Chalk and cheese – or same but different?

Chalk and cheese, an idiom denoting two things that can’t be more different, originated in 14th century England when unscrupulous cheesemakers adulterated their product with chalk so it weighed more (“Lo, how hey feignen chalk for chese” in John Gower’s Confesio Mantis, 1390). 

A lot of people would say the same about governing in the private and public sectors. But is that the full picture? With the helping hand of several experienced directors with feet in both camps, here are some brush strokes. 

Public v private sector is a broad brush – and I stick to that here – but we can’t ignore the complexities below that. 

There are different kinds of Crown entities, including some which are independent of government policy, such as the Commerce Commission. Most have regulatory powers, but these can take different forms. Some have substantial delivery functions, such as the NZ Transport Agency Waka Kotahi. 

Most state-owned enterprises operate in competitive markets but some, such as Transpower, are a natural monopoly. Directors in each can have wildly different responsibilities. 

Private sector companies can be publicly listed with all the reporting that entails, but there are also privately held companies, cooperatives with powerful shareholder entities (two layers of governance), trading companies owned by charities, and so on. 

Māori entities in a range of forms have become a major force in business and generally. 

What is public, private or not-for-profit is not always easy. However, most of us would agree the core of good governance – the legal framework, the Four Pillars, acting with good faith and in the best interests of the organisation – apply in all circumstances.  But here are some of the differences. 

The board of a company – with the support of shareholders – can pivot its purpose, with a famous example being Nokia’s transformation from forestry to mobile phones. The purpose of a public entity is set in law and further refined by often detailed letters of expectation and the like to boards from ministers. Public sector boards have less freedom to act. This is appropriate, given they often have regulatory or monopoly powers. 

There is a long history of companies adopting a purpose beyond just profit, of course, nowadays best summarised by ESG. But they must make a profit to survive. Public entities are funded by taxes, industry levies, fees and the like. 

We elect governments to make decisions in our long-term interests, and public entities are charged with implementing those decisions. Even where public entities trade in competitive markets, the argument for the Crown to own some or all that entity would usually be justified by, say, some form of market failure.

Many companies, including Māori entities, invest intergenerationally, especially those with heavy capital requirements. We have learnt to live with startups which prioritise market share and don’t make a profit for many years. But ultimately, companies must return regular profits to their shareholders, and this can drive a great focus on shorter horizons. 

Cut through the chatter, and the difference in measuring success in the public and private sector can be summarised as ‘outcomes’ versus profit. Profit is an outcome of course, but ultimately an easy one to define. 

Defining regulatory outcomes, for example, can be a lot harder and, of course, highly debatable (will heavy, light or self-regulation deliver the best outcomes in your industry?). In practice, it might require academic-level evaluation and lots of challenges about attribution – what evidence links he activities of the entity to changed behaviours? 

Regulation is different to competition, but public sector outcomes can take other forms too, such as long-term research or public health outcomes. Governing in these spheres can be more complicated than in the private sector, with multiple stakeholders with different and often conflicting agendas. 

In a democracy, governments will adopt new outcomes and require public sector governors to redirect their entities to achieve them. 

Public sector directors may present to Select Committees, in addition to reporting in some form to ministers and their monitoring agencies, with The Treasury, the Public Service Commission (including rules about CEO remuneration), the Department of the Prime Minister and Cabinet, the Office of the Auditor-General, Official Information Act requests, and so on, all having a role. 

Listed companies have onerous compliance requirements and all companies have an array of regulations to abide by, but in aggregate the level of public scrutiny in the public sector is probably higher. 

Crown entities have statutory responsibilities to give effect to the Treaty of Waitangi. This can take a variety of forms, including tailoring engagement and investment differently and ensuring outcomes are defined appropriately. 

A good example of purpose, horizon, outcomes and Treaty obligations coming together with a focus on ‘people’, rather than simply customers, is Sport NZ. It is required by law to improve our lives by improving rates of physical activity, with specific population groups such as Māori, Pasifika, girls and women, and people with disabilities. Directors have a responsibility to account for equity of access and opportunity. 

So maybe it’s not chalk and cheese, but same but different?

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Kevin Jenkins CMInstD is an experienced director and commentator, fascinated by issues at the intersection of business, innovation and regulation. His governance experience spans the private, public and not-for-profit sectors. He is Chair of the Real Estate Institute of New Zealand, the NZ Qualifications Authority, The Cheese Wheel and Iti Kōpara – Public Governance Aotearoa; a director of Harrison Grierson and WorkSafe NZ; a trustee of the Parliamentary Education Trust; and a member of the Risk and Assurance Committees of the Ministry of Health and the Ministry of Defence.