1. Agents or stewards? Management at arm’s length
Prof. dr. Sandra van Thiel

2. Background
Professor of Public Management, department of Public Administration, Institute of Management Research, Radboud University Nijmegen.
>20 years of research into arm’s length bodies, in particular Dutch ZBOs but also internationally comparative research
Frequent consultant to governments and arm’s length bodies, most recently on Gambling Authority, Emissions Authority, Dutch National Police

3. Outline
Models for relationship between governments and ‘agencies’ at arm’s length:
Principal-agent
Principal-steward
Implications for relationship management, steering instruments
Evidence from (Dutch) practice
Lessons/recommendations
Q&A

4. Model of relationship with arm’s length bodies
Principal
Information asymmetry:
-Moral hazard
-Adverse selection
Solution:
-Monitoring
-Incentives
Contract
Agent

5. Instruments for management at arm’s length
P-A model
Very detailed contracts
Frequent communication and information flows (also on details)
No activities for third parties (market)
No independent legal position (legal form, labour conditions, financial market)
Frequent supervision and accountability
Government representative in the board

6. Model of relationship with arm’s length bodies
Principal
Information asymmetrie:
-Moral hazard
-Adverse selection
Solutions:
-Monitoring
-Incentives
Contract
Agent
Steward

7. Instruments for management at arm’s length
P-A model
P-S Model
Very detailed contracts
Frequent communication and information flows (also on details)
No activities for third parties (market)
No independent legal position (legal form, labour conditions, financial market)
Frequent supervision and accountability
Government representative in the board
Supervision through third parties, board of overseeers or independent regulators
No government representative in the board
Framework contracts (no details)
Moderate frequency of communciation and information
Open communication: business-like, equal footing, joined interests
Activities for third parties allowed (within competition law framework)
Legal independence (form, labour, finances)

8. Preference of government Preference of arm’s length agencyPA PS
Mutual distrust, high degree of monitoring and accountability
Agency feels distrusted, dysfunctional relationships
High risk of corruption by agency
Mutual trust
and respect

9. In practice…. 7.6 7.1 Relationship Municipalities TCH Total P-A 2%
9,5%
6,2%
Mix
38%
49,2%
44,2%
P-S
60%
41,3%
49,6%
5,4
7,0
7,8
Van Herpt, N. (2016). The principal and the executive: improving the relationship between municipalities, and theatres and concert halls:
a mixed method approach. Master thesis, Radboud Universiteit, Nijmegen. N=50 municipalities, N=63 theatres & concert halls.

10. Different perceptions?
Interviews show:
Different expectations
Different understanding of each other’s position and interests
Communication infrequent and often only when there are problems, negative atmosphere
Inappropriate instruments for management of arm’s length bodies, e.g. invalid indicators, only sanctions no rewards, no separation of different roles by government
Breaking agreements (by government) leads to unreliability and distrust

11. Being a good principal Do Don’t
Arm’s length means letting go (delegation, respect autonomy)
Business-like relations can handle small conflicts
Use new instruments for management at arm’s length
Mutual acknowledgement of professional behaviour
Invest in relationship management
Keep balance between different roles of government: policy maker, law maker, financer, overseeer
Focus on details
‘Vertical reflex’ (continued intervention and meddling, focus on incidents, short term)
Unilateral reneging or breaking contractual agreements (e.g. impose new budget cuts)

12. Being a good agency at arm’s lengthDo
Don’t
Be sensitive about political aspects and impact of activities (contribute to the general interest)
Open attitude, even about negative events
Public accountability (to public, stakeholders), alongside vertical accountability (to government)
Invest in expertise and management of the organization (governance, ICT, financial management)
No risk-taking without prior consultation
Assume that the government will pick up the pieces or the bill
Ritualize communication and accountability

13. Instruments for management at arm’s length
Legislation (1) about the agency, (2) its task, and (3) that the agency has to abide by (e.g. competition law, governance codes)
Contracts, multi-annual or annual, specifying tasks, finances, accountability, indicators, etc.
Participation in project groups for development of new policies
Feasibility tests of new policy proposals (cost benefit analysis)
Frequent evaluation of policy/task, impact studies
Annual report, annual account (audited)

14. Instruments for management at arm’s length
Budget (full p&c cycle)
Tariffs or fees (who determines, who approves)
Performance indicators, benchmarking (competition, performance based financing)
Information protocols (for exchange of information by parties throughout year)
Charter (e.g. about rights of clients)
Horizontal accountability, peer review, stakeholder analysis
Supervision arrangement (who is involved, when and how)
Reporting by independent regulator, inspectorates, audit office
Corporate governance codes

15. Q&A