Public Corporate Governance in the Federal Administration

Public corporate governance is about the design and management of companies and organisations by the state. This often gives the impression that these companies are safe per se. However, past experiences at the cantonal level - for example, the Solothurn or Bern Cantonal Bank - refute this basic attitude. In addition to the decision to outsource, the question therefore arises as to how these companies are to be successfully managed.

In 2006, the Federal Council established common principles for the management of these organisations in the Corporate Governance Report and created uniform criteria for assessing the outsourcing of federal tasks. In essence, this answers three central questions for the Confederation's own policy:

-What tasks lend themselves to outsourced fulfillment?
-How should the organisations entrusted with the fulfilment of such tasks be legally structured and controlled?
- How should the Confederation organise itself internally to protect its owner's interests?

Which tasks are suitable for outsourcing?
The outsourcing decision is the central element of corporate governance. Whether federal tasks are suitable for outsourcing depends on the nature and type of the task. The Confederation has defined five criteria for this: Sovereign activity, intensity of political control, marketability, need for coordination within the administration, and need for visibility and autonomy. This results in a task typology, which is listed in the table below.

A particular challenge is the further development and diversification of companies that provide services on the market. In order to be successful in the future, companies need freedom on the one hand and must invest in new business areas. On the other hand, however, the state must ask itself whether it may (co-)bear risks in parts of companies that basically no longer fulfil public tasks.

A current example in Switzerland is the state-owned armaments and industrial group RUAG. RUAG was created in 1998 from the former maintenance and production operations of the Swiss Army. The company is wholly % owned by the Swiss Confederation. Whereas the company used to earn nine out of ten francs from government contracts, today it earns only three. The Federal Council therefore recently decided to split RUAG into two parts. One maintenance company for the armed forces will remain in state hands. The larger part of RUAG will be privatised and should thus be able to develop into a globally active aerospace technology group.

How does the Federal Council manage the outsourced companies?
Once the decision to outsource has been made, the question arises as to how the companies can be managed. The Federal Council has defined 37 guiding principles in its corporate governance policy. These are a systematic collection of binding guidelines on the legal conception, management and control of outsourced units.

The control options take place on three levels with a long-term, medium-term and short-term orientation. In the long term, laws and implementing regulations define, for example, the service mandate of a company, the choice of legal form and the structure of the governing bodies. These basic control elements are determined for the long term and are static. The strategic goals of the Federal Council, which it issues for four years, are a dynamic and medium-term instrument. Here, operational developments of the companies as well as task-related goals are agreed upon. The control focuses on strategic targets and not on the operational level. An annual report on the fulfilment of the objectives is submitted to the Federal Council, which then informs parliament. In order to keep abreast of current issues and challenges at short notice, regular institutionalised discussions are held with the bodies of the federally-affiliated companies. These owner discussions serve as a short-term, dynamic steering element.

Furthermore, in the case of joint-stock companies, the Federal Council has the possibility of exerting influence through the general meeting or through a state representative on the board of directors.

Who is responsible in the federal administration for the outsourced units?

The tasks of the Confederation are multifaceted and involve conflicting objectives. It is responsible for the fulfilment of health care objectives, must ensure professional supervision, acts as a provider of services or as a market regulator. This variety of roles harbours areas of tension which can hardly be avoided. Therefore, it is an important task of corporate governance to identify potential conflicts of objectives and interests and to present them transparently. In this way, decisions can be made with knowledge of the various interests and with conscious prioritization.

For this to happen, a consistent division of roles is necessary. The owner's policy must be organisationally independent of economic and safety supervision and does not at the same time exercise tasks of technical supervision or service provision.

The Federal Council has opted for the dual model for companies that provide services on the market. The specialist department and the Federal Finance Administration share the responsibility. While the specialist department specifies and controls the guarantee mandate, the Federal Finance Administration is responsible for the fiscal policy cornerstones. This model has the advantage of increased efficiency and expertise, but the shared responsibility can be mentioned as a disadvantage.

The Federal Council has opted for the dual model for companies that provide services on the market. The specialist department and the Federal Finance Administration share the responsibility. While the specialist department specifies and controls the guarantee mandate, the Federal Finance Administration is responsible for the fiscal policy cornerstones. This model has the advantage of increased efficiency and expertise, but the shared responsibility can be mentioned as a disadvantage.

Concluding remarks
In recent years, the Federal Council has been confronted by parliament and the media with various questions on corporate governance. The subsidy fraud at Postbus also raised the question of whether the Federal Council is optimally managing and controlling the independent entities. The Federal Council subsequently commissioned a team of experts to review the corporate governance system. The focus was on the following questions: Are the control instruments correctly designed and are they efficiently implemented? Is the exchange of information between the company and the owner timely and systematic? Is the division of labour within the dual supervision in the federal administration optimal? The review is focused on the four companies Swiss Post, SBB, Swisscom and RUAG. The Federal Council will be holding a debate on the expert report in the near future. It will be interesting to see how the current system is developed further.