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.
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