Stewardship, Diversity and Risk: Public Service Leadership in the Modern Era

Speech delivered by Gabriel Makhlouf, Secretary to the Treasury, to the IPANZ New Professionals Conference, in Wellington on 8 August 2014.

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Good morning everyone, and thank you to IPANZ for inviting me to lead off Day Two of the New Professionals Conference.

For those of you who are new to the public sector, welcome to one of the biggest jobs in New Zealand. The scale of what public servants are responsible for make the likes of Fonterra, Foodstuffs and Fletchers look small in comparison.  You are part of a sector that manages around $245 billion worth of assets and over $175 billion worth of liabilities. You have more than four million bosses expecting you to be efficient and effective.  You have more than four million customers expecting you to deliver great services that meet their needs.  And whenever someone visits the doctor, calls the police, drops their kids off at school or asks for financial support when looking for work, they rely on you or your public sector colleagues to do a good job for them.

So who’s in charge of ensuring this large and complex enterprise is going well?  You are.  Some might find that daunting; I hope you find it exciting.  

It’s going to be your leadership now and in the years to come that will help the public sector to keep delivering the high quality advice and successful implementation that the government requires.  

It’s your leadership that will help ensure all New Zealanders can access the public services they need, and develop the skills and capability to play a part in the economy and society.

It’s your leadership that will determine whether the way the public sector operates, regulates, manages assets and commits resources provides genuine value for money.

The Kiwis Count survey tells us we’re doing a pretty good job.  But it’s a job that’s changing: when I think about the environment we’re working in – certainly compared to 20 or 30 years ago – the diversity of our society is much greater, the pace of change is much faster, and the expectations of the public sector are much higher.  Simply running your organisation well to manage the present isn’t enough anymore.

Public service leadership in the modern era requires more than that. We have to prepare for what’s on the horizon as well as dealing with the here-and-now, and today I want to talk about three areas that will help us to do that: stewardship, managing risk, and diversity.

Stewardship

Let me start by emphasising the importance of stewardship.  Public servants in whatever role they’re in have a responsibility to look after the Crown’s medium and long-term interests.  As the effective owners of our own public sector system, the onus is on us all to make sure the system is permanently focused on improving performance, making best use of the resources entrusted to us, and remaining sustainable well into the future.

That requires stewardship to be shown at all levels, both within and beyond the place you work.

At an agency level, leaders need to ensure their organisations have the capability to work effectively for current and future governments and provide them with free, frank, expert advice.  

At a sector level it’s imperative that we work towards the sector’s broader goals, which can mean putting aside departmental interests for the greater good, or perhaps taking on accountabilities outside our normal ambit. 

And at a system level, we have to put our efforts into driving the capabilities, processes and actions that will lift performance across the public sector and maximise its collective impact.

A pervasive and conscious focus on stewardship should flow through into the public sector’s commitment to achieving results. While it’s easy to get bogged down in day-to-day activity, we have to step back and ask ourselves some big questions: are we focusing on the right things?  Are we clear about the outcomes that the tens of billions of dollars spent every year by the public sector are trying to achieve? Are we getting the best value for our citizens from every dollar of that money?  Are we doing enough to shift the focus towards the outcomes that will deliver better public services and make a difference to New Zealanders’ living standards?  And if our departments or the wider system aren’t doing enough, what needs to change?

Another important facet of leadership in the modern era is what I call ‘policy stewardship’.  In the public sector we should understand the impact that policy is having over the medium and long term, and test spending in existing areas to see if it’s delivering the results we need.

In fact our responsibilities start well before policy is even formulated, through our role in helping Ministers and the community in general to understand the options and choices they have.  We fail both the public and the government of the day if we leave Ministers to make decisions with insufficient information, without the best possible evidence, and without learning from what has gone before.  

And the point here is that there is rarely something where the issues are clear-cut, or where choices don’t have to be made.  We know that funding has to be rationed and prioritised, regulations have an impact on individual choices, trade-offs have to be made between the national good and local preference – so it matters that the right decisions are taken.

The policy advice that informs these decisions must be built on a strong foundation.  We have to make sure what looks like a good policy idea is backed up by solid evidence and quality analysis.

This is a job I’m sure a good proportion of you here today are doing, but increasingly you’ll be doing it in ways your predecessors never did, using techniques and rich information they never had, with round-the-clock public and media scrutiny they never knew.  The nuts and bolts of developing policy advice still involve reading and researching relevant material, looking at the facts and evidence, analysing the information and preparing a report.  But we’re innovating well beyond this.  More and more we have to be skilled at working with big data, using it to identify trends and risks that can inform our planning, investing and policy-making. We also have to be adept at working with others across the public, private, academic and not-for-profit sectors.  And I anticipate policy analysts making increasing use of networking, brokering, commissioning, contracting or crowd-sourcing to generate some of the best solutions.

And on the subject of solutions, before we suggest new regulations, we need to test whether the problem they’re supposed to sort out couldn't be better solved by a non-regulatory arrangement.   If we do choose a regulatory option, we need to know benefits will outweigh the costs, that the regulatory solution will be proportionate to the problem, that it provides the right incentives, and that there won’t be unintended consequences. 

Moreover we must not take a ‘set and forget’ approach to regulation or to our policy settings or spend millions on programmes with no comprehensive follow-up evaluation.  A worrying but perhaps unsurprising finding from last month’s Productivity Commission report on regulatory institutions and practices is that two-thirds of regulator chief executives said they worked with legislation that was out of date or not fit for purpose.  It’s our duty to review how effective we’re being.  That means taking a hard look at whether a policy is having the impact we thought it would, whether a service is delivering value for money, or what the connections are between an area of regulation and economic, social and environmental outcomes.  Maybe there’s a new set of challenges and circumstances that current policy just isn’t equipped to deal with.  If the facts and evidence change, we need to be prepared to admit that and change tack too.

Risk

The second big area I want to talk about is linked closely to stewardship, and that’s managing risk.

The risks that public sector leaders have to manage have broadened considerably over the recent decades.  We’ve moved away from a world where our prime focus was risk avoidance or the management of reputational risk.  Of course this is still part of the job, only now we do it in an environment where the news cycle has given way to 24 hour entertainment.

We’ve moved to a focus on risk recognition and risk management as opposed to risk avoidance. 

If the public sector tried to avoid risk in everything it did, then we’d never innovate, improve our performance, achieve better value for money, or meet the needs of our communities.  Last year Deputy Prime Minister Bill English said, “I want to see a shift in focus and a change in the way the government delivers services to New Zealanders, so that what we do really makes a difference to people. I want there to be a higher tolerance for uncertainty and a higher tolerance for risk – because we can’t keep doing things the same way.”

Public sector leaders need to take up that challenge and adopt good risk management practices.  At its heart that’s about having a clear understanding of the outcomes you want to achieve and good information and analysis about what could help or hinder you achieving them.

In particular, we can be more effective at risk management if we understand the citizens we serve.  We need to get to the bottom of questions such as:  What do people expect from us?  What do they need?  What behaviours are we seeing?  What evidence do we have that what we’re doing is working, that it’s still on track?  What are the cost drivers and pressure points?  Are there changing circumstances now or on the horizon that we need to respond to?  

The more we know about the people we serve, the more likely we are to have efficient and effective processes and services, and the better our risk management will be.

People throughout the public sector play a part in risk management but I’d like to single out Finance teams.  Strategic financial management has a key role to play by helping decision-makers better understand the link between costs, inputs, outputs and outcomes – including alternative approaches that might provide better value.  That could have implications for the management of your department’s balance sheet, influencing what resources and assets you use, where and when you use them, and what investment or divestment decisions you make.

At the Treasury we’ve also been running the risk management ruler over the Crown’s balance sheet, the $245 billion worth of assets and over $175 billion worth of liabilities I spoke about earlier. The balance sheet is large and it's getting larger.   We published our first Investment Statement this year which reported on the past, present and future of the balance sheet.

No one wants the New Zealand Crown to get hit with the types of unpleasant surprises that some European governments have had to contend with in recent years.  This was because, in part, they did not have a proper handle of their own finances, including their public balance sheets – nor an adequate understanding of previously off-balance sheet risks that ended up on governments’ balance sheets in very short order when hard economic times hit.

We also want to make sure that our mix of assets continues to promote higher living standards and leave us well placed to meet the social and financial challenges ahead.  

Good balance sheet management is an important facet of risk management for public sector leaders.  If it’s done well, services will be provided cost-effectively and efficiently and taxpayers will be assured that they are getting value for money out of the assets they own via the Crown.  At the same time they can be confident we have built-in resilience to the inevitable next big economic, financial or natural disaster shock that comes along.
That includes being prepared for the national risks to which New Zealand can be vulnerable, whether pandemics, biosecurity threats, cyber attacks, terrorism and of course earthquakes to name just a few.

Agencies across the public sector have the responsibility to identify and monitor risks to the country’s well being, gather and interpret information about them, develop ways to manage or mitigate them, assess costs and benefits, and take action if the risks come to fruition.

And on a smaller scale, agencies across the public sector also have a responsibility to ensure their own resilience, or the capacity to change before the case for change becomes self-evident.  Resilience is not just about responding to adverse events.  It’s also about preparing for the future and being able to respond to opportunities as well as risks.

Diversity

That brings me to the third major area I’d like to cover: diversity.  I gave a speech on diversity a couple of months ago that you can find on the Treasury’s website, and there are a few points I want to share with you today.

Compared with New Zealand a generation ago, we’re more diverse, more urbanised, more tech savvy, more democratic, more diffuse and more connected.  Public servants have to deal with issues that are more complex through the diversity of expectations, of needs, of risk tolerance, all of it in a context of rapid change. 

But that complexity and challenge is something we need to grasp, if we are to keep serving our communities well. And perhaps most importantly, we need to recognise and grasp the opportunities diversity offers us, especially diversity of thinking.

Talking about the advantages of diversity might sound like a case of public sector PC obsession, and that would be right.  Not in terms of Political Correctness, but in the sense of focus on Performance and Capability.

As policy-makers, we used to be able to take time to look at an issue, formulate a solution, roll it out and evaluate it over years. But now the public service needs fresh answers to both emerging and long-standing problems, and it needs to find them fast.  It’s intuitive that diversity of thinking is the key to finding new solutions, and the data backs this up.

The case for diversity is clear, as much for the public sector as it is for the corporate sector.  We need diverse skills and perspectives to produce the best ideas we can.   And we also need diversity of experience to make sure the ideas we come up with are practical, so that we can see them through from conception to successful implementation.

Today’s public sector leaders should be making the best of all the benefits that diversity and inclusion provide.
In the Treasury that’s partly about actively seeking out wider perspectives, partly about employing people with a diverse range of backgrounds and partly about developing a more inclusive culture.

So it’s now business-as-usual for us to be talking to a broad range of people in the course of our work, whether from the business community, the teaching profession, Iwi and many others.  And we’re talking to them across New Zealand primarily because we want to listen: we’re interested in ideas, information and insights.

And by employing people with a diverse range of backgrounds, we know we will increase our access to fresh perspectives and new experiences.

Perhaps the most critical aspect – and certainly a key task for any leader – is to develop the inclusive work environment that allows different perspectives to be encouraged and to actually be heard.

The goal should be to create a culture where people can be themselves, where they have an opportunity to make their views known, where their perspectives can be listened to and where ideas and advice represent something that’s greater than the sum of the parts.

Conclusion

Today I’ve talked about some of the important areas I believe leaders need to focus on: stewardship, risk management, and diversity.  Later this afternoon there will be a discussion on what the public sector will be like in 20 years time, so my parting challenge to you is to consider the kind of public sector our country will need in the future, and what you think we have to start doing – or start doing better – to get there.

As new professionals in the public sector, I hope you feel you’re part of a profession where your individuality, insights, experience and actions can make a big difference.  

It’s your efforts that we rely on to have a high-performing public sector now, and it’s your leadership that will ensure we keep meeting the needs of New Zealanders in the years to come.

Those needs will change over time, and your jobs will keep changing too.  I think that’s all part of what makes working for the public sector so interesting and rewarding.  

Taking pride in our work and our professionalism, leading people through change and complexity, being passionate about making a difference, working at pace, routinely looking to improve our performance.  It all adds up to public sector leadership in the modern era.