CHANGING GOVERNMENT AND CONSTANT ETHICS

presented by

A C HARRIS

NSW Public Sector Corruption Prevention Committee Inc

Tuesday 29 June 1999

It can be fairly argued that, in the last decade or so, there have been great changes in how Australian governments have effected their functions.

In many areas, governments have privatised their activities by passing responsibility for them to the private sector. In many areas the private sector provides services to the public as agents of government. In many areas the private sector now provides services to the government which previously were provided in-house.

These developments have been accompanied by and sometimes have been caused by revenue constraints. There has also been a modest change in the sources of government funding. Government departments rely rather more on earned revenues than they used to.

There have also been significant moves to devolve authority under the maxim, echoed in several jurisdictions, of let the managers manage. There has been a good deal of corporatisation, so that boards of governance can oversight the activities of commercial authorities without political interference. There has been a marked reduction in the specificity of parliamentary appropriations, thus giving the Government considerable flexibility in post-budget resource allocation decisions. There has been a radical change to the public service in its upper echelons, with the aim of attracting or holding personnel with modern management skills.

These changes are not unique to New South Wales: all Australian jurisdictions have followed the same general reform path. Though some might have introduced reforms more energetically and comprehensively than New South Wales, it is probably true that New South Wales was the first jurisdiction to adopt a corporatist view of the State, captured in the phrase "NSW Inc", which view continues today albeit under a different garb.

While there have been large changes in the way government is conducted, the legal and ethical framework of government has remained essentially the same. In particular, Australians continue to enjoy democracy with a responsible, representative, parliamentary system of government. Under this system the government is accountable to parliament for its management and use of community resources and parliament, through the representative members of parliament, is responsible to the people.

Between a reformed, corporatist view of the State and a fixed legal and ethical framework is the State’s accountability regimen.

As one would expect, that accountability regimen has changed to accommodate the changes in government practice.

What this paper aims to do is to assess how well some parts of this accountability regimen has adapted to reflect changes in governing. This assessment suggests, for the parts of the accountability mechanism examined, that there has been a failure to reform the accountability regimen to accommodate the reforms in government.

To examine one of the biggest issues first, we start with the reformed public service. The Westminster – Whitehall model of public service was designed to provide a continuing, non-political public service which could serve the changing, politically-oriented executive of the day.

Under this model, the public service is to implement professionally the lawful directions of the executive but is to provide it with frank and fearless advice.

The New South Wales Government was one of the first in Australia to reform its senior ranks of the public service by placing them on contracts. The maximum term of a contract was five years and the loss of tenure was to have been matched with a remuneration package akin to that available in the private sector. The aim of the reform was to attract more skilled senior staff, especially those with private sector skills, and to reward them in a way which recognised the increased skills required and increased risks they face.

There are several inherent problems with the senior executive service reforms. The most important was the assumption that the executive government would or could judge the competency of its senior executive service solely or mainly by reference to its management and professional skills. The senior executive service’s contribution to the political ambitions of government members was not to be a relevant issue per se and, in any event, remuneration and compensation would balance the increased risks arising from loss of tenure.

That assumption was not realised. Members of the senior executive service are now seen as the employees of the minister – rather than of the independent employer public service board – and ministers in their dealings with senior executives cannot always be relied upon to distinguish between management and political goals. Moreover, the past government has seemingly removed the safety net of market-based remuneration and has certainly reduced compensation for risk, while maintaining or even increasing that risk. If there was a danger before, it is now even more likely that the senior executive service would more closely identify with the political goals of the government of the day.

This weakness was recognised by the New South Wales Government when the Premier advised the parliament on 3 June 1998 that his government was committed to "restoring the principle of an independent non-political public service in NSW …".

The theoretical underpinnings of a professional senior executive were given welcome coverage in the Fitzgerald Royal Commission report in 1989. This was recognised in an address by Mr Carr as Leader of the Opposition on 22 February 1995 when he quoted Commissioner Fitzgerald:

A system which provides the Executive Government with control over the careers of public officials adds enormously to the pressures upon those who are even moderately ambitious. Merit can be ignored, perceived disloyalty punished, and personal or political loyalties rewarded. Once there are signs that a Government prefers its favourites … when vacancies occur or other opportunities arise, the pressure upon those within the system becomes immense … the job of bureaucracy … is to provide independent, impartial, expert advice on departmental issues …

 

The findings of The Audit Office’s performance report on the senior executive service (released in December 1998) confirm that these weaknesses are emerging in the NSW senior executive and chief executive service. This audit, the most extensive identified research into any senior executive service, found, inter alia, that

• political factors strongly influence advice of chief and senior executives
• these executives acknowledge the increasing shift towards public sector politicisation
• these executives were removed for other than performance
• there is a conflict between the day-to-day dealings of these executives with their ministers and the government’s formal codes of conduct.

The audit was based on an extensive survey of chief and senior executives, prepared in consultation with the Premier’s Department, a literature search and an interview of a small number of staff (current and former members of the public service). The survey responses reflect around 20% of the population.

Perhaps the most startling finding was that a little less than half (48%) of those surveyed indicated that they would apply again for the senior executive service. Over a third said that they would not. Nearly a fifth were neutral.

The most important recommendation made in the report of the performance audit was to separate ministers from their employer role by establishing a new, statutory employer for chief and senior executives which is independent of government.

Despite the rigour and competence of the audit – conducted for The Audit Office by the University of Technology Sydney – it received trenchant criticism from the chief executive of the Premier’s Department. The "small survey sample" was criticised as was the report’s relevance. It seems that the opinions of those surveyed and interviewed were not regarded by the Premier’s Department as relevant.

In fact the survey, because it asked participants to comment solely on themselves and not on their views of other members of the senior executive service, was entirely conservative in its construct. If the Premier’s Department, the body responsible for administering the senior and chief executive services, can find no value in the report, it might reflect more on that department than the audit. Indeed, one can hypothesise that the government’s response to the audit is an illustration of some of the issues identified by the audit.

As desperate as the picture appears, there is no indication that the government’s 1998 public commitment, a commitment now one year old, to reform the upper ranks of the public service was ever of substance. If it were of substance, there is no evidence that it is still current. I can find no other explanation for the government’s ignoring its own strong and repeated sentiments.

The politicisation of the public service observed in the above audit can also be seen in the relationship between some members of the executive government and the State’s corporations and statutory bodies. These bodies, especially in their corporatised form, have been established to separate them from the day-to-day operations of government to give greater priority to efficiency, economy and effectiveness issues.

Although they have been established by parliament as entities separate from the executive, so that they can give less weight to the political goals of their ministers, the relationship between these bodies and the government and between the government, their boards and their chief officers is often ill-defined in practice and confusing for good accountability.

Where a minister appoints the board and the chief executive there must be divided lines of accountability and confusion. Where an authority is established but is subject to the minister’s direction and control there must be confused accountability.

Some ministers, especially those whose personalities requires that they exercise their role through tight control over the minutiae of actions of subordinate officers and entities, profit from this ambiguity of governance.

At its worst expression, boards and entities do not ask for the formal directions which legislation might require but act on the undocumented, earnest wishes of the portfolio minister of the day. Indeed, some ministers believe that they can request or induce a result of their boards of governance without being accountable for it.

When ministers decline to act through the mechanisms established by law, but instead prefer to use informal mechanisms, perhaps by inference using their power over appointment, as Mr Carr discussed, they demonstrate their aversion to accountability. They also diminish the system of responsible government of which they are part and which they have sworn to uphold.

The Audit Office report on the special audit on corporate governance was tabled in June 1997. It was seemingly well received by the government at the time, and it is still acknowledged by those active in the field as having made a contribution to a complex subject. But there is little evidence that the government has modified its approach to the creation of corporations in light of the report. In particular, the government continues to introduce legislation which establishes corporations whose board is appointed by the responsible minister and whose chief executive is employed at the minister’s discretion.

There is little doubt that devolution of responsibility can allow government to act more efficiently in the broadest sense of that term. And that improved efficiency need not be at the cost of sensible accountability.

But the adage "let the managers manage" is not conducive to good management where the managers do not have adequate directions and rules to help them acquit their responsibilities. Nor is it helpful in the absence of enhanced accountability mechanisms to identify how managers actually managed in the environment of devolved responsibility.

There are Treasurer Directions issued under the Public Finance and Audit Act 1983, as there should be directions, if the government is committed to the proper management of taxpayers’ moneys. But the Treasury appears to have some reluctance about prescriptive guidance and looks to the day when a regimen of "better practice guidelines" can be introduced.

On the other hand, the Premier is not well equipped to issue binding rules, because the Premier has no statutory powers to issue directions outside of his portfolio. It is probably correct that departments should accept Premier’s memoranda as a binding expression of government policy. But statutory authorities, even those established to be under the direction and control of their minister, cannot blithely regard Premier’s memoranda as an authoritative view of their minister’s instructions, without some evidence that this is so.

Premier’s also has a reluctance to be prescriptive outside of industrial relations issues. The public service thus is guided rather than directed and breaches of guidelines by agencies are prevalent.

If there were good accountability mechanisms to balance the latitude allowed managers, there could be less ground for concern. But central agencies have not the resources to oversight agencies’ use of the liberal freedoms they have been allowed. Parliament also cannot effectively oversight by itself the 500 or so bodies in the NSW Government. And agencies do not help the process in their reporting.

In fact, agencies have not well responded to the significant devolution in authority which has occurred by improving their accountability for those new responsibilities.

Government agency annual reports continue – in the main – to avoid discussing the real issues which they face because they are controversial in nature.

I have some sympathy in this matter for chief executives of departments and of authorities which are closely directed by ministers. Although the law requires these chief executives to report to parliament on matters of moment – including on controversial matters of moment – such published reports might not be well received by ministers.

Notwithstanding this sympathy, I do not believe that chief executives can solve their dilemma by ignoring the law. Chief executives should advise their ministers on the legal obligations they face. If necessary, they can offer to obtain written legal advice. Ministers would be most imprudent if they knowingly conspired with an officer to break the law.

Unlike the "big bang", there appears to be little echo in New South Wales of the historical tussle between the executive and the parliament which led to the Westminster style of parliament which we have nominally inherited. (It is only the Legislative Council’s desire to receive documents which marks the proper relationship between the executive and parliament in New South Wales.)

The executive arm of government is meant to be subservient to parliament. The executive is, in effect, a special kind of committee of parliament, according to Bagehot. But it is the government which in New South Wales effectively sets the resources of parliament and which effectively determines when parliament will sit. It is seemingly within the government’s gift not to proclaim legislation passed by both chambers when the government does not agree with it. And although the Legislative Council has little capacity to modify the government’s budget, the scant power which the Council retains or seeks to enforce, appears to be too much for the executive.

The NSW Parliament’s control over the use of taxpayers’ resources is also scant. The government now has access to appropriations on a single line basis for each agency. The Treasurer may expend the Advance to the Treasurer on any recurrent matter within the State’s powers, perhaps even those which might have been foreseen when the Appropriation Bill was devised and certainly those which are not urgent. If the exigencies of government require, the government can spend moneys not appropriated by parliament. And the appropriations are completely interchangeable between agencies within a portfolio and between portfolios.

In New South Wales, the lack of parliamentary control over appropriations of tax moneys is so great that it is only a small step now to allow the executive to spend what it will, as long as it provides a modest account after-the-fact.

It is perhaps unfashionable to suggest that parliament has the constitutional duty in a system of responsible government to oversight the activities of government. Certainly the executive seems not to recognise this duty as clearly as the courts. In the way the executive answers questions, in the way the executive crafts casual second reading speeches to what is important proposed legislation, in the limited sitting days allowed parliament, in the government’s haste to prorogue parliament if it gets out of hand, there appears to be no recognition that parliament is fundamental to our system of democracy.

The government’s position argued before the Supreme and High Courts, that it was not obliged to table documents required by the Legislative Council, is a good exhibition of the executive’s poor understanding of the function of parliament. On the substance of the matter, the Justices in each Court in each of the three hearings unanimously held against the government.

Without the backbone of an effective parliament, it is reasonable to expect that the accountability regime in operation in New South Wales is supine. Without effective accountability there can be no full expression of democracy.

The greater participation of the private sector has allowed governments in Australia to establish a new regime to limit the publication of material. The regime appears to be unique to Australia and is based on the view that the details of government dealings with the private sector need to be protected from public scrutiny, because the commercial value embedded in the contracts with the private sector would be diminished if those contracts were released.

In New South Wales its full expression was the government’s long-held view that it could not appropriately release either the endorsement contract between the government and the Australian Olympic Committee or the major olympic contract between the International Olympic Committee and the government. Although the equivalent to these contracts had been released by the Atlanta and Athens olympic games organising committees, it was unsafe to release them in Australia.

The Commonwealth Senate has taken a dim view of commercial-in-confidence claims. In its committee’s reports on the matter, it says that governments should not merely claim or assert the confidential basis of materials not released. What can be freely asserted can equally freely be denied. If governments wish to protect documents, they must demonstrate why those documents should be protected.

In New south Wales the private sector initially sheltered behind the shield of privacy afforded by State governments’ desires to keep material from the public. In the 1994 audit of the M2 arrangements, some in the private sector would not release material to The Audit Office which was included in the public prospectus or which had been provided to the United States Securities Exchange Commission (and which was available on the internet) or which had been provided to an inquiring member of the NSW public, a potential investor. There are now growing signs that the private sector does not believe that the publication of its contracts with the government will cause commercial losses. At the same time the private sector is starting to realise that there is an unacceptable cost if its dealings with government are not published.

Secrecy does beget suspicion, but there are more persuasive reasons which require governments to be open. These were advanced by the High Court in two recent cases. One involved the 1998 High Court case between the NSW Government and the Legislative Council of the NSW parliament (over the abovementioned reluctance of the government to acknowledge any duty to table documents required by the Legislative Council).

In that case the leading opinion of the High Court repeated a view unanimously made by that Court in an earlier case between the Commonwealth and Fairfax. It said that there was a limit to the power of the executive and of the parliament to withhold information from the electorate and its representatives in a system of responsible, representative government.

This merely means that if the government is to be effectively responsible or accountable to parliament, and if parliament is to be elected on the basis of informed votes, members of parliament and of the electorate need information which cannot be unreasonably withheld from them by governments or parliaments.

Although ministers are as appointed trustees of the community’s resources and powers, one gets the impression from time to time that the public has no role in the matter of government, even though they are meant to be the beneficiaries of the trust relationship.

It is perfectly understandable that ministers do not always enjoy the accountability duties of government. But to the extent that they limit or eschew accountability, so they personally degrade the quality of the State’s democracy.

The Supreme Court Appeal Court judgement on Egan v Chadwick & Ors of June 1999 considered the government’s claim of public immunity in not meeting orders for documents made by the Legislative Council. I could find no reference to the term commercial-in-confidence. It was certainly not advanced by the Court as a criterion which was even relevant to assessing whether documents were exempt from tabling orders.

We appointed public officials can also degrade the value of our democracy, if we have an inadequate understanding of the laws which we are meant to uphold and administer.

It is proper that we look to enhance our skill base by importing those private sector skills needed to run large public sector commercial enterprises or departments.

The private sector can teach us about property management, debt management, the management of information. But they are not well equipped to teach us about the public service.

So when we hear managers from the private sector claim that they are not in the public sector when they are, when we hear managers in the public sector saying that their wages are nobody else’s business, certainly not the taxpayer, when we see managers acting as if public law is irrelevant to their activities, we should know that we face a problem.

It is not just that some of the former private sector managers know so little about public law as to be dangerous. For some reason, perhaps the rush to achieve "NSW Inc" and its benefits, long-standing public servants have forgotten that government is firstly about the rule of law not firstly about the rule of outcomes.

There are many examples of this lack of understanding. Boards of governance thinking that they have the power to augment their board remuneration. Agencies’ thinking that their establishing legislation does not act to restrict their activities. Public servants’ thinking that appropriation legislation is meant only to be indicative of the government’s future spending of taxpayers’ moneys. Trust moneys do not have to be managed carefully and separately from other moneys. Agencies never need the Treasurer’s approval to borrow. It is as if many public servants see the law to be guidelines or an expression of better practice which public servants can depart from, if the situation warrants a departure to achieve the outcome.

There is also a more serious problem. If this problem is extensive in the NSW public sector, and it might be, it should be a matter of concern. That is the view that breaches of public law are not important, indeed they are "technical".

Many of us might be alarmed about "inadvertent, technical" breaches of self-imposed rules in the Commonwealth. But much more serious is the increasingly heard view that breaches of State legislation are only technical if by those breaches the government’s goals are met. It is only this month that a Minister made this claim in the New South Wales Parliament about breaches of the Constitution Act 1902.

This apparent disdain for or undermining of the law is presumably a reflection that the process-driven approach to public sector management is neither efficient nor effective. I can certainly agree that following processes need not justify the outcomes. But we need to ensure that our management framework is not built on the converse ethic: that the outcomes justify the processes.

This difficulty about the rule of law is also sometimes seen in the role played by public sector lawyers. Some in-house lawyers have advanced opinions in favour of their employer which are so contrived as to be unprofessional. Some lawyers have seemingly opined that, since members of the public have no standing to litigate the issue, public officers have more freedom to do what they want. Some lawyers have asked officers to act in a way which is contrary to law in order to achieve an outcome wanted by the minister.

Lawyers in the public sector, rather more than those in the private sector, must provide advice which they think best represents the law. It is for this reason that I worry about public sector agencies using private sector law firms to opine on public law issues. I worry that private sector lawyers are adept at making the best case to help their clients achieve their desired outcomes rather than offering the best advice about the law.

While we are discussing accountability and the law, it is worthwhile examining how public officers are often much more inclined to protect one public asset, taxpayers’ moneys, compared to another public asset, the right to an accountable government.

It is apparently common practice in the NSW public sector, when setting an accommodation with an aggrieved member of the public, to impose a confidentiality provision in the agreement. This attempts to prevent either party from disclosing the terms and conditions of settlement.

There might be good reasons for such confidentiality clauses, but I have yet to see any convincing reason advanced. In the settlement with the celebrated Mr Azzopardi, the government justified the secrecy provision because it is commonly required in the private sector. Even when The Audit Office settled with an employee the terms of his disputed departure, the legal advisers automatically inserted a confidentiality provision, as if the draft agreement would be substantively bereft if it had none.

In the matter of Y2K, the government legal advisers suggested that agencies should adopt a non-generic but anodyne approach to responding to inquiries about agencies’ preparedness for the information technology consequences of the year 2000. Had the advice been acted upon by agencies in the preparation of their annual reports for Parliament, they might well have been acting unlawfully.

Even more widespread is the view that agencies should not respond accurately and comprehensively to legitimate enquiries from the public if by so doing a financial penalty might result.

Thus with some important exceptions, public officers have seemingly been trained to equivocate, obfuscate and prevaricate in order to avoid having to admit the possibility of an error and a consequent liability.

The dissembling seems to be justified on the basis that taxpayers’ funds can thereby be saved. At the same time, relevant public officials can avoid the adverse publicity or responsibility attached to having to explain and perhaps apologise for mistakes.

With some exceptions, this approach appears to be one favoured by our public hospitals which act in an unhealthily defensive manner when accused of harming patients. It was thus particularly refreshing to see senior appointed public health officers apologising recently for the hurt occasioned twenty-two patients injected with inappropriate chemicals.

Even private insurance companies do not oblige their insured clients to refrain from conveying the facts of a motor vehicle accident in which they were involved. They merely require their clients to avoid making judgements about responsibility.

That same standard ought not be too onerous for governments which wish to be the model litigant or which wish to be the moral exemplar. If our legal advisers could assist in our behaving according to those standards, standards which governments should be striving to meet, proper accountability would be enriched.

Rather too often we want our legal advisers to tell us what is legal, rather than we determine what we should do. It is as if we have no ambitions that the government we work for should be an ethical government.

Establishing or promoting adherence to high standards of ethical behaviour is not an effortless task. Indeed, because there are no public institutions to promote ethical behaviour, in the way the churches are meant to promote adherence to moral theology or the police and courts are meant to promote adherence to the law, the task is difficult.

There are several ways by which it might be effected. In the Commonwealth as in Queensland, the parliaments have imposed a statutory responsibility on public servants to act ethically. In New South Wales, consistent with a philosophy which eschews legislation, the responsibility is imposed by way of Codes of Conduct.

There are codes of conduct for members of parliament (drafted by the government) and for public sector executives. The latter is described as Code of Conduct and Ethics.

The code of conduct for parliamentarians was reissued in May 1999 and is one and a half pages long. The code for public sector executives is seventeen pages long. It was issued eighteen months ago. A revised code of conduct for ministers is still being drafted, that task having commenced some years ago. Pending completion of the new code, the former code is still relevant.

Apart from their length, there are important differences in the codes for parliamentarians and senior executives. In particular, there is no discussion in the code of conduct for members of parliament that they must acknowledge apparent conflicts of interest. There is no discussion about the application of conscience and there is only one brief mention, in the preamble, of the concept of acting with honesty.

By comparison, the code of conduct and ethics for public sector executives is a carefully explained, comprehensive document. What is not clear is whether it has any force of law or is merely another of the State’s better practice guides which can be departed from if the circumstances render it useful.

It is also not clear that the public sector executive code can have any life or vigour in isolation from the ethical environment in the other related parts of the public sector. If there is any lack of enthusiasm amongst members of parliament for an effective mandatory code of ethical conduct, if there is not widely promulgated and understood code of ethical conduct for the government as a whole, it is difficult to establish the environment for an ethical code of conduct for the rest of the public service.

Even where codes of conduct and ethics are developed properly and address in a comprehensive and articulate way the formal expectations of public officers, they are of little value if they have no real life. Where informal rules reward conduct which the formal code prohibits, the written code becomes lifeless.

In many senses, this returns us to the topic first raised in this paper about the health of the New South Wales public service. In many senses it allows us to conclude the adequacy of our accountability mechanisms.

To balance these concerns I could point to a number of developments in accountability – such as the introduction of freedom of information legislation, the establishing of the Independent Commission Against Corruption, the establishing of the Police Integrity Commission, the enhancement of performance audit powers.

But these do not address well the radical reforms which governments have introduced.

It is true that there have been relevant performance audits. Reports on HomeFund, on the M2, M4, M5, the Eastern Distributor and the Sydney Harbour Tunnel, on Sydney Water’s filtration plants, on the sale of State Bank and the TAB addressed this changing environment. So did the report on the State’s senior executive and chief executive service.

But the government’s responses to these reports distinguish themselves from its responses to others. The failures of accountability or of the accountability mechanisms have not been understood or, if they have been, the government of the day gives those failures little weight in their continuing hurry to reinvent government.

I could also balance the scales by quoting the belief of others that, compared to many jurisdictions outside of Australia, there is little corruption in the two senior levels of government in Australia.

That belief might be true. But it does not please me that corruption in this State once extended to and beyond the Police Commissioner’s office, to paraphrase Commissioner Lauer. And we should not be content that Minister Jackson represented an atypical example.

There might be scant cases of crime committed against the polity by members of the senior levels of government. But there has been a failure to exercise democracy.

It is not often that I would quote Mrs Kirner, former Premier of Victoria. But I do agree with her view – expressed in the context of the recent drug summit – that unless democracy is exercised day by day, it will atrophy and it can die.

There are many ways by which this State can improve the practice of democracy. Perhaps the most important is how government will deal with its hegemony over public information.

There have been signs over the last four years of a tightening of the interpretations made by public officers administering the freedom of information legislation. But information is the foundation of accountability and provides the only environment in which democracy can thrive.

How governments, how all public officers deal with this question of government information in the future will in great measure determine the quality of our future democracy.

At the moment, I would have to say that the changing government has not well accommodated our constant ethics.

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