Part 5: Our observations on the chief executive’s disclosure of interest

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

5.1
In this Part, we set out our observations on how the Council managed the chief executive’s disclosure of his interest. We discuss:

Timing of the chief executive’s disclosure of interest

5.2
On 20 November 2014, the chief executive decided to submit an expression of interest. On 21 or 22 November 2014, the chief executive confirmed with the General Manager, Planning and Development that his family land was eligible. On 25 November 2014, after working out a proposed approach for the Mayor and others to manage the conflict, he told the Mayor of his intention to submit an expression of interest. This was eight working days before the closing date for expressions of interest.

5.3
The chief executive received a copy of another expression of interest in the short time between deciding to submit an expression of interest and his disclosures to the General Manager, Planning and Development and the Mayor.

5.4
This situation could have been avoided if the chief executive had told the General Manager, Planning and Development about his intention on 20 November 2014, after his first approach to Mitchell Partnerships, or that he was considering the possibility after the call for expressions of interest on 7 November 2014.

5.5
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 of the chief executive’s intention. The expressions of interest were considered confidential, and, at first, only a small group in the Council had access to them.

5.6
We confirmed with the chief executive and Mitchell Partnerships that the chief executive did not pass on the other expression of interest when instructing that firm to prepare his expression of interest.

5.7
We asked the chief executive whether he told the Mayor he had received another expression of interest when he told her that his family intended to submit one. He told us that he had not because he did not think it material. He did not see his expression of interest as competing with the other one because the other one was in a different area and for a significantly larger development.

5.8
We do not consider that seeing the other expression of interest gave the chief executive an advantage in the process or was disadvantageous to the other submitter. However, in the interests of full disclosure and transparency, it would have been better had the chief executive told the Mayor that he had seen the expression of interest.

Our role relating to the chief executive’s conflict of interest

The Mayor and the chief executive relied on our correspondence

5.9
When we spoke to the Mayor and the chief executive during this inquiry, both pointed out that they had relied on, and taken comfort from, their correspondence with us. The chief executive considered that he had done the right thing by disclosing his interest and proposing steps for how the Mayor and Council officers could manage the expression of interest process and address any media questions.

5.10
The chief executive asked to be excused from being involved in the expression of interest process and suggested that we be told so that we would not be surprised. He told us that he had considered our guidance on managing conflicts of interest and thought that it would be good to advise us of the situation. He said that this was preferable to getting legal advice.

5.11
The Mayor went a step further. She asked us whether the Council should take any other actions than those identified in the chief executive’s email message of 26 November 2014.

5.12
During our inquiry, the chief executive highlighted two of our comments that he and the Mayor had relied on:

  • “The approach makes complete sense and the messaging logical”;16 and
  • “It certainly sounds like you are doing all the right things and we are comfortable with the approach.”17

5.13
We include the whole correspondence in Part 4 so that these comments can be seen in context. Our responses show how we engaged with the matter. They indicate our broad comfort with the proposed management approach and our suggestions of things to think about.

5.14
The chief executive suggested that our inquiry needed to consider our Office’s involvement, because he and the Mayor had relied on what we told them and would be concerned to be criticised now for things that we did not say at the time.

5.15
The chief executive is also concerned about the delay between our first and second responses, and that we did not consider the decisions that had already been made about the Council’s involvement in special housing areas. The chief executive suggested that, had we done so when first told about the matter in November 2014, we would not need to be inquiring into his involvement in those earlier decisions now.

5.16
We next comment on these matters, then on the steps the Mayor and the chief executive took in response to our correspondence. In Part 7, we explain our role when contacted with questions about conflicts of interest.

Timing of our response

5.17
We aim to respond to requests about conflicts of interest promptly. In this instance, our first response was on the same day as the request, and our next response was in 12 working days. The chief executive submitted his expression of interest on the closing date of 5 December 2014. This was after our first response and before our second response.

5.18
We were not advised of any particular urgency when approached by the Mayor. We were not told that the closing date for expressions of interest was imminent or that the chief executive’s intention to submit an expression of interest depended in any way on our views.

5.19
Rather, the chief executive suggested that the Mayor tell us of his disclosure of his conflict of interest so that we were not surprised.

5.20
The Mayor asked us whether we could suggest actions that the Council should take to manage the conflict of interest in addition to those the chief executive had proposed. The Mayor’s focus was on future management steps, not the chief executive’s intention.

We did not try to understand previous decisions

5.21
Our first response to the Mayor and the chief executive on 30 November 2014 included that:

  • they might need to consider whether the interest should be noted for other matters in the future, not just for the chief executive’s expression of interest; and
  • we might need to understand decisions already made.

5.22
We acknowledge that our 16 December 2014 email did not seek any further information about the previous decisions and that we did not actively consider this when we prepared our response. However, we note that:

  • The chief executive submitted his expression of interest on 5 December 2014, after our preliminary response indicating that we might need to understand previous decisions.
  • The Council did not offer any additional information or context about previous decisions in response to our first comment.
  • The chief executive said in his 26 November 2014 email message to the Mayor that he had not taken part in any discussions about special housing areas with Council staff or elected members.

5.23
It has taken us some time to understand the policy development process and assess the chief executive’s involvement in it. We accept that it might have been helpful for us to have a better understanding of the context when we gave our 16 December 2014 comments. However, we would not have been able to get the understanding we have gained through this inquiry in that short time and certainly not before the deadline for expressions of interest.

Summary of our comments about chief executive’s disclosure of interest

5.24
In this instance, we offered some comments that we intended to be helpful. Our suggestions in our first and later response included that the Council consider:

  • our guidance on conflicts of interest;
  • the chief executive’s employment contract, for anything relevant to private interests conflicting with the chief executive’s role;
  • whether the Council should make alternative arrangements because the matter involved its chief advisor and some might perceive designating one of the chief executive’s staff to do this as being problematic (because of the employer-employee relationship);
  • what sort of decisions might come before the Council that the interest should be noted for; and
  • how much disclosure to the Council and staff was required.

5.25
We gave the Mayor and the chief executive an extract of a confidential letter we wrote in 2007 to the Mayor of a small local authority,18 where the chief executive and a senior planner had been involved in property development. This letter included comments about:

  • the importance of recording the process for managing the conflicts of interest;
  • how more widespread knowledge within the local authority would have made managing the conflicts easier; and
  • the relevance of the chief executive’s employment contract.

5.26
We then said that we could not advise the Council on whether the chief executive’s role as the Council’s main advisor would be affected by a private interest and whether other staff could meet any gap. However, we said that this was something they should consider.

5.27
We ended by saying that the Mayor and the chief executive should consider getting legal advice on how to best manage these matters and think about the level of disclosure required to the Council and staff.

5.28
The chief executive then provided further and more comprehensive comments about how he and the Council would manage the conflict of interest. We said that we were comfortable with their approach.

Relying on our comments

5.29
When contacted about conflicts of interest of this kind,19 we try to be helpful and to suggest aspects to think about. We are not the enquirer’s legal advisor. The chief executive has noted that he would not have proceeded if either the Mayor or we had raised objections to his proposed expression of interest. However, we did not see our comments as part of the chief executive’s decision-making process about whether to submit an expression of interest, and he did not seek this. Our focus, and the focus of the Mayor’s request to us, was on how to manage the conflict of interest in the future. We gave our main comments on the proposed management approach after the chief executive had submitted his expression of interest, so they were not relied on for that decision.

5.30
The chief executive and the Mayor have emphasised that they relied on, and took considerable comfort from, our saying in our first and later responses that they were doing the right things and that we were comfortable with the proposed approach.

5.31
We can understand why the Mayor and the chief executive would be concerned if we now raised new matters or concerns that we did not suggest when first told of the chief executive’s conflict. We have not done so, and we are comfortable with the comments we gave at the time. We accept that it was reasonable for them to rely on our broad support of the steps they proposed to take to manage the conflict of interest. As we explain in Part 6, those steps largely worked in practice. However, the Mayor and the chief executive did not take all the steps that we suggested. We discuss this more in paragraphs 5.32 to 5.36.

The Council did not get legal advice or check the chief executive’s employment contract

5.32
We asked the Mayor whether she had considered getting legal advice on the matters we raised in our first and later responses about managing the conflict of interest. The Mayor said she did not think she needed to do so. She thought that the chief executive’s proposed approach to mitigate the conflict was adequate and did not see the need to get legal advice to confirm that.

5.33
We also suggested that the Mayor and the chief executive could check the chief executive’s employment contract to see whether there was anything relevant to private interests conflicting with the chief executive role. They did not do so.

5.34
We have considered the chief executive’s employment contract as part of the inquiry. The contract has requirements about conflicts of interest, including an agreement not to enter into contracts, relationships, business interests, or activities that might conflict in any way with the interests of the Council or the chief executive’s responsibilities to it, or that could reflect adversely on the Council’s business or its public perception.

5.35
In our view, the chief executive and the Council should have at least considered how the chief executive’s intended expression of interest fitted with this prohibition in the contract. The prohibition requires an exercise of judgement about whether pursuing private activities might affect the chief executive’s ability to meet his responsibilities to the Council or its public perception. It requires some thinking ahead and judgement about how actions might be perceived. It is not clear that either the Mayor or chief executive exercised that judgement here.

5.36
This is one aspect where getting legal advice would have helped. Legal advice would have helped the Mayor to manage a situation where her usual main advisor was conflicted. Any legal uncertainty about whether the chief executive’s contract allowed him to submit an expression of interest could have been discussed and addressed at the time. If the Council and chief executive had different views, this could have been worked through.

Effect on public perception of Queenstown Lakes District Council

5.37
The Mayor considers that this matter has adversely affected the public’s perception of the Council. The Mayor believes that the chief executive’s conflict of interest was more controversial because of the significant local interest in Arrowtown and opposition to all expressions of interest there.

5.38
Councillor Gilmour also thinks that the chief executive’s conflict reflected adversely on the Council and public perception of it. She considers that this became evident during the public submission process on the expressions of interest, where all councillors had their integrity questioned because of the chief executive’s conflict. She believes, too, that this reduced public confidence in the Council’s process for considering special housing area proposals, and that this, in turn, made sensitivities about Arrowtown worse.

5.39
The Mayor does not think the adverse perception of the Council will be significant in the long term.

Effect on the chief executive’s ability to meet his responsibilities

5.40
The expression of interest process for special housing areas was a significant exercise for the Council and the planning staff. It was of significant local interest and to the Minister for Building and Housing and the Ministry officials. It placed significant demands on a busy planning team, and the chief executive could not support them or councillors after submitting his expression of interest.

5.41
One of the ratepayers who contacted us was concerned that the chief executive’s conflict had affected the Council’s capacity to deal with a significant matter. The planning officers that we spoke with did not share that view, and the General Manager, Planning and Development had no problems taking responsibility for special housing areas and reporting to the Mayor. He considered that he could still discuss resourcing issues affecting his team with the chief executive, despite the chief executive’s conflict. We accept that this was a reasonable approach.

5.42
We asked the Mayor and the chief executive whether they thought that the matter had affected the chief executive’s ability to meet his responsibilities to the Council.

5.43
The Mayor agreed that it had affected the chief executive’s ability to meet his responsibilities. She took over those responsibilities by working directly with the senior planning staff involved. She told us that, at times, she has felt like both Mayor and chief executive.

5.44
The Mayor did not have any particular problem with doing so. However, she gave one example where she thought the chief executive’s involvement might have made a difference. This was the officers’ report on the expressions of interest that went to the 3 June 2015 Council meeting. The Mayor said that the report might have had more decisive recommendations about Arrowtown special housing areas if the chief executive had not been conflicted and had overseen it.

5.45
The General Manager, Planning and Development noted that the chief executive’s conflict did not change the way the officers advised councillors on the Arrowtown expressions of interest, and that the officers’ report addressed the positives and negatives of those expressions of interest and the overall approach was supported by legal advice.

5.46
The officers had discussed the draft report with the Mayor before the meeting, and the Mayor had sought the views of Councillors Gilmour and Lawton.

5.47
One focus was on how the report should reflect community views. There was some time pressure, and the Mayor and the two councillors could not comment on the recommendations before the agenda became public.

5.48
The chief executive does not consider that his conflict of interest affected his responsibilities. He considers that the Council often relies on senior employees with relevant expertise rather than the chief executive. He sees himself as a capable advisor on legal matters − because that is his background and expertise − but not the main advisor in all Council matters.

5.49
In our view, the conflict has affected the chief executive’s ability to meet his responsibilities. He has not been able to advise the Council about special housing areas and has not been able to provide leadership to Council staff in this area. Advising the Council and providing leadership to staff are core parts of the role of a chief executive under section 42 of the Local Government Act 2002.

5.50
In our view, the chief executive and the Mayor did not think this through at the start, despite our suggestion that they should. However, the chief executive’s proposed approach of the General Manager, Planning and Development taking responsibility for special housing areas appeared to work well, and the Mayor was largely satisfied with the arrangement.

5.51
The chief executive and the Mayor could have thought about whether they needed to make an alternative arrangement to fill the “main advisor” and “leader of staff” gaps that the chief executive’s conflict had created. This would have required them to consider the size and significance of the work involving special housing areas compared to the chief executive’s other responsibilities, and the chief executive’s ability to do that work, had his expression of interest succeeded.

If the chief executive’s expression of interest had been considered further

5.52
If the chief executive’s expression of interest had been recommended for further consideration, there would have been further dealings with the Council, including:

  • negotiating a “Private Developer Agreement” that would require the chief executive’s family to execute the project as outlined in the proposal;
  • discussions with Council officers about existing infrastructure and, if necessary, agreeing to any upgrade requirements and how they would be funded (such as from development contributions); and
  • seeking consent for the development under the Act or the Resource Management Act 1991.

5.53
Such dealings could have been straightforward, but could lead to disagreement or challenge. This could be awkward for the chief executive and the Council.

5.54
We asked the chief executive about the possible effect that his expression of interest succeeding would have on his ability to meet his responsibilities in other aspects related to special housing areas. We gave the example of the Council’s policy on the use of development contributions as a funding tool, including for special housing areas.

5.55
The extent to which local authorities use development contributions rather than other funding sources is an important policy matter for a local authority, and chief executives need to be involved in such matters from time to time. We understand that the Council has a current project to review its funding sources, including development contributions.

5.56
If the chief executive’s expression of interest had succeeded, the conflict could have prevented the chief executive from being able to advise the Council on the amount and use of development contributions in the district, at least until his proposed development had been completed.

5.57
The chief executive told us that he is not closely involved in development contributions. He said he had not thought this far ahead because he did not expect his expression of interest to be recommended for further consideration. He mentioned that the Council could have sought further comment from us or legal advice if his expression of interest had been recommended for further consideration. However, this would have required others to continue to fill the gap created by the chief executive’s conflict. The Mayor had not thought about the matter. This is an example of the Mayor and the chief executive not fully thinking through the implications of the conflict.

The chief executive did not fully comply with disclosure requirements for employees

5.58
The chief executive asked for his 26 November 2014 email disclosure to the Mayor to be recorded on the Council’s interests register. However, he did not complete the form for disclosing conflicts of interest that the General Manager, Legal and Regulatory gave him. The General Manager, Legal and Regulatory suggested that it was “probably best” to complete the form and said that he presumed that the Mayor would need to sign off the “proposed resolution” (the plan to manage the conflict).

5.59
The chief executive told us that, because he had already disclosed his interest to the Mayor and two of his general managers, he saw no point in completing the form. He was also aware that the Mayor had told councillors. He thought that filling out the form would just tell people what they already knew.

5.60
It is unfortunate that the chief executive did not comply with the process for declaring and recording employee conflicts of interest. A chief executive should lead by example in terms of complying with policies and requirements applying to employees. The form and register is part of the Council’s system for managing conflicts of interest and is not discretionary for other employees.

The chief executive initially sought confidentiality for his expression of interest

5.61
When the Mayor asked whether the chief executive wanted to disclose that he intended to submit an expression of interest to the 27 November 2014 Council meeting, the chief executive agreed that councillors should be told but said that he should otherwise be entitled to the same confidentiality that other expressions of interest had. The Mayor accepted this approach.

5.62
We do not believe that confidentiality should have been the main consideration at that time. Being an employee of the Council puts the chief executive in a different position than others who submit expressions of interest. In our view, it would have been better if the chief executive had advised the elected members of his intention before putting in his expression of interest and for it to have been public from that point. This would have been more transparent and meant that all elected members and staff were aware of the conflict from the start. It also might have mitigated the risk of speculation and adverse publicity later.

5.63
We comment further on some communication matters in Part 6, including when and how the chief executive’s expression of interest became more widely known.

Our conclusions on the chief executive’s disclosure of interest

5.64
The chief executive acted appropriately by disclosing his intention to put in an expression of interest after deciding to do so. The Mayor took appropriate steps to tell councillors and us, including seeking our views on the proposed mitigation steps. Some aspects could have been handled better, such as the chief executive disclosing his intention slightly earlier to avoid receiving another expression of interest and complying with the Council’s policy for employee conflicts of interest.

5.65
The Mayor and the chief executive relied on our general comments in our first and later responses about being comfortable with the proposed approach for managing the conflict of interest. We accept that it was reasonable for them to rely on our broad support of the steps that they proposed to take to manage the conflict. However, they did not take all the steps that we suggested. Most significantly, they did not check the chief executive’s employment contract or get legal advice.

5.66
In our view, the Mayor should have got legal advice on the matter, including on the relevance of the chief executive’s employment contract. The chief executive and the Mayor should have considered whether the chief executive submitting an expression of interest might affect his ability to meet his responsibilities under that contract and under section 42 of the Local Government Act 2002. We consider that it did affect his ability to meet his responsibilities. However, the Council has worked around this to fill the gaps.

16: Initial response on 30 November 2014.

17: Response on 18 December 2014.

18: We removed identifying details from the extract before sending it to the Mayor and the chief executive.

19: By this, we mean conflicts that are not covered by our statutory role under the Local Authorities (Members’ Interests) Act 1968.