3.39 Crown entities are legal entities in their own right. A decision to assign a government activity or function to a Crown entity indicates that the function should be carried out at “arm's length” from the government. As reflected in the Public Service Act 2020, Crown entities (except tertiary education institutions and their Crown entity subsidiaries) are, however, instruments of the Crown. Ministers, Crown entity boards, and monitoring agencies participate in the governance of Crown entities in different ways.
3.40 Ministers play an important role in the governance of Crown entities and are responsible to the House for overseeing and managing the Crown's interests in, and relationships with, the Crown entities in their portfolios. Section 3 of the Crown Entities Act 2004 recognises that an accountability relationship exists between Crown entities, their board members, and their responsible Ministers on behalf of the Crown and the House of Representatives.
3.41 The Crown entity's board governs the entity's operations. A monitoring agency is responsible to a portfolio Minister for monitoring Crown entities within that portfolio on the Minister's behalf. Memoranda of understanding can help clarify the respective roles of Ministers, Crown entities, and monitoring agencies.
3.42 Detailed guidance on Ministers' roles and responsibilities in relation to Crown entities is set out in the Guide for Ministers: Statutory Crown Entities, and accompanying resources published by the Public Service Commission.
Role of Ministers
3.43 Ministers oversee and manage the Crown's interests in, and relationships with, the Crown entities in their portfolios, and carry out any statutory responsibilities conferred on them as Ministers.
3.44 The Minister's role and responsibilities are to:
- appoint and maintain an effective governance board. Appointments must be made based on merit and in accordance with any other statutory criteria and process for appointment;
- provide the Crown entity board with clear performance expectations;
- participate in setting the direction of Crown entities, which may include setting the direction for multiple agencies in a sector;
- monitor and review Crown entity operations and performance; and
- manage risks on behalf of the Crown.
3.45 The Crown Entities Act 2004 (and other legislation that relates to particular Crown entities) sets out the extent of the control the Minister has over a Crown entity. The extent of this control depends on the entity’s category and type, and whether it has any statutorily independent functions. For example, Crown agents must give effect to, and autonomous Crown entities must have regard to, any government policy that relates to the entity’s functions and objectives, when directed by the relevant responsible Minister. A Minister may not direct an independent Crown entity to have regard to government policy unless specifically provided for in an Act. Similarly, the remuneration of members of some Crown entities is set by Ministers in accordance with the fees framework applying from time to time to statutory and other bodies in which the Crown has an interest (see Cabinet Office circular CO (22) 2 Revised Fees Framework for members appointed to bodies in which the Crown has an interest).
3.46 In some cases, a Minister may direct a Crown entity to follow a certain course of action. These powers of direction are likely to be used infrequently because other tools such as letters of expectation work well to convey Ministers' expectations.
3.47 The Minister for the Public Service's portfolio responsibility includes responsibility for Crown entities. Ministers should consult the Minister for the Public Service before Cabinet considers any proposal that could establish a new Crown entity. The Minister of Finance also has statutory responsibilities under the Crown Entities Act 2004 and should be consulted when appropriate.
Directions to support a whole of government approach
3.48 The Minister of Finance and Minister for the Public Service may issue directions to support a whole of government approach under section 107 of the Crown Entities Act 2004 to specified categories or types of Crown entities as defined in the Act, or to a group of such entities. (Companies named in Schedule 4A of the Public Finance Act 1989 may be treated as a category of Crown entity for the purposes of such directions.) Such a direction can be issued for any of the following purposes:
- to improve (directly or indirectly) public services;
- to secure economies or efficiencies;
- to develop expertise and capability;
- to ensure business continuity; or
- to manage risks to the Government's
3.49 Any Crown entity to which a direction to support a whole of government approach is issued must give effect to the direction.
3.50 The Crown Entities Act 2004 specifies requirements for consultation on the draft direction and presentation of the final direction to the House of Representatives. Further information can be sought from the Public Service Commission and Treasury. These agencies should also be consulted in relation to any advice on the proposed use of a whole of government direction.
Role of Crown entity boards
3.51 A Crown entity's board governs the Crown entity, exercises its statutory powers and functions, and may delegate these powers and functions in accordance with section 73 of the Crown Entities Act 2004. The board makes decisions about the entity’s operations and appoints its chief executive (where applicable). For boards of statutory entities and Crown entity companies, a board’s actions must be consistent with the Crown entity’s objectives, functions, statement of intent, and any statement of performance expectations.
3.52 The board should maintain open communication with the Minister. The Minister, together with the board, has a strong interest in:
- clearly setting the direction of the Crown entity;
- ensuring that the entity achieves its objectives, as expressed in legislation and/or the entity's statement of intent;
- managing any risks to the Crown.
Role of monitoring departments
3.53 The Crown Entities Act 2004 provides for Ministers to participate in the process of setting the entity's strategic direction through its statement of intent, and setting the annual performance expectations through its statement of performance expectations, and monitoring their performance. Each Crown entity has a monitor (usually the agency in the relevant portfolio), which assists the Minister with appointing and maintaining an effective board, setting direction and performance expectations, and monitoring performance. In addition, monitors undertake other statutory functions on their own behalf, administering appropriations and legislation, tendering advice to Ministers, and undertaking any other activities required under statute. The monitor's role for statutory entities is set out in section 27A of the Crown Entities Act 2004, and in section 88A for Crown entity companies.