Those that manage a business (the agents) do not own that business but manage the business on behalf of those who do own it (the principals), hence the concept of agency. This is key concept in the context of corporate governance.
Strategic objectives and leadership in the public sector:
While most private sector organisations are independent in that they are ‘stand-alone’ companies answerable to their shareholders, most public sector organisations are part of a larger public sector structure. A health authority, such as the NHS, cannot act alone and as it sees fit. It is funded by government and is tightly controlled in what it is asked to do and how it achieves its aims. Likewise, a school in the public sector will rarely have the freedom to do as it likes in terms of what and how it teaches, who it appoints and where it locates itself. In each case, the public sector organisation is helping to achieve and implement a set of higher government policy objectives.
This is not to say that individual public sector organisations do not have strategic objectives, however. Each one must work out how it will achieve what it is asked to do but the autonomy given to individual organisations varies. Each public sector organisation must be strategically effective in that it must achieve the objectives established for it in carrying out government policy. Because they are funded by public money, they must also be efficient and make the most of whatever resources they are provided with.
Finally, they must also be economical in that they must work within specified budget and deliver desired outputs within that budget. Accordingly, there is an emphasis on value for money and service delivery.
Governance and leadership arrangements:
There is no single way in which public sector organisations are governed.
Accountability is gained in part by having a system or reporting and oversight of one body over others. Because there is no market mechanism of monitoring performance (as there is with listed companies, for example), other ways must be found to ensure that organisations achieve the objectives and service delivery targets established for them.
The oversight body may be a board of governors, a council of reference, a board of trustees, and an oversight board or similar. The oversight body is often put in place as a means of holding the management to account. In this respect, oversight bodies are acting in the interests of service funders (usually taxpayers) in making public sector organisations accountable.
Typical (and general) roles of oversight bodies include the following, although their roles do vary substantially depending on jurisdiction and government policy.
Roles of Oversight Body
1) Compliance with government rules and policies.
2) Ensure organization is well run and meets performance targets
3) Monitoring the performance and compare with the budget
4) Appointing or removing senior management
5) Regular reporting to higher authorities