Taking the local leap
Local council challenges may include:
- Possible losses and funding constraints
- A falling share of the national tax base
- Rising costs and demands
- Party politics and different motivations
- A lack of critical finance and strategy skills
- At times poor governance processes
- A heavy workload for limited pay
Like many who run for local council, Maurice Henderson FAICD is determined to improve his community. The consultant to not-for-profit (NFP) enterprises felt Adelaide’s Burnside City Council was anti-development when it initially rejected his house extension application. After complaining about the council for months, friends told Henderson to “put up or shut up”. So he ran in a council by-election last year and was elected.
The 48-year-old knew there were problems in Burnside Council before he ran. “Some people have said I’m mad – why would you walk into a nightmare?” Henderson told a local newspaper after his election. He believed a successful 16-year stint as executive director of the Queen Elizabeth Hospital Research Foundation and later, consulting through his firm, Henderson Partners Fundraising Consulting, would help him overcome problems at Burnside, which governs some of Adelaide’s oldest, wealthiest suburbs.
He was wrong. A state government investigation into allegations of corruption in Burnside Council, launched in July last year, is continuing. Elected after the problems arose, Henderson says he was not involved with the alleged wrong doings, but admits his first year as a councillor has been extremely difficult. “Every local council has at least one person whose entire life is the council and who goes out of his or her way to cause problems for those with the conviction to change things that need fixing. These people can turn local council into a farce and ensure nothing gets done.”
Henderson, a friend of Liberal Party powerbroker Christopher Pyne, is no stranger to controversy. He resigned last year from the Queen Elizabeth Hospital Research Foundation amid controversy surrounding the charity’s board, according to media reports.
Henderson was also nominated for pre-selection in the key Federal seat of Adelaide, only to withdraw in May this year due to his Burnside Council association. “It’s been very frustrating being on the council, but I’m determined to see it through,” he says. “We have some good people elected to council and excellent people who work at the council. If the councillors stick together, much-needed change will happen. We won’t give up without a fight.”
Henderson has had a tougher introduction to local government than most. His experience shows the difficulties those with business backgrounds sometimes face when elected. “I’ve always been exposed to the traditional governance model where the board sets the direction and lets management get on with the job of managing and directors understand and respect board processes and governance,” he says. “I was surprised by the types of problems councils face.”
“In local council, you can have newly elected councillors who have never read a financial account and have no idea about strategy or organisational leadership and yet are overseeing multi-million dollar enterprises. Then they start telling the council’s experienced full-time staff what to do (even though legally they are not allowed to), change their recommendations on a whim and waste ratepayers’ money. Some councillors have absolutely no idea about governance processes.”
Henderson’s experience is enough to turn people off running for local government. Yet there are far worse problems than inter-council conflict. The global financial crisis saw several councils lose millions after investing in complex derivative products, known as collateralised debt obligations, promoted by failed US investment bank Lehman Brothers. Six Western Australian councils lost $60 million through Lehman alone. A High Court victory earlier this year will allow some councils to pursue claims against Lehman, but the scandal, which also hurt many private and public enterprises, rocked public confidence in local government’s finance skills.
Longer term, the local government sector faces severe funding constraints, with many councils suffering from decades of “rate-pegging” – the percentage limit by which a council can increase the total income it receives from rates. Some councils have seen costs rise much faster than their rates, partly because they are providing more services that were the responsibility of state or Federal governments. Demographic trends are another huge challenge for regional councils struggling to attract and retain skilled professionals.
“Many councils are in dire straits as far as finances are concerned,” says Cr Bruce Miller MAICD, president of the Shires Association of New South Wales and a former Mayor of Cowra Shire Council in western NSW for 14 years. “Local government’s share of the national tax base continues to fall, even though our costs are rising as we provide more services. There’s been a massive cost shift from state governments to local councils. More of our budgets are being spent on community healthcare, attracting doctors (for country towns) and providing clinics. Despite these rising costs, NSW local councils have had to tie rate increases to CPI adjustments. The compounding effect of three decades of rate-pegging has driven some councils into crisis.”
Miller estimates that a quarter of NSW’s 152 local councils may not survive. “We had some relief with a bit over $1 billion coming to local government through the economic stimulus package. Much more is needed,” says Miller. “At a minimum, councils should be able to lift rates in line with cost increases.”
The Independent Inquiry into the Financial Sustainability of Local Government in NSW by Professor Percy Allan AM FAICD in 2006 showed the gravity of the problem. It found that a backlog in infrastructure renewals of more than $6 billion would grow to $21 billion in 2015 if the annual $500 million funding gap for infrastructure renewals was not closed.
Nobody doubts the situation is bleak for some councils. But it is dangerous to generalise about a local government sector worth $30 billion, according to IBISWorld data. More than 700 local government enterprises employ 180,000 staff and pay $10 billion in wages annually. Sector revenue grew at 3.3 per cent annually between 2005 and 2010. IBISWorld predicts 1.8 per cent growth between 2010 and 2015. If this happens, local government revenue growth will lag behind growth in the broader economy.
It is equally dangerous to suggest all councils have management problems or that some councillors are not up to the job. Brisbane City Council, Australia’s largest, had almost seven per cent average annual revenue growth over the five years to 2008/09, IBISWorld found. The Gold Coast City Council had almost 13 per cent average annual revenue growth over the five years to 2007/08. The City of Sydney Council grew average annual revenue by almost five per cent over this period and Melbourne City Council had almost double-digit annual revenue growth.
Different state legislation, local council oversight and council laws complicate sector comparisons. Councillor and mayor pay levels and the number of councillors elected also varies greatly by council size and responsibility.
More problems exist in smaller councils in cities or regional areas, partly due to the structure of Australian government, says Peter Brain, executive director of the National Institute for Economics and Industry Research, one of Australia’s leading regional economic forecasters. “The real risk is the local government sector does not know what its role is,” says Brain. “Fiscal imbalances have seen the Federal government controlling the bulk of the nation’s revenue, but with less of the responsibilities. We’ve seen several councils merge to create more scale in Victoria, for example. I wouldn’t want to see many more amalgamations. My preference is a fourth tier of government like the Americans have.”
Brain says local councils should have the option to form statutory bodies to work together on issues such as transport, where membership is flexible rather than forced. “For example, local councils, state and Federal government representatives could come together to solve infrastructure bottlenecks in a certain region,” Brain says. “This would create better efficiencies without having more formal amalgamations between councils. Communities should have the right to organise their resources in the best way to improve their environment – and pay a penalty if they get things wrong.”
Another key local government issue is people. Miller says local council management and governance standards have improved greatly over the past decade. “The separation of councillor and council management functions in NSW was a big step forward. There is much more focus on education and training offered to new councillors these days,” he says.
More training is needed, says John Dugas FAICD, a lecturer in the Faculty of Business and Law at the University of Newcastle, shire councillor in his home town of Gloucester from 2004 to 2008 and director of private and NFP enterprises. “Governance courses for new councillors have been offered for some time but everything was voluntary. Thankfully, governments are now recognising the need for more governance training for councillors,” says Dugas, who teaches modules of the Australian Institute of Company Directors’ course.
“I’ve seen many wonderful civic-minded folk who have the best interests of their community at heart stand and win elections on their local council. They are community leaders but, too often, not organisation leaders. They don’t have a background in governance and may lack critical finance and strategy skills. Or they may not be used to working in teams. You get people who are suddenly tasked with stewardship of community assets and overseeing multi-million dollar enterprises across complex issues ranging from sewerage to roads, stockyards, cemeteries, airports and the local library. Some new councillors pick it up very easily; others take several months or years or their entire four-year term before they are effective.”
Dugas says new councillors should consider their skills in several areas. “First, you need a basic comprehension of financial matters as they relate to local government. Nobody would expect councillors to be able to understand accounting systems to the nth degree, but you should be able to understand the general thrust and the financial importance of what is presented and have sufficient financial literacy to be able to query what is being proposed.
“Second, you must be capable of understanding strategic concepts and taking an active role in helping shape council strategy and of knowing how all of this fits into a coherent and congruent broader set of strategies with other councils, the State and indeed, the nation.
“Third, you must understand governance and its process, and how in the enactment of your role as councillor, you add value. As a councillor you are a civic leader, perhaps elected by an interest group but having to serve all the community in a balanced, equitable and ethical manner, not just the interest group that may have put you there. Governance is about compliance at the simplest level and creating and maintaining a workable system or process for the oversight of council business and the interactions between the councillors themselves and with stakeholders in the community. Many of these processes are prescribed by local government regulations but there is always room for enhancement of systems provided they are concordant with existing regulations.
“Finally, there is a knowledge base and a set of soft skills that might be termed councillor behavioural attributes. You need to be able to work with other councillors and the wider community and almost invariably be able to deal with conflicts. That is the nature of the business. Good councillors need a high level of inter-personal skills, emotional intelligence and more broadly, social intelligence.”
Dugas says councillors with private enterprise business backgrounds must appreciate the differences between corporate boards and councils. He likens the mayor’s role to the board chairman and councillors to non-executive directors. The council’s general manager is akin to the CEO. Larger councils may have between nine and 12 councillors, although this varies by council resident population or geographical size. If they meet monthly, councils have around 11 formal meetings each year on top of numerous committee meetings that councillors often lead. Some councillors meet fortnightly so their meetings double in number for the year.
An average city councillor might be paid $20,000 a year, with a mayor receiving $60,000 or more. Again, payments vary greatly depending on council size, but one thing is clear: nobody stands for council for the money. In many councils, the mayor’s role is virtually full-time and councillors often spend 15 or more hours on council business each week on top of a full-time job.
Key differences between corporate boards and councils are “party politics” in many local councils and councillors in some states representing wards within their council. Under the local government law, councillors are required to represent their entire municipality, but conflicts can arise if they are only interested in their ward’s needs. Other differences are the potential for minority groups to affect council decisions and that ratepayers and residents are the council’s customers, unlike shareholders in a company.
Cr Coral Ross GAICD, from Melbourne’s City of Boroondara Council, says another difference between corporate boards and local councils is councillor selection. “In a company, the chairman effectively chooses directors for election, which means like-minded people usually join the board. A council may have elected councillors with very different backgrounds and motivations. You may work with councillors you don’t get on with and possibly never will. Also, in Victoria, council size is determined by the state Government, which is different to what happens on corporate boards.”
Ross says new councillors should deeply understand their roles and responsibilities. Boroondara, which represents Melbourne’s inner-eastern suburbs, has a detailed induction policy for new councillors and encourages training courses. “Everybody knows what their roles and responsibilities as Boroondara councillors are,” says Ross, a former Boroondara mayor and ex-journalist. “I’d encourage new councillors to read the Local Government Act to ensure they know what they can and can’t do. There is a lot of council process that one must understand to act effectively.”
“Remember, a council is a not a company,” says Ross. “As a councillor, you represent the community and work hard to ensure your council provides a service the community wants as effectively, efficiently and with as much transparency as possible. You must engage the community and be open to different points of view. Lots of people join councils because they are passionate about a single issue and that is okay, so long as they appreciate the council may provide lots of services across different suburbs and have competing needs.” Boroondara provides more than 150 services.
Ross says new councillors should appreciate the workload before standing for election. Ross spends more than 30 hours each week on council matters, for almost $25,000 in sitting fees. She received $57,000 as mayor in 2008 (the mayor rate has since increased to $79,000, including superannuation). “It can be a double-edged sword when the mayor changes every year,” says Ross. “You get a fresh person coming to the role, but you can lose the continuity and it may take several months before a new mayor fully understands the role.”
Cr Philip Sansom MAICD, mayor of Sydney’s Hurstville City Council, has been involved in local government for almost 20 years. Sansom, also chairman of the Sydney Metropolitan Catchment Management Authority, say anybody thinking about standing for council should consider his or her motives. “The first question I ask is: Why do you want to be a councillor?” says Sansom. “Serving on local government is about giving something back to the community. People who want to run because they have a grudge against the council over a single issue must ensure they can develop to consider a range of competing interests on a council and be flexible in considering different points of view.”
Sansom suggests prospective councillors do more due diligence on their council before running for election, talk to elected councillors and attend council meetings. In some ways, this is no different to the preparatory work a company director should do before joining a board. Sansom, who works in education, also encourages new councillors to throw themselves into training programs when they join a council. “I’m a great believer in lifelong learning,” he says. “Nobody knows everything. Do as many courses as you can. I found the Australian Institute of Company Directors’ governance course very useful. Although there are obvious differences between company boards and councils, core governance issues are the same.”
Sansom says new councillors should attend as many events as possible. “Councillors are sometimes reluctant to attend events interstate because of perceptions of junkets. But the only way you learn quickly about issues, such as roads and recycling, is attending industry events. Nobody expects you to be an expert in these issues, but by attending such events you build your knowledge so you can make better decisions when presented with information.”
“You also need to stand up for what you believe in and you can’t assume you will please everyone all the time,” says Sansom. “Conflict is an inevitable part of being a councillor. It’s how you handle conflict that matters. Know that you may not be the only person with the right answer, and that you often have to act on guidance from local council staff. Always remember that a lot of civic-minded people give up their time to build better communities – not just elected officials.”
Councillors such as Ross, Sansom and Miller clearly love their work. As Miller says: “Local government has exposed me to interesting issues for almost 20 years and helped give me a great life. Every now and then somebody tells you how much they appreciate what you do for the community. Sure, there are lots of challenges and plenty of hard work, for not much pay. But there’s no better feeling than improving the community for your family, friends and people around you.”
10 issues to consider when becoming a local councillor
1. Motives
Ask why you are running for local council. Is it to fix a single issue? Are you flexible enough to deal with dozens of issues and competing views?
2. Due diligence
Read up on the local council. Talk to current and past councillors. Attend council meetings before you decide to run for council to see what is involved.
3. Understand your responsibilities
Attend the information session often run by councils before elections to understand your potential role, responsibilities and risks. Be clear about the workload and pay.
4. Identify skills gaps
Consider your skills in finance, strategy, governance and organisation leadership. Identify any weaknesses.
5. Skills training
Do as much training as possible when you join a council to address skills gaps. Local government associations and councils usually offer training courses.
6. Governance training
Undertake the Australian Institute of Company Directors’ Governance Essentials for Local Government. Although there are differences between council and corporate governance, there are clear similarities. At a minimum, the course will get you thinking about how good governance relates to councils.
7. Attend events
Attend industry events where possible and practical to build your knowledge. Like a company director, you need enough knowledge to assess management recommendations, and know the right questions to ask if more information is required.
8. Understand process
Local council is built on detailed process, codes of conduct and formalities. Such bureaucracy can be burdensome for people used to making fast decisions. You won’t get far in local government if you ignore protocols. Understand the differences between company boards and councils.
9. Understand lines of separation
Respect the role of full-time council staff and know where your role starts and ends. Like a company director, the aim is overseeing governance and strategy – not interfering with management.
10. Listen to the community
Most of all, engage the community. Listen to its needs. Act as transparently as possible, knowing you have enormous responsibility to safeguard community interests.
Further professional development
In addition to the Company Directors Course, the Australian Institute of Company Directors has developed Governance Essentials for Local Government, which examines the various roles and responsibilities of council members. It consists of: The Role of the Council and Councillor; Risk: Issues for Councillors; Leadership: The Councillor’s Role; and Introduction to Financial Information for Councillors. Currently these courses are delivered as part of our In-Boardroom portfolio. For more information, visit the Education section of the website at: www.companydirectors.com.au