Treasury Board of Canada Secretariat
Symbol of the Government of Canada

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


Warning This page has been archived.

Archived Content

Information identified as archived on the Web is for reference, research or recordkeeping purposes. It has not been altered or updated after the date of archiving. Web pages that are archived on the Web are not subject to the Government of Canada Web Standards. As per the Communications Policy of the Government of Canada, you can request alternate formats on the "Contact Us" page.


4. Strengthening Governance – Clarifying Accountabilities and Assigning Roles and Responsibilities

4.1 Clarifying Accountabilities

Crown corporations operate in a complex environment-one in which they often need to deal with a mix of commercial and public policy objectives. The concept of shareholder, particularly as it applies to widely-held public companies, is not entirely transferable to Crown corporations, which may or may not have formal share capital. Functionally, the role of owner is exercised by the responsible Minister on behalf of the government of the day. The corporation is accountable to the responsible Minister, who is in turn accountable for the corporation to Parliament. The most explicit statement of this accountability is found in section 88 of the FAA, which states: "Each Crown corporation is ultimately accountable, through the appropriate Minister, to Parliament for the conduct of its affairs."

Section 88 reinforces two basic principles. First, that Parliament has the authority to hold the executive accountable, so that ultimately all instruments of the executive branch, Crown corporations included, are accountable to Parliament. Second, that the executive's accountability to Parliament is effected through the core constitutional convention of ministerial responsibility. However, during the course of this review it has become evident that section 88 could be interpreted in various ways.

First, section 88 ascribes accountability to the corporation. Though the corporation is a legal person, the question has arisen who precisely is accountable to the government for the corporation: the Board and its chair, or the CEO. Furthermore, the phrasing, "through a Minister to Parliament" has caused confusion about precisely to whom in government the corporation is accountable. For example, during the consultation phase of the review some CEOs and chairs voiced their belief that their accountability was to Parliament rather than to their responsible Minister. There was also confusion about who speaks authoritatively for the executive.

Although Part X of the FAA assigns roles and responsibilities to the responsible Minister, the Governor in Council, the Board of Directors, and even Parliament, the government has determined that the accountability structure under the legislation should be more clearly articulated. In particular, the following relationships should be set out explicitly.

Accountability and Answerability

Accountability is the means of enforcing or explaining responsibility. It involves rendering of account of how responsibilities have been carried out. It also includes taking any necessary corrective action if things go wrong and explaining how problems have been or will be corrected. Depending on the circumstances, it may entail accepting personal consequences for problems that the office holder caused or that could have been avoided or corrected if the office holder had acted properly.

Answerability is the duty to inform and explain but does not entail the personal consequences associated with accountability.

  1. The responsible Minister is accountable to Parliament for the Crown corporation. The Minister is accountable for the discharge of his or her responsibilities under Part X of the FAA and constituent legislation, for the legislative and regulatory framework applicable to the corporation, and for the policy instruments of the government, including the provision of broad policy direction to the corporation. In addition, the Minister is answerable in Parliament for all activities of the corporation, including those pertaining to day-to-day operations.
  2. The Board of Directors is accountable to the responsible Minister for the stewardship of the corporation.
  3. The CEO is accountable to the Board of Directors for the management and performance of the corporation.

Measure #1

The government will clarify the accountability structure for Crown corporations, including in the FAA, in order to describe the relationships between Parliament, the responsible Minister, the Board of Directors and the CEO.

4.2 The Role of the Minister

As suggested earlier, the private sector concept of shareholder, particularly as applied to widely-held corporations, is used in the context of Crown corporations more or less as an approximation. Crown corporations may or may not have formal share capital. Either way, the Crown is the lawful owner of the corporation and the government of the day exercises authority on behalf of the Crown. While the Crown ultimately represents the Canadian people, they are not legally the shareholders of Crown corporations.

Authorities and duties of Ministers for Crown corporations assigned by the FAA

  • Recommending the issuance of directives
  • Recommending the appointment of directors, subject to the concurrence of the government
  • Recommending corporate plans for approval by the government, and operating and capital budgets for Treasury Board approval
  • Tabling annual reports and summaries of plans and budgets in Parliament
  • Reviewing information from a special examination report
  • Reviewing reports on material developments that have occurred in a corporation and answering questions in Parliament

Within the government, a variety of officials inevitably play a role with respect to Crown corporations — for example, in reviewing corporate plans or developing operational guidelines for broad application. These officials do not have direct authority over the Crown corporations. Rather, they provide support to the responsible Ministers as part of the governance regime for Crown corporations. However, there is confusion about who speaks authoritatively for the government to the corporation. It is the responsible Minister who does so, and whose role most closely equates to that of shareholder.

Measure # 2

The government will affirm, including through amendments to the FAA and other relevant statutes, that the responsible Minister is its representative.

The responsible Minister's role is central to the effective functioning of the governance and accountability framework. The distinctive nature of the relationship between the Crown corporation and the government makes the responsible Minister's role one that must be executed with skill and an appreciation for the distinct relationship. Crown corporations are instruments of the government for which the government is ultimately accountable, but they have operational autonomy for the specific purpose of keeping their day-to-day activities at arm's length from government.

This arm's-length relationship is reflected in the nature of a Minister's accountability for Crown corporations within his or her portfolio. Broadly speaking, Ministers are accountable at a systemic level: for appointments and framework legislation, as applicable; for review and approval of corporate plans; for assessing the ongoing relevance of the corporation's mandate and its effectiveness as a policy instrument; and for providing broad policy direction to the corporation. Ministers are not accountable for the day-to-day administration and operations of the corporation. However, they must answer to Parliament—that is, provide information and explanations, as appropriate—for all of the corporation's activities. As previously noted, directors and senior executives of Crown corporations may facilitate Parliament's capacity to scrutinize the activities of Crown corporations and hold the government to account by appearing before parliamentary committees on behalf of the corporation to answer questions when invited.

Maintaining the balance between the autonomy of Crown corporations as arm's-length organizations and the government's overall responsibility for their effectiveness as instruments of public policy can be challenging. Overall, arm's-length status is maintained as long as Boards of Directors and corporate management remain effectively in charge of administration and management. The extent of a Minister's involvement will vary somewhat depending on the Act that establishes the corporation, but in all cases Ministers are required to provide the corporation with general guidance on the government's objectives and expectations. This review has found some need to enhance the ways in which the government influences the activities of Crown corporations.

The government, through the responsible Minister, has a range of instruments by which it may influence the activities of Crown corporations—from amendments to constituent acts, to mandate reviews, to the approval of restricted transactions. All of these instruments have been used at one time or another. However, there are three key vehicles for the issuance of policy guidance to Crown corporations: (1) the mandate provided in law; (2) the corporate plan approved on an annual basis; and (3) the power to issue a formal directive should it be necessary to direct the corporation to act in a specific manner in response to the public interest.

Of these vehicles, the Crown corporation's mandate provides the broadest level of policy guidance. The mandate sets out the corporation's goals, responsibilities and authorities, and identifies the powers of its Board. Typically, the mandate is defined with sufficient breadth to accommodate the range of possible roles and responsibilities envisaged for the corporation at the time of its creation. Consequently, when applied to specific circumstances, the mandate can be subject to divergent interpretations by the Minister, the Board of Directors, and the CEO. Moreover, several Crown corporations have been established through articles of incorporation under the Canada Business Corporations Act and have mandates that do not set out clear corporate goals and objectives.

The second key vehicle, the corporate plan, allows for policy direction to be articulated with more specificity, and has become the principal instrument for defining corporate objectives. A small number of exempt Crown corporations are not required to submit corporate plans—although some do for information purposes—despite the fact that some of these corporations receive annual appropriations. In the government's view the corporate plan is an important instrument for business and strategic planning; however, the process of developing and approving corporate plans is not always used effectively to convey policy objectives to the corporation. In Chapter 18 of its 2000 report, the Office of the Auditor General observed that "many corporations receive little or no feedback on their corporate plan from their responsible Minister." In the absence of clear guidance as to the government's expectations, corporate plans can be a one-way street.

The third key vehicle for the issuance of policy guidance—directive power—enables government, when necessary, to oblige Crown corporations to deliver on their public policy mandate. It enables the government, in effect, to set aside the corporation's autonomy and direct specific action in response to what the government deems to be in the public interest. In keeping with their exceptional status, directives must be tabled in both Houses of Parliament and must be implemented by corporations in a prompt and efficient manner. The Board of Directors implementing the directive are legally considered to be acting in accordance with their fiduciary responsibilities, even where the directive may conflict with the immediate interests of the corporation. The power of directive was never intended to be used extensively and has remained a tool of last resort.

Other than the instruments just mentioned, all of which have limitations, there is no formal process for transmitting the government's expectations to the Boards and management of Crown corporations. The government has provided policy guidance through informal means such as the participation of senior officials in board meetings, exchanges between corporations and portfolio units of the responsible Minister's department, or direct communications between the Minister or the deputy minister's office and the chair or CEO. The use of these tools typically reflects the style of a particular Minister and does not support a consistent, structured approach to the provision of policy guidance.

The government is of the opinion that a more proactive approach to its relationship with Crown corporations is warranted, particularly with respect to communicating its policy priorities, performance expectations, and the corporations' expected contribution to government objectives. The responsible Minister is the appropriate person to provide government input into the Crown corporation's corporate planning process.

Measure # 3

To improve the communication of policy objectives and priorities from the government to Crown corporations, the responsible Minister will issue a statement of priorities and accountabilities to Crown corporations within his or her portfolio. The statement will be discussed beforehand with corporate management and the Board, but ultimately it will reflect the government's policy expectations for the corporation. The statement will be subject to an annual review and help form the basis for a periodic review of the corporation's performance.

The statement of priorities and accountabilities will serve several purposes. It is intended to

  • confirm the corporation's mandate and business lines;
  • inform the corporation of government priorities;
  • achieve consistency between the government and the corporation regarding the government's priorities, policy objectives and performance expectations for a fixed period; and
  • serve as a key driver in the development of the Crown corporation's corporate and/or strategic plans, annual reports and financial forecasts.

The statement of priorities and accountabilities will not be legally binding. It will be tailored to the specific operating circumstances of each Crown corporation. In an effort to resolve potential conflicts regarding the mandate of the corporation, the statement will enunciate clearly the public policy goals of the organization as well as its commercial objectives and, if applicable, how they are interrelated. The document will provide the flexibility needed to respect the status of corporations that are outside the provisions of Part X of the FAA, and help promote a better working relationship including supporting the corporate planning process. It will not provide a vehicle for the responsible Minister to venture into specifics of programming, management of the corporation, or management and distribution of corporate assets.

4.3 The Role of the Board of Directors – Translating Public Policy into Efficient and Ethical Operations

Crown corporations have operational autonomy but are not independent of government. Transparency in the provision of policy guidance and clarity in public policy objectives, such as through the issuance of a statement of priorities and accountabilities, will go a long way towards ensuring that the activities of corporations better support the overall orientation of the government. Boards of Directors have an important role to play. Accountable to their responsible Minister, with a mandate legislated to them by Parliament and with a duty to act in the best interests of the corporation, directors are expected fulfill their role with vigour and, when required, enter into a process of dialogue with the Minister to arrive at an appropriate understanding of the corporation's activities based on the government's policy priorities.

Boards are accountable to the responsible Minister for ensuring that the activities of Crown corporations are in line with their mandates. They also have the ultimate responsibility for the implementation of the policy guidance that would be provided in the statement of priorities and accountabilities. It would be their responsibility to seek clarification from the responsible Minister and/or play a challenge function. By assuming a more active role in the definition and interpretation of policy priorities and by working with management to facilitate implementation, Boards will ensure that the plans and activities of the corporation support the government's policy agenda.

The Board of Directors should play a central role in overseeing the corporation's management. Strengthening this role has taken on increasing importance in recent years. Shareholders now expect Boards to deliver on this function with diligence and assertiveness.

The roles and responsibilities of Crown corporations' Board of Directors are enunciated in several longstanding legal and policy instruments. The Canada Business Corporations Act stipulates, "Subject to any unanimous shareholder agreement, the directors shall manage, or supervise the management of, the business and affairs of a corporation."

Both the Canada Business Corporations Act and the FAA mandate directors to

  • act honestly and in good faith with a view to the best interests of the corporation; and
  • exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

The guidelines on Corporate Governance in Crown Corporations and other Public Enterprises released in 1996 by the Minister of Finance and the President of Treasury Board, includes the statement that:

"The Board of Directors of every Crown corporation should explicitly assume responsibility for the stewardship of the corporation. As part of the overall stewardship responsibility, the Board should:

  • approve the strategic direction of the corporate plan for the Crown corporation;
  • ensure that the principal risks of the corporation's business have been identified and that appropriate systems to manage these risks have been implemented;
  • approve management's succession plan including appointing, training and monitoring senior management;
  • ensure that the corporation's information systems and management practices meet its needs and give the Board confidence in the integrity of information produced."

As noted earlier, under Part X of the FAA, Crown corporations are accountable to Parliament through their responsible Minister. The Act, however, does not indicate who would be accountable on behalf of the corporation — the chair of the Board or the CEO — should issues of public concern arise. In practice, parliamentarians have tended to hold the Minister publicly accountable. However, in matters of day-to-day operations and management, the Minister's role, on behalf of the corporation, is limited to answerability, as defined earlier in this chapter.

Measure #4

In order to reaffirm that Boards of Directors are accountable for the activities and performance of the corporation to the responsible Minister, the government will embody the role and the responsibilities of directors in Part X of the FAA and in other enabling statutes.

Boards of Directors need authorities that match their responsibilities if they are to fulfill their obligations. One important duty is oversight of the CEO. In recognition of this requirement, the new process for the selection and appointment of CEOs (Chapter 6) provides a more prominent role for Boards of Directors.

4.4 The Role of Parliament – Legislation, Oversight and Scrutiny

Parliament's key responsibilities are to review and vote on legislation, including appropriation bills through which Parliament authorizes the spending of government funds, and to scrutinize and hold the executive arm of government accountable for the decisions and actions it takes in governing the country.

With respect to Crown corporations, Parliament annually approves appropriations for a number of Crown corporations. In order to facilitate its oversight role, Parliament receives, on an annual basis, summaries of corporate plans, annual reports, and a consolidated report on Crown corporations presented by the President of the Treasury Board. Parliament may also ask Ministers questions about the activities of Crown corporations. In addition, parliamentary committees have the authority to invite chairs and CEOs to appear before them to explain the activities of their organizations.

These mechanisms and authorities make Parliament a significant element in the Crown corporation governance and accountability regime. While it does not have a role to play in governing, Parliament's ongoing assessment of the roles, attributes and performance of public institutions can make an essential contribution to improving the delivery of services that respond to the expectations and needs of Canadians.