Role of Crown corporation boards unique

Hey there, time traveller!
This article was published 27/03/2018 (2849 days ago), so information in it may no longer be current.

Last week, when the surprise news of the resignation of the board of directors of Manitoba Hydro broke, a friend in the media asked me to describe for his listeners in a few words the role of the board. Knowing my tendency to bore people with dull, long-winded answers, I replied as follows: “Think of the board as the meat in the sandwich.”

The analogy was meant to convey the fundamental fact that boards of Crown corporations sit in the middle, between the government that acts as the owner and the professionals within the corporation, who run the enterprise on a daily basis. The board occupies something of a twilight zone that requires it to look upward to the government for high-level policy direction and downward in order to direct and oversee the executive and staff of the corporation that represent a deep reservoir of expertise.

An understanding of the role of the board arises from the fact Crown corporations are hybrid organizations. They resemble, but are not exactly like, private corporations because they are created to serve a public-policy purpose that goes beyond maximizing profits and return on investment. Nor are Crowns exactly like regular departments of government, because they are granted some freedom from continuous political involvement so they can operate in a more “businesslike” manner.

In short, when governments create Crown corporations, they are hoping to obtain the best of both worlds — serving identifiable economic and social goals, while simultaneously relying on the managerial approaches used in more commercial enterprises that supposedly lead to superior performance.

The phrase “arm’s length” often is used in official reports to describe the relationship between the government and the board/executive of the Crown corporation. In practice, the “reach” and the “tightness” of the government grip can be much stronger than the theory of independence for Crowns implies.

There always is uncertainty, and sometimes tension, over where an appropriate measure of independence and professionalism for the board/executive ends and deference, responsiveness and accountability to the government begins. Regardless of partisan identity, governments like to take credit for good news associated with Crowns and shift the blame to the board/executive for bad news.

The premier appoints board members, who are almost always friends of the governing party. The patronage basis for appointment does not necessarily mean that board members are unqualified to direct the corporation. It does mean, however, that when governments change there usually is a complete turnover on the board. The Hydro resignations were unprecedented, because Premier Pallister had hand-picked the board members shortly after his victory in the 2016 election, and many were easily identified as supporters of the Progressive Conservative party.

The nature of a Crown corporation and the patronage basis for the appointment of boards leads to a fundamental question: Are boards trustees of the long-term interests of the corporation, as corporate law requires, or are they agents who are expected to serve the short-term political interests of the premier and the government that appointed them?

Open clashes between a trustee role, as opposed to an agent role, are rare in practice. That’s because ongoing interaction and communication taking place on many levels encourages a relationship between the government and the Crown based on mutual understanding, principled accommodations of differences and bonds of trust.

The chair of the board of a Crown has a much more challenging job than chair of a private corporation, and in Manitoba, chairs of Crown boards are paid peanuts compared to their private-sector counterparts.

The government should expect no surprises and the chair should not accept “back-door,” unpublicized, unaccountable interference by a government. In the Hydro case, there appears to have been too little rather than too much political involvement.

The mass resignation of the Hydro board seems mainly to be a case of failed political management and communication, in the office of both the minister and the premier. To avoid future uncertainty and upheavals over the boards of Crowns, the government would be wise to identify more explicitly which decisions belong respectively to the government, the board and the executive, and then to keep the lines of communication open.

Paul G. Thomas is professor emeritus of political studies at the University of Manitoba. He once chaired the board of a Crown corporation and has written on the governance of Crowns.