to subsidiary company. That is, the Commonwealth is said to
control a Corporations Law GBE if the Commonwealth:
-
- controls the composition of the GBEs board of directors
-
- can cast, or control the casting of, more than one half of the
maximum number of votes that might be cast at a general meeting of
the company, or
-
- holds more than one-half of the issued shares in the GBE.
However there are other standards of control
that might be used. For example, we could borrow the control
threshold which is used in regulating company takeovers, and say
that anything over a 20 per cent ownership of voting shares
constitutes effective control.(17)
Independent Legal Existence
In common practice, a GBE will be created in one
of two ways. A GBE can be established as a statutory corporation by
a specific Act of Parliament. These are commonly known as statutory
corporations. The CAC Act includes these entities under the
umbrella term 'Commonwealth authority' (s. 7). Examples include the
Australian Postal Corporation and the Defence Housing Authority.
The alternative is for a GBE to be registered as a company under
the Corporations Law, in practice as a public company. Of the
thirteen GBEs currently prescribed under the CAC Act, seven are
Corporations Law companies and the remainder are (or were)
statutory corporations.(18)
There are important differences between
statutory corporations and government companies (some of which are
discussed below) but they also have some common characteristics
which raise important implications for the Parliamentary control of
GBEs. Most significantly, both statutory corporations and
Corporations Law companies fall into the legal category of 'body
corporate'. This means that they are separate legal entities which
are legally independent of parliament and of the executive. Either
type of corporation may therefore acquire, hold and dispose of
property in its own right. It can enter into, and enforce, legal
obligations on its own, and it can be sued in its own right.
It is important to stress that the formal
independence of a GBE will not be negated by the level of control
which government exercises over the GBE. This is nicely illustrated
in the case of The Commonwealth v Bogle.(19) The
Commonwealth Hostels Ltd was a company over which the Department of
Labour and National Service exercised complete management and
control. The company had been formed to carry out aspects of the
Department's activities. There were no membership interests other
than the Commonwealth. The Minister controlled the appointment and
removal of the company's directors. The board could not act without
the Minister's approval in matters of policy and in many matters of
daily business. The winding up of the company was controlled by the
Minister and any surplus capital on winding up was to be paid to
the Minister. Nevertheless a majority of the High Court held that
the company was not to be treated as the Crown for the purposes of
immunity from State legislation. Fullagar J noted that 'the company
was formed at the instance of the Commonwealth, that the
Commonwealth through the Minister is in a position under the
articles to control the company, and that the ultimate financial
interest is that of the Commonwealth'. Nevertheless he held that
'none of these things can affect the legal character of the company
as a person suing in the courts'.(20) Nor did the fact that 'the
company is in possession and control of property of the
Commonwealth, and that its activities are activities in which the
Commonwealth ... is vitally interested'.(21) As Taylor J concluded,
'[t]he plain fact is that it is a body with an independent
existence ...'.(22)
This legal independence has a double edge. On
the one hand it offers the advantage that the GBE can operate with
some degree of organisational, operational and budgetary
independence from Government. On the other hand it creates a
barrier to the usual mechanisms of parliamentary accountability and
control, necessitating the creation of special accountability
mechanisms which are examined later in this paper.
In theory there are a number of factors which
might influence the choice between statutory corporation and
government company. If it is intended that the GBE should operate
in a competitive private sector market, then incorporation under
the Corporations Law gives the entity the same legal basis for
operation as its competitors. Registration as a company will also
be seen as useful if the enterprise is intended to combine
government and private sector interests, especially if there are
longer term plans for full privatisation. Organisational
flexibility is another perceived advantage of the company form-it
is comparatively easier to amend a company's constitution than it
is to amend the incorporating statute of a statutory corporation.
Speed of incorporation is another factor-despite the sometimes
cursory nature of the legislative process,(23) it can take some
time to get a Bill onto the legislative agenda and to see it pass
through both Houses.
This takes us to one of the most important
implications of the choice between statutory corporations and
generally incorporated companies. There is a significant difference
in the degree of Parliamentary scrutiny that is possible when the
entities are created. Statutory corporations are created on the
floor of Parliament and are therefore subject to the usual
processes of parliamentary debate and inquiry. In this way
Parliament is immediately made aware of the creation of a new GBE
and, in theory, it has the opportunity to scrutinise the management
and accountability structures of the new entity. Furthermore any
later amendments to those structures will require statutory
amendment, giving an occasion for further Parliamentary
scrutiny.
Government companies, on the other hand, are
created as a result of executive action which will not always come
to the attention of Parliament before the event. A government
company can be created in a number of ways. First, the Government,
via one of its agencies, might purchase a controlling shareholding
in an existing private sector company, as happened in 1946-47 with
the acquisition by the Commonwealth of full ownership of Qantas
Airways Ltd. The capacity of a statutory authority to purchase
shares in a private company was upheld by the High Court of
Australia in Kathleen Investments (Australia) Ltd v Australian
Atomic Energy Commission.(24) Second, a new government company
can be formed by registration under the Corporations Law. This can
be done by a department or by another government company or a
statutory corporation. In the latter two cases, the CAC Act
requires that the relevant portfolio Minister must be notified of
the incorporation. Third, a statutory corporation may be converted,
via an Act of Parliament, into Corporations Law company (e.g. the
Snowy Mountains Engineering Corporation (Conversion to Public
Company) Act 1989 (Cwlth)). This will often be a prelude to
the full privatisation of the enterprise. For example, the
Commonwealth Banks Restructuring Act 1990 (Cwlth)
converted the Commonwealth Bank from a statutory corporation to a
public company limited by shares registered under the general
companies legislation. That company was then fully privatised by
way of a public share float.
There is no central register of GBEs (or,
indeed, of any Commonwealth Government corporate entities). In 1989
the Senate Standing Committee on Finance and Public Administration
(SSCFPA) noted that 'the absence of any comprehensive and readily
accessible index of Commonwealth bodies is a potentially serious
flaw in the accountability system'.(25) The recommendation of that
Committee that such a register be established has not been acted
upon.
Factors Behind the Creation of GBEs
The decision to create a GBE in either of these
two forms will be outcome of many factors. Today, that decision
also has to be understood within the context of policies which
promote the commercialisation, corporatisation and, in some
instances, privatisation of government services. In their study of
the Canadian experience, Trebilcock and Pritchard point out that
policy makers face a three-step choice:
(1) should goods or services be produced
publicly or should the government rely on regulation or
subsidization of, or contractual arrangements with, private sector
firms; (2) if goods or services are to be publicly produced, should
production be undertaken through the departmental or corporate
form; (3) if goods or services are to be produced through the
corporate form, what should be the extent of the government's
ownership interest, the method of creation, the management and
accountability regimes, etc?(26)
The first question in this list raises issues
such as the availability of private sector firms to deliver the
service or product, the costs to government of regulating or
subsidising those firms and the ideological importance of public
ownership of those goods or services. Under the second question,
policy-makers must decide whether the goods or services need to be
delivered in competition with, and on a similar basis as, private
sector companies or whether it is preferable to commercialise
aspects of existing departmental service delivery. The third
question points to the issue which lies at the heart of this
paper-what accountability regime should apply to GBEs?(27)
Commercialisation v Accountability
There is a vast literature on accountability and
it seems that each new attempt to synthesise previous explanations
of the term just adds further options to the list. This paper is
not an essay about accountability in general but it is nevertheless
useful to consider some of the dimensions of the accountability
problem as it affects GBEs. We can explore the complexities of the
problem by asking a series of questions: what conduct satisfies the
criterion of accountability? who should be accountable? to whom
should accountability be provided? and when should accountability
be provided?
As to the first question, there are different
ways of assessing whether a particular GBE is being accountable. A
GBE may be said to be accountable if it provides accurate
information about its financial (and possibly its performance)
activities when it is required to do so. This can be described as
accountability in the sense of 'accounting for' or 'accountability
as verification'.(28) This is one area in which the demands of
accountability and commercialisation are likely to conflict because
of a GBE's wish to keep certain commercially sensitive information
confidential-this is explored in more detail later in this section
of the paper. A stronger view of accountability would require that
in addition the GBE should be able to explain or justify its
actions ('explanatory accountability' or 'accounting to'). An even
stronger approach to accountability would require that the GBE
should also be held responsible for its activities, in the sense of
'being held to account'.
Secondly, there are choices to be made about who
should be accountable. In most GBEs the accountability requirements
are imposed on the individuals who comprise the board of
management. This accords with standard private sector corporate
models. But there are other possibilities which can be considered
in the case of large corporate GBEs such as Telstra Ltd. Professor
Mark Bovens has provided a useful typology of four types of
accountability which, in theory, may apply in a large
organisation.(29) He differentiates between individual
accountability, whereby individuals in the organisation are
accountable to the extent that their actions contributed to the
organisation's conduct; corporate accountability, in which the
organisation is accountable as if it were an autonomous actor;
hierarchical accountability, which makes the people at the top of
the organisation's management hierarchy accountable for the conduct
of the organisation; and collective accountability, where everyone
in the organisation is personally accountable in equal measure for
the conduct of the organisation.
To whom should accountability be provided? In
the case of GBEs, the accountability audience potentially includes
the members of, or shareholders in, the corporate entity, the
portfolio Minister and other relevant Ministers (such as the
Finance Minister), accountability agencies such as the
Auditor-General and the Australian Securities and Investments
Commission, Parliament, customers and clients of the GBE, and the
general public. In some cases these categories may overlap (for
example, where the Minister is a shareholder) or one may be seen to
satisfy another (for example, accounting to Parliament may be seen
as accounting to the public). The latter point gives rise to a
danger that the requirements of one accountability audience may
override others. This is apparent in the case of GBEs which are
incorporated as Corporations Law companies. In instances where the
shareholders of the GBE are the relevant Government Ministers and
the directors of the GBE include a departmental officer, it might
be said that the accountability of a director to the shareholder
tracks that of an officer to the Minister, and that no separate
accountability obligations should therefore apply. But although the
people involved are the same, the fact remains that they occupy
dual roles (e.g. Minister/shareholder) and different accountability
issues attach to each role. For example, a shareholder or member of
a company has only a limited legal capacity to ask questions and to
seek and be given information about the entity's operations.(30) In
contrast, a Minister can (and must) be much more proactive in
seeking information about Departmental operations. The difference
between the two accountability relationships was illustrated at the
first general meeting of Telstra Ltd in 1998 after its one-third
privatisation. One newspaper report noted that during the five hour
meeting many questions were directed at the perceived conflict
between the board's responsibilities to the minority private
shareholders and to the Government as majority shareholder.(31)
The fourth question asks when the accountability
requirements should apply. Professor John Goldring and Ian Thynne
have identified three possibilities: ex ante accountability, which
is required before significant policy or resource decisions are
made; process accountability, which occurs while policies are being
implemented and resources are being used; and ex post
accountability, which operates after the event.(32) As they point
out, different accountability timeframes will apply depending upon
who the accountability audience is and on the method by which that
accountability is conveyed. For example, accountability of GBEs to
the public is likely to be ex post, while accountability to the
portfolio Minister will also be ex ante.
Making these accountability choices with regard
to GBEs produces a dilemma. The dictates of commercialisation,
particularly where the entity is required to compete in a private
sector market, will demand that certain issues be kept confidential
and that the entity should be allowed greater freedom than other
governmental entities from governmental or parliamentary
restraints. In its 1995 inquiry into commercialisation in the
Commonwealth Public Sector, the Joint Committee of Public
Accounts(33) noted that the public sector accountability mechanisms
were 'certainly more onerous than those applying to the private
sector' and that it had received submissions from GBE officers
arguing that 'the accountability arrangements applying to
government businesses should not be more onerous than those
applying to publicly listed companies'.(34) As one submission put
it:
The purpose of separate incorporation is
defeated if those entities are required to comply with specific
directions as to their activities to an extent, or on a basis, that
would not be acceptable to private sector enterprises.(35)
Resolving the issue of commercial
confidentiality is central to establishing an appropriate
accountability regime for GBEs. In part, this issue arises because
of the different accountability audiences in private versus public
sector entities. In the case of a private sector company the
primary accountability audience is the general body of company
members, supplemented by reporting requirements to the Australian
Securities and Investments Commission. In the case of a public
sector entity, the primary audience lies outside the entity, in the
form of Parliament or, through Parliament, the general public. In a
private sector company, information about company affairs may need
to be retained within the company in order to protect the financial
interests of the members. In a public sector entity the presumption
works the other way; information should be disclosed in order to
protect the interests of the public. However, in a public sector
commercial entity such as a GBE the question is whether
commercially sensitive information should be disclosed in the same
way. GBEs commonly argue that they should be treated similarly to
their private sector counterparts in this regard. For example, John
Uhr describes the attempts by the then partially privatised
Commonwealth Bank Ltd to resist a public hearing by the Senate
Standing Committee on Finance and Public Administration on matters
relating to the Bank's internal management. According to Uhr, the
Bank's executives argued that their primary duty was to account to
the shareholders, not to government or Parliament.(36) There is an
obvious risk that 'commercial sensitivity' can be too easily
invoked as a barrier to legitimate public scrutiny. The
Australasian Council of Auditors-General has noted that '[s]ome
private and public sector bodies are instinctively apprehensive and
protective about the disclosure of any commercial information'. But
the Council goes on to state that:
Quite plainly, the duty of Parliament to
oversight the Government raises the prospect that Government
activity will be disclosed as being inefficient, uneconomical,
ineffective or improper. But that prospect should not be the
rationale for a Government refusing Parliament access to
information without which it cannot undertake its duty to hold the
Government to account.(37)
The same issue has been considered by the Senate
Committee of Privileges. In 1995 the Committee noted that:
It has not yet been generally accepted that the
commercial confidentiality which normally applies in the private
sector should not also apply in the public sector.
The Committee concluded, nevertheless, that
Commonwealth authorities
Must be prepared to account to Estimates
Committees for all aspects of their financial management and
administration, even where the information sought may be regarded
as private or commercially confidential.(38)
In the event of a conflict, the Committee
recommended that an independent arbitrator be used to evaluate the
claim of confidentiality.
Thus far this paper has canvassed the background
of ideas and practices against which the issue of GBE
accountability must be placed. The remainder of the paper examines
the actual practices that are now in place and assesses there
impact on Parliament's capacity to control and monitor GBE
activity.
Recent History of GBE Accountability
Reform
The recent history of GBE accountability reform
can be sourced to the Royal Commission on Australian Government
Administration which reported in 1976. But for present purposes the
more immediate reforms began in October 1987 when the Minister for
Finance (Senator Walsh) issued a policy statement titled Policy
Guidelines for Commonwealth Statutory Authorities and Government
Business Enterprises.(39) These guidelines were designed to
reduce the control exercised over GBEs by the Government and to
allow a more flexible, commercial style of management. The
guidelines dealt with matters such as establishment of GBEs and
covered their corporate plans, financial targets, capital structure
and the costing of community service obligations. The 1987
Guidelines were replaced in 1993 by the Accountability and
Ministerial Oversight Arrangements for GBEs, also issued by the
Minister for Finance. These Arrangements required the preparation
and annual review of corporate plans and the submission of annual
reports by GBEs. In June 1994 the Minister for Finance introduced a
package of three Bills into the House of Representatives aimed at
reforming the Commonwealth's financial management. The three Bills
were the Auditor-General Bill 1994, the Financial Management and
Accountability Bill 1994 and the Commonwealth Authorities and
Companies Bill 1994.(40) It is the latter Bill which is of greatest
relevance here, since it contained reporting and corporate planning
requirements which were very similar to those found in the
Ministerial Arrangements. The package of Bills was the subject of
close review, particularly by the JCPA.(41) It was eventually
passed, following amendment, in October 1997. In the meantime,
following a review conducted by Richard Humphry, Managing Director
of the Australian Stock Exchange, the Government issued revised GBE
Governance Arrangements in June 1997,(42) replacing the 1993
Arrangements. One of the main changes introduced by the new
Arrangements was that the Commonwealth's ownership interest in a
GBE was now to be represented by the Finance Minister and the
relevant portfolio Minister, each to be 'Shareholder
Ministers'.
The
Present GBE Accountability Framework
The accountability framework for GBEs is built
out of a number of different but interlocking mechanisms. This
multiple approach has the advantage of covering different aspects
of GBE operations but it also has the disadvantage of possible
inconsistency and lack of cohesion. Not all of these accountability
mechanisms involve the Parliament directly. Indeed, it is more
accurate to say that Parliamentary control is most often indirect
and after the event. As Uhr explains:
Parliamentary control refers to a right to
verify reported or disputed claims of performance: parliamentary
accountability is not managerial accountability. Parliamentary
control typically falls short of any pretence to 'micro-management
...(43)
With these caveats in mind, seven accountability
mechanisms are described below.
Ministerial Responsibility
One of the principal methods for ensuring the
accountability of GBEs has been to locate them within the general
structure of ministerial responsibility to Parliament or, as Finn J
put it in Hughes Aircraft Systems International v Airservices
Australia, within 'the constitutional environment of
responsible government'.(44) The JCPA has described this chain of
accountability as follows: staff in a GBE are accountable to
management who are in turn accountable to the board of directors.
The directors, individually and collectively, are accountable to
the relevant portfolio minister who, in turn, is accountable to
Parliament for the performance of GBEs in that portfolio.(45)
Despite its fundamental importance to a
Westminster system of government, doubts have been expressed about
the effectiveness of this accountability structure. Problems can
arise at different points along the chain. For example, in a
Corporations Law GBE, if a director is appointed from the
Minister's department, conflicts of interest may arise between the
director's autonomous duty to the company and his or her
obligations to the department. This may impede the extent to which
that director reports to the Minister.
Further along the chain, other difficulties may
arise. The idea of Ministerial responsibility in this context
depends upon the right of the Minister to obtain information from
GBEs within the Minister's portfolio, and on the right of
Parliament to be kept informed by that Minister about GBE
activity.(46) However, commentators have questioned the
practicality of this model. As one commentator has put it:
The problem lies partly in the unwillingness of
governments to keep parliaments informed of company activities,
though it also lies in the inability of parliaments to sustain the
questioning of responsible ministers ...(47)
The report of the Western Australia Royal
Commission in its report into 'WA Inc' was more adamant, noting
that:
The Commission rejects categorically the
suggestion, behind which officials so often take refuge, that the
'Westminster' derived principle of individual ministerial
responsibility is a sufficient and effective external
accountability measure.(48)
The capacity of a Minister to account to
Parliament for GBEs within his or her portfolio is affected by the
ambit of power which he or she has to give directions to those
entities. There are limits to the extent to which a Minister can
give directions to a GBE board. This was recognised recently in the
previously mentioned case of Hughes Aircraft Systems
International v Airservices Australia (1997) 146 ALR 1, which
concerned the actions of a statutory corporation (the Civil
Aviation Authority). Finn J noted that:
Where a ministerial communication could, because
of its tenor or context, reasonably be interpreted by those to whom
it is made either as being akin to a direction (whether or not it
formally disclaims such an intent) or as manifesting an intent to
contrive a decision to be taken, it properly can be regarded as
offending the purposes (constitutional and statutory) which inform
the legislative creation of bodies whose decisions are intended by
Parliament to be freed from ministerial control save where the
minister, as contemplated by the statute in question, assumes
responsibility for a particular decision in the manner envisaged by
that statute.(49)
Under the CAC Act, a portfolio Minister, and in
some cases the Finance Minister, has power to issue guidelines and
to require the production of information for the purposes of being
kept informed about the entity's operations. More generally, the
Act permits a Minister to notify the directors of a Commonwealth
authority or company of the general policies of the Government that
are to apply to the entity and the directors must ensure that, as
far as practicable, the policies are carried out (ss. 28 and 43).
These sections concede that the board of a CAC Act entity has
day-to-day managerial autonomy, with the Minister relegated to a
supervisory role.
Statutory
Accountability and Control
Commonwealth GBEs are subject to at least two
sources of statutory accountability. One source is the CAC Act,
which is dealt with below. The second source will depend upon the
type of corporation. A company GBE will be subject to requirements
in the Corporations Law-these are discussed later. In some cases a
company GBE will be also subject to further specific statutory
requirements, as with Telstra Corporation Ltd and the Telstra
Corporation Act 1991 (Cwlth). A statutory corporation GBE will
have accountability requirements imposed by its incorporating
statute. These will vary depending upon the nature of the statutory
corporation but the following examples are illustrative.
The Export Finance and Insurance Corporation
Act 1991 (Cwlth) requires Ministerial approval before that
corporation enters into any partnership or joint venture agreement
or participates in forming a new company (s. 13). Where it is in
the public interest, the Act empowers the Minister to give
directions to the corporation regarding the performance of its
functions or the exercise of its powers (s. 9). Furthermore the
Minister can direct the corporation to enter into certain types of
contract in the national interest (s. 29). The Defence Housing
Authority Act 1987 (Cwlth) similarly requires Ministerial
approval prior to entering partnerships or joint venture or forming
companies (ss. 8-10). There is also power to give directions to the
Board where this is in the public interest (s. 31).
Alongside the accountability mechanisms which
are found in specific incorporating statutes or in the Corporations
Law, Parliament has recognised the need for a set of generic
accountability measures for GBEs and other Commonwealth
non-departmental entities. In 1997 the Commonwealth enacted a
package of three Acts which seek to provide 'a legislative
framework which emphasises performance, propriety and
accountability of Commonwealth Agencies and entities' (Explanatory
Memorandum, Auditor-General Act 1997). Those Acts are the
Auditor-General Act 1997, the Financial
Management and Accountability Act 1997, and
the Commonwealth Authorities and Companies Act
1997.(50) Of these, the latter-the CAC Act-has the most
immediate impact in establishing financial reporting and auditing
requirements for Commonwealth GBEs.
The application of the CAC Act is not limited to
GBEs. The Act applies more generally to Commonwealth authorities,
the clearest example being a statutory corporation, and to
Commonwealth companies, defined as a Corporations Law company in
which the Commonwealth has a controlling interest (s. 5). The Act
establishes reporting and accountability requirements for both
types of entity. As was noted earlier, a GBE can operate in either
form and so GBEs will be affected by all of these requirements.
However there are some special requirements, noted below, that
apply only to GBEs.
The main accountability mechanisms under the CAC
Act are as follows:
Annual Reporting
This is an example of 'accountability as
verification' which is provided ex post. Each entity which is
governed by the Act must prepare an annual report each financial
year which is given to the entity's responsible Minister (ss. 9 and
36). For a Commonwealth authority the contents of the report are
prescribed by the Act (Schedule 1), which states that the Report
must contain a report of operations prepared by the directors, the
financial statements prepared by the directors and the
Auditor-General's report on those financial statements (discussed
below). For a Commonwealth company the annual report must include
the documents which the company is required by the Corporations Law
to put before its annual general meeting (s. 36).(51) The annual
reports of Commonwealth authorities and wholly-owned Commonwealth
companies must be tabled in each House of Parliament by the
responsible Minister as soon as practicable. This provides one of
the main sources of public information about the entity and its
performance and they have been described as 'the centrepiece of
accountability for these bodies'.(52) There are confidentiality
limits on this accountability, however. Under the Finance
Minister's Orders issued under the Act, if the directors of a
Commonwealth authority GBEs believe on reasonable grounds that the
inclusion of commercially sensitive information would be likely to
result in unreasonable commercial prejudice to the GBE then that
information does not have to be included in the annual report.
Interim Reporting
An entity may be required by the Finance
Minister to prepare interim reports (either half-yearly or
quarterly). An interim report must meet the same contents
requirements that apply to the annual report of a Commonwealth
authority GBE (outlined above). As with the annual report, an
interim report is given to the responsible Minister and then tabled
in each House of Parliament (ss. 13 and 38).
Continuous Reporting
This is an example of 'process accountability'.
The responsible Minister for each Commonwealth authority and
company must be kept informed of the operations of the entity. In
addition the Finance Minister must be given any reports, documents
or information about the entity's operations as are requested (ss.
16 and 41). A further reporting requirement is that any significant
events such as the formation of a new company or the acquisition or
disposal of a significant business must be reported to the
responsible Minister (see ss. 15 and 40 for further detail). The
Minister can issue guidelines to the directors concerning their
obligation to report significant events, although this does not
apply to the formation of new companies. In the case of a
Commonwealth company in which the responsible Minister or the
Finance Minister is a member, these reporting requirements give the
Minister a noticeable advantage over non-Ministerial members who,
under the Corporations Law s. 247A, have only restricted rights to
company information.
Corporate Plan
This requirement applies only to entities which
are prescribed as GBEs under the CAC Act and it is an instance of
'ex ante accountability'. Each GBE must prepare a corporate plan
annually which is then given to the responsible Minister. Whilst
the Act does not specify it, the plan is regarded as a confidential
document. The plan covers a three year period and includes details
about the entity's objectives, business strategies, investment and
financing programs, financial targets and projections,
non-financial performance measures and community service
obligations (see ss. 17 and 42 for more detail). Unlike the annual
reports, the rationale for the corporate plan is limited to
creating an accountability mechanism between the GBE and the
relevant portfolio Minister. Indeed, according to the JCPA, the
corporate plan is 'the main plank of accountability of a GBE board
to the portfolio Minister'.(53) This limited accountability role is
reinforced by the fact that there is no requirement for the plan to
be tabled in Parliament. This is explained on the grounds that the
plan will necessarily contain commercially sensitive and
confidential information. However the JCPA went on to note that
this results in a lack of transparency about the contents of
corporate plans and an inability of Parliament to scrutinise this
issue.(54)
The scope and intention of the CAC Act is fixed
primarily on financial reporting and officers' obligations. Whilst
this is important, it is noticeably narrower than equivalent
legislation which is found in some Australian States and
Territories.(55) It is also narrower than the 1989 recommendation
of the Senate Standing Committee on Finance and Public
Administration for a comprehensive Government Owned Companies Act
which would establish requirements for the formation, reporting,
auditing and disposal of government companies.(56) This legislation
could also specify arrangements for the holding of shares and the
exercise of voting rights on behalf of the Commonwealth, and define
the powers of Ministerial or departmental shareholders in relation
to the board of directors.(57)
Auditor-General
The Auditor-General Act 1997 (Cwlth)
states that the Auditor-General is an independent officer of the
Parliament (s. 8). The role of the Auditor-General as a crucial
accountability agent for Parliament has been reaffirmed in several
recent reports. In 1996 the Joint Committee of Public Accounts
stated that:
The Auditor-General's ultimate client is the
Parliament. The primary purpose of public audit is to assist the
Parliament to hold the Executive to account for its use of public
monies.(58)
Similarly, the Report of the Royal Commission
into 'WA Inc' stated that the Auditor-General is the 'critical
link' between the public sector, the Parliament and the
community.(59) The role of the Auditor-General in reviewing GBEs
therefore serves as a public symbol for the public nature of GBE
activity. As the JCPA put it in another Report, 'the case for
retaining the Auditor-General as the auditor of government
businesses rests on their ownership by the taxpayer'.(60)
The CAC Act prescribes that the Auditor-General
is to be the auditor of each Commonwealth authority and of its
subsidiaries (s. 8). Commonwealth companies, on the other hand, may
appoint either the Auditor-General or another auditor to meet their
audit requirements under the Corporations Law (s. 35). If another
auditor is appointed then the Auditor-General must nevertheless
give a report on the company's financial statements. In this way
Commonwealth companies may be subject, in effect, to double
scrutiny in the audit process.
Under the Auditor-General Act, the
Auditor-General, via the Australian National Audit Office, conducts
two types of audit. First, financial statement audits involve a
review of an entity's financial operations, as well as the extent
of compliance with applicable laws and regulations. Under the Act,
the Auditor-General's functions include financial audits of
Commonwealth authorities and companies, including GBEs (ss. 12-13).
In practice financial audits of GBEs are contracted out to private
sector auditors.(61)
Second, performance audits involve a review of
the economy, efficiency and effectiveness of the entity's
operations and functions. However, under the Auditor-General Act
the Auditor-General may only conduct a performance audit of a
wholly-owned Commonwealth company that is a GBE if requested to do
so by the Finance Minister, the responsible Minister or the Joint
Committee of Public Accounts and Audit (ss 16-17). The
Auditor-General may ask that such a request be made, although this
has not yet occurred.(62) In the event that a GBE is performance
audited then the report of the audit must be tabled in each House
of Parliament and a copy given to the responsible Minister.
The limitation on performance audits of GBEs has
been the subject of disagreement between Parliament and Government.
In 1989 the JCPA (as it was then called) recommended that the
Australian National Audit Office (the ANAO) should have the power
to undertake performance audits of GBEs.(63) This was not accepted
by the Government, as evidenced by the limitations now found in the
Auditor-General Act. The argument against a general discretion to
undertake performance audits of GBEs is that the pressures of
competition and the enforcement of performance targets will be an
effective substitute for scrutiny by the Auditor-General.(64)
Management
and Shareholding Arrangements
Earlier it was noted that management control
and/or shareholder control might also provide some measure of
accountability. Management control over a GBE can be sought by
appointing departmental officers to the managing body or board of
the entity. Ostensibly their role is to represent the interests of
the government on the board and to provide a direct contact point
with the Minister. The extent to which this can be successful will
depend, amongst other things, on the number of such appointments
and on the commercial independence of the entity. There is also a
legal question at stake: should board members act in this way? In
the case of Corporations Law companies, there is the potential for
significant legal problems for representative directors as they
confront conflicts between their company law-based duties to the
company and their public sector obligations to their Minister.(65)
In short, there are significant uncertainties about the
effectiveness of this accountability mechanism.
Another 'internal' accountability mechanism is
the use of shareholdings. As was noted earlier, the 1997 Governance
Arrangements for Commonwealth Government Business Enterprises
stipulate that the portfolio Minister and the Finance Minister will
be the two 'Shareholder Ministers' in a GBE. A variation on this
pattern occurs when the shares are held by a statutory corporation
or a government holding company.(66) The CAC Act assumes, without
stating it, that the responsible portfolio Minister will be a
member of the company. In each case, however, the effect is to
emphasise accountability to shareholders rather than accountability
to Parliament. As was noted earlier, even where the shareholders
are Ministers of the Crown, these are qualitatively different types
of accountability. This is what underlies Professor Michael
Aronson's observation that the 'conversion of Ministers to
shareholders has been accompanied by a great reduction in the
amount of information relevant to government entities received by
parliamentarians generally, with a consequent net reduction in
ministerial responsibility'.(67)
Another example of accountability by way of
shareholding is the shareholders' agreement. This is a contractual
agreement that 'regulates the relationship between the shareholders
with regard to the management and control of the company'.(68)
There is no clear evidence about the extent to which shareholders'
agreements are used in GBEs, although in 1995 the JCPA noted that
they were a part of the accountability arrangements of Australian
Technology Group Ltd and their use was also acknowledged by the
Secretary of Finance.(69) There are two difficulties with
shareholders' agreements in this context. First, there is no clear
legal precedent about their enforceability and therefore we cannot
be certain about their effectiveness as an accountability
mechanism. Secondly, and more importantly from a Parliamentary
perspective, these agreements are not open to public scrutiny.
There are no legislative requirements for tabling or reporting
shareholders' agreements. They are essentially private, in-house
agreements which, nevertheless, can have an impact on the public
accountability of a GBE.
Corporate
Law
This accountability framework is only relevant
to GBEs which are incorporated companies. Such companies are
governed by the Corporations Law and by a broad body of
court-generated rules. If the GBE is a public company listed on the
Australian Stock Exchange (as with Telstra Ltd), then additional
obligations are imposed by the Exchange's Listing Rules and
Business Rules.
The principal accountability mechanisms in the
Corporations Law for public companies are the requirements for
regular financial reporting, audits and annual general meetings.
These requirements are reinforced by obligations imposed on company
officers to act in best interests of the members and limited rights
of action available to members.
Strong arguments can be made for the view that
accountability via the Corporations Law and general corporate law
principles is insufficient for publicly owned businesses.(70) One
such argument is that the Corporations Law creates an internal
system of accountability in which directors are accountable to
shareholders so that they can make informed decisions about where
to invest. This does not fit with the environment of a public
sector commercial entity, where there is no effective market for
control, no choice of investment and no choice of membership. There
are four key differences between the accountability environment
which is created by the Corporations Law and that in which GBEs
operate:(71)
-
- while the immediate shareholders in a GBE may be Ministers, in
a wider sense the ultimate 'owners' of the enterprise are the
members of the taxpaying public, and their ownership is not
voluntary and it is not transferable
-
- while GBEs may be subject to competitive market pressures for
goods or services, an underperforming GBE is not subject to the
threat which is, in theory, posed by a potential takeover of the
organisation, as is the case for private sector companies(72)
-
- there is a public perception that the government will guarantee
the business of a GBE.(73) The ANAO has noted that although some
GBEs have explicit Commonwealth guarantees for some of their
operations, 'GBEs are seen as being implicitly guaranteed by virtue
of their ownership by the Commonwealth; which lessens debt holders
scrutiny as the latter rely on the Commonwealth's credit
rating'.(74) According to the Administrative Review Council (ARC),
the implication that government will guarantee the debts of GBEs
puts them 'in a substantially different position from that of any
private sector enterprises with which they may compete',(75)
and
-
- there is a remote possibility that a GBE may have immunity from
other legislation.(76)
More generally, the Commonwealth Auditor-General
has recently identified the different concerns which underlie
public and private sector services:
The provision of public services is not just
about the lowest price or concepts of profit or shareholder value.
It is about maximising overall 'value for money' for the taxpayer.
This requires consideration of issues other than production costs,
such as citizen satisfaction, the public interest, openness, fair
play, honesty, justice, privacy and equity.(77)
General
Parliamentary Mechanisms
The preceding list of accountability mechanisms
is more or less specific to the situation of GBEs. Importantly,
there are other 'arenas of accountability'(78) which have a wider
scope but which include the operations of GBEs. This includes the
work of Parliamentary committees, particularly (as is apparent
throughout this paper) the Senate Standing Committee on Finance and
Public Administration and what is now the Joint Committee of Public
Accounts and Audit (the JCPAA).(79) The JCPAA is a statutory
committee of the Parliament, established by the Public Accounts
Committee Act 1951 (Cwlth). Its duties include
examining the accounts of the receipts and expenditure of the
Commonwealth and reporting to both Houses of Parliament any items
or matters in those accounts to which the Committee is of the
opinion that the attention of Parliament should be directed. The
Committee also determines and advises the Auditor-General of
Parliament's audit priorities. The JCPAA has played a prominent
role in raising and reviewing accountability issues in relation to
GBEs, as indicated by the Reports referred to in the accompanying
list of references. Recently the Committee has announced an inquiry
into corporate governance and accountability arrangements for
Commonwealth GBEs, identifying one area of inquiry as being whether
additional parts of current GBE arrangements should be the subject
of legislation. This paper concludes with a recommendation that
this should be the case.
In addition to Parliamentary committees, we
could add question time and Parliamentary debates, although
commentators are sceptical about the extent to which these
mechanisms provide true or effective accountability to the
public.(80)
Administrative Law
To complete this picture of the accountability
environment for GBEs it is worth mentioning briefly the application
of Commonwealth the 'package' of administrative law mechanisms
found in the Ombudsman Act 1976, the Freedom of
Information Act 1982, the Privacy Act 1988
and the Administrative Decisions (Judicial Review) Act
1977. Strictly speaking this system of administrative
accountability is not part of the scheme of Parliamentary
accountability-indeed, these Acts were introduced partly in
response to perceived inadequacies of Parliamentary accountability
procedures.(81)
In its 1995 review of the application of these
laws to GBEs, the ARC concluded that 'there is no general rule or
principle that determines the extent to which a GBE is affected by
the operation of the administrative law package, or any element of
it'.(82) The application of any of these Acts will depend upon
whether the GBE is a statutory corporation or a Corporations Law
company and on the type of entities to which the Act is expressed
to apply. As the ARC noted, 'the result is that a GBE exempt under
one Act may not be exempt under another'.(83) The ARC concluded,
therefore, that the Commonwealth administrative statutes should be
amended so that they apply to government-controlled bodies,
including GBEs, but that GBEs should be exempted from these Acts in
relation to commercial activities undertaken in competitive
markets. In other words, the ARC accepted the idea that a
competitive commercial market is capable of supplying similar
outcomes to a system of public accountability. These
recommendations have not yet been acted on.
Conclusion
One summation of the key GBE accountability
mechanisms which have been described in this paper is that they
reveal an emphasis on 'Executive-driven monitoring of the corporate
planning and performance appraisal processes' and the weakening of
Parliamentary control and accountability.(84) This is clearly
consistent with the three-pronged requirements of
commercialisation, corporatisation and privatisation. Whether it is
consistent with the requirements of public and parliamentary
accountability is debatable.
The history of government in Australia suggests
that it is unlikely that GBEs will disappear from our public
landscape. What is needed, therefore, is continuing attention to
the accountability framework within which these entities operate.
An important step in that process is to systematise the gathering
and publication of information about GBEs and wider government
commercial operations. In this writer's opinion, one set of reforms
which merit renewed attention are those found in the decade old
report of the SSCFPA. The current inquiry by the JCPAA presents an
important opportunity for this reform.
Endnotes
-
- These definitions are adapted from Joint Committee of Public
Accounts (JCPA), Public Business in the Public Interest: An
Inquiry into Commercialisation in the Commonwealth Public
Sector, Report 336, AGPS, Canberra, 1995, pp. 1-2.
- Australian National Audit Office (ANAO), 1997, Government
Business Enterprise Monitoring Practices-Selected Agencies,
Performance Audit no. 2, Canberra, p. ix.
- ibid., p. 4.
- P. Finn, 'Public trust and public accountability',
Australian Quarterly, vol. 65, 1993, p. 50 at 54.
- R. Wettenhall, 'Corporations and corporatisation: An
administrative history perspective', Public Law Review,
vol. 6, p. 7 at 13. See also R. Spann, 1979, Government
Administration in Australia, Allen and Unwin, Sydney, 1995,
pp. 122-130.
- (1992) 174 CLR 219 at 230-1.
- R. Cranston, Law, Government and Public Policy, Oxford
University Press, Melbourne, 1987a, p. 123.
- R. Cranston, 'Privatisation: A critique', in Privatisation:
An Australian Experience, ed., P. Abelson, Australian
Professional Publications, Sydney, 1987b, pp. 276-7.
- Royal Commission into Commercial Activities of Government and
Other Matters, Report, Part II, Western Australia, 1992,
para. 3.13.2.
- National Commission of Audit, 1996, Report to the
Commonwealth Government, para. 3.3.
- JCPA, supra n 1, paras. 1.7 and 1.8.
- A similar 'definition by prescription' approach is used in the
Proceeds of Crime Act 1987 (Cwlth) s. 4(1),
although the similarly outdated list of GBEs prescribed for that
Act differs from that in the CAC Act.
- See for example Administrative Review Council (ARC), 1995,
Government Business Enterprises and Commonwealth Administrative
Law, Report no. 38, Canberra, p. 7; CAC Act Explanatory Memorandum;
JCPA, supra n 1, p. 20.
- Administrative Review Council, ibid, p. 10.
- JCPA, supra n 1, p. 20.
- ibid.
- See also Senate Standing Committee on Finance and Public
Administration (SSCFPA), Government Companies and their
Reporting Requirements, AGPS, Canberra, 1989, p. xii.
- The six Corporations Law companies listed in reg. 4 are ADI
Ltd, ANL Ltd, Australian Technology Group Ltd, Employment National
Ltd, Health Services Australia Ltd, Medibank Ltd, and Telstra
Corporation Ltd. The statutory corporations are Australian National
Railways Commission, Australian Postal Corporation, Defence Housing
Authority, Export Finance and Insurance Corporation, Federal
Airports Corporation, and Snowy Mountains Hydro-electric Authority.
Due to privatisations and other changes, this list is somewhat out
of date. For example, Medibank Ltd is now Medibank Private Ltd, and
Australian National Railways Commission has been replaced by the
Australian Rail Track Corporation Ltd.
- (1953) 89 CLR 229.
- ibid., p. 267.
- ibid., p. 268.
- ibid., p. 282.
- J. Uhr, Deliberative Democracy in Australia: The Changing
Place of Parliament, Cambridge University Press, Melbourne,
1998, pp. 125-7.
- (1997) 139 CLR 117.
- SSCFPA, supra n 17, p. 8.
- M. Trebilcock, and J. Pritchard, 'Crown corporations: The
calculus of instrument choice', in Crown Corporations in
Canada, ed., J. Pritchard, Butterworths, Toronto, 1983, p. 16.
- The question raises a further issue, not discussed in this
paper, concerning the constitutional power of the Commonwealth to
create and operate GBEs. This is a difficult and uncertain issue,
and is discussed in N. Seddon, and S. Bottomley, 'Commonwealth
Companies and the Constitution', Federal Law Review, vol.
26, 1998, pp. 271-307.
- J. Uhr, 'Redesigning accountability: From muddles to maps',
Australian Quarterly, vol. 65, 1993, p. 1.
- M. Bovens, The Quest for Responsibility-Accountability and
Citizenship in Complex Organisations, Cambridge University
Press, Cambridge, 1998.
- A member can only inspect the books of a company if this is
authorised by a Court order, and the Court can only make such an
order if it is satisfied that the member is acting in 'good faith'
and that the inspection is for a 'proper purpose' (Corporations Law
s. 247A). Otherwise, members access to information is limited to
the company's annual financial statements and accompanying reports.
- C. Mathieson, 'Telstra set to name CEO', Weekend
Australian, 7-8 November 1998, p. 59.
- J. Goldring and I. Thynne, Accountability and
Control-Government Officials and the Exercise of Power, Law
Book Company, Sydney, 1987, p. 226.
- Since 1997 this committee has been known as the Joint Committee
of Public Accounts and Audit.
- JCPA, supra n 1, p. 155.
- ibid., p. 157.
- Uhr, supra n 23, p. 201.
- Australasian Council of Auditors-General, Statement of
Principles: Commercial Confidentiality and the Public
Interest, 1997, http://www.acag.org.au/accomm00.htm
- Senate Committee of Privileges, Parliamentary Privileges
Amendment (Enforcement of Lawful Orders) Bill 1994-Casselden Place
Reference, 52nd Report, 1995, p. 3.
- Between 1985 and 1986, John Kerin, the Minister for Primary
Industries, had undertaken a major reform of primary industry
statutory marketing authorities. It appears that this may have been
a catalyst for the wider reforms in the Walsh Guidelines-R.
Bennett, 'Diary of a Dairy', unpublished paper, 1997.
- A fourth Bill was associated with the package-the Audit
(Transitional and Miscellaneous) Amendment Bill.
- Joint Committee of Public Accounts, An Advisory Report on
the Financial Management and Accountability Bill 1994, the
Commonwealth Authorities and Companies Bill 1994, and the
Auditor-General Bill 1994, and on a Proposal to Establish an Audit
Committee of Parliament, Report 331, AGPS, Canberra, 1994.
- Department of Finance and Administration, Governance
Arrangements for Commonwealth Government Business Enterprises,
1997.
- Uhr, supra n 23, p. 200.
- (1997) 146 ALR 1 at 88.
- JCPA, supra n 1, p. 150.
- A similar issue was the subject of the recent decision of the
NSW Court of Appeal in Egan v Chadwick [1999] NSWCA
176, holding that the NSW Legislative Council's power to call for
documents extends to compel the Executive to produce documents to
the Council in respect of which a claim of legal professional
privilege or public interest immunity is made.
- I. Thynne, 'The incorporated company as an instrument of
government: A quest for a comparative understanding',
Governance, vol. 7, 1994, p. 59 at 77.
- Royal Commission, supra n 9, para. 3.12.1.
- (1997) 146 ALR 1 at 75.
- Together with the Audit (Transitional and Miscellaneous)
Amendment Act 1997.
- Here it is worth noting that the Corporations Law does not
require proprietary companies to hold an annual general meeting.
- JCPA, supra n 1, p. 153.
- ibid., p. 152.
- ibid., pp. 160-1.
- For example, the Territory Owned Corporations Act 1990
(ACT); State Owned Corporations Act 1989 (NSW),
Government Owned Corporations Act 1993 (Qld),
Government Business Enterprises Act 1995 (Tas), State
Owned Enterprises Act 1992 (Vic).
- SSCFPA, supra n 17, pp. 18-19.
- S. Bottomley, 'Corporatisation and accountability: The case of
Commonwealth Government companies', Australian Journal of
Corporate Law, vol. 7, 1997, pp. 156 at 173-6.
- Joint Committee of Public Accounts, Guarding the
Independence of the Auditor-General, Report 346, AGPS,
Canberra, 1996, p. 37.
- Royal Commission, supra n 9, para. 3.10.1.
- JCPA, supra n 1, p. 175.
- Barrett, P. 1999, 'Auditing in Contemporary Public
Administration', paper presented to Public Seminar Series,
Australian National University Graduate Program in Public Policy,
Canberra, 17 May, p. 7.
- ibid., p. 18.
- Joint Committee of Public Accounts (JCPA), The
Auditor-General: Ally of the People and Parliament-Reform of the
Australian Audit Office, Report 296, AGPS, Canberra, 1989. See
also Joint Committee of Public Accounts, An Advisory Report on
the Financial Management and Accountability Bill 1994, the
Commonwealth Authorities and Companies Bill 1994, and the
Auditor-General Bill 1994, and on a Proposal to Establish an Audit
Committee of Parliament, Report 331, AGPS, Canberra, 1994.
- Joint Committee of Public Accounts, Public Business in the
Public Interest: An Inquiry into Commercialisation in the
Commonwealth Public Sector, Report 336, AGPS, Canberra, 1995,
p. 176.
- S. Bottomley, 'Regulating government-owned corporations: A
review of the issues', Australian Journal of Public
Administration, vol. 53, 1994, pp. 521 at 526. The practice of
appointing departmental officers to GBE Boards was recognised in
the Accountability and Ministerial Oversight Arrangements for
Government Business Enterprises. This occurred, for example, on the
Board of the Australian Technology Group Pty Ltd.
- Thynne, supra n 47, pp. 64-65.
- M. Aronson, 'Ministerial directions: The battle of the
prerogatives', Public Law Review, vol. 6, 1995, p. 77 at
94.
- H. Ford, R. Austin and I. Ramsay, Ford's Principles of
Corporations Law, 9th edn, Butterworths, Sydney, 1999, at p.
187.
- JCPA , supra n 1, pp. 165 and 167.
- ibid., p. 158.
- See also ibid., p. 177.
- This is not to say that the GBE will be free from the
consequences of underperformance. For example, a Government may
take steps to revise the Board's membership or to introduce tighter
controls on the entity, as occurred with ANL Ltd in 1994-see
Australian National Audit Office, Matters Relating to the
Proposed Sale of ANL Ltd, Audit Report No 2, Canberra,
1995-96.
- Again, the Government 'bail outs' of ANL Ltd in the 1980s and
1990s provide an example: K. Trace, 'You Couldn't Give it
Away': Privatising the Australian National Line', Agenda,
vol. 2, 1995, pp. 433-44.
- ANAO, supra n 2, p. 12.
- ARC, supra n 13, p. 82.
- Immunity will depend upon whether a GBE can be regarded as 'the
Crown', and then on whether the legislation in question is intended
to bind the Crown. Because of their independent legal status and
the commercial nature of their operations, it will be difficult for
GBEs to successfully claim immunity.
- Barrett, supra n 61, p. 5.
- Uhr, supra n 23, 158.
- It is also relevant here to note the work of the Senate
Committee of Privileges.
- For example Uhr, supra n 23, pp. 125-7, 198-9.
- ARC , supra n 13, pp. 51-2.
- ibid., p. 32.
- ibid., p. 33.
- P. Finn, 'The abuse of public power in Australia: Making our
governors our servants', Public Law Review, 1994, vol. 5,
p. 43 at 55.
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