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Wednesday, 16 February 2000
Page: 11914

Senator CALVERT (5:27 PM) —On behalf of Senator Gibson and the Joint Committee on Public Accounts and Audit, I present report No. 372 entitled Corporate governance and accountability arrangements for Commonwealth government business enterprises, together with the Hansard record of the committee's proceedings and submissions. I seek leave to move a motion in relation to the report and to incorporate my tabling statement in Hansard.

Leave granted.

The statement read as follows

Commonwealth GBEs provide a range of services to the Australian Community including communications, transport, employment and health services. In 1998-99, Commonwealth GBEs generated revenues of nearly $25 billion, provided dividends of $4.5 billion, and controlled assets of some $40 billion. Given that GBEs are publicly controlled entities, the Parliament has a continuing interest in their governance, performance and accountability.

The growing demand for more efficient, effective and responsible corporate governance stems from the corporate failures during the 1980s and 1990s.

Madam President, the focus on corporate governance, however, is not just driven by the corporate failures of the past but also by the corporate challenges of the future. Corporations, both public and private, face challenges relating to globalisation, technological change and sustainable development.

In view of these issues, the Committee decided to review aspects of, and ask questions about, corporate governance and accountability arrangements applying to Commonwealth GBEs. The Committee commenced this inquiry about two years after the Government introduced new Governance Arrangements for Commonwealth Government Business Enterprises in June 1997.

The new governance arrangements focused on reporting arrangements, the appointment and removal of board directors, board responsibilities and financial governance arrangements. The broad objective of the inquiry is to assess the appropriateness and effectiveness of these arrangements.

The issues that the Committee focused its investigations on, and which I will briefly discuss, include:

1. the appropriateness of the governance framework;

2. the role of shareholder Ministers;

3. GBE boards and performance appraisal;

4. the Senate Estimates process and the scrutiny of GBEs; and

5. risk management issues.

The governance framework

Madam President, the Committee examined the appropriateness of the Commonwealth Authorities and Companies Act 1997 and, in particular, its continued application to GBEs. Some groups suggested that it would be more effective for GBEs to be subject solely to Corporations Law.

The primary objective of the CAC Act is to standardise the reporting, notification and auditing requirements of CAC bodies. In addition, it helps to ensure appropriate accountability to Ministers and the Parliament.

Madam President, as stated earlier, GBEs in 1998-99 generated revenues of nearly $25 billion, provided dividends of $4.5 billion and controlled assets of some $40 billion. In view of the significant responsibility in managing these assets, the Committee is not prepared to recommend any relaxation of the accountability requirements applying to GBEs and supports the application of the CAC Act to GBEs.

Shareholder Ministers

The Commonwealth's ownership interests in its GBEs is represented, in most cases, by two `Shareholder Ministers', the portfolio Minister and the Minister for Finance and Administration.

A key consideration during the inquiry was the perceived conflict that exists with the continuation of portfolio Ministers as shareholder Ministers. The Government has recognised this very fact when it chose to have the Minister for Finance and Administration as the sole shareholder for Sydney Airports Corporation, Essendon Airport, and Employment National. In these cases, the Department of Finance and Administration justified the sole shareholder model on the grounds that it would allow portfolio Ministers to focus primarily on regulatory and industry policy issues and the Minister for Finance and Administration, as shareholder, to pursue the objective of value maximisation.

It is essential that the operational settings for GBEs are such that they maximise the efficiency and effectiveness of the entity and help generate appropriate rates of return. As suggested in the evidence, the influence of the portfolio Minister could compromise these objectives.

In view of these issues, the Committee recommends that all portfolio Ministers be removed from their GBE shareholder responsibilities but remain as the responsible Minister under GBEs' enabling legislation. The Government's shareholder interests in GBEs should be represented by, and be the responsibility of, the Minister for Finance and Administration.

Madam President, a number of organisations have drawn attention to the fact that there are no principles to guide the relationship between Ministers and boards relating to GBE performance.

The Committee notes that in the event that the Minister gives written directions to the boards of Telstra or Australia Post, then these written directions must be tabled in both Houses of Parliament within 15 sitting days.

In the case that Ministers have the power to direct GBE boards, there is increased accountability and transparency if written directions are made public and subject to scrutiny. The Committee concludes that all GBE boards in their relationship with Ministers should be under a similar arrangement to Australia Post and Telstra. That is, all Ministerial directions to GBE boards should be in writing and publicly reported.

GBE Boards

Boards of GBEs are responsible and accountable to shareholder Ministers and Parliament for delivering the government's policy objectives and ensuring that the enterprise is operating as efficiently and effectively as possible.

It is essential that board directors be well equipped and informed to carry out their work. Therefore, the Committee recommends that GBE boards must ensure that there are appropriate and effective induction, education and training programs offered to new and existing board directors.

In addition, there is the need for greater attention to be given to board and individual director performance. Therefore, the Committee recommends that the Minister for Finance and Administration amend Part 3 of the 1997 Governance Arrangements for Commonwealth GBEs to include a section requiring confidential board and director performance appraisal.

A rigorous performance appraisal system, in association with identified incentives, will help develop a more competitive and performance oriented culture in GBE boards.

The Senate Estimates process

A number of GBEs and portfolio departments made comments regarding the appropriateness of the Senate Estimates process as an additional accountability mechanism. Telstra, in particular, indicated that appearing at Senate Estimates hearings created an additional cost burden in terms of time and human resources devoted to this task. In addition, Telstra was concerned that questioning at Senate Estimates could lead to the release of commercially sensitive information which could disadvantage it against its competitors. In view of these concerns, Telstra advised that it should be exempt from the Senate Estimates process.

The Committee acknowledges some of the concerns that GBEs have about Senate Estimates. While Telstra admitted that no commercially sensitive information has yet been released through Senate Estimates, the risk remains that Telstra and other GBEs could be seriously disadvantaged in the market place if this were to occur.

The Committee suggests that there is the need for greater clarity and coherence in the way Parliamentary Committees examine commercial matters of GBEs. Therefore, the Committee recommends that the Minister for Finance and Administration develop draft guidelines for the scrutiny by Parliamentary Committees of commercially confidential issues relating to GBEs. The draft guidelines should be submitted to the Committee for approval.

Risk management

Madam President, the Government is exposed to many risks through its ownership of GBEs, including financial, operational, political and reputational risks. Therefore, the Government considers it is essential to ensure that the risk management strategies of all Commonwealth GBEs are operating effectively. The board of a GBE is wholly responsible for identifying, monitoring and controlling all risk that may affect the operations of a GBE.

Audit committees are playing an increasingly important role in corporate governance, and more specifically, in the area of risk management. The Committee notes that Telstra's internal audit function is conducting a risk management assessment function. The Australian National Audit Office, in its better practice guide, proposed that audit committees should have a role in risk management including approving and monitoring policies for reporting risk management and internal control.

The 1997 Governance Arrangements devote a section to managing risks although there is no mention of the role of audit committees in this process. The Committee, therefore, recommends that the risk management responsibilities of audit committees be included in the Governance Arrangements for Commonwealth GBEs, under Part 4, Managing Risk.

In conclusion, Madam President, I would like to express the Committee's appreciation to those people who contributed to the inquiry by preparing submissions and giving evidence at public hearings.

Finally, I wish to thank the members of the sectional committee for their time and dedication in conducting this inquiry. I also thank the secretariat staff who were involved in the inquiry: — the Secretary to the Committee, Margot Kerley; sectional committee Secretary, Stephen Boyd; research officer, Mr Gordon Carey and administrative officer Tiana Gray.

Madam President, I commend the Report to the Senate.

Senator CALVERT —I move:

That the Senate take note of the report.

Question resolved in the affirmative.