Parallels in Private and Public Sector Governance
Anona Armstronga, Xinting Jiab and Vicky Totikidisc Centre for International Corporate Governance Research, Victoria University, PO Box 14428, Melbourne, VIC 8001, Australia a bc
Private sector governance, i.e. governance in major listed companies, has caught much public attention in recent years due to the collapses of major corporations around the world. The result has been a plethora of standards for corporate governance in public and private companies. In comparison, public sector governance has avoided much of the controversies while developing along a parallel, if dissimilar path of raised awareness of the need for governance standards in the public sector. Examples of similarities that are markedly different in context are the role of agents, public sector managers manage funds on behalf the public versus the role played by managers in corporations, and the involvement (or expected involvement) of different stakeholders in both the public and the private sectors. This paper contrasts some of the differences in the models of governance found in the public and private sectors, and makes some observations about the desirable attributes to be sought in each. Keywords: Public sector governance, Private sector governance, models of governance Introduction In general corporate governance is concerned with the structures and processes for decision-making, accountability, control and behaviour at the top of organisations (Spiller, 2004). It addresses the issues arising from the interrelationships between boards of directors, such as interactions with senior management and relationships with the owners and others interested in the affairs of the entity, including regulators, auditors, creditors, debt financiers and analysts (Standards Australia, 2003). The purpose of good governance is to add value to the organisation, reduce financial, business and operational risk, strengthen shareholder confidence in the entity, and assist in the prevention of fraudulent, dishonest and unethical behaviour (Armstrong , 2004a). The study of governance is concerned with various governance models. In the private sector these are found in the guidelines and standards for good governance. Examples relevant in Australia are the OECD Guidelines (OECD, 1999), the Australian Stock Exchange Guidelines (Australian Corporate Governance Council, 2003) and the governance standards developed by Standards Australia (Standards Australia, 2003). In the public sector in Australia, both Commonwealth and State Auditors-General have presented models of Governance. An example is the Victorian Auditor’s model discussed below and shown in figure 2. Despite the fact that the general public seldom link the governance of the private sector with the public sector, governance in both sectors has been moving closer. As acknowledged by the Uhrig Review (Uhrig, 2003, p. 26): There are benefits in looking to developments and lessons learnt in the private sector when considering appropriate governance frameworks for the public sector. The environment in which the private sector operates creates significant challenges for companies. The consequences of failure and threat of takeover provide incentives for the private sector to constantly strive to improve governance practices. In dealing with the challenges of the market, the private sector has gained considerable experience in applying the core elements of governance. The experience of the private sector has provided the review with valuable insights into the full spectrum of governance arrangements and the corresponding impact on outcomes. There is an opposing view (for example, Wettenhall, 2004) that suggests that governance experience in the public sector is long standing and that many of the criteria applied in the private sector are unsuitable for the public sector.
The type of governance model adopted is influenced by the type of organisation structure...
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