Crown Company Monitoring Advisory Unit

Executive summary

CCMAU has an established reputation as an ownership advisor to the government on a portfolio of companies and commercial entities that have a significant role to play in New Zealand's economic transformation, one of the priority themes for the next decade.

While all companies and entities are expected to be financially viable, there are other expectations that are becoming increasingly important to the owner. This means higher demands on ownership monitoring and advice, and the need to broaden the suite of levers available to influence company and entity performance. CCMAU is focused on doing so.

CCMAU's performance is best judged by the feedback we receive from Vote Ministers. However, we will continue to seek other indicators that are a good proxy for measuring our contribution to portfolio performance.

We will continue to pay close attention to our staff recruitment and retention policies. The current low unemployment environment means there is strong competition for quality people. High-calibre staff are important if we are to exceed the expectations of our Ministers and wider stakeholders. A key strategy will be to maintain our commitment to staff training and industry knowledge development.

CCMAU's role and purpose

CCMAU's role is to do what we can to ensure that State-Owned Enterprises (SOEs), Crown Research Institutes (CRIs) and Crown companies and entities, singularly and collectively, meet or exceed the Crown's expectations of performance – financially, operationally and behaviourally. Their performance, and the value they create, contributes directly to the government's priority theme of economic transformation.

CCMAU provides a range of services that enable Ministers to hold boards accountable for creating shareholder value, however it is measured. These services cover four broad areas.

• Ownership environment management – maintaining a strategic perspective over the ownership environment and assisting Ministers to improve the clarity and awareness of the owner's expectations
• Performance monitoring – evaluating performance against agreed targets and external measures and, where necessary, advising Ministers on actions being taken to address performance that is below expectations
• Issue management – assisting Ministers to manage company and sector issues, and respond to correspondence, parliamentary questions and Official Information Act requests
• Governance – identifying and screening potential directors, managing the board appointment process and director fee-setting in the context of desired ownership outcomes, and taking a leading role in ensuring best practice corporate governance of SOEs, CRIs, and Crown companies and entities is achieved.

To achieve this purpose, CCMAU is currently structured around three sector-focused monitoring teams supported by an appointments and governance team, and a pan-unit corporate team that provides administrative and legal services.

Strategic direction

In recent times, there has been a heightened expectation for companies and entities to produce results for the owner that are broader than pure commercial and/or legislative expectations. For example, there is now a greater expectation for companies (whether publicly or privately owned) to both act, and demonstrate that they are acting, in a socially responsible manner. These expectations, in turn, lead to higher demands on ownership monitoring and advice.

Over the longer term, opportunities exist for CCMAU to focus on achieving greater outcomes for the government by using the full suite of levers available to influence company and entity performance. Such levers might include:

• developing and managing clear ownership objective statements for all SOEs, CRIs and Crown companies and entities monitored by CCMAU
• strengthening performance feedback loops so that boards are in no doubt about whether current performance really meets the owner's expectations and aspirations
• using valuation techniques to provide a wider perspective on company and entity financial performance
• managing the appointments process in the context of more transparent board performance measures
• establishing CCMAU as the primary point of contact in terms of the company/entity-owner interface.

Operating intentions

In the year ahead, CCMAU will endeavour to maintain and, where possible, enhance its existing outputs. We will continue to provide advice that is well-informed, targeted, accurate and timely. Our main measure of success will be the feedback we receive on our performance from our two Vote Ministers every six months.

Over the next 12 months the companies and entities monitored by CCMAU will face a number of challenges.

Companies in the science and innovation sector are beginning to face challenging financial conditions as they seek to diversify their revenue sources. Other challenges include staff recruitment and retention, with many Crown Research Institutes reporting global competition for top scientific talent. For New Zealand Venture Investment Fund Ltd (NZVIF), a key challenge consists of attracting institutional investment into the venture capital market, for which NZVIF is currently investigating the feasibility of a new fund-of-funds product.

Entities in the communications, services and infrastructure sector continue to evolve and have a number of projects underway. For example, Kordia is focused on developing opportunities for Orcon Internet Ltd (which it acquired in mid-2007) in an unbundled telecommunications environment, CIAL is redeveloping the domestic terminal, TVNZ is making increasing use of digital technologies and has launched two new channels on the Freeview platform over the last year, ONTRACK has various rail upgrade and development projects underway, New Zealand Post is installing new mail-sorting technology, whilst its subsidiary Kiwibank continues to grow.

Energy sector SOEs face significant challenges in addressing ongoing security of supply issues, in both the short and long term, in the context of the New Zealand Energy Strategy (NZES) and the associated Emissions Trading Scheme (ETS). For SOEs, the challenge lies around building strategies and value consistent with both shareholder expectations and wider national benefit.

Land and environment companies are particularly susceptible to value erosion due to factors ostensibly outside of their control – such as international commodity prices, climate, and property values. CCMAU is faced with the challenge of doing what it can to ensure that boards are managing such risks appropriately, and consequently maximising (or protecting) value in such an uncertain environment.

In the appointments and governance area, the main challenge will be continuing to develop our pool of director candidates to ensure that shareholding Ministers are able to make the best possible appointment decisions.

Organisational health and capability

Our aim is to exceed the expectations of our Ministers and wider stakeholders in everything we do. This requires CCMAU to recruit and retain high-calibre staff who have, among other things, a good mix of public and private sector experience; the ability and confidence to deal directly with Ministers, senior company managers and directors; and excellent analytical and report writing skills. Finding such people is not easy in the current low unemployment environment, where competition for excellent candidates is high. It is, therefore, important that CCMAU maintains its focus on staff training and industry knowledge development, and ensures it has staff policies that reflect modern best practice.

In 2008/09, CCMAU will maintain its commitment to staff training and development, and review its current staff policies to ensure they enable staff to perform to their highest potential. We will also ensure we keep abreast of developments in workplace policies that enhance staff wellbeing.

Last year we signalled our existing board succession management system was coming to the end of its useful life. A process is well advanced to replace the existing system with a new system that has greater functionality to meet our future needs. This includes enabling candidates to self-manage their own details which will reduce the administrative burden on CCMAU. The new system is expected to be operational by the end of 2008.

In order to retain a motivated team, we will seek their feedback and, where appropriate, act on their suggestions to improve the workplace. We will continue to monitor staff satisfaction levels by conducting an annual staff climate survey.

Around four years ago, CCMAU took a leadership role in setting up an international network of ownership monitoring agencies to share best practice policy and processes, and to facilitate the sharing of knowledge among between member organisations. This network has grown steadily and now has 33 member organisations from 24 jurisdictions. In September 2007, CCMAU led a very successful three-day workshop in London, where our leadership role was extended until 2010. Our challenge in the year ahead is to maximise the benefit from having this leadership role so that our ownership monitoring effectiveness is enhanced.

Our website is the major channel through which the New Zealand public can find out how well the companies and entities we monitor are performing. It is also a primary way of registering one's interest in becoming a director and finding out about upcoming board vacancies. In 2008/09, we will ensure our website is kept up to date with current information to enable the New Zealand public to reach an informed view on company and entity performance.