Another Side of Accountability: The Fiduciary Concept and Rent-seeking in Government Corporations

Abstract

Corporatisation - the transformation of state-owned enterprises into incorporated businesses, owned by, but operating substantially independently of the state - has been an important part of the microeconomic reform of the delivery of public goods and the provision of public services in Australia and elsewhere. One of the premises of corporatisation is that it is desirable to assimilate the government enterprise with the governance and disciplines to which business corporations are subject. This essay considers this claim by examining how accountability translates from business to government corporations. In the business corporation, accountability is a simple, one-dimensional relation that runs from management to shareholders. The underlying moral hazard problems in this accountability relation are reflected in the use of a fiduciary duty. Although the fiduciary duty is still useful in dealing with potential overreaching problems, the basic premise of that relation - the mandated absence of duties or interests conflicting with those to the beneficiary - is distinctly ill at ease in the government corporation. This is because of the uncertain identification of a principal, incommensurability problems arising from the pervasion of non-efficiency objectives, and the proximity of rent-seeking. Accountability can be pulled in the direction of a representational accountability, which treats managers and shareholders as agents of a broad range of stakeholders, or pushed into an ethical accountability which seeks to immunise those agents from political conflicts of interest. I show how the fiduciary duty, in both its strict traditional, and more modest modern forms, does not serve either accountability form very well at all.