Future of local governance
Dame Kerry Prendergast gives her views on governance issues raised in the IoD submission on the Future for Local Government draft report.
The absence of trust or transparency should be a warning sign to Council Controlled Organisation boards and to councillors, particularly during a time of transition.
Councils and Council Controlled Organisation (CCO) boards are in the news a lot at the moment, as the implications of the recent local body elections are felt.
This is not surprising. Elections create news. They create change on councils. When councilors and mayors change, so too can the drivers of CCO activities. And this can make more news.
This political aspect of the role presents particular challenges to CCO, and other public sector, boards. The directors who serve on them are not, generally, highly political, although they work in a political context. They are governance professionals who face political pressure and public scrutiny of a different level than that faced by directors on most commercial or not-for-profit boards.
So what does that mean for good governance of CCOs when councils are in transition? How can boards and councils ensure CCOs are able to continue to deliver for their communities during times of change?
Good governance, whether of a CCO or any other organisation, is reliant on many factors. Among the most important are an organisation’s clarity of purpose (so a board can put in place a relevant strategic plan), the character of the directors (ethical, intelligent, diverse and collaborative directors positively influence the best boards) and the quality of the relationships between board and management; and board and stakeholders or shareholders (for CCOs that is the council).
Relationships are very important to effectively manage change. And so too is respectful and informed engagement. Councils and CCO boards must maintain a high level of trust and transparency to continue to deliver on the council’s aspirations, while the CCO’s goals, budgets and even existence are debated around the council table.
Things can become tricky when an existing Statement of Intent no longer aligns with the priorities of a new, incoming council. When a CCO’s activity becomes a political issue, directors may find themselves in the invidious position of following the CCO’s purpose and its current Statement of Intent, while being publicly criticised for doing so.
We are seeing this quite publicly in Auckland, but similar dynamics are likely to be in play at local body level around the country. Transitions can be challenging, but elected councils have an absolute right to set the goals for their CCOs and an obligation to ensure the directors on CCO boards have the skills and capabilities required to deliver on the council’s goals.
The key is to get the process right. There must be a balance between the shareholder’s legitimate prerogative to require a different direction from their wholly-owned CCO, and respect for the governance role that appointed directors have while appointed.
Putting a governance lens over it, there are a few things that CCO boards and councils could do to ensure transitions between mayors, between councils, and between board chairs and directors, are managed in a way that protects the purpose of the CCO, both for the boards and councils themselves, and the communities that they all serve.
CCO boards need a purpose, a well-articulated strategic direction, a good working relationship and sufficient funding from a council in order to meet a council’s aspirations and expectations.
Councils need a clear, and fair, process for assessing the performance of CCO boards and understanding the level of achievement (or otherwise) against the goals council has set.
Both need a well-understood and efficient (not disruptive) means to understand when and how boards are to be refreshed, particularly when we consider the role of the chair.
The unwanted circumstance – sometimes seen in the commercial sector – of large numbers of board members, or even whole boards, being replaced at the same time should be avoided so the community is not disadvantaged while a new board gets “up to speed”. This will also help with the implementation of a long-term strategy for the CCO.
Boards need to have an understanding of key risks such as changing council direction (and elections) and have mitigations and management plans in place. Professional directors must be cognisant of the political sphere in which they’ve accepted their appointment, and we must accept that the level of politics attached to it may reduce the pool of capable directors willing to take on such roles.
Boards should have a formal processes for evaluating their own performance and identifying areas where the board is not meeting council expectations or where they are not receiving what they need from the council. These evaluations should occur on a regular cycle and action should be taken on the findings.
A lot of this is achievable if there is trust and transparency. The absence of trust or transparency should be a warning sign to directors and councillors.
At the IoD, we firmly believe in the power of governance to create a strong, fair and sustainable future for New Zealand. Good directors deliver great value for their organisations – be they commercial, NFP, social enterprise or anything in between.
CCOs are a living proof of concept. They operate with a mix of commercial discipline, community purpose, elected oversight and a desire to make their communities better, stronger and more sustainable. When they deliver, they make New Zealand a better place to live.
That means CCOs need committed directors – professional directors – who can navigate the particular challenges of a CCO board role. And if we are to attract and retain the great directors that communities should expect, then they need a professional environment in which to operate.
With clear and honest communication between CCO boards and councils, I believe those organisations can continue to deliver for their communities while adapting to the changing priorities of newly-elected representatives.
As we look forward to an election year, the same is likely to be true soon for the boards of other publicly-owned organisations. Orderly transitions are a cornerstone of good democracies.