3.28 Crown entities are legal entities in their own right. A decision to assign a government activity or function to a Crown entity indicates that the function should be carried out at "arm's length" from the government. As reflected in the definition of the state services in section 2 of the State Sector Act 1988, Crown entities (except tertiary education institutions and their Crown entity subsidiaries) are, however, instruments of the Crown. Ministers, Crown entity boards, and monitoring departments participate in the governance of Crown entities in different ways.
3.29 Ministers play a key role in the governance of Crown entities and are responsible to the House for overseeing and managing the Crown's interests in, and relationships with, the Crown entities in their portfolios. Section 3 of the Crown Entities Act 2004 recognises that an accountability relationship exists between Crown entities, their board members, and their responsible Ministers on behalf of the Crown and the House of Representatives.
3.30 The Crown entity's board directs the entity's day-to-day operations. A monitoring department is responsible to a portfolio Minister for monitoring Crown entities within that portfolio on the Minister's behalf. Memoranda of understanding can help clarify the respective roles of Ministers, Crown entities, and monitoring departments.
3.31 Detailed guidance on Ministers' roles and responsibilities in relation to Crown entities is contained in Cabinet Office circular CO (06) 5 Ministers' Roles and Responsibilities in Relation to Crown Entities and in Crown Entities: A Guide for Ministers, published by the State Services Commission.
3.32 Ministers oversee and manage the Crown's interests in, and relationships with, the Crown entities in their portfolios, and carry out any statutory responsibilities conferred on them as Ministers.
3.34 The Crown Entities Act 2004 (and other legislation that relates to particular Crown entities) sets out the extent of control that the Minister has over a Crown entity. The extent of this control depends on the entity's category and type, and whether it has any statutorily independent functions. For example, Crown agents and autonomous Crown entities must give effect to, or have regard to, any policy direction given by the relevant responsible Minister. Similarly, the remuneration of members of some Crown entities is set by Ministers in accordance with the fees framework applying from time to time to statutory and other bodies in which the Crown has an interest. (See Cabinet Office circular CO (06) 8 Fees Framework for Members of Statutory and other Bodies Appointed by the Crown.)
3.35 A Minister with a Crown entity in his or her portfolio can require the Crown entity to enter into an output agreement where the Crown funds the entity or where Crown entity services are paid for by fees and levies.
3.36 In some cases, a Minister may direct a Crown entity to follow a certain course of action. These powers of direction are likely to be used infrequently because other tools such as letters of expectation work well to convey Ministers' expectations.
3.37 The Minister of State Services' portfolio responsibility for the state services includes responsibility for Crown entities. Ministers should consult the Minister of State Services before Cabinet considers any proposal that could establish a new Crown entity. The Minister of Finance also has statutory responsibilities under the Crown Entities Act 2004 and should be consulted when appropriate.
3.38 The Ministers of Finance and State Services may issue whole of government directions under section 107 of the Crown Entities Act 2004 to specified categories or types of Crown entities as defined in the Act. The purpose of a whole of government direction is both to support a whole of government approach and (either directly or indirectly) to improve public services. Any Crown entity to which a whole of government direction is issued must give effect to that direction.
3.40 Further guidance on whole of government directions is contained in Cabinet Office circular CO (06) 6 Whole of Government Directions under the Crown Entities Act 2004. This circular includes a checklist for whole of government direction proposals.
3.41 A Crown entity's board governs the Crown entity, exercises its statutory powers and functions, and may delegate these powers and functions in accordance with section 73 of the Crown Entities Act 2004. The board makes decisions about the entity's operations and appoints its chief executive (where applicable). For boards of statutory entities and Crown entity companies, the board's actions must be consistent with the Crown entity's objectives, functions, statement of intent, and output agreement (if any).
3.43 The Crown Entities Act 2004 provides for Ministers to participate in the process of monitoring Crown entity performance against the entity's strategic direction, as agreed with the Minister and set out in the statement of intent. Each Crown entity has a monitoring department, which monitors the Crown entity, provides the Minister with information about the Crown entity's performance, and ensures that the Crown entity's approach is consistent with government goals.