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This article considers some key international public sector corporate governance guidance. This field, international public sector corporate governance, is an expanding, and expansive, one. The range of these international developments was captured well recently in a call for papers[1] for an internationally acclaimed accounting journal. The topics included:

•  
  • demand for new/supplementary modes of public governance and accountability;
  • ensuring effective control of complex holding structures;
  • establishing effective corporate governance mechanisms in public and private partnerships or contracting out;
  • management of complex service contracts;
  • steering internal markets within large government entities; transparency of resources flows in and between public sector organisations and the need to apply modern accounting techniques;
  • adjustment of commercial law based corporate governance mechanisms to the specific requirements of public corporate governance;
  • the role of private sector methodologies and practices in measuring outputs and outcomes; and
  • the role of new financial reporting in improving public sector accountability.

However, due to the logistical constraints of a brief review, it is necessary to focus on a number of guidance documents, in particular those produced by the International Federation of Accountants (IFAC) and the Organization for Economic Co-operation and Development (OECD).  

International Federation of Accountants (IFAC)

IFAC has issued well designed guidance to assist the process of public sector corporate governance. In particular, it has produced a document that gives a very comprehensive overview of public sector governance[2]; the utility of this guidance is noted across a range of public bodies and entities. Specifically, ‘the principles outlined….apply to all public sector entities, including national governments, regional governments (e.g., state, provincial, territorial), local governments (e.g., city, town), related governmental entities (e.g., agencies, boards, commissions) and government business enterprises (GBEs)’[3]. As well as having a wide scope of bodies that it can usefully be used with, it also provides a comprehensive framework from a technical standpoint. In particular, it focuses on a number of recommendations on governance in the public sector, concentrating on four ‘dimensions’ of governance in public sector entities, these being:

Standards of behaviour – defined as how the management of the organization exercises leadership in determining the values and standards of the organization, which define the culture of the organization and the behaviour of everyone within it;

Organizational structures and processes – defined as how the top management within organizations is appointed and organized, how its responsibilities are defined, and how it is held accountable;

Control – defined as the network of various controls established by the top management in the organization to support it in achieving the entity’s objectives, the effectiveness and efficiency of operations, the reliability of internal and external reporting, and compliance with applicable laws and regulations and internal policies; and

External reporting – defined as how the top management of the organizations demonstrates its financial accountability for the stewardship of public money and its performance in the use of resources.

The report is user friendly and has some very beneficial features, such as the good governance checklist for governing bodies, each section of which is organised around the dimensions noted above.

More recent reports from IFAC[4] have drawn attention to the fact that though some form of governance has always been present in organizations attention paid to it has evolved with changes in the business environment. The report further argues that recent corporate failures and regulatory responses make governance a priority again, helpfully articulating the fundamental values and principles that define the public sector, these being:

Integrity, comprising both straightforward dealing and completeness, based on (a) honesty and objectivity, and (b) high standards of propriety and probity in the stewardship of public funds and resources, and management of an entity’s affairs;

Accountability, defined as the process whereby public sector entities, and the individuals within them, (a) are responsible for their decisions and actions, including their stewardship of public funds and all aspects of performance, and (b) submit themselves to appropriate external scrutiny; and

Transparency (openness), required to ensure that stakeholders can have confidence in (a) the decision-making processes and actions of public sector entities, (b) the management of their activities, and (c) the individuals within them.

This comprehensive approach to public sector corporate governance adopted by IFAC is particularly beneficial and useful in the rapidly changing world in which we operate today. As another leading international body has noted recently[5], the implication of the 2008 financial crisis is continuing to play out, the most prominent of which are continuing uncertainties in the Eurozone, nervousness in the financial markets and fragile growth in most of the developed world. In this context, the World Bank report poses the following question - what is the citizen’s relationship with the state, and how can integrity and accountability be built into public life? The report responds with the following answer – ‘The contours of a new social contract are emerging: citizens are seeking a relationship with their government based on transparency, accountability and participation’. It is clear that the public sector corporate governance guidance provided by IFAC could be a very useful tool in navigating this changing context for public sector bodies and entities.

Organization for Economic Co-operation and Development (OECD)

A recent OECD report[6] has noted that governments face complex challenges in improving the governance of state-owned enterprises, remarking further that the OECD, in 2005, adopted the OECD Guidelines on Corporate Governance of State Owned Enterprises (SOEs). These Guidelines are based around the following issues: ensuring an effective legal and regulatory framework for SOEs; the State acting as an owner; equitable treatment of shareholders; relations with stakeholders; transparency and disclosure; and the responsibilities of the boards of State-Owned Enterprises. The OECD Guidelines are now acknowledged^[7] as serving as a global benchmark for countries introducing government reforms in the state owned sector.

In a major, recent international study of SOEs[8],  the author noted the following principal findings: that it appeared that in SOE governance, the private sector usually defines the best practice standard; that it is almost uniform practice for governments to seek to improve performance by emulating private sector practices; that important national differences in SOE board practices were detected, particularly around the right of the board to appoint the CEO; and, increasingly, what appeared to distinguish best practice from less good practice is not legal rights, but rather the manner in which government influences the course of SOEs.

Concluding Comments

In considering some of the key aspects of international public sector corporate governance reviewed, it is useful to remind ourselves what these issues are concerned with: governance is defined by IFAC[9] as ‘the set of responsibilities and practices exercised by the board and executive management (‘the governing body’) with the goal of

(a) providing strategic direction,

(b) ensuring that objectives are achieved,

(c) ascertaining that risks are managed appropriately, and

(d) verifying that the organization’s resources are managed responsibly’.

Even at the time some of the earlier IFAC reports were authored, it was pointed out that in many countries, the public sector was undergoing wide-ranging structural and managerial changes, with new governance arrangements emerging[10]. Since then, the public sector has been undergoing significant environmental turbulence, as the World Bank has pointed out. One commentator[11]  closer to home has drawn attention to this issue, remarking that: ‘These are extraordinary times. The role of the public service is fundamentally changing.’ Guidance documents such as those considered in the course of the current article can assist and enable, in a practical, meaningful way, public sector bodies and entities to become more adaptive and responsive to the ongoing challenges they face.