CASA CEO, Bruce Byron speech - Sole Director - The CASA Experience
Sole Director - The CASA Experience
Speech to the Corporate Governance in the Public Sector conference
20 April 2004
To put CASA’s present governance structure in context, I should take a moment to say something of the Authority’s heritage, at least the relatively recent part. In 1988, the Aviation Division of the then Department of Transport and Communications was abolished and a new statutory authority, the Civil Aviation Authority, came into being. Established under the Civil Aviation Act 1988, the CAA was governed by a Board, the majority of the members of which were drawn from industry and commerce. It was quite a change in Governance arrangements, although it followed in the footsteps of the Federal Airports Corporation, which was similarly structured, and which as we know continued along a commercial path leading ultimately to the sale to private enterprise of the bulk of its airport assets.
The CAA had responsibility for a range of functions, some providing aviation industry services such as rescue and fire fighting and air traffic control, as well as having the full suite of aviation regulatory and enforcement responsibilities.
Over time a conflict, or at least a potential for conflict, between these two arms was perceived. The first major governance change to reflect that was the establishment in 1993 of a Directorate of Aviation Safety within CAA. This put some distance between the two broad functions, but both were still within the same tent.
However, in 1995 the government decided to split the CAA into two distinct organisations, with Airservices Australia becoming the industry service provider and regulatory authority for airspace, and the Civil Aviation Safety Authority providing safety regulation and enforcement for the bulk of aviation activity.
Each organisation had a separate Board. The earlier procedure of appointing Board members from outside government continued, often including people experienced in the aviation industry. In the interests of transparency and disclosure, particularly given the theme of this gathering, I should disclose at this point, that for two years I was one such CASA Board member. Either by design or by happy coincidence another past CASA Board, Meg Cornelius, will be speaking to you a little later.
In June 2001, the Government appointed Ted Anson as Chairman and among other things gave him the task of reviewing CASA’s governance structure.
The ultimate outcome of that review, after appropriate legislative changes, is the structure we see today.
Well, nothing special in all that, you may say, these sort of restructurings happen in Canberra on almost regular cycles it seems. Perhaps, but there were some interesting aspects with the last change, and the reason I am here today is to tell you something about that change, and the practical implications it had for Corporate Governance at CASA.
The New CASA Governance Structure
Some aspects of CASA’s new Governance environment have been driven by amendments to the Civil Aviation Act which I will describe shortly. Other aspects have, and will continue to be driven by myself as CEO.
Like most people who have been around for a few years I have my own view of management practices and governance arrangements. Built on a foundation of formal management training – in my case some years ago. I have managed under supervision, managed solo and observed the good, the bad, and the ugly of senior management in both the public and private sector.
Like most people with that experience I have formed my own conclusions.
And that experience has meant that where I am able to put my own mark on CASA’s manangement processes and governance I will try and satisfy criteria that I have judged to be important, such as:
- The need for strategic direction to be provided with a clarity of purpose;
- The need for operational management processes to focus on individual accountability; and
- That all management activity, especially resource allocation, to be subject to independent scrutiny.
All this without subjecting the organisation to excessive processes which if allowed to develop, can have a choking effect on development and individual initiative.
In essence CASA’s new governance structure is straightforward, as the slide shows, with reporting lines moving from bottom to top, and control lines from top down. I will come back to the slide a little later, but it is useful to have it before you while I touch on a few of the issues that needed to be sorted out before we could implement the structure.
There are very few examples, if any, of a Commonwealth Authority subject to the CAC Act having its Board structure taken away, to be replaced by a CEO totally and personally responsible for the organisation, and responsible directly to the Minister, but still being subject to the CAC Act. I believe Comcare is pretty close. It is a CAC body with a sole Director, but I understand it was established in that form, rather than following on from a preceding Board structure.
So, before expanding on just how this governance structure works in practice, let me tell you about some of the more technical implications of the new governance regime we at CASA find ourselves operating under.
Commonwealth Authorities and Companies Act
As I mentioned earlier, while CASA has moved from a Board structure to a single Director arrangement, it is still subject to the CAC Act. This presented some immediate governance issues, some quite basic, which needed to be resolved.
For example, the CAC Act is written on the premise that organisations subject to it will have a Board. It talks about the responsibilities of Directors to each other, the conduct of their meetings, and that sort of thing.
So, does a CEO who is appointed in place of a Board qualify as a Director for the purposes of the CAC Act? In CASA’s case, anyway, the answer is yes. But not, it seems, because it was one of those self-evident truths we hear about. In fact, it was necessary to modify the effect of the CAC Act by an amendment of the Civil Aviation Act, the Act under which CASA is constituted, to formally make sure there was no doubt.
The status of the CEO as a Director having been established, it was then necessary to address the requirements of the CAC Act in relation to Directors, and to make sure arrangements were in place to ensure that I as CEO was in a position to meet those requirements. There are several examples I can give you.
Conflict of Interests
As you know the CAC Act provides for a disclosure of material personal interests. The Act requires that notice of a material personal interest be given to ‘other directors’ (s 27f), but of course in the new CASA structure there are no other directors. So, again the effect of the CAC Act had to be modified by an amendment to the Civil Aviation Act to provide for such a disclosure to be made to the Minister. The same process was followed to cover a related CAC Act provision, the giving of a standing notice of interest (s 27G).
The CAC Act provisions on restrictions on voting by a director with a material personal interest also needed to be considered. This provision, obviously, is also predicated on the assumption of a board structure, and that there would be meetings of the Board at which there would be other directors to whom such declarations should be made, and who could decide whether the director declaring the interest should participate in the discussion of it.
And yet under the amended Civil Aviation Act, there is no provision for a Board and therefore no provisions for any meetings. And the idea of the single director sitting there having a meeting with himself or herself, and perhaps having to declare an interest, and absent himself or herself, is a little bizarre. So, again it was necessary put a provision in the Civil Aviation Act to modify the CAC Act by providing that the CAC Act voting restrictions (s 27J) and the Minister’s power to override those restrictions (s27K) do not apply.
Of course, proper governance means that I should not be able to shelter behind a change in the Act to avoid having to declare any interests I have which might potentially conflict with my responsibilities. So a new procedure had to be found. As I mentioned earlier, the process that has been established is that as a sole Director I formally table my relevant interests with the Minister. In effect one form of transparency has been replaced with another.
I should mention in this general context that my aviation background inevitably meant that I had dealings in a past life with a number of companies that because they are in the industry, they are subject to CASA’s oversight. There is no direct conflict, but perception of conflict can be an issue.
The problem normally dissipates with the passage of time. If I had business associations with a firm five years ago, it is unlikely there would be seen to be any residual conflict if I had to officially deal with that firm in my CASA role today. But if I had worked with an organisation the day before taking up duty with CASA, and then as regulator immediately made a decision about them, that would not look so good.
Having worked with one of the major airline operators a month before taking up my CASA role, I decided it would not be appropriate for me to make any decisions relating to that organisation for a period of three months after I joined CASA. Someone else in the management team would do that without reference to me. While this was not a potential conflict covered by the CAC Act, (and therefore not required to be reported to other Board members had the Board structure still been in place) or in my case not required to be reported to the Minister, it was still an issue of potential perceived conflict that needed to be addressed. Therefore, the matter was reported to the Minister along with the mitigating action.
Now, having earlier poked a bit of fun at the idea of the single director sitting in a room and having a meeting with himself, I now have to reveal to you that this is not too removed from what I have decided to do, and all in the interests of good governance.
To explain this potentially incestuous arrangement, I need to take you to the management governance structure I have introduced at CASA, within the framework of the amended CA Act.
With the previous model, we had the Minister, representing executive government, having ultimate responsibility, and, providing high level guidance in terms of the government’s policies and views of CASA’s role. Under the Minister, there was the Board which focussed on strategic issues, and under the Board management focussed on the operations of the organisation.
Under the sole Director model, with the Board no longer in that hierarchy,
the Minister has ultimate responsibility for CASA because the CEO manages CASA ”under the Minister”. The Minister can notify CASA (s12A) about the appropriate strategic direction, and CASA must act in accordance with such notices, and the CEO has to ensure that CASA acts in accordance with the Minister’s views (s 84 (d))
To make this work, meaningful communication between the CEO and the Minister becomes even more important than it did in the past, where there was some interaction between the Board, or perhaps the Chairman, and the Minister.
So, I have an agreement with the Minister that come rain, hail, shine or elections, (well I’m not so sure about the last one) I will have a formal meeting with him on a face-to-face basis at least every two months. This is to allow either party to raise whatever issues need to be addressed. The Secretary of the Department of Transport and Regional Services, as the Minister’s senior adviser, is also present.
I also provide a written monthly report to the Minister and the Secretary on CASA’s operational performance. Obviously there will be a range of ad hoc communications and briefings with the Minister, his office, and the Department as issues arise, but having a regular structured communication arrangement is, I believe, an essential element in ensuring the new governance arrangements operate successfully.
Another issue of relevance is ensuring that I as CEO am exercising proper governance, at least in context of whether I and CASA are doing the kind of things the Minister wants us to do. An amendment to the Act (s12c) now provides that the Minister may enter into an agreement with the CEO about the performance of CASA’s functions and the exercise of CASA’s powers. Any such agreement must be tabled in Parliament and the CEO is required to take all reasonable steps to comply with the terms of the agreement.
One of the requirements of the job, therefore, is the development of a performance agreement between CASA and the Minister, setting out the things we intend to do, with timelines and milestones, to meet the Minister’s goals for CASA to achieve. This is an agreement with the CEO, and in practice it is an agreement by the CEO to deliver in terms of CASA’s functions, and my performance is very much on the line. It is my intention that a similar performance agreement will apply to all of the senior management team so that in a governance sense there is no doubt where we are heading and the outcomes for which all will have a direct personal commitment.
That takes us to the role of the CEO in the new arrangements, and how best to translate the CEO’s overall responsibility and accountability for everything at CASA into something that works well in practice.
There are a number of models to achieve that, but the one I believe is the optimum in the case of CASA is for the CEO to focus on setting strategic policy, issuing high level directives to senior management, and exercising ultimate financial control.
The trick, of course, is to establish a structure that allows the CEO to maintain focus on the key role of strategic guidance and high level communication, but at the same time maintain just the right amount of touch with the day-to-day management of the organisation for which I have, under the Minister, ultimate responsibility. To go too far one way is to involve myself ‘in the weeds’, but to go the other way is to be too focussed on the horizon, and not be aware of the larger rocks and crevices on the path ahead. It should be said at this point that in a more formal sense the CEO cannot, even if he wanted to, limit himself to just being responsible for strategic direction. He also has a statutory responsibility to ensure that CASA performs its functions in a “proper, effective and efficient manner (s 84 (b)). This is a responsibility that cannot be delegated and is as important as strategic direction issues.
To help get the balance right, I have appointed the Deputy CEO as Chief Operating Officer. His role is to manage the day-to-day business.
While I have delegated to the COO responsibility and accountability for running things on a day-to-day basis, I have a clear understanding with him that he keeps me informed of key issues. That of course is standard operating procedure for most CEO’s and their subordinates anywhere, and is supplemented by informal discussions, jointly sitting in on meetings, being copied in on papers and reports- all those normal things in any business.
However, we take that a step further in terms of a formalised process by means of a program of all-day one-to-one meetings every month where we lock ourselves away from other distractions, and discuss any and all issues either of us need to talk about. The discipline of a regular scheduled and dedicated meeting (as with the meeting with the Minister I mentioned earlier) is vital to proper governance, in my belief.
Then overlying that practical approach, I have instituted a formal meeting, the one I mentioned earlier. This is a high level meeting held every month, where the COO formally reports to me as CEO on the operations of the organisation. This is as near as possible to what used to be the Board meeting. In other words, a formal arrangement under which management, in the form of the COO, reports to the sole Director. Reports for the meeting, prepared by the various Divisions, are circulated a week beforehand, there is a full-blown agenda, and proceedings are minuted. The General Counsel is present, to provide me with independent legal advice, if required. While it is the COO who has personal responsibility for reporting on CASA’s operations, he has the option to bring in any of his senior managers when reporting on particular operational areas. Thus far he has chosen to do this. This forum gives an open and transparent mechanism for both reporting to the CEO as single Director, and for matters requiring formal decision by the CEO to be brought forward, considered, and the decision recorded.
Below the COO, we have retained the next level of management, essentially heads of operating divisions. However, we have largely eliminated the system of management committees that had previously existed. These tended to produce collective decisions, with no one individual particularly responsible or accountable. This has been replaced by a regime under which each senior manager is individually responsible and accountable for their operational area, and the decisions they make. It has been made clear that each will be judged by the quality of the decisions they make, and it will be their responsibility to consult as widely as necessary where their decisions affect other areas, and to ensure that their decisions are made known to all who need to know, especially upward in the chain of command.
To support this new focus on individual responsibility, the Chief Operating Officer has a formal reporting and decision making meeting once a month, rather like the CEO’s meeting I mentioned earlier. This is a formal structure to make sure the COO knows what his senior people are deciding, under their new individual accountability responsibilities, and is also the vehicle by which matters for decision by the COO are brought forward.
So we have a layered decision making process. I, as CEO make the key strategic decisions, the COO makes the key operational decisions, and the senior managers make the decisions relevant to their areas, but the system is supported by a robust communication and information sharing system that provides a high degree of transparency.
Office of the CEO
With the CEO’s principal focus being on strategic issues, and in that sense at one remove from line management, there is a need for an element of independent strategic level support and advice available to the CEO.
To provide this I have established the Office of the CEO. The core members are, fairly naturally the CEO, and the Deputy CEO/COO, with a small team who are independent of CASA’s divisional management structure but will work closely with divisional management to support the achievement of CASA’s strategic aims. As you will see, the roles we have defined so far relate to research, communications, operational analysis, and strategic planning. Some people are in place and we are recruiting others.
I mentioned earlier the importance I saw in the sole Director having ultimate financial control. To put this into practice I have taken the finance function out of line management, and the Chief Financial Controller now reports to me through the COO, within the Office of the CEO structure.
The other direct report you see on the chart is the Risk and Audit function. The Risk Manager, who controls both risk and internal audit responsibilities, reports direct to me. While the normal legal function is part of the operational reporting structure, CASA’s General Counsel reports direct to me in terms of legal advice on governance, conformity with the CA Act, the CAC Act and other legislation or government guidelines.
Independent Audit Committee
There is another body that reports direct to me, and that is the Audit and Risk Committee. I regard an independent audit committee as a key element in any governance structure, and this was a function that needed to be addressed as part of the changed arrangements at CASA.
Under the previous governance arrangements, CASA had an Audit and Risk Committee. As is standard practice, the Committee was a sub-committee of the Board and was composed entirely of non-executive Board members. It was therefore an independent body, which is important. The Committee reported to the Board as a whole.
However, when the Board ceased to exist we had to restructure the Audit and Risk Committee.
Under the CAC Act there is an obligation to ‘maintain’ an Audit Committee, and this was done by putting in place a temporary Committee comprising the then Acting CEO, a previous Board member, a senior officer from the Department of Transport and Regional Services (who had also been a Board member for a short period) and CASA’s Risk Manager. The need for a temporary arrangement was because I did not take up my appointment until some time after the Act was changed and the Board departed, and management considered, quite rightly, that the incoming CEO would want to have a hand in arrangements for the permanent Audit Committee.
I have now appointed a new Committee which is composed of three independent members, one of whom is the Chair, plus the Chief Operating Officer. The Committee will report to me as CEO, in the same sense that it used to report to the Board under the previous arrangement.
Governance issues can arise, in terms of transparency of the Audit Committee’s processes. These can be mitigated by having an appropriate Charter under which the Committee operates. The previous Board Audit Committee had such a Charter, and I have put a new Charter in place which reflects the changed governance arrangements.
One element I am carrying over from the former Board is a Governance Manual. This contained, under one cover, all the documentation required by a Board member to enable them to understand their role and responsibilities, together with the agreed protocols and administrative arrangements associated with their office. This Manual, amended for the new governance arrangements, will be an important part of our governance support structure, along with consolidated policy documentation.
A Risk-Based Structure
Many of the measures I have outlined can be looked at as a risk based response to a new governance structure. Any new structure carries a degree of risk, and the trick is to identify those risks, and put measures in place to mitigate the risks. That can’t be a static process, a set and forget arrangement, as risks can change, new risks can emerge, and previous measures to mitigate risk can become less effective and require modification.
Let me give you some examples of the other risks we have looked at, and sought to address.
One is continuity. Were there commitments left over from the old Board that I need to take account of? With a continuing Board structure, members come and go but there is an on-going Board level corporate memory. But you lose that when the Board in its entirety departs. So one of my early moves has been to ensure all the high level policies, which include previous Board decisions, are identified and centrally located.
There are a whole range of Delegations that my predecessors, whether in the form of the Board, or previous CEO’s that have needed to be reviewed to make sure they are still valid. As a minor point, although my normal title is CEO, for purposes under the Civil Aviation Act I retain the title of Director of Aviation Safety, which is the title under which I am required to sign many formal documents.
How Has It Worked out So Far?
The changed structure has only been in place for a little while, but so far so good.
One of the big changes, at the operating level, is the role of Deputy CEO. Previously, the emphasis had been on the traditional deputy element, with a focus on supporting the CEO, acting for the CEO during absences, trouble shooting, providing wise counsel, with some line management oversight responsibilities, but in an environment where larger operational issues still had to get past the CEO. The Deputy had very few people directly reporting to him. With the Deputy becoming also the Chief Operating Officer, he suddenly has a very specific, very broad, high level operational responsibility. That is quite a spectacular and challenging change in job description.
Another issue is the ability of the senior management team to quickly appreciate the new environment, respond positively to it, and change their management styles accordingly. It can sometimes be a threatening experience to be required to accept personal responsibility and accountability for decisions, particularly if the comfort zone has been protected by a buffer of committees and collegiate decision making. I believe our people are well equipped to make the necessary changes, but that is something I will be keeping an eye on over the next few months.
I hope I have been able to give you some flavour of the governance issues , large and small, that we have had to work our way through in the transition to a sole Director structure. No doubt there will be some fine tuning involved as new issues emerge, but as of today I can report that CASA’s version of the sole Director model is alive and well, and I would like to hope is adhering to the best principles of corporate governance.
Chief Executive Officer
20 April 2004