How Can the Institutional Setup Improve Transparency and Governance of Enforcement

1. How Can the Institutional Setup Improve Transparency and Governance of Enforcement Donald Macrae, WBG Consultant Inspection Reform Conference, Amman, 3 June 2014 Day 2, Session B-2

2. Is enforcement only for government? • There can be a temptation to outsource inspections, as a fresh start, with in-built professionalism. • IFC advises strongly against this, for governance reasons, and recommends building that professionalism inside government. • Outsourcing of inspection & enforcement in developed economies is only in highly technical areas, such as: • third party certification of conformity through lab tests • technical engineering checks. • Inspection of businesses, rather than things, involves relationships between the business and those with power to sanction. That power has to be transparent and controlled.

3. What is the purpose of “conducting supervision”? • The law establishing the supervisory body often sets the purpose as just “conducting supervision” or “enforcing the law”. It is only a function, with no goal or objectives. But it must take its objectives from the regulatory system it is supervising. • A supervisory body has to have some indicators of success or failure, which have to come from having a purpose. They have to be about making the regulatory system work. • Ultimately, the supervisory body has to be measured against some outcomes on public safety, environmental protection or revenue protection. • . . . . . . . But they should also be measured on economic impact.

4. Who sets the performance standards? • The objectives of the supervisory body have to come from the regulatory system it is supervising. • Indicators and targets can be set by the body or by the policy Ministry. The important points are that: • it has targets and indicators of success; and • that they are published and transparent. • The performance indicators should tie in closely with the risk criteria because “performance” is about reducing these risks. • (Measuring numbers of violations and amount of fines is measuring failure of the regulatory system, not success.)

5. Example of International Good Practice This is a small part of the indicators for the UK’s Environment Agency. https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/306755/Environment_Agency_Corporate_Plan_2014_to_2016.pdf

6. Who checks the performance standards? • Any organisation with the powers of a supervisory body should be accountable to someone for the exercise of these powers • Publishing performance indicators and targets makes them accountable to the public, in a sense, but the public may have no control over them. • But ultimately they should be accountable to their stakeholders – the government / Ministry, the businesses in the sector and the public. • This then leads to looking at models of governance.

7. Governance models - 1 • The traditional model is the “Big Man”, an autocrat who runs the whole show. • That model depends on the quality of the person but: • By concentrating power, it can lead to corruption • In turn, the position becomes very political and unstable - “Accountability” is to political competitors • It tends to be less efficient if too much depends on one person’s authority

8. Governance Models - 2 • The modern alternative is for the head of the organisation to be a manager, not a politician, accountable to a body of people. • That body may be a Board or Steering Committee but it must spread power across a range of relevant interests, through having representatives of the organisation’s stakeholders, e.g. • The policy Ministry for the sector • Business associations in the sector • Civil Society bodies in the sector • The senior management is accountable to the Board / Steering Committee for delivering these objectives.

9. Board / Steering Committee Model Chair Food Businesses Consumer NGO Chief Executive Agri Ministry Health Ministry Senior Management Team Chief Executive Finance / Admin / HR / IT / Legal / Science Chief Inspectors

10. Example of International Good Practice All meetings of the Management Board of the UK’s Food Standards Agency have always been publicly available on video. http://www.food.gov.uk/about-us/how-we-work/our-board/board-meetings/#.U4G30vmSx8F It relies on transparency and good science and this has given it strong credibility with the public and strong influence over the public’s buying choices in food.

11. Relationship with Ministries • A supervisory body delivers public services. It is not a political institution with its own agenda. It should not be run by a politician. • One supervisory body may deliver services to multiple Ministries, with greater efficiency than multiple bodies, e.g. a single food safety agency. Ministries should get a better service, not a worse one, if their supervisory services are independent and professional. • A supervisory body should be directly involved in the design of new policies by commenting on how the policy may work. • But a key factor is whether there is a culture of cooperation or of competition between government bodies.

12. Funding Supervisory Bodies • A supervisory body should be funded by the government, as a public service. That inevitably leads to concerns about political control when funding decisions are made but that is unavoidable in government. • A supervisory body should have no financial interest in sanctions imposed on businesses. It should never benefit directly from collecting fines. • A supervisory body may recover its operating costs for specific operations through a charge but there should be no profit.

13. Powers of Supervisory Bodies • A supervisory body needs strong powers to control and even close businesses – but it also needs a range of lesser powers and some positive, enabling powers. • “Nuclear” options, such as closing a business, are rarely of any use (hopefully) but need to be in the background. So other powers are needed day-to-day. • Powers are also needed to support businesses into better compliance, such as publishing guidance, providing training or even grants. • Some supervisory bodies can be successful even with few powers, if they approach their task positively.

14. Example of International Good Practice The new State Inspection of Ecology and Technical Safety of the Kyrgyz Republic has been operating for 2 years and still has inadequate sanctioning powers. It was voted by the Kyrgyz public as the best government organisation in 2013 and business surveys show a growing respect for its inspectors.

15. Thank you for listening. Donald Macrae Donald@dmacrae.co.uk Dmacrae@ifc.org