Another civic authority is in financial strife after years of mismanagement, excessive borrowing and living above its means.
Only this time, it’s not some far flung district hidden away in the depths of California, or an earthquake ravaged city in the South Island, or even a small district council up north.
No, it’s the city of Auckland, home of an amalgamation of local councils that were pulled together less than five years ago, with a view to create a more effective organisation.
As the full extent of Auckland’s financial position begins to come clear, it’s interesting to hear the proposed cost reduction measures being promoted. Thus far the focus appears to on reducing park maintenance, cutting library hours and possibly even closing some of the city-owned and operated swimming pools. (Ironically, this from the same Mayor who trumpeted “free swimming” for all kids under 16 only a few years ago.)
Way to go councillors! Let’s focus on cutting back those minimum wage earners. This is akin to the troubled corporations who kick off the cost reduction programme by taking the biscuits out of the kitchen.
Meanwhile, we hear Auckland City has more than 1500 people who are paid more than $100,000 per annum. In recent years I have lost a couple of corporate people to “jobs at the council.” I couldn’t believe what they were getting paid then and I can’t now. And these are not the top-drawer people; they are actually pretty average.
A quick glance at the annual reports of five of the companies listed on the NZX top 10 (Contact Energy, F&P Healthcare, Ryman, SkyCity and Sky TV) reveals they have just 1387 people who are paid more than $100,000 per annum between them – in total! Surely this is where we must start. Not necessarily with the people but with their departments and roles and the services they are meant to be performing.
You need to break the discussion down to two areas:
- Operations – the execution of day-to-day functions and operational activities within the organization; and
- Governance – the leadership and operation of the council.
It’s important to remember the council’s core roles. Things like transport, sewerage, water, parks and recreation. So you have to ask, what are all the other things that require an organisation of thousands of people, many grossly overpaid. Since when was working for the council a highly paid career move?
In simple terms, there is a need to consider the following questions and actions:
- What are the council’s core (read essential) functions?
- Are those functions being run as efficiently and effectively as possible?
- Who is responsible for each function?
- Can each of them save 10% per annum? (Note: The answer to this question is always yes.)
- If not, what do we have to sacrifice in order for them to do so?
- Can the person responsible for each council function develop a plan to save 10% (real money) in the next 12 months?
- What are the other (non-core) functions?
- Why do we have those non-core functions?
- Which ones can we do without?
- Who is responsible for each of the non-core functions?
- If they are not absolutely necessary, the person responsible should develop a plan to answer the following question: How quickly can we close them down and what are the implications we have to manage?
- If they are deemed necessary, the person responsible should develop a plan showing: How can we modify the way we operate them in order to decrease the cost substantially (ie, 30-50% or more) and quickly (within 6-9 months)?
- Compile a business case for every function outlining the basis on which they will continue or discontinue.
- Finally, all contractors (ie, individuals who are not employees but are contracted to the council) should be immediately reviewed and terminated forthwith wherever possible. (They are less expensive to let go than employees who will rightly require redundancy.)
So here’s another thing. When was the last time you heard about a local council considering a cost reduction programme? Never. Despite the fact that most businesses have had to go through various and often dramatic downsizing three or four times in the last 20 years I am yet to hear of a council doing the same.
Why? Because they don’t have to worry about revenue. They just put the prices (rates) up and add new charges for existing services (water and rubbish), irrespective of the financial climate.
If Aucklanders look hard at their TOTAL rates bills over the past five years (including water, rubbish, etc.) they will find they have at least doubled, and in some cases tripled. Incidentally, that period has been among the most financially difficult in history. These people must really care about their people.
When Auckland became a supercity, seven small, difficult to manage organisations were merged into one big, impossible to manage organisation.
But here’s the biggest problem. They may have made a bigger organisation but they didn’t upgrade the capability, particularly at board level (read “council level”).
I can still remember the new Mayor, Len Brown, fresh from beating John Banks in the first supercity election, talking about a fresh start for a vibrant new city and then turning to the councillors and thinking, “it ain’t going to happen.”
Take a look at that first board: George Wood, Ann Hartley, Mike Lee, Christine Fletcher, Len Brown, Sandra Coney, Arthur Anae and Richard Northey. They’re the same old faces in a different guise. Guess what? If nothing changes, nothing changes.
It is important to highlight these people have often worked tirelessly for communities for a very long time and we should be enormously grateful to them because they have performed a role that many of us (myself included) would not want to volunteer for.
However, we need to understand that someone who has held a board seat in a failing system at Rodney, Papakura or North Shore is not necessarily qualified to sit on a board of the supercity. It’s like going from the board of the local school and putting your hand up for a gig at BNZ. (Slight exaggeration, I know, but you get the idea.)
Unfortunately, the democratic process does not deliver the best candidates for the job. Most highly capable people with strong leadership and governance experience could think of nothing worse than entering the political process, lobbying and campaigning, all for a role that takes up a lot of time, particularly evenings and weekends. Not to mention having to go through it all again in three years’ time.
Added to the lack of capability is the fact that even the most senior local government officials are not subjected to anything like the level of scrutiny of nationally elected officials. Imagine if Mr Brown and company had to face the press pack after each council meeting like central government ministers.
There is no accountability. These people campaign, get elected, then disappear for three years, and because we don’t know what they have been doing we vote for them again. Well now we do know. They’ve been borrowing and spending and issuing promissory notes on our behalf.
So how do you get the right people and skills around the council table? Other boards that are governed by constitutions, such as in sport, not for profits, industry associations and education, have the same problem. They overcome it by appointing board members with the skills they need, to complement a lesser number of elected officers.
Sadly, the reality is, that when a large organisation hits financial trouble, democracy doesn’t work. (Just ask Barack Obama.) We need to change the constitution of the supercity so that just half of councillors are elected and the other half appointed.
So where to now?
If Auckland City was a company, this is what you would do:
- First, the situation needs to be accepted for what it is – a crisis – and immediate actions along the lines of the 14 items listed above need to be put in place to dramatically reduce costs over the next three years.
- All employee and contractor remuneration should be frozen immediately.
- All capital expenditure must cease. Any mission critical capex should then continue after being reviewed but costs must be closely monitored. Every major project must be reviewed. In particular, the Mayor’s rail loop – which shows commendable vision – must be mothballed for the time being.
- Revisit the supercity merger – not to try to reverse it, that is far too late, but to investigate whether the anticipated synergies and savings were achieved. Making mergers work is challenging and requires serious discipline to get the projected benefits. Put in place a project team to review and execute what wasn’t done properly before.
Better late than never.
Bruce Cotterill is a company director and former chief executive who advises business leaders on leadership, governance and management
This article is tagged with the following keywords. Find out more about MyNBR Tags
- Wynyard announces huge loss but still a going concern say directors
- PM sets ground rules for ministers' treatment of public servants
- TeamTalk back in the red on asset writedowns, faster depreciation
- MARKET CLOSE: NZ shares fall as companies miss lofty expectations; A2, Meridian drop
- OPINION: The ComCom should be able to put behavioural conditions on mergers
Most listened to
- Labour MP Clare Curran says new rules for Netflix and Lightbox are a 'no brainer'
- China launches ‘uncrackable’ satellite while Syria’s regime strengthens on Foreign Affairs Scope with Nathan Smith
- The Commerce Commission should be able to put conditions on mergers, Labour MP Clare Curran says
- Metlifecare's Glen Sowry on why the company pays caregivers more
- John Key says demand for New Zealand as a holiday destination is not even close to drying up