Uncertain Tenure For CEO’S In Health Services Now Confirmed

The October 2016 ‘WPL Bulletin’ suggested that any long-term Chief Executive Officer (CEO) of a health service may be facing an uncertain future. The Bulletin relied on ‘informal’ advice provided to some rural boards by way of an email from the Department of Health and Human Services (Department). There was reference in those emails to the Duckett Report on quality and safety in health services (‘Target Zero’). The catalyst for the directive would appear to the alleged failures at Djerriwarrh Health Services.

The Secretary of the Department has now written to CEOs confirming that if, at the time a CEO contract expires a CEO has served ten or more years, the job must be publically advertised.

The letter from the Secretary states that the change in policy is to “strengthen integrity in the recruitment of the Chief Executive Officer” and that it reflects “good governance practice”.   The letter further states that:

  • it is important that health services continually strive to ensure that they have the full confidence of Government and the wider community;
  • recruitment of the CEO requires honesty, openness and transparency to ensure integrity in the recruitment process; and
  • ensuring an open, merit-based process without bias or impartiality, promotes public confidence in the decision-making of the board.

The sentiments are laudable.  However, the Secretary does not appear to suggest that current recruitment practices nor the integrity and diligence of the boards lack any or all of the above.

The appointment of executive management (however stated) is an important and fundamental part of a board’s duties under corporate principles and practice.  The Secretary  acknowledges this in the letter.  However, there appears to be new uncertainty on the discretion boards of public health services and public hospitals will have to decide the CEO appointment.

The legal basis for the Department to direct health boards to advertise the CEO position would appear to be under the Health Services Act 1988 (Vic) (“the Act”).  Section 25 of the Act states a ‘registered funded agency’ must not appoint a person as a chief executive officer unless the appointment is approved by the Secretary.  A registered funded agency is defined to include both ‘public health services’ (Schedule 5 of the Act) and ‘public hospitals’ (Schedule 1 of the Act).

In the case of ‘public health services’ (large regional and metropolitan services) section 65S(e) of the Act gives explicit authority to the board to appoint a CEO with secretarial approval required for remuneration and other terms and conditions.  However, it would appear that the authority for a board to appoint a CEO to a public hospital (smaller rural hospitals) is derived only from section 25.  These differences seem to make the Secretary’s powers somewhat uncertain.

The Secretary’s letter refers to a guidance note provided by the Victorian Public Sector Commission (VPSC) on integrity in recruitment.  However, the guidance note largely details the general recruitment process of staff and not the specialised process a board needs to undertake to appoint a CEO which is documented in a separate VPSC document.  The document quotes in the Secretary’s letter does not specifically deal with the question of restricted tenure and it does not suggest, for example, that it is good practice to ‘test the market’ after ten years.

Indeed, the Secretary gives no evidence-based reason for the directive.  If integrity of senior public office holders is at issue, or the suitability of incumbents, it might be expected a similar standard would apply for long serving public service and public sector senior appointments.

Furthermore, there is no reference in the Target Zero report of the need for limited tenure of CEO’s.  There was a reference to limited tenure for board members, but this is not to be confused with tenure of CEO’s.  The Target Zero report laid the responsibility for failures in quality and safety at the door of the Department.

It is suggested that the Secretary has not provided clear and cogent reasons for the requirement to advertise the CEO role after ten years nor the reason to potentially override the decisions of a board.  The VPSC ‘Recruiting a CEO’ guidance states: “The Chair makes an offer of employment to the preferred candidate, negotiates terms and conditions of employment and ensures that GSERP approval has been obtained.”  This is consistent with section 65S(e) of the Act.

There are other issues that may arise as a result of the Secretary’s directive.  These include the contractual terms in CEO contracts that cover the process for renewing and extending current GSERP type contracts.

In conclusion, quality and safety relies on rational evidence based research.  Mistakes do happen, but it is the view of WPL that the answer is not to further restrict the powers of health service boards.  It is the opinion of WPL that boards are given greater independence and as such held accountable for results.  To achieve this aim all board members should be properly remunerated and fully supported by government.  This is consistent with Target Zero recommendations.  The new directive actually runs counter to Target Zero.  The effect of the directive reinforces the reality of the body politic.

Currently, public health boards operate on a mixed governance structure that is in contrast to the benefits that a truly independent board brings to the private not for profit and for profit sector.

For any further information contact Ignatius Oostermeyer of our office on (03) 9972 4950

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