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Governing Body
10 November
2016
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Appointments
to the Auckland Transport Board - Accountability of Auckland Council Controlled
Organisations
File No.: CP2016/22648
Purpose
1. To agree to a process for the appointment of directors to the board
of Auckland Transport (AT) in the 2016-2019 electoral term, in the context of
the accountability framework that applies to substantive Council Controlled
Organisations (CCOs).
Executive
summary
2. This report responds to a requirement that the process for the
appointment of elected members to Auckland Transport must be determined
following each triennial election (section 4.5.3 of Governance Manual for
Substantive CCOs). The proposal is considered in the
context of the Governing Body’s oversight of all substantive CCOs,
including other CCOs delivering critical services such as Watercare.
3. The
report draws attention to the suite of mechanisms available to the Governing
Body which can increase the accountability and responsiveness of its
substantive CCOs and deliver better outcomes for the city. Simply
focusing on the appointment of councillors to the AT board may have unwittingly
contributed to the underinvestment in the use of other tools to drive the
accountability and responsiveness of the organisation. These tools
include:
· establishing Operating Rules by which AT must follow in relation to
its governance;
· the power the council has to require a CCO to modify its Statement
of Intent to ensure alignment with Council strategic direction (via a
shareholder’s resolution);
· the Accountability Policy that applies to all its CCOs to ensure
alignment with Council objectives and priorities (both in the short and long
term); and
· appointing directors with not only governance and financial skills,
but with an awareness of the accountability expectations of the sole
shareholder.
4. With regard to the appointment to the current vacancies on the AT
board, this proposal recommends that all AT board appointments – whether
external directors or councillors – should be based solely on merit, and
should follow an open, transparent and competitive process consistent with the Appointment and Remuneration Policy for Board Members of
Council Organisations. It is important that the best qualified candidates are
appointed to the AT board, and that we draw from the broadest pool of talent as
possible.
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Recommendation/s
That the Governing Body:
a) note
that the appointment of councillors to the AT board of directors sits within
a wider suite of accountability tools that apply to AT specifically and CCOs
generally, as outlined in Appendix A;
b) note that greater investment in using the suite of accountability
tools available to council has the potential to provide stronger
accountability and responsiveness from AT than the appointment of a minority
of councillors to a board of eight directors;
c) request that a report is brought to the Appointments and
Performance Review Committee with an assessment of the opportunities to
improve the strategic alignment, accountability and responsiveness of CCOs
using the current suite of accountability tools;
d) note
that there are currently three vacancies on the AT board of directors;
e) agree
that the primary consideration in filling the vacancies on the AT board will
be the quality of the skills, knowledge and experience candidates bring to
the directorships;
f) agree
to appoint up to three directors to the AT board using an open, transparent,
and competitive process consistent with the Appointment
and Remuneration Policy for Board Members of Council Organisations;
g) agree
that both external candidates and councillors will be eligible to be
nominated for appointment to the vacancies, subject to any restrictions
imposed by statute and the Appointment and
Remuneration Policy for Board Members of Council Organisations;
h) agree that the detail of the competitive appointment process be
agreed through the Appointments and Performance Review Committee, including
the confirmation of the directors skills matrix for the appointments, the
process for candidate long-listing and short-listing, and the appointment of
the preferred candidates
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Background
Formal accountability of Auckland CCOs
5. The
Local Government (Auckland Council) Act 2009 (the “LGACA”)
and the Local Government Act 2002 (the “LGA”) provide the
statutory basis for the accountability of Auckland CCOs.
6. A
high level summary of the statutory accountability tools, and the capacity to
amend them or use them in a different way for the purpose of increasing
performance and accountability is set out in Appendix A.
Informal accountability
7. In
addition to legislative and formal mechanisms for accountability, there is an
important day-to-day relationship between Auckland Council and its CCOs.
To get the best out of the CCO model, it is important the council and CCOs work
as a group towards common outcomes. To achieve this, respect for
each other’s role and expertise is necessary.
8. In
previous terms, council has sought to build a close relationship with CCOs
through additional mechanisms, such as councillor-board workshops and
collaborative decision-making groups. These non-legislative accountability
instruments are also outlined in Appendix A.
9. Appendix
A is high-level information, provided as a foundation for any future
discussion regarding the accountability framework for Auckland CCOs.
Amendments could be made to all or some of these tools to provide stronger
transparency, accountability and control of CCOs, at the direction of
council.
Governance of Auckland Transport
10. AT is a statutory body with
special provisions which relate to its governance. Section 43 of the
LGACA provides that:
· The Auckland Council appoints the board of AT, its
chairperson and deputy chairperson.
· The board:
o will have a minimum of six and a maximum of eight voting
directors;
o may have up to two voting directors who are members of
the governing body of Auckland Council;
o can have one non-voting director who is nominated by New
Zealand Transport Agency (NZTA) - this director can be staff of NZTA or
independent.
· Auckland
Council cannot appoint councillors to the chair or deputy chair positions.[1]
11. The legislation therefore permits the appointment of councillors to
the board of AT, and it is a political decision whether to make these
appointments. The appointment of councillors to all
other substantive CCO boards of directors is prohibited under section 93 of the
LGACA.
12. In
both previous terms, the Mayor recommended the appointment of Councillors Mike
Lee and Christine Fletcher to the board of AT.
Council’s board appointment and remuneration policy recommends a maximum
of two three-year terms for directors unless extraordinary circumstances
apply. Councillors Mike Lee and Christine Fletcher and have served two
three-year terms, and I would like to put on the record my thanks for the
valuable contribution they have made to the governance of AT over the last six
years.
13. When
Cabinet agreed to establish AT in August 2009, it made provision for up to two
councillors to be appointed as directors. The rationale stated at the
time was “to recognise the significance of transport issues in
Auckland” [CAB Min (09) 30/10 recommendation 8].
Councillor-director feedback
14. I
have had the benefit of receiving written feedback from the two councillors who
have served on the AT board, and this is appended to the report (Appendices
B & C).
Comment
The pros and cons of
councillor-directors
15. A
September 2015 report from Office of the Auditor General (OAG) canvasses,
amongst other things, the advantages and disadvantages of councillor-director
appointments to CCOs. The OAG report’s coverage is national,
reflecting the fact other local authorities have greater freedom to appoint
councillors to CCOs than Auckland Council. The report incorporates the
views of both elected members and CCO chairs and directors.
16. The
advantages of councillor-directors outlined in the OAG report include:
“Elected members say that
councillor-directors
o are likely to have a good
knowledge and understanding of local government and of the local community;
o contribute valuable
“political nous” to a CCO board;
o provide an extra layer of
assurance that the subsidiary will be kept in touch with the “mood”
of the Council;
o add value by managing matters
about the CCO that are before the Council;
o contribute to the diversity of
the board; and
o can act as a representative for
their community’s interests.”
17. The
disadvantages recorded in the report include:
o “councillor-directors often
lack the skills to perform well as a director;
o there is an inherent conflict
between a councillor-director’s obligations to the Council and their
community and their obligations to the subsidiary; and
o councillor-directors are more
likely to be subjected to, and swayed by, pressure from community groups, so
that it may be more difficult for a councillor-director to maintain
confidentiality of commercial or other information about CCO business.”
18. The
OAG report concludes that:
“…..effective
monitoring and oversight, including setting clear expectations about the
CCO’s purpose and strategic alignment, should obviate any need for
councillor-directors to provide an additional layer of oversight.”
19. Consistent with the OAG’s conclusion, I’m not satisfied
the appointment of councillors to the AT board has been
effective in strengthening the transparency, accountability and responsiveness
of AT to the council.
20. Despite
the talents of our two appointees, they have never “had the
numbers” in a board of eight directors. After six years the
community’s disquiet with AT’s governance and responsiveness
persists, notwithstanding AT’s achievements. We need the entire AT Board
to be responsive to the strategic directions set by Council, not just two
directors.
21. We
should not treat AT as an “exceptional” CCO due to its size,
complexity or its sources of revenue. Watercare is another large Auckland CCO
running a complex business of critical importance to Aucklanders. The fact it
is funded by water charges doesn’t diminish Watercare’s significance
to Auckland Council. Watercare’s board is comprised entirely of
external directors. We therefore need effective accountability mechanisms
which apply to all substantive CCOs.
22. I
have received feedback from a number of councillors that the councillor-director
appointments did not result in an improved flow of information to council that
wasn’t already being provided through AT’s quarterly reporting.
There was also concern about the inequity created by the councillors appointed
to AT being remunerated.
Other accountability tools
23. The
councillor appointments to the AT board may have unwittingly contributed to an
underinvestment in using the other tools in the council’s accountability
toolkit. These wider tools have potentially greater capacity to control
and influence the operations of AT and other CCOs, and we need to invest in
them as a priority.
24. There
are three tools, in particular, I would draw councillors attention to:
· Section 49 of the LGACA provides a power for the council to make rules by which Auckland Transport must operate, including
rules in relation to AT governance, the appointment and employment of staff,
and how it acquires and disposes of significant assets. This power has
never been exercised.
· Schedule
8 of the LGA provides for the shareholders
of a CCO, by resolution, to require a CCO board to modify their Statement of
Intent. This has only been used narrowly by council to date, but has
considerable potential to ensure AT acts in alignment with the council’s
strategic direction.
· Section
90 of the LGACA requires the council to have an accountability policy for its
substantive CCOs. The policy must, amongst other things, include a
statement of the council’s expectations in respect of each CCO's
contributions to, and alignment with, the council’s objectives and
priorities. In light of the council’s experience over the last six
years the accountability policy warrants a comprehensive review.
25. I
propose that a report is brought to the Appointments and Performance Review
Committee with an assessment of the opportunities to improve the strategic
alignment, accountability and responsiveness of CCOs using the current suite of
accountability tools, including the introduction of Operating Rules for
AT.
Approach to AT board appointments
26. Section
57(1) of the LGA requires council to have a robust and transparent policy for
the appointment of directors to CCOs. The Auckland Council board
appointment and remuneration policy was updated in 2015 as part of the council
approval of the Substantive CCO Governance Manual. The new policy includes
direction that the process for the appointment of councillors to the board of
AT should be agreed by the governing body and initiated at the beginning of
each new triennium.
27. I
accept there may be occasions when elected members can bring unique skills,
knowledge and experience to the governance of AT. I acknowledge
councillors Christine Fletcher and Mike Lee brought relevant experience to the
AT board.
28. Given
the talent on both the current and future councils I propose that elected
members be eligible to be nominated to the AT board. I do not support a
model of councillors being appointed to the board as of right, with no regard
to the skills, knowledge and experience they would bring to the board.
Merit needs to be the primary consideration. On this point, the OAG
report states:
“If local authorities wish
to appoint elected members to their subsidiary boards, then the appointment
should be open and transparent, and subject to the same selection criteria as
for independent directors.”
29. I
concur with the OAG’s advice, and therefore propose that the governing
body agree:
· to appoint directors to all three vacancies on the AT board using an
open, transparent and contestable process this is consistent with the Appointment and Remuneration Policy for Board Members of
Council Organisations;
· that both external candidates and councillors will be eligible to be
nominated for appointment to the vacancies, subject to any of the restrictions
imposed by statute and the Appointment and
Remuneration Policy for Board Members of Council Organisations.
Remuneration
30. Remuneration of
councillor-directors was not covered in the 2009 Cabinet paper or the Auckland
legislation, nor has it been agreed at a council committee meeting or through
the council board appointment and remuneration policy[2]. Councillor remuneration is set by the
Remuneration Authority on the basis that roles are full-time. Whilst the
Remuneration Authority has not sought to limit payment of additional
directors’ fees, it is understood that they may consider changes on this
matter in future.
31. If it is agreed the council is prepared to
entertain the appointment of councillor-directors through a contestable process
I propose that the Appointments and Review Committee should agree to adopt a
policy on remuneration in the event a councillor is selected to one or two of
the three vacancies. This policy may need to be reviewed in light of subsequent
advice from the Remuneration Authority.
Consideration
Local
board views and implications
32. The
views of local boards have not been sought in relation to this advice on the
accountability framework for substantive CCOs or on the composition of the
board of AT. LGACA states that the governance of CCOs is the responsibility of
the governing body.
33. Local board
members cannot be appointed to the board of AT, however, the activities of AT
significantly affect all local boards. Recent investigations have concluded
that there is scope for AT to be more responsive to local boards who want
different service delivery options. The composition of the board can have
implications for the responsiveness of AT to political direction at the local
level.
Māori
impact statement
34. The
activities of CCOs affect Māori, however, the decision whether or not to
appoint councillors to the board of AT has no particular impacts on Māori
which are different from general users of the AT’s services.
35. There
is more potential for a director with experience in service delivery for Māori,
or a Māori director to be recruited as an external director than through a
councillor-director.
Implementation
36. Subject to
the agreement of the governing board, the process for filling the three
vacancies on the AT board will be considered at the 23 November 2106 meeting of
the Appointments and Review Committee.
Attachments
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No.
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Title
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Page
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a⇩ 
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Legislative and other accountability mechanisms for
substantive Auckland CCOs
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11
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b⇩
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Communication from Councillor Christine Fletcher
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15
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c⇩ 
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Communication from Councillor Mike Lee
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21
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Signatories
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Author
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His Worship the Mayor, Hon Phil Goff
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