Report to the Minister of Statistics: Advice paper – Organisational form: departments and Crown entities

Date 12 September 2019 Priority L Ref number MM1880

Timeline and next steps

Decision or action N/A required by: Will be discussed at: Your weekly officials meeting, if desired Purpose . This briefing provides advice on organisational forms (department of State and Crown entities) and alignment with current and likely future functions of Stats NZ including international obligations of Stats NZ as New Zealand’s National Statistical Office.

Linkages . This advice relates to the ongoing work on policy proposals supporting the development of new data and statistics legislation which will repeal and replace the Statistics Act 1975. Publicity . If appropriate, this briefing will be proactively published on the Stats NZ website as per standard practice.

Recommended action It is recommended that you: released 1. Note that the Statistics Act currently provides for Stats NZ to be a department of State.

2. Note that we have considered other organisational forms and the alignment of Stats NZ functions with a department as per the guidance from the State Services Commission and the Legislation Design Advisory Committee.

3. Note that Stats NZ functions are a stronger fit with a department of State rather than a Crown entity.

4. Note there are non-legislative options to strengthen organisational governance for departments.

5. Note the substantial due diligence process, and the requirement to formally engage the State Services Commission, in order to progress any machinery of government changes as well as the need to undertake international engagement with the OECD and United Nations.

Proactively

Rachael Milicich Hon James Shaw Deputy Chief Executive, Data System Minister of Statistics Leadership (Acting) Date:

In confidence

Organisational Forms in the State Sector

Background 1. The Statistics Act 1975 (the Act) is approaching 45 years old. Its provisions were largely conceived and designed for an environment where the possibilities and challenges of digital data were absent. 2. In 2016, Cabinet agreed in principle to introduce a Bill to enact new statistics and data legislation [CAB-16-MIN-0313]. Cabinet also agreed that new legislation should reflect modern statistical production, drive whole of system benefits, and support a connected, coherent and consistent approach across government. This was intended to support the public sector moving away from a “risk avoidance” approach and toward using and sharing government-held data better and safely. Context 3. Section 12 of the Act provides for there to be a department of State called Statistics NZ, the same department as that existing immediately before the Statistics Amendment Act 1994 which was known as the Department of Statistics. 4. Taking a first principles approach to the legislative review work has led us to examine at a high level whether the existing departmental form continues to best align with the current and likely future functions and operating environment of Stats NZ (including governance needs) and Stats NZ’s international obligations as the National Statistical Office for New Zealand. Options for organisational form 5. The State Services Commission (SSC) guidance on organisational form (machinery of government) provides that, for non-commercial (or quasi-commercial) government functions, like those of Stats NZ, there are two common organisational forms – departments of State (departments) and statutory Crown entities (Crown entities).released 6. There are currently 32 departments including Stats NZ making up the core public service and three different forms of statutory Crown entities in the wider State sector, namely: • Crown agents – 46 including District Health Boards, the Earthquake Commission, and the Tertiary Education Commission. • Autonomous Crown entities (ACEs) – 15 including the Government Superannuation Fund, Museum of New Zealand, and the Retirement Commissioner. • Independent Crown entities (ICEs) – 17 including the Broadcasting Standards Authority, Independent Police Conduct Authority, and the Privacy Commissioner. 7. For this current range of Crown entities, the following distribution of organisational types or functions are most common: • Crown agents are commonly larger organisations directing very large funding programmes or schemes and/or delivering complex services to the public, for example, District Health Boards. • Autonomous Crown entities are a mixture of organisational types commonly distinguished by a higher degree of autonomy than Crown agents. •Proactively Independent Crown entities are commonly smaller organisations delivering quasi-judicial or highly independent investigative functions. Differences and similarities between organisational forms and applicability to Stats NZ functions 8. Departments are legally part of the Crown, directly accountable to a Minister and for managing their own financial appropriations. The State Sector Act 1998 is the general enabling legislation for departments and lists these in Schedule 1 to that Act. Departments administer and exercise powers provided by other enactments. 2

9. The Legislation Design and Advisory Committee guidance notes that departments are the preferred form if the body is required to exercise functions inherent to government, substantive coercive powers, provide policy advice to government or perform multiple functions. The guidelines go on to note that if there is:1 … a constitutional requirement for Ministerial oversight or direct responsibility, or if the subject matter is important to the Government, carries high public and political expectations and has significant accompanying risk, a public service department is the preferred form. 10. Stats NZ as New Zealand’s National Statistical Office, is the main producer of official statistics (across economic, social and environment domains) and is charged with leadership and coordination of the official statistics system made up of the range of government agencies that also produce official statistics. 11. The statistics produced by Stats NZ are of constitutional, national and/or international significance and carry with them high public and political expectations of quality, relevance, integrity, and timeliness. Further, the Government Statistician has strong coercive powers to enable the collection of information in order to produce statistics of national importance. 12. Crown entities by comparison perform much of the operational business of government. They are established under the Crown Entities Act 2004 and specific enabling legislation. Each Crown entity has a monitoring department, generally responsible for policy advice in the relevant portfolio, monitoring the performance of the Crown entity, and administering and advising on the adequacy of any Crown funding used by the entity (some Crown entities are largely funded by fees and charges on third parties). 13. Other common distinctions (discussed further below) between departments and the three relevant forms of Crown entities relate to: • relationship with Ministers released • governance • policy and system influence • scrutiny by Parliament. Relationship with Ministers 14. Generally, all departments, and in some cases Crown agents, have closer relationships with Ministers, while Independent and Autonomous Crown entities tend to be more independent from Ministerial influence. 15. This helps to avoid any doubt that decisions of Crown entities when making significant funding distribution decisions (for example, NZTA, NZ on Air, or the Lotteries Commission) or quasi- judicial decisions (for example, the Independent Police Conduct Authority) have not been influenced by a Minister’s involvement. 16. This is also reflected in the Legislation Design and Advisory Committee guidance which notes that a Crown entity is usually the appropriate form when there is a compelling need to have the functions of the Crown entity performed at arm’s length from Ministers or under the authority of a governance board. Governance 17. DepartmentalProactively Chief Executives are responsible for governance of the department and have a direct relationships with the Minister (and with the State Services Commissioner). 18. Under the Statistics Act 1975, the Government Statistician (appointed by the State Services Commissioner under the State Sector Act 1988) is required to also be the Chief Executive of Stats NZ. This reflects international best practice, including United Nations recognition that the

1 Chapter 20, Part 3 accessed at http://www.ldac.org.nz/guidelines/legislation-guidelines-2018-edition/ 3

peer to peer relationship of the Government Statistician with the Heads of other government departments is a key strength of national statistical systems. 18.1 Internationally, the recommendation of the OECD Council on Good Statistical Practice has expectations for the independent appointment of the Government Statistician that align with the United Nations Fundamental Principles of Official Statistics approved by the General Assembly. 18.2 These are unlikely able to be met through a Crown entity model and it would be important to test with both the OECD and the United Nations. 19. The requirement for the Government Statistician to also be the Chief Executive underpins adherence to the requirements for professional independence in determining the statistical methodology, process and procedures used by Stats NZ. The joint role ensures the strategic direction of Stats NZ supports priorities for statistical production and investment, and that Stats NZ is organised in a way that best gives effect to these. 19.1 Similar models are in place for other public service agencies with Chief Executives who exercise independence in performing their functions, for example the Commissioner and Chief Executive of Inland Revenue and the Commissioner and Chief Executive of Police. 20. Further than this, it recognises that the duties of the Government Statistician include leadership and co-ordination of the statistics system (which includes all other government departments insofar as they are producers of official statistics, or providers of data for that purpose) as well as providing strategic policy advice to the Minister. This would not be possible under the Crown entity model where Chief Executives report to a Board. The Board is appointed by the Minister, and the Board is responsible for governance including appointment of the Chief Executive. The relationship with the Minister is spread between the Board (usually the Chair) and at times the Chief Executive. 21. For crown entities with quasi-commercial government functionsreleased (for example, EQC and ACC who are operating what are essentially compulsory social insurance schemes), the benefits of professional governance through a Board and the stronger separation of management and governance responsibilities may be a factor in choosing a Crown entity form of organisation rather than a department. 22. However, there is a limited pool of professional board members with strong corporate governance experience in New Zealand and these are already distributed widely across the private and public sectors. There are risks inherent in over-reliance on the impact that a board may have, given this limitation, and the inconsistent ability of boards to influence sustainable change. 23. Further, while a Crown Entity model with a board could result in benefits through professional governance and the stronger separation of management and governance responsibilities, it is unlikely those benefits would be of sufficient or greater value to offset both the potential impact of reduced policy and system influence, and the cost of making such a machinery of government change. Policy and system influence 24. Departments have the strongest influence on public policy, and play the lead roles in developing policy, either within their portfolio or working across portfolios or systems with other departments. Departments support Ministerial decision-making on policy and the investment of publicProactively funds. 25. Stats NZ is the lead agency for providing statistical policy advice (including investment advice) to the responsible Minister. If Stats NZ was to become a Crown entity, the policy function would most likely need to move into its monitoring department. Losing routine direct contact with peer Chief Executives of departments would greatly reduce the effectiveness of the functional leadership role that the Chief Executive of Stats NZ holds as Government Chief Data Steward..

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Scrutiny by Parliament 26. Parliament’s Standing Orders set out its rules and procedures, including the expectations and operation of Select Committees and their ability to conduct inquiries and ask for information. The ability for Parliament to scrutinise departments and Crown entities, and to ask them questions, applies irrespective of organisational form. 27. While Parliament’s ability to scrutinise Ministers and officials and request information from them is very broad, restrictions on the disclosure of information in specific statutes may constrain release of such information. Ultimately, expectations on disclosure will be a function of the clarity of the enabling statute, the conventions followed by Parliament, and the information at issue.

Summary 28. The following table summarises the four relevant organisational forms within the State Services, and some of the key differences and similarities:

Form Minister & Government Policy Policy & System Parliament Governance Influence

Department Direct relationship Gives effect to Part of the Public Examine estimates with Minister. government policy. Service. of expenditure. CE responsible. Contribute directly to Review public policy departmental CE appointed and development. performance. managed by State Services Conduct inquiries. Commissioner releasedSeek information. Crown Agent Board responsible, May be directed to Part of the State appointed by and give effect to Services. hold relationship government policy. Usually consulted with Minister and on related public appoint CE. policy development.

Monitoring department usually responsible for policy and advice on board appointments and entity funding Review agency Performance. Autonomous Board responsible, Can be directed to Part of the State Crown Entity appointed by have regard for Services. (ACE) Minister and appoint government policy. Monitoring Conduct inquiries. CE. department usually

responsible for policy and advice on Seek information. board appointments and entity funding

IndependentProactively Board responsible, Not subject to Part of the State Crown Entity appointed by government policy Services. (ICE) Governor-General, direction. Monitoring and appoint CE. department usually responsible for policy and advice on board appointments and entity funding.

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Process for changing organisational form (machinery of government) 29. Current SSC guidance is that for non-commercial functions there must be very good reasons for allocating functions outside a department. SSC also advise and guide the process for considering machinery of government options, including changing the form of current agencies as well as proposals to establish new ones. Their current guidance indicates that in most circumstances a substantial process is required to ensure due diligence is done on any proposal, including full identification of both system and cost implications. 30. Should any further work be required in respect of machinery of government changes, we would need to formally engage SSC to discuss the feasibility, timeframes and costs for doing so and we would likely need test the impact on compliance with international obligations through the UN and OECD for New Zealand and Stats NZ as a National Statistical Office. Other options to strengthen organisational governance outside of the legislative framework 31. We have also looked at options available to support governance of departments outside of legislative reform. For example, a department can strengthen organisational governance through an external Audit/Risk and Assurance Committee. These Committees bring external, professional experience to bear on organisational issues, albeit through a risk and assurance lens, and advise the Chief Executive accordingly. Stats NZ is currently establishing such a body in response to the findings of the Report of the Independent Review of New Zealand’s 2018 Census. 32. Less common, but still possible, is the creation of a departmental advisory board which includes professional non-executive external directors. While the Chief Executive remains accountable for all decisions by the department, a board of this type can assist in ensuring that the department’s organisational strategy, capability and performance make the best possible contribution to the achievement of its goals. This arrangement is rare in the New Zealand public service but generally tries to replicate the discipline providedreleased by a private sector board as far as possible. As an example, the Treasury established a departmental advisory board in 2010. 33. We will provide a separate briefing on this work as it progresses.

Proactively

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