Differences between public and private boards

Similar governance principles apply to public and private boards, although there are some differences of emphasis.

In addition, public entity boards must always:

act consistently with their entity’s functions and objectives
comply with government policy and legislation.

Supporting the public interest

Private boards must act in the best interests of shareholders or company members.

Public boards have a duty to act in the best interests of the public.

Your board must always strive to achieve outcomes in the public interest.

Community expectations and governance requirements

The public expects a much higher standard of behaviour and performance from public boards than private boards.

This is because the public:

has a sense of ownership of public entities
views public money differently to private money, as you’re using money collected through taxes and fees
places high importance on the quality-of-service delivery by public entities.

Governance obligations for public boards reflect these expectations.

Public and private obligations compared

Private sector board directors find their duties in either:

Public entity board directors have duties under:

the Public Administration Act 2004(opens in a new window)
the Code of Conduct for Directors of Victorian Public Entities(opens in a new window)
other Acts of Parliament that apply to their public entity.

Some public entities are established under the Corporations Act or the State-Owned Enterprises Act 1992, in which case the duties under these acts apply.

We’ve compared private and public obligations in the law for board directors:

Duties

The private sector obligation is a	The public sector equivalent says that
Duty to exercise a reasonable degree of care, diligence and skill. (Section 180 of the Corporations Act)	Public entity directors must exercise their functions with a reasonable degree of care, diligence and skill. (Section 79(1) of the Public Administration Act)
Duty to act honestly, in good faith and for a proper purpose. (Section 181 of the Corporations Act)	Public entity directors must carry out their functions: with integrity honestly in good faith in the best interests of the public entity. A lack of good faith can expose public entity directors to liability for ‘misfeasance in public office’. (Section 79(1) of the Public Administration Act)
Duty to not misuse position. (Section 182 of the Corporations Act)	Public entity directors are prohibited from improperly using their position to: gain an advantage for themselves or another person, or cause detriment to the public entity. For example, you should not use your position to gain a private benefit or advantage. (Section 79(3) of the Public Administration Act)
Duty to not misuse information. (Section 183 of the Corporations Act)	Public entity directors have a strict obligation to only disclose information in the legitimate course of their duties. Public entity directors can only disclose information obtained as a result of their position: to exercise their functions, or where they are expressly authorised, permitted or required to disclose the information under the Public Administration Act or any other Act. For example, in the case of corrupt or improper conduct, you are encouraged to make “public interest disclosures” to the Independent Broad-based Anti-corruption Commission, Victorian Ombudsman, Victorian Inspectorate and other integrity bodies. You may not misuse information to cause detriment to the public entity. (Section 79(2) and (3) of the Public Administration Act)
Duty to disclose interests (Section 191 of the Corporations Act)	Public entity directors must identify, disclose and manage any real, perceived or apparent conflicts of interest or duty. Section 3.12 of the Code of Conduct for Directors of Victorian Public Entities says that directors must declare any financial or other outside interests in an annual declaration of private interests. They must also update this declaration: if they are appointed to a new role if their circumstances change before they consider matters that may be relevant.
Duty to not trade while insolvent. (Section 588G of the Corporations Act)	The requirement to prevent a company trading while insolvent does not apply to public entity directors, unless the entity is established under the Corporations Act. However, there is a duty to act in a financially responsible manner under section 79(1)(d) of the Public Administration Act. Other duties in section 79 of the Public Administration Act may also be relevant including to act in good faith in the best interests of the public entity and with a reasonable degree of care, diligence and skill. Collectively, these duties may involve a duty not to engage in insolvent trading. Under section 81(1)(b) of the Public Administration Act, public entity directors have a duty to inform the Minister responsible for the public entity and the relevant department head (Secretary) of: known major risks to the effective operation of the entity the measures in place to address those risks. This would include notifying the Minister and department head of a risk of insolvent trading.
End of table

The private sector obligation is a

The public sector equivalent says that

Duty to exercise a reasonable degree of care, diligence and skill.

(Section 180 of the Corporations Act)

Public entity directors must exercise their functions with a reasonable degree of care, diligence and skill.

(Section 79(1) of the Public Administration Act)

Duty to act honestly, in good faith and for a proper purpose.

(Section 181 of the Corporations Act)

Public entity directors must carry out their functions:

with integrity
honestly
in good faith in the best interests of the public entity.

A lack of good faith can expose public entity directors to liability for ‘misfeasance in public office’.

(Section 79(1) of the Public Administration Act)

Duty to not misuse position.

(Section 182 of the Corporations Act)

Public entity directors are prohibited from improperly using their position to:

gain an advantage for themselves or another person, or
cause detriment to the public entity.

For example, you should not use your position to gain a private benefit or advantage.

(Section 79(3) of the Public Administration Act)

Duty to not misuse information.

(Section 183 of the Corporations Act)

Public entity directors have a strict obligation to only disclose information in the legitimate course of their duties.

Public entity directors can only disclose information obtained as a result of their position:

to exercise their functions, or
where they are expressly authorised, permitted or required to disclose the information under the Public Administration Act or any other Act.

For example, in the case of corrupt or improper conduct, you are encouraged to make “public interest disclosures” to the Independent Broad-based Anti-corruption Commission, Victorian Ombudsman, Victorian Inspectorate and other integrity bodies.

You may not misuse information to cause detriment to the public entity.

(Section 79(2) and (3) of the Public Administration Act)

Duty to disclose interests

(Section 191 of the Corporations Act)

Public entity directors must identify, disclose and manage any real, perceived or apparent conflicts of interest or duty.

Section 3.12 of the Code of Conduct for Directors of Victorian Public Entities says that directors must declare any financial or other outside interests in an annual declaration of private interests. They must also update this declaration:

if they are appointed to a new role
if their circumstances change
before they consider matters that may be relevant.

Duty to not trade while insolvent.

(Section 588G of the Corporations Act)

The requirement to prevent a company trading while insolvent does not apply to public entity directors, unless the entity is established under the Corporations Act.

However, there is a duty to act in a financially responsible manner under section 79(1)(d) of the Public Administration Act. Other duties in section 79 of the Public Administration Act may also be relevant including to act in good faith in the best interests of the public entity and with a reasonable degree of care, diligence and skill. Collectively, these duties may involve a duty not to engage in insolvent trading.

Under section 81(1)(b) of the Public Administration Act, public entity directors have a duty to inform the Minister responsible for the public entity and the relevant department head (Secretary) of:

known major risks to the effective operation of the entity
the measures in place to address those risks.

This would include notifying the Minister and department head of a risk of insolvent trading.

End of table

Government standards

The private sector obligation is	The public sector equivalent says
Limited shareholder consultation	The Public Administration Act and the Financial Management Act 1994 (Vic)(opens in a new window) require public entities to consult with the relevant department and Minister on major issues.
External reporting is to shareholders, mostly prescribed forms of reporting	Entities must report on financial and performance information and risks to the responsible Minister, as per the Standing Directions under the Financial Management Act. Other acts of Parliament may impose additional reporting requirements.
Organisation sets remuneration for directors and executives	In the public sector: the Minister or Governor-in-Council sets remuneration for public entity directors(opens in a new window) the employer, the board or the responsible minister set remuneration for the CEO(opens in a new window). The Public Entity Executive Remuneration Policy(opens in a new window) tightly controls the remuneration band, package and other benefits for directors and executives.
Self-imposed requirements for ethical conduct, if any	Public entity directors must comply with the public sector values and the Code of Conduct for Directors of Victorian Public Entities. Public entity directors may also need to comply with industry-specific codes of practice.
Board seeks to manage director behaviour	A public entity board director may be removed or suspended if their behaviour contravenes: the Code of Conduct for Directors of Victorian Public Entities any other obligation imposed on a public entity board director.
External audit of financial reports	The Auditor-General audits financial reports and conducts performance audits of public entities.
Indemnification of directors	The Victorian Managed Insurance Authority (VMIA) will provide an indemnity to directors of a public entity, if the public entity has purchased a relevant insurance policy. Directors’ liability insurance provides cover for claims arising from your actions and decisions while acting in an official capacity. Indemnity may be lost where you have not acted honestly or properly in carrying out your duties.
End of table

Performance expectations

The private sector obligation is	The public sector equivalent says
Stewardship	Public entity boards play an important stewardship role by steering the public entity on behalf of the responsible Minister. The board must ensure that: the public entity’s activities reflect the public sector values and employment principles the entity has arrangements in place to meet its statutory obligations.
Strategic leadership	Public entities cannot fully set their own strategy. Their strategy is limited and influenced by establishing legislation and government policy.
Risk management	Public entity boards must inform the Minister responsible for the public entity and the relevant department head of: known major risks to the effective operation of the entity the measures in place to address those risks. Public entities that are subject to the Financial Management Act must also comply with the Victorian Government Risk Management Framework . (Section 81(1)(b) of the Public Administration Act)
Financial management	If a public entity is subject to the Financial Management Act, the Act imposes limits on: borrowing guarantees procurement methods and accounting procedures.
Procurement	Some public entities must comply with the procurement policies set by the Victorian Government Purchasing Board (VGPB). Public entities that are not bound by the VGPB policy are encouraged to adopt best practice standards based on the policy.
End of table

Governance

Updated 9 November 2023