Walking the talk – what it takes to be an ethical leader’


9:30 am Thursday 7 May 2015

Dr Kerry Schott AO
Chair, Moorebank Intermodal Company; Director, NBN Co; Former CEO, NSW Commission of Audit

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Peter Mares

The title of this conference combines two ideas, ethics and leadership. In an ideal world of course such a combination of concepts would be a tautology. True leadership surely results from making wise judgements and wise judgements, surely, can’t be made independently of ethical considerations.

In other words leadership should imply ethics. But we don’t live in an ideal world and I’m sure we can all cite pretenders to leadership who are neither wise nor ethical, who are rather self-interested perhaps or self-absorbed or egotistical or reckless. In fact we often bemoan the lack of true leadership in public, in corporate life, in Australia.

Fine examples are rare and that’s why we are particularly pleased and lucky to have Dr Kerry Schott as our opening key note speaker. Dr Schott currently holds a number of corporate and public sector directorships. She’s the Chair of the Board of directors of Moorebank Intermodal Company, a director of the NBN Co and the New South Wales Treasury Corporation. She is on the Boards of Infrastructure Australia, Deutsche Asset Management Australia, the Whitlam Institute and Macquarie University Council.

And previously of course Dr Schott was CEO at Sydney Water where I think her true leadership skills and qualities were exhibited and as Graeme mentioned, she was CEO of the New South Wales Commission of Audit, which looked indeed at how the state manages its public sector workforce. So today she will draw on the experiences of her notable career in business and public service to address the topic ‘Walking the Talk: What it takes to be an Ethical Leader’. Please welcome Dr Kerry Schott.

Kerry Schott

Good morning everyone. Thank you very much for the invitation to speak to you this morning. It’s very flattering to be asked and I should tell you that since my ICAC experiences in the not so distant past, I’ve been asked to speak about ethics and related topics to several audiences and people in the street have come up to me and congratulated me on being a good public servant and I’ve sat in restaurants and people have come over and said are you Kerry Schott? You know, good on you, et cetera.

And it is very nice to be recognised but I do feel rather concerted about …disconcerted about it. I have unexpectedly gained saintly status. Michael Egan asked me the other day when my canonisation was going to occur. And the problem is that the reality is actually much more interesting and more complicated, and I’m really a hologram in this sense created by ICAC and the media.

I even had to look up in the Oxford English Dictionary yesterday what ethics meant. So what I’ve done today is, I’m going to have a talk about ethics in the public sector and talk about building the good and getting better at the less than perfect, talk about Sydney Water experiences at ICAC, and then a little bit about what do I think we can learn from all of these things.

Ethics according to the dictionary is a set of principles often based on a code of morals or religious beliefs. Now a set of principles I think we all understand and Graeme was just referring to the Westminster tradition which is part of the public service set of principles, but what I’m going to talk to you about is not so much my individual principles but, in fact not at all, but rather the principles that lie behind public service and in particular the ones that I struck at Sydney Water which are quite common, I think, to public service more generally.

Now when I became CEO in 2006 I found that there were in particular two principles that were ingrained at Sydney Water, both of which were good. The first one was that we had a job to do and that job was providing water and sewerage services to the folk of Sydney and the Illawarra, and the whole organisation, whatever else was going on, was completely committed to doing that.

So what I used to refer to as the “boys in boots” would quite happily get up at three in the morning in the rain on a cold, frosty day and go out and do repairs, and felt very proud of the fact that they were keeping services running. And a lot of you who work in parts in the public service that deliver essential services would be familiar with the embrace of that particular principle. There was never any cajoling needed and everything was attended to as best people could with what tools they had.

A second laudable feature was the conviction that no-one should ever lie or omit information to either the relevant Minister or the Board or to the CEO and I can say, in my time there, that as far as I know, nobody ever covered up anything or lied to me. And the Board would have said the same thing. Now this is not all that usual. It’s not unusual for Boards to have information covered up and I can say as a director you are only as good as the management and what they tell you.

But this particular trait at Sydney Water came from an unfortunate experience in the nineties which was the cryptosporidium crisis which some of you, like Graeme, may recall went on for about a month and during that period of time there was chaos within Sydney Water. But there was also a great deal of disinformation and misinformation that fed its way up to the political circles and to the Board, and the upshot of all of that was there was subsequently a Commission into what had happened at Sydney Water.

The Catchment Authority was split out of Sydney Water. Rather more importantly the chairman and the CEO were both terminated. So this has left a culture within Sydney Water that is just never going to go down that path again. So if somebody doesn’t know something, they will tell you. If the Minister is pressing you for something and you don’t know, you’ll say so. And if you’re never going to know or if no-one is ever going to know, you will say that too.

So they were two things that were actually extraordinarily good to find when you walked through the door. There were of course as all of you who are managers would know, a whole lot of things that were less than perfect, and it would take me pages to go through them but what I would include in my list were a very low percentage of women in operational roles – there were no women running sewerage treatment plants when I arrived but there were several when I left. There was quite a degree of pilfering of tools and material in depots. There was very poor documentation and at times unwillingness to share information between teams. There was a lack of confidence to try and do things differently even when it was clear that change was needed. There was relatively poor teamwork and those that needed to work together didn’t necessarily do so. And there was no acceptance of the potential dinosaur status you held when contractors were significantly less costly than you in your field of work.

So basically there was a good, strong sort of principle foundation but changes were needed and I’m sure this situation would be familiar to many of you in the room. So what happened was we tried to build on the good and change the less than perfect. And the ingrained focus on serving the community and making sure everybody had water and sewerage services turned out to be extraordinarily important the time that I was at Sydney Water.

You will recall I started there in 2006 and we were in a drought which was the worst drought the country had had since 1901. So there was nothing more important than making sure everybody had enough water. And what happened at that time in Sydney and the Illawarra, as you will all cast your mind back, was that everybody had dual-flush toilets fitted, everybody had aerated taps, everybody had shower heads that wouldn’t give you a decent shower, everybody had rainwater tanks fitted, and so on.

Sydney Water itself increased its recycling capacity with new plants and expanded the ones that it did have. It built a desal plant and it fixed up the leaks within the system to the degree that it could. And Graeme in his role at the Catchment Authority at the time put in deep pumps at Warragamba so we could really get right down into the depths of the dam, if needed.

The upshot of all of this was that Sydney went down from using 630 gigalitres of water a year to less than 500, and that more or less continued after the drought when restrictions were lifted because all of these new fittings were in. The other thing that happened was the use of recycled water of course went up and – what was happening at the time when all of this was going on was actually pretty scary.

I was very conscious historically of cities and semi-arid areas that had run out of water and people had abandoned them. And at the time the Premier’s Department was busy, unbeknown to many people, arranging tankers to deliver water to many communities in rural New South Wales who had no water.

The dam at Goulburn had no water in it at all. People were having picnics in the bottom of it. And this was not uncommon across the state. It was really a very critical time. So the culture that was in Sydney Water about getting the particular job that they were there to do, done, was very valuable to us. And the upshot of it all was that after all of this and other things of course, we were awarded by the Global Industry the Global Utility of the Year Award.

And it’s a bit ironic that that was happening at a time when there are a lot of people in the public service that thought that Sydney Water was incompetent and totally useless, and I think there are probably still people around that think that about them, incorrectly, and probably about other public service agencies.

That sort of fed into some stuff that happened later so I think one of the learnings out of all of this is don’t be hesitant to make sure that the facts of what you’re doing and the successes that you are having are known. I don’t mean to go out and crow unnecessarily, because nothing’s going to cause a disaster immediately if you do that, but at least make sure people know you are doing a good job or at least trying to.

On the honesty front, as the CEO at a utility you really do need to let the media and the community know what’s happening as soon as you do know what’s happening. And one of the things I’ve learnt in a crisis is that nobody probably knows what’s happening initially so the reports that you initially get are completely strange and a bit terrifying sometimes. But once you do actually know what’s going on, which is usually sort of after five hours plus, tell people, let people know.

And at Sydney Water we had some real doozie experiences, but one of the favourites of us being honest was actually fronting the media the morning after a catastrophe at Bellevue Hill where we inadvertently practically lost half a suburb down a crater. What had happened was that a leak was reported in Bellevue Street, Bellevue Hill and a crew was dispatched using new electronic maps like TomTom only better, we thought, and the crew went to Ryde where there’s a Bellevue Street and they looked around and they couldn’t find a leak.

So they reported there didn’t appear to be a leak. Next day it was reported again. Different crew, same dispatch, same place and not surprisingly, no leak. So things rolled on. The next day, third day, someone at Bellevue Hill, quite cranky at this stage, rang to say we’ve got a leak, you know no-one’s come, what’s going on? So this time a crew turned up and they did turn up at Bellevue Hill and by this stage a storm had occurred and it was pouring rain and while there may have been a leak, it wasn’t self-evident on the surface.

So they were just getting their equipment out to have a check on the underground mains to see what was really going on when, fortunately for them, beside them the ground opened up. Bellevue Hill, as you may know, is built on a sand hill and we created a crater that very quickly engulfed one car – fortunately with no-one in it – several Ausgrid light bulbs which just looked like matchsticks at the bottom of this thing, and we had a catastrophe – just across the road from the primary school. Fortunately no-one was injured.

So we then had to work out what had happened. And what had happened was that the leak was in the downpipe of a reservoir and so when it actually broke, the entire contents of the reservoir poured out and created what was a gigantic hole.

So the next morning I fronted up and told the media what I just told you and I think they were completely astonished to find that here was someone standing up and saying I’m sorry we completely stuffed up, this is what’s happened, this is what we are doing to fix it, this is how long and we think it is going to take to fix it, we’ve got x shops affected, the roads going to have to be rebuilt, this is sort of the rough timetable, we will keep you posted.

And a number of times we’ve had to do that and I think it is extraordinarily important in a role as public servants that we do do that. And the emergency services are very good at doing that and it’s something that all of us dealing with the public, I think, do have to do. So that was continuing our honesty theme.

On the matter of things that needed attention, I won’t say a great deal about that, but a lot of the things that needed attention across the service or in the Commission of Audit – and I know a lot of them have been attended to – but in the end the executive, the Board and everybody else really got stuck into try get things improved. We were greatly assisted by moving to Parramatta into a new building so we had open plan and we could put people together that needed to work together and blah blah blah.

And we bought modern equipment and efficient warehousing and knew where everything was which pretty quickly put a stop to pilfering and tools missing and so on. And we went through lots of transition programmes about efficiency and several maintenance and electrical maintenance and so on. And where things couldn’t be made more efficient, they were outsourced eventually. So all of that continued.

The next thing I just want to talk to you about is ICAC. And the first major dealings that Sydney Water had with ICAC actually occurred in two corruption cases that concerned Sydney Water employees. And in the first case a senior manager decided he’d team up with a private individual to produce and market bottled water. Incidentally this is something that Sydney Water had tried before and knew it was really difficult commercially to get it to work, but be that as it may.

In the process of this bright idea he had contributed several amounts of Sydney Water money to the joint venture and that got picked up by the financial controllers quite quickly and was reported to ICAC. And delegations were exceeded but there were also invoices that were slightly strange before the delegation was exceeded. So ICAC and Sydney Water investigated that and the person concerned was terminated after an investigation.

The other case concerned some Sydney Water plumbing inspectors being given what they call “drinks” in inverted commas and in some cases asking for drinks from property developers. And this was interesting to me in several ways. The culture on building sites is quite different from that within Sydney Water and quite different from that that many public servants experience. And if you’re on a building site refusing a gift of a slab of beer, or even 200 dollars to take your wife out for a nice dinner, this would be thought to be weird. And there’s quite a lot of thankyous of that kind that go on in that culture.

Now, of course, it’s unacceptable and it is particularly unacceptable when it might be used to speed up the approval of plumbing works by the plumbing inspectors or even worse to jump the queue. And if you are a developer and you can get things speeded up or you can get your stuff done before some other property developer, you will save a lot of money.

So there’s quite a lot of incentive on property developers to do what they can to speed works along. The thing that surprised me actually in a way and this gets back to the strong culture of getting the job done properly, was that none of these plumbing inspectors that were involved in these rorts actually ever approved any plumbing that was dodgy so what they were guilty of in fact was really some timing shuffling and client shuffling and of course guilty of taking money and gifts that they should not have taken.

What happened when ICAC sort of looked at this was that the employees appearing at ICAC had an experience that they never want to have repeated and a number of, I think two from memory, employees were terminated who had taken several thousands of dollars in this and employees who had taken the slab of beer and relatively minor gifts were disciplined, and we had a big training exercise about what was appropriate and what wasn’t.

And Sydney Water is a dry company; you can’t have people driving equipment that drink, so the fact that people were taking drinks was another sort of added no-no. But that all sort of ended up okay but one of the things that’s interesting about how it all started in the first place was that we were in a situation where we set the plumbing standards and the specs, but we also had people who then raced out and did the inspections and that’s a quite clear conflict.

So over time we moved our plumbing inspectors into the building inspectorate group within what was then the Department of Commerce, and we split up the here’s-the-specs from here’s-the-plumbing-inspectors. So that was how that was all attended to and of course as these things happen in a company everybody learns about them and learns about what is acceptable behaviour and what isn’t.

But then we had Australian Water and I should make it clear that Sydney Water did not report Australian Water to ICAC. From where we were sitting, all we could see was invoices and charges that were well above market. The Board and the audit committee and the senior managers involved used to have very brief discussion from time to time on whether we had enough information to report this matter to ICAC, or indeed anybody else, and we felt we didn’t.

And it’s not unusual as many of you in the room would know for contractors to try overcharge different things. What was unusual in this instance was the persistence of the overcharging that existed. So let me explain what Australian Water did for Sydney Water and I must say this morning if you don’t learn anything else, you will learn a little bit about the water business.

There’s a complex and…there’s complex legal history behind Australian Water which I will spare you, but their main task was to provide infrastructure for new water and sewerage and recycled water mains in the North West growth sector. Now Sydney’s got two big growth areas, the North West up round Rouse Hill and the South West of Sydney, and at that time the North West was growing quite rapidly. And every month we would report to the Board how things were going and also how our disputes with Australian Water were going, and we also of course were reporting that through to the Minister.

If I can have a map please for everyone to have a look at. This, for those of you who don’t know outer-Sydney very well. This is the North West sector which I suppose is where the North West rail is headed. But it includes Rouse Hill and as you develop a big sector like this which is going to have a population larger than Canberra, very quickly probably, you do it in precincts and you have to have water coming into each precinct and you have to make sure that each precinct has got a place where its sewerage is going to get taken to.

And initially in this area the sewerage was all going to Rouse Hill sewerage plant which is a very sophisticated plant that is a major recycler of water. And just as an aside all of this sewerage plants in the west of Sydney are very sophisticated plants that have very high levels of treatment because what they do discharge goes into the Hawkesbury River and frankly you could drink it on the way there and you would be fine. It’s very highly treated and much of it is recycled.

So what we were doing at Rouse Hill and what Australian Water was doing was precinct by precinct putting pipes in the ground for water and sewerage and purple pipes for recycled water. And they weren’t physically doing this. They were the project managers. So they would go out to tender for somebody to dig the holes to put the pipes in and they were done to Sydney Water specs.

Now they started off with a contract from six developers or so, may have been more, who really wanted to get this development going. So they got together and came to Sydney Water and said we are going to hire some people and get the water and sewerage services put in and you will then own them once they’re in, and we will pay for them with developer charges.

And if that’s not enough money, then we will borrow some money and if the development’s not fast enough in catching up and there is a shortfall then you Sydney Water can pay for it. So that was what happened. And there always is a shortfall with these sorts of developments because they are relatively slow.

So that was how it all started. And the first precinct that occurred under that particular arrangement with all the developers went okay. But then once those developers had got their precinct developed, the development of the other precincts then went into two problem areas.

The first was that Australian Water argued they had the exclusive right to do this work in that sector and waved legal documents around that they said supported that position. Sydney Water always took the view that we didn’t agree with them so there were lots of legal disputes that were never resolved, frankly.

And the second issue was that while they did know how to project manage, what they were doing was they were charging us a great deal which we thought was excessive. And normally in jobs like this you’d expect to pay seven to nine percent of the total project costs – it’s not particularly complicated work.

With Australian Water their margin exceeded 20% and at times even more. And they also thought that Sydney Water should pay them even when they weren’t doing anything, a novel concept. And that we should support their offices and upkeep so you can imagine with these two dispute areas there were plenty of disputes and there were, and there was mitigation and there were meetings to try sort things out and it never was.

And what we decided to therefore do was to try and tighten things up to control their expenses. But it was quite interesting in ICAC to see what their money was being spent on which we had no idea and they would not tell us, and our contract was so sloppily drafted that it was not altogether clear we had the right to know, which is astonishing in itself.

So the next slide please will show you what they were spending the money on… which was flights to Queensland – now that threw us because we were their only client and we don’t operate in Queensland – associated airport parking and accommodation and they weren’t staying in two star accommodation; restaurant dining; limos and entertainment; Liberal party donations including to the Terrigal branch; well over-market directors’ fees and salaries; flowers, that’s nice but Sydney Water wasn’t in the business of even providing flowers to their own staff; and Melbourne Cup lunches, always a good one.

So one of the things that we learnt from ICAC was where all this money was going and you’ll be pleased to know that subsequently Sydney Water has had a settlement with Australian Water and got several millions of this money back.

What was happening at this stage was that we were reporting to anybody who’d listen what was going on so we were telling the Board, we were telling the audit committee every month, we were telling the Minister every time we met, we were telling Treasury, we were telling the Premier’s Department, everybody who wanted to know knew that Sydney Water was in dispute with these people and the relations were pretty fractious.

But what we did internally was try to amend the contracts and make them tighter, and that was succeeding but every time we had a new precinct to do we could change the contract and we were doing that. And ironically we got them so tight that their expenses were down to something like reasonable levels and they were running out of money and had to go to the Obeids to get some money.

All of that sort of came out in ICAC but we were very aware that they were running out of money and were having to moderate their claims. But then they had a plan which can only be classified as audacious in my opinion. They wanted to set up a water utility in the north-west growth sector. They wanted to take over the existing assets for a price that was some $50 to $180 million less than what the assets were valued. They wanted to operate and maintain all the water and sewerage and recycle business in that sector and they wanted to bill their retail customers in that sector.

So their lack of understanding of the skill needed to do this really still astounds me. In this particular sector as I mentioned there is a recycle water plant at Rouse Hill which one of the more sophisticated in Australia and probably globally. To run a network of mains and pipes and sewers you need a computerised electronic control system and you need it to interface with the whole network control system of Sydney Water.

They had no skill to do this and the companies in Australia with the skill would have wanted to have acted under their own banner and didn’t need Australian Water to do it if it was such a great idea.

So the reality was that Australian Water was a small company, frequently worth only nominal amounts. They did have project management skills, they had no financial clout, they didn’t know how to run a water utility, they didn’t appreciate the risks of new development roll-outs or the risks of running a water company, they had no billing system, no control system and no evidence of finance and no experience. But that was what they wanted to do.

So they discussed this proposal with us informally and we went through all the reasons why we thought it wouldn’t stack up. And it’s a bit ironic discussing privatisation with me because that’s what I did when I was an investment banker and I am pro-privatisation of the right thing, at the right time and the right place. But this was not it.

As a company we were open to new ideas and people did come through the door with ideas and then from time to time we’d pick them up and proceeded with them. One of those ideas that we proceeded with was to use Jemena’s old gas mains for recycled water around the sort of Fairfield-Parramatta area which worked quite well during all our trying to find more water to use during the drought.

But undeterred by our views of their project, AWH lobbied politicians on both sides of politics – and that’s a bit of an understatement: I would say probably every week they were knocking on some Minister’s door. And they were given time by some who considered Sydney Water to be incompetent and who were just trying to stop this because that’s what they would do.

And they also got I think a hearing with…so they got a hearing with people who thought that Sydney Water was incompetent and they got a hearing with people who thought they would make some money from it somehow or other.

They were not encouraged by the particular Water Ministers over this period, who did understand Sydney Water. They were not encouraged by the central agencies of Treasury and Premier and Cabinet. And to bring the matter to an end the Premier’s Department commissioned an independent review of this proposal which Sydney Water was kept away from – we were not part of it.

And that review led to a Cabinet Minute which the Premier’s Department drafted off the back of that independent review. And as is normal with Cabinet Minutes we were sent a copy of it to comment on it, as a matter of course, which we did.

Now I should say while all of this little drama was going on which has been raised in the public eye, we were still trying to get enough water and still trying to make sure everything worked and the main aim of the game had nothing to do with this. So this was just like one of those things that bobbed up every now and again, even though you would think it was the major role of Sydney Water to run around combating evil, this was not what we were doing.

So if we can have a slide of the Cabinet Minute that followed from this review. So the first, I know you’re not allowed to quote Cabinet Minutes and these Minutes actually never ever went to Cabinet, but just shut your eyes if you feel upset about it. The Cabinet Minute that went up said it was an unsolicited proposal from Australian Water – that was true, it was – and recommended to Cabinet to seek endorsement to reject the proposal. So I read that and thought, thank heavens, somebody else agrees with us.

So you can imagine my surprise and indeed alarm when a week or so later I got another Cabinet Minute to comment on, on the same topic. And if we could have the next slide. What it said was a solicited proposal to seek endorsement to proceed with direct negotiations, at which point I sat down at my desk and read through the rest of that Minute very carefully.

And as a public servant I had been trained about the Cabinet process that a Cabinet Minute is a sacrosanct document. A Cabinet Minute should lay out the pros and the cons and anybody who’s got any truck with any of it gets to comment on it (which is why it had come to Sydney Water). The Cabinet or the budget committee of Cabinet can get to see what everybody thinks about it. And they then make up their mind. They’re the government.

But here was a Cabinet Minute which had suddenly done a complete 180 degree flip and I just absolutely couldn’t believe it. So then the analysis in this Minute was completely the opposite of the original Minute from the Premier’s Department.

So if we could have the next slide. Under the Working With Government guidelines that this thing was evaluated under, which will be familiar to some of you, it said on the one hand only the proponent can deliver the proposal’s essential outcome i.e. only Australian Water can do this. But what the Premier’s Department had said in their Minute originally was there’s doubt about the legal claim around exclusive rights, so you know that was different.

And then, next slide please. This is sort of set out in a table in these Minutes. Direct negotiations would preserve benefits; and the independent review said there weren’t any benefits. Value for money wasn’t demonstrated; and if you proceeded with it, it was going to be truly great value for money. The proposal has expertise and experience; and the Premier’s Department independent review said they had project management experience, no experience in operations and maintenance or retail management, no financial capacity.

So that was all a bit gobsmacking. And I think there is one more slide, is there? No perhaps not.

So what happened next was that I got a call from the Premier’s Department – by this stage I’m practically having a meltdown – and the comments that I’d scribbled all over this second Minute that came (somebody at ICAC said to me quietly one day, we enjoyed your comments on that Cabinet Minute_ - someone rang me and said don’t worry about that Cabinet Minute, no Cabinet Minute is going to Cabinet or a committee, finished, that’s it.

And we learnt at ICAC that Premier Keneally had intervened and just put an end to it all. So that was that. But I really, the thing that just really got into my stomach about all of this was the mucking about with Cabinet Minutes. I mean as a public servant, it’s sort of like killing your grandmother: it’s, you know, dreadful.

So what did we learn? First of all, the principles of an organisation are important and they are its ethics. Strengthen the good and improve the others. And as the CEO or the senior manager you’ve got to walk the talk however difficult that may be. And there were times at Sydney Water where being honest certainly was. You’ve got to keep focussed on what the main task is, and in our case it was managing demand and increasing supply of water, providing good quality water and – unless you’re ICAC or the police – your main task is not hunting out evil… it’s something that you have to deal with, but it is not your full day job.

I think it’s also important to learn that you’re not alone. In this case we were hugely assisted by the analysis done in Treasury and Premier’s Department and we were hugely assisted by the Ministers who supported us, and the Board were in huge support of the management around this matter. And all of those people were regularly updated on where the matter was at, in writing, as well as verbally.

And there are people with skills who can help both in the organisation and outside it. And tell anyone who will listen about what’s going on and tell them in writing, keep your superiors across what’s happening regularly and it was very helpful for us when we did get called into ICAC on this matter to have literally years of Board reports about the issue, and the audit committee at Sydney Water meets pretty well quarterly and they got even more fulsome reviews of what was going on. So we had very good records about the management of the matter as well as…just sort of what was happening within the company and the contracts about this issue.

I think the other thing is you’re a public servant and your task is not to hand out excessive bundles of customers’ money or taxpayers’ money to those who are charging excessively or who are engaged in practices that are not reasonable.

So just…I used to have a little test in the back of my head about, you know, would a struggling – I don’t like to say this after SBS on Wednesday night, would a…I used to seriously think – would a struggling tradie in Western Sydney think this was satisfactory. And it’s also the Daily Telegraph test – you know – is this going to appear on the front page of the Telegraph, and if it is, put your tentacles up immediately because there’s probably some facet of it that’s questionable. It’s bad actually, isn’t it, when the Daily Telegraph becomes the arbiter of ethics, but there you are.

This dispute was finally won but not because of me but because of help and effort from a lot of people and I’ve named a lot of those people. And the employees at Sydney Water who initially worked on this contract were not experienced in contract management.

And the other lesson to be learnt was them putting their hands up and saying this looks out of control to us and we don’t know what to do, can someone please help us? So when somebody is saying I’m not sure I can do this, if you feel you can’t do it, for God’s sake say so, and there’s no shame on having things kicked sideways or upstairs.

And there is a bit of…some people think it’s sort of a failure to actually say I’m not sure this is my skill set. It is not. And once we moved that contract from an area where large contracts were not administered and gave it to an area where the major contracts were managed, it was then that we were able to tighten the expense screws greatly.

And I’ve sort of pondered after all of this excitement about where there’s been less favourable outcomes in the upholding of public service principles. I think it’s been because of a lack of support, both within the public service of that particular person and perhaps sometimes a lack of bravery.

When Kate McClymont and Linton Besser launched their book, He Who Must Be Obeid, I went to that book launch and there were a couple, there were a number of public servants there. But there was someone from SHFA [Sydney Harbour Foreshore Authority] who had been trying to get matters dealt with and heard and really hadn’t had – not that he was complaining about this to me at all – but that it was clear to me that he just hadn’t had the big guns firing behind him that we’d been able to muster behind us.

And it’s very important, I think, that as senior public servants, we support people who think there’s something wrong going on, and investigate it, and check. And often there isn’t and quite often it’s regrettably just one member of staff grizzling about another, but these things really do need to be checked and if there is anything in it, people really do need support at all levels.

So, I think my final learning was it’s up to the senior public servants to assist and champion where an ethical problem arises. And that applies to all improper practices like harassment, corruption, bias, plagiarism and so on. And we are all here to serve the public and not each other, and certainly not people who are not playing by the set of principles they should be abiding by.

So I hope that’s helpful and I hope you now understand a little bit about the water business, and why we are in ICAC and not always on the side of the angels.

Thank you.

Peter Mares

Okay thank you very much Dr Kerry Schott and we do have a good 20 Minutes for discussion. I’m going to join Kerry on the comfy chairs here and ask her some questions then I’m going to invite some questions for you.

Kerry is just sorting out the head gear. You’ll note these microphones are not designed…well they’re designed for blokes let’s face it. They’re designed for people wearing belts, trousers and belts generally so Kerry’s just fitting herself up and if we need a bit of a hand, we will see how we go.

We do take water for granted I think, don’t we? We turn on the tap and there it is. And we don’t necessarily think about all the work that goes into keeping it there. I woke up the other night at midnight and thought my son was having yet another shower, he is a teenager, and went downstairs and he wasn’t having a shower but I could hear water running.

And I went outside and there was this huge amount of water pouring down the street. So I rang the local water company and an hour later they were there in the middle of the night ripping down trees, digging up making a big hole, but there was a huge amount of water. And they…seven ‘o clock in the morning they were still there, they had been there all night and it was fixed. And it was the boots…

Kerry Schott

Boys in boots.


Peter Mares

The boys in boots as you say. So Kerry, one of the things I wanted to ask you about, you talked about being honest, being truthful, do you think that that’s just something a utility needs to do or should that apply more generally in public service? Is there a lack of willingness to front-up and really trust the public with the truth?


Kerry Schott

I don’t think…I do think honesty should prevail everywhere. It’s important that the timing of sharing information is right. It’s often tempting to go out earlier than you should when you really don’t know all the facts and I think in sharing information you also have to be aware of some of the personal information that you might inadvertently be sharing which I’m sure people in education and health would face much more than utilities do.

Peter Mares

And because one of the frustrations as a journalist is that you often get what feels like a managed message rather than a chance to talk to the people that actually know what’s going on and who could give you, even if you weren’t quoting them, could give you the background and the understanding so you could do a better job of explaining it.

Kerry Schott



Peter Mares

The other thing I want to ask you about is there’s a, I don’t know how much this is getting reported here in New South Wales, but in Victoria there is a current investigation, IBAC [Independent Broad-based Anti-corruption Commission] investigation, into the Education Department and what are called “banker schools”.

So this is an arrangement whereby senior officials in the Education Department in Victoria were banking money with certain schools, principals were going along with this and then that money was being used for various things like purchasing thirty thousand dollars’ worth of wine, purchasing a five thousand dollar coffee machine for the official’s residence and one for his office, so this sort of stuff.

Now there’s obviously there are a whole lot of people who know what’s going on here, there’s the principals who are not asking questions about these invoices for goods they’ve never received, and so on. But there was a club as it’s been described anyway in The Age of blokes, and I’m wondering if there’s an issue here around diversity in leadership that makes it easier for these sorts of practices emerge.

Kerry Schott

I’m always…I’m absolutely of course supportive of diversity and more women and I do think a diverse workforce works much better. The difficulties with the Sydney Water workforce occurred in the areas where they were either all blokes or all women, like the call centre, and we really went out of our way to mix the genders in all of those places and it improved things immensely. There was less internal friction and bitching and so on, so with both the blokes and the women.

But having said that I think people that push the sort of suggestion that women are less likely to sin – I’m not too sure about that – there’s pretty classical examples the other way.

Peter Mares

Okay. Good. Now you also talked about how one of the things that had happened at Sydney Water and really improved things was a crisis, the cryptosporidium crisis and the sacking of a Board and CEOs and things like that. Is that what every organisation needs: a good crisis to clean it up and act as a warning for the next decade or two?

Kerry Schott

I don’t think I’d recommend that one. That was really quite dreadful. I was actually on the Board of Sydney Water at the time and I was working at Deutsche Bank. And I was in Hong Kong and I got a call from the Managing Director saying what’s in God’s name is going on? My picture was on the front page of The Herald along with the rest of the Board, sort of underneath the sort of headline about, you know, who are these idiots?

So it had all sorts of ramifications but the replacement Chair at Sydney Water was Gabrielle Kibble who’d be known to many of you and Gabrielle really brought with her a very strong set of principles that began to be imposed on the place and the top one was don’t tell fibs and don’t leave out information.

Peter Mares

So you said that before you came to talk this morning, you had to look up ethics in the dictionary. I’m not sure that I believe that but…

Kerry Schott

It’s true.

Peter Mares

So then where does it come from for you? I mean because you didn’t…you came to Sydney Water with a set of principles, values and you felt not only that, it’s one thing to have values, it’s another thing to actually maintain integrity with those values. You can espouse any sort of values, but to actually live them in practice is a different thing. So where does that come from?

Kerry Schott

I don’t think…I think the ethics and values and principles that Sydney Water and in the public service are widespread. I don’t think they’re individual things. And I think, I mean, each of us individually have a set of ways that we behave which is what we do individually and often feel disgraced by our own behaviour, I might say.

But the reason I say that, incidentally, is that a cousin that I’m not very close to died last week and I hadn’t been to see her for about two years and I thought it’s just things like that happen and you just think you should behave better.

But that’s got nothing to do with the principles of the public service or the principles of a utility that’s part of the public service. And I think those service-wide things like the Westminster system and my horror about the Cabinet paper, I knew any public servant that I’d discussed that with would share exactly the alarm and sickness that I felt about what had happened.

And it was pretty clear from the call from the Premier’s Department that it had gone down like a lead balloon in there in the same way too. So I think there are…it’s that sort of thing which the Public Service Commission is trying to spread across the sector.

Peter Mares

But you’re suggesting there’s pretty fertile ground for them; that, you know, your experience of the Sydney Water workforce, that these were…these values were widespread.

Kerry Schott

Some values were very widespread and, I think, I now do think that’s the case in the public sector and I think the New South Wales public sector deserves tremendous credit for the work that it did during the period of the dying days of the Labor government which politically at that time was quite dysfunctional.

And it’s very difficult when you’re a public servant dealing with a government at a political level that’s actually not working all that well. And I’m not saying this in…as a political statement but the thing that kept the state on the road and services being delivered was the public service and getting on and doing it strong. And I think there is a great strength in the public service.

You will also appreciate from the Commission of Audit that I think there was a lot of weaknesses too that needed to be addressed.

Peter Mares

And you say that with in relation to the Cabinet Minute that others in the public sector shared your feeling of sickness that this sort of stuff was going on. How about more widely, say in the media or the public, how widely is…would they, other people understood your reaction, do you think?

Kerry Schott

No…well, in fact, I know they didn’t. The…I don’t know about the media but friends that I discussed this with who were not public servants, you know, thought it was dreadful and it was you know, it was like cheating or something, but it wasn’t that, the sanctity of a Cabinet Minute is not understood I don’t think.

Peter Mares

So does that suggest that our civic education, or something, still leaves…I mean does that matter or is it only really matter that the people who in the public service understand this stuff?

Kerry Schott

I don’t think it matters that much because I think the public understand, you know, what’s corruption and what isn’t.




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