Blithe ignorance of the most basic public management principles has sparked a broadside call about risks of hiring private sector hot shots for public sector leadership roles.
The shocking misuse of public funds by the board and senior managers of the publicly owned Mt Buller and Mt Stirling alpine resort demonstrates the risk of public bodies hiring executives from the private sector, according to Victorian Ombudsman Deborah Glass.
A strong sense of frustration and disbelief comes through in her excoriating report, which details a list of inappropriate perks blithely enjoyed by the board chair, chief executive, property manager and other employees.
In arrangements that might be acceptable in some privately owned companies, there were also tales of freebies to family and friends for no discernible business purpose, and questions about conflict of interest around contracts with a company part-owned by the CEO’s wife.
Their responses, on the other hand, collectively display an almost unbelievable level of ignorance about why their behaviour was unacceptable for the stewards of a government-owned company. Glass sees a “cultural risk associated with private sector individuals” that needs to be taken seriously during recruitment processes for directors and other employees of public enterprises like the ski resort.
“I would prefer to help government build a sturdy stable door than spend my time chasing after horses with expensive tastes that have long since bolted,” she writes in a sharply worded preface to the report.
And Glass says it’s not the first time her office has concluded that public bodies need to be especially careful if they try to attract top-gun executives from the private sector:
“Of perhaps most concern is that people in positions of the highest responsibility gave evidence that they were unaware of their obligations regarding the use of public funds. …
“Three of the subjects of this investigation had little or no experience of the public sector. Previous Ombudsman investigations have demonstrated the risks associated with such people coming directly from the private sector into publicly funded roles – plainly, those risks continue.”
Public assets are ‘no-one’s personal playground’
Glass writes that there is one simple concept that everyone “employed on the public purse” needs to get their head around: taypayer’s money should not be used for personal gain. “Mt Buller is no-one’s personal playground,” she adds. “It is public property and its management is the temporary custodian.”
During the investigation, chief executive John Huber argued he only received what he believed he was entitled to under his contract, explaining the board had found ways to give him the maximum possible remuneration, essentially because they knew he was worth it.
Huber said chair Jennifer Hutchison had “always been acutely aware” he could get paid more in another job and had therefore “sought to keep [his] salary at the highest permissible level” and give him the biggest possible bonuses, as well as “finding other ways to provide [him] with additional permissible benefits”.
The problem was those additional benefits — which included $5000 worth of “research and development” funds, some of which paid for his family’s overseas holiday — were not actually permissable. “While the charms of a lake house in upstate New York are undeniable, Victorians do not pay taxes to fund public sector employees’ private holidays,” Glass observes.
Hutchinson also let her own friends and family come and stay at the ski resort and have VIP lift passes free of charge, in breach of several sets of rules and regulations. Huber accepted that he had inappropriately used his work credit card, and he also approved a taxpayer-funded junket for the property manager and his family, who has refused to repay the money on the grounds that it was legitimately approved by his employer.
Glass lists all the various sets of rules that applied: the public sector code of conduct, the Public Administration Act, the directors’ code of conduct, the Financial Management Act, government purchasing card rules and public sector travel principles.
But the CEO claimed, via his lawyer, that he was “entitled to rely on the Board to ensure that all the legal and procedural requirements” around his contracted role were followed. Huber wrote in response to the draft findings:
“Prior to commencing work for the RMB, I had had no experience of working in the public sector … there was no induction process to familiarise me with relevant legislation, Government policies or Board policies. I was, therefore, reliant on advice provided to me by my executive team in relation to financial governance and human resources practices. I was also reliant on the guidance provided to me by the Board Chair.”
Let down by staff induction
In interviews with the Ombudsman’s office, Huber repeatedly claimed unawareness of his responsibilities and failures of memory. He also gave evidence that in several cases could not be substantiated, or later turned out to be incorrect.
And Hutchison, who has chaired the board since October, 2011, complained to the investigators that public servants from the Department of Environment, Land, Water and Planning had not inducted her properly into the ways of the public sector:
“I must say I just feel quite irritated with my – with my bureaucrats as wonderful as they are in so many ways. There has been quite a lot of criticism delivered back to them over the last four or five years about the paucity of their induction activities with incoming boards. And every 18 months had an incoming board.
“I would have loved to have had [the Travel Principles and Purchasing Card Rules … ] put in my hand back then. I mean why can’t this be part of the package that says, here’s your credit card rules, here’s your financial responsibility, you know, and here’s your travel – here are the travel principles.
“We do get the public service code of conduct and we do you know, we do give our own board charter. And we get a couple of other generic documents. But we don’t get specific like this.”
She also told the Ombudsman’s investigators she was “uncomfortable” with “the unorthodox application of the clause in the CEO’s contract when he informed [her] of his intention to apply it to family member travel” but believed the clause was too vaguely worded for her to challenge him.
DELWP secretary Adam Fennessy disagreed and said “more considerable support was provided to the Board than the Chair acknowledges” in his response. He acknowledged “a continuous need to improve governance practices and training” but also listed all the many important documents and pieces of guidance the board should have read, and suggested the directors had failed to live up to their responsibilities:
“Good governance standards, obligations and accountabilities for Victorian public sector entities can be complex. The board of an entity is responsible for ensuring that the entity complies with these standards, obligations and accountabilities.”
In a letter to the board, the CEO made it clear that he was only agreeing to pay back the money that he spent on his family’s overseas holiday to the government-owned enterprise with great reluctance:
“In agreeing to make the repayment, I do so on the basis that it is in the wider interests of both the Board and the organisation not to be seen to make payments which are inconsistent with Government policy. This said, it should be recorded that, apart from $292 in respect of family meals in 2014 whilst traveling, which was an error on my part, I simply availed myself of entitlements under my contract of employment freely negotiated between the parties.”
As a result of her damning findings, Glass makes 11 recommendations including one for the state’s Department of Premier and Cabinet — making it clear to all that contracts like Huber’s are not allowed in the public sector — which DPC “supports in principle”.
Glass also recommends DELWP consider developing a new education and training program for board members and chief executives of such entities, and the department says it “would positively view” the idea but makes no commitment.
Another recommendation, for Minister for Energy, Environment and Climate Change Lily D’Ambrosio to review the governance arrangements at the resort, has been taken up swiftly. In the spirit of procedural fairness, D’Ambrosio has asked all seven board members to explain why they shouldn’t be sacked within seven days, but it sounds like they will struggle:
“As the Minister responsible I expect high standards of behaviour from Board members and senior executives in my portfolio. The actions and the lapses in judgement and oversight, detailed in this report, fall well short of the expected standards.”
The minister has also asked Fennessy to make sure all public entities in the portfolio review their internal policies for compliance against “whole of government policy and expectation” and to provide assurance that their equivalent internal policies are in place, up to date, and being properly followed.