NBN Co report a warning call for government business enterprises

By Harley Dennett

Thursday August 14, 2014

The latest report into the National Broadband Network has some stark lessons for anyone with a hand in governance of a government business enterprise.

The independent KordaMentha report tabled in Parliament yesterday evening was highly critical of the NBN Co board’s limited industry and government experience, the oversight of chair Michael Quigley and others, and found fault with the scope of information it released publicly and to the government.

Further, the Department of Finance’s Commonwealth Government Business Enterprise Governance and Oversight Guidelines (October 2011) has gaps, the report found. KordaMentha recommended updated practices for GBE oversight and departmental secretaries during caretaker periods.

The directors themselves were all skilled and experienced individuals, but lacked “dirt under the fingernails” in key areas that required deep operational experience and insight, specifically in GBEs, the telecommunications industry, construction and financial accounting and controls.

KordaMentha recommended additional requirements above the Finance guidelines: that future GBE board performance assessments be conducted by an independent external party and report directly to the shareholder ministers of areas of concern. It reported:

“Even a board with exactly the right mix of skills would have struggled with the volume and complexity of the NBN Co board papers.”

The workload of directors was seen as almost impossible; the board was given 590 board papers to review in just one year, about 8000 pages, and estimated to consume 265 hours of preparatory reading alone. An earlier board performance assessment noted the directors’ limited effectiveness and attributed it to “using first principles to dig into an issue rather than … simply jump to the conclusion through content knowledge”.

While departmental corporate plans are released to the public by default, government business enterprises answer only to the shareholder ministers. The GBE guidelines from Finance explicitly say corporate plans are to be confidential to the shareholder ministers, their advisers and departments. However, the intense public and political pressure appears to have confused the lines for NBN Co, which instead released information directly to the public. The report states:

“This reduced the usefulness of the document in communicating to the shareholder ministers and their departments the strategic risks and their potential impact on the key financial and operating results of NBN Co. Neither of the finalised corporate plans provide any meaningful sensitivity analysis, particularly around the effects of delays in the brownfield roll-out or the inability to achieve the future cost efficiencies assumed in the second corporate plan compared with the actual costs incurred to that time.”

Supplementary material provided to the shareholder ministers did include some sensitivity analysis, but the report found that material was lacking.

While NBN Co’s contract procurement processes have been criticised in political commentary, the report found no fault, with no inappropriate material spending:

“We have not identified any significant or unusual contracts entered into during the caretaker period. Specific questions were raised regarding the apparent engagement of Bespoke Approach, a corporate advisory firm which specialised in lobbying. Bespoke Approach were not directly engaged by NBN Co. However they were contracted to provide advice and assistance to the majority of the past and present Non-Executive Directors of the NBN Co Board through Herbert Smith Freehills under the Funding Directors’ Access to Independent Advice Policy.”

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