Regulatory impact statement
The Ministry of Economic Development (MED) completed a Review of New Zealand’s Standards and Conformance Infrastructure (the infrastructure) in May 2007. The Review found that the infrastructure is basically sound. The Standards Council plays a key role in developing standards to meet New Zealand needs in both the regulated and voluntary sectors, including adopting international standards. The Testing Laboratory Registration Council’s accreditation programmes for laboratories, inspection bodies, and other conformity assessment bodies are highly regarded both within New Zealand and overseas.
The governance arrangements for the 2 Crown entities are not optimal, however. The proposal in this paper is to modernise and simplify the governance arrangements of the entities by separating the governance and technical advisory functions within them, and to reduce the size of both boards. For the Standards Council, the paper also proposes the establishment of Sector Advisory Boards to improve the strategic direction of standardisation in New Zealand.
These changes can only be achieved by amendment of the Standards Act 1988 and Testing Laboratory Registration Act 1972, which establish the core frameworks of the 2 Crown entities.
The MED confirms that the principles of the Code of Good Regulatory Practice and the regulatory impact analysis requirements, including the consultation requirements, have been complied with. A Regulatory Impact Statement was circulated with the draft Cabinet paper in April 2007 for interdepartmental consultation. It was revised and recirculated in August 2008.
Status quo and problem
Currently, both the Standards and Testing Laboratory Registration (TLR) Councils have statutorily appointed governing boards that are relatively large and have roles that encompass both governance and technical advice. Under the Standards Act 1988, the board of the Standards Council comprises not more than 12 members, up to 4 of whom can be appointed directly by the Minister of Commerce and up to 8 of whom can be appointed by the Minister on the advice of the 17 nominating bodies set out in the Standards Regulations 2006. Under the Testing Laboratory Registration Act 1972, the board of the TLR Council consists of 9 members, 5 of whom must be appointed by the Minister and 4 of whom must be appointed by the Council itself.
The Review indicated that both the Standards and TLR Councils are facing an increasing complexity of issues as the international trade and regulatory environment evolves. The challenges faced by these Crown entities are particularly acute, and the current structure of both boards is no longer appropriate to meet them, as—
there is a blurring of the governance and advisory functions of the boards; and
the boards are too large in relation to the size of the organisations they are governing; and
the mixed responsibility for nominations (in the case of the Standards Council) and appointments (in the case of the TLR Council) risks confused objectives.
In relation to the Standards Council, the Review also found insufficient strategic planning and consideration of the long-term public interest in some sectors.
Retention of the status quo is not the preferred option as it will not deliver modernisation and simplification of the governance arrangements for the Standards or TLR Council. In relation to the Standards Council, improvements in the strategic direction of standardisation will not be delivered by the status quo as there is insufficient input from relevant sector experts in determining standardisation priorities.
Given that substantial sections of both the Standards Act 1988 and the Testing Laboratory Registration Act 1972 are focused on the appointment of the respective boards, and there could be better alignment with the Crown Entities Act 2004, the paper sought Cabinet’s agreement to repeal those 2 Acts and develop new legislation to replace them.
In relation to the governance of the 2 Crown entities, the objective that the options have been assessed against is to ensure that the size, appointment process, and composition of the boards of the Standards and TLR Councils is simplified and rationalised to ensure that each has an appropriate focus on the long-term health and strategic direction of their business. With any changes, cohesiveness and critical mass must be maintained.
The Review also pointed to the need to improve the co-ordination between the infrastructure as whole and the ability of MED, as the monitoring and policy department for both entities, to encourage alignment of the infrastructure with the Government’s strategic priorities.
In relation to improving the functioning of the standards infrastructure, the objectives that the options have been assessed against are to—
improve the prioritisation of standardisation proposals; and
improve confidence on the part of stakeholders in the processes used by the standards infrastructure; and
improve participation in domestic and international standardisation processes.
A number of options for improving the functioning of the infrastructure were presented in a discussion document entitled Standards, Accreditation and Measurement: Supporting Our Economy (the discussion document) released by MED in August 2006.
More active engagement between MED and the Crown entities
One option presented in the discussion document to improve the ability of the Crown entities to deliver on their public policy objectives was for MED to pursue more active engagement with the Standards and TLR Councils. This would involve clarifying the Government’s expectations of the infrastructure generally, and the Standards and TLR Councils specifically. This would be achieved through a clearer articulation of the Government’s strategic priorities through the Minister’s annual memorandum of understanding with the Chairperson of each of the councils, the boards’ Statements of Intent, and the other accountability mechanisms introduced by the Crown Entities Act 2004.
MED had begun to adopt this approach in the latter months of the Review, and with the benefit of a high level of constructive engagement from both councils, there has been marked improvement in their alignment with the Government’s strategic priorities. This is shown clearly in both Crown entities’ recent Statements of Intent.
Implementation of modern governance structures, however, including achieving the value of separating the governance and advisory functions within the Crown entities, can only be achieved by amending their framework legislation.
Establish a more centralised process to determine standardisation priorities
In relation to improving the functioning of the standards infrastructure, one option presented in the discussion document was to establish a more centralised process for choosing which standards to develop. This might have involved the establishment of a separate group or process independent of the Standards Council to advise on standardisation priorities. Although this option could provide some benefits, in that it could potentially identify more standards in the public interest, separating this advisory capacity from the Standards Council resource capacity to develop and manage new standards could lead to conflict between the separate body and the Standards Council. It could also interfere with the autonomous statutory functions of the Standards Council to develop the standards that it deems appropriate in light of the available resources. It is most constructive for recommendations on standardisation priorities to be an input into the Standards Council’s decision-making.
The preferred option presented in the Cabinet paper contains 2 proposals for legislative amendment of the Standards Act 1988 and the Testing Laboratory Registration Act 1972—
to separate the governance and advisory functions of, and modernise and simplify the appointment process to, the Standards and TLR Councils; and
to require the Standards Council to establish Sector Advisory Boards (SABs).
Improving the governance of the Standards Council and TELARC
The proposal to separate the governance and advisory functions of the Standards and TLR Councils will better allow the boards to pursue the strategic, public interest, and financial objectives of each entity.
To ensure that governance experience is given high priority in appointments, it is more efficient that the Minister of Commerce appoint members of the boards directly, rather than having the choice constrained by sector nominees (in the case of the Standards Council) or the council appointing some members itself (in the case of the TLR Council). Under the Crown Entities Act 2004, the Minister appointing members of the councils will continue to have the duty of appointing board members who (in the Minister's opinion) are equipped with the skills that the organisations need—with a focus on effectively governing the organisation.
Both governing boards will be reduced to 6 members, a number that is consistent with overseas practice and expected to maintain cohesiveness and critical mass. The net cost to each organisation of the reduced board is expected to be less than the status quo. With fewer board members, each Crown entity is expected to spend less in total on board member remuneration following legislative change. This factor might be counterbalanced to some extent, however, by an increase in the remuneration per board member to reflect the change in focus of the role. This has yet to be reviewed in accordance with the Cabinet Fees Framework.
Improving the strategic direction of standardisation through establishment of SABs
In order to improve the functioning of the standards infrastructure, the preferred option is to amend the Standards Act 1988 to require the Standards Council to establish SABs that would be appointed by, and report to, the council. The technical advice that the governing boards receive will be improved. These SABs will encompass representatives from a range of stakeholder groups, including technical experts, consumers, the relevant regulator (if there is one), and Standards New Zealand. The benefits of this proposal are that the SAB members will discuss and agree on a set of recommendations for standardisation priorities and the strategic direction for standardisation for the relevant sector. This will include consideration of the best approach to dealing with older standards in the catalogue. This advisory mechanism is expected to lead to more up-to-date standards and increased transparency and accountability of the Standards Council to stakeholders.
The establishment of SABs is likely to result in increased costs to the Standards Council. The Cabinet paper noted that these costs are likely to be met by an allocation of funding to the Standards Council. These additional costs are likely to be outweighed by improved confidence on the part of stakeholders in the standards development process. In addition, broad agreement on the set of recommended priorities will be useful to the Standards Council in seeking funding from sector stakeholders to advance development of priority standards.
Neither of these proposals will have a direct impact on the stock of New Zealand’s regulations. In the long term, however, more governance focused boards and strategic direction in standardisation are likely to lead to regulators having a better appreciation of the role of the infrastructure in supporting high quality, performance-based regulatory regimes. This is expected to lead to increased use of both Crown entities’ services.
Implementation and review
Given that both the Standards Act 1988 and the Testing Laboratory Registration Act 1972 are largely focused on appointments to the respective councils and have been in place for some time, the paper recommended that both Acts be repealed and new legislation becdrafted to implement these changes.
MED released a discussion document in August 2006. The Ministry received 38 submissions from stakeholders on the discussion document. Aside from the Standards and TLR Councils, which both thought that the current arrangements were suitable, submitters did not comment on the governance arrangements of the 2 Crown entities.
The following agencies were consulted in April 2007: Accident Compensation Corporation; Civil Aviation Authority of New Zealand; Department of Building and Housing; Department of Labour; Energy Efficiency and Conservation Authority; Environmental Risk Management Authority; Maritime New Zealand; Ministry for the Environment; Ministry of Agriculture and Forestry; Ministry of Consumer Affairs; Ministry of Foreign Affairs and Trade; Ministry of Health; Ministry of Research, Science, and Technology; Ministry of Transport; New Zealand Food Safety Authority; New Zealand Trade and Enterprise; State Services Commission; and the Treasury.
The Department of Prime Minister and Cabinet was informed.
The following agencies were consulted in August 2008: Department of Building and Housing; Department of Internal Affairs; Department of Labour; Energy Efficiency and Conservation Authority; Ministry for the Environment; Ministry of Agriculture and Forestry—Biosecurity New Zealand; Ministry of Consumer Affairs; Ministry of Foreign Affairs and Trade; Ministry of Health; Ministry of Transport; New Zealand Food Safety Authority; State Services Commission; and the Treasury.
The Department of Prime Minister and Cabinet was informed.