Part 4: The chief executive’s disclosure of interest

Queenstown Lakes District Council: Managing a conflict of interest in a proposed special housing area.

4.1
In this Part, we discuss:

The chief executive decides to submit an expression of interest for a special housing area

4.2
The chief executive’s family bought a property (about six hectares of land and a dwelling) in Arrowtown shortly before he took up his role with the Council in October 2012. The land is zoned “Rural General” under the Council’s District Plan. However, its north-eastern boundary on McDonnell Road is next to the residential boundary of Arrowtown.12 The chief executive’s expression of interest proposed a special housing area of 20 residential dwellings on the southern side of McDonnell Road facing the residential area on the other side of the road.

4.3
We asked the chief executive when he first thought about the land’s development potential, including for part of the land to be considered for a special housing area. The chief executive told us that, when he bought the land, its size and lack of neighbours appealed. However, after his family bought the land, a family member of a previous owner raised the possibility of developing a strip of the land on the north-east boundary of the property opposite the houses on McDonnell Road.

4.4
The chief executive told us that he had talked with people about the likelihood of getting consent for the development under the Resource Management Act 1991. This would require a discretionary activity resource consent, which would be assessed under the Council’s District Plan and the Resource Management Act 1991. Our understanding is that there would be no guarantee of success.

4.5
We were told that, sometimes, the chief executive had made light-hearted remarks to planning staff about the possibility of the chief executive’s land being eligible for a special housing area. This was during the months before the Council adopted the housing accord and called for expressions of interest.

4.6
Although the chief executive had considered the possibility, he told us that he did not start thinking about it seriously until after the Council called for expressions of interest on 7 November 2014. By 20 November, the chief executive had decided to submit an expression of interest and contacted Mitchell Partnerships that day to ask them to prepare an expression of interest for his family.

4.7
On 22 November (a Saturday), the chief executive confirmed this engagement by email and provided a draft outline for the expression of interest. He asked for an indication of the cost of preparing the application. He also said that he had discussed the matter briefly with the General Manager, Planning and Development, who confirmed that the chief executive’s proposal generally met the expression of interest criteria.

4.8
The deadline to submit expressions of interest was 5 December 2014, so Mitchell Partnerships had about two weeks to complete it. Mitchell Partnerships told us that this was enough time.

The chief executive received another expression of interest before disclosing his interest

4.9
On Friday 21 November 2014, the General Manager, Planning and Development sent the chief executive a copy of an expression of interest for another special housing area that the Council had received.

4.10
The General Manager, Planning and Development commented on this expression of interest, and whether the Council could consider it at its meeting in December. The General Manager, Planning and Development asked for the chief executive’s views on whether that should be done without the public present. The General Manager, Planning and Development told us that he would not have sent the chief executive the other expression of interest if he had known that the chief executive intended to submit an expression of interest. We comment on this in Part 5.

The chief executive’s disclosure of his intention to submit an expression of interest

4.11
On Tuesday 25 November 2014, the chief executive told the Mayor that he intended to submit an expression of interest.

4.12
On 26 November 2014, the chief executive emailed the Mayor and copied the email message to the General Manager, Planning and Development. This email message said:

Further to our conversation yesterday, I confirm that our family proposes to make an expression of interest for designation as a [special housing area] for a strip of land on my property parallel to 1-43 McDonnell Rd.

All communications on the matter with Council will be handled on our behalf by Mitchell Partnership.

I suggest that [the General Manager, Planning and Development] and his team brief you directly on all matters relating to the [special housing area expression of interest], and ask that I am excused from any meetings involving the Housing Accord process.

In the event there is any media inquiry on the matter, you will presumably discuss the matter with [the General Manager, Corporate Services].

For my part, I propose saying something along the lines of “I have not, and will not, be participating in any discussions relating to the Special Housing Areas with Council staff or elected members. I have previously advised the Mayor of my intention to make an expression of interest and put in place arrangements to manage any conflict, including engaging a planning firm to manage my interest in the matter.”

With your agreement, I also think it appropriate that we advise [the Office of the Auditor-General] so that there are no surprises for them.

Council officers and the Mayor respond to the chief executive’s disclosure

4.13
On 26 November 2014, soon after receiving the chief executive’s email message, the General Manager, Planning and Development forwarded it to the District Plan Manager asking him to ensure that all communication on the matter was strictly professional because of “the political sensitivities/perception issues”.

4.14
On 27 November, the Mayor asked the chief executive whether he was prepared, as part of his update to the Council meeting to be held later that day, to tell councillors about his expression of interest. The chief executive said that, like others who had put in expressions of interest, he should be entitled to confidentiality until they were made public. He said that it would be appropriate for the Mayor to forward his email message of 26 November to councillors in confidence with whatever comment the Mayor wished to make.

4.15
At the end of the Council meeting on 27 November, the Mayor told councillors of the chief executive’s intention to put in an expression of interest. No staff were present.

4.16
On 30 November 2014, the Mayor sent the chief executive’s 26 November email message about his intention to put in an expression of interest to councillors, as a follow-up to her telling them about it at the meeting on 27 November, and the Assistant Auditor-General, Local Government at the Office of the Auditor-General.

4.17
In her email message to the Assistant Auditor-General, Local Government, copied to the chief executive, the Mayor said:

It was good to catch up with you and [Senior Solicitor] last week.13 Hope the rest of your meetings went well.

I am forwarding you this email from Adam for two reasons:

a) So that you are aware

b) To see if there are any other actions we should take (other than those already identified in the email).

4.18
We provided a first response on 30 November 2014, then further responses on 16 and 18 December 2014. We discuss our responses, and the further information the chief executive provided, in paragraphs 4.32 to 4.38.

Recording and managing conflicts of interest

4.19
The Council has a conflict of interest policy for employees that provides guidance to help decide whether a conflict exists. The policy gives examples and recommended mitigation actions. It sets out the procedures for reporting conflicts when they arise and applies to all employees.

4.20
The policy has a “Confidential Conflict of Interest Disclosure Form” as an attachment, for an employee with an actual or potential or perceived conflict of interest to use. The form requires employees to answer questions to assess whether the conflict is an actual or potential or perceived conflict.

4.21
The questions include:

  • Would a fair and reasonable person perceive that I was influenced by personal interest in performing my public duty?
  • Do I, a relative, friend or associate stand to gain financially or in any other way from QLDC’s decision or action on this matter?
  • Am I in a position to influence decision making about a matter related to a potential personal financial interest?
  • Could there be benefits for me in the future that could cast doubt on my objectivity?
  • Am I in a position to influence development of a particular strategy or policy that will guide future decisions from which I may benefit personally?

4.22
The form then requires the employee to:

  • declare the conflict of interest; state whether it is an actual, potential, or perceived conflict; and provide details; and
  • confirm that they have discussed the conflict with their manager.

4.23
The form also records the agreed plan to manage the conflict of interest, based on the discussion with the manager. The employee and manager need to sign the form.

4.24
When the form has been completed, the conflict is entered on the register spreadsheet, which records the employee’s answers to the questions and is used to manage and monitor conflicts.

4.25
The employee and manager are required to review, from time to time, the conflict and how it is being managed and update the management procedure as needed.

Recording the chief executive’s interest

4.26
On 3 December 2014, at the Mayor’s request, a staff member forwarded the chief executive’s 26 November 2014 email message to the Council’s General Manager, Legal and Regulatory, asking him to record the matter as a conflict of interest declaration.

4.27
On 4 December, the General Manager, Legal and Regulatory replied directly to the chief executive, attaching the Council’s “Confidential Conflict of Interest Disclosure Form”. The General Manager, Legal and Regulatory said:

… probably best to fill out the official conflicts of interest form and get it on the register. We normally get the person’s manager to sign off the proposed resolution. I guess this is the Mayor for you.

4.28
On 5 December, a staff member from the chief executive’s office emailed the General Manager, Legal and Regulatory, saying:

Not sure if Adam has mentioned this to you, but he didn’t like the form so has opted to send the email below instead. If you could add it one way or another to your register that would be great!

4.29
The “email below” referred to was one that the chief executive sent to the General Manager, Legal and Regulatory earlier on 5 December, saying:

Below is a self-explanatory email to the Mayor.14

While the decisions to be made on [special housing areas] are undertaken by the Council, not me, the perception for conflict exists.

[The General Manager, Planning and Development’s] team are reviewing the [expressions of interest] as they come in. (Mitchell Partnerships will be sending in an [expression of interest] on behalf of our family trust.) They are not having any discussions with me about this.

FYI, we have also advised the Office of the Auditor-General.

4.30
In Part 5, we comment on the chief executive not completing the conflict of interest form.

Chief executive’s family expression of interest

4.31
The closing date for expressions of interest was 5 December 2014. Mitchell Partnerships submitted an expression of interest on behalf of the chief executive’s family trust on that date. On 4 December, the chief executive commented on a draft that Mitchell Partnerships prepared.

Our communication with the Mayor and the chief executive about the chief executive’s disclosure

4.32
On 30 November 2014, the Mayor contacted the Assistant Auditor-General, Local Government. He replied a couple of hours later, to the Mayor and the chief executive, saying:15

Thanks to you both for first making the time to see me and [the Senior Solicitor] last week. I appreciate the keeping up of contact ….

Adam, I think your approach makes complete sense and the messaging logical.

Vanessa – I will ask [the Senior Solicitor] and his legal colleagues to just consider the matter in case there is any heads up issues we should suggest you be aware/take legal advice on. I presume both of you are well aware of our published advice on managing conflicts.

One matter which I will test with [the Senior Solicitor] is what alternate arrangements it may be wise for council to make given this matter involves its “chief advisor of free and frank advice”. And I suspect, as in any applications, you/Council will need “free and frank” advice. Designating one of Adam’s staff has perception issues in its own right (the employer/employee relationship).

Possibly the other matter that comes to mind is what sort of decisions may come before Council, and not just over this particular application, that the interest should be noted for. [The Senior Solicitor] may need to understand the decisions which have been reached already.

4.33
On 16 December 2014, the Senior Solicitor sent further comments to the Mayor and the chief executive:

I am sorry it has taken a while to respond to your email to [the Assistant Auditor-General, Local Government] of 30 November 2014.

I attach an extract from a letter we wrote to the Mayor of a small council in 2007 when asked to investigate a complaint about the Chief Executive and senior planner getting involved in property development in the district. The circumstances were not quite the same as here, but some of the general comments might be helpful as should our general guidance on conflicts of interest (link attached in the subject line of this email).

In that case, we considered the chief executive’s employment contract to see if there was anything relevant to private interests conflicting with the CE role. That is one thing you should check here.

Another issue in that case was that the staff interests were not widely known among councillors and other staff. More widespread knowledge within the Council would have made managing the conflicts easier.

As [the Assistant Auditor-General, Local Government] notes, you will also need to consider whether Adam’s ability to act as the Council’s main adviser would be affected by a private interest in a [special housing area] and whether any gap can be met by other staff. This would depend on the nature of decisions required in respect of [special housing areas] in the district, and is not something we can advise you on.

You could consider getting legal advice on how to best manage these issues, and think about the level of disclosure required to the Council and staff.

I’m copying this to [our Appointed Auditor for the Council] for his information.

4.34
The link was to our 2007 publication Managing conflicts of interest: Guidance for public entities.

4.35
The extract attached to our 16 December 2014 email message was from a confidential letter to another local authority in 2007. The letter was the outcome of an inquiry arising from a complaint. We did not make the letter public at the time, so have removed any identifying details. We include it here to record our full correspondence with the Mayor and the chief executive about the chief executive’s expression of interest:

Managing potential conflicts of interest in the future

We appreciate that Council staff will often be engaged in transactions with their Council in a personal capacity, for example, applying for a building consent or resource consent. It is inevitable therefore that conflicts of interest will arise regularly. Although these situations will always create some risk for the organisation, most conflicts should be able to be managed satisfactorily and with minimal disruption simply by noting the connection, ensuring that people do not process their own applications, and documenting that for the public record. The risks attaching to the conflict of interest in this case, however, were heightened because:

  • the chief executive was involved in the application, and the staff processing the request report to the chief executive;
  • one of the staff involved in the application works directly on assessing and processing such applications; and
  • there was a more significant financial interest in these applications than others from staff, given that they related to a development project undertaken for profit rather than personal or domestic renovations.

Our understanding of consent processes at the Council suggests that the risk of the decision making process actually being distorted on applications of this kind is low, as the applications are straightforward, and under the plan the processing of them is reasonably mechanical with little room for discretion. The organisation must take a broader view of risk than this, however, and must consider the risk of a perception that Council processes are enabling unduly favourable treatment for applications by staff. The risk of a perception of unfair treatment arising may be heightened by the small number of staff in the Council and the reasonably small size of the [district] community.

In our view, a public entity should require its staff to declare any personal interest that may affect, or could be perceived to affect, their impartiality in any aspect of their work. Declarations then provide the basis for deciding the steps needed to manage any actual or potential conflict of interest. Chapter four of our guidance on conflicts of interest discusses possible mitigation options for managing conflicts of interest once declared. The guidance notes that the appropriate options depend on the seriousness of the conflict. The most typical mitigation options involve exclusion from involvement in the public entity’s work on a particular matter. It is important to complete the process by documenting it, as this is the step that responds to the risk of an adverse public perception. If the record shows only that a conflict existed, but not that any steps were taken to manage it, then the organisation risks criticism, and public trust in its processes is likely to be undermined.

Clearly, in this case those steps were not taken. There was partial declaration of interests by some staff, part way through the process, and no documentation of how the conflict was being managed. Staff did not appear to be aware of how they should respond to a conflict of interest at the start of the process. The risk that was created is shown by the fact that complaints were made and this inquiry resulted. Members of the public saw the apparently unmanaged conflict and were concerned.

For the future, we encourage the Council to develop clear policies and procedures for staff on how conflicts of interest should be managed, and to train staff on the topic. Those policies and procedures should require all staff to declare conflicts of interest as soon as they arise or seem likely, and for the decision on the appropriate response to be recorded in writing.

As in all areas involving questions of probity and appropriate conduct, it is important that senior staff provide leadership. If the chief executive intends to pursue other development opportunities in the district we recommend that he seek approval from the Council. This would accord with good practice and the spirit of his employment contract, even if it is arguable whether this situation is covered by the precise terms of that contract. If the other staff members wish to continue the activity and if the chief executive is involved in the activity they should discuss the matter with the Mayor, have their interest recorded in writing, and agree any mitigation steps required.

We should make clear that in general we think that any conflicts that could arise from involvement in a company seeking resource consent from the Council should be able to be managed with reasonably straight forward mitigation measures. Identifying and managing conflicts of interest of this kind should be routine business for a Council and the current concerns arise from the failure to manage the conflicts adequately rather than from the conflicts themselves. However, these judgements must always be made in the context of the particular issue, the organisation and the community. If there is a significant level of discomfort among councillors or Council staff or the [district] community about the activity then stronger responses may be needed.

The chief executive’s response to us

4.36
The chief executive responded on 18 December 2014 with some further comments about the matter and copied his response to the Mayor, saying:

Thank you for your email. The Mayor may make some comments, but I would like to make the following observations.

Reporting lines and involvement in the process: I have absolutely no involvement in the [special housing area] project – either in the assessment/recommendation phase or the decision-making stage. There is the obvious fact that I am not a planner and would not therefore in the ordinary course of business be involved in this work. The relevant skills for assessing and making recommendations to Council resides within the Planning and Development team. The General Manager of that team is reporting directly to the Mayor and planning portfolio leaders on the [special housing area] matters. He has a small team of approximately 4 staff who are working on the [special housing area expressions of interest] and all applications are being treated confidentially until presented to Council.

I should also state the obvious – the decision on [special housing areas] will be made by elected members, not staff. My sole focus has been to remove myself from the assessment/recommendation process, and establish clear lines of accountability as between staff and the elected members.

Disclosure/Knowledge of the conflict: As mentioned above, I advised the Mayor at the earliest opportunity (i.e. prior to submitting an [expression of interest] and only when our family made a decision to respond to it). She has in turn advised councillors. Thus, while I am not a decision maker in this matter, the decision makers (i.e. councillors) are aware of the interest long before considering the [expressions of interest].

Similarly, the relevant planning staff are also aware of the interest. They are not reporting to me on any of the [special housing areas]. However, none of the [expressions of interest] are either generally known by staff nor are public knowledge. All those making an [expression of interest] will have confidentiality until such time as they are submitted to Council and decisions made. (I have no knowledge of the details or timing of that process as it is a matter the GM Planning will discuss with the Mayor.)

I have also advised our General Manager, Legal.

Personal interests: You will appreciate that while any conflicting personal and professional [interests] must be managed in a transparent and appropriate manner, a person should not be excluded from a right accorded the general public solely by virtue of a conflict where that conflict can be reasonably managed/mitigated. As the OAG guidelines state: “…..mitigation means that the member or official withdraws or is excluded from being involved in the public entity’s work on the particular matter.” This is the process which has been adopted here.

Specifically, and again with reference to OAG guidelines (para. 4.29), I have/will:

  • withdraw from any discussions on that item of business at any Council meeting;
  • be excluded from any working group dealing with the issue;
  • re-assign duties on this matter to another person (the GM, Planning);
  • have no access to information/assessments which will go up to Council on the [expressions of interest].

As the guidelines note: “Taking one of those steps [in my case, four of the recommended steps] will usually be enough to adequately manage a conflict of interest.” (And I also draw your attention to your illustrative Case Study 5, which has many parallels to this matter.)

I am confident we have acted entirely appropriately on this matter – hence our desire to raise it with the Auditor General at the earliest opportunity. You may, of course, also wish to discuss the matter directly, and solely, with the Mayor.

I am very happy to respond to any additional questions you may have.

4.37
Case study 5, from our 2007 guidance on managing conflicts of interest, was about an employee of a State-owned enterprise who owned land that could be affected by a gas pipeline that the State-owned enterprise intended to build.

Our further response

4.38
On 18 December 2014, the Senior Solicitor emailed the chief executive and copied the Mayor and the Assistant Auditor-General, Local Government, saying:

Thanks Adam.

It certainly sounds like you are doing all the right things and we are comfortable with the approach.

I didn’t intend to suggest otherwise in my email, just to let you know about another council that didn’t manage a similar issue well, and some things to think about – which you have clearly done.

12: The residential boundary on McDonnell Road is recognised in the Council’s district plan as part of the Arrowtown Urban Growth Boundary.

13: The Assistant Auditor-General, Local Government and a Senior Solicitor met the Mayor and the chief executive on 26 November 2014 as part of a series of meetings with local authorities in Otago and Southland about their long-term plan preparation.

14: This is the 26 November 2014 email referred to in paragraph 4.12.

15: We have corrected some minor typographical errors in the correspondence, and used our position titles rather than personal names.