I were better to be eaten to death with a rust
than to be scoured to nothing with perpetual motion.
King Henry IV. Part II. Act i. Sc. 2.
The quality and robustness of Indigenous corporations are
crucial contributors to the capacity of Indigenous interests to develop the
sustained capability necessary to achieve their objectives whether it is to run
successful business enterprises, deliver services, or meet the cultural and
social objectives of their members. Perhaps most importantly, the capability of
Indigenous corporations is crucial to their ability to ‘hold their own’ in the
never-ending competitive struggle amongst the plethora of competing interests
in Australian society to influence policy outcomes.
Not only do the members of individual corporations have an
interest in ensuring their organisations are effective and well run, but for
Indigenous citizens there is a more widely shared generic interest in
Indigenous corporations both being, and being seen to be, effective and capable
of effectively representing their members’ interests and executing their
aspirations. While most analysis tends to focus on the quality of Indigenous political
leadership, the strength of the Indigenous corporate sector will play an
enormous and perhaps decisive role over coming decades in determining whether
Australia is able to shift from exclusion to inclusion in relation to its
Indigenous citizens.
The policy space encompassing the governance of Indigenous corporations
has a forty year history. The policy case for the establishment of corporate
entities to represent Indigenous community interests can be traced back to
Charles Rowley’s work for the 1976 Coombs Royal Commission into Australian
Government Administration. Rowley argued that incorporation might act as a
protective ‘carapace’ to minimise the incursion of the wider society into the
lives of Indigenous community members, and allow space for individual community
members to continue to live their lives according to their own aspirations and
values.
The extent to which the concept of incorporation has
achieved Rowley’s aim is debateable, but there is no doubt that it has been
enthusiastically taken up by Indigenous citizens, not least because it is one
of the institutions in the wider society which most aligns with Indigenous
communal values. Incorporation also happens to be a primary vehicle for pursuing
commercial opportunities (see this
link
to a fact sheet on the growth of Indigenous businesses) and for accessing a
wide range of facilitative government funding programs.
Thus the Office of the Registrar of Indigenous Corporations
(ORIC), which oversights and regulates corporations established under the federal
Corporations (Aboriginal and Torres Strait Islander) Act 2006 (CATSI Act)
administers around 2800 corporations across Australia. There are probably
another 2000 Indigenous corporations, many with significant commercial and/or
social responsibilities established under the national Corporations Act and
various state based associations legislation, often characterised as ‘tennis
club’ legislation. The regulatory oversight of these latter corporations is
often inadequate either due to the risk based management approach adopted by
ASIC which allows smaller corporations to ‘fly under the radar’, or the low key
regulatory approaches to community associations taken in most states.
In recent years, the Commonwealth has adopted a policy
approach of requiring Indigenous organisations funded under the Indigenous
Advancement strategy at levels above $500k to incorporate under the CATSI Act.
There are I think good reasons for supporting such a policy given the
importance of sustaining effective organisations in the Indigenous policy
domain.
Given the number of Indigenous corporations oversighted by
ORIC, and the importance of effective regulation in driving good corporate
outcomes over time, it was pleasing to see the Government release a review
report last month by KPMG titled “Regulating Indigenous Corporations’ which
examined the operations of ORIC.
The review had been commissioned in September 2016, and
finalised in December 2016. It was released by the Minister on 5 July 2017 along
with an announcement of a one off allocation of an extra $4m for ORIC (link to media
release is here). Here is the link
to the report. The Minister’s media release headlined the
funding, but made no mention of the review until paragraph ten of a fifteen
paragraph text.
Here is the totality of his comments on the review:
Minister Scullion
also released a review into ORIC by KPMG which found it was doing a good job in
a challenging regulatory environment. The review can be found here.
“The review identified a need
for more corporate governance training for those who want to do the right thing
as well as additional investigatory resources to address wrongdoing. The
Government has responded to this by providing ORIC with an additional $4
million,” Minister Scullion said.
The overarching conclusion of the review was not only that
ORIC is doing a good job in a challenging environment, but that there are
significant opportunities to enhance ORIC’s contribution to better governance
into the future.
The review was oversighted by a Steering Committee
comprised of representatives of PMC, ASIC, the Department of Health, and a
former Tax Commissioner. It is well argued and makes persuasive arguments for
its recommendations. KPMG made 47 detailed recommendations and listed a number
of further options for consideration.
This post aims to analyse the review and its handling and
make a number of policy related observations. I recommend interested readers
have a closer look at the KPMG report as I don’t have the space to
comprehensively discuss each issue raised.
The first point
to note is that the Minister’s media release also included an announcement by
the Registrar that he was undertaking a further technical review of the CATSI
Act to consider potential legislative changes, many of which appear to have
already been canvassed by KPMG:
“To complement this process I
will be conducting a review of the CATSI Act with the intent of providing
advice to the Government on improving and strengthening the Act.”
Complementing the terms of reference for the technical
review is a 13 page Discussion Paper (link
here) canvassing a range of specific issues / potential changes. The ORIC
website indicates that the law firm DLA Piper has been contracted to undertake
the technical review, and outlines some limited consultations planned in the NT
and North Queensland.
While most of the proposals outlined in the Discussion
Paper appear sensible and worth considering, there is a sense that we are in a
perpetual motion machine where issues are reviewed to death without any guarantee
of a final resolution. One senses that PMC have lost the capacity to assess and
develop legislation, and may not have retained the grounded expertise to independently
craft a well-considered amendment package in this area which is of central
importance to the quality of outcomes in Indigenous affairs.
The second point
worth noting is that by establishing this further process of technical review,
the Minister has neatly attempted to sidestep any pressure to respond formally
to the KPMG report. Yet the potential amendments to the CATSI Act relate to
just one of the many KPMG review recommendations. The comments below will focus
attention on some of the issues which in my view require a response from the
Minister or his Department.
Third, in
section 2.2 on ORIC’s objectives, the review notes that ORIC continues to work
off a Statement of Expectations issued by the previous Minister in 2008. While
the Registrar had been provided with a draft Statement of Expectations in 2015,
it had not been finalised. The suggestion (refer footnote 16) that the reason
for this lack of follow through was because the KPMG review was pending strains
credulity, not least because of the approximate 18 months between ‘early 2015’
when the draft Statement of Expectations was issued and September 2016 when the
KPMG review was commissioned. The Minister appears not to support the use of
Statements of Expectations, I suspect because they potentially constrain his
capacity to more informally and ‘flexibly’ influence statutory bodies within
his portfolio.
A fourth and related
point in the same section relates to the KPMG review assessment that the
working relationship between the Department and ORIC was less effective than
with other agencies, and that this relationship had declined since PMC took
responsibility for Indigenous policy (ie after the 2013 election). Later in the
report (page 51) the review notes that the PMC actively excluded ORIC from key
departmental processes. The losers from this absence of effective collaboration
will necessarily be the Indigenous corporations who are served by the
Registrar’s work. A core role of PMC as a central agency is to promote
collaborative working arrangements across government, yet here is a public
review identifying clear instances of the Department acting narcissistically rather
than collaboratively. The lack of a formal response to the review means that
these observations by the review sail blithely into the ether, without any
formal explanation, accountability or cognisance that this requires remediation
and should not occur into the future.
A fifth point
made by the review in this same section was to canvass the possibility that the
Registrar might utilise a small advisory panel to assist in stress-testing the
more contentious policy issues. This is to my mind an excellent idea, and worth
pursuing. It also provides a mechanism for greater Indigenous input into the
role of ORIC and is potentially a better mechanism that the Minister’s
announced approach of finding an Indigenous Registrar at some point in the next
12 months (refer page 52). The review’s suggestion that an existing group
(presumably the Prime Minister’s Advisory Council) might fulfil the role
appears less fit for purpose, but may be worth trying. Again, we have no
response from the Registrar or the Minister to this idea.
A sixth point
emerging from the review is that significant reductions in funding to ORIC have
had severe impacts on its capacity to undertake its core functions. The tables
on page 20 (which shows a significant reduction in examinations over the past
nine years) and page 59 (which documents a 42 percent reduction in real terms
in ORIC funding over the past ten years) tell the story. At the same time, as
the Minister’s media release points out, the revenues of CATSI corporations
have increased by 74 percent over the past nine years to $1.88bn and the assets
under management have grown by 105 percent to $2.22 bn. The funding announced
by the Minister of $4m appears to be one-off and not recurrent, so while it
will go some way to address the funding pressure, it does not appear to address
the ongoing structural issues identified by the review.
A seventh point
to emerge from the review was a call for changes to ORIC’s regulatory strategy,
in particular to increase the sharpness of its risk management in determining
resource allocations (pages 35-37) and improving its stakeholder management to
include peak bodies representing corporations established under the CATSI Act
(pages 21-2). Both these suggestions deserve to be taken up, but we have no
advice as to whether this will now be the case.
An eighth point
relates to the abolition of the Indigenous Litigation Fund following the change
of government in 2013 (see pages 47-8 and 58) which provided an assurance that
the award of costs against the regulator following an unsuccessful prosecution
would not have a significant impact on ORICs recurrent budget. The absence of
the fund introduces greater risk aversion into decisions to initiate
prosecutions by the Registrar. The Minister has made no response to this issue.
A ninth point to
emerge is an implied critique from the review that ORIC and PMC have not been
as transparent as is desirable. In relation to funding, the review recommends
that consideration be given to ORIC’s annual funding being separately identified
in the budget papers (page 59). Similarly, there is an indirect inference that
ORIC has not managed its FOI processes as well as might be expected (see page
54). Given the contention that can emerge when regulators make decisions which directly
affect corporations and their stakeholders there is a need for ORIC’s FOI and
decision processes to be both efficient and beyond reproach.
The tenth point
noted by the review (page 54-5) is that there are a range of technical issues
relating to native title bodies (which are required to incorporate under the
CATSI Act) where the Registrar’s powers might be strengthened. These seem
sensible and are likely to emerge from the technical review of the CATSI Act
being undertaken by the Registrar. Given the salience of native title in the future
of Indigenous policy, it is of concern that the Minister’s (non) response to
the review was entirely silent on these issues.
Finally, the
review noted in its final observations (page 66) that there appeared to be
merit for the greater use of independent directors on the boards of larger or
more corporations. The review refrained from suggesting this be mandated,
deferring to the widespread view that directors ought to be Indigenous. In my
view, there is an overriding benefit in many corporations utilising independent
directors, (who will normally be in the minority) and increasingly, there will
be individuals with appropriate skills who are also Indigenous. Indigeneity
should not be used as an argument against the use of independent directors,
especially where corporations are operating in highly complex fields such as
native title or delivery of complex human services. We ought not to confuse the
two issues.
In
conclusion, I would observe that my short summary identifying eleven
key issues is not necessarily comprehensive. There is much else in the report
for those interested in the issue of Indigenous corporate governance.
It will be apparent that I consider that the Minister and
his Department have dropped the ball in the way they have handled this report.
The strategy appears to be to hide behind a funding announcement to avoid
addressing the raft of substantive issues which will be of crucial importance
to the quality of Indigenous corporate governance over coming decades, and to
gloss over the criticisms which go to the heart of the way the Department of
Prime Minister and Cabinet operates. This is not good public policy and not
good public administration. The public, and particularly Indigenous citizens,
deserve better.
Given that Senate Estimates hearings are scheduled for
October, here are a number of questions related to these issues which
interested Senators might ask the Minister:
What
was the cost of the KPMG review? Which program funded this review?
What
is the projected cost of the DLA Piper technical review of the CATSI Act?
Is
the $4m in funding one off, or recurrent? Will it be paid in a single year or
over the forward estimates? What is the source of the funding: is it from the
PMC departmental cost allocation, or is it from the IAS or some other program
funding source?
What
does the Minister intend to do to remedy the ongoing structural funding
shortfall currently experienced by ORIC?
Will
the Minister ensure that ORIC’s funding is separately identified within the PMC
budget papers going forward?
Will
the Minister reinstate the Indigenous Litigation Fund abolished in 2013?
Why
has the Government not provided a comprehensive formal response to the KPMG
review? When will a final response be made available?
Why
did it take so long to release the KPMG review?
Why
has the Minister not finalised a Statement of Expectations for the Registrar of
Indigenous Corporations since coming to Office in 2013?
Has
the Minister finalised Statements of Expectations for other portfolio bodies
for which he is responsible? Please list the entities and bodies in your
portfolio and the dates statements of Expectations were issued?
What
level of responsibility does the Government take for any future regulatory
lapses by ORIC given its failure to date to address the substantive issues
raised by the KPMG review?
Answers to these questions will go a long way to
highlighting just how serious the Government is about improving the governance
of the thousands of Indigenous corporations which form the backbone of the Indigenous
sector in Australian public policy.
The approach adopted to date in relation to this report is
the antithesis of substantive transparency, and in my view fundamentally
disrespects Indigenous citizens (and taxpayers generally) who have a right to
understand what the Government is doing in areas which will play a crucial part
in shaping the nation’s relationship with its Indigenous citizens into the
future.
