Considering governance structures

Matters to consider when creating or reviewing a body

Flowchart 2 for considering the appropriate governance structure; page text describes the image

If an activity requires the creation of a new body or a review of an existing body, an analysis of costs and benefits, risks and potential alternatives to the proposed governance structure will need to be undertaken, and brought forward to the Cabinet or the Prime Minister for approval.1 The level of analysis will be contingent on materiality and risk, and should be consistent with the Cost Benefit Analysis guidance external link issued by the Office of Best Practice Regulation .

If a body needs to be established quickly the Prime Minister may approve the creation of a new body – for example, when a public announcement needs to be made. However, a minister who proposes to establish an Australian Government body must receive the agreement of the Prime Minister in writing before any public announcement is made.

An appropriate review or sunset date2 should be agreed for any new Australian Government body.

Further considerations when establishing a new body for an activity include the following:

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Does the activity require enabling legislation?

Activities can be performed with or without enabling legislation, depending on what the intended outcome is and the risk factors involved in delivering that outcome. For example, an activity may fall within the executive power of the Commonwealth (see section 61 of the Constitution).

Whether there is a need for enabling legislation will depend on the level of independence, accountability and transparency required as well as the level of involvement the government will want to have in the activity. Independence can be achieved by providing clear roles and responsibilities – as well as clear reporting requirements – in legislation.

A common misconception is that independence can only be achieved by creating a separate Commonwealth entity. This is not the case. Enabling legislation sets out the roles and responsibilities of an activity, function or body and cannot be altered without parliamentary amendment.

A statutory office holder can operate within a Commonwealth entity, and even be supported by staff of the entity, while exercising their statutory role independently as described in the enabling legislation. An example of a statutory body that does not operate as a separate entity is the Gene Technology Regulator, a statutory office holder in the Department of Health. One benefit of this approach may be that the activity can be carried out at a lower cost within the entity (which will already have support functions like a chief financial officer and a human resources section).

Reasons for establishing a statutory body include the need:

  • for Parliament to authorise a person or people to perform a statutory function (e.g. a single statutory office holder or a commission) with a level of independence from the responsible minister or the executive government
  • to establish a regulator or statutory decision-maker in order to legally enforce decisions made
  • to provide for a distinct ongoing status for the activity or function by describing it within legislation
  • to achieve higher levels of accountability and transparency by describing a body’s activities and powers in legislation.

Bodies created through legislation have defined purposes authorised by Parliament, which is an advantage in clearly delineating their roles and functions. One disadvantage of establishing a statutory body is that it may be difficult to change its purposes quickly, which may limit its ability to respond quickly to evolving circumstances.

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Will the activity involve exercising coercive or regulatory powers?

Consideration should be given to any potential need for coercive or regulatory powers. This should be a relatively simple question to answer since it relates to the intended purpose of the activity.

Regulatory powers are generally applied to activities that involve monitoring a specific field or industry, often combined with the ability to charge regulatory fees or impose penalties.

Enforcement powers3 can be applied in conjunction with regulatory powers, and are relevant to activities that entail investigating matters or compelling another party to provide information.

The nature and scope of both regulatory and coercive powers will be determined by the purpose of the body and the interactions it will have with stakeholders. For example, the Australian Securities and Investments Commission has extensive powers as the regulator of companies and other institutions. It uses its statutory powers in its investigative and enforcement activities, including regulation of companies owned by the Australian Government.

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Will the activity primarily be a non-commercial and core government function?

If the proposed body is to perform a core government activity or an activity related to the development of government policy, it may be appropriate to establish it as a non-corporate Commonwealth entity. This status may also be appropriate for a body that will be fully or primarily budget-funded.

Typically, a non-corporate entity will have a single-person accountable authority at its apex, and the default position is that the Public Service Act 1999 (PS Act) applies to its employees. Entities should consult with the Australian Public Service Commission to assess whether a non-PS Act regime is appropriate.

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Does the activity have a commercial focus?

If the proposed body is to conduct primarily commercial activities, it may be appropriate to establish it as either a Commonwealth company (under the Corporations Act 2001) or a corporate Commonwealth entity (under section 87 of the PGPA Act).

Section 87 of the PGPA Act allows the Finance Minister to specify the powers and functions of a corporate Commonwealth entity through a rule made under the PGPA Act. The intent of this power is to allow the government to respond quickly and effectively to changes in its operating environment. A company created under the Corporations Act is not subject to the same accountability and transparency requirements that a Commonwealth entity must meet. Companies are time-consuming to close down, in contrast with section 87 corporate entities, which are required to have a sunset date.

In limited circumstances, if an entity under section 87 of the PGPA Act is not suitable, a company incorporated under the Corporations Act may be created. This could be appropriate if the body is delivering a service that is not provided by the private sector or is expected to transition to non-government ownership in the short to medium term.

The creation of a Commonwealth company or a section 87 corporate Commonwealth entity requires the approval of the Finance Minister.

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Is a governing board necessary?

A governing board is usually established for a Commonwealth body when collective decision-making and diverse expertise (beyond what can be expected from one individual) are required to govern the body. Boards are usually given autonomy to determine an entity’s corporate strategy and direction (subject to statutory constraints) and therefore can operate with a managerial freedom. A governing board is most appropriate for a corporate Commonwealth entity or Commonwealth company whose activities are commercial in nature. Section 10 of the PGPA Act allows for a person or group of persons to be the accountable authority for a listed entity.4

A governing board may be less appropriate for a body that the government wants to exercise a level of operational or policy control over. In these situations a non-corporate Commonwealth entity may be appropriate.

Establishing and maintaining a board comes with a significant cost. The benefits of establishing a board for a small entity would therefore need to be justified in the cost–benefit analysis.

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1. Note that section 85 of the PGPA Act also requires the Finance Minister to create, or authorise the creation of, companies for and on behalf of the Commonwealth.

2. A sunset clause sets out a period of time during which legislation is current. At the end of the period, the legislation is considered repealed unless new legislation is passed to continue it. Review dates are a mechanism outside legislation set as a matter of policy and require the body’s governance structure to be reviewed against the governance policy.

3. Enforcement powers are often referred to as ‘coercive’ powers, in particular when they require cooperation with investigations or allow entry to premises and document storage facilities to retrieve evidence of non-compliance.

4. At the time of issuance of this document, there are no multi-person accountable authorities in listed entities. 

For further information, contact the Office of Best Practice Regulation (OBPR) external link.

Contact for information on this page: pmra@finance.gov.au.

Last updated: 03 January 2019