06 December 2021

Legislative framework relating to Crown entity appointments

Officials who support ministers who make Crown entity board appointments need to be familiar with all the legislation that relates to Crown entities, as the legislation provides information relevant to appointment and induction processes as governance information.

Crown entities are legal entities, separate from the Crown. Where functions or activities are assigned to a Crown entity, that decision reflects a view that they should be carried out at arm's length from government.

The Crown Entities Act 2004

The Crown Entities Act (the Act) provides a consistent framework for the establishment, governance, and operation of Crown entities. The Act specifically covers board appointments in part 2 and schedule 5. The Act also clarifies accountability relationships between Crown entities, board members, the Crown, and Parliament. It sits alongside individual entities' establishing legalisation. In the event of conflict, the Crown Entities Act prevails, unless an entity's own legislation expressly modifies or negates the provisions of the Crown Entities Act.

Crown entities are classified into one of five categories:

  • statutory entities
  • Crown entity companies
  • Crown entity subsidiaries
  • school boards of trustees
  • tertiary education

Statutory entities are further classified under the Crown Entities Act into one of three types:

  • Crown agents, which are required to give effect to government policy relating to their functions and objectives if so directed (see section 103  of the Crown Entities Act). Appointments to their boards are made by the responsible minister.
  • Autonomous Crown entities (ACEs), which are required to have regard to government policies relating to their functions and objectives if so directed (section 104). Appointments to their boards are made by the responsible minister.
  • Independent Crown entities (ICEs), which generally are independent of government policy (section 105). Appointments to their boards are made by the Governor-General, on the recommendation of the responsible minister.

Board members' collective and individual duties

The collective duties of statutory Crown entity boards are specified in sections 49 to 52 of the Crown Entities Act. The collective duties of a Crown entity are the board's public duties, which reflect that the board and entity are part of the wider public sector. The collective duties are owed to the responsible minister.

The duties are to ensure that the entity:

  • acts in a manner consistent with its objectives, functions, current statement of intent, and current statement of performance expectations
  • performs its functions efficiently and effectively, consistently with the spirit of service to the public, and in collaboration with other public entities, where practicable
  • operates in a financially responsible manner, ensuring its long-term financial viability, and that it acts as a successful going concern
  • complies with the Crown Entities Act requirements relating to its subsidiaries and other interests.

The individual duties of statutory entity board members are also specified by the Crown Entities Act sections 53 to 57. Board members' individual duties are to:

  • comply with the Crown Entities Act and the entity's enabling legislation
  • act with honesty and integrity, in good faith and not at the expense of the entity's interests
  • exercise the care, diligence, and skill that a reasonable person would in the same circumstances, taking into account the nature of the entity and of the action, the position of the member and the nature of his or her responsibilities
  • avoid disclosing information, except in accordance with the entity's functions as permitted or required by law.

Appointing a chief executive

The establishing legislation of most Crown entities don’t specifically state whether a chief executive should be appointed, because such entities have the power under the Crown Entities Act to employ staff, including a chief executive. An entity's enabling legislation may prescribe the appointment process for its chief executive, or the process for setting remuneration or other terms and conditions. Crown entity boards have the final responsibility for setting their chief executives' terms and conditions, subject to the consent of te Tumu Whakarae mō Public Service Commissioner (Commissioner) as specified in section 117.

Any Crown entity that employs a chief executive must obtain the Commissioner’s consent before agreeing to any terms of employment for the chief executive. District Health Boards must also obtain the consent of the Commissioner to their chief executives' terms and conditions (see schedule 3 section 44 of the New Zealand Public Health and Disability Act 2000).

An entity's establishing legislation

Statutory Crown entities and many other agencies have their own establishing legislation. Departments need to be familiar with legislation covering each Crown entity for which they have appointment and monitoring responsibilities. For example, establishing legislation may provide for the appointment of a chair or deputy chair. This is a separate status from being a board member, and an enabling Act may require a different person to be responsible for their appointment.

 

The New Zealand Public Health and Disability Act 2000

This Act establishes District Health Boards, which are all Crown agents, and a number of other Crown entities. It contains specific appointment and induction provisions for DHB boards, in particular differing provisions for elected and ministerially appointed board members. As with other entities' establishing legislation this Act works in tandem with the Crown Entities Act.

The Public Service Act 2020

Under the Public Service Act, the Commissioner acts as the Head of Service by providing leadership of the Public Service which includes Crown agents for some purposes. Under the Public Service Act, Crown agents are bound by the same purpose, principles and values as Public Service departments and agencies. Crown agent boards are responsible for ensuring the entities they govern uphold the Public Service principles. The Commissioner’s mandate applies to Crown entities in a number of ways, including to:

  • review the design and operation of the system of government agencies to advise the minister or the appropriate minister on the following matters:
    • possible improvements to delivery of services and inter-agency cohesion
    • agency establishments, disestablishments, and amalgamations
    • the governance and allocation of functions, and the transfer of functions to and between agencies.
  • prepare a draft government workforce policy that, if approved by the Minister for the Public Service, may apply as a Government Workforce Policy Statement to all Crown entities
  • promote integrity, accountability and transparency in the public sector including by setting standards and issuing guidance and conducting related inspections and Standards can apply to all Crown entities, not just Crown agents. For more information, see Understanding the code of conduct.

However, the Public Service Act does not contain any board appointment provisions.

The Public Finance Act 1989

This Act does not contain any board appointment provisions, but it has some provisions that affect the running of Crown entities. The Public Finance Act 1989 aims to improve the basis for the effective and efficient use of public financial resources and for clear accountability and reporting.

Also see schedule 1 of the Crown Entities Act.

Interdepartmental forum (MAGNet)

An inter-departmental forum (Monitoring, Appointments & Governance Network – MAGNet) is open to officials whose work involves:

  • monitoring the performance of Crown entities
  • providing nomination services for membership of government boards
  • advising on appointments to government boards
  • providing governance

MAGNet facilitates networking, sharing experience and material, encouraging good practice and consistency of approach, and helping the professional development of officials who have governance and monitoring roles. It’s supported by sub-groups that address monitoring, and appointments and governance issues.