An overview of board governance

Governance and management

Governance is the system by which an organisation is controlled and operates.

It includes frameworks to hold people to account for compliance, risk management, performance and integrity.

Your board’s role in governance is to:

focus on oversight, such as setting the direction
monitor the overall performance outcomes and workplace culture of your entity
ensure your entity fulfils its functions and objectives, as set out in the law or document that established it
act in line with your minister’s priorities and directions, as per the law or document that established your entity
maintain a productive relationship with your minister and portfolio department.

Governance is different to management. Management describes your entity’s CEO and executive team and how they run and manage your entity’s day-to-day work.

Your board monitors the CEO against key performance indicators. The CEO oversees and ensures management performs in line with the direction that your board has set.

What directors need to bring to their board

Your board’s role in governance is broad. You will need to develop strategies, manage risk, engage with stakeholders and make decisions.

Board members are a fiduciary. A fiduciary is someone who holds trust with people.

Board members have a fiduciary duty. This means a board member has a duty to act honestly, in good faith and to the best of their ability in the Victorian community's interests.

Board members must also behave with due diligence. Due diligence means taking reasonable care before making agreements.

To support your board’s role in governance, you need to:

commit and dedicate your time
be comfortable with uncertainty
have an open and curious mind
keep your skills up to date
model behaviours based on the Victorian public sector values
stay informed about the environment in which your entity operates.

Governance in the public sector

Governance in the public sector is built on:

constitutional and legal frameworks
government decision-making
codes of conduct
the 7 public sector values(opens in a new window).

We’ve listed some of the important things here you need to be aware of to support public sector governance as a board director.

You can also refer to the Governance Institute of Australia’s Governance principles for boards of public sector entities in Australia for further information.

Applying these governance principles in the context in which your board operates may require additional consideration. For example, Better Regulation Victoria has produced Supporting Best Practice – A companion paper for regulator boards and chairs to support boards of regulators to apply these general governance principles in the regulatory context.

Public Administration Act

The Public Administration Act 2004(opens in a new window) sets basic governance standards and obligations for most boards, directors and chairs.

Even if these standards don’t apply to your board, they are good practice to follow.

The Act says your board’s duties are to:

act in line with the functions and objectives of the law or document that established your entity
act in line with your entity’s business or strategic plan
inform your minister and department secretary of major risks to the effective operation of your entity
give your minister and department secretary information they request about your entity
have certain policies in place, such as how to assess board performance and how to deal with conflicts of interest(opens in a new window)
have a code of conduct for directors
have appropriate processes for conducting board meetings and making decisions
keep appropriate financial records
have controls in place to prevent fraud.

You also have duties as a board director. These are to act:

honestly
in good faith in the best interests of your public entity
with integrity
in a financially responsible manner
with a reasonable degree of care, diligence and skill.

You must also declare actual, potential or perceived conflicts of interest.

As a board director, you must use your position and any information you acquire through your board duties for its proper purpose.

Never use your position or knowledge to gain an advantage for yourself or others, or to cause damage to your public entity.

Code of Conduct for Directors of Public Entities

The Code of Conduct for Directors of Victorian Public Entities(opens in a new window) is based on the 7 public sector values(opens in a new window).

It sets the standard of behaviour expected of you from the date of your appointment.

If you don’t comply with the code, it may be considered misconduct. In serious cases, you could be suspended or removed from your board.

If you breach your duties

If you breach your duties as a director and cause loss or damage to your entity, you may face legal action.

But if you have acted honestly and properly, you may be:

protected by insurance
be covered for loss or damage by the government (called indemnity in legal terms).

Check with your entity to see if you’re covered by an insurance policy and what it covers (usually called Directors’ and Officers’ insurance).

You can also read more about cover for claims against board members at the Victorian Managed Insurance Authority(opens in a new window).

Public sector accountability

Accountability is an important part of public sector governance.

Your board is accountable to your minister for the exercise of its functions.

The minister is accountable to parliament for:

how your public entity exercises its functions
how the minister exercises their powers in relation to your entity.

The government is accountable to the Victorian community through the process of elections.

Your board is accountable to the Victorian community for the service the public entity provides to them. Your board has an important role in promoting public trust.

Boards and entities are also required to provide information to departments. This supports the secretary to oversee entities on behalf of the Minister.

Your board must:

ensure your entity creates an annual report for your minister to table in parliament at the end of each financial year
report to your department on how your entity is performing in areas like key achievements, risks and outputs.

If your board needs advice on what you need to provide and when, speak with your department.

Integrity bodies

Board members should be aware that public entities are subject to scrutiny from integrity bodies including:

The Victorian Auditor-General’s Office, which provides independent assurance to Parliament and the Victorian community about how effectively public sector agencies are providing services and using public money
IBAC, which investigates and exposes public sector corruption and police misconduct
The Victorian Ombudsman, who investigates administrative actions of state government departments, local councils and statutory authorities.

Stakeholders

Engaging with your entity’s stakeholders is part of your board’s role.

It helps you improve:

the quality of your board’s decisions
how accepting your stakeholders are of your board’s decisions.

Your entity will likely have a wide range of stakeholders.

Your minister and portfolio department are 2 stakeholders your board will communicate with regularly.

Other stakeholders may include:

the community
your entity’s employees
other government departments that work with your entity
business partners, such as companies and non-government organisations
clients.

Your board and management need to work out how to communicate information and decisions to stakeholders.

A good way to do this is with an agreed stakeholder management plan.

The 6 pillars of good governance

Good governance is essential to promote public trust in your entity.

It also helps your entity be more effective, efficient and responsive.

There are 6 pillars that support your board to achieve good governance in your entity.

1. Define roles and responsibilities

Your board must define and understand the roles and responsibilities of:

your board as a whole
each board director
your CEO
your portfolio department
your minister.

2. Focus on strategy

As part of your role in governance, your board:

sets the strategic direction for your entity
monitors your entity’s performance against what it’s there to do.

3. Ensure your entity identifies and manages risk

Your board must ensure your entity has a system in place to identify and manage risk.

4. Ensure your board has relevant expertise and is diverse

Your board needs to have the necessary skills, knowledge and experience to fulfil its role.

To achieve this, you need to assess your board's performance each year to identify:

areas for improvement
additional capabilities your board needs.

Your board should include a diverse mix of people as directors.

In most cases, your minister will appoint people to public boards. For future recruitment, your chair can raise any gaps with your portfolio department and minister.

For more guidance, read diversity on Victorian Government boards(opens in a new window).

5. Promote and uphold a culture of ethical behaviour and decision-making

Your board's behaviour, processes and decisions need to be guided by the 7 public sector values.

Decisions should be informed, consistent and balance the views of different stakeholders.

Everyone on your board must comply with the Code of Conduct for Directors of Victorian Public Entities.

6. Be effective and efficient

Your board must be effective and efficient, in line with your entity’s functions and objectives.

Governance roles

Your board’s role

The laws or document that established your entity and other binding laws or policies define the boundaries of what your board does.

Your board’s governance scope should be clearly documented in the board charter or by-laws. These documents set out the board’s terms of reference.

Within these boundaries, your board's role is to:

steer your public entity on behalf of the responsible minister
set your entity’s strategic vision
oversee your entity’s performance, including its financial performance
oversee performance of your entity’s CEO
guide the CEO in overseeing performance of senior management
ensure your entity complies with laws and policies
inform the minister and department of known major risks to the entity
oversee risk management in your entity
build a culture of integrity with standards of behaviour based on public sector values and standards
work with your entity’s management to decide how to communicate information to your portfolio department, minister and other stakeholders.

Your chair’s role

Your chair’s role is to:

lead your board and ensure compliance with laws and obligations
develop board directors to be a cohesive and effective team
set your board’s agenda and ensure conflicts of interest(opens in a new window) or duty are identified and managed
provide your entity’s policies to board directors
act as the CEO’s employer, providing advice and direction to help the CEO achieve outcomes in line with your board’s strategic vision
act as the liaison between your board and management
inform the minister about significant issues and events
manage your board’s principal relationships (especially with the CEO, minister and department)
together with the CEO, represent your board to external stakeholders as an official spokesperson for your entity.

Your chair plays an important role in ensuring a welcoming and inclusive board culture. Your chair should send a welcome letter to new directors covering the director’s:

rights, duties and responsibilities
expected work and time commitment
obligation to act in the best interests of the public entity
need to avoid, declare and manage any conflicts of interest
induction plan.

If your minister wasn't involved in a director’s appointment, the welcome letter may also be the letter of appointment. In this case, ensure the chair informs the minister as soon as possible of the new appointment.

Board secretary’s role

If you’re on a board for a large or complex entity, you may have a board secretary.

They’re not a board director, but have a role to do administrative tasks like:

arrange board meetings
attend board meetings and draft minutes
collate and distribute board papers
liaise with the board and CEO.

To do their job well, your secretary needs to understand:

the law or document that established your entity
laws and policies that set out the obligations of public entity boards generally, such as the Public Administration Act 2004(opens in a new window) and the Financial Management Act 1994(opens in a new window)
all other laws and policies that affect your entity.

With this knowledge and under your chair’s direction, the secretary may also have governance responsibilities.

They may do tasks like:

facilitate the induction of new directors
advise directors of their own and the entity’s legal obligations
organise professional development programs for your board
ensure information flows between your board, its committees, directors and management.

Even if you have a board secretary, your board is responsible for complying with its obligations.

CEO’s role

Your CEO’s role is to manage and run your entity in line with relevant laws and government policies and your board’s decisions.

In a large or complex entity, your CEO may need to appoint a chief financial officer.

But your CEO remains responsible for your entity's financial accounts and providing your board with financial information.

Your CEO’s responsibilities are to:

implement your board’s strategic plans and report on their progress
ensure your entity’s systems and policies are effective, including financial management, human resources, information systems, risk management, communications, asset management and reporting
ensure your entity complies with applicable laws and policies
give your board advice and information on your entity’s performance and issues such as strategy, finance and reporting
prepare your entity’s annual strategic plan for your board’s approval, including organisational performance targets
prepare your entity’s annual report
liaise with the portfolio department and report to it where appropriate
communicate and cooperate with stakeholders in collaboration with your board
represent the entity to external stakeholders as its spokesperson, in consultation with your board chair.

Minister's role

Your minister’s role is to ensure your entity acts in line with its obligations and functions properly and advances the government's agenda.

They account to parliament for:

how your entity operates
how they use their ministerial powers relating to your entity.

Your minister has the power to:

appoint and remove board directors
give directions to your entity
request information from your entity
control your entity’s operations
review your entity’s management systems, structures and processes.

In some cases, Cabinet(opens in a new window) may have a role in these decisions.

Portfolio department’s role

Your portfolio department’s role is to advise your minister about your entity. This includes how your entity performs and any emerging risks.

Your department’s responsibilities are to:

liaise with your entity on its priorities, activities and risks
monitor your entity’s performance against its business plan, statement of intent and similar documents
give your minster information about your entity, including how your entity is complying with laws, contracts, goals and policies
support your entity with public administration and governance
advise your entity on new government policies that may affect it
arrange board appointments and recommending the salary of board directors in line with government policy
liaise with the Department of Premier and Cabinet and Department of Treasury and Finance if needed
ensure clarity regarding the role of your entity and the role of the department.

In some cases, there may be legal or confidentiality reasons that stop a public entity from giving their portfolio department certain information.

Relationships with your board

CEO relationship

Depending on your entity, your board may either:

appoint and set the salary of your CEO
not appoint your CEO, but advise your minister on what capabilities and experience you need in a CEO to deliver your entity’s strategy.

The CEO leads your entity and is accountable to the whole board but not individual directors. They support your board in its governance role.

The CEO is the link between your board and your entity’s employees, in that they:

communicate your board’s policies and priorities to employees
present reports, submissions and budgets to your board.

If your CEO is a member of your board

Depending on the law or documents that established your entity, your CEO may also be a member of your board.

When they take part in board duties, their title is executive director. Outside of these duties, they are still the CEO and lead your entity’s management team.

When they are in board meetings, they may need to remove themselves for some matters to deal with conflicts of interest. For example, they would need to leave the meeting if your board discussed their salary or performance.

If your CEO isn’t a member of your board

If your CEO doesn’t sit on your board, they attend meetings at the request of the board. There will be many issues that your board requires the CEO’s advice on. The board will also need to have discussions that the CEO should not take part in.

In all cases, your chair and CEO need a strong relationship based on mutual respect, trust and understanding of each other’s role.

Minister relationship

Your board is accountable to your minister for the exercise of your public entity’s functions.

It may be useful for your board to brief your minister or their office after board meetings.

A briefing can occur through a meeting or a written report providing a summary of key issues discussed and outcomes. The frequency of these briefings will depend on the size and risk profile of your entity and any requirements specified by your minister.

Your board may need to take direction from your minister, unless this is prevented by the laws or document that established your entity.

Your board does not take direction from your portfolio department.

Department and entity relationship

Your portfolio department and entity need a strong relationship to best serve government.

Depending on your entity, your board will either liaise with:

the secretary or deputy secretary of your portfolio department
a department team that also keeps in touch with your entity’s management
your entity’s management that also keeps in touch with a department team.

Ask your portfolio department if they have any resources to support your board, such as the Department of Health's Directors’ Toolkit(opens in a new window).

Governance

Updated 9 November 2023