Public-Sector Corporate Governance: British Columbia's Best-Practices Reforms

Article excerpt

Though certain governments still use patronage appointments to fill vacancies on public-sector boards, that practice is changing, albeit slowly. The province of British Columbia has set a bestpractice example by implementing new guidelines that ensure that directors are chosen for their expertise and competency. This author describes those guidelines.

In the last several years, there has been a renewed focus on the need to recruit effective directors. Although structure and process are necessary elements of effective governance, most experts agree that the key to improving corporate governance is selecting the right people to serve on the board - directors who have the competencies and personal attributes to effectively drive corporate performance and ensure integrity and accountability.

While much of the debate about corporate governance has focused on publicly traded companies, the principles are just as important, if not more so, in the public sector. Every day, public sector corporations make decisions that significantly impact Canada's economic, social and cultural well-being. They manage billions of dollars in assets and liabilities and oversee the delivery of critical services such as health care, education and public utilities.

This means that the appointment of unqualified directors (through patronage or not) is no longer acceptable. As is occurring in the private sector around the world, public sector jurisdictions must reform their appointment practices to ensure that directors are selected for their competencies and commitment to effective governance.

In Canada, the province of British Columbia is taking a lead in public-sector governance reform. The province's new process for recruiting and appointing directors to public sector corporations is leading edge and may be considered a model of best practices for both the public and private sectors. This article will discuss these reforms.

Why are public-sector appointments important?

While private-sector corporations play a very important role in our economy, public- sector corporations arguably have a more direct and significant impact on economic, social and cultural life. In addition to running businesses and utilities, public-sector corporations are involved in areas such as health, education and worker protection.

In Canada, there are 41 federal Crown corporations (not including subsidiaries), employing 70,000 people (2000 Report of the Auditor General of Canada). In aggregate, (excluding the Bank of Canada), they manage $68 billion in assets and $61 billion in liabilities. They include entities such as the Canada Pension Plan Investment Board, which oversees $14.3 billion in Canada Pension Plan assets.

In BC, 31 Crown Corporations manage $32.7 billion in assets, $40.7 billion in liabilities and employ more than 20,000 people. In addition, six Health Authorities oversee the delivery of $6.2 billion in health services (approximately 25 percent of the provincial budget) and employ 95,000 people. The BC Workers Compensation Board manages $8 billion in assets, oversees an annual income of $1.5 billion and looks after the workers compensation scheme for 1.9 million workers.

Some argue that good governance is even more important in the public sector than the private sector. Most public-sector corporations do not compete in the traditional way, and therefore, their performance is not driven by factors such as market share, industry benchmarks or share value. Consequently, their performance is measured not just by financial metrics, but others that are more difficult to measure. For these reasons, directors must tackle their jobs with focussed intensity to drive the best possible performance of the organization while at the same time hold it to account financially and ethically.

A history of public-sector performance

In most jurisdictions in Canada and throughout the Commonwealth, there is no systematic process for recruiting directors to public-sector corporations. …