Aratohu tāpiri — mā te tumu whakarae Supplementary guidance note — functional chief executives

01 August 2022

The functional chief executive model allows for new ways to organise departments.

Defining a functional chief executive

This option can be used to improve the delivery of an important system function that a minister or chief executive feels is not receiving enough focus and/or support at a senior level. It can also help alleviate pressure on departmental chief executives.

When Cabinet decides to establish a functional chief executive position and agrees upon the role’s set of functions, the Public Service Commissioner (the Commissioner) appoints a functional chief executive. A functional chief executive is not a separate organisation but is hosted within an existing department. A functional chief executive is responsible to the appropriate minister for their particular functions: this may or may not be the same minister as the responsible minister for the host department.

Figure 1: Functional chief executive model

A large box called 'Department' is in the middle of the image. On the top right-hand side is another, smaller box with edges made of broken lines, with the words ‘Business unit’ inside. Approximately one quarter of the box sits outside the Department box. On top of the Department box are 2 circles. The left-hand circle has CE in it, the right-hand one has FCE in it. There is a dotted line between them to show the relationship between CEs and FCEs. Each circle has a line going to 2 more circles directly above. Both of these have ‘Min’ in them, to represent the minister. Another 4 boxes float outside these, each with an arrow pointing to a different part of the image. The top left-hand box reads: A functional chief executive is likely to operate with delegations from the chief executive of the host department (through a standard managerial agreement). The arrow from this box points the line between the CE and the minister. The bottom left-hand box reads: A functional chief executive may oversee a business unit (branded or not) but cannot employ staff. Staff are employed by the chief executive of the host department. The arrow from this box points to the Business unit box. The bottom right-hand box reads: The host department must provide a functional chief executive with all the resources needed to deliver their functions. The arrow from this box points to the Business unit box. The top right-hand box reads: The relationship between a functional chief executive and their minister always operates in the same way as a departmental chief executive and their minister.

Background and objectives

Prior to the new Public Service Act 2020, the only way to establish a direct line of accountability to ministers, without relying on delegation from a chief executive or requiring primary legislation, was to create a department or departmental agency, which can be costly and disruptive. There was a need for a more flexible model that could be used to respond to government priorities and focus areas but did not require hard structural change to establish.

The new functional chief executive model addresses this and enables a direct line of accountability to be established between a minister and a functional chief executive that is hosted within an existing department.

The functional chief executive model is an option that sits between creating a business unit or branded business unit and establishing a departmental agency or department.

Figure 2: Structural options in a department

The image is of a line with 5 circles and 3 headings spread along the line. From left to right, the first circle states ‘Business Unit’ and has an icon of 3 people. Above this circle is the heading ‘Soft’. The second unit has the same icon but states ‘BBU’. The third circle has an icon for 1 person, and states ‘Functional’. Above this circle is the heading ‘Medium’. The fourth circle has the icon for cogs and states: DA. The fifth icon has the same icon and states ‘Department’. Above this circle is the heading ‘Hard’.

Functional chief executive positions are intended to address the need for greater technical expertise in certain senior leadership positions. The functional chief executive position is free from the administrative role of leading a department and allows for the appointment of functional chief executives with specialist technical skill and experience, who can lead the delivery of functions in direct response to government priorities.

It may be useful to appoint a functional chief executive where resources and capability already exist within a department, and it is easy to bring these together under a reporting functional chief executive to lead the delivery of a function. It may not be useful where there is a need for significant resources and capability to deliver the function, and the existing resources are split across multiple agencies.

How the functional chief executive model works

Functional chief executives are chief executives appointed by the Commissioner that are assigned particular functions, which are set out in the Order in Council relating to the role (see section 51, Public Service Act 2020). They are not an administrative head of a department and do not lead an agency.

A functional chief executive is hosted by the department most closely related to their function and is responsible to the appropriate minister for their functions under section 53 of the Public Service Act 2020. Though a functional chief executive is directly responsible to their appropriate minister, they do not act on behalf of the host department chief executive in this respect. The prime minister determines the appropriate minister.

A functional chief executive is only responsible for carrying out their particular functions, and not any other functions of the host department, except as expressly provided for in the Public Service Act 2020 and as detailed in the establishing Order in Council. In turn, the chief executive of a host department is not responsible for the particular functions of a functional chief executive.

Financial management

Functional chief executives may use appropriations through a delegation from a department. Functional chief executives cannot administer appropriations but can be performance reporters under the Act.

Relationship with host department

Functional chief executives are employed by the Commissioner but are likely to operate with delegations from the chief executive of the host department, as is common practice within agencies. The working arrangements between a functional chief executive and their host department must be agreed between the 2 chief executives and approved by the Commissioner.

It is possible that a functional chief executive may also lead a business unit (branded or not) within the department, which could help ringfence and delineate the delivery of their function. This could be considered within the establishment process of a functional chief executive to support clarity about the operational nature of the role.

Functional chief executives can’t employ staff but must be provided all the necessary resources to carry out their function by the host department, for example, ministerial services, IT and staff. Employees are still the responsibility of the host department’s chief executive, as are the resources. The resources will be managed between the host chief executive and the functional chief executive under delegations and standard managerial agreements.

Functional chief executives and system leads

These are 2 separate roles:

  • a functional chief executive is a chief executive responsible for the delivery of ring-fenced functions and hosted by a department
  • a system lead is an existing chief executive (of a department, departmental agency or a functional chief executive) who is tasked under section 56 of the Public Service Act 2020 with leading the system in a particular area of activity.

Where appropriate, proposals to establish a functional chief executive could also canvas whether that functional chief executive should also be appointed as a system lead. This would be likely where it is desirable for the functional chief executive to have explicit statutory authority to set standards that, with ministerial agreement, apply to Public Service agencies.

Establishing a functional chief executive

Consultation

Te Kawa Mataaho Public Service Commission and the Treasury must be consulted about any proposal that might lead to the establishment of a functional chief executive.

Cabinet decision

The proposal for the functional chief executive must be approved by Cabinet. Specifically, there must be explicit agreement on the purpose, scope and functions of the functional chief executive and any appropriations to be used.

Order in Council

A functional chief executive is established by an Order in Council under section 51 of the Public Service Act 2020  (as is also required for the establishment of a department or departmental agency). In the case of a functional chief executive the Order must:

  • state the designation of the functional chief executive role
  • identify the department that will be host department of the functional chief executive
  • set out the particular functions of the functional chief executive role within the host department.

Appointment

Once an Order in Council is signed, a functional chief executive can be appointed. The appointment process for a functional chief executive is the same as for appointing a departmental agency chief executive with the chief executive of the host department as a member of the appointment panel (see Schedule 7, clause 3(5) of the Public Service Act 2020).

Schedule 7, clause 3(5), Public Service Act 2020 — New Zealand Legislation

Working arrangements

Following the appointment of the functional chief executive, that chief executive must work with the chief executive of the host department to agree the working arrangements. These arrangements are intended to address how each chief executive will meet their responsibilities in relation to the functions, including how the host department will support the functional chief executive in their role.

Once agreed, the working arrangements are to be approved by the Commissioner (see section 55 of the Public Service Act 2020).

Section 55, Public Service Act 2020 — New Zealand Legislation

System architecture and design

Appropriate structures, strong governance and clear accountability help the Public Service and wider public sector organisations to work together to deliver better outcomes for the public. 

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