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From Machinery to Executive Density: Time for Structural Reforms?

Original post on December 20th, 2024

INTRODUCTION

The federal public service has adapted to many forces of change in recent years. Technology has transformed many external services to Canadians. Work sharing platforms for meetings and documents have become ubiquitous and have opened a vigorous debate about “hybrid” workplaces and location of work. The public service has made significant efforts to respond to issues of diversity, equity and inclusion, address mental health and wellness, walk the path of reconciliation with Indigenous peoples, and reduce the environmental footprint of its operations. Generational change and recent rapid growth have altered the composition of the workforce.

What has not changed is the core structural software or scaffolding of how the public service is constructed and organized. There are two distinct clusters of issues. Both are particularly challenging topics for a reform agenda, so they are often set aside to be addressed sometime in the future. One is the “machinery of government,” which is the array of institutional arrangements underpinning the more than 300 federal government entities (e.g. departments, Crown corporations, departmental corporations, special operating agencies, administrative tribunals), the mandates and authorities they are given, the boundaries among them and how they interact. The other is the vertical hierarchical organization of occupations and the density of the management cadre.

This note first reviews three principal clusters of changes to federal government machinery with illustrative examples: internal boundary changes; creation of new bespoke entities; and changes to the perimeter of the federal state. It goes on to note why a future government should tread carefully and nevertheless lays out the case for several contemporary options to change the machinery of government. The second part delves into the related structural issue of the density of the executive management layers at the top of all federal government organizations and argues for a deep pruning across the service.

CHANGING THE MACHINERY OF GOVERNMENT: BACKGROUND AND OPTIONS

Over time successive governments have made significant changes to the array of federal entities and it can be attractive to political parties to propose more change. The main types of “machinery change” fall loosely into three clusters.

New Fenceposts: Merging, Breaking Up or Recombining Entities

A complete listing or chronology would be very long. A recent illustrative example would be the changes to the federal departments dealing with Indigenous issues in 2017. An earlier one would be the consolidation in stages of three departments (i.e., trade, development and diplomacy) into the current Global Affairs Canada.

The broadest realignment in recent times was attempted by the short-lived Campbell government of 1993. Some of it stuck, such as the Canadian Heritage department, while the new Public Safety department was cancelled and had to wait for the post 9-11 environment to come to fruition in 2003. There have been countless boundary changes over the past four decades to the economic portfolio departments currently styled as Innovation Science and Economic Development. The social policy and employment departments were combined in 1993, broken up in 2004 and recombined in 2006. Multiculturalism has moved from the old Secretary of State, to Canadian Heritage, to the oft-rebranded Immigration department.

Spinning Off Specialised Operations into Bespoke Entities

This is familiar territory to scholars of public administration. The underlying theory often labelled “new public management” argues for “separating steering from rowing,” and for providing the delivery arm of the state with clearer mandates and better tools. The language around these initiatives when they are unveiled is usually “modernization.” The guiding policies on service delivery emanating from the Treasury Board have been updated roughly every five years for the past three decades. The current iteration dates from 2020 and is infused with concerns about digital government.

Examples of this drive for focus and specialisation are the creation of a Border Services Agency in 2005, making Parks Canada a distinct agency in 1998, and restructuring Canada Post from a government department into a Crown Corporation in 1981. More recent smaller examples would be the creation of Invest in Canada in 2018, the Canada Infrastructure Bank in 2017, the Canadian Centre for Cybersecurity in 2018, and the Canada Water Agency in 2024. Service Canada was created in stages between 1998 and 2005 to pull together many externally facing transactional services. It absorbed Passport Canada in 2013.

There are also examples in the realm of internal services. Much of government IT infrastructure was consolidated under Shared Services Canada in 2011. Specialised hubs were created for delivery of public service pay and pensions. A consolidated Courts Administration Service was created in 2003. Two now defunct entities were Consulting and Audit Canada and Communications Canada, both closed in 2004. Finally, there has been a proliferation of small entities for oversight, review and recourse, placed at varying degrees of “arm’s length” status from the main departments.

Changing the Boundaries of the Federal State

Spending reviews have sometimes generated decisions to pull back entirely from some services or to outsource them. Air navigation services were spun off to NAVCAN in 1996. Many federal airports and ports were divested to not-for-profit corporations. And, of course, there were outright privatizations of Air Canada, CN, Canadair, DEVCO, PetroCanada and other entities with a more commercial mandate. Currently the CBC is under discussion in the political realm, as is the Canada Infrastructure Bank.

Restructuring Options in Perspective: Why Government Should Tread Carefully

Altering the machinery of government can be attractive to politicians. It can look vigorous and responsive. The case for the change can be a good one if the old toolset is demonstrably falling behind. However, there can be costs and unintended consequences.

Some machinery costs present quickly as one-time transition and friction costs such as realigning personnel, reconfiguring administrative support, adjusting physical accommodation and location. Gaps or overlaps must be addressed. Reporting relationships often need to be ironed out. While much can be done quickly through the wonderful Transfer of Duties Act and Orders in Council, eventually the legislative underpinnings need to be realigned, but that can take a couple of years, and bills to reorganize federal departments usually move slowly through Parliament.

Moreover, every machinery change means that valuable time and attention of the organization is not going to its policy or program purposes—a degree of slippage and loss of traction occurs. Finally, because there is so much interdependence in government, reconfiguring entities always creates new boundary issues to replace the old ones. The long-term gains in “synergy” can be elusive.

The public service needs to be agile in reconfiguring its organizational structure. As the pace of governing increases this will become even more imperative. The service also needs to maximise agility in moving people, money and information to where it is needed across the 300 entities. To get there the costs of change must be mitigated and reduced and barriers to internal mobility minimised. The most effective way to do this has been by standardising and harmonising internal systems used by federal organizations—the famous “back office.” This reduces friction costs and slippage, and these efforts draw less attention than the public facing service windows moving to websites and smartphone apps but they are vitally important.

Examples would be centralised collective bargaining, a high degree of comparability in job classification, common approaches to security classifications and clearances and a common approach to testing and certifying language competencies. These facilitate mobility: everyone involved understands what “an AS-3 with CCC language rating and a secret clearance” means when they move within the service. There have also been attempts to streamline core processes around financial management, IT and human resources to address a range of small differences that impedes mobility and consistent measurement of inputs and outputs, and that generates additional costs.

OPTIONS AND NEXT STEPS

There is no generally accepted theory that can tell the next government where to pursue structural change. Structural change should be a means to an end, driven by some clear purpose with a policy and business case anchored in enhancing effectiveness. It should not be driven by political signalling alone. At its best, machinery change responds to some identified shortcoming where previous machinery has aged out. Spending reviews are often a driver of machinery change and may create political cover, but without an accompanying case anchored in effectiveness and capabilities, any savings are likely to be short-lived (see Shepherd & Champagne, 2024, this special issue, and Lindquist and Shepherd, 2023).

With those general assertions as a guide, the following options are presented for consideration, recognizing what follows is entirely arbitrary and drawn from experience and observation of recent events.

Central Agencies – Rebalancing Relative Size and Scope

This is an area where there is a strong case to look at internal boundary issues and refresh mandates.

Keen eyed readers will perhaps have noticed that machinery change has only lightly touched the “central agencies” of the federal government. The two most significant changes at the centre were the absorption of the old Federal-Provincial Relations Office by the Privy Council Office in 1993 and the separation of the Treasury Board Secretariat from the Finance Department in 1966. A variety of special purpose secretariats at PCO and TBS have come and gone over the years but the essence of the constellation of central agencies (PCO, TBS, Finance) has not changed in decades.

The next government could seek an independent review of whether the central agencies are still fit for purpose. They should enlist international help that is more objective, perhaps drawing on the pool of expertise at the OECD, or think tanks in the UK and Australia where they also wrestle with improving Westminster governance. For example, the Institute For Government in London published a study by a large “Commission on the Centre of Government” in March 2024 (see Institute for Government, 2024).

While there is an option to bulk up the Privy Council Office for improving the effectiveness of the public service, the better course would be to enhance the authority and capabilities of what is now the Treasury Board Secretariat. The notion, set out in legislation, that the Clerk is the head of the public service has unintentionally weakened the federal government’s ability to pursue sustained reform to public service capability by diffusing authority and accountability. Earlier this year (see Wernick, 2024) I proposed making it clear in legislation and branding that what is now the Treasury Board, is a full spectrum management board, accountable for implementation, delivery and capabilities, and that the Minister is the Chief Operating Officer of the federal government. The focus of PCO should be on supporting Cabinet, policy and priority setting and work on enhancing the supply chain of policy development.

Regulation is one part of federal government decision making that could be placed at either PCO or the new Management Board. In this case, if the next government wishes to pursue a serious agenda of regulatory reform, as opposed to unserious signalling such as a “one-for-one” rule, it should split off the Cabinet level review of approval of regulations from its current home at the Treasury Board committee of Ministers, where review of regulation is a function crowded out by other roles, into a new bespoke committee of Ministers, similar to previous temporary Cabinet committees for expenditure review and move the regulatory policy function into PCO until the review is complete. A deep dive into regulation, and issues such as alignment with our trading partners, internal trade barriers, and the thicket of policy goals piled onto government procurement, is a policy conversation, which should be placed under the aegis of PCO.

Cracked Foundations – Procurement and Real Property

This is an area where the case is strong that current machinery has aged out and there is a policy argument for creating new entities.

The current Public Services and Procurement department (PSPC) created in 2015 is the legacy of many waves of machinery of government change, notably the consolidation of core information technology infrastructure at Shared Services Canada in 2011. Practice models in both procurement and real property have evolved so the department certainly has not been static. However, their mandate includes domains that have frequently been the focal point for negative attention, whether from overt scandals such as sponsorship in 2003 or the ArriveCan app procurement in 2023, or because the department was the originator of unpopular workplace reforms such as Workplace 2.0 or Pay Modernization. The greatest source of frustration for successive governments with PSPC has been military procurement.

Discussions of procurement have often started with one aspect of the many policy objectives we have piled on, responding to pressures to use government procurement as an instrument of economic, social and environmental policy. The Government Operations Committee of the House of Commons has investigated procurement as a tool to foster small business and procurement as a tool to drive Indigenous business. It has also spent time looking for the causes of the ArriveCan app procurement. So far, the proposed solutions mostly involve adding more oversight. Amanda Clarke and colleagues have produced insightful work on procurement of information technology and its link to the quest for digital government (see Clarke et al., 2024).

The recent procurement debates have demonstrated that the structures of the federal state charged with this role are no longer up to the task and must now be part of any solution. Not surprisingly, one option that surfaces regularly would be to create a new agency dedicated to military procurement. Alternatively, the mandate of a procurement agency could be expanded to also take in all procurement related to security, including the Coast Guard, Border Services, the cybersecurity agency, RCMP and the security and intelligence agencies. The maximal option would be to spin off all PSPC’s current procurement responsibilities to a new Crown Corporation—a Procurement Canada. The key would be to provide any new agency with a solid legislative mandate to help clarify the tangled web of policy objectives that have been piled upon government procurement and enable the corporation to hire and retain top talent at market rates. Governance could be improved by adding a Board of Directors to keep management on its toes, along the lines of the Canada Revenue Agency.

The same approach could be applied to real property. Nearly 9000 public servants work on providing the rest with owned and leased workspaces, acquiring or shedding land, leases and buildings. The federal government is custodian of approximately 20 000 properties and 30 000 buildings. The practice in real property management is evolving fast to adapt to policy requirements around accessibility, reducing environmental footprint, cleanup of legacy problems such as asbestos, and hybrid work. There is a structural option to create a crown corporation for real property that adapts and applies the tools that a private sector firm like Brookfield would use in today’s markets—a new Real Property Canada.

Special Operating Agencies That Are Past Their Best Before Date

Special operating agencies (SOAs) are an institutional form that was devised in the 1990s to provide selected organizations with more autonomy than the standard department model. They are embedded within a host department and are not distinct legal entities. The approach was deemed to be useful to entities with a clear service mandate, particularly if they are expected to recover some of their costs through fees and other charges. Passport Canada is a now defunct example.

There are at last count eleven such entities. The one that jumps off the list as an internal boundary issue and a candidate for an upgrade is the Canadian Coast Guard, embedded in the Department of Fisheries and Oceans. The Coast Guard would benefit from being placed on a distinct legislative foundation that clarifies its mandate and enforcement powers. With 4,500 employees, an annual budget exceeding 2.5 billion dollars and major capital projects to manage, it has outgrown the Special Operating Agency model. The next Parliament should undertake creation of a proper Coast Guard Act. There is an option to move the Coast Guard to the military, but the better course is that it should remain a distinct civilian entity with stronger enforcement powers and tools.

The Indigenous Constellation

There has always been and always will be some part of the federal government that is the Crown for the purposes of relationships with Indigenous peoples, whether through treaties, funding programs or direct services. Even in a relationship described as “government to government” Parliament will always hold some part of the federal state accountable for the funds it allocates and the laws it passes. There will always be some federal government “machinery.”

Changes to the perimeter of the federal government occur when self-government agreements include a transfer of jurisdiction to an Indigenous government, or when programs are devolved to delivery by Indigenous governments and service agencies. But then a new funding relationship is established. There are also internal boundary issues worth attention.

In 2017 the Government split the service delivery function from the part that was working on negotiating land claim and self-government agreements and responding to litigation. Most of the relationship regarding services takes the form of a myriad of funding agreements through which funds flow to Indigenous governments and service delivery entities. The federal government’s role in direct service delivery to individuals is limited to the First Nations and Inuit Health Program and transactional services related to registration of Indian status, lands and trust funds that flow from the Indian Act. This was an area of internal boundary change in 2017 when FNIH was moved from Health Canada to the new Indigenous Services department.

The next government may want to review nine years later whether this new constellation has been effective. A range of structural options are available, including recombining the two departments. It should consider spinning off the Northern Affairs function from the Indigenous department and consolidating scattered federal programs into a new department for Northern and Arctic Affairs. At a June meeting of the Public Accounts Committee, I recommended creating a new Crown Corporation to deliver housing and infrastructure to Indigenous communities, especially if the next government terminates the Canada Infrastructure Bank. There is no way to get substantially better outcomes from a model premised on a government department running contribution programs. This point was made by Auditor General Sheila Fraser back in 2011 (see Auditor General of Canada, 2011).

Whatever the direction, it would be essential to engage Indigenous political organizations to achieve a substantial degree of buy-in, as they have been shown to be able to block federal government initiatives, even during majority governments, and have access to the courts to assert a high standard of required consultation and consent.

THE PYRAMID OF OCCUPATIONS AND DENSITY OF MANAGEMENT

In the public mind and cultural tropes, bureaucracy is closely associated with stove-piping and hierarchy, and for good reason. The federal public service comprises approximately 70 diverse occupational groups, each with their own ladder of increasing responsibility and compensation. Almost all of them are covered by one of more than 20 collective agreements. This is a root cause of the complex task given to the pay system.

The occupational structure is a bargainable issue so it would be difficult to change. One approach would be vertical—to reduce the number of rungs in some of the occupational ladders and have broader salary bands for each. Flatter structures would require the service to become more adept at measuring and rewarding individual performance. In practice the small differences in pay bands and promotions can be powerful indicators of career progression and sources of motivation. The other approach would be horizontal—to look to combine and consolidate occupational groups. This runs up against a different dynamic—the desire to “professionalise” many roles and recognize and reward the accreditations that are specific to them. Readers should be sceptical about promises of significant returns to the enormous effort involved in consolidating occupational groups.

Sitting above all the occupational groups is an executive category, non-unionized, but with its own advocacy group, the Association of Professional Executives of the Public Service Canada, now with approximately 9000 executives, laddered into five bands for classification and compensation. The APEX website is a valuable trove of studies of workplace wellbeing of executives.

From a structural perspective there have been four recurrent and interrelated issues regarding the executive cadre:

  • Size: Is the executive layer too large and heavy relative to the overall workforce? Observers of the growth of the executive category (from 6771 in 2010 to 9155 in 2024) tend to then construct a single ratio of executives to the total workforce. My own view is that the right ratio will vary across organizations. If there is a big spending review in our near future, we can expect the executive cadre to contract in size in rough proportion. As a structural issue it would be more useful to reassess the algorithm for classifying executive jobs, which in the past has been generous to policy functions and central agencies, and stingy to operational jobs and organizations.
  • Thickness: Should there be fewer layers between senior management and the “front line”? The pyramid of executives has five bands, topped by a Deputy Minister community that has four. Some organizations are led by senior Governor in Council appointees, where there are ten grades of GCQ compensation. The recurrent critique is that the number of steps can create a “clay layer” that slows down decision making and impedes communication between the most senior leaders and their workforce.
  • Span: Are the executive jobs too big or too small in terms of scope, authority and accountability? Span of control is the subject of a rich vein of management literature in both the private and public sectors. It has been asserted that a spread of half step positions such as “Associate Assistant Deputy Minister” and “Assistant Director” has narrowed the scope of executive positions. The counter argument is that there has been an acceleration of pace and volume of work that makes creating these positions a rational response.
  • Turnover: Are executives staying in their jobs long enough to be fully effective, and if not does the proliferation of job options contribute to unproductive churn? There is an argument that the number of levels, the creation of half-step positions and the growth of the overall executive layer have created greater possibilities and even incentives for individuals to move jobs more frequently than some ideal rate in which they would stay longer, acquire experience, seasoning and be more accountable for what happens on their watch.

In practice these dimensions would have to be addressed simultaneously. Flattening the pyramid without making other changes could incentivize creating more positions at each level, and would probably disadvantage operational jobs. So smart reform would also look at the span of jobs and the algorithm for classifying them.

Other structural issues in compensation arise because the boundary between the senior levels of the other occupational groups and the non-unionized executive cadre who have authority over budgets and human resources is a fuzzy one. Some senior professionals exercise limited management roles but are not EX category executives. “Inversion” occurs when senior professionals in the occupational ladders for specific trades earn more than their executive category bosses. On the other hand, other senior professionals are promoted into executive positions for which they are not suited essentially for retention purposes because there is no room left on the pay scale of their occupation.

Some structural changes to the executive cadre worth considering would include:

  • Reducing the size of the executive cadre and simultaneously compressing the five executive bands (EX) to three over time. It would be a large undertaking but converting all of the executive positions into one of three bands (senior, middle and junior) would force a deep examination of the scope and value added of each position and contribute to an overall pruning. In practice it would generate less disruption and resistance if done over a three-year timeline, with some protections or buyouts for individuals.
  • To be truly effective a reform of the executive cadre would require accompanying changes to the human resources software. These changes would include:
    • Updating the classification standard for executives to give more weight to jobs in services and operations, rebalancing where executive level positions are allocated across the service
    • Explicitly decoupling classification and compensation for executives from that of technical specialists. Adopting a transparent two-track approach would reduce the frequency of promoting specialists into executive positions, especially if the salary range of the lowest rung in the newly compressed three level executive category were raised.
    • Implementing a broader set of compensation tools such as recruitment and retention bonuses, so that there is less incentive to promote people or create entirely new positions in order to retain them.

Deeper structural reforms to the public service would extend beyond the executive cadre and examine how the basic software of work is organized into job descriptions and performance agreements for individual workers as well as how those individual “boxes” are moved around into organizations with assigned lines of authority and accountability.

I am sceptical that the returns to trying to rewire the core job model of the unionized public service would exceed the costs of disruption. The more urgent issue is arguably more about pace of staffing than structure. If it were possible to speed up the processes around classifying positions, writing and revising job descriptions, assessing candidates for a position and moving individuals in and out of positions then the job model would not be the main impediment to agility and productivity. A path to accelerate the pace of staffing, using AI, is another topic for another day.

CONCLUSION: PRE-CONDITIONS AND NEXT STEPS

Structural changes require some “winning conditions” because they inevitably run into resistance and change fatigue. These include:

  • Clarity of purpose and what success will look like. This is true for policy reforms too, but in my experience structural reforms are particularly prone to losing any anchoring purpose that can drive sustained change management agendas. Too often the purpose is initially expressed as a spending target rather than effective policy and service delivery and not enough effort is made upfront to identify metrics and milestones (see D’Aoust, 2020).
  • A public service champion with persistence. Usually it takes a combination of leadership at the centre, from the Clerk and the Secretary of the Treasury Board, but also the senior leaders in organizations and functions that are affected. Persistence is required to overcome resistance, which may be overt but more commonly takes the form of passive-aggressive non-cooperation. The most senior people in the affected organizations will have to make the call on many details of the reform and assemble a capable multidisciplinary team.
  • A public service team with strong project management skills. Plans for structural change require a degree of continuous learning and agility to put them into practice. They work best when staffed with strong multidisciplinary teams that combine institutional knowledge to avoid traps and landmines with fresh perspectives. These teams benefit from rigorous project management techniques.
  • Political cover from a lead Minister who won’t blink at the first sign of pushback. Structural reforms cannot be done by public servants alone. Many require legislation. All require Ministers to sign off on a range of documentation sent to the Treasury Board, pleas to the Minister of Finance for funds, or to the Prime Minister for authorities. Critics of reforms often go to the Minister or their political staff to try to block the initiative so sustained political cover is essential.
  • Patience to spend the time it takes to push bills through Parliament and approvals through central agencies. From the date of initial announcement, it can take a year, or even longer, to get a bill through Parliament. That is why shrewd Ministers will try to convince the government to include a structural reform in a Budget Implementation Act, with cover from some reference in the budget documents. Not all succeed so patience and diligence in dealing with Parliamentarians and central agencies whose attention has wandered off to new issues will be required.
  • Effective change management strategy, including employee and stakeholder engagement and two-way communication. Governments can anticipate that every reform runs into resistance or unexpected developments. To succeed they must be accompanied by strong change management strategies and feedback loops.
  • Willingness to invest up front in training and implementation and be patient in harvesting savings. Closely related to change management is an implementation plan. Governments tend to oversell the benefits and underestimate the effort required, whether it is the need to train or reallocate personnel, make changes within administrative systems, or create new tools for information management. Savings targets are often arbitrary and unrealistic.

These winning conditions are not always in alignment. If not, structural reforms can end badly. However, the costs of doing nothing and living with structures that have gone beyond their best before date can also be high. In late 2024, a generalized sense that the public service has become too big and less effective opens the door to simplistic solutions that can damage future capabilities. Past experience shows that squeezing operational budgets often leads to cuts in hiring, training and deferring the upgrading of technology. Any serious effort to make the federal state more effective and regain the confidence of Canadians must do better. Structural reform should be an integral part of that agenda.

Original post on December 20th, 2024

INTRODUCTION

The federal public service has adapted to many forces of change in recent years. Technology has transformed many external services to Canadians. Work sharing platforms for meetings and documents have become ubiquitous and have opened a vigorous debate about “hybrid” workplaces and location of work. The public service has made significant efforts to respond to issues of diversity, equity and inclusion, address mental health and wellness, walk the path of reconciliation with Indigenous peoples, and reduce the environmental footprint of its operations. Generational change and recent rapid growth have altered the composition of the workforce.

What has not changed is the core structural software or scaffolding of how the public service is constructed and organized. There are two distinct clusters of issues. Both are particularly challenging topics for a reform agenda, so they are often set aside to be addressed sometime in the future. One is the “machinery of government,” which is the array of institutional arrangements underpinning the more than 300 federal government entities (e.g. departments, Crown corporations, departmental corporations, special operating agencies, administrative tribunals), the mandates and authorities they are given, the boundaries among them and how they interact. The other is the vertical hierarchical organization of occupations and the density of the management cadre.

This note first reviews three principal clusters of changes to federal government machinery with illustrative examples: internal boundary changes; creation of new bespoke entities; and changes to the perimeter of the federal state. It goes on to note why a future government should tread carefully and nevertheless lays out the case for several contemporary options to change the machinery of government. The second part delves into the related structural issue of the density of the executive management layers at the top of all federal government organizations and argues for a deep pruning across the service.

CHANGING THE MACHINERY OF GOVERNMENT: BACKGROUND AND OPTIONS

Over time successive governments have made significant changes to the array of federal entities and it can be attractive to political parties to propose more change. The main types of “machinery change” fall loosely into three clusters.

New Fenceposts: Merging, Breaking Up or Recombining Entities

A complete listing or chronology would be very long. A recent illustrative example would be the changes to the federal departments dealing with Indigenous issues in 2017. An earlier one would be the consolidation in stages of three departments (i.e., trade, development and diplomacy) into the current Global Affairs Canada.

The broadest realignment in recent times was attempted by the short-lived Campbell government of 1993. Some of it stuck, such as the Canadian Heritage department, while the new Public Safety department was cancelled and had to wait for the post 9-11 environment to come to fruition in 2003. There have been countless boundary changes over the past four decades to the economic portfolio departments currently styled as Innovation Science and Economic Development. The social policy and employment departments were combined in 1993, broken up in 2004 and recombined in 2006. Multiculturalism has moved from the old Secretary of State, to Canadian Heritage, to the oft-rebranded Immigration department.

Spinning Off Specialised Operations into Bespoke Entities

This is familiar territory to scholars of public administration. The underlying theory often labelled “new public management” argues for “separating steering from rowing,” and for providing the delivery arm of the state with clearer mandates and better tools. The language around these initiatives when they are unveiled is usually “modernization.” The guiding policies on service delivery emanating from the Treasury Board have been updated roughly every five years for the past three decades. The current iteration dates from 2020 and is infused with concerns about digital government.

Examples of this drive for focus and specialisation are the creation of a Border Services Agency in 2005, making Parks Canada a distinct agency in 1998, and restructuring Canada Post from a government department into a Crown Corporation in 1981. More recent smaller examples would be the creation of Invest in Canada in 2018, the Canada Infrastructure Bank in 2017, the Canadian Centre for Cybersecurity in 2018, and the Canada Water Agency in 2024. Service Canada was created in stages between 1998 and 2005 to pull together many externally facing transactional services. It absorbed Passport Canada in 2013.

There are also examples in the realm of internal services. Much of government IT infrastructure was consolidated under Shared Services Canada in 2011. Specialised hubs were created for delivery of public service pay and pensions. A consolidated Courts Administration Service was created in 2003. Two now defunct entities were Consulting and Audit Canada and Communications Canada, both closed in 2004. Finally, there has been a proliferation of small entities for oversight, review and recourse, placed at varying degrees of “arm’s length” status from the main departments.

Changing the Boundaries of the Federal State

Spending reviews have sometimes generated decisions to pull back entirely from some services or to outsource them. Air navigation services were spun off to NAVCAN in 1996. Many federal airports and ports were divested to not-for-profit corporations. And, of course, there were outright privatizations of Air Canada, CN, Canadair, DEVCO, PetroCanada and other entities with a more commercial mandate. Currently the CBC is under discussion in the political realm, as is the Canada Infrastructure Bank.

Restructuring Options in Perspective: Why Government Should Tread Carefully

Altering the machinery of government can be attractive to politicians. It can look vigorous and responsive. The case for the change can be a good one if the old toolset is demonstrably falling behind. However, there can be costs and unintended consequences.

Some machinery costs present quickly as one-time transition and friction costs such as realigning personnel, reconfiguring administrative support, adjusting physical accommodation and location. Gaps or overlaps must be addressed. Reporting relationships often need to be ironed out. While much can be done quickly through the wonderful Transfer of Duties Act and Orders in Council, eventually the legislative underpinnings need to be realigned, but that can take a couple of years, and bills to reorganize federal departments usually move slowly through Parliament.

Moreover, every machinery change means that valuable time and attention of the organization is not going to its policy or program purposes—a degree of slippage and loss of traction occurs. Finally, because there is so much interdependence in government, reconfiguring entities always creates new boundary issues to replace the old ones. The long-term gains in “synergy” can be elusive.

The public service needs to be agile in reconfiguring its organizational structure. As the pace of governing increases this will become even more imperative. The service also needs to maximise agility in moving people, money and information to where it is needed across the 300 entities. To get there the costs of change must be mitigated and reduced and barriers to internal mobility minimised. The most effective way to do this has been by standardising and harmonising internal systems used by federal organizations—the famous “back office.” This reduces friction costs and slippage, and these efforts draw less attention than the public facing service windows moving to websites and smartphone apps but they are vitally important.

Examples would be centralised collective bargaining, a high degree of comparability in job classification, common approaches to security classifications and clearances and a common approach to testing and certifying language competencies. These facilitate mobility: everyone involved understands what “an AS-3 with CCC language rating and a secret clearance” means when they move within the service. There have also been attempts to streamline core processes around financial management, IT and human resources to address a range of small differences that impedes mobility and consistent measurement of inputs and outputs, and that generates additional costs.

OPTIONS AND NEXT STEPS

There is no generally accepted theory that can tell the next government where to pursue structural change. Structural change should be a means to an end, driven by some clear purpose with a policy and business case anchored in enhancing effectiveness. It should not be driven by political signalling alone. At its best, machinery change responds to some identified shortcoming where previous machinery has aged out. Spending reviews are often a driver of machinery change and may create political cover, but without an accompanying case anchored in effectiveness and capabilities, any savings are likely to be short-lived (see Shepherd & Champagne, 2024, this special issue, and Lindquist and Shepherd, 2023).

With those general assertions as a guide, the following options are presented for consideration, recognizing what follows is entirely arbitrary and drawn from experience and observation of recent events.

Central Agencies – Rebalancing Relative Size and Scope

This is an area where there is a strong case to look at internal boundary issues and refresh mandates.

Keen eyed readers will perhaps have noticed that machinery change has only lightly touched the “central agencies” of the federal government. The two most significant changes at the centre were the absorption of the old Federal-Provincial Relations Office by the Privy Council Office in 1993 and the separation of the Treasury Board Secretariat from the Finance Department in 1966. A variety of special purpose secretariats at PCO and TBS have come and gone over the years but the essence of the constellation of central agencies (PCO, TBS, Finance) has not changed in decades.

The next government could seek an independent review of whether the central agencies are still fit for purpose. They should enlist international help that is more objective, perhaps drawing on the pool of expertise at the OECD, or think tanks in the UK and Australia where they also wrestle with improving Westminster governance. For example, the Institute For Government in London published a study by a large “Commission on the Centre of Government” in March 2024 (see Institute for Government, 2024).

While there is an option to bulk up the Privy Council Office for improving the effectiveness of the public service, the better course would be to enhance the authority and capabilities of what is now the Treasury Board Secretariat. The notion, set out in legislation, that the Clerk is the head of the public service has unintentionally weakened the federal government’s ability to pursue sustained reform to public service capability by diffusing authority and accountability. Earlier this year (see Wernick, 2024) I proposed making it clear in legislation and branding that what is now the Treasury Board, is a full spectrum management board, accountable for implementation, delivery and capabilities, and that the Minister is the Chief Operating Officer of the federal government. The focus of PCO should be on supporting Cabinet, policy and priority setting and work on enhancing the supply chain of policy development.

Regulation is one part of federal government decision making that could be placed at either PCO or the new Management Board. In this case, if the next government wishes to pursue a serious agenda of regulatory reform, as opposed to unserious signalling such as a “one-for-one” rule, it should split off the Cabinet level review of approval of regulations from its current home at the Treasury Board committee of Ministers, where review of regulation is a function crowded out by other roles, into a new bespoke committee of Ministers, similar to previous temporary Cabinet committees for expenditure review and move the regulatory policy function into PCO until the review is complete. A deep dive into regulation, and issues such as alignment with our trading partners, internal trade barriers, and the thicket of policy goals piled onto government procurement, is a policy conversation, which should be placed under the aegis of PCO.

Cracked Foundations – Procurement and Real Property

This is an area where the case is strong that current machinery has aged out and there is a policy argument for creating new entities.

The current Public Services and Procurement department (PSPC) created in 2015 is the legacy of many waves of machinery of government change, notably the consolidation of core information technology infrastructure at Shared Services Canada in 2011. Practice models in both procurement and real property have evolved so the department certainly has not been static. However, their mandate includes domains that have frequently been the focal point for negative attention, whether from overt scandals such as sponsorship in 2003 or the ArriveCan app procurement in 2023, or because the department was the originator of unpopular workplace reforms such as Workplace 2.0 or Pay Modernization. The greatest source of frustration for successive governments with PSPC has been military procurement.

Discussions of procurement have often started with one aspect of the many policy objectives we have piled on, responding to pressures to use government procurement as an instrument of economic, social and environmental policy. The Government Operations Committee of the House of Commons has investigated procurement as a tool to foster small business and procurement as a tool to drive Indigenous business. It has also spent time looking for the causes of the ArriveCan app procurement. So far, the proposed solutions mostly involve adding more oversight. Amanda Clarke and colleagues have produced insightful work on procurement of information technology and its link to the quest for digital government (see Clarke et al., 2024).

The recent procurement debates have demonstrated that the structures of the federal state charged with this role are no longer up to the task and must now be part of any solution. Not surprisingly, one option that surfaces regularly would be to create a new agency dedicated to military procurement. Alternatively, the mandate of a procurement agency could be expanded to also take in all procurement related to security, including the Coast Guard, Border Services, the cybersecurity agency, RCMP and the security and intelligence agencies. The maximal option would be to spin off all PSPC’s current procurement responsibilities to a new Crown Corporation—a Procurement Canada. The key would be to provide any new agency with a solid legislative mandate to help clarify the tangled web of policy objectives that have been piled upon government procurement and enable the corporation to hire and retain top talent at market rates. Governance could be improved by adding a Board of Directors to keep management on its toes, along the lines of the Canada Revenue Agency.

The same approach could be applied to real property. Nearly 9000 public servants work on providing the rest with owned and leased workspaces, acquiring or shedding land, leases and buildings. The federal government is custodian of approximately 20 000 properties and 30 000 buildings. The practice in real property management is evolving fast to adapt to policy requirements around accessibility, reducing environmental footprint, cleanup of legacy problems such as asbestos, and hybrid work. There is a structural option to create a crown corporation for real property that adapts and applies the tools that a private sector firm like Brookfield would use in today’s markets—a new Real Property Canada.

Special Operating Agencies That Are Past Their Best Before Date

Special operating agencies (SOAs) are an institutional form that was devised in the 1990s to provide selected organizations with more autonomy than the standard department model. They are embedded within a host department and are not distinct legal entities. The approach was deemed to be useful to entities with a clear service mandate, particularly if they are expected to recover some of their costs through fees and other charges. Passport Canada is a now defunct example.

There are at last count eleven such entities. The one that jumps off the list as an internal boundary issue and a candidate for an upgrade is the Canadian Coast Guard, embedded in the Department of Fisheries and Oceans. The Coast Guard would benefit from being placed on a distinct legislative foundation that clarifies its mandate and enforcement powers. With 4,500 employees, an annual budget exceeding 2.5 billion dollars and major capital projects to manage, it has outgrown the Special Operating Agency model. The next Parliament should undertake creation of a proper Coast Guard Act. There is an option to move the Coast Guard to the military, but the better course is that it should remain a distinct civilian entity with stronger enforcement powers and tools.

The Indigenous Constellation

There has always been and always will be some part of the federal government that is the Crown for the purposes of relationships with Indigenous peoples, whether through treaties, funding programs or direct services. Even in a relationship described as “government to government” Parliament will always hold some part of the federal state accountable for the funds it allocates and the laws it passes. There will always be some federal government “machinery.”

Changes to the perimeter of the federal government occur when self-government agreements include a transfer of jurisdiction to an Indigenous government, or when programs are devolved to delivery by Indigenous governments and service agencies. But then a new funding relationship is established. There are also internal boundary issues worth attention.

In 2017 the Government split the service delivery function from the part that was working on negotiating land claim and self-government agreements and responding to litigation. Most of the relationship regarding services takes the form of a myriad of funding agreements through which funds flow to Indigenous governments and service delivery entities. The federal government’s role in direct service delivery to individuals is limited to the First Nations and Inuit Health Program and transactional services related to registration of Indian status, lands and trust funds that flow from the Indian Act. This was an area of internal boundary change in 2017 when FNIH was moved from Health Canada to the new Indigenous Services department.

The next government may want to review nine years later whether this new constellation has been effective. A range of structural options are available, including recombining the two departments. It should consider spinning off the Northern Affairs function from the Indigenous department and consolidating scattered federal programs into a new department for Northern and Arctic Affairs. At a June meeting of the Public Accounts Committee, I recommended creating a new Crown Corporation to deliver housing and infrastructure to Indigenous communities, especially if the next government terminates the Canada Infrastructure Bank. There is no way to get substantially better outcomes from a model premised on a government department running contribution programs. This point was made by Auditor General Sheila Fraser back in 2011 (see Auditor General of Canada, 2011).

Whatever the direction, it would be essential to engage Indigenous political organizations to achieve a substantial degree of buy-in, as they have been shown to be able to block federal government initiatives, even during majority governments, and have access to the courts to assert a high standard of required consultation and consent.

THE PYRAMID OF OCCUPATIONS AND DENSITY OF MANAGEMENT

In the public mind and cultural tropes, bureaucracy is closely associated with stove-piping and hierarchy, and for good reason. The federal public service comprises approximately 70 diverse occupational groups, each with their own ladder of increasing responsibility and compensation. Almost all of them are covered by one of more than 20 collective agreements. This is a root cause of the complex task given to the pay system.

The occupational structure is a bargainable issue so it would be difficult to change. One approach would be vertical—to reduce the number of rungs in some of the occupational ladders and have broader salary bands for each. Flatter structures would require the service to become more adept at measuring and rewarding individual performance. In practice the small differences in pay bands and promotions can be powerful indicators of career progression and sources of motivation. The other approach would be horizontal—to look to combine and consolidate occupational groups. This runs up against a different dynamic—the desire to “professionalise” many roles and recognize and reward the accreditations that are specific to them. Readers should be sceptical about promises of significant returns to the enormous effort involved in consolidating occupational groups.

Sitting above all the occupational groups is an executive category, non-unionized, but with its own advocacy group, the Association of Professional Executives of the Public Service Canada, now with approximately 9000 executives, laddered into five bands for classification and compensation. The APEX website is a valuable trove of studies of workplace wellbeing of executives.

From a structural perspective there have been four recurrent and interrelated issues regarding the executive cadre:

  • Size: Is the executive layer too large and heavy relative to the overall workforce? Observers of the growth of the executive category (from 6771 in 2010 to 9155 in 2024) tend to then construct a single ratio of executives to the total workforce. My own view is that the right ratio will vary across organizations. If there is a big spending review in our near future, we can expect the executive cadre to contract in size in rough proportion. As a structural issue it would be more useful to reassess the algorithm for classifying executive jobs, which in the past has been generous to policy functions and central agencies, and stingy to operational jobs and organizations.
  • Thickness: Should there be fewer layers between senior management and the “front line”? The pyramid of executives has five bands, topped by a Deputy Minister community that has four. Some organizations are led by senior Governor in Council appointees, where there are ten grades of GCQ compensation. The recurrent critique is that the number of steps can create a “clay layer” that slows down decision making and impedes communication between the most senior leaders and their workforce.
  • Span: Are the executive jobs too big or too small in terms of scope, authority and accountability? Span of control is the subject of a rich vein of management literature in both the private and public sectors. It has been asserted that a spread of half step positions such as “Associate Assistant Deputy Minister” and “Assistant Director” has narrowed the scope of executive positions. The counter argument is that there has been an acceleration of pace and volume of work that makes creating these positions a rational response.
  • Turnover: Are executives staying in their jobs long enough to be fully effective, and if not does the proliferation of job options contribute to unproductive churn? There is an argument that the number of levels, the creation of half-step positions and the growth of the overall executive layer have created greater possibilities and even incentives for individuals to move jobs more frequently than some ideal rate in which they would stay longer, acquire experience, seasoning and be more accountable for what happens on their watch.

In practice these dimensions would have to be addressed simultaneously. Flattening the pyramid without making other changes could incentivize creating more positions at each level, and would probably disadvantage operational jobs. So smart reform would also look at the span of jobs and the algorithm for classifying them.

Other structural issues in compensation arise because the boundary between the senior levels of the other occupational groups and the non-unionized executive cadre who have authority over budgets and human resources is a fuzzy one. Some senior professionals exercise limited management roles but are not EX category executives. “Inversion” occurs when senior professionals in the occupational ladders for specific trades earn more than their executive category bosses. On the other hand, other senior professionals are promoted into executive positions for which they are not suited essentially for retention purposes because there is no room left on the pay scale of their occupation.

Some structural changes to the executive cadre worth considering would include:

  • Reducing the size of the executive cadre and simultaneously compressing the five executive bands (EX) to three over time. It would be a large undertaking but converting all of the executive positions into one of three bands (senior, middle and junior) would force a deep examination of the scope and value added of each position and contribute to an overall pruning. In practice it would generate less disruption and resistance if done over a three-year timeline, with some protections or buyouts for individuals.
  • To be truly effective a reform of the executive cadre would require accompanying changes to the human resources software. These changes would include:
    • Updating the classification standard for executives to give more weight to jobs in services and operations, rebalancing where executive level positions are allocated across the service
    • Explicitly decoupling classification and compensation for executives from that of technical specialists. Adopting a transparent two-track approach would reduce the frequency of promoting specialists into executive positions, especially if the salary range of the lowest rung in the newly compressed three level executive category were raised.
    • Implementing a broader set of compensation tools such as recruitment and retention bonuses, so that there is less incentive to promote people or create entirely new positions in order to retain them.

Deeper structural reforms to the public service would extend beyond the executive cadre and examine how the basic software of work is organized into job descriptions and performance agreements for individual workers as well as how those individual “boxes” are moved around into organizations with assigned lines of authority and accountability.

I am sceptical that the returns to trying to rewire the core job model of the unionized public service would exceed the costs of disruption. The more urgent issue is arguably more about pace of staffing than structure. If it were possible to speed up the processes around classifying positions, writing and revising job descriptions, assessing candidates for a position and moving individuals in and out of positions then the job model would not be the main impediment to agility and productivity. A path to accelerate the pace of staffing, using AI, is another topic for another day.

CONCLUSION: PRE-CONDITIONS AND NEXT STEPS

Structural changes require some “winning conditions” because they inevitably run into resistance and change fatigue. These include:

  • Clarity of purpose and what success will look like. This is true for policy reforms too, but in my experience structural reforms are particularly prone to losing any anchoring purpose that can drive sustained change management agendas. Too often the purpose is initially expressed as a spending target rather than effective policy and service delivery and not enough effort is made upfront to identify metrics and milestones (see D’Aoust, 2020).
  • A public service champion with persistence. Usually it takes a combination of leadership at the centre, from the Clerk and the Secretary of the Treasury Board, but also the senior leaders in organizations and functions that are affected. Persistence is required to overcome resistance, which may be overt but more commonly takes the form of passive-aggressive non-cooperation. The most senior people in the affected organizations will have to make the call on many details of the reform and assemble a capable multidisciplinary team.
  • A public service team with strong project management skills. Plans for structural change require a degree of continuous learning and agility to put them into practice. They work best when staffed with strong multidisciplinary teams that combine institutional knowledge to avoid traps and landmines with fresh perspectives. These teams benefit from rigorous project management techniques.
  • Political cover from a lead Minister who won’t blink at the first sign of pushback. Structural reforms cannot be done by public servants alone. Many require legislation. All require Ministers to sign off on a range of documentation sent to the Treasury Board, pleas to the Minister of Finance for funds, or to the Prime Minister for authorities. Critics of reforms often go to the Minister or their political staff to try to block the initiative so sustained political cover is essential.
  • Patience to spend the time it takes to push bills through Parliament and approvals through central agencies. From the date of initial announcement, it can take a year, or even longer, to get a bill through Parliament. That is why shrewd Ministers will try to convince the government to include a structural reform in a Budget Implementation Act, with cover from some reference in the budget documents. Not all succeed so patience and diligence in dealing with Parliamentarians and central agencies whose attention has wandered off to new issues will be required.
  • Effective change management strategy, including employee and stakeholder engagement and two-way communication. Governments can anticipate that every reform runs into resistance or unexpected developments. To succeed they must be accompanied by strong change management strategies and feedback loops.
  • Willingness to invest up front in training and implementation and be patient in harvesting savings. Closely related to change management is an implementation plan. Governments tend to oversell the benefits and underestimate the effort required, whether it is the need to train or reallocate personnel, make changes within administrative systems, or create new tools for information management. Savings targets are often arbitrary and unrealistic.

These winning conditions are not always in alignment. If not, structural reforms can end badly. However, the costs of doing nothing and living with structures that have gone beyond their best before date can also be high. In late 2024, a generalized sense that the public service has become too big and less effective opens the door to simplistic solutions that can damage future capabilities. Past experience shows that squeezing operational budgets often leads to cuts in hiring, training and deferring the upgrading of technology. Any serious effort to make the federal state more effective and regain the confidence of Canadians must do better. Structural reform should be an integral part of that agenda.