Crown Corporation Governance: A Primer for Board Directors, Executives and Governance Professionals

Crown corporations (“Crowns”) play a vital role in Canada's economy, delivering important public programs and operating in many key sectors including transportation, energy, agriculture, and financial services. As of 2023, there are 45 federal Crown corporations that collectively manage over $78 billion in government-funded assets and employ over 100,000 people. Given their significance and the substantial public funds invested in them, it is critical that Crowns be well-governed to effectively achieve their mandates while prudently managing government funds.

The Boards of directors (“Boards”) of Crowns bear the ultimate fiduciary responsibility for overseeing the sound management of the corporation's business and affairs in the public interest. Directors are concerned with four main areas: establishing the corporation's strategic direction; safeguarding the corporation's resources; monitoring corporate performance; and reporting to the government and taxpayers.

In the next few pages we’ll examine the key duties of Crown directors, with a focus on the contemporary legal, ethical, and financial imperatives they are subject to. It will draw upon legislation such as the Financial Administration Act, Treasury Board Secretariat instruments, best practices in corporate governance, and the unique context of Crowns as publicly owned yet arm's length entities.

Establishing Strategic Direction

One of the fundamental roles of a Crown's Board is to set and approve the strategic direction and Corporate Plan for the Corporation. The Board must ensure the strategic plan positions the corporation to effectively deliver on its public policy mandate while remaining commercially viable (for those Crowns with business activities). This involves working with management to align with the corporation's mission, vision, values, and key objectives over a multi-year horizon.

Legally, the Financial Administration Act requires the Board to annually submit a Corporate Plan to the responsible Minister. The Corporate Plan is a critical governance document that lays out the corporation's strategic objectives, planned activities, performance targets, financial projections, and key risks over a five-year period. The Board is responsible for thoroughly scrutinizing the Corporate Plan to ensure it is financially sound, operationally feasible, and aligned with government priorities before approving it for submission to the Minister.

From a public policy perspective, the Board must ensure the corporation's strategic direction advances the priorities of the government (the shareholder) in a cost-effective manner. The responsible Minister is expected to provide the Board with an annual letter communicating key policy objectives the government wishes the corporation to achieve. The Board must then integrate these priorities into the Corporate Plan while carefully balancing commercial, fiscal, and public policy considerations. This requires the Board to be judicious in committing taxpayer resources.

Ethically, in developing strategy, the Board should consider the interests of the broad range of stakeholders the Crown serves, not just its government shareholder. This may include employees, customers, suppliers, local communities, and Canadian taxpayers. Directors should strive to set a strategic course that creates long-term public value while exemplifying integrity and ethical stewardship of public funds. The Board should also ensure alignment with public sector values like accountability and respect for taxpayer dollars.

Safeguarding Corporate Resources

A critical fiduciary duty of Crown directors is to safeguard the substantial public resources entrusted to the Corporation by the government. This includes financial assets, physical infrastructure, intellectual property, data, and human capital. Boards are responsible for ensuring robust systems and practices are in place to protect these resources from waste, loss, misuse, or misappropriation.

The Financial Administration Act prescribes clear duties of care and loyalty that directors must uphold in managing corporate resources. Directors must act honestly and in good faith in the best interests of the corporation and taxpayers, and exercise the care, diligence, and skill that a reasonably prudent person would in overseeing the administration of public funds. Directors can be held personally liable for breaching these statutory duties.

From a financial perspective, the Board must ensure the corporation has sound internal controls, risk management practices, and fraud prevention measures to secure its assets and prevent misuse of taxpayer dollars. The Board should work with management to identify key financial risks and ensure cost-effective mitigation strategies are in place. Directors must also oversee the integrity of the corporation's financial reporting to provide reliable disclosure to the government shareholder, Parliament, and the public.

The Board plays a key role in safeguarding the Crown's reputation, which is one of its most valuable assets. This means ensuring the highest standards of legal and ethical conduct, transparency, and accountability in all corporate affairs to maintain public trust. Boards must foster a culture of integrity and careful stewardship, implementing strong codes of conduct, conflict of interest policies, and whistleblowing procedures. Directors themselves must lead by example in upholding ethical conduct and respect for public funds.

Boards are also stewards of the specialized knowledge, expertise, and capabilities the Crown possesses in delivering its public mandate. This may include intellectual property, data, or the skills of its workforce, which are ultimately paid for by taxpayers. Directors should ensure strategies are in place to protect these intangible assets, which may be critical to the corporation's long-term success and value creation for Canadians.

Monitoring Corporate Performance

Another key responsibility of Crown directors is to monitor corporate performance and hold management accountable for results. This involves overseeing the implementation of the Corporate Plan and assessing progress against objectives and targets. The Board must rigorously review financial and non-financial performance, ensuring the corporation delivers on its public policy mandate while remaining financially sustainable and maximizing value for taxpayers.

The Financial Administration Act requires Crowns to submit quarterly financial reports and an annual report to the responsible Minister. The Board must ensure these accountability documents accurately present the corporation's results in accordance with appropriate accounting standards and any reporting requirements established by the Minister. Directors should provide thorough oversight of the performance reporting process to ensure transparency to Parliament and the public on the use of tax dollars.

Boards should establish a corporate performance management framework to monitor results and value for money. This includes defining clear key performance indicators (KPIs) linked to strategic objectives, setting targets, and regularly tracking progress through a corporate dashboard. The Board must critically assess performance, probing areas of underperformance and ensuring management takes timely corrective action where needed to safeguard taxpayer investments.

Importantly, Crown Boards must balance financial and non-financial performance, monitoring both commercial results and public policy outcomes. Directors should ensure the corporation is delivering effectively on its core statutory mandate while being cost-effective with public funds. The Board must also consider performance from the perspective of the government shareholder, citizens, and a range of stakeholders.

To fulfill their fiduciary duties, directors must be diligent in verifying performance information provided by management. Boards should triangulate results through internal and external audits, evaluations, benchmarking, and stakeholder feedback. Directors with financial expertise play a key role in assessing the integrity of financial reports through the audit committee to ensure sound use of taxpayer dollars.

The Board should foster a performance-oriented culture while exemplifying public sector values like transparency, accountability, and value for money. Directors must set a tone from the top that encourages continuous improvement, innovation, and prudent risk management in the pursuit of better corporate results and public outcomes while respecting the trust placed in them by taxpayers.

Reporting to the Government and the Public

A fourth key duty of Crown directors is to report to the government shareholder and Canadian public on the corporation's plans, activities, and performance. As public institutions, Crowns are accountable to Parliament through the responsible Minister. The Board plays a central role in ensuring the corporation fulfills its reporting obligations in a timely, transparent, and meaningful way.

As discussed, the Financial Administration Act mandates that Crowns provide various accountability documents to the government, including an annual Corporate Plan, quarterly financial reports, an annual report, and various regulatory corporate compliance reports. The Board is responsible for approving these reports and overseeing the integrity of the information presented to ensure transparency on the use of public funds. In addition, the Board is also responsible for submitting several key compliance reports to Parliament.

The Corporate Plan is the primary means for the Board to communicate the corporation's strategic direction and objectives to the Minister and public. Directors must ensure the Corporate Plan presents a clear, comprehensive picture of the corporation's operating environment, risks, plans, and resource requirements over a five-year horizon. The Board must engage the Minister in developing the Corporate Plan to ensure alignment with government priorities and judicious use of tax dollars.

The Board Chairperson should meet regularly with the Minister to discuss the corporation's plans and performance. This relationship is key to maintaining open communication and trust between the corporation and its shareholder on behalf of taxpayers. The Chairperson must keep the Minister apprised of significant developments, risks, or performance issues on a timely basis, especially those that could impact the public purse.

The annual report is the main vehicle for the corporation to report to Parliament and Canadians on its results and activities for the past year. The Board must ensure the annual report presents a balanced, accurate account of the corporation's performance and stewardship of public funds, including both successes and shortcomings. Financial statements must be prepared according to Public Sector Accounting Standards and audited by the Auditor General to provide credibility.

In addition, the Board is also responsible for submitting several key compliance reports to Parliament. These include the Access to Information Annual Report, the Official Languages Annual Report, the Modern Slavery Report, and the Climate-Related Disclosure Report, to name a few. These documents are essential for maintaining transparency and adhering to Canadian regulatory requirements for Crowns. The Board must oversee the corporation's compliance with these reports to ensure adherence to legal and regulatory requirements, maintain public trust, and uphold accountability in managing public resources and responsibilities as a Crown.

Boards should strive to make their reporting to government and the public as meaningful and transparent as possible, while respecting commercial sensitivities. This may involve reporting on a range of financial and non-financial metrics that provide insights into the corporation's operations, service standards, and public policy results. Narrative sections should clearly explain the corporation's business context, risks, and strategic choices and how they impact the use of taxpayer dollars.

The quality of reporting to government is closely linked to the Board's own effectiveness in overseeing the corporation. Weak reporting may point to gaps in the Board's understanding of the corporation's affairs or ability to hold management to account for the sound use of public funds. Directors must invest the time to thoroughly review and challenge reports before approval.

Beyond formal reporting, the Board should maintain ongoing dialogue with the government shareholder through the responsible Minister and central agencies like the Treasury Board Secretariat. By engaging in regular, open communication, the Board can build trust, manage expectations, and ensure the corporation remains aligned with the government's agenda and priorities.

Risk Management and Regulatory Compliance Oversight

An increasingly important responsibility of Crown Boards is overseeing the Corporation's risk management and regulatory compliance. This involves ensuring the corporation has effective systems to identify, assess, monitor, and cost-effectively manage key risks, and complies with all applicable laws and regulations. Risk oversight is therefore a core governance duty.

The Board should work with management to define the corporation's risk appetite and tolerance, and ensure the corporate strategy and objectives align with it. Directors must understand the principal risks facing the corporation and be satisfied that management is taking appropriate steps to mitigate and manage those risks in a financially prudent manner. The Board should receive regular reporting on the top enterprise risks and the effectiveness of risk mitigation measures.

To provide effective risk oversight, the Board should have directors with diverse skills and experience relevant to the corporation's risk profile. This may require having members with industry expertise, financial acumen, legal knowledge, or specialized risk management skills. The Board should also judiciously leverage independent experts or advisors as needed to supplement its risk oversight capabilities while being mindful of costs to taxpayers.

The Board must set the tone from the top in promoting a strong risk culture and exemplifying integrity and careful use of public funds in risk-taking. Directors should foster open discussion of risks at the Board and committee level, and constructively challenge management's assumptions and approaches to risk management. The Board should ensure executive compensation incentives appropriately balance risk and reward and do not encourage excessive risk-taking with taxpayer dollars.

Boards also have a critical role in overseeing the corporation's compliance with laws, regulations, and public sector rules and policies. This includes requirements under the Financial Administration Act, the corporation's enabling legislation, and any sector-specific regulations. Directors must satisfy themselves that management has put in place cost-effective compliance programs, internal controls, and reporting mechanisms to prevent misuse of public funds.

The Board should further receive regular reporting from management on the corporation's compliance status, significant compliance risks, and any material breaches or violations. Directors should take a particular interest in the corporation's compliance with requirements related to procurement, contracting, lobbying, access to information, privacy, official languages, and employment equity, given the need to uphold public trust.

To discharge their compliance oversight duties, Boards should have access to independent assurance through internal audit, risk management, and compliance functions. Directors should meet regularly with the heads of these oversight functions in the absence of management. External audits by the Office of the Auditor General can also provide valuable assurance to Parliament and the public on the integrity of the corporation's compliance management systems and use of public funds.

Public Policy Alignment

Another crucial duty of Crown Boards, notwithstanding its arms length status, is ensuring the Corporation's strategic direction, and activities align with and advance the public policy priorities of the government shareholder. This is a critical governance role that distinguishes Crown Boards from their private sector counterparts.

The responsible Minister communicates the government's policy objectives and expectations for the Crown through various means, most notably the annual mandate letter. The mandate letter outlines the strategic policy goals the government wishes the corporation to achieve, any specific initiatives to be undertaken, and performance expectations.

The Board has a duty to carefully review the mandate letter and engage with the Minister to ensure there is a shared understanding of the government's objectives. The Board must then integrate these policy priorities into the corporation's strategic planning and Corporate Plan. This requires thoughtful consideration of how to operationalize the policy goals through the corporation's business activities, while ensuring continued financial viability.

In providing strategic direction, the Board must strike a delicate balance between the public policy and commercial implications of the corporation's plans and decisions. Public policy goals like economic development, access and affordability, or environmental sustainability may at times conflict with the objective of profit maximization. The Board must weigh these trade-offs and steer a course that achieves policy outcomes while maintaining the corporation's long-term financial sustainability to continue delivering on its mandate.

Throughout the year, the Board should monitor the corporation's progress in implementing the policy objectives in the mandate letter and Corporate Plan. Regular reporting from management on policy-related initiatives and outcomes enables the Board to assess performance and make course corrections as needed. The Board Chairperson should maintain ongoing dialogue with the Minister on the corporation's efforts to deliver on policy expectations.

In the annual report, the Board must ensure transparent disclosure to Parliament and the public on the corporation's activities and results in achieving its public policy mandate. Narrative sections should discuss the corporation's operating context, strategic challenges, and progress against policy objectives. Performance indicators and targets should link to policy goals. The Board must provide a balanced, forthright assessment of the corporation's public policy outcomes.

By engaging with government, integrating policy priorities into strategy and operations, monitoring results, and transparently reporting on progress, Crown Boards play an essential role in aligning the corporation's activities with the policy agenda of its public shareholder. Effective execution of this public policy governance role ensures Crowns continue to serve as key policy instruments for economic and social development.

Managing Government Funds

Crown Boards must be constantly vigilant in ensuring their organizations are lean, efficient, and focused on core public priorities. This means critically examining all activities and costs and being willing to make difficult decisions to streamline operations, reduce bureaucracy and eliminate activities that do not deliver clear value for public money. Boards should foster a culture of continuous improvement and innovation to deliver better results at lower costs to taxpayers.

Boards must also be mindful not to unduly encroach on the domain of the private sector or distort free market forces. Crowns should focus on addressing well-defined market failures or policy objectives that the private sector is ill-equipped to handle. Where Crowns do engage in commercial activities, these businesses must operate on a level playing field, without subsidies or special treatment that disadvantage private competitors. Privatization of Crown assets should remain an option where public ownership no longer serves a compelling policy rationale.

From a fiscal responsibility standpoint, Boards should strive to make their Crowns self-sustaining where possible, minimizing reliance on government funding. This may require judicious increases to user fees or business revenues, while ensuring affordable access to essential public services. Where government appropriations are required, Boards must ensure funds are deployed in a highly disciplined manner to maximize public benefits. Boards should also explore innovative financing models such as public-private partnerships that can leverage private sector capital and expertise while transferring risk away from taxpayers.

Finally, Crown Boards must be proactive in their external engagement to build understanding and support for their organization's public mandate and value proposition. This includes communicating in plain language how the corporation's activities benefit citizens and contribute to economic and social well-being. Boards should build relationships with key stakeholders including customers, business groups, think tanks and the media to gain insights and shape public dialogues. By enhancing transparency and accountability, Boards can help sustain public and political support for the important roles Crowns play in Canadian society.

Conclusion

In conclusion, directors of Crowns have a fiduciary duty to steward these public institutions effectively on behalf of all Canadians. Boards must provide strong leadership in setting strategic direction, safeguarding resources, monitoring performance, reporting results, and overseeing risk management and regulatory compliance in the public interest. This requires directors to carefully balance commercial, fiscal and policy considerations, exemplify integrity, and uphold public sector values, especially the prudent management government funds.

The legal and governance landscape for Crowns continues to evolve, with rising expectations for transparency, accountability, and ethical conduct in the administration of public funds. Boards must stay current with reforms such as the extension of access to information laws and proactive disclosure requirements to more Crowns. Directors should heed developments in public and private sector governance, adapting best practices to the Crown context as appropriate while always respecting their public stewardship role.

Looking ahead, Crown Boards will need to grapple with complex challenges such as digital transformation, artificial intelligence, climate change, social responsibility, and changing public expectations while ensuring value for money. To navigate these issues, Boards must have the right mix of skills, experiences, and diversity to provide insightful guidance and careful oversight of taxpayer investments. Ongoing director training and education will be critical to foster competencies in financial management, risk oversight and public sector governance.

Ultimately, the effectiveness of a Crown's Board is vital to the Corporation's success in delivering its public mandate and maximizing benefits for Canadians while judiciously utilizing public resources. Directors who fulfill their duties with diligence, integrity and a steadfast commitment to the public good and fiscal responsibility make an essential contribution to sound governance and a high-performing, accountable public sector.

In all, the opportunity to serve on a Crown Board is a privilege, but it carries profound responsibilities to the government shareholder, Parliament and all Canadians as taxpayers and citizens.

The thoughts and opinions expressed here are my own and are based on my professional experience in the field of corporate governance. They do not reflect the views or positions of my employer or any affiliated organizations.