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ARCHIVED - Review of the Governance Framework for Canada's Crown Corporations - Meeting the Expectations of Canadians

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2. Defining Good Governance in an Era of Increased Public Scrutiny

Over the past decade, a time of increasing fiscal discipline and increasing demand for participation in the public policy process, the public sector in Canada has gone through several waves of transformation.(3) This has led to the rise of more public-private partnerships and the creation of institutional arrangements that involve third parties. More programs and services are being delivered by non-governmental organizations. These arrangements have been viewed as cost-effective alternatives to direct delivery by government and as better able to respond more rapidly to changing needs. They have changed the way governments operate, creating new entities with public mandates, including new Crown corporations, and introducing management practices from the private and not-for-profit sectors into the public sector.

However, over this same period, a series of corporate scandals and failures in the private sector have led to significant decreases in the value of shares and increased the public's scrutiny of private sector governance practices. They have raised the thorny issues of who should have been protecting shareholders' interests and who should be held accountable for the performance of corporations. Institutional investors in particular have pressed for reforms aimed at strengthening the legitimacy of boards of directors and their role of guiding, governing, and overseeing corporations. Strong Boards of Directors can serve as a mechanism — along with regulators and law enforcement agencies — to protect the interests of shareholders and other stakeholders, and thereby ensure a sound market system. Governments, regulatory bodies, and stock exchanges are using their authorities to put in place measures requiring Boards of Directors to govern seriously and effectively.

Naturally, similar pressures to reform the governance of private sector corporations extend to those in the public sector. Specialized organizations, institutional investors, and the general public are all pressing for more transparency and accountability in the way private and public institutions manage their operations.

In this more demanding environment, good public governance is understood to be about relationships, based on shared values and principles, between citizens, the government, and entities that exercise state delegated power for the management of public policies, resources, and services. The sound management of resources and the implementation of policies and programs that respond to the expectations of the citizenry largely depend on the government's ability to establish good governance arrangements with and within these entities. Crown corporations — as public institutions — created, mandated and entrusted by Parliament to serve Canadians, are an integral part of this new dynamic.

2.1 The Principles of a Sound Governance System

There are several elements required in a sound governance system: clarity of objectives and expectations, clear lines of accountability, transparency in the application of and compliance with rules, and a culture based on a solid ethical foundation. In this context, clarity of roles, responsibilities and accountabilities is essential.

In our system of responsible government, Parliament, the body elected to represent Canadians, is sovereign under the Constitution. The elected government of the day can only govern if it maintains the confidence of the House of Commons. Parliament has three main responsibilities: (1) to adopt laws that govern and regulate the relations among citizens, groups, and institutions; (2) to vote on taxation and supply; and (3) to hold the government to account for use of its executive authority. Canadians elect the government to govern them and the government in turn may task different institutions including Crown corporations with achieving public policy objectives and delivering services to Canadians. At the core of our system is a democratic contract between citizens and institutions based on the principles of legitimacy, accountability, and transparency. In the Canadian context, the legitimacy of public institutions is embodied in law and/or in long-standing practices. The FAA and the specific statutes creating Crown corporations provide the legal framework of action for the government and the corporations themselves.

The principle of accountability is central to our system of democratic governance, characterized by the accountability of the executive to the democratically elected legislature. Accountability can be defined as "a relationship based on the obligation to demonstrate and take responsibility for performance in light of agreed expectations."(4) Because they exercise executive power, Crown corporations are accountable for their decisions and actions to Parliament through a responsible Minister. Ministers are ultimately accountable to Parliament for the overall effectiveness of Crown corporations in their portfolio, in addition to being answerable for all activities of the Crown corporation, including its day-to-day operations. The Minister is, however, accountable at a systemic level, for example, for ensuring the right organizational structures and governance arrangements are in place and that qualified people are recommended for appointment as directors. When required, the responsible Minister also must take action to protect the public interest, for example, by issuing a directive. In short, while the corporation has day-to-day autonomy, Parliament will ultimately look to the Minister to ensure that the corporation is delivering efficiently and effectively on its mandate.

The principle of transparency implies that the public has the right and should have the means to assess whether or not the government is delivering on its policy commitments and whether or not public funds are being managed effectively. Laws such as the Access to Information Act and other tools such as annual reports have improved the transparency of public institutions, including Crown corporations. By disclosing publicly and by reporting accurately on their commercial and non-commercial activities, Crown corporations build public confidence in their capacity to deliver their mandate.

Good governance of Crown corporations relies on a consistent application of these principles in a way that respects the attributes and responsibilities of each actor: Parliament to hold government to account; the government to ensure that its policies and services meet the needs and expectations of Canadians; and Crown corporations to achieve value for money in delivering on the government's public policy. By exercising these responsibilities in a transparent manner, the actors demonstrate that they have integrity and are making a credible contribution to the governance and oversight of Crown corporations.