Crown Corporation Governance: Five Ways to Manage the Tension between Autonomy and Control

Crown Corporation Governance Five Ways to Manage the Tension between Autonomy and Control JUNE 2016

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ISBN: 978-1-927009-75-8

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WITH THANKS TO OUR PROJECT PARTNERS:

PROJECT TEAM: Jeannie Dempster, Vice President Isabelle Couture, Project Lead With assistance from: Sébastien Goupil, Former Vice President Sara Caverley, Communications Coordinator Dianne Gravel-Normand, Project Administrator Mathias Schoemer, Multimedia Officer

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Table of Contents EXECUTIVE SUMMARY............................................................................................................................... 3 INTRODUCTION: CROWN CORPORATIONS IN CANADA.............................................................................. 5 Federal and provincial Crown corporations........................................................................................... 5 Crown corporations explained.............................................................................................................. 5 EVOLVING CONTEXT..................................................................................................................................... 7 Autonomy and oversight....................................................................................................................... 7 Debate, privatization and reform.......................................................................................................... 7 The balance between autonomy and control – latest trends................................................................ 7 Striking the right balance...................................................................................................................... 9 IMPROVING GOVERNANCE........................................................................................................................ 10 Aligning objectives.............................................................................................................................. 10 Clarifying roles and responsibilities..................................................................................................... 11 Strengthening relationships................................................................................................................ 12 THE WAY FORWARD.................................................................................................................................... 15 APPENDIX I – ROUNDTABLE AGENDA........................................................................................................ 16 APPENDIX II – VIRTUAL MEETING AGENDA............................................................................................... 17 APPENDIX III – MEETING PARTICIPANT LISTS............................................................................................. 18 APPENDIX IV – LIST OF INTERVIEWEES...................................................................................................... 21

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Executive Summary Since their inception, Crown corporations have played a vital role in serving the public interest, as well as advancing policy and commercial objectives.

For decades, governments have endeavoured to strike the right balance between Crown corporation autonomy and government oversight and control. Yet, growing government intervention is increasingly eroding the autonomy, agility and responsiveness that have been defining elements of how Crown corporations operate.

Today, many are beset by the type of bureaucratic barriers and delays that Crown corporations were initially designed to avoid.

Despite attempts to modernize Crown corporation governance and the interrelationship of Crown corporations with government, many of the recommendations in jurisdictional reviews have been unevenly applied. As a result, government and Crown leaders continually identify the same core issues as requiring greater understanding and clarification without moving the yardsticks forward. They include: • misaligned objectives • unclear roles and responsibilities • weak relationships and irregular interactions between government and Crown corporation leaders Crown corporations are a substantial part of the Canadian economy, with 44 federally and several hundred provincially. Despite the significance of this type of organization, the role of Crown corporations in Canada is generally not well understood, compounded by the scarce information available about this sector.

There is not a central place to find periodic and regular information about Canadian Crown corporations, such as the total number of people employed, the amount collectively produced in annual revenue, the percentage this contributes to Canada’s GDP, nor comparisons to public and private Canadian companies. The Organisation for Economic Co-operation and Development did however publish a comparative report on the size and sectoral distribution of state-owned enterprises in OECD countries in 2014. The report revealed that as of late 2012, the then 47 federal Crown corporations employed 86,558 people and the value of its enterprises was equal to about CAD $28.3B.1

As government-owned enterprises and quasi-independent organizations, most Crown corporations are created by statute to implement policy priorities that are deemed to be “best achieved in a corporate environment.” As such, these organizations have both private and public sector characteristics: operating on a private sector model but under the auspices and oversight of the public sector, as sole shareholder.

Unlike government departments or ministries, which are typically referred to as the core public service, Crown corporations are usually afforded a higher degree of operational autonomy and flexibility. This allows them to execute long-term plans while maintaining the capacity to respond quickly. As part of the broader public sector, Crown corporations are also required to abide by a wide and varying set of rules and to align their organizations with government legislation, regulation, policies and guidelines.

In some cases, the lines of accountability between departments and Crown organizations have become blurred and the operational structure of those Crown corporations that receive funding from the departments that also regulate them may have caused built-in governance conflict. Some governments that have endorsed effective governance principles and best practices have found it difficult to adequately implement them in reality. These issues have led some government officials to question if now is the time to rethink how Crown corporations are governed in the 21st century.

To launch this important discussion and analysis, the Public Policy Forum and its partners organized a study to explore the evolving raison d’être of Crown corporations.

Our objective was to provide insights into the roles, responsibilities and relationships that are essential for their effective governance. Over a series of roundtables and in-depth interviews, we engaged government and Crown corporation leaders, as well as governance experts, which led to five recommendations captured by three overarching themes: Aligning objectives: In order to ensure that Crown corporations’ objectives are consistently aligned with government policy priorities through clear directives:

1 OECD, “The size and sectoral distribution of SOEs in OECD and partner countries,” 2014. [Online].

Available: http://www.oecd.org/daf/ca/size-sectoral-distribution-soes-oecd-partner-countries.htm

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Recommendation 1: Publicly release mandate letters to improve Crown corporation transparency and accountability, as is the case in Ontario, and conduct regular or periodic reviews of Crown corporation mandates and directions.

Clarifying roles and relationships: In order to protect the board’s autonomy so it can better apply its due diligence process, share concerns and provide objective business advice to governments, and to ensure that the board’s membership has the right blend of skills, talent and experience to serve the Crown corporation’s objectives: Recommendation 2: Provide mandatory executive training to Crown corporation executives and board members, which would focus on specific and unique characteristics of Crown corporations, to better prepare them to lead Crown organizations and to promote excellence in public board governance.

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Strengthening relationships: In order to establish clear and consistent lines of communication as the basis for building strong trust-based relationships: Recommendation 3: Consider the creation of annually sponsored conferences for Crowns that span all levels of government.

Recommendation 4: Formalize bilateral consultations between government and Crown corporation leaders and implement engagement and communication strategies to strengthen relationships as part of promoting clear and consistent lines of command.

Recommendation 5: Ensure that boards, especially board chairs, are fully involved in selecting Crown corporation CEOs. There are many distinctions in governance approaches not only between different types of Crown corporations but also between elected officials, Crown executives and the public service. As such, the recommendations in this report aim to provide enough flexibility to adapt to the changing needs of each Crown corporation, while offering an overall context that applies a more even process of consideration and review.

Introduction: Crown Corporations in Canada This project revealed many excellent practices already underway across Canada, some of which we highlight in this report. Many governments are improving Crown corporation governance and ensuring the long-term capacity of government-owned enterprises to meet public needs. The experts who participated in our study noted the distinctions in governance approaches between different Crown corporations, as well as between elected officials, Crown executives and the public service. As such, our recommendations provide enough flexibility to adapt to the changing needs of each Crown corporation, while offering an overall context that applies a more balanced process of consideration and review.

The meeting agendas and list of participants and interviewees are appended to this report (Appendices I to IV).

Federal and provincial Crown corporations Crown corporations are defined as “corporations [that are] wholly owned by the Crown and most are agents of the Crown. Each Crown corporation’s enabling legislation (..) sets out in broad terms the Crown corporation’s mandate, powers and objectives”2 and “[while] Crown corporations operate at arm’s length from the government, as public institutions, they are ultimately accountable to the government.”3 The first federal Crown corporation was the Canadian National Railway Company, established in 1922 to protect key transportation links in Canada and the United States by acquiring several bankrupt railway lines.4 Many of the federal Crown corporations created since have been designed to fill gaps or emerging needs that are not easily addressed by the private sector.5 For example, the Canadian Air Transport Security Authority (CATSA) was formed following the September 11 terrorist attacks to protect the public through screening air travellers and their baggage.6 As of September 30, 2015, the federal government had a total of 44 Crown corporations and 186 Subsidiaries and Associates.7

At the provincial level, many Crown corporations operate in the same areas of the economy as federal Crown corporations and were designed to meet comparable policy and business objectives. However, provincial Crown corporations have also been traditionally more involved in the regulation of certain areas including utilities and power generation, liquor distribution, gaming and lotteries, and culture.8

Crown corporations explained Canadian Crown corporations operate at both the federal and provincial levels of governments and in several sectors of the economy, such as transportation, telecommunications, energy and utilities. They also vary in size, function, degree of autonomy and policy focus. Some of their objectives include: • providing an essential good or service (e.g., VIA Rail Canada Inc. and BC Transit); • fostering economic development (e.g., Export Development Canada and Alberta Investment Management); • regulating sensitive industries (e.g., Atomic Energy of Canada Limited); and • building national unity (e.g., Canadian Broadcasting Corporation and Manitoba Film and Music) 9 Canadian state-owned enterprises may not always be recognized by the public, as they can take on different names. While many organizations include the word “corporation” within their title, others use appellations such as “agencies,” “commissions” and “authorities.”

Crown corporation governance structure differs significantly from those of traditional government departments. Crown corporations generally operate similar to a private sector organization, with a CEO and a board of directors. Typically, the CEO will oversee the daily

2 Treasury Board of Canada Secretariat, “Directors of Crown Corporations: An Introductory Guide to Their Roles and Responsibilities,” 2002. [Online].

Available: https://www.tbs-sct.gc.ca/gov-gouv/role/role02-eng.asp 3 Treasury Board of Canada Secretariat, “Guidance for Crown Corporations,” 2010. [Online]. Available: https://www.tbs-sct.gc.ca/gov-gouv/rc-cr/gui-dir/guidance-directive-eng.asp 4 Globe and Mail, “What are Crown corporations and why do they exist?” 2012. [Online]. Available: http://www.cbc.ca/news/canada/what-are-crown-corporations-and-why-do-they-exist-1.1135699 5 Globe and Mail, Ibid.

6 Canadian Air Transport Security Authority, “About us,” 2016. [Online]. Available: http://www.catsa.gc.ca/about-us 7 Treasury Board Secretariat, “Organizations by Portfolio and Institutional Form,” 2015. [Online]. Available: http://www.tbs-sct.gc.ca/hgw-cgf/finances/rgs-erdg/cc-se/institution/organizations-organisations-eng.asp 8 Conference board Canada and Globe and mail, “What are Crown corporations and why do they exist? “ 2012. [Online] Available: http://www.cbc.ca/news/canada/what-are-crown-corporations-and-why-do-they-exist-1.1135699 9 Brennan, Denise. “Crown Corporations in Canada,” 2006. [Online]. Available: http://mapleleafweb.com/features/crown-corporations-canada

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operations and report to the Crown corporation’s board on corporate performance. In turn, the board of directors is accountable to a Minister as the representative of the single shareholder and is responsible “for the oversight of a Crown corporation’s business activities and other affairs, and has the responsibility to act in the best interests of the corporation and to exercise due care and diligence.”10 While the appointment process for Crown executives greatly varies across Canadian jurisdictions, the federal government has established clear rules on CEO and Board selection for most federal Crown corporations:11 • Board chairs: may be appointed by the Governor in Council or designated by the Governor in Council from among the directors of the corporation.

• Board of directors: appointed either by the responsible Minister with the approval of the Governor in Council, or by the Governor in Council.

• Chief Executive Officers: appointed by the Governor in Council, by the Board of Directors with the approval of the Governor in Council, by the Governor in Council on the recommendation of the Board of Directors or by the Board of Directors itself.12 Crown corporations greatly vary in function, purpose and structure and as such have been the focus of exhaustive studies published in Canada and abroad. Several recent reports and studies conducted in various jurisdictions, including Australia and across Europe, have aimed to better define the roles of Crown corporations and explore ways to improve the effectiveness of current governance frameworks. (Recommendations for further reading are in Appendix V).

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Stock photo © RyersonClark

10 Prime Minister of Canada Justin Trudeau, “Open and Accountable Government, H.3. Crown Corporations,” 2015. [Online].

Available: http://pm.gc.ca/eng/news/2015/11/27/open-and-accountable-government#Portfolio_Organizations 11 For example, CEOs of Pilotage Authorities are appointed by their board.

12 Treasury Board of Canada Secretariat, “ARCHIVED - Review of the Governance Framework for Canada’s Crown Corporations - Meeting the Expectations of Canadians,” 2005. [Online] http://www.tbs-sct.gc.ca/report/rev-exa/gfcc-cgsetb-eng.asp

Evolving Context Autonomy and oversight When first established, Crown corporations were to be afforded a greater level of managerial autonomy than other government departments in order to achieve their business objectives and public needs. This relationship was meant to shield the activities of Crown corporations from direct political control, allowing them the flexibility to respond quickly to rapidly changing market conditions.13 In addition, increased operational independence also provided stateowned enterprises with greater opportunities for longerterm thinking than most government departments.

Governments maintain their oversight and influence over Crown corporations via legal and governance mechanisms. For example, the legal framework for general financial management and accountability of federal Crown corporations is provided under the Financial Administration Act or in their enabling legislation. Several other mechanisms are also available to governments in order to retain an appropriate level of direction and control over Crown corporations, including: the appointment, remuneration and dismissal of Crown corporation executives, and the approval of corporate plans and budgets.14

Debate, privatization and reform The unique balance that was struck between autonomy and accountability helped Crown corporations become important contributors to Canada’s economic and social well-being. Yet, in the 1970s, many observers started to re-evaluate the balance, with some questioning Crown corporations’ autonomy, relevance, value and role. At the core of the debate was “the view that the scope and economic importance of crown corporations had outdistanced Ottawa’s capacity to control them, and that crown corporations had become too prominent in the economy.”15 These concerns eventually led to increased pressure to reform federal Crown corporations. Changes came in two ways: through the privatization of some Crown corporations; and amendments to their governance and accountability regimes.

The privatization of federal Crown corporations began to accelerate between the mid-1980s and mid-1990s. Then Prime Minister Brian Mulroney, inspired by economic policies in the United Kingdom, appointed a minister of state for privatization to oversee the sale of iconic Crown corporations, including Petro-Canada and Air Canada. Since then, other Crown corporations have been privatized at the federal and provincial levels, including the Canadian National Railway, Atomic Energy of Canada Limited, the Alberta Liquor Control Board, Saskatchewan Potash Corp. and Nova Scotia Power.16 More recently, the Government of Ontario announced its plan to privatize Hydro One, the major government-owned electricity agency, by selling shares on the stock market over time while maintaining a minority managing position in the long-term. This decision has led to some concerns over the potential increase of electricity prices under a privatized system, degradation of service quality and lack of oversight.

Ottawa introduced important amendments to the federal legislative framework under which federal Crown corporations operate. In 1984, the federal government amended the Financial Administration Act to strengthen the control and accountability framework and to better outline the roles and responsibilities of Crown corporation shareholders and executives.

The balance between autonomy and control – latest trends Federal reforms While the 1984 amendments to the Financial Administration Act were the last major changes to the federal legislative framework – creating the current Crown corporation governance model – several reviews of this model have since been conducted.

In 2003, the Auditor General of Canada published a report that revealed three major areas of concern about financial management in six Crown corporations. These issues included “the improper transfer of funds between federal organizations; the lack of evidence of value-for-

13 Historica Canada, “Crown Corporation,” 2013. [Online]. Available: http://www.thecanadianencyclopedia.ca/en/article/crown-corporation/ 14 Library of Parliament, “Crown corporation governance and accountability framework: a review of recently proposed reforms,” 2006. [Online].

Available: http://www.lop.parl.gc.ca/content/lop/researchpublications/prb0580-e.htm 15 Historica Canada, “Crown Corporation,” 2013. [Online]. Available: http://www.thecanadianencyclopedia.ca/en/article/crown-corporation/ 16 Globe and Mail, “What are Crown corporations and why do they exist?” 2012. [Online]. Available: http://www.cbc.ca/news/canada/what-are-crown-corporations-and-why-do-they-exist-1.1135699

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money in the allocation of contracts; and the failure to detect, through internal audit, the inappropriate movements of public funds.”17 This report, as well as the resulting Commission of Inquiry, introduced a series of reforms, legislative changes and guidelines to improve the governance framework of Crown corporations. Some of these changes include: 18 • 2003 Guidelines for Audit Committees in Crown Corporations and Other Public Enterprises: These rules ensured that such audit committees include members with the requisite knowledge and experience in financial management and accounting.

• 2005 Meeting the Expectations of Canadians – Review of the Governance Framework for Canada’s Crown Corporations: A report that identified measures to bring Crown corporation governance into alignment with broader government accountabilities: o clarifying the relationship between ministers and Crown corporations; o strengthening the corporations’ accountability regimes; o making the appointment process more transparent; o strengthening their audit regimes; and o making their activities and operations more transparent • 2013 Bill C-60: This legislation gave the Treasury Board ministers increased control over employment practices and operations of several federal Crown corporations.

• 2013 Guidelines for Audit Committees in Crown Corporations and Other Public Enterprises: These Guidelines offer suggestions for consideration by the boards of directors and audit committees of federal Crown corporations. The Guidelines present a framework to support the work of audit committees. Individual audit committees and boards of directors must tailor the Guidelines to meet their specific needs.19

Communicating government directions – a federal three-tiered approach The responsible Minister is accountable for providing guidance to boards for how a Crown corporation’s objectives are to be interpreted.

They also monitor and engage with Crown corporations as needed to ensure the corporation is meeting expectations. This is often done through annual mandate letters and meetings with the Chair.

The Minister of Finance is responsible for reviewing and monitoring the impact of Crown corporations’ activities on the fiscal framework.

The Minister is charged with: • reviewing and monitoring the funding of their activities • providing related approvals for their borrowing transactions and, if required, corporate plans and capital budgets • taking necessary actions to ensure a Crown corporation’s operations are aligned with the Government’s fiscal priorities

The Treasury Board is responsible for exercising its decision-making authority under the Financial Administration Act with respect to the approval of Crown corporation budgets, as well as that of the Governor in Council with respect to the approval of corporate plans. In making such decisions, the Treasury Board seeks to ensure that a Crown corporation’s operations are aligned with the Government’s overall priorities and designed, implemented and delivered to realize their desired results and achieve value for money.

Source: http://pm.gc.ca/eng/news/2015/11/27/open-and-accountablegovernment#Portfolio_Organizations

17 Library of Parliament, “Crown corporation governance and accountability framework: a review of recently proposed reforms,” 2006. [Online].

Available: http://www.lop.parl.gc.ca/content/lop/researchpublications/prb0580-e.htm 18 Library of Parliament, “Crown corporation governance and accountability framework: a review of recently proposed reforms,” 2006. [Online].

Available: http://www.lop.parl.gc.ca/content/lop/researchpublications/prb0580-e.htm ; Department of Finance Canada, “Minister of Finance – Financial Risk Management Guidelines For Crown Corporations,” 2009. [Online].

Available: http://www.fin.gc.ca/activty/pubs/frmcc-grfse-eng.asp ; Open Parliament, “Bill C-60 (Historical)” 2013. [Online]. Available: https://openparliament.ca/bills/41-1/C-60/ 19 Treasury Board of Canada Secretariat, “Guidelines for Audit Committees in Crown Corporations and Other Public Enterprises,” 2013. [Online].

Available: https://www.tbs-sct.gc.ca/gov-gouv/gaccc-ldicvse-eng.asp#ch1

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Provincial reforms

Striking the right balance

Following numerous internal reviews and public pressure for increased accountability, provincial governments instituted similar procedures to strengthen the budgetary, planning and oversight processes of their Crown corporations.

Some degree of protection is essential to good governance and should be encouraged in all public entities.

For example, a 2006 review by the Government of Quebec revealed that Crown corporations were not always well coordinated with a line department or ministry. This misalignment meant that across the province’s Crown corporations “the necessary organization and control methods could not be applied in governance.” In response, Quebec passed sweeping legislation to bring all 24 of its public bodies into greater alignment.20

Striking the right balance between autonomy and government oversight and control is therefore essential for maintaining a certain “glass wall” between governments and Crown corporations. To do this effectively, policymakers and practitioners need to clearly understand the raison d’être of Crown organizations, including how they might best fulfill their mandates and build strong relationships in today’s context.

In 2010, the Government of Ontario commissioned a former Secretary of the Cabinet to undertake a review of provincial agencies, with a special focus on board-governed agencies. The review produced 14 recommendations that have resulted in reforms to clarify the expectations for agencies and appointees.

Many provincial governments instituted additional changes to achieve the following goals: • establish clearer and more rigorous procurement standards; • set parameters for how board members find, hire and oversee the performance of CEOs; • ensure compensation and travel requirements are more aligned with the rules in government departments/ministries;21 • maintain or increase departments/ministries and central agencies’ capacity to have a “challenge” or “oversight” function on Crown governance issues

20 Finances Québec, “Modernizing the Governance of Government Corporations: Policy Statement,” 2006. [Online].

Available: http://www.finances.gouv.qc.ca/documents/autres/en/modernizing_governance.pdf 21 Government of British Columbia, “Taxpayer Accountability Principles: strengthening Public Sector Governance and Accountability,” 2014. [Online].

Available: http://www2.gov.bc.ca/assets/gov/british-columbians-our-governments/services-policies-for-government/public-sector-management/taxpayer_accountability_principles.pdf

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Improving Governance Despite attempts to modernize Crown corporation governance and the interrelationship of Crown corporations with government, many of the recommendations put forth in jurisdictional reviews have been unevenly applied. Different interpretations and changing socio-economic circumstances, such as the 2008 global economic downturn, have meant that reforms have not always been executed as timely or appropriately as originally planned.

Aligning objectives: In order to ensure that Crown corporations’ objectives are consistently aligned with government policy priorities through clear directives: Recommendation 1: Publicly release mandate letters to improve Crown corporation transparency and accountability, as is the case in Ontario, and conduct regular or periodic reviews of Crown corporation mandates and directions.

Aligning objectives A clear mandate from elected representatives is essential for the alignment of government and Crown corporation objectives and policy priorities. However, participants revealed that government directives are a source of confusion for some Crown corporation leaders. This appears to be in part due to conflicting demands and operational goals within corporate mandates, which generally require a balance between maximizing profitability and serving the public interest. These goals can sometimes be difficult to reconcile. Project participants did not always agree on the question of whose interests Crown corporation leaders should protect. Some suggested that their focus should be looking after the public interest – represented by the directives of the elected government – while others believe it should be protecting the interests of the Crown corporation. This question of finding the right balance can leave board chairs with the difficult task of navigating complex sets of directions and reconciling the differences between corporate priorities and government directives.

Approaches to clarifying roles and relationships and implementing government policy in British Columbia The Government of British Columbia has implemented several strategies to clarify key leaders’ roles and relationships and implement government policy. For example, in 2011 it issued a companion guide, the Shareholder’s Expectations for British Columbia Crown Agencies, which outlines expectations for how Crown agencies and government are to coordinate and collaborate to meet their respective roles and responsibilities. As part of its annual process, the Government of British Columbia also develops mandate letters that outline its annual direction to Crown corporations and confirms the Crown’s mandate and priorities for that year.

Together, these documents help to clarify formal relationships and reporting procedures between British Columbia’s provincial legislature, executive government, Crown corporations and government staff.

A variety of context-specific approaches are currently available to governments to better communicate directions to Crown corporations. For example, some governments may use letters of priority or expectations to confirm policy priorities with Crown corporations. These letters can help them determine how they can best support these priorities. Additional approaches include the use of mandate letters, verbally communicating with Crown corporation leaders, and/or distributing other kinds of strategic documents.

Leaders could work together to improve the use of these directional instruments to clarify government directions and ensure that Crown corporation objectives are consistently aligned with government policy priorities.

Additionally, government leaders should consider the timely and public release of these directions to improve Crown corporation transparency and accountability.22

22 Public access to government mandate letters also varies across the country: some governments may publically release their mandate letters – as was the case in an unprecedented decision of the federal government in 2015 – while others may choose to keep them confidential, which may raise some concerns over transparency and accountability.

23 Ontario Ministry of Finance, “2016 Ontario Budget - Chapter II: A Balanced Path to a Balanced Budget,” 2016. [Online].

Available: http://www.fin.gov.on.ca/en/budget/ontariobudgets/2016/ch2b.html

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Enhancing public board governance The Government of Manitoba’s Board Performance Training program The Government of Manitoba’s Board Performance Training program is offered by the Crown Corporations Council and is intended for all public board chairs, directors, and senior staff who provide direct support to the governance of Manitoba’s public sector agencies, boards, commissions and Crown corporations.

Workshops revolve around areas of core competencies and current issues that affect governance and leadership in Manitoba’s public sector, including roles and responsibilities, finance, strategy, risk, evaluation and performance.

Sessions include individuals from a variety of boards, and are held in a small group setting to encourage participants to engage in discussions with their peers on presented topics.

The Crown Investments Corporation of Saskatchewan’s Directors College Chartered Director Training Program Crown Investments Corporation has partnered with the Conference Board of Canada to offer directors and CEOs of its subsidiary Crown corporations an opportunity to participate in the Directors College Chartered Director Training Program. The Directors College is a joint venture between the Conference Board of Canada and the DeGroote School of Business at McMaster University. Participants who complete all five modules and successfully challenge a written exam receive the university designation of Chartered Director from McMaster University.

Source:http://www.crowncc.mb.ca/en/training/about/

For example, the Government of Ontario recently committed in its 2016 Budget to the introduction of annual and publicly available Agency Mandate Letters for every board-governed provincial agency.23 While several jurisdictions already have such a process in place, governments may also wish to conduct or increase the frequency of strategic reviews of Crown corporations.

Such processes can ensure that clearly defined mandates are in place. Mandate reviews can also help governments better assess a corporation’s performance and the relevance of its activities in meeting government objectives. In order to facilitate and streamline this process, mandate reviews may be incorporated directly in the Crown corporations’ audit process, as is the case in British Columbia (see box on p.10: Approaches to clarifying roles and relationships and implementing government policy in British Columbia).

Clarifying roles and responsibilities Crown corporation and government leaders all contribute to the success of the Crown corporation model. Yet, some confusion remains over the role and responsibilities of each player. Beyond the responsibility of government to develop policy mandates and of Crown corporations to operationalize these directions, roles and responsibilities are not always well articulated in corporation mandates.

This lack of clarity, as well as the variety of perspectives to which Crown leaders are exposed, can contribute to divergent interpretations of the roles and responsibilities of Crown corporation leaders. This is particularly true for board chairs and directors.

Crown corporation governance structure benefits from the guidance of board chairs and directors, which are responsible “for the oversight of a Crown corporation’s business activities and other affairs, and has the responsibility to act in the best interests of the corporation.”24 Crown corporation boards apply a level of due care and diligence – which would be more difficult and expensive for governments to provide – to the Crown corporations’ decision-making processes.

However, in a time when Crown corporations must remain nimble and profitable while serving public interests, the role of their boards has become more complex than ever. Project participants emphasized the need to shield

24 Prime Minister of Canada Justin Trudeau, “Open and Accountable Government, H.3. Crown Corporations,” 2015. [Online].

Available: http://pm.gc.ca/eng/news/2015/11/27/open-and-accountable-government#Portfolio_Organizations

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the board from government interference and protect its autonomy so it can better apply its due diligence, share concerns and provide objective advice. In fact, participants in the study indicated that the board of directors’ role is not just to implement government directives, but to “push back to their masters,” provide “fearless advice,” bring forward a strong business case and put forward

Clarifying roles and relationships: In order to protect the board’s autonomy so it can better apply its due diligence process, share concerns and provide objective business advice to governments, and to ensure that the board’s membership has the right blend of skills, talent and experience to serve the Crown corporation’s objectives: Recommendation 2: Provide mandatory executive training to Crown corporation executives and board members, which would focus on specific and unique characteristics of Crown corporations, to better prepare them to lead Crown organizations and to promote excellence in public board governance. recommendations that benefit the corporation. Many participants saw this pushback as a crucial component of the directorial role and of the Crown corporations’ autonomy and credibility. Nonetheless, this pushback and fearless advice should be provided within the context established by the shareholder, with the understanding of Crown corporations being a wholly owned public organization and therefore boards of directors should act within the transparency and administrative parameters set out by the shareholder. Other participants saw the pushback as a way to ensure the shareholder has as much information as possible to make an informed decision and mitigate risk.

Finally, in order to be effective, Crown corporation boards must have the right blend of skills, talent, and experience that will serve their strategic objectives. While the ability to attract and retain competent board members and chairs is crucial to the composition of an effective board, particular attention could also be paid to providing governance training for board directors and chairs, especially when they come from the private sector.

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Approaches in high-level training for board chairs and directors vary across provinces and Crown corporations.

While some Crown corporations offer training, others do not have specific programs currently in place (see box on p.11 for examples of training programs in Manitoba and Saskatchewan: Enhancing public board governance. The content and structure of training programs also vary. Most aim to provide board directors and chairs with a better understanding of their role and of the key differences between private and public institutions by focusing on the specifically unique characteristics of Crown corporations.

These programs seek to prepare them for fully exercising their leadership abilities in the unique context of Crown corporations’ governance.

Providing training and identifying required skills ahead of the appointment process can help foster strong Crown leadership and maximize positive outcomes for Crown corporations.

Strengthening relationships Strong, trust-based relationships between government officials and Crown corporation leaders are essential to effective organizational performance of state-owned enterprises. A series of challenges are limiting some Crown corporations from achieving a “relationship breakthrough” with government.

Participants revealed that leaders can take specific steps to improve the working relationship between Crown corporations and governments, including: • developing sustainable lines of communication, • establishing regular meetings between leaders • increasing engagement and welcoming input in typically government-led processes Communication lines and regular meetings Establishing clear and consistent lines of communication is critical for developing strong relationships between Crown corporations and their respective ministries.

Yet some Crown corporation leaders continue to have difficulties engaging with their direct counterparts at the shareholder’s level (e.g., board chair to responsible Minister and CEO to deputy minister). In some situations, this has meant that Crown chairs, CEOs and staff must

interact with other interlocutors in the responsible minister’s office and/or department, a situation that can impede strategic decision-making.

Crown Investments Corporation of Saskatchewan: an example of liaising with government The Crown Investments Corporation of Saskatchewan (CIC) is the holding company for Saskatchewan’s commercial Crown corporations.

The CIC Board is a Cabinet committee that liaises with Cabinet and Crown corporations under its umbrella. This structure, with its clear lines of reporting, is one example of how well-defined roles and responsibilities can provide greater accountability and transparency.

The frequency of meetings between Crown corporation and government leaders also varies greatly among Crown corporations, some meeting regularly and others almost never.

Although a hands-off approach may indicate a certain level of trust in Crown leadership by governments, this distance also can prevent strategic conversations from taking place and confuse accountability principles. In fact, operational decisions made with board approval but without ministerial knowledge may create unforeseen consequences that directly involve the elected government. As operational decisions are normally the purview of management with the board weighing in as it sees fit, it can be the ultimate and difficult responsibility of the board chair to determine whether the responsible minister should be consulted based on a risk assessment.

Participants expressed their desire to see a stronger model that prescribes the existence of pre-established relationships and an open line of communication between the equivalent governance levels (e.g. responsible Minister to board chair and deputy minister to Chief Executive Officer). Some provinces have already taken steps to formalize these relationships and have, for example, set out a minimum number of meetings between government and Crown corporation leaders or developed engagement and communication strategies as part of the Crown corporations’ annual review process.

The alignment of goals and interests through effective communication can be remarkably powerful in strengthening relationships and building better understanding. By developing good working relationships with their respective government representatives, CEOs and board chairs can cultivate trust with ministers and government departments. Some provinces have put in place umbrella offices that in addition to promoting good Crown corporation governance, also work with government and Crown corporations to build accountability, transparency and trust (see box on p.13 for an example: Crown Investments Corporation of Saskatchewan: an example in liaising with government.)

Leaders should consider implementing a more structured approach that provides direction and guidelines around the scope, nature and frequency of meetings between leaders of Crown corporations and government. This approach could help create new habits and cause the cultural shift necessary to develop stronger relationships.

It could also foster an environment that is favourable to advancing government policy priorities.

Relationships, however, are about more than communications. They are about understanding that both parties have something to gain as well as a responsibility to the other party, and that they both fail or succeed only in true partnership with each other.

Some governments have now undertaken initiatives to reinvigorate relationships between Crown corporations and governments and identify some of the components for excellent relationships. The Government of Ontario recently launched its Relationship Management Framework that aims to improve relationships via the implementation of relationship management training programs and relationship charters that set the rules of engagement, co-developed by Ministries and Crowns.

While this framework is still in testing and evaluation, it may ultimately serve as a model for relationship management that could be replicated and right-sized for use by any provincial Crown corporations in Ontario and beyond.

The Ontario Treasury Board Secretariat is also working with two ministries (Health and Long-Term Care and Transportation) and two of the ministry’s larger agencies on a Proof of Concept approach that is expected to produce best practices that ministries and agencies can employ to ensure appropriate strategic and administrative relationships are developed, nurtured and maintained over the long term.

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Seek input and careful engagement Governments can build stronger relationships by actively seeking the input of Crown corporations into their leadership appointment process. Attracting and retaining talent is a key component of Crown corporations’ success.

Strengthening relationships: In order to establish clear and consistent lines of communication as the basis for building strong trust-based relationships: Recommendation 3: Consider the creation of annually sponsored conferences for Crowns that span all levels of government.

Recommendation 4: Formalize bilateral consultations between government and Crown corporation leaders and implement engagement and communication strategies to strengthen relationships as part of promoting clear and consistent lines of command.

Recommendation 5: Ensure that boards, especially board chairs, are fully involved in selecting Crown corporation CEOs.

As such, Crown corporation leaders, particularly board chairs who have expert knowledge of the corporation’s operations, could offer guidance by providing a list of candidates from which governments can choose and provide a degree of rigor in the vetting process. In turn, governments should consider promoting someone within the Crown corporation leadership before expanding their search. A joint and collaborative selection of candidates and/or preferred skills and aptitudes for Crown corporation leadership postings could help Crown and government leaders build a relationship of openness and trust, ensuring that new directors can create links between government and Crown corporations by having the shareholder’s full support.

14 | CROWN CORPORATION GOVERNANCE

Additional opportunities for improved relationships are also available through careful engagement between and within governments and Crown corporations. Some study participants viewed the inclusion of deputy ministers and politicians on the Crown corporations’ boards of directors as an idea that could benefit Crown corporation governance. Participants said that having a role within the corporation could allow government leaders to provide excellent guidance and open a channel for regular communication. However, other participants were uncomfortable with this practice, believing it may unduly influence participation from other board members, appear as a conflict of interest, or give the impression of tacit departmental/ministerial approval of Crown corporation priorities and activities. Instead, they recommended that deputy ministers should be invited to board meetings from time-to-time to provide their perspectives on specific matters or be consulted separately by the CEO via bilateral meetings.

Finally, Crown corporation governance and relationships with government could greatly benefit from more regular engagement with the executives reporting to the CEO. For example, the Crown corporations’ chief financial officer and chief corporate officer could meet regularly with the board of directors to bring a new perspective and help identify issues that have not previously been detected.

Increasing the exposure of the Crown corporation’s management team to the board could help create a more thorough understanding of operations and, ultimately, improve the level of analysis reported back to government.

Mutually-beneficial relationships Stronger relationships based on trust can benefit both sides, especially when crises strike. When strong bonds of trust have been established, responsible ministers may be more inclined to approach the board and allow them to manage a crisis. To maintain trust, Crown corporation boards should make every effort to support government, mitigate public concerns and help avoid risks. As one project participant noted, “Working with government to avoid public issues is not about loyalty, it’s just good business.” Crown corporations should consistently help government identify any potential, real or perceived issues by providing analysis that is sensitive to the political context.

The Way Forward Effective governance is crucial for achieving Crown corporation objectives and by extension, our country’s long-term prosperity. The Public Policy Forum’s Crown Corporation Governance initiative demonstrates that there remain several governance challenges associated with Canada’s Crown corporations. Yet solutions are in sight.

This report outlines three broad approaches as well as a series of recommendations to help Crown corporations advance public policy and commercial goals.

Aligning objectives: In order to ensure that Crown corporations’ objectives are consistently aligned with government policy priorities through clear directives: Recommendation 1: Publicly release mandate letters to improve Crown corporation transparency and accountability, as is the case in Ontario, and conduct regular or periodic reviews of Crown corporation mandates and directions.

Clarifying roles and relationships: In order to protect the board’s autonomy so it can better apply its due diligence process, share concerns and provide objective business advice to governments, and to ensure that the board’s membership has the right blend of skills, talent and experience to serve the Crown corporation’s objectives: Recommendation 2: Provide mandatory executive training to Crown corporation executives and board members, which would focus on specific and unique characteristics of Crown corporations, to better prepare them to lead Crown organizations and to promote excellence in public board governance.

Strengthening relationships: In order to establish clear and consistent lines of communication as the basis for building strong trust-based relationships: Recommendation 3: Consider the creation of annually sponsored conferences for Crowns that span all levels of government.

Recommendation 4: Formalize bilateral consultations between government and Crown corporation leaders and implement engagement and communication strategies to strengthen relationships as part of promoting clear and consistent lines of command.

Recommendation 5: Ensure that boards, especially board chairs, are fully involved in selecting Crown corporation CEOs. A common thread running through our recommendations is that a combination of open and formalized channels of communication is needed between Crown corporation and government leaders. This will lead to a clearer understanding of objectives, roles and relationships, improved relationships and trust that will ultimately further public sector interests.

In response to some of the governance challenges between Crown corporation and government leaders, some provinces have already undertaken initiatives to strengthen these relationships, such as the Government of Ontario’s new Relationship Management Framework.

Crown corporations have much to learn from each other and would greatly benefit from sharing best practices and lessons learned. Closer collaboration between federal and provincial Crown corporations could help move state agencies forward. Peer-to-peer approaches, such as the Government Owned National Network25 could be built upon and expanded. For example, there could be regular meetings between ministers responsible for Crowns, between Crown Presidents/CEOs, as well as options for annual or biannual summits, both within and between governments. There are several options for moving forward – the opportunity for greater engagement and collaboration awaits.

25 The Government Owned National Network is an informal group made up of representatives from all provinces and territories, and more recently the federal Treasury Board of Canada Secretariat, who are active in the agency (Crown corporation) space. This group of bureaucrats charged with the governance and accountability of agencies get together monthly by phone and once a year in face to face meetings to share best practices, information, challenges, etc.

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Appendix 1 - Roundtable Agenda Crown Corporation Governance Executive Policy Roundtables 8:30 a.m.

Arrival & networking

9:00 a.m.

Welcome and Tour de table Canada’s Public Policy Forum Opening remarks Facilitated discussion Participants will be asked to provide some insights on the following discussion questions: • What is the right balance between Crown corporation autonomy and government oversight/ control?

• What key challenges or concerns do government and Crown leaders have about the governance of Crown corporations?

• How could the roles and responsibilities of key leaders be clarified to improve Crown corporation governance?

10:55 a.m.

Closing remarks

11:00 a.m.

Adjourn

With thanks to our project partners:

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Appendix 2 - Virtual Meeting Agenda Crown Corporation Governance Virtual Study Tour Monday December 7, 2015 | 10 a.m. – 11:30 a.m. (EST) 10:00 a.m.

Welcome and introductions Jeannie Dempster, Vice President, Canada’s Public Policy Forum Opening remarks Scot Weeres, Director, Agency Governance Branch, Treasury Board Secretariat, Government of Ontario

10:10 a.m.

Presentation and facilitated discussion Improving relationships between Ministries and Crown Corporations Scot Weeres, Director, Agency Governance Branch, Treasury Board Secretariat, Government of Ontario

10:40 a.m.

Facilitated discussion Participants will be asked to provide some insights on the following key aspects: • Approaches to implementing government policy (through mandate letters, etc.)

• Compliance with orders and directives (how to measure success and report on objectives through Corporate Plans and Annual Reports) • Crown CEO and Board appointment processes (how to make sure candidates have the required skillset) • Approaches and methods in high-level training for CEOs and Board Chairs

11:25 a.m.

Closing remarks

11:30 p.m.

Adjourn

With thanks to our project partners:

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Appendix 3 - Meeting Participant Lists MONTREAL ROUNDTABLE (June 2, 2015) Luc Bernier Professeur Titulaire École nationale d’administration publique Laurel Broten President and CEO Nova Scotia Business Incorporated Benoit Daigneault President and CEO Export Development Canada Jeannie Dempster Vice-President Public Policy Forum Yves Desjardins-Siciliano President and CEO Via Rail Sam Erry Assistant Deputy Minister Corporate Policy, Agency Governance and Open Government Division Government of Ontario Jean-René Halde President and CEO Business Development Bank of Canada Laine Johnson Research Assistant Public Policy Forum Karen Kastsner VP, Office of the President Business Development Bank of Canada Mark Kristmanson President and CEO National Capital Commission

Michel Nadeau Director General Institute for Governance of Private and Public Organizations Karen Oldfield President and CEO Halifax Port Authority Louise Paradis Senior Vice President, Legal Affairs and Corporate Secretary Business Development Bank of Canada Pia Pietrangeli Director, Regulatory Framework Canada Post Louis Ranger Former Deputy Minister Transport Canada Evan Siddall President and CEO Canada Mortgage and Housing Corporation Marial Stirling Legal Counsel and Principal Corporate Oversight & Governance, Chartered Professional Accountants of Canada Charles-Antoine St-Jean National Public Sector Leader Ernst and Young Marie-Anne Tawil Membre du Comité de gouvernance et d’éthique et du Comité de vérification Hydro-Québec

Jean-Francois Legault Corporate Secretary and Chief Legal Officer Via Rail

Melanie Tod Director General, Crown Corporations and Portfolio Governance Transport Canada

David Mitchell Former President and CEO Public Policy Forum

Scot Weeres Director, Agency Governance Branch Treasury Board Secretariat Government of Ontario

Laurel Murray President Murray Management Consulting 18 | CROWN CORPORATION GOVERNANCE

REGINA ROUNDTABLE (October 6, 2015) Malcolm Bird

Professor of Political Science University of Winnipeg R. W. (Dick) Carter Chair Regina Qu’ Appelle Regional Health Authority Sasha Clarke Director, Branch Operations and Portfolio Analysis Crown Agencies Resource Office Government of British Columbia Isabelle Couture Project Lead Public Policy Forum Wendy Dean Director, Corporate Secretariat Crown Investments Corporation Jeannie Dempster Vice President Public Policy Forum Michael Hoffort President and Chief Executive Officer Farm Credit Canada

Anne Parker Chair Institute of Corporate Directors (SK chapter) and Managing Director and Chief Operating Officer Greystone Managed Investments Rob Pletch Chair, Board of Directors SaskPower Annette Revet Executive Director, University Governance and Secretary, Board of Governors University of Regina Bryan Richards President and Chief Executive Officer Global Transportation Hub Chuck Sanderson President and Chief Executive Officer Crown Corporations Council, Manitoba Christine Savage Executive Director, Agencies, Boards and Commissions Review, Service Alberta Government of Alberta

Mitch Holash Chair, Board of Directors Saskatchewan Transportation Company

Marial Stirling Legal counsel and Principal Corporate Oversight & Governance Chartered Professional Accountants Canada

Doug Kosloski, Q.C. Senior Vice-President and General Counsel Crown Investments Corporation

Blair Swystun President and Chief Executive Officer Crown Investments Corporation of Saskatchewan

Anne Neufeld Provost and Vice President Saskatchewan Polytechnic Karen Oldfield President and Chief Executive Officer Halifax Port Authority Public Policy Forum board of Directors

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VIRTUAL MEETING (December 7, 2015) Janice L. Brown Senior Corporate Policy Analyst, Governance & Accountability Executive Council Office, Government of Nova Scotia

Marie-Anne Lavoie Analyste, Direction de l’organisation financière et des sociétés d’État, Ministère des finances Gouvernement du Québec

Yolande Chapman Registrar, Board Appointments Government of Northwest Territories

Wendy MacDonald Clerk Assistant & Secretary to Cabinet, Executive Council Office, Committee on Priorities Office Government of Prince Edward Island

John Connell Vice President Government Relations Business Development Bank of Canada Isabelle Couture Project Lead Public Policy Forum Taryn Cronk Coordinator, Operations & Machinery of Government, Executive Council Agency, Governance Secretariat Government of Alberta Gigi Dawe Lead Principal Chartered Professional Accountants of Canada Wendy Dean Director, Corporate Secretariat Crown Investments Corporation Jeannie Dempster Vice President Public Policy Forum Maryse Harvey Director, Government Relations Business Development Bank of Canada Carol Kallio Manager, Agency Governance and Appointments Secretariat, Machinery of Government, Executive Branch Government of Alberta

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April Nakatsu Executive Director, Crown Corporations and Portfolio Governance Transport Canada David Navratil Senior Corporate Analyst & Manager of Education Programs Manitoba Crown Corporations Council Luke Power Director of Accountability Policy Innovation & Accountability Office, Office of Executive Council Government of Newfoundland and Labrador Marial Stirling Legal Counsel and Principal, Research, Guidance & Support, Corporate Oversight & Governance Chartered Professional Accountants of Canada Scot Weeres Director, Agency Governance Branch Treasury Board Secretariat Government of Ontario Karen Wichuk ADM, Operations & Machinery of Gov’t Executive Branch Government of Alberta

Appendix 4 - List of Interviewees Yvan Allaire Executive Chair of the Board of Directors Institute for Governance of Private and Public Organizations

Susan Margles Vice-President of Government Relations and Policy Canada Post

Rita Burak Former Chair Hydro One

Laurel Murray Consultant and former director on the Board of the Liquor Control Board of Ontario Murray Management Consulting Inc.

Jean Charest Former Premier of Quebec Government of Quebec

Doug Moen Deputy Minister to the Premier Government of Saskatchewan

David Collenette Senior Counsellor, Public Affairs Hill & Knowlton Strategies

Greg Orencsak Deputy Minister of Government Services and Secretary of the Treasury Board Government of Ontario

Benoit Daignault President and Chief Executive Officer Export Development Canada John Dyble Deputy Minister to the Premier and Cabinet Secretary and Head of the Public Service Government of British Columbia

Pierre Pettigrew Executive Advisor Deloitte Chuck Sanderson President and CEO Crown Corporations Council

Helene Fortin Chair Loto-Quebec

Charles-Antoine St-Jean Partner, National Public Sector Leader E&Y

Jean-Rene Halde Former President and CEO Business Development Bank of Canada

Blair Swystun President and CEO Crown Investments Corporation

Louis Levesque Deputy Minister of Transport Government of Canada

Paul Tellier Chair Canadian National Railway

John Manley Former Deputy Prime Minister Government of Canada

Cheryl Wenezenki Associate Deputy Minister, Ministry of Finance Government of British Columbia

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