ILSC governance issues: broader implications

 

                              Not a mouse

Shall disturb this hallowed house:

I am sent with broom before,

To sweep the dust behind the door.

A Midsummer Night’s Dream, Act 5, Scene 1.

 

On 5 January 2021, I published two posts based on FOI documents released by the Indigenous Land and Sea Corporation (ILSC) last year. The first on conflict within the ILSC Board (link here) and the second post (link here) outlining the secret and unacknowledged use of the NAIF by the Government to fund the repayment of previous ILSC borrowings from the Government itself. These arrangements breached the NAIF legislation, undermined the independence and legitimacy of the NAIF Board, and misled the Parliament and the Australian public.

 

Adele Ferguson and Deborah Snow at The Sydney Morning Herald and The Age have now published two articles relating to the governance issues at the ILSC. The first dated 15 February (link here) deals with the internal conflict within the Board, and reports new information beyond that released by the ILSC in response to an FOI request last year. In particular, the SMH/Age article provides a redacted copy of a letter from the Minister to the ILSC Chair Mr Fry dated 7 December 2020, where the Minister stated:

I have lost confidence in your ability to lead the ILSC as the Chairperson. In the circumstances I ask that give reasons as to why I should not ask for your resignation… 

 

The article also includes a redacted copy of Mr Fry’s response dated 18 December 2020 where Mr Fry asserts (inter alia):

The Thom Report determined no misconduct under s192H of the ATSI Act by me as Chair, or breach of general duties according to the PGPA Act…

Mr Fry’s selective quotation relates primarily to Ms Thom’s assessment of his actions at a single meeting. He omits her conclusion that he appeared to have breached the ILSC Code of Conduct (but this could only be determined by the ILSC Board). And he ignores the broader conclusions in the Thom report on corporate governance, for which the Board of which he is chair is primarily responsible. That said, it is the case that the Minister appears to have formed the view that specific grounds for termination of Mr Fry do not exist.

 

The second SMH/Age article dated 17 February (link here) deals with appointment of the ILSC CEO against the explicit wishes and formally expressed views of the Minister. This difference of views led to the exchange of correspondence attached to the first SMH/Age article. The article includes a number of direct quotations from within the redacted sections.

 

It thus seems that at least some of the redactions were made by the SMH/Age, probably to facilitate the sequential release of key information and/or remove irrelevant or potentially defamatory material. The SMH/Age access to these letters and the report in the second article that:

Mr Wyatt reconfirmed his lack of confidence in Mr Fry as chairman of the corporation in a statement to the Herald and The Age last Friday...

suggest that the likely source of the more recent correspondence published by the SMH/Age is the Minister or his Office. This is worth considering, because the narrative arc of the SMH/Age articles focusses on the issues within the ILSC. This is an important and legitimate focus, but just as important is the need to focus on what the responsible minister has done to address and resolve the issues in a key statutory body within his portfolio. This latter issue is the focus of the present post.

 

While the ILSC has the statutory responsibility for appointing the CEO, there is a convention across the executive arm of government that Ministers are consulted and significant appointments are taken to Cabinet by portfolio Ministers. A decision to ignore a Minister’s considered views is a serious step for any statutory board.

 

On 15 February, Minister Wyatt gave an interview to Patricia Karvelas on ABC TV (link here). This included a short exchange relating to the ILSC issues:

Patricia Karvelas:  Minister, changing the topic again, can you explain why you've lost confidence in Eddie Fry as the chairman of the Indigenous Land and Sea Corporation?

Minister Wyatt:  Well, there are some matters. There was a report by a consultant in Thom's report was provided to me [sic]. There have been other matters, but we've had discussions and the board have raised issues and I've provided it provided the organisation with the opportunity to deal with its governance arrangements and focus on the investments that are absolutely critical for the development of the land assets that Aboriginal communities and people hold. And the government remains committed to looking at job opportunities and economic development from those assets so that we realise a better outcome for future generations.

Patricia Karvelas:  What can you do about this, given Mr Fry hasn't reached the threshold for termination?

Minister Wyatt:  Well, I would hope that we continue having discussions and that the board and Mr Fry work together to ensure that the task that they have been charged with are met with due diligence and in the manner that you would expect of a government, a governing body.

 

So on Friday 12 February, the Minister’s spokesperson confirmed to the SMH/Age that the Minister continued to lack confidence in the Chair of the ILSC. On Monday 15 February, the Minister didn’t disagree with Ms Karvelas’ proposition that he had lost confidence in the Chair, yet went on to state that he had provided the ILSC ‘with the opportunity to deal with its governance arrangements and focus on the investments that are absolutely critical…’ We still do not know whether the Minister has formally requested Mr Fry to resign.

 

The information in the FOI documents released last year and in the SMH/Age material this week raises serious questions regarding the capability of the ILSC to meet its legislated remit under the currently constituted Board. While the ILSC Board and Chair are responsible for delivering on that remit, the Minister has an oversight or regulatory responsibility for ensuring that the ILSC is in fact meeting its responsibilities and a political responsibility for reassuring all citizens, but particularly Indigenous citizens, that he is meeting those regulatory and oversight responsibilities.

 

On the basis of the information available to date, it would seem that the Minister has dropped the ball in relation to his regulatory and oversight role on a key statutory agency in his portfolio. Let me list ten issues or loose ends that are so far unaddressed and require attention by the Minister.

 

In no particular order, the Minister:

• ·        made no public statement between May 2020 and 15 February 2021 when the matters regarding the governance problems being experienced by the ILSC were reported in the national media. The implication is that he was prepared to leave the situation unresolved and unexplained, presumably hoping there would be no public revelation prior to the expiry of the Chair’s term in November 2021;

 

• ·         has provided no indication publicly of the ILSC’s response to the Thom report (which he requested by 4 November), nor his actions and decisions in response to the as yet unpublished ILSC response apart from his indirect indication that he had in fact lost confidence in the ILSC Chair. In particular, notwithstanding his apparent inability to terminate the Chair, has the Minister requested Mr Fry to resign?;

 

 

• ·         has provided no indication of his intention with regard to Recommendation 8 of the Thom Review — the only recommendation directed to the Minister — dealing with improving the quality of Board selection processes. In this context, it is worth noting that the Minister has had five months to consider his response to this recommendation;

 

• ·         failed to appoint or re-appoint four Directors when their terms expired and/or they resigned thus creating further uncertainty and potentially risk aversion within the Board. This is particularly relevant to the position of Deputy Chair;

 

• ·         has given no indication of his actions in response to a Commonwealth Ombudsman’s Public Interest Disclosure investigation report dated January 2020.The Minister cited it as a reason for his loss of confidence in the Chair, and described it as containing  ‘adverse findings and concerns’ regarding the ILSC. [The ILSC 2019-20 Annual Report notes at page 89: The ILSC is aware that the Commonwealth Ombudsman has produced one report in relation to the ILSC in this period. The report has not been made public or provided to the ILSC];

 

• ·         approved and tabled in Parliament an Annual Report from the ILSC in October 2020 (link here) that made no mention whatsoever of the serious governance issues it faced. The ILSC Chair and the Board approved a report that is clearly misleading through omission. In the circumstances of the serious internal Board conflict, the Chair’s Foreword, particularly his final paragraph thanking his fellow directors for their strategic leadership, reeks of legerdemain. Arguably, the provision of an incomplete and misleading Annual Report breaches s.38 of the PGPA Act 2013, which provides inter alia that ‘the accountable authority of a Commonwealth entity must measure and assess the performance of the entity in achieving its purposes’. Yet the Minister took no action to ensure the report did not effectively mislead the Parliament, and approved it to be tabled in Parliament.

  

• ·         has failed to lay out and execute a strategy to ensure that the ILSC will be in a position to deliver on its statutory remit notwithstanding that the Minister continues to lack confidence in the Chair and thus by definition must fear that he will act in ways that place the achievement of that remit at risk. Such a failure would create adverse consequences for hundreds if not thousands of the ILSC’s Indigenous clients. In this context, it is worth remembering that the Thom Review headline finding on corporate governance: “The review concludes that there is a high risk that the Board cannot currently fulfil the functions as set out in the ATSI Act and its Charter. Unless urgent action is taken this will also place at risk the proper and efficient performance of the ILSC as well as potentially its longer term viability” [emphasis added].

 

• ·         has remained silent in relation to the substance and merits of Mr Fry’s proposed ILSC transformation strategy which was the trigger for the Board conflict, and appears to propose the creation of a parallel board or entity within the ILSC that effectively diminishes or sidelines the ministerially appointed ILSC Board. This silence is particularly significant given Minister Wyatt’s comments to ABC journalist Patricia Karvelas quoted above to the effect that he has given the ILSC Board the opportunity to reform itself.

 

• ·         has remained silent in relation to Mr Fry’s role as Chair of Indigenous Business Australia (IBA), the other key statutory corporation in the Indigenous Affairs portfolio. It would stretch credulity were the Minister to argue that he continues to have confidence in Mr Fry’s role as IBA Chair while lacking confidence in his role as ILSC Chair. Moreover, it begs the questions: what are the current governance standards within the IBA? Has the NIAA been monitoring IBA governance performance, and keeping the Minister informed?

 

• ·         has remained silent on the legality and appropriateness of the Commonwealth conditions in relation to the NAIF loan to Voyages/ILSC (see the previous post on this issue: link here). In December 2019, the ILSC Chair wrote to Minister Wyatt regarding the fulfillment of the problematic conditions imposed by his predecessor (FOI document 41). While it is not clear if Minister Wyatt was briefed or was aware of the irregular nature of this arrangement, it points to a potentially significant ongoing governance failure within his agency and for which he is accountable as the responsible Minister.

 

At a broader level, the events that have occurred in relation to the ILSC (and NAIF) point to gaps and shortcomings in the regulatory oversight of Commonwealth commercial entities, and their subsidiaries. In particular, these responsibilities fall to an assemblage of Ministers, the Department of Finance, internal audit committees, and the ANAO, all operating under the PGPA Act and agency specific legislation.

 

Given the expanding operations of the Commonwealth in commercial contexts, there is increasing evidence that the absence of an independent regulator akin to ASIC creates regulatory risks and gaps that are not in the public interest. It is increasingly apparent that the dominance of the Executive over the Parliament, and the widely recognised trend towards greater politicisation of the APS is inconsistent with the requirement for independent regulatory oversight of Commonwealth commercial entities. One option would be to create a new independent corporate regulator for Commonwealth commercial entities; another would be to place Commonwealth entities under ASIC’s purview, a third would be to give the ANAO a new regulatory role (akin to ASIC) in relation to Commonwealth commercial entities. Any of these three options would be an improvement on the status quo.

 

Finally, the Minister has broader responsibilities to keep the Australian community, and particularly the Indigenous community, informed regarding the actions and policies of the Government. Minister Wyatt should step up and deliver a public statement in Parliament laying out in detail the issues he is dealing with at the ILSC, the remedial action he has taken or intends to take, and his strategy for moving forward.

 

It is patently untenable for the Minister for Indigenous Australians to say he is leaving it to the ILSC to deal with its governance arrangements in the face of a serious governance crisis that the Government has been complicit in creating through its previous Board appointments and ‘hands off’ regulatory oversight.

 

The Thom Review would not have recommended a process to ensure that Board appointments are drawn from ‘the best possible field of appointments’ if Ms Thom had reached the conclusion that the current and former ILSC Board membership met this standard.

 

To put it more pithily, as the Thom Review stated five months ago:  Unless urgent action is taken this will also place at risk the proper and efficient performance of the ILSC as well as potentially its longer term viability. Given the considered advice from an independent reviewer, what action does the Government propose? Or is the Government determined to sweep the dust behind the door?...

 

 

 

Disclosure: Given the topic of this post, I should disclose that I served as CEO of the Indigenous Land Corporation (ILC) from 2013 to 2015, and while working in the Prime Minister’s Department was involved in developing the legislation for the ILC in the mid-1990s.

 

 

 

 

An Indigenous Voice: two “make or break” underlying issues.

 

 

The 2017 Uluru Statement recommended a Voice to Parliament. This recommendation was endorsed by the Referendum Council established by Parliament in 2015, and subsequently further considered by the Parliament’s Joint Select Committee on Constitutional Recognition relating to Aboriginal and Torres Strait Islander Peoples (JSC). In November 2018, the JSC recommended a codesign process be initiated to design a Voice. Almost a year later on 30 October 2019, the Government established a ‘codesign process’ to develop an Indigenous Voice (link here). In his remarks to the first meeting of the Senior Advisory Group he appointed, the Minister for Indigenous Australians Ken Wyatt made clear that constitutional recognition was, in his words, ‘off the table’, and that the proposed Voice would be ‘to Government’ (link here).

 

On 9 January 2021, the Minister released the report (dated October 2020) of its three advisory groups, the senior group chaired by Marcia Langton and Tom Calma (link here). The Interim Report is available on the voice website (link here). At over 240 pages, there is a lot of detail to wade through. Yet the overarching proposal is straightforward, and the report, particularly the section on the National Voice, is clear and well written. The report proposes a series of options for the National Voice that will be narrowed down, via a proposed four-month national consultation process, to a final report, which will then be submitted to Government for consideration. The architecture of the Voice, including the options to be decided, is helpfully laid out in the diagrams on pages 16 and 17 of the report. It is not my intention to seek to summarise the interim Reports key proposals; instead, I will assume readers have at least read the Executive Summary and the diagrams on pp 16-17.

 

In the two weeks since its release, there have been numerous news and opinion articles from a range of perspectives. Again, these have invariably been thoughtful and useful contributions, largely concentrating on the discrepancies between the proposal in the Uluru Statement and the Interim Report. Journalists Sean Kelly (link here) and Deborah Snow (link here) both wrote insightful pieces in the SMH providing an overview of the issues, and exploring the Government’s broad approach to handling the Voice. Mark Liebler (link here), Megan Davis (link here and here), Gabrielle Appleby (link here), James Blackwell (link here), and Dani Larkin (link here) all argued in favour of constitutional entrenchment of the Voice, albeit with different nuances regarding timing, and the most appropriate sequencing of the various steps. Paige Taylor in The Australian (link here) reported on a formal submission from 43 lawyers supporting the Uluru Statement’s proposal for constitutional entrenchment. Taylor (link here) also reported Liberal MP and ‘voice supporter’ Julian Leeser’s statement (link here) urging fellow voice supporters to shift their efforts away from talk about the Constitution, noting that ‘the key issue is not words in the Constitution but whether it will genuinely give voice to Indigenous people across Australia on the issues that affect them most’. Marcia Langton, in an interview on Late Night Live (link here), argued that ‘constitutional enshrinement’ was desirable, but was outside the terms of or reference for the exercise she was engaged in. This selection of views is only a subset of the analysis in the public domain, and there is clearly much more to come.

 

In this post, I focus on a two core underlying issues that will shape both the debate and the substantive impact of whatever emerges into the medium and longer term.

 

The two issues that I want to consider are:

1.     The ‘engine design’ of the Voice.

2.     The focus of the Voice: to parliament or to government?

 

While constitutional recognition of First Nations and constitutional reform is extremely important and overdue, the merits of constitutional entrenchment of a Voice is best characterised as ‘necessary but not sufficient’ as a mechanism for addressing Indigenous exclusion and dispossession. The sufficiency of any reform is a function, at least in part, of the answers policymakers give to the design issues involved in the Voice. Along with my co-author Neil Westbury, I have previously argued that constitutional recognition of the Voice is a step forward, but is not sufficient on its own to address Indigenous exclusion: see pages 65-77 in our Policy Paper Overcoming Indigenous Exclusion (link here).

 

The ‘engine design’ of the Voice

 

The proposed Voice is a vehicle for the advancement of First Nations political and policy aspirations. When one buys a car, one of the essential elements to consider is what is under the bonnet. Yet in the tens of thousands of the words written about the Voice proposal, very little focusses on the internal mechanics.

 

Very few Australians understand the complexity of government and its processes. A Voice, to be effective, needs to have access to timely and high quality policy analysis across the breadth of government activities, at federal, state and local levels. The obverse of this coin is that the members of a Voice will also need to understand what is happening in the private sector, and have a technical capability to assess the likely impact of both public sector policies and private sector activities on its Indigenous constituency. To influence outcomes, and importantly, to set the policy agenda, Indigenous interests and thus an effective Voice will need an ongoing policy analysis capability that supports the Voice to monitor the workings of the public policy machine across the breadth of government activities. Unfortunately, the Interim Report appears to reject an approach that would see such a support structure established (see pages 57 and 156).

 

In turn, such a capability will require resources, and these will need to be both adequate and guaranteed outside the normal budget process. Without such a guarantee, the Voice will be susceptible to budgetary pressure and perhaps manipulation by governments. The Interim Report recognises this issue (see pages 155—156), but gives it little profile. My suggestion is that the legislation establishing the Voice formally appropriates ongoing core funding necessary for the Voices operations, including the policy analysis function outlined above (ie taking funding decisions out of the annual budget cycle). Alternatively, the Government could establish a perpetual trust fund, —much like the $2bn Aboriginal and Torres Strait Islander Land and Sea Account (link here) — whose annual income would fund the operations of the Voice.

 

So one “make or break” issue for First Nations interests (and indeed for the wider community if it wishes to establish a new relationship with First Nations) is not so much whether Governments are prepared to establish a Voice, but whether the Voice that is established has the horsepower and torque under the bonnet to make a difference in rough policy terrain. Will it be a FIAT 500 or a turbocharged FWD Utility?

 

The focus of the Voice: to Parliament or to government?

 

The Uluru Statement proposed a Voice to Parliament. This proposal was further considered by a Parliamentary Joint Select Committee (JSC) chaired by MPs Julian Leeser and Patrick Dodson. The JSC’s Final Report in November 2018 (link here) noted that stakeholders held a range of views regarding the remit of a potential Voice (see paras 2.93—2.106), but failed to draw any definitive conclusion on the matter.

 

As noted above, when establishing the Government’s Voice Codesign process, Minister Wyatt described the Voice as ‘a voice to government’. There was no mention of this issue in the Terms of Reference for the three codesign groups, apart from clause 7 of the Terms of Reference for the National Codesign Group, which states: ‘Proposed options must not create barriers to the operation of existing Commonwealth Government Parliamentary processes’. The Interim Report takes the view, that the Voice should advise both the Parliament and the Australian Government (see pages 50—54), or to use alternative terminology, advise both the legislative and the executive arms of government. Their rationale boils down to an argument that engagement with the Executive is necessary to ensure early engagement in the policy process. Yet there is no reason why the Executive could not engage at an early point with a Voice to Parliament through mechanisms such as the tabling of Green or White Papers on key policy issues , that in turn foreshadow legislation. Furthermore, at its core the Executive owes its political power to its own electoral constituency, whereas the Parliament is much more representative. Any mechanism that is designed to engage with the Executive branch runs the risk of disenfranchising elected parliamentarians, particularly independents and minor parties. This in turn could become a reason not to provide for such a mechanism in the Constitution.

 

There are in my view serious arguments against providing a remit for the Voice that extends beyond advice to Parliament.  But first, some context regarding the separation of powers is important.

 

While the apex of the executive arm of government is drawn from the Parliament, and is theoretically accountable to Parliament (and through Parliament to the people), the operation of the party system has meant that in practice, the Executive arm has come to dominate and largely control the Parliament. This has weakened the separation of powers, and arguably weakened standards of governance and accountability generally. The rise of minor parties and independents now threatens the unquestioned dominance of the larger parties and their hold over Parliament and its processes. There is no guarantee into the indefinite future that the Executive branch will continue to dominate the Parliament. Yet this is the implicit assumption that underlies Minister Wyatt’s approach to the Voice.

 

There are at least five arguments in favour of limiting the remit of any Voice to providing advice to the Parliament.

 

First, the Uluru proposal’s focus on Parliament represented an important and welcome shift insofar as it focussed on the Parliament, the formal repository of sovereignty and lawmaking in the nation. It was simultaneously highly symbolic and practical. If implemented, it provides tangible demonstration that the nation accepts the voices of First Nations as legitimate and worth hearing, without undermining the capacity of the Parliament to operate as it has since Federation. Or as George Williams described it in a recent op ed, it is a further step in ‘nation building’ (link here). The alternative approach, where the Voice focusses on ‘government’ (either the Executive arm and the Parliament; or potentially just the Executive arm), undermines that symbolic and practical demonstration. The opacity of governments on which of these two alternatives they intend when they use the term ‘government’ must surely be deliberate.

 

Second, as the interim Report itself documents (see pages 119—128), we have had fifty years of national Indigenous representative bodies focussed primarily on advising the Executive arm of Government. Governments have in turn constrained their operations, limited their resources, cherry picked their advice, and abolished them when managerial oversight became too costly. A Voice that is the creature of the Executive, tasked with advising the Executive, will not long survive. Even if the Voice is constitutionally entrenched, its composition, design, shape and ultimately its capability to influence policy outcomes will still be subject to change via legislative amendment. This suggests strongly that Indigenous interests would be unwise to rely solely on the Voice as the vehicle for advocating their aspirations to governments.

 

Third, the implicit assumption in proposing a Voice to the Executive branch is that the decisions within the Executive are open to rational persuasion. This is far-fetched. It ignores the ubiquity of political agendas in shaping and determining government decision-making, the fact that lobbying, influence peddling and rent seeking is rampant (link here), and that political donations buy policy outcomes even in the face of evidence of community harm (I will say just three words: gambling, smoking, alcohol). More insidiously, the reality is that the pressure on the members of any Voice to the Executive will be to go soft on some issues in the interests of being heard on others. Governments are expert in making the gift of mere access appear to be substantive influence, and ensuring that those with alternative views do not get through the door. While these same pressures will apply in relation to a Voice to Parliament, the formality of open and transparent advice and the focus on particular legislative proposals will limit the potential for co-option of both individual members and the Voice, and reduce the likelihood of governments encouraging ‘vote trading’ and ‘logrolling’ by the Voice.

 

Fourth, the case for the establishment of a Voice directed to the Executive ignores broader developments in the Indigenous policy terrain. In particular, the National Partnership on Closing the Gap (link here) includes commitments from all Australian governments to four priority reforms, most importantly in this context, to shared decision making. See clauses 25—41. In the words of clause 17,

the outcomes of this agreement are (a) shared decision-making: Aboriginal and Torres Strait Islander people are empowered to share decision making authority with government to accelerate policy and place based progress on Closing the Gap through formal partnership arrangements.

The risk is that governments will use a Voice to the Executive as a mechanism to undermine or confuse Indigenous perspectives when faced with difficult negotiations with community based organisations in accordance with the National Partnership processes. There is a very real risk that an advisory Voice to the Executive arm of government (see page 154 of the Interim Report) will undermine the progress achieved by Indigenous interests through the National Partnership in moving towards shared decision-making.

 

Fifth and finally, a Voice to Parliament ought not to be seen as the sole mechanism for First Nations advocacy. The public policy terrain is too complex for any single organisation or body to master or monopolise. Instead, the Voice to Parliament ought to be seen by First Nations interests as just one of multiple pressure points for public policy advocacy and influence. A constitutionally entrenched Voice to Parliament would pick and choose its issues, take the high ground, and make each foray into policy advocacy count. It will need to be supplemented by a phalanx of Indigenous organisations, peak bodies, and citizens. The essential and important task of advocating, pressuring, and influencing the Executive arm of Government ought to be undertaken by First Nations interests that are at arm’s length from Government, that are not subject to intense informal pressures that apply to budget dependent organisations, and that are organically organised independent of governments. This is a task that has been begun by the Coalition of Peaks, but is as yet far from complete. A decision to establish a Voice that advises the Executive arm of Government would potentially undo the progress made to date, and delay the day when First Nations can stand up and sustain powerful and independent Indigenous controlled advocacy bodies akin to the Business Council or the Minerals Council of Australia.

 

In sum, counter-intuitively, the proposed Voice is likely to be most effective in representing First Nations wider interests if its remit is limited to advising the Parliament. First Nations already have a substantial organisational infrastructure that can be directed to influencing the Executive arm of Government, and they should aim to further build the capacity and capability of that organisational infrastructure. A Voice to Parliament fills an existing gap, and provides both a highly symbolic and practical means of advancing First Nations interests and aspirations. Extending the remit of a Voice to the Executive risks diverting attention from the important role of Parliament in oversighting Indigenous policy outcomes and holding the Executive arm of government to account. It also risks undermining the legitimacy of the pre-existing Indigenous organisations and peaks, and by implicitly replacing an organic phalanx of interests with a single point of focus, raises the risks of co-option of Indigenous aspirations by governments.

 

Conclusion

 

The release of the Interim Report, and the public reaction so far, confirms that the proposal for an Indigenous Voice appears to have a critical mass of support in the Australian community. While the Interim Report has been assiduous in avoiding a recommendation on constitutional entrenchment, that has been the key inflexion issue discussed in most media commentary since the release of the report. My own assessment is that the current Government is pursuing a strategy of legislating a Voice, probably after the next election, and will not pursue constitutional entrenchment of the Voice in the foreseeable future.

 

This post has focussed on a number of “make or break” issues which will arise if and when a Voice is legislated. The issues identified are “make or break”, because they will go a long way to determining the capability of any Voice to build and sustain legitimacy and credibility, and importantly to influence policy, which in turn will determine whether the power imbalances that are embedded structurally within our politics and policy processes will be able to be gradually removed.

 

In other words, the Voice for all its symbolic importance is not the destination. The Voice is the vehicle that First Nations have chosen to reach the destination to which they aspire. That vehicle will have to traverse a long hard road if it is to reach its potential. If the Voice is to be part of the solution to the ongoing exclusion and disadvantage of Indigenous citizens and communities, then we should support developing a Voice that has the capability and resources to influence policy; and that is at arm’s length from the Executive branch of government. The best way to achieve that is to limit its remit to advising the Parliament. Simultaneously, First Nations should redouble their efforts to build an independent self-funded organic organisational and institutional capacity beyond the purview of governments to advocate, lobby and push the Executive branch of government to develop policies that meet their aspirations. The single most important lesson of the last fifty years in Indigenous politics and policy is that what governments grant they can, and will, take away.

 

Postscript: As I finalised this post, I came across Tim Rowse’s insightful and astute analysis in Inside Story ‘Is the Voice already being muted?’, which has multiple resonances with the points I have made here, while also reflecting some differences in approach and emphasis. I recommend interested readers read Tim’s analysis (link here).

 

Governance disorder within the ILSC

 

Shame and confusion! All is on the rout:

Fear frames disorder, and disorder wounds

Where it should guard.

2 Henry VI, Act 5, scene 2.

 

The Indigenous Land and Sea Corporation (ILSC) recently published on its FOI disclosure log an extensive cache of documents related to the communications between the ILSC Board and its Directors and the Minister over the past two years (link here); [see FOI cache #19]. Running to 121 documents and 460 pages, not always chronologically ordered, they are not a particularly accessible resource.

 

The documents portray a fascinating internal battle within the Board over the future direction of the ILSC, and its subsidiary corporations. A superficial and selective reading would concentrate solely on the admittedly mesmerising cut and thrust between strong personalities and their efforts to induce the minister to intervene in their favour. While the personal political aspirations and motivations of the individuals involved are inevitably key drivers of the events portrayed, such a reading would gloss over the important underlying policy issues at stake for the ILSC, and also Indigenous Business Australia (IBA).

 

The ILSC and IBA are arguably the two largest and most important statutory corporations in the Indigenous Australians portfolio. Each has formal independence from ministerial direction, have significant budgetary independence, and are endowed with powers to operate commercial businesses. These statutory attributes mean that it is extremely important that both organisations are subject to proactive regulation by the Minister and the Department of Finance (they are PGPA Act organisations), and that their activities are transparent and accountable vis a vis First Nations communities.

 

While the ILSC and IBA are complementary in many respects, they have fundamentally different histories and underlying mandates. In particular, IBA was established to support and engage strategically on behalf of First Nations communities in commercial and economic business activities, whereas the ILSC was established in the wake of the passage of the Native Title Act 1993 to provide some measure of compensation for the prior dispossession of First Nations peoples. See my chapter ‘Unmet Potential’ in the recent monograph edited by Rademaker and Rowse (2020) Indigenous Self-determination in Australia (link here) for a more detailed history of these two organisations.

 

Turning to the document cache released recently, at least five separate but related issue threads can be discerned.

 

The first thread relates generally to the issue of the quantum of debt carried by the ILSC primarily due the purchase of the Ayers Rock Resort (ARR) and more particularly to the NAIF loan for the upgrade of the Yulara airport servicing Voyages Ayers Rock Resort (ARR). Voyages is a wholly owned subsidiary of the ILSC, and has a problematic history since its acquisition in 2010 of ARR at an inflated valuation (link here and link here). I have posted a separate analysis of the NAIF issue thread in this related post (link here). The issue of the ILSC’s ongoing debt management challenges, particularly following the onset of the pandemic, is beyond the scope of this post.

 

Second is the internal ILSC argument over whether ILSC Directors should sit on subsidiary Boards. For well over ten years, this has been the practice within the ILSC, the main objective being to assure alignment between the ILSC and its various subsidiaries. The current Chair sought to change this practice in May 2020 when seeking Board support for a set of principles embedded within a wide-ranging proposal for a structural transformation of ILSC operations (FOI document 78). The underlying rationale for this proposal is not entirely clear, but it would seem to be both a means of strengthening the Chair’s personal control over the operations of the ILSC current subsidiaries, and into the future, reducing the level of operational control by the Board over a key element of the Chair’s transformation proposal.

 

A third issue thread (intertwined with thread two) has been the unilateral approach adopted by the Chair on various key policy issues, most notably his proposed transformation of the ILSC structure, and the reaction engendered within the Board. This culminated in the meeting of 7 May 2020, variously described by one Director as ‘really robust’, ‘heated’ and ‘quite fiery’, and by others as involving ‘constant berating’, ‘excessive berating and bullying’, ‘aggressive badgering’ and so on (Thom review, p.24, FOI document 99). The complainants argued that the meeting involved inappropriate pressure on Board members by the Chair, where a set of policy principles proposed by the Chair at short notice (including the subsidiary issue described above) were considered. The Board split 4/3 to vote down the Chair’s proposals, and passed a resolution of no confidence in him, before exiting the meeting and removing the quorum. It is worth noting the background and experience of the disenchanted Directors (for want of a better term). Roy Ah See is a former chair of the Prime Minister’s Indigenous Advisory Council. Patricia Crossin is a former longstanding NT Senator. Dr Donna Odegaard is Co-Chair of the Minister Wyatt’s National Codesign Group considering an Indigenous voice (link here) and a member of the Indigenous Reference Group on Northern Development (link here). Bruce Martin is a former member of the Prime Minister’s Advisory Council and a member of the expert panel for Minister Ley’s Environment Review (link here). The obvious point is that all of these Directors are experienced and highly regarded individuals within government circles.

 

There followed a spate of letters to the Minister from the Chair (FOI documents 56, 57A, 57B,58, 59, 63, 64)and the disenchanted Directors (FOI documents 111,114, 117). The disenchanted Directors sought to have the Minister take action to curb the Chair’s unilateralist propensities and implicitly made the case to have him removed for misbehaviour (one of the grounds for removing a Director under the ILSC legislation). The Chair sought to have the Minister replace two Directors immediately and a third later, in the process making a series of allegations regarding their conduct as DIrectors (FOI documents 57A, 57B, 58, 69 and 71). The Minister responded cautiously, initially by requesting the Chair to temporarily stand aside to allow his Deputy to chair a meeting to progress necessary business, including related to the ILSC’s internal budget. That meeting took place, a second resolution of no confidence in the Chair was passed, and the disenchanted Directors again removed the quorum. The following day, the Deputy Chair resigned, apparently keen to distance himself from what had come to pass. His letter of resignation (FOI document 104) is significant for its understatement (‘…considering the recent events at the ILSC and my having served on Boards dealing with Indigenous matters from over 25 years’). As well, he reveals that there had been no contact from the Minister or his agency in relation to the expiry of his original term, a matter that should be seen at best as bad form, and given the circumstances, perhaps incompetence. ILSC Directors’ terms are ongoing until a replacement is appointed.

 

Following this second motion of no confidence, on 9 July 2020 Minister Wyatt appointed an independent investigator, Dr Vivienne Thom, to review the situation. Dr Thom’s report (FOI document 99) was completed on 25 August 2020, and provided to ILSC Directors on 12 October 2020. The Minister sought responses by 4 November.

 

Dr Thom’s report goes a long way to disentangling the issues, but she does not make findings that would require a minister to take action. Nevertheless, it is clear from a close reading of the report that she was not persuaded that the Chair’s policy approach was the best course for the ILSC. She made ten recommendations, including a recommendation that the Board should clarify and document the role and powers of the ILSC Chairperson in relation to governance of ILSC subsidiaries (rec.3). In relation to the Minister, her sole recommendation was:

The Minister could consider using processes including public advertising or the use of executive search processes independently of the ILSC Board to help ensure appointments are drawn form the best possible field of candidates (recommendation 8).

 

The key point here is the focus on the quality of Board appointments, including their capacity for collaborative contributions. There is a very faint implication that the Minister responsible for the composition of the current Board (Minister Scullion) did not ensure his appointments were drawn from the best possible field of candidates. While unstated, it is widely recognised in corporate governance circles that a core responsibility of the Chairperson is to ensure that the Board develops a collaborative culture. This is clearly not the case at the ILSC at present.

 

The fourth issue thread has been the intense and heated battle within the Board over the role and effective allegiance of the CEO, That is, does he /she report to the Board or the Chair? This issue arose during the ILSC’s slow, convoluted and fraught process to fill the position substantively after the previous CEO resigned 14 months ago. This led to a (contested) Board decision to remove one acting CEO, Mr Bator, at the 7 May Board meeting, apparently because he was seen as working to the Chair’s directions and not necessarily in accordance with the Board’s decisions. Mr Bator had headed the ILSC Strategic Reform Unit that developed the Chair’s proposed transformation agenda, and returned there after being stood down as CEO. As time wore on, the documents indicate that the Minister became increasingly exercised at the failure to appoint a substantive CEO. The position has recently been filled when the Board recommended, and the Minister endorsed, the appointment of Mr Joe Morrison (link here). If the conflict within the Board is not resolved soon, Mr Morrison may find himself in an increasingly untenable position.

 

Finally, a fifth less obvious but crucial thread runs through the released FOI documents, namely, the extent to which relevant ministers have exercised their regulatory oversight responsibilities (broadly defined) in relation to a key portfolio agency. Thus, for example, Minister Scullion’s Board appointments appear to have been designed to ensure the Board’s acquiescence in his political agenda (see the NAIF post link here). Even the appointment of Ms Patricia Crossin, a former Labor Senator from the NT who lost her preselection in acrimonious circumstances appears designed to simultaneously demonstrate an apparent apolitical or bipartisan appointments process, while giving a metaphorical ‘up yours’ to the Labor Party, and particularly the NT Labor Party, remembering Minister Scullion was an NT Senator.

 

Similarly, it is unclear what action (if any) Minister Wyatt has taken since receiving the Thom report and the requested comments in response from Directors. The levels of distrust and antipathy amongst ILSC Directors were clearly very high, described by one Director as ‘untenable’, and this will inevitably affect adversely the overall performance of the corporation in fulfilling its core mandate. As Dr Thom notes (p.5):

The future of the ILSC will to a large extent depend upon the quality and performance of its Board.

 

Notwithstanding the risk, there is no indication of any ministerial action to date.

 

Moreover, notwithstanding recommendation 8 in the Thom report, it seems unlikely that Minister Wyatt (or Cabinet more generally since all these decisions go to Cabinet) will truly open up Board appointments in the Indigenous affairs portfolio. The former ILC Board chaired by Dawn Casey proposed amendments to the legislation providing for an independent and multi-partisan Board appointments panel to be established from which ministers would choose ILSC Board Directors. The proposal sank without trace.

 

Analysis and implications

 

The ILSC is clearly facing a complex array of governance challenges. The Thom Review adverts obliquely to many of the most important issues, but adroitly sidesteps making findings that would require or even encourage the Minister to act. Thus she focuses on the conduct of the Chairperson in one meeting on 7 May, and in particular whether his actions amounted to bullying, clears him of misbehaviour warranting dismissal, but notes that

…it would be open to a decision-maker to conclude, on the balance of probabilities, that Mr Fry’s conduct has breached the ILSC’s Code of Conduct. It is not, however, within the power of this review to make such a finding. That is a decision for the ILSC Board.

 

This is well and good. But the real issue to my mind is whether Mr Fry has fulfilled the role of Chairperson of a major statutory corporation to an adequate standard. By apparently sidelining the Board, and adopting a unilateral approach to managing the corporation and its subsidiaries, and by unilaterally driving the development of an ambitious and arguably radical transformation agenda for the ILSC, he has lost the support of his Board. The concern that he relies on selected loyalists (subsidiary Board appointees and ILSC staff) to advance his management agenda, if true, is inconsistent with widely accepted corporate governance principles. The deep levels of concern amongst not one, but four experienced Directors, suggest something has been seriously amiss. The Thom report considers multiple issues where the reviewer effectively questions the decisions taken by the Chair, and implicitly sides with the disenchanted Directors, but she does not make formal findings nor recommendations regarding these specific issues. In effect, she has provided a report that might be used to justify a non-interventionist approach by the Minister, or could be packaged up to justify action to encourage the Chair to move on, or in a last resort, to support, albeit indirectly, a case of misbehaviour warranting dismissal against him.

 

My assessment (for what it is worth) is that the Minister’s preference is to avoid intervening overtly, and to hope that the ILSC Board will settle down and not erupt into further open conflict before he has a chance to appoint a new Chairperson in November 2021 when Mr Fry’s term expires. While such a strategy may well be the most politically attractive, it will not ensure in the interim that the ILSC is fulfilling its statutory mandate in the interests of First Nations.

 

The Minister’s substantive options are limited. He could replace the two directors whose terms have expired and fill the vacancy created by the Deputy Chair’s resignation. This would implicitly back Mr Fry’s approach. Under the ILSC legislation, Directors remain in place until replaced. Unless any new Directors were entirely supine, their appointment would place them in an extremely invidious position.

 

Alternatively, he could encourage Mr Fry to step down, or seek to remove him for misbehaviour.

 

Of course, there may be scope for some more informal compromises to be worked out, but the Minister surely owes the wider community an explanation of how he is addressing the issues that have arisen.

 

At a deeper level, it is apparent that the strategy adopted by former Minister Scullion of effectively seeking to amalgamate the IBA and the ILSC via the use of numerous shared Directors was misconceived. It ignored the fundamental differences between the two corporations’ statutory mandates, and viewed their operations through a prism privileging private sector perspectives and commercial development at all costs. This strategy has failed. It also raises significant questions regarding the internal workings of the IBA, an organisation that Mr Fry also chairs and appears to dominate in ways he has failed to achieve in the ILSC.

 

The available evidence suggests that central to the relationship between the current Government and the ILSC (and IBA) is an implicit understanding that the Government would apply light touch regulatory oversight, turning a blind eye to poor governance (see for example this post), and providing corporate welfare when required (for example, the $65m bailout loan from the Commonwealth in 2016). In return, the ILSC adopts an acquiescent attitude in relation to the Government’s Indigenous affairs policies, for example as outlined in the NAIF post (link here), and provides an underlying flow of initiatives creating an appearance of government action. One example is the joint MOU between NAIF and the ILSC and IBA (link here).

 

In turn, it seems that the light levels of regulatory and policy oversight have allowed idiosyncratic policies to be pursued without any (let alone adequate) discussion with the wider Indigenous community. I have in mind here the Chair’s ambitious transformation agenda discussed above.

 

It is time that Ministers and the ILSC committed to a more open approach to managing the ILSC’s activities and to explaining the key financial and policy parameters and strategic choices that underpin the ILSC’s operations to First Nations citizens and the wider community.  

 

The ILSC is a valuable organisation, with the potential to make a larger contribution than it has. However, by placing politics ahead of policy, particularly in its Board appointments, the Government has placed all this at risk. By allowing disorder to continue within the ILSC Board, and failing to address the issues openly, Minister Wyatt is exacerbating that risk.

 

 

Disclosure: Given the topic of this post, I should disclose that I served as CEO of the Indigenous Land Corporation (ILC) from 2013 to 2015, and while working in the Prime Minister’s Department was involved in developing the legislation for the ILC in the mid-1990s.

 

 

Whose north, whose future?: the NAIF and the ILSC

 

Your dishonour

Mangles true judgment, and bereaves the state

Of that integrity which should become it

Coriolanus Act 3, scene 1.

 

In May 2018, the North Australia Infrastructure Facility (NAIF) approved loan finance of $27.5m to Voyages, a wholly owned subsidiary of the Indigenous Land and Sea Corporation (ILSC), for the upgrade of the Connellan airport at Yulara servicing the Ayers Rock Resort operated by Voyages.

 

The NAIF website outlines the details of NAIF financing on its website (link here) and provides a case study fact sheet (link here).

 

According to documents recently released under FOI by the ILSC (link here), [FOI cache #19], Minister Scullion wrote to the ILSC on 26 September 2018 proposing a series of preconditions to Commonwealth approval of the NAIF loan. In essence, these required a dollar for dollar repayment of a pre-existing Commonwealth loan to the ILSC made in 2016 totalling $65m. This loan allowed the ILSC to repay outstanding vendor finance associated with the purchase of the Ayers Rock Resort in 2010/11. The Minister’s 26 September letter apparently did not fall within the scope of the FOI request and thus has not been published. The ILSC Chair’s response dated 23 October 2018 has been released, along with Minister Scullion’s acknowledgment dated 13 November 2018. In that latter correspondence, he begins by stating: ‘Thankyou for your letter of 23 October accepting the Commonwealth’s conditions of consent associated with Voyages application for a Northern Australia Infrastructure Facility loan’ (FOI documents 1 and 2).

 

Ministers Canavan and Scullion’s joint media release announcing the NAIF loan dated 13 December  (link here) failed to mention the conditionality imposed by Minister Scullion.

 

Neither document on the NAIF website mentions the conditions imposed on behalf of the Commonwealth by Minister Scullion. These conditions effectively offset the NAIF loan finance in its entirety and thus negate all the benefits listed as flowing from the NAIF loan.

 

 

In a previous blog post on Indigenous participation in the NAIF (link here) , I noted that the NAIF loan to Voyages breached the Ministerially approved Investment Mandate governing the operations of the NAIF facility in a number of ways. The post is worth reading in full, not least for the reminder of the ANAO criticism levelled at the NAIF Board regarding its general standards of administration. In relation to the most significant breach, I noted:

In other words, notwithstanding the change that allowed NAIF to finance 100 percent of a project, the financial arrangements still required NAIF to assure itself that the Commonwealth was not the majority risk bearer. Sub-paragraph (d) prevents NAIF lending to a project where ‘the Commonwealth overall’ carries the majority of financial risk in a project….

[Snip]

…In the case of the Voyagers proposal, it appears that both NAIF and the Minister have ignored the requirements of subsection 12(1)(d). The reason this is the case is that Voyages Indigenous Tourism Australia is a wholly owned subsidiary of the Indigenous Land and Sea Corporation, which itself is a Commonwealth statutory corporation established by legislation.

 

What is now apparent following the release of the correspondence referred to above is that the entire NAIF loan to Voyages was a sham insofar as it was granted on the condition that the ILSC pay down at least $27.5m of the pre-existing Commonwealth loan. In fact, a prepayment of $23.5m was made in January 2019, and repayments of $1.95m were made quarterly thereafter (refer to p.66 of the ILSC Annual Report 2019-2020).  On 20 December 2019, the ILSC Chair wrote to Minister Wyatt (FOI document 41) advising him that the ILSC was in a position to repay the outstanding balance of the Commonwealth loan in January ‘due to the improved performance of the Ayers Rock Resort’.

 

While my September 2018 post concluded that the NAIF loan effectively amounted to the Commonwealth funding itself, the revelation of the Ministerial precondition makes it crystal clear that the NAIF loan was not required to upgrade the airport, but was used to replace specific pre-existing loan finance to  Voyages from the Commonwealth.

 

The loan approval by the NAIF Board was a breach of the NAIF Act and in particular its Investment Mandate. However, the decision by Minister Scullion to impose a condition on the approval of the loan appears to have no statutory basis, and represents a much more egregious shortcoming. The former might be argued to be a technical breach by the NAIF Board, the latter (in the absence of any justification) is clearly a case of a minister acting beyond his powers.

 

While the Minister for Industry has a power under the NAIF Act (section 11) to withhold approval of a NAIF Board decision, the circumstances under which he may do so are limited. Section 11 (4) stipulates a ‘rejection period’ of 21 days from the date of a loan approval and section 11(5) states:

However, the Minister may give the rejection notice only if the Minister is satisfied that providing the financial assistance would: (a)  be inconsistent with the objectives and policies of the Commonwealth Government; or (b)  have adverse implications for Australia’s national or domestic security; or (c)  have an adverse impact on Australia’s international reputation or foreign relations.

 

Minister Scullion was not the relevant Minister, the rejection period had long passed, and the conditions in subsection 5 on their face do not appear to have been met. For the Minister to impose conditions was in effect to threaten to arrange for the NAIF Board approval to be with-held or rejected.

 

Apart from the apparent misuse of ministerial power involved, the preparedness of the Department of Prime Minister and Cabinet and later the NIAA to facilitate these arrangements is a serious concern, as is the failure of the ILSC to act independently of the Minister’s irregular request.

 

The effect of all this was to effect a blatant sleight of hand by former Minister Scullion and perhaps others within the Executive branch. The result was that the public at large, and in the process the Parliament, were misled. The NAIF loan was not required to upgrade the airport and create jobs, including Indigenous jobs, but instead was a means to bring to finality an outstanding Commonwealth loan. That loan was from the start highly unusual and designed to insulate the ILSC from the adverse financial consequences of the decision taken in 2010 to purchase the Ayers Rock Resort at an inflated price. The failure of the ILSC to reveal the explicit conditions imposed by Minister Scullion in its 2019 and 2020 Annual Reports appears to confirm its implicit complicity in the Government’s irregular and probably illegal political agenda, and reflects poorly on its substantive independence notwithstanding the formal independence granted by its constituting legislation.  

 

One of the policy implications of this revelation is to highlight a lack of effective due diligence by the NAIF. Another is to highlight the appalling shortfall in funding for Indigenous projects in the NAIF’s operations. NAIF was the core financial element in the Government’s White Paper on Northern Development, Our North, Our Future (link here). To date, NAIF has provided funding of a mere $12.5m for only one other project involving Indigenous proponents (link here) out of an allocation of $5bn. This equates to 0.24% of the available allocation, and certainly suggests a less inclusive meaning to the words ‘our north, our future’. I aim to give these issues closer consideration in the near future following the recent release of a statutory review into the NAIF by Minister Pitt (link here).