Owner’s Expectations Manual for Crown Research Institutes

4. CRI REPORTING AND ACCOUNTABILITY

This section summarises reporting requirements under the CRI Act and outlines shareholding Ministers’ other reporting requirements and how this works in practice. It also addresses CRIs’ accountability to Parliament through select committees.

The business planning process

The business planning process, which culminates in boards submitting a final SCI, is critical in maintaining a strong and mutually supportive relationship between the shareholder and the company.

A table of key reporting dates in the business planning cycle is set out on page 21.  The key steps are as follows.

Outline of expectations

In or around December/January of each year, shareholding Ministers send an outlook letter to each board to detail the information requirements, the timing, and any specific issues the company is expected to address during the planning round.  Shareholding Ministers usually enclose with the outlook letter the annual Operating Framework for CRIs.  This document outlines the general expectations for the CRIs and includes a company-specific addendum which outlines specific expectations for each CRI.  The Operating Framework is a public document and is available on CCMAU’s website and sent to relevant stakeholders.

Submission and review of business plan and draft SCI

Each CRI board then provides shareholding Ministers with a draft SCI supported by the company’s business plan.  Whereas the SCI is a ‘high-level’ document outlining in broad terms a CRI’s plans for the next three years, the business plan document is expected to provide more comprehensive and detailed information on the CRI’s three-year strategy with particular focus on the first 12 months.

The SCI is ‘draft’ at this stage in so far as it cannot be ‘final’ until shareholding Ministers have provided their support.  Nevertheless, as far as the company is concerned, the SCI (and the business plan) sent to shareholding Ministers should be the board’s final version.

The CRI Act requires the board of each CRI to deliver its draft SCI to shareholding Ministers at least one month before the start of each financial year (ie the end of May).  Shareholding Ministers’ preference, however, is that CRIs provide their draft SCIs and business plans by the start of May to allow time for meaningful review.  If, for any reason, a CRI considers that it cannot meet this deadline, it should contact CCMAU as early as possible.

Sections 16(2) and (3) of the CRI Act set out the information to be contained in each CRI’s SCI, including the objectives of the group, the nature and scope of its activities, and the financial and non-financial performance targets (including the research application indicators) by which the company may be judged in relation to its objectives.  Each CRI’s SCI should clearly identify the information required by these sections of the CRI Act.  SCIs should also contain information on intended use of CRI Capability Fund monies, in line with the CRIs’ contract with MoRST.

Shareholding Ministers expect the performance targets and measures in each SCI to be meaningful and related to the drivers of each CRI’s performance.  In terms of non-financial performance, the CRIs are expected to set targets for indicators which refer to staff numbers and the performance of the CRIs in applying their research results and technologies (refer http://www.ccmau.govt.nz/crown-research-performance-indicators.html) These activities are in line with section 5(1) of the CRI Act.  CRI boards may also wish to include other targets that demonstrate their science excellence, good employer practices, or environmental performance.

Once the draft SCI and business plan are received, advisors prepare a report for shareholding Ministers outlining the key aspects of each CRI’s future strategy.  As part of this process, advisors will engage with each CRI to clarify any questions arising out of the business plan and draft SCI.

Finalising, tabling and releasing SCIs

Under the CRI Act, shareholding Ministers may comment on the draft SCI, which may include a request for further information or clarification on certain matters.  This may be in the form of a letter or, if required, in a meeting between shareholding Ministers, advisors and the board.  The comment may also include an extension to the date by which the final SCI is delivered to shareholding Ministers.

Boards are required to consider any comments by shareholding Ministers on the draft SCI no later than 14 days before the start of the financial year and deliver a final SCI to shareholding Ministers on or before the start of the financial year or such later date that shareholding Ministers have determined.

The responsible Minister is required to table the final SCI in the House of Representatives within five working days of its receipt.  The SCI should be made publicly available only once this has occurred.  Once tabled, CCMAU will place a PDF copy of each CRI’s SCI on the CCMAU website.  CRIs are encouraged to make their SCIs widely available.

The business plan is not a public document and is not tabled.  Nevertheless, some CRIs choose to share their business plan or an abbreviated version of it with staff members and other stakeholders.

If the board of a CRI wishes to amend its SCI after it has been tabled, it must advise shareholding Ministers and consider any comments shareholding Ministers may have on the proposed modification(s).  Section 16 of the CRI Act sets out the process for making amendments to an SCI during the year.

Reporting to shareholding Ministers

Quarterly reports

While not required under the CRI Act, shareholding Ministers expect each CRI’s SCI to specify that quarterly reports will be provided to shareholding Ministers no later than the end of the month following each quarter.  This is a standard reporting expectation that applies to all Crown-owned companies. 

There are no set requirements for the content of quarterly reports although they are expected to provide information such as key science and business highlights and financial performance information.  Shareholding Ministers expect the financial information and commentary in each CRI’s quarterly report to summarise fully and accurately the company’s performance against budget, identify the cause of major variances, signal any potential developing issues, and highlight major achievements for the quarter.  This is expected to include:

• financial statements including a profit and loss statement, statement of financial position, and statement of cash flows,
• non-financial information, especially key performance indicators for the business, and
• any other performance measures in the SCI that are not already covered.

This information should be provided on a current quarter and year-to-date basis with a comparison against budget for each.  CRIs may also wish to provide data for the relevant period in the previous year. 

Additionally, shareholding Ministers expect quarterly reports to include the following information:

• full-time equivalent staff numbers, and
• a clear statement of the CRI’s outlook for the rest of the financial year in terms of achieving its SCI targets, key opportunities, threats, and management plans.

In each financial year’s first-quarter report, CRIs are also required to present additional information on their subsidiaries and associate companies.  This information should include a list of all subsidiaries and associates, their purpose or main business area, the CRI’s percentage level of holding, and the amount of paid-up capital invested in the subsidiary/associate. 

Quarterly reports are confidential to shareholding Ministers and their advisors and not made public, although Cabinet receives a summary report on each CRI’s performance and outlook.

Half-yearly reports

CRIs are required to deliver their half-yearly report to shareholding Ministers within two months of the end of the first half of each financial year, ie by the end of February.  The CRI Act does not specify the information to be presented in half-yearly reports; rather, the content is specified in each CRI’s SCI.

The responsible Minister is required to table each half-yearly report in the House of Representatives within five working days of receipt.  Half-yearly reports should be made publicly available only once this has occurred.

Annual reports

CRIs are required to deliver their annual report to shareholding Ministers within three months of the end of the financial year (although shareholding Ministers’ preference is that each CRI will provide them with a draft version of the annual report before it is finalised).  The required content is outlined in section 211 of the Companies Act, section 152 of the CE Act, and section 17 of the CRI Act.  Among other things, the annual report is required to contain information necessary to enable an informed assessment of the operation of each CRI including a comparison of its performance with its SCI. 

The annual report should provide a comprehensive report on the company’s business so that members of the public are able to understand clearly the nature and scope of the company’s operation.  The annual report should also strive to meet current best-practice disclosure guidelines including those relating to governance practice.  The annual reports are also expected to contain information on each CRI’s use of CRI Capability Fund monies, in line with the CRIs’ contract with MoRST, and performance against the research application indicators.

The responsible Minister is required to table each annual report in the House of Representatives within five working days of receipt.  Annual reports should be made publicly available only once this has occurred.

Besides the information required by statute and that referred to in each CRI’s SCI, the remaining content of the annual report is a decision for the board of each CRI.  As Crown-owned organisations which receive significant public funding for their activities, there is a preference that the CRIs provide a sufficient level of information on their science and technology transfer activities and the impact of their activities on New Zealand’s society, economy and environment.

Table of key reporting dates

The table below shows the key dates for the business planning round and regular reporting. 

Business planning round
December/January	Shareholding Ministers send outlook letters and the Operating Framework to boards.  The outlook letter details shareholding Ministers’ expectations of, and information requirements for, the business planning round. The Minister of Research, Science & Technology meets with boards (possibly with the Minister of Finance or his/her representative).
By end of April	Boards submit their business plan and draft SCI to shareholding Ministers.
By 16 June	Boards consider shareholding Ministers’ comments (if any) on the business plan and draft SCI.
On or before 1 July (or such later date as shareholding Ministers determine)	Boards deliver their final SCI to shareholding Ministers.
Within 5 working days of receipt by shareholding Ministers>	The responsible Minister tables the SCI in the House of Representatives. SCIs should be made publicly available only once they have been tabled.
Quarterly reports
Within one month after the end of the quarter, ie 31 October 31 January 30 April 31 July	Boards deliver their quarterly report to shareholding Ministers. CCMAU prepares a report which is presented to Cabinet.  Quarterly reports are not made public.
Half-yearly report
By 28 February	Boards deliver their half-yearly report to shareholding Ministers. Each report must include the information specified in the SCI. Half-yearly reports should be made publicly available only once they have been tabled.
Within 5 working days	The responsible Minister tables the half-yearly report in the House of Representatives.
Annual report
30 September	Boards deliver their annual report to shareholding Ministers.
Within 5 working days of receipt by shareholding Ministers	The responsible Minister tables the annual report in the House of Representatives. Annual reports should be made publicly available only once they have been tabled.
Annual meeting
By 31 December	Each CRI is to hold an annual meeting no later than 6 months after its balance date and no more than 15 months may elapse between the date of one annual meeting and the next.  An annual meeting does not need to be held if everything to be done at the meeting is dealt with by a written shareholder’s resolution.  Where relevant, resolutions are expected to note: that shareholders have received the company’s annual report for the most recent financial year the appointment of the company’s auditor the board’s decision (if any) as to the payment of a dividend.  Shareholding Ministers should not be asked to confirm, approve or ratify the payment of any dividend as this is a decision for the board.

Other expectations

Provision of official information

CRIs are subject to the OIA.  In handling requests made under this Act, the CRIs are expected to respect the underlying principle of, and comply fully with, the Act in terms of making information available to the public within the stated deadlines unless there is good reason for withholding information.

In general, as accountable Crown-owned organisations, the CRIs are expected to be open in their communication with the public and to respond in a timely and adequate manner to requests for information, provided that such information does not jeopardise a CRI’s commercial position or in any other way harm its interests.  It should be noted that members of the public who fail to receive an adequate response from a CRI may, in some cases, draw the issue to the attention of shareholding Ministers.

‘No surprises’ policy

Ministers expect boards to be sensitive to their interests.  Boards must be mindful that Ministers are accountable to a wider audience and the affairs of the companies, positive and negative, can impact on the responsible Minister.  This is referred to as the ‘no surprises’ policy, further detail of which is set out below.  A failure to keep Ministers informed on significant issues at appropriate times can create situations that may divert attention from a company’s day-to-day business.

Under the ‘no surprises’ policy, shareholding Ministers expect to be informed well in advance of any material or significant events, transactions and other issues that could be considered contentious or attract wide public interest, whether positive or negative.  Examples of matters that could fall within the ‘no surprises’ policy include, but are not limited to:

• changes in CEOs,
• potential/actual conflicts of interest by directors,
• potential/actual litigation by or against the company, its directors, or staff,
• fraudulent acts by the company’s directors or employees,
• breaches of a CRI’s corporate social responsibility obligations,
• transactions that affect the ownership of intellectual property,
• significant company restructuring,
• large-scale redundancies,
• industrial disputes,
• significant health and safety issues,
• the release of significant information under the OIA, and
• imminent media coverage of science or organisational activities that could attract critical comment or on which shareholding Ministers could be asked to express a view.

Shareholding Ministers expect boards to:

• understand wider government policy issues as part of their decision-making
• be aware that the Crown has interests wider than those of ordinary shareholders in private companies
• be aware of the potential implications of company-specific issues on the Crown and/or its balance sheet
• be sensitive to the demand for accountability placed on shareholding Ministers from both Parliament and taxpayers.

Shareholding Ministers’ expectations in relation to the ‘no surprises’ policy are not intended to detract in any way from directors’ statutory obligations.

Depending on the details or circumstances of the issue, communication can be by way of a telephone call, e-mail, letter or a meeting between the board and shareholding Ministers.  Boards should advise of the details of the issue and what the board intends to do to respond.  CCMAU is the first point of contact for most issues and will pass on relevant details to Ministers’ offices.

Visits by MPs

There is an established protocol for visits by MPs to CRIs.

• Visits by electorate MPs are acceptable for genuine electorate duties.
• Similarly, visits by party spokespeople in the CRI, science or closely related portfolios are acceptable.

CRIs should always contact the Minister of Research, Science & Technology’s office before agreeing to or organising any visits/briefings.  CRIs are encouraged to set an agenda before any such meeting and to ensure that visitors adhere to that agenda.  Visits by MPs (other than the CRI, science or related spokespeople) for general familiarisation or discussion purposes are not encouraged.

Accountability

Select committees

Select committees have wide powers to require people to appear before them and to give evidence.  Among other roles, they play an important part in assessing the performance of CRIs. 

There are several reasons for which a CRI may appear before a select committee.

• A CRI could be asked to advise a select committee on legislation under formation.
• A CRI may wish to make a submission on a bill as a witness.
• A select committee may receive a petition from private citizens regarding a CRI, which may then be called in for a review.
• Every select committee has the power to launch an inquiry, and could call a CRI in to provide evidence (an example could be ‘the state of scientific research in New Zealand’).
• In addition, CRIs are regularly required to appear before the Education & Science Committee (or another select committee delegated by the Finance & Expenditure Committee) for a financial review.  Normally, the chair and CEO of the CRI are expected to appear before the Committee.  It is not usual for external legal representation to attend. CRIs should view these financial reviews as opportunities, rather than impositions, to emphasise the importance of what they do.

Shareholding Ministers expect to be advised before any CRI appears before a select committee.  They also expect the boards and management of CRIs to be open and forthright in their dealings with select committees. 

If the chair of a CRI has concerns about providing information to a select committee, shareholding Ministers expect these concerns to be raised with the committee, rather than refusing to provide the information.  If, notwithstanding the CRI’s concerns, the select committee requires the information to be provided, the chair may request that the committee receive the information as private or secret evidence.  Chairs are encouraged never to refuse to answer a question outright. 

Shareholding Ministers expect CRI boards and management to be aware of, and to familiarise themselves with, the Standing Orders of the House of Representatives before appearing in front of select committees.  Boards may wish to consider obtaining specific training in this regard.  In particular, the Standing Orders provide rules relating to Parliamentary privilege.  Parliamentary proceedings are subject to absolute privilege, to ensure that those participating in them, including witnesses before select committees, can do so without fear of external consequences.  This protection, enshrined in the Bill of Rights 1688, is an essential element in ensuring that Parliament can exercise its powers freely on behalf of its electors.  There must be no pressure placed on individuals to deter them, or action taken against them as a direct consequence of their giving evidence to a select committee.  Any such action might be regarded as contempt of the House, with potentially serious consequences for those involved.

Further information on select committees can be found in the State Services Commission’s Officials and Select Committees – Guidelines (http://www.ssc.govt.nz/officials-and-select-committees-2007) and in the procedural guides Natural justice before Select Committees and Working with Select Committees on the New Zealand Parliament website (http://www.parliament.nz/en-NZ/PubRes/About/Procedures).

 

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