HR Group, founded in Edmonton Alberta in 1993, is a partnership of highly experienced management consultants who specialize in organizational effectiveness and human resource management, and promote participative, lean, and cost-effective management practices. All partners are Certified Human Resource Practitioners with extensive senior level experience in both the private and public sectors.

A Lack of Effective Governance

Reprinted from “Productive Workplaces” (October, 2010), the HR Group newsletter.

There is a decided lack of effective governance in many public sector bodies such as agencies, boards, and commissions. The same is also true in the private sector. The Board of Directors of Hewlett Packard, for example, is now being sued by some shareholders as a result of the recent “resignation” of HP Chief Executive Officer, Mark Hurd, and his purported approximately $40 million severance package. The board is being sued for a “breach of fiduciary responsibility”. 

Such private sector governance issues, and others such as the salaries and bonuses paid to the chief executives of corporations that had to be bailed out recently by their respective governments, are highly visible, but there are many instances in the public sector that go unnoticed as they don’t often make headlines. What about the chief administrative officer of a public sector body who was let go for poor performance, but given a two year severance package after only ten years, because it had been agreed to in the employment contract? Is this not a lack of fiduciary responsibility on the part of the elected officials involved? The inner workings of the boards of directors of such public sector bodies as Seniors Housing Foundations, Waste Management Commissions, Regional Fire and Ambulance Commissions, and Municipal Libraries usually go unnoticed. The same is also true for not for profit organizations in general. The private sector governance issues will be settled through the courts and presumably addressed as a result of some heavy penalties awarded to the plaintiffs. But how will the public sector governance issues be addressed?

What exactly is the role of governance? According to Webster’s, to govern is, “to control and direct the making and administration of policy”, and to, “exert a determining or guiding influence…” The Muttart Foundation publishes several excellent Board Development Workbooks designed to help not-for-profit organizations; most of their content, however, is applicable to organizations in general. They state that, “A governing board has the ultimate responsibility for the organization’s:

  • Purpose: establishing the organization’s purpose or mission
  • Continuity: providing continuity for the management and the implementation of the organization’s affairs
  • Progress: setting the rate of progress that the organization takes in reaching its mission
  • Identity: securing community support and appreciation for the organization’s purpose and long-term direction”.

Elected municipal officials are taught and reminded that their role as a councillor or as a board member is not to manage but to govern. Day-to-day management is left up to the chief administrative officer of the municipality or the director/manager of the public agency in question. Governance is supposed to be separate and at arms length from management. Having said this, however, it is impossible to effectively govern unless you have some relevant knowledge about what is being managed on a day-to-day basis and how it is being managed. How can you control and direct the making of policy unless you understand what is being controlled and when it needs controlling? How can you exercise fiduciary responsibility unless you have a good understanding of the organization’s finances and can effectively read and analyze a set of financial statements? The auditor only certifies that the financial statements are accurate based on the data provided.

It usually takes some time for a newly elected councillor to gain enough knowledge of the municipality to be able to effectively contribute to his or her governance role, but at least there is   some continuity with not all of council being newly elected at the same time and at least the term of office is for three years. Councillors that are appointed to sit on the Boards of Directors of various public bodies such as agencies, boards, and commissions, however, are appointed annually at the municipality’s organizational meeting and the appointment is only for one year. There are absolutely no criteria at all for being appointed to these Boards of Directors other than being an elected councillor. There is no requirement for any expertise in any area of governance and there is no formal orientation to the role and expectations of governance. There is no requirement for any knowledge of or expertise in the operations of the public body in question.  At the very least in the private sector, board members usually have some expertise that is of relevance to the business that they are asked to oversee.

This situation is not the fault of the board members; it is a product of the current traditional system of public sector governance. It is not surprising that there are issues with public sector governance. Boards are frequently unaware of various issues, because they do not have the expertise or experience to ask the pertinent questions in such areas as finance, human resources management, general operations, and risk management. It is only by asking the right questions and demanding the required information, that appropriate control and oversight can be effectively exercised. The issues only come to light, otherwise, when it is too late and there are staff and/or customer complaints or serious budget overruns or other financial and operational difficulties.

What other positions are there in our society that do not have selection criteria based on required competencies?

The Province of Alberta has begun to address this issue, at least with regard to provincial agencies, boards, and commissions, collectively referred to as agencies, such as the Safety Codes Council, the Alberta Cancer Board, and the Alberta Grain Commission. The Report of the Board Governance Review Task Force, “At a Crossroads”, (available online) was presented to the Premier on October 1, 2007. The report identified 248 provincial public agencies in total and made fifteen recommendations to the Province. One of three basic themes underlying the recommendations is that, “the appointment of directors should be based on competence.” The report went so far as to recommend that, “The Government of Alberta should not appoint elected or senior government officials to the governing boards of agencies.” This recommendation was accepted with the modification that the Government would still appoint some elected or senior officials due to the nature of some boards.

The “Public Agencies Governance Framework”, (available online) adopted by the Government in response to the Task Force’s report, stipulates that the following principles, among others, will form the basis of all agency appointment processes:

  • “Competency: Selection is based on skill sets that meet the needs and nature of the organization so that the agency has directors who, together, have the competencies to implement good governance practices and meet the agency’s mandate.”
  • “Transparency and openness: The recruitment and appointment process is clear, publicly available and communicated to stakeholders. Individual openings for positions are publicly advertised, and reasonable steps are taken to reach a large number of diverse and eligible candidates. Appointments are publicly posted.”

So this is the Province’s response to the issues surrounding the Province’s agencies, boards, and commissions. But, what about municipal sector agencies such as Seniors’ Housing Foundations, Waste Management Services Commissions, Regional Water Commissions, Regional Fire, Ambulance, and Emergency Services Commissions? They are rapidly growing in size and complexity, and the need for greater accountability and better risk management grows daily. Some are as complex as a sizeable business with operating budgets of several millions dollars and all affect the lives of many citizens and taxpayers.

Why should municipal sector agencies be treated any differently than provincial ones? Is not what is good for one, good for the other, and do not the same principles and practices of good governance apply to both?

Boards, such as Municipal Library Boards, that have both municipal councillors and community members at large, are able to advertise for, select, and appoint new board members with relevant expertise such as finance and library management. Specific relevant competencies have traditionally not been sought, but there is nothing standing in the way of the board to ensure that they are, in order to better ensure appropriate oversight and management accountability. It is in the best interests of the municipal council involved to ensure that the community is well represented by members at large who possess the specific competencies to contribute the most to the role of board governance.

Most municipal sector boards, however, such as boards of waste management commissions or regional fire service commissions, are composed purely of elected municipal councillors from the municipalities involved. Such boards are also free, however, to advertise for, select, and appoint additional publicly elected board members with specific expertise in such areas as finance and the Commission’s operations. There is nothing in the Municipal Government Act (MGA) that precludes such additional expertise or even the appointment of such outside expertise in place of the elected officials if the municipalities so decide. By ensuring the appropriate expertise on the board, the municipalities are in a much better position to ensure appropriate management accountability. This is also prudent risk management.

We recognize that funding for the municipal sector agencies comes primarily from municipal councils, but the municipalities lose no financial control by appointing someone other than a councillor to a Board of Directors. They still have full control over the funding provided and, with the appropriate expertise on the board, they have far better control.

Continuity of representation should also be encouraged so that there is less annual turnover of board members.

It is certainly not the intent to minimize the contributions of municipal elected officials to the various boards that they contribute so much time and effort to. The only point is that what is good for provincial agencies applies equally to municipal agencies. What is needed is a balance of elected representatives and specific expertise such as finance, human resources management, the general operations of the agency in question, and risk management, without which there is far less chance of adequate oversight and accountability. The opportunity as well as the ability is there to address these issues and to obtain the right balance.