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A Governance Agenda for the Rudd government Stephen Bartos


A Governance Agenda for the Rudd government Stephen Bartos Director Allen Consulting Group 15 February 2008 This presentation Introduction: The evolving importance of ... – PowerPoint PPT presentation

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Title: A Governance Agenda for the Rudd government Stephen Bartos

A Governance Agenda for the Rudd government
  • Stephen Bartos
  • Director
  • Allen Consulting Group
  • 15 February 2008

This presentation
  • Introduction
  • The evolving importance of governance
  • Principles and foundations
  • International trends
  • Restoring standards of ethics, probity, and
    accountability in public and corporate life
  • Risk - the new paradigm for everything
  • Practical steps

What is governance?
  • Not easily answered
  • Numerous competing and overlapping perspectives
  • Some definitions include

  • the framework of rules, relationships systems
    and processes within and by which authority is
    exercised and controlled in corporations. It
    encompasses the mechanisms by which companies,
    and those in control, are held to account (ASX
    Corporate Governance Council August 2007)

  • The processes whereby decisions important to the
    future of an organisation are taken,
    communicated, monitored and assessed
    (Bartos 2004)

  • Corporate governance involves a set of
    relationships between a companys management, its
    board, its shareholders and other stakeholders.
    Corporate governance also provides the structure
    through which the objectives of the company are
    set, and the means of attaining those objectives
    and monitoring performance are determined
    (OECD 1999)

  • Public sector governance
  • the processes by which organisations are
    directed, controlled and held to account. It
    encompasses authority, accountability,
    stewardship, leadership direction and control
    exercised in the organisation (ANAO,

Political governance
  • How a country is run
  • Institutions of the state and civil society
  • A key concern for World Bank (see Kaufmanns
    governance indicators)
  • And other multilateral agencies

World Bank Governance indicators
  • Voice and Accountability
  • Political Stability Absence of Violence
  • Government Effectiveness
  • Regulatory Quality
  • Rule of Law
  • Control of Corruption

Other meanings of governance
  • Public administration (the sense in which it is
    often used in the USA)
  • Management
  • many writers do not make a distinction between
    governance and management

Many specialised uses of governance
  • Used in increasingly many other fields
  • IT governance
  • Medical governance
  • Project governance
  • University governance
  • Judicial governance

  • Lack of consensus on definition creates potential
  • Discipline barriers in academe mean different
    strands of governance rarely come together

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Todays focus corporate governance
  • Basis in the anglo-american model
  • OECD Principles of Corporate Governance
  • Australian Stock Exchange principles
  • Although a divide has emerged between the Ango
    and the American sides

Anglo (British, Australian, New Zealand)
  • Origins in Cadbury (1992)
  • integrity, openness and accountability
  • ASX Principles of Good Corporate Governance
  • Corporate Governance Principles and
    Recommendations (2007)
  • Corporate Governance in New Zealand Principles
    and Guidelines (Securities Commission 2004)

American model
  • Sarbanes-Oxley Act 2002
  • Including s.404 internal controls on financial
  • Imposes an onerous compliance regime
  • Has created a large SOX industry
  • As well as SOX, highly detailed and prescriptive
    audit and accounting standards

Regulation Principles vs. rules
  • In the 1980s-1990s, a move to principles based
  • Accompanied by calls for deregulation
  • Reflected a realisation that principles provide
    more certainty over outcomes than do rules

The return of rules
  • More emphasis now on process
  • Including from governance experts who think it
    is just about compliance
  • International regulatory pressures
  • SOX becoming a global default standard
  • International financial reporting standards

  • Some aspects of SOX could be valuable here
  • Eg stricter separation of audit and non-audit
  • Some questioning in the US of whether SOX has
    gone too far down the prescriptive route

Theoretical foundations
  • Agency problem
  • Dating from Coase, 1937
  • Imbalance in information held by parties
  • Legal issues what is a corporation? Why does it
  • Transactions costs approaches
  • Limitations of contracts

Is corporate governance important?
  • Little statistically reliable empirical evidence
    linking what is commonly described as good
    governance to good results
  • Good performance determined by many factors
  • BUT, lack of evidence does not disprove a
  • Generally, directors and CEOs think there is
    something to be said for good governance
  • And there are many observed links between poor
    governance and poor results

The need for a new governance agenda
  • Decline in public sector standards nationally
  • Compliance burden on business
  • But at the same time, increased vulnerability of
    consumers and small investors
  • International competition

Public sector
  • Being addressed
  • Political advertising
  • Spendthrift culture
  • Poor program performance
  • Ministerial staff
  • Still needs attention
  • Ministerial employment post Parliament
  • Legacy of poor ethical decisions in public sector
  • Growth of unnecessary internal regulation

  • Role of ASIC, APRA, other regulators
  • Does the ASX if not, why not? approach work?
  • Complexity of corporate legislation and
    regulation (despite successive CLERPs)
  • Complexity of Tax Acts

Indigenous governance
  • Sorry as a first step
  • Attention now on service delivery
  • Underpinning governance problems
  • Inappropriate structures
  • Mismatch between delivery and governance
  • What is an indigenous community?
  • Need to move away from one size fits all
  • Recognised in 13 February PMs speech

Not for profit governance
  • A large sector 15 of GDP (Mark Lyons)
  • Not all small and poor
  • Includes Australian Rugby League, Australian
    Cricket Board, the churches, World Vision, ACTU,
  • But suffers from governance legislation that is
  • Inconsistent between States
  • Often inconsistent with corporate governance
  • Poorly explained and enforced

Risk and governance
  • fundamental not an add on
  • Shared responsibility with management
  • Boards dont manage day to day risks
  • But do look at those that affect the whole future
    of the organisation
  • And must put in place processes to ensure risk
    management is done

What is risk?
  • the chance of something happening that will have
    an impact on objectives
  • (AS/NZS 4360, 3rd ed. 2004)
  • meant to encompass both potential gains and
  • In reality most risk management focuses on
  • events outside normal business
  • Those with a negative impact

Usefulness of risk management standards
  • ANZS 4360
  • A guide, not a rulebook
  • But many public sector bodies treat it as the
  • Compliance rather than performance approach

Risk as the governance paradigm
  • Risk management of everything
  • Power, M, Demos 2004 (cc)
  • Ubiquity of risk
  • Danger of too much risk management at expense of
    other values

So how does this all come together as a
governance agenda?
  • Federalism once in a century opportunity to
    sort it out
  • Regulation move from rhetoric to reduction
  • Simplifying tax would be a good first step
  • Could be done by reducing the number of tax
    expenditures - link to government fiscal agenda
  • Reduce internal regulation in public sector
  • Better understanding of risk (rather than risk
    aversion) in both corporate and public sector
    governance standards

  • Transparency openness to public and any other
    external scrutiny
  • Online, on paper, orally
  • Transparency enhances accountability, ethics,
  • And minimises risks
  • Government and corporate transparency can go hand
    in hand
  • Part of Federalism and national competition

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