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.