A very serious state of affairs

TRACY WATKINS
Last updated 05:00 07/04/2012
John Allen
CRAIG SIMCOX/Fairfax NZ
NOT SEEING EYE-TO-EYE: Neither Foreign Affairs Ministry chief executive John Allen, nor Foreign Minister Murray McCully seem to have escaped the implosion of their ministry unscathed.
Murray McCully
LAWRENCE SMITH/Fairfax NZ
THE END: Murray McCully says NZ troops will be out of Afghanistan by the end of 2013.

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In a normal world, the conversation around the dinner table of a private room at the James Cook Hotel last Monday evening might have been somewhat strained.

The dinner guests – some of the country's top diplomats, Foreign Affairs Ministry chief executive John Allen and Foreign Minister Murray McCully – had been on a collision course for weeks over radical plans to modernise the foreign service.

Forty-six heads of mission had flown into New Zealand from all corners of the world to have it out with Mr Allen and Mr McCully during two days of talks aimed at softening the package and stopping an exodus of top talent.

The stakes were high enough for Prime Minister John Key to parachute in his own officials from the Department of Prime Minister and Cabinet, along with staff from Treasury and the State Services Commission.

But, even after a stormy round one on Monday, dinner was no doubt a polite affair. If there is one thing diplomats know how to do, it is dinner conversation. And Mr McCully has been desperately trying to mend bridges since Mr Allen dumped his telephone directory-sized "change proposal" on staff and set a bomb off under his ministry.

The backlash has been so damaging, and the revolt so widespread, that the minister was forced to go over the top of his chief executive and issue an open letter detailing trenchant criticism of the Allen-plan and overriding key components.

But it may already be too late. The roll call of key staff who have decided to call it quits grows longer by the day – the latest is chief agriculture negotiator Catherine Graham. No-one is pretending any more that MFAT has not been seriously damaged.

The affair has sent ripples not just through MFAT, but the wider public service. During the Vietnam war, an unnamed American army officer told reporters it had become necessary to "destroy the town to save it".

The McCully letter has that whiff about it. Mr Key and Finance Minister Bill English have charged chief executives with extracting big savings from their departments, expecting them to shed billions of dollars from their operating budgets. Jobs have been slashed and services cut.

But the Government has remained determinedly at arm's length from decisions over how and where most of those cuts should be made. Mr English and Mr Key have always argued that chief executives are best placed to do the cutting. The MFAT experience threatens to seriously undermine confidence in that process.

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Mr McCully's extraordinary letter might have been a desperate attempt to help repair the damage but, right or wrong, the view from afar was that John Allen had been hung out to dry.

After a four-year long austerity drive and no end in sight, chief executives who went out on a limb and made unpalatable decisions up till now believed they at least had the backing of their minister and the Government.

But Mr Allen's very public humiliation gives them pause for thought – can they be confident the minister will stand behind them if the proverbial hits the front pages of the newspaper? And, if they do find the minister at their back, is it to offer support – or bury the knife even deeper?

Ministers have reason to be just as jittery. The growing debacle at MFAT has been marked by a series of extraordinary leaks.

Beehive staffers report seeing senior managers running, in an apparent state of panic, between MFAT's downtown office and the Beehive, after news of another leak prompted a "please explain". Nothing spreads fear faster within a government's ranks than a leaky public service.

It is a salutary reminder of what happens when a government gets offside with the bureaucracy. Good civil servants can make governments look good. But equally they have the power to make them look very, very bad.

The fallout over MFAT is the first major split between the Government and public service since National took power in 2008.

Despite a squeeze on budgets, National has managed to remain largely on side with the sector, which has, by and large, accepted the need for belt tightening.

In some disputes – such as the industrial stoush between justice staff and the ministry – Government ministers have even privately sided with the workers over their grievances against management. So how did it get to this? Was John Allen just doing his minister's bidding?

Or did he get it badly wrong?

Mr McCully's detractors – and he has many, including within National – would say the MFAT debacle has his fingerprints all over it. He is famously intolerant of bureaucrats and officials and rarely bothers hiding his contempt for those he considers not up to scratch.

When tourism minister in the 1990s, his relationship with members of the Tourism Board got so bad they resigned, resulting in payouts worth hundreds of thousands of dollars that were later found to be unlawful.

Mr McCully was forced to stand down from the tourism portfolio in the wake of a scathing report by the auditor-general.

Ordinarily that might spell the end of a political career. But Mr McCully's value to National has always been measured in other ways. He is the ultimate backroom operator – the caucus Machiavelli, the dark prince, the party strategist and fixer. He doesn't just know where the bodies are buried, he helped bury them.

The arrival of another caucus fixer, Steven Joyce, may have seen his influence wane – but not by much. When Mr Key asked a select group of ministers round to his Parnell mansion the day after the last election, Mr McCully was there, along with Mr English, Mr Joyce and Gerry Brownlee.

Charming when he wants to be, with a dry wit, Mr McCully can also quickly rub colleagues and staff the wrong way. He appears to live by the creed that, if you want something done properly, you should do it yourself.

Even people who confess to liking him admit he is a micro-manager.

His obsession with detail as Rugby World Cup Minister extended to picking the colours and design of the uniforms worn by volunteers, over which he butted heads with the International Rugby Board.

He certainly rubbed many in MFAT up the wrong way on his arrival as foreign minister. While some appreciate his bluntness, and view his strong views on the strategic direction of foreign policy and the ministry as a breath of fresh air, he has also made enemies, particularly over the re-shaping of New Zealand's aid budget.

He is not slow to criticise, and his barbs can be sharp, and often personal.

While some ministerial staffers might see themselves as a buffer, that is apparently not the case in Mr McCully's office – communications outlining the minister's displeasure are not put through the usual filters. It never takes long for word to make it down the ranks that the minister is not happy.

There have also been rumblings that some of his appointments reward mates: National MPs John Carter and Mark Blumsky picked up overseas postings, as have staffers from his office. Leon Grice, a Rugby World Cup offsider, has got a plum posting in Los Angeles.

His critics point to that level of hands-on involvement as evidence that there was no way John Allen could have drawn up such a radical plan for restructuring the ministry without Mr McCully being fully briefed every step of the way.

Certainly, Mr McCully had made no secret of his desire to plant a boot up the backside of a ministry which has long resisted change. He was highly critical of a promotions system that he saw as an old boys club, did nothing to recognise talent or performance, and which treated a region of critical strategic importance – like the Pacific – as a dumping ground for non-achievers.

He was particularly scathing of the ministry's euro-centric focus, believing that had nothing to do with foreign policy and everything to do with diplomats wanting a Paris lifestyle, complete with luxury apartment, rather than focus on critical Asian markets, or grind it out in the likes of Africa, where New Zealand has scant representation.

He ruffled more feathers when he insisted on shaking things up by opening up the appointments process to private sector competition and directed MFAT to start advertising some ambassadorial postings.

So, when John Allen was appointed to the position from outside MFAT, he was seen very much as McCully's man. He came to MFAT from NZ Post and the decision to appoint a non-diplomat sent a clear signal that Mr Allen had been brought in as a change merchant.

That was reinforced when Mr Allen parachuted some former NZ Post allies on to MFAT's senior management team.

When one of the most radical proposals was unveiled – slashing allowances to overseas-based staff by tens of thousands of dollars – it had the ring of a McCully-sanctioned assault on the diplomatic classes' privileged lifestyles.

But the truth is that alarm bells in Mr McCully's office had already been ringing over the more radical aspects of John Allen's plan in the days before it was unveiled. According to senior colleagues, Mr Allen was repeatedly warned by Mr McCully that some of his changes would never fly.

It is certainly true that noises coming out of the minister's office in the days leading up to the release of Mr Allen's proposals suggested serious disquiet. There was a high level of awareness about the risk of good people quitting.

Speaking on condition of anonymity before the announcement, one source outlined those concerns: "If you give people the opportunity to go, people are going to find another job, take a cheque, and do so quite quickly." It was suggested the point had been made repeatedly to Mr Allen that he might have to back down.

Tellingly, when all hell broke loose in the days following, it was Mr McCully, not Mr Allen, who reached out directly to key staff, and the diplomatic union, in an attempt to broker peace.

When it comes to apportioning blame, however, even Mr McCully's colleagues are not sure of the extent to which he should be absolved. One senior colleague suggests that while blame can't be laid 100 per cent at Mr McCully's door, nor can it be placed 100 per cent at Mr Allen's.

But there is no question that the bungling of the restructuring process has seriously annoyed Mr Allen's political masters, and that wrath extends far higher than Mr McCully.

The loss of MFAT stars such as Ms Graham, ambassador to Thailand Bede Corry, chief trade negotiator Nigel Fyfe and deputy secretary Crawford Falconer cut deep.

These are people ministers know and respect. Some may have left for greener pastures anyway. But the speed with which MFAT's senior ranks have emptied out is alarming. At least another five senior staffers are known to have resigned with more in the wings.

As one senior Beehive source notes, most government agencies have managed budget cuts for the last three years without creating anything like the stink Mr Allen has.

And his diplomats were not hostile toward change. While some are resistant to the drive to modernise, others among their ranks knew MFAT was long overdue to be hauled into the next century. So Mr Allen could probably have taken his staff along with them if he had gone about things in a less bullish way.

There is equally serious criticism that, while the rest of the public service embarked on major change over the last three years, Mr Allen was slow to follow their lead, despite the big reputation he brought from the private sector.

When he finally did act under an increasingly impatient minister, he put much of the process in the hands of his hired guns, costly change management consultants. Since their approach is inevitably to "go for the jugular", as one unimpressed Beehive insider describes it, the outcome – and ensuing chaos – was inevitable.

It is of course convenient for Mr Allen's bosses to say that now. Mr McCully's office was aware he brought in consultants and the minister's critics say he signed off the $9 million bill for hiring them.

And while the minister has been publicly critical of Mr Allen for choosing the wrong targets, particularly around conditions and allowances, he has not resisted taking pot-shots at those same allowances in the past.

Nor has he resiled from equally contentious aspects of the restructuring proposal, including forcing 600 staff to reapply for their jobs.

Even more crucially, Mr Allen was merely implementing cost-cutting measures required to meet the Government's directive to save $24m. If the buck stops anywhere, it is surely there.

But if his political masters are spitting tacks, it is because Mr Allen's approach runs counter to the approach up till now. Change has been incremental, one step at a time. But Mr Allen has taken the "big bang cataclysmic" approach – as one describes it – to downsize MFAT. It not only raised the stakes, it has alienated him from most of his department.

Close observers of the unfolding fiasco agree Mr Allen has looked increasingly isolated through the process and, as a result, has become increasingly reliant on his advisers.

"He has got the problem that some of the strongest opponents of [his proposal] are the senior leadership team and the senior managers in the organisation. So no wonder he's got a problem.

"He's sort of done it in a really strange way and I don't know how skilled he has been, or how much experience he has had of major change. He is relying very heavily on advisers and they, I think, personally deserve a lot of the blame," notes one insider.

During the two-day crisis talks, it seems Mr Allen and his team partially backed down, agreeing to tone down the slashing of allowances and rework the plan to make diplomats reapply for their positions once they return from their posting, with no promises that they will be kept on.

But there are already rumblings that it is probably too little and definitely too late to repair the worst of the damage. If those rumblings get any louder, neither Mr McCully nor Mr Allen will come out of the affair unscathed.

- © Fairfax NZ News

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