Frequently Asked Questions

Accountability � overview
Constitution of a SOC
Dividends � legislative basis of
Legislation � listing of key legislation
Portfolio Minister � role of (for a dividend-paying, non-corporatised government business)
Portfolio Minister � role of (for State Owned Corporations)
Quarterly Reporting � overview and minimum requirements
Risk Management in OFM - Policies and Practices
Shareholding Ministers � role of
State Owned Corporations � listing and Shareholding Ministers
Treasurer � role of

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Last updated 13 February 2009

Accountability � overview

Clear delineation of roles amongst the various stakeholders in government businesses is essential to the Commercial Policy Framework. Some government businesses have been "corporatised", or established as State Owned Corporations (SOCs), which operate at arm�s length from government. The management of these businesses operate independently but are accountable for financial performance to the Treasurer and one other Minister, who act as Shareholders. The Portfolio Minister does not influence commercial operations but has separate responsibility for industry policy and regulation.

Government businesses which have not been corporatised are accountable to both the Treasurer and their Portfolio Minister. The Portfolio Minister of these businesses often has wide discretionary power to direct management of the business, in addition to the regulatory role.

Each year, the management of a SOC enters into an agreement with the Shareholders, known as the Statement of Corporate Intent (SCI). This details the objectives and strategic directions of the business, along with financial performance targets and other related matters, such as risk management. The purpose is to enhance management accountability for performance and to clarify the Shareholders� expectations. The SCI is tabled in Parliament. The equivalent document for non-corporatised government businesses is the Statement of Business Intent (SBI), which is not tabled in Parliament.

Treasury administers the Commercial Policy Framework and undertakes regular financial monitoring of government businesses from the Shareholders� perspective. Quarterly reports are required, which show the business� actual performance against the annual targets set out in the SCI or SBI. In addition, Treasury monitors dividend payments and tax equivalents, as these represent a substantial contribution to State budget revenue.

Both SOCs and non-corporatised government businesses are also required to provide Annual Reports, which are tabled in Parliament. Their financial statements are subject to audit by the Auditor-General. The Public Accounts Committee of Parliament examines reports by the Auditor-General and reports to the Legislative Assembly on any issues of concern.

Government businesses are also regulated by, and accountable to, numerous independent bodies which scrutinise aspects of their operations which would be of interest to the public. These include pricing policies, environmental performance, accounting practices, trade practices, adherence to licence conditions and customer service standards.

Constitution of a SOC

Each SOC has its own constitution. Matters typically addressed in the constitution are:

control of share capital
term of office, powers, duties and liabilities of the Board of Directors, Chairs and the Chief Executive Officer (CEO)
appointment/removal of office holders
procedure and status of general meetings
decision making procedures
rules for alteration of the constitution.

The State Owned Corporations Act 1989 (SOC Act) prevails over any inconsistent provisions of the constitutions of a corporation. Provisions to be included in the constitutions of statutory SOCs can be found in Schedule 6 of the SOC Act. Schedule 8 � 10 of the SOC Act contains guidelines regarding the constitution and procedure of boards; and the roles of the CEO and directors of statutory SOCs.

Dividends � legislative basis of

Under section 20S(1) of the State Owned Corporations Act 1989 (SOC Act), a statutory SOC is required to have a share dividend scheme, as provided in its constitution, in a form approved by the Treasurer. These provisions do not apply to the energy services corporations by virtue of Schedule 2, clause 4(1) of the Energy Services Corporation Act 1995 (ESC Act). The ESC Act requires these corporations' share dividend schemes to be determined by voting shareholders, in consultation with the Board.

The current Financial Distribution Policy adopts the approach established by the Corporations Act to determine from what sources dividends payments can be made. Section 201 states that dividends may only be taken out of operating profits. The case law has determined that operating profits comprise current year profits, retained earnings and the asset revaluation reserve, provided that the valuation is competent and not subject to short term fluctuations. In accordance with section 20S(4) of the SOC Act, dividends declared by a statutory SOC or any of its subsidiaries are to be paid to the Treasurer on behalf of the State for payment into the Consolidated Fund.

The Treasurer has powers under Section 59B of the Public Finance and Audit Act 1983 to determine the amount of dividends that are paid into the Consolidated Fund by non-corporatised Government businesses and statutory SOCs.

Portfolio Minister � role of (for a dividend-paying, non-corporatised government business)

The Portfolio Minister of a dividend-paying Public Trading Enterprise (PTE) has essentially the same responsibilities as a SOC Portfolio Minister, as well as exercising "shareholder" responsibilities jointly with the Treasurer. These are:

industry regulation and enforcing compliance
industry policy and structure
minimum standards of customer service and safety and issue of operating licences
monitoring non-financial performance
contracting with Boards for the delivery of social programs
setting financial performance targets and approving business plans through the SBI (joint responsibility with the Treasurer)
determining dividends and financial distributions (joint responsibility with the Treasurer)
issuing directions to Boards and approving major decisions of the Board (in accordance with the corporate governance policy)
recommending the appointment of Board members (in consultation with the Treasurer)
recommending the appointment of the CEO (in conjunction with the Board)
facilitating PTE reform (joint responsibility with the Treasurer)
any other functions or responsibilities specified in the governing legislation of the PTE.

Other Portfolio Ministers are responsible for non-industry specific regulation, such as in the environmental, health or industrial relations areas. Relevant Portfolio Ministers may also be responsible for the specification and purchase of social programs.

Portfolio Minister � role of (for State Owned Corporations)

The Portfolio Minister of a SOC is responsible for:

industry regulation and enforcing compliance
industry policy and structure
determining minimum standards of customer service and safety and issue of operating licences
auditing performance against operating licence conditions
contracting with boards for the delivery of social programs
issuing directions to boards as permitted by the State Owned Corporations Act 1989 (following consultation with boards and the approval of the Treasurer)
recommending the appointment of the CEO in conjunction with the board (unless otherwise provided for in SOC governing legislation or Memorandum and Articles of Association)
reform of industry structure and regulatory arrangements (shared responsibility with other relevant Ministers).

Quarterly reporting � overview and minimum requirements

Under the Reporting and Monitoring Policy, government businesses are required to report quarterly on actual performance against the annual targets set out in the SCI/SBI. Reports are submitted directly to the Shareholding Ministers (for SOCs) and the Treasurer and Portfolio Minister (for non-corporatised businesses).

At a minimum the reports are to include:

A brief covering letter from the Chair (or CEO), giving an overview of the forecast position of the agency in relation to the targets established in the SCI/SBI for the year. The letter should highlight any significant issues contained in the following attachments.
A one page summary, showing forecasts against the targets (financial operating results, cash distributions, any other specific performance benchmarks and capital expenditure) established in the SCI/SBI. Detailed explanations of any significant variations to targets should accompany this summary page.
A summary of any risk exceptions (or changes in risk status) and explanations of the implications or issues arising from the exception.
A discussion of any current issues, emerging strategic issues or issues/projects indicated in the SCI/SBI (or discussed at the Ministerial meeting or where no meeting was held that were raised upon agreement of the SCI/SBI).
An income and expenditure statement, balance sheet, cash flow, and the capital program, for both the year to date results and year end forecasts against the targets and a comparison of forecast cash distributions against the State Budget. (Analysts may wish to attach a copy of the final estimates used for the State Budget.)

Treasury also liaises with the agency to establish any specific or additional content requirements for the quarterly reports. Treasury's quarterly reporting focuses on evaluating and commenting on board performance, taking into account market conditions and the performance of comparable businesses. This replicates the role of equity analysts in respect of company reports.

Shareholding Ministers � role of

The State Owned Corporations Act 1989 provides for each SOC to have two "Voting Shareholders", one of whom is the Treasurer, while the other is nominated by the Premier. In determining the strategic direction of the business, Shareholding Ministers influence Board decisions by approving the following matters:

financial performance targets
major investment/divestment decisions
capital structure
overall strategic direction
business plans
dividend recommendations.

While the fundamental responsibility of directors is to make decisions relating to the conduct of the business and its management, the above matters are resolved by negotiation with the board and agreement, subject to ultimate control being exercised by Shareholder Ministers, through:

directions relating to the SCI pursuant to the SOC Act or other relevant legislation
removal of Directors and the appointment of those more amenable to the directions required by the Shareholding Ministers.

In addition to matters where the shareholders exercise a role which is essentially one of approval and negotiation, Shareholding Ministers have the following direct responsibilities:

monitoring financial performance
monitoring risk
appointment of the Board.

On the issue of directions or requests by Shareholding Ministers, if these do not comply with relevant statutory provisions, they cannot constitute formal, legally binding directions and should be treated in the same manner as requests made by any shareholder of a public company.

The role of Shareholder Ministers in appointing directors is, of course, subject to the Cabinet process and the approval of the Premier, in appropriate circumstances.

Treasurer � role of

In addition to the role of Shareholder Minister, the Treasurer is also responsible for the following issues relating to both SOCs and dividend-paying non-corporatised government businesses:

administering State taxes
approving directions by Portfolio Ministers under the SOC Act (SOCs only)
approving the funding of social programs
administering financial regulations
authorising and reporting on global borrowings
reform of the commercial sector (shared responsibility with other relevant Ministers)
determining dividends and financial distributions (in the case of failure to reach agreement via the shareholder mechanism - generally, this power is not expected to be used)
determining tax equivalent payments
determining capital structures, capital contributions and capital repayments.