Te kopou me te tuarā i tētahi poari hurikiko Appointing and maintaining an effective board

Board appointments are your most important way to influence the performance and strategic direction of a Crown entity. Every board vacancy creates an opportunity for you to reassess the competencies, background, experience and diversity required to best complement the talents of the other board members.

A transparent recruitment and appointment process and well supported decisions on possible reappointments are critical to ensuring effective members are appointed to boards. You should seek input from the current board chair and your monitor to assess the boardʼs needs.

As the first monitor of performance, an effective board will provide good governance of the entity, engage with the minister on strategic direction and performance issues and risk, work cooperatively with the monitoring department, and take opportunities to work with others to improve public services.

An effective board will:

• have a chair whose leadership qualities include the valuing of diverse perspectives and inclusive decision-making
• have members with the competencies (e.g. leadership and professional and sector-specific skills) needed to successfully achieve the entityʼs purpose and functions
• have members whose governance behaviours will likely enhance inclusive decision-making
• have a well-tuned understanding of risk
• help the entity articulate and achieve its strategic direction and targets
• understand the environment within which it performs its duties and ensure meaningful and regular engagement with the sector it serves
• recognise the importance of collaborating effectively with related departments, and the relevant public agencies, and
• select, mentor, and hold to account an appropriately skilled chief

As well as bringing high quality governance skills to the board, the board chair must be committed to drawing out diverse perspectives from members and be committed to inclusive decision-making. You should also expect the board chair to:

• lead regular (usually annual) self-evaluation of the boardʼs performance
• establish training and development opportunities for the board and its members commensurate with the self-evaluation
• commission occasional independent evaluation of the boardʼs

Alongside the information contained in this section, further detail on the processes for board appointments and induction is contained in the Commissionʼs Board Appointment and Induction Guidelines (BAIG).²⁸ The BAIG also contains additional information on the management and disclosure of conflicts of interest, board member induction, and the process to follow for appointment/reappointment.

Board appointment roles

As the responsible minister, you are responsible for board appointments either directly or through recommendations to the Governor-General (see the table below). Under section 29 of the CEA, you may only appoint or recommend those who you believe have the appropriate knowledge, skills, and experience to assist the entity achieve its objectives and perform its functions. You must also take into account the desirability of promoting diversity in board membership²⁹ and you may look for opportunities for cross-board appointments to support cross-agency working. Your good judgement is needed to ensure the board gets the skills and attributes it needs.

Section 30 of the CEA sets out who is not eligible for appointment to Crown entity boards. An entityʼs own legislation may also include circumstances that make a person ineligible for consideration.

Diversity of board membership

Diversity of membership means ensuring the mix of skills, knowledge, and experience includes factors such as cultural capability and insight, gender diversity and diversity of thought. Your monitoring department should ensure that these attributes are appropriately considered in role descriptions. These attributes exist alongside governance capabilities ordinarily required and while sometimes overlooked, they are critical to ensure the system is being responsive to the needs of all New Zealanders.

The Commission has been working to eliminate the gender pay gap and provide advice on recruitment strategies and processes to ensure they are free from bias. The Implementing the Gender Pay Principles and removing gender bias in recruitment processes(PDF, 725 KB) includes a suggested framework for developing the goals, strategy and actions that underpin a bias-free recruitment process. Many of these principles are also helpful for the board appointments process.

Your role in appointing or recommending appointments involves:

• retaining ultimate responsibility for each appointment, while in practice the processes are usually delegated to a monitoring department
• taking account of provisions in the CEA, the entityʼs establishing legislation and/or other instruments such as Cabinet Office Guide³¹ and relevant Circulars
• consulting the Prime Minister before ʻsignificant appointmentsʼ are submitted to Cabinet
• discussing all but the most minor proposed appointments with the Cabinet Appointments and Honours Committee (APH) meeting legislative and Cabinet requirements, and
• setting fees for Crown agent and Autonomous Crown entity board members, in accordance with the Cabinet Fees Framework, and expecting that the appointee receives a proper induction from the monitoring department and entity to which members have been appointed, particularly in the case of chairs.

Significant and minor appointments

The term ʻsignificantʼ is not defined; it's a matter of judgement. A case- by-case assessment is required, considering factors such as: the public profile of the entity, whether the entity has a strategic or decision-making role, whether the entity controls significant assets or funds, and whether the entity is an executive (as opposed to an advisory or technical) body.

In general, ʻminorʼ appointments will be at the lower levels (4 and 5) of category 4 in the Cabinet Fees Framework. However, your monitoring department will advise you on whether the appointment should be considered ʻminorʼ. Again, this is a matter of judgment for you.

 The term of office for board members who are elected as representatives of a particular ʻconstituencyʼ is set by the relevant statute. For example, District Health Boards have a mixture of appointed and elected board members under the New Zealand Public Health and Disability Act 2000.

You may wish to schedule periodic briefings with your monitoring department to discuss upcoming appointments. This could include discussing the objectives and functions of the entity concerned, current board membership, fees and allowances, which membersʼ terms are expiring, eligibility for reappointment, suggestions for revised skill sets and/or succession planning for board chairs. It's important to plan ahead and minimise the use of the provisions in the CEA [s.32(3)] that permit ʻrolling overʼ the terms of existing board members.

You can expect the monitoring department to advise you on all parts of the appointment process, including:

• the forward programme of board members who are coming to the end of their term
• the competencies, attributes, and diversity of background, experience and thought likely to enhance the boardʼs performance
• an appropriate process to be followed in the circumstances including transparent recruitment
• how best to locate candidates (with help from nominating agencies, e.g. Te Puni Kōkiri, Office for Disability Issues, the Ministry for Pacific Peoples, Ministry for Ethnic Communities and Ministry for Women)³²

• risks and issues arising throughout the process
• keeping you fully informed at critical points
• advice on succession planning
• advising you of the legal requirements and expectations of Cabinet

• providing advice on board member remuneration³³
• undertaking candidate shortlisting, assessment and probity checks as required (e.g. assess applications, undertake interviews, assess potential conflicts of interest, and CV/qualification checks); and
• arranging for publication of the appointment in the New Zealand Gazette, and ensuring appointees receive a proper induction.

You can expect the monitoring department to provide you with an assessment of the boardʼs competencies, member attributes, and diversity of background, experience and thought likely to enhance the boardʼs performance.

You can expect board chairs to:

• ensure an annual self-review of board performance is undertaken
• commission an occasional independent review of board performance
• provide insights into the skill sets the board requires, and
• be involved in the recruitment process, where

Background checking

Board members are accountable for an entityʼs strategy and organisational performance. Their reputation is often on public display and, through their appointment, are directly linked to the appointing minister.

Due diligence background checks (background checks) represent an investment in good appointment outcomes. They provide an opportunity to build a clearer picture of the candidate that informs the shortlisting process and final appointment process. Background checks also aim to ensure the integrity of appointments to public sector boards. They help ensure the suitability of appointment and to maintain high standards of integrity and honesty.

Comprehensive background checks on potential board appointees take time and effort but are essential for all preferred candidates who have not been previously vetted and may be needed for a reappointment.

Checks may also be necessary to assist in the development of a shortlist and/or identifying a preferred candidate.

Timely completion of appointments is important and planning an appointments process should commence early enough to build in robust background checks. Timing pressures such as a ministerʼs need to appoint by a set date or at short notice can make completion of appropriate vetting difficult. When exceptional circumstances preclude a full and timely process, the department should document its approach including reasons for the expedited process.

Induction

New board members should be given an introductory briefing on the Crown entity environment and the expectations that you have for them. The monitoring department and board chair should ensure that a new appointee receives a proper induction with an especial focus on your expectations and the Crownʼs ownership and purchase interests.

Succession planning

Board members are usually appointed for three-year terms and up to five years for Independent Crown Entities. Long-term stability of the board will contribute to strong governance. Terms of appointment are best staggered, so an appointment round minimises disruption of the boardʼs governance programme while, at the same time, giving you an opportunity to strengthen the board profile. For example, achieving gender balance, diversity and geographical spread will need to be matched by the competencies, background, experience and diversity of membership required by the board.

Discussions with the board chair and your monitoring department are an essential part of succession planning. Getting the ideal mix of competencies, diversity and attributes may take time and possibly beyond one term of government.

To ensure the board is taking some responsibility for growing its capability, you should expect the chair to drive a training and development programme for the board, facilitate internships and work closely with the monitor.

Board members may resign their position at any time, by written notice to the responsible minister.

Appointments in the pre-election or post-election period

Appointing members whose terms would conclude immediately before or after a general election should be avoided wherever possible. It has been the practice for successive governments to exercise restraint in making significant appointments in the pre-election period – appointments not considered to be significant proceed in the usual way.³⁴ The Cabinet Office will issue guidance on appointments that may arise during the three months before each general election and in the immediate post-election period.

Nomination for boards in another minister’s portfolio

Cabinet Office issues a schedule of current board members and upcoming appointments at the beginning of each calendar year. If you want to nominate someone for a board for which you do not have portfolio responsibility, you should contact the office of the responsible minister as early as possible in the appointment cycle.

Reappointment of board members

Before a board memberʼs term of office expires, you should seek advice from the chair on the memberʼs performance and assess the suitability of that person for reappointment. This discussion should include results of the boardʼs annual performance appraisals to inform reappointment decisions.

Appointees should not be given an expectation that they will be offered a subsequent term. In most cases, there is no formal limit on the number of terms for which a member may hold office. However, there is a balance between the benefits derived from continuity of service on a board, the value of the board gaining new ideas and perspectives, and the need to avoid losing a number of experienced members over a short space of time. The boardʼs goals, relevant government policy and/or a member's performance may have changed since the board memberʼs term began.

If a reappointment is being recommended, you do not need to follow the full appointment process, but you need to be able to assure your Cabinet colleagues that reappointment is the most appropriate option and that potential interests and conflicts have been reassessed.³⁵

The CEA provides for all board members to continue in office beyond the expiry of their term until they are reappointed, a successor is appointed, or a decision is taken that the member will not be reappointed and no successor will be appointed at this time. This is a short-term measure to enable the appointment of a successor to be completed, or until after a general election. It must not be used to bypass the terms of appointment that are prescribed in legislation.

Confirming and announcing appointments

Once you have selected the candidate you consider best meets the full range of requirements as an effective board member and undertaken relevant consultation, you should submit the appointment to the Cabinet Appointments and Honours Committee (APH).³⁶ You should expect your monitoring department to provide you with APH papers that meet the requirements set out in the CabGuide.

Once the intention to make or recommend an appointment has been confirmed by APH and Cabinet, you should follow all current protocols. For example, before taking a paper to APH, you should consult with government caucuses and in some cases coalition partners and support parties. While not formally required, consultation with opposition parties may be desirable on occasion.

In recommending appointments for Independent Crown Entity board members to the Governor-General, you should attach a covering note to accompany the recommendation. The covering note should include information on the position and recommended appointee, a brief description of the boardʼs role/functions, and any other information that the Governor-General would find useful.

Appointees and unsuccessful candidates must be advised before public announcements are made. All appointees should receive a detailed appointment letter and their notice of appointment, which will be signed by either you or the Governor-General. All appointments must be published in the New Zealand Gazette. You may also wish to provide a media release which may serve to raise the profile of the entity.

Post-appointment induction and training

Board members should receive initial and ongoing support so they are aware of the total environment within which they work. It's important that new board members and those not used to being a director in the public sector have adequate induction and training to ensure they understand their role and any government expectations. In practice,

this role is delegated but you may wish to play a part in this, for instance, following the appointment of a new chair. In some cases, responsibility for training new members is specified in legislation. For example, District Health Boards are required under their legislation to ensure new board members have appropriate training and that it's recorded.

Induction should be done in conjunction with the monitoring department (which can provide the wider public sector perspective) and by the board chair (who provides the detail for that entity).

A comprehensive set of guidelines and induction modules for board members is available at Crown entity induction material. The Commission and the Treasury are also available to assist with board membersʼ inductions.

Acknowledging a board member’s service

If a member resigns before the conclusion of their term, or is not reappointed, you (or the monitoring department) should formally acknowledge their services in an appropriate way.

Removal from office

Any decision to remove a board member must be consistent with the principles of natural justice (e.g. sections 5 and 27 of the New Zealand Bill of Rights Act 1990) and a proper consideration of the matter irrespective of the type of entity.

Legislation may impose different thresholds before removal can be considered (e.g. Schedule 3 Clauses 8(1) and (9) of the New Zealand Public Health and Disability Act 2000 relating to elected members of DHBs).³⁷ Depending on the relevant legislative powers, the threshold before such an action can be taken may be very high. Where ministers have full discretion to remove board members, there are several possible circumstances in which you might do so. You may lose confidence that a board member is contributing to the implementation of government policy or you may become aware that they do not have the appropriate knowledge, skills, and experience for the role. They may have undisclosed interests or other attributes that call into question their integrity or good directorship. Such awareness may come about through discussions with the board chair concerning board performance.

The table below sets out your powers of removal for each type of statutory Crown entity, and the notification of removal you need to provide:

In contemplating board member removal, you should consider informing Cabinet colleagues of any such intention and obtaining legal advice. Notice of any removal should be published in the New Zealand Gazette as soon as practicable after notice has been given to the member. Where appropriate, you should send a letter thanking the outgoing board member or members.

Removal of a chair or deputy chair

Board chairs and deputy chairs in effect hold two appointments – as a board member and as an office holder. Only a board member may be appointed to the chair or deputy chair role. A chair or deputy chair removed from that office continues to be a member of the board unless they are also removed as a member.

Removal of the whole board

The CEA contains a power to remove the entire board of a statutory entity if the members have breached their collective duties.³⁹ The exercise of powers of removal must comply with the principles of natural justice, as noted above.

Fees for board members

Crown agents and Autonomous Crown entities, excluding corporations sole

When setting fees for members of Crown agents and ACEs, you must use the Framework unless the entity is a corporation sole. The Framework is reviewed periodically – users should check they are using the latest version by visiting the Fees Framework webpage.

Each entity is classified under the Framework, on the basis of its roles and responsibilities. Most Crown agents and ACEs are classified as governance boards. The appropriate fee is then determined from within the ranges available for governance boards depending on factors such as the complexity of functions, recruitment, retention, risk to reputation, and affordability.

Exceptions

During a memberʼs term, any proposed increase in their fees must be referred to you as the responsible minister, and to the Minister for the Public Service for consideration as an exceptional fee. The Framework provides for both parties to decide on the case or for it to be referred to APH, depending on the circumstances. In all such cases, the Commission should be consulted at an early stage.

If you wish to pay a new appointee fees that are above the applicable fee range under the Framework, you must follow the process set out in the Framework (see above). Any proposal to pay fees outside the applicable fee range should be supported by a strong rationale and is often time bound. Possible justification could include: demonstrated difficulty in recruitment or retention; the particular skills and expertise required for a specific task; an immediate need; or a period of intense workload.

An exceptional fee agreed for one board member does not apply to subsequent appointments. However, where unusual circumstances apply, for example where there are complexities and functions associated with membership, it may be appropriate to pay fees outside the Framework range to members of that body. In these cases, a standing exception may be agreed. A standing exception is where APH has agreed that those exceptional fees can be paid to all new appointments and re- appointments to that body without the need to refer to Cabinet for further approval.

The Commission will advise on whether the circumstances are likely to meet the threshold for approval as a standing exception.

For advice on the interpretation and application of the Framework, please contact the Commission email fees@publicservice.govt.nz.

Subsequent review of fees

The fees for members of Crown agents and ACEs should be reviewed at regular intervals (for example, when the Framework itself is reviewed or when appointments or reappointments are being made). Fees should not necessarily increase as a result of any review. If there are demonstrable difficulties in recruitment and retention, or if the memberʼs duties have increased markedly, this may act as a trigger to review fees.

Independent Crown entities and corporations sole

Setting and reviewing remuneration for an Independent Crown entity (ICE) or a corporation sole is the responsibility of the Remuneration Authority, under the Remuneration Authority Act 1977.⁴¹ As the responsible minister, you are not directly involved in the process.

Independent Crown entities and corporations sole Generally, the remuneration rate payable to any ICE board member or a corporation sole is reviewed at the time of their appointment. When a new entity is established or a ʻunique positionʼ is being filled, the Authority provides to the monitoring department an indicative rate for the position. On appointment, the Authority issues a determination, containing the remuneration rate payable, to the appointee or entity concerned as required under the Act.

The Authority reviews the remuneration rates for ICE members or a corporation sole each year. The Authority can be contacted at: info@remauthority.govt.nz.

Crown entity board as the fee setting authority for their sub-committees and subsidiaries

If the board of a Crown entity (including an ICE) establishes a sub- committee or a subsidiary, the board acts as the fee setting authority. In these circumstances the board must follow the provisions in the Framework.

Summary of levers for appointing and maintaining an effective board

A summary of the responsible ministerʼs levers for appointing and maintaining and effective board is provided below.

Figure 2: The responsible minister’s levers for appointing and maintaining an effective board

²⁸See Board Appointment and Induction Guidelines.

²⁹Refer CEA, s. 29(2)(b).

³⁰It's good practice at the start of each board meeting for members to declare any potential conflicts of interest and for such declaration to be recorded in the minutes. Conflicts that arise during the meeting should be declared and minuted along with the course of action taken.

³¹Refer to The appointments process.

³²If requested, the Treasury may be able to search its database of prospective board members for other departments and agencies.

³³In consultation with the Commission, as necessary.

³⁴Whether or not a particular appointment is ʻsignificantʼ is a matter of judgment as discussed above.

³⁵Should reappointment be recommended, a submission to the Cabinet Appointments and Honours Committee (APH) should clearly state the process that has been followed and the reasons proposed for reappointment.

³⁶Refer www.cabguide.cabinetoffice.govt.nz/procedures/appointments.

³⁷Refer New Zealand Public Health and Disability Act 2000 Schedule 3 clause 8(1) and clause 9.

³⁸“Just cause” is defined in s. 40 of the CEA, e.g. misconduct, breach of board member duties. It is a demanding and objective requirement and case law should be studied if such a step is mooted.

³⁹The Minister of Health has the power to replace an entire board with a commissioner – refer s. 31 of the New Zealand Public Health and Disability Act 2000.

⁴⁰The Framework has a much wider use than for Crown entities and should be used for setting fees for statutory or other bodies and committees in which the Crown has an interest; in particular, for bodies with responsible ministers that are outside the Remuneration Authorityʼs or other fee setting bodiesʼ jurisdiction. This includes Tertiary Education Institutions, some subsidiary bodies, trust boards, statutory tribunals and authorities, advisory bodies, committees set up to advise ministers and departments, and ministerial inquiries and taskforces.

⁴¹For further information see Cabinet Office Circular CO (11) 07.