COVER STORY: Shape-shifting SOEs:Boards of a Different Hue

The appointment to the Families Commission of “divisive and controversial” and potentially “very damaging” Christine Rankin (as aggrieved and un-consulted support-partner Peter Dunne, the commission’s architect, described her) signalled two aspects of that change of geography.
The specific aspect is that she, with Bruce Pilbrow, will rebalance the commission. Rankin was active in organisations pushing conservative case for, and rights of, men as fathers and vociferously opposed the smacking legislation which the Commission (and, ironically, the National Party, on Key’s initiative) supported. Pilbrow heads the conservative Parents Inc and was marketing director for the conservative Radio Rhema.
The general aspect is that the Government wants tighter nexus between ministers and the sprawling mishmash of Crown agencies and entities, state-owned enterprises, commissions and statutory bodies. The Minister of Social Development Paula Ryan wanted more conservative line at the commission so she has appointed conservative commissioners.
Essentially, the Government wants those anointed to its boards to be fit for purpose. This, too, has two aspects: ability to do director’s job; and comfort with the Government’s thinking. Deputy Prime Minister Bill English says they must fit the Government’s operational objectives and its policy objectives.
The boards are the link between ministers and the entities ministers “leverage”, as English puts it. He says that “far too often” in the past it has been left to the departmental chief executive to oversee the boards. He wants tighter nexus, more “clarity”, no more “muddled accountability”.
Board members are in charge of public money or at least are guarding the public interest. They are accountable back to the public through the cabinet.
So English and his colleagues are out to “readjust the mix of skills”. Exactly what mix of skills is needed varies according to the type of organisation. But generally the hunt is on for people with experience as, and the specialist skills of, directors, able to read and give effect to government policy and priorities.
And, as Rankin’s appointment illustrates, across many fronts, from workplace law and accident compensation to commercial enterprises, government spending, tax and knighthoods, the Government has marked out decidedly different purpose from that of its predecessor.
Before the election National played down the differences. Since the election it has, if anything, accentuated them. The boards’ role is to reshape the multitudinous organisations to fit the new ethos. To be fit for purpose now is not the same as under Labour.
Not least that means, English says, “stronger financial focus” than under the Labour-led governments, particularly for the large entities, such as the District Health Boards, the Housing Corporation, the Tertiary Education Commission and big tertiary education institutions, and the Accident Compensation Corporation.
Cross town from the Families Commission and note the change at the top of the Commerce Commission from Paula Rebstock to Mark Berry – from an economics-based activist who got up business’ nose (with resultant complaints to John Key and other senior Nationalists) – to an establishment lawyer more sympathetic to business.
Before the election National talked up in private need for change in the commission, notably the separation of the regulatory and enforcement activities. The change of chair was consistent with that, though number of senior ministers strongly opposed Rebstock’s departure.
At the Accident Compensation Corporation, Nick Smith radically rebuilt the board, notably stripping out former Council of Trade Unions chief Ross Wilson who was chair. He focused on people with accounting, actuarial and legal experience. There is now no union representative.
Health Minister Tony Ryall fired the Otago District Health Board chair, Labour sympathiser. The Tertiary Education Commission (chaired by one-time Labour candidate David Shand) came off notice only because former Canterbury University vice-chancellor Roy Sharp who took over as chief executive last year anticipated the new cabinet’s expectations and fired some staff.
The message is clear: directors, commissioners and trustees too close to Labour or out of synch with National’s approach who have not yet been fired can look forward to retirement.
One exception is political gesture: the appointment of former Deputy Prime Minister Michael Cullen as director of New Zealand Post (reminiscent of Labour’s jobs for current Post chair Jim Bolger). Cullen will take over from one-time communist Ken Douglas as deputy chair later this year. Former Labour minister Jim Sutton also stays on for now as chair of Landcorp.
But while the Government insists it will not replicate Labour’s fondness for political hacks and spies on boards, it is nonetheless tilting the politics in its formal and informal appointments.
Labour liked to keep an ear to the ground through its appointments. It also aimed to inject more social awareness or responsiveness into the activities of organisations and companies run by boards. It reasoned that if the Government owned these entities they should do the Government’s bidding.
National wants people who are friendlier to its economic-growth-first way of thinking. By coincidence, if nothing more, that leads to people more likely to vote National than Labour.
This can be seen in the outsiders it drafted to help trim government departments’ spending and to canvass options for structural changes to the tax system and for revamping policy on water. They are mostly right-leaning either in their politics or their legal or accounting backgrounds or their economics. Graham Scott, for example, stood for ACT and remains an ACT activist.
That is democracy in action. Governments require the core public sector, which is run by people who are selected essentially outside the political process, to do their bidding, to reflect their translations of party wishes and voters’ mandates. So requiring the vast peripheral state sector to do the same is part of the political game.
Central to that is better return on investment and more bangs for bucks from current spending. National wants people who can spot and drive efficiencies and steer chief executives to tighter customer focus.
In health, that means district health boards which achieve better clinical outcomes under tight financial ceilings. In state-owned enterprises it means strong commercial boards which can lift dividends while containing prices. return on equity of 1.5 percent for SOEs’ $24 billion worth of assets, amounting to fifth of the Government’s balance sheet, is not good enough for the new regime in tighter fiscal times.
In the words of SOE Minister Simon Power, that requires appointments on merit of those with requisite skills to develop the SOEs into sophisticated operations. He also wants continuity: “new generation of problem-solvers”, bringing through younger directors and thus ensuring proper “succession planning” in nine-year rotation cycle.
In reconstituting the boards in April, Power went out looking not just for established directors who were household names, but new names: Abby Foote’s appointment to Transpower is one example. That process, centred on the Crown Company Monitoring and Advisory Unit (CCMAU) in the Treasury, plus ambition enlivened by the change of government, delivered fourfold to fivefold increase in names available.
In making his choices, Power listened to chairs but also looked beyond them. He does not accept merchant banker Rob Cameron’s argument earlier this year that the Government should stick to appointing chairs and leave the chairs to appoint the rest of the directors.
Power is also looking beyond the borders to widen the pool of expertise. So expect to see some Australians on SOE boards.
The focus is on each SOE’s financial performance, by contrast with what ministers see as br