Overview

Council-controlled organisations (CCOs) provide local authorities with opportunities and challenges. They give a local authority the opportunity to engage people with the right skills and experience to focus on operating a business or other undertaking on behalf of the authority. The challenge is that the local authority remains accountable to its community for the CCO's performance. However, despite the name "council-controlled", CCOs are most successful where the local authority seeks to influence rather than control the CCO. CCOs operate best at arm's length from the local authority

CCOs operate in a complex environment. Unlike a privately owned entity, a CCO must meet the expectations of both its shareholders and its community. It operates in a political environment and is accountable to its community for its use of community assets or ratepayer funds.

However, despite the differences between the public and private sectors, the essential requirements for good governance are the same.

In preparing this report, we have talked to several local authorities with CCOs and to CCO directors and managers. The information we have gathered shows that a CCO's success depends largely on an effective relationship between the CCO and its local authority. Such a relationship is based on mutual respect and trust. It goes beyond the statutory requirements and requires ongoing commitment from both parties.

It is also important that the local authority carries out its statutory functions well, to provide the foundations for an effective relationship. In particular, the local authority needs to:

• be clear about the purpose of its CCOs;
• appoint the right people to govern each CCO; and
• meet the requirements for monitoring and accountability.

CCOs have been part of the local government sector since 2002. This report updates our earlier publications on local authority subsidiaries.¹ It offers guidance on how the principles of good governance apply to setting up, operating, and monitoring CCOs. Although we focus on CCOs, the underlying principles and much of the commentary also apply to other local authority subsidiaries.

The report is intended to be useful for local authorities who have CCOs and, in particular, for those thinking about setting up a CCO. Because of the risks and costs associated with owning a CCO, a local authority should not set up one up lightly.

This is by no means a comprehensive guide to CCOs. Nor is it general guidance on governance. However, we hope that our discussion of some of the matters that we have encountered will help local authorities and CCOs when they deal with similar issues.

Phillippa Smith
Deputy Controller and Auditor-General

25 September 2015

1: Local Authority Governance of Subsidiary Entities (2001) and Governance of Local Authority Trading Activities (1994).