Owner’s Expectations Manual for State-Owned Enterprises

3. SHAREHOLDER ROLES AND RESPONSIBILITIES

Shareholding Ministers’ role and responsibilities

Each SOE has two shareholding Ministers: the responsible Minister and the Minister of Finance.

The responsible Minister (normally the Minister for SOEs) generally takes the lead shareholder role, particularly in his/her capacity as the formal point of contact with boards. From time to time, the Minister for SOEs may delegate some of his/her responsibilities to an Associate Minister for SOEs.

The role of the Minister of Finance as an SOE shareholder reflects the importance of the sector to the Crown’s economic and financial objectives. From time to time, the Minister of Finance may delegate some of his/her responsibilities to an Associate Minister of Finance.

Under the SOE Act, shareholding Ministers are responsible to the House of Representatives for the performance of the functions given to them under the Act or the constitutions of the SOEs.

In practice, shareholding Ministers’ responsibilities include:

• appointing and removing directors (including chairs and deputy chairs),
• commenting on the content of draft SCIs and business plans, including any aspects that may be inconsistent with statutory requirements,
• supporting the SOEs’ medium- to long-term strategic direction,
• tabling final versions of SCIs in the House of Representatives,
• developing and communicating the government’s ownership policies,
• monitoring board performance and taking necessary remedial steps should boards fail to meet the targets in their SCIs and business plans,
• consulting with boards as issues arise,
• tabling annual and half-yearly reports in the House of Representatives,
• taking decisions as shareholder (for example, approving a major transaction under the Companies Act, or other transactions if such approval is required under a company’s SCI), and
• passing resolutions at annual meetings (or special meetings) or agreeing to pass written resolutions in lieu of such meetings.

Shareholding Ministers’ powers

Shareholding Ministers’ statutory powers in relation to SOEs are set out in the Companies Act and the SOE Act. Generally, shareholding Ministers have statutory powers to:

• exercise their rights as a shareholder under the Companies Act,
• subject to the requirements of the SOE Act:
  • direct the board of an SOE to alter certain provisions of the company’s SCI,
  • determine the level of dividend payable by an SOE in respect of any financial year or years, and
  • require additional information from an SOE.
• Before shareholding Ministers use their power to direct a board to alter the company’s SCI, or to determine the level of dividend payable, they must have regard to Part I of the SOE Act and consult with the board. Within 12 sitting days of giving such a direction shareholding Ministers must lay a copy of the direction before the House of Representatives.

The monitoring function

As owner of SOEs, the government is obliged to manage its investments in the best interests of New Zealanders. The monitoring function is, therefore, central to ensuring that relevant legislation, ownership policies and shareholding Ministers’ expectations are clearly communicated and that SOE boards have appropriate regard to them.

The shareholding Ministers’ monitoring function is similar to that undertaken by equity holders in the case of private sector companies. However, shareholding Ministers face certain constraints, including the following that are not faced by private sector equity holders.

• Shareholding Ministers cannot divest themselves of ownership of the SOE without empowering legislation, and
• Unlike listed companies, SOEs do not have a share price that shareholding Ministers can use to monitor company performance.

For these reasons, it is important to monitor SOEs and receive timely and relevant information from them. The SOE Act, therefore, gives shareholding Ministers certain powers over and above those of ordinary shareholders, eg the power to require information relating to the affairs of a SOE to be provided to shareholding Ministers.

The success of this monitoring regime relies on:

• a common and clearly understood framework of accountability and governance,
• the implementation of best-practice corporate governance policies and procedures by SOEs,
• clear and focused board accountability, and
• independent advisors being familiar with and understanding the SOEs they monitor and the sectors in which they operate so that shareholding Ministers receive expert advice.

The roles of advisors

Shareholding Ministers receive ownership advice on SOEs from two main sources: CCMAU and the Treasury. This advice may be supplemented by input from other agencies when necessary.

Both CCMAU and the Treasury are required to develop and maintain a detailed knowledge of each SOE’s operations and markets to enable them to assess whether individual SOEs are meeting shareholding Ministers’ expectations.

Advisors focus on:

• SOEs’ commercial opportunities and risks,
• the environment in which the SOEs operate,
• protecting and enhancing shareholder value,
• performance against financial and non-financial objectives,
• establishing ownership objectives for individual SOEs and the SOEs as a whole, and
• developing ownership policy advice for shareholding Ministers.

Advisors also contribute advice on general policy that affects SOEs in consultation with other departments, as appropriate. However, final decisions on all SOE issues remain with shareholding Ministers or Cabinet.

CCMAU and the Treasury share some monitoring roles including:

• advising on strategic issues, ownership policy issues, investment and diversification opportunities, restructuring issues and capital structure,
• analysing business cases presented by SOEs where they are required to consult with, or seek the approval of, shareholding Ministers, and
• advice relating to SOE performance and on whether SOEs are making an appropriate return on investment.

Each agency brings a different perspective to the monitoring role. These complementary roles are described below.

CCMAU’s role

CCMAU advises the Minister for State Owned Enterprises and any Associate Minister for State Owned Enterprises. It has lead agency responsibility for:

• routinely monitoring SOEs financial and non-financial performance, and
• issue management, which includes advising shareholding Ministers on ministerial correspondence, requests under the Official Information Act 1982, parliamentary questions and other issues that may arise.

CCMAU has sole responsibility for advising on board composition and performance and managing the director appointment process.

CCMAU is the daily point of contact with SOEs and should be sent all routine reports (quarterly, half-yearly and annual reports) and other process-related documents.

The Treasury’s role

The Treasury advises the Minister of Finance and any Associate Ministers of Finance.

The Treasury manages the Crown’s finances and is the government’s principal advisor on economic and financial issues. Therefore, it focuses on the impact of SOE performance on the Crown’s balance sheet, economic efficiency and welfare and the regulatory/policy interface.

The Treasury may take the lead on issues relating to wider ownership policy formation.

Relationship with officials

Boards, particularly chairs, are expected to work closely and cooperate with CCMAU and Treasury officials as the conduit of information and advice to shareholding Ministers. It is expected that a good working relationship will develop between CCMAU and the Treasury and SOE board members and senior managers.

Boards may wish to invite officials to be present during parts of board meetings or annual business planning sessions, if required, to discuss issues or to clarify shareholder expectations. Such invitations are entirely at the discretion of each board.

< 2. SOE Framework     4. SOE Reporting and Accountability >