3.35 Crown entities are legal entities in their own right. A decision to assign a government activity or function to a Crown entity indicates that the function should be carried out at “arm’s length” from the government. As reflected in the definition of the state services in section 2 of the State Sector Act, Crown entities (except tertiary education institutions and their Crown entity subsidiaries) are, however, instruments of the Crown. Ministers, Crown entity boards, and monitoring departments participate in the governance of Crown entities in different ways.
3.36 Ministers play a key role in the governance of Crown entities and are responsible to the House for overseeing and managing the Crown's interests in, and relationships with, the Crown entities in their portfolios. Section 3 of the Crown Entities Act 2004 recognises that an accountability relationship exists between Crown entities, their board members, and their responsible Ministers on behalf of the Crown and the House of Representatives.
3.37 The Crown entity's board governs the entity's operations. A monitoring department is responsible to a portfolio Minister for monitoring Crown entities within that portfolio on the Minister's behalf. Memoranda of understanding can help clarify the respective roles of Ministers, Crown entities, and monitoring departments.
3.38 Detailed guidance on Ministers’ roles and responsibilities in relation to Crown entities is set out in Statutory Crown Entities: A Guide for Ministers , published by the State Services Commission.
Role of Ministers
3.39 Ministers oversee and manage the Crown's interests in, and relationships with, the Crown entities in their portfolios, and carry out any statutory responsibilities conferred on them as Ministers.
3.40The Minister's role and responsibilities are to:
- ensure (through the appointment of board members) that an effective board is in place to govern the Crown entity;
- participate in setting the direction of Crown entities, which may include setting the direction for multiple agencies in a sector;
- monitor and review Crown entity operations and performance; and
- manage risks on behalf of the Crown.
3.41The Crown Entities Act (and other legislation that relates to particular Crown entities) sets out the extent of the control the Minister has over a Crown entity. The extent of this control depends on the entity's category and type, and whether it has any statutorily independent functions. For example, Crown agents and autonomous Crown entities must give effect to, or have regard to, any policy direction given by the relevant responsible Minister. Similarly, the remuneration of members of some Crown entities is set by Ministers in accordance with the fees framework applying from time to time to statutory and other bodies in which the Crown has an interest (see Cabinet Office circular CO (12) 6 Fees framework for members appointed to bodies in which the Crown has an interest [replaced from 1 July 2019 by CO (19) 1 Fees framework for members appointed to bodies in which the Crown has an interest).
3.42A Minister with a Crown entity in his or her portfolio can require the Crown entity to enter into an output agreement whereby the Crown funds the entity or the Crown entity's services are paid for by fees and levies.
3.43In some cases, a Minister may direct a Crown entity to follow a certain course of action. These powers of direction are likely to be used infrequently because other tools such as letters of expectation work well to convey Ministers' expectations.
3.44 The Minister of State Services’ portfolio responsibility for the state services includes responsibility for Crown entities. Ministers should consult the Minister of State Services before Cabinet considers any proposal that could establish a new Crown entity. The Minister of Finance also has statutory responsibilities under the Crown Entities Act and should be consulted when appropriate.
Directions to support a whole of government approach
3.45 The Ministers of Finance and State Services may issue directions to support a whole of government approach under section 107 of the Crown Entities Act to specified categories or types of Crown entities as defined in the Act, or to a group of such entities. The purpose of such a direction is both to support a whole of government approach and (directly or indirectly) to improve public services. Any Crown entity to which a direction to support a whole of government approach is issued must give effect to the direction. Companies named in Schedule 4A of the Public Finance Act may be treated as a category of Crown entity for the purposes of such directions.
3.46 Where a direction to support a whole of government approach to achieve any of the purposes specified in section 107 is proposed, Cabinet's approval must be sought for:
- developing the direction and undertaking the consultation required by the Crown Entities Act; and
- issuing the direction, following consultation.
3.47 Further guidance on directions to support a whole of government approach is set out in Cabinet Office circular CO (13) 4 Crown Entities Act 2004: Section 107 directions to support a whole of government approach. This circular includes a checklist for proposals for directions to support a whole of government approach.
Role of Crown entity boards
3.48 A Crown entity's board governs the Crown entity, exercises its statutory powers and functions, and may delegate these powers and functions in accordance with section 73 of the Crown Entities Act. The board makes decisions about the entity's operations and appoints its chief executive (where applicable). For boards of statutory entities and Crown entity companies, a board's actions must be consistent with the Crown entity's objectives, functions, statement of intent, and any output agreement.
3.49The board should maintain open communication with the Minister. The Minister, together with the board, has a strong interest in:
- clearly setting the direction of the Crown entity;
- ensuring that the entity achieves its objectives, as expressed in legislation and/or the entity’s statement of intent;
- managing any risks to the Crown.
Role of monitoring departments
3.50 The Crown Entities Act provides for Ministers to participate in the process of monitoring Crown entities' performance against their strategic direction, as agreed with the Ministers and set out in their statements of intent. Each Crown entity has a monitor (usually the department in the relevant portfolio), which assists the Minister with appointing and maintaining an effective board, setting direction and performance expectations, and monitoring performance. In addition, monitors undertake other statutory functions on their own behalf, administering appropriations and legislation, tendering advice to Ministers, and undertaking any other activities required under statute. The monitor's role for statutory entities is set out in section 27A of the Crown Entities Act, and in section 88A for Crown entity companies.