We’ve all seen the headlines – BC Ferries, Ornge, la Caisse de Depot, Newfoundland radiologists and the Canadian Nuclear Safety Commission. Competence, ethics and policy alignment have been persistent and often painful issues in the growing universe of public interest entities. And yet the growth continues.
Analysis by the Institute on Governance has demonstrated that as much as 86 percent of the money spent by the public sector is in organizations other than the traditional line department or ministry. Even at the federal level, depending on how you count transfer payments, over 55 percent of money flows to “non-departments” to deliver public goods.
This trend is global, has a blend of demographic, political, economic and administrative drivers and in many ways reflects shifts long underway in the private sector. The mindset that build Henry Ford’s Rouge complex, with coal, rubber and ingots coming in one end and Model T’s out the other, couldn’t be more different from Apple, which has built the most valuable corporation in the world while physically manufacturing nothing itself. The theoretical underpinning for this shift has been the plummeting transaction costs of doing business with outside firms rather than self-contained units of the same corporation.
The term “distributed governance,” used by the OECD among others, covers the variety of legal and organizational structures that governments around the world have turned to. Key to the concept is the bedrock idea that even highly independent entities rely at some level on political authority for their legitimacy, funding, legal powers, etc.
In describing and analyzing the modern public sector and its arm’s length arrangements, one can replace traditional government models of governance with a more robust Governance Continuum. In this model, the solid dark blue line represents the formal, institutional relationships between a jurisdiction and a given agency, board or crown corporation. This would cover the form of legal entity, the delegated powers of the board or executive, foundational administrative arrangements and its core policy function.
The green lines on the Continuum represent the less formal relationships, such as letters of understanding/expectation, performance frameworks, budgeting, policy dialogues and other ongoing, institution to department or minister and person-to-person connections. The relationships are dynamic and distinct – a crown corporation would have different relationship with a minister than a regulatory agency, and both would have different relationships with the legislature.
Implicit in the depiction of Agency X on the Continuum is that it has a relationship with the public, or at least the sub-population it works with. This recognizes a common source of friction, where a distributed agency has strong knowledge of the policy issues, public views and needs in its specialized area, while our legislatures, cabinets and ministers translate the broader public interest into their priorities.
While the Continuum shows how a distributed public sector should work, the reality is less idyllic. Ministries and ministers struggle to maintain focus on the plethora of relationships in their orbit. Distributed organizations try not to get caught up in the chaos happening in central government and protect their areas of independence.
Mutual indifference can last for years – until a major policy shift, budget compressions or an ethical crisis brings the relationship into sharp focus, often accompanied by a sharp correction. These dramatic shifts in relationships are rarely productive. How do we keep the relationship between governments and their distributed entities from oscillating between benign neglect and micro-management?
Focus on mission
The reason companies like Apple can be so successful while being so dependent on suppliers for their physical product is that they have built a network of firms with complementary missions – in chip design, miniaturization, audio technology, packaging design, logistics, etc. Apple cares deeply about each of these components and services, but they aren’t its core mission.
Every public sector entity should have a clear public interest objective. That objective should have a clear link to the broader objectives of affiliated departments. There should be a regular dialogue on performance to mission. Furthermore, periodically, the mission should be questioned, both on its own merits and on its fit with the broader priorities of the ministry or government.
In the public sector, a deep, shared understanding of mission – of how each organization adds distinct public value – is critical to a coherent, efficient and effective public outcome.
Structural relationships are important but not sufficient for effective governance in the distributed age. Opportunities for people to interact, share perspectives and build professional interpersonal and institutional relationships are key. These opportunities should be regular, attached to different aspects of the shared policy and administrative relationship and able to survive changes in players. Reality is such that an agency head who gets along well with a minister is going to be better positioned than one who butts heads. But no one relationship should be irreplaceable.
For all but the smallest agencies, a broad set of relationships across policy areas, operations, administration, legislative relations and deputy to CEO are required to understand the priorities, pressures, stakeholder interests, risks and even vocabulary. This is no small investment of time and effort, but one can be sure Apple spends heavily on managing its subsidiaries, partners and suppliers (and vice versa). Transaction costs for dealing with outside firms are falling although they are a long way from zero.
Even with this depth of relationship, conflicts will arise but both parties will be better able to manage through.
Fools rush in
When crises occur, there is tremendous political pressure for the minister to act dramatically. But once the minister acts publically, he or she owns the issue, the agency and very well the next similar case. The long-term relationship can be reframed and the very logic for the distributed organization undermined (e.g., independent decision making, administrative burden). Keep a paper bag handy and be ready to breathe deeply.
If the issue at hand is within the distributed organization’s mission and authorities, let the board or CEO answer for its actions. If the issue is more structural, or based on the personal performance of a cabinet appointee, then some direct intervention may be warranted. The key to keep in mind is to understand the kind of relationship desired with the distributed organization after the crisis has passed, and position the minister and ministry accordingly.
Taken collectively, these three ideas describe a relationship of interdependence – where each party understands and respects their roles while working complementarily in the public interest.
Todd Cain is vice president of crown and organization governance for the Institute on Governance.