CEO Appointment and Review Process

16 November 2021

Continuing with our series of ‘snapshot’ Alerts which analyse the progressive implementation of the Local Government Reforms, we now consider the CEO Appointment and Performance Review process provisions which are within the second tranche of amendments to the Local Government Act 1999 (the Act).

These changes are set out in sections 97 -102A of the Act.

CEO Termination

1. The Act has, for a long time, stated that a CEOs appointment can be terminated if he or she is ‘guilty’ of misconduct. The adjective ‘guilty’ has now, properly, been replaced with the transitive verb ‘committed’, the effect of which is that the Act continues to support a termination, at the discretion of a council, if a CEO has committed misconduct. However, the further consideration in this regard is what is meant by ‘misconduct’. There are, of course, various approaches whether it is the usual and natural meaning of the term, or the term as interpreted and applied in employment case law, or as per the amended statutory definition in the Ombudsman Act 1972 (Ombudsman Act) which has recently been amended as a result of the changes to the Independent Commissioner Against Corruption Act 2021 (ICAC Act). In this regard, section 4(1) of the Ombudsman Act provides –

Misconduct in public administration means an intentional and serious contravention of a code of conduct by a public officer while acting in their capacity as a public officer that constitutes a ground for disciplinary action against the officer (our emphasis)

Therefore, any finding by the Ombudsman in these terms requires that the breach is, firstly, of a code of conduct and, secondly, that it is intentional and serious. This elevates the significance of such a finding because, to fall within the definition, it must be as a result of a deliberate mindset and must also be serious, not trifling or minor.

2. It is now a requirement that, before a council terminates the appointment of its CEO, there are certain circumstances listed under section 97(1) of the Act where it must have regard to advice from a qualified independent person, before that decision can be made. A ‘qualified independent person’ is defined. It means a person who is (a) not a member or employee of the council; and (b) determined by the council to have appropriate qualifications or experience in human resource management. This condition precedent, potentially, creates a situation whereby, a matter that has been the subject of an Ombudsman investigation, then requires the independent person to review any findings made by the Ombudsman as part of the advice that the person provides to the council in relation to termination.

Appointment Procedures

1.  There is no longer a legislative requirement for a council to advertise a CEO vacancy in a newspaper circulating throughout the State. The extent of the requirement is now that advertising must occur on a website determined by the council. This does not, of course, deny the council the flexibility to take other action as it thinks appropriate in advertising the position. The reality is likely to be that a council which does no more than advertise on its website, whilst achieving cost-savings, would also, likely, achieve only a small pool of candidates.
2. The new section 98(4a)(a) requires that either (or both) of the following applies to the appointment process for a CEO-

a) The council appoints at least 1 person who is not a member or employee of the council to the selection panel.

Note that this is an actual appointment to the panel and not just the appointment of an advisor to the panel. Consequently, this person enjoys all of the same entitlements as the other appointees (likely to be only elected members) including that of voting. This change, of itself, reinforces our long-standing advice to councils that a CEO recruitment/selection panel should not be established as a section 41 committee. This new provision may result in the recruitment consultant also being appointed as the independent selection panel member. This approach requires careful consideration because of the respective responsibilities of each role and, on occasion, might give rise to a conflict in roles. The role of the recruitment consultant is, and should be, confined to providing expert advice to the panel about the process and sourcing and advising on, the potential and actual pool of candidates. Accordingly, we recommend that the two roles remain separate and consideration be given to the independent panel member being a person who is or was a CEO or an HR manager, even from a neighboring council in regional areas or even a different consultant or other third party with recruitment or human resource expertise.

b) Before an appointment to the office of CEO is made, the council obtains and considers the advice of a qualified independent person on the assessment of applications and recommendations to the council, which may include recommendations on the appointment.

This is similar to the requirement explained above in relation to CEO termination. A council is legally required to engage a person who is determined by it to have appropriate qualifications or experience in human resource management (who is not a member or employee of the council) and it must consider the advice of this person on the applications received and the appointment recommended. It is unclear whether the mandate of ‘independence’ in this regard is intended to and, hence, is sufficient, to disqualify the council’s recruitment consultant from performing this role as an additional task. In our view, an external recruitment consultant is, by their very role, independent and is qualified to provide advice on the assessment of the applications and the recommendation for appointment – however, against this, the advice to the council, following the work and recommendation of the panel, is necessarily less than independent to the extent that the same consultant will not critically assess the process and outcomes leading to the recommendation to the council and is highly unlikely to make a recommendation to the council which is different from the one from the panel where he/she has been an integral part of that process!

Depending upon the view and the approach taken, it is not inconceivable that there are three appointments  in this process being the independent member of the panel, the external recruitment consultant and the qualified independent expert to advise on the applications and the panel recommendation. All of which means additional costs for the council.

CEO Performance Review

 Staying with the ‘theme’ of qualified independent persons, the new section 102A imposes a requirement upon a council to obtain and consider the advice of a qualified independent person in relation to the CEO performance review process.

It is also now a mandated legislative requirement that the CEO performance review occur at least once in each year and, if relevant, before a reappointment of the CEO. In our view, this simply codifies what should already exist by way of a properly drafted employment contract and the council’s human resource management policies and procedures. Nevertheless, we all know how quickly a year comes and goes and we query whether, if the annual review process is not expert and expeditious, it will become onerous and difficult to achieve when compared, for instance, to a biannual process that may have been more achievable.

In which case, the question we expect to arise in future years in particular is ‘what are the implications if the council fails to undertake the review process as mandated by the Act?’ The answer is that it will be in breach of the Act which might involve Ministerial intervention and, otherwise, is likely to be a breach of the contract of employment.

CEO Remuneration – FAQs

Lastly, in giving effect to our commitment to update you on issues of importance, following the publication of our Alert last week with respect to CEO Remuneration, based on the FAQs we received, we confirm:

• the Transitional Provisions (Schedule 9 to the Act) provide that section 99A (i.e. CEO remuneration) does not affect a CEO holding office at its commencement (meaning that, they apply to a CEO appointed after their commencement, subject to there being a Determination, and to CEO contract renewals which are, of course, the grant of a new contract);
• that is, until there is a Determination, section 99A does not have any work to do;
• in which case, any currently established CEO recruitment panel is not required to have regard to any parameters within which to ‘set’ the remuneration for a new CEO position or an existing CEO contract renewal;
• the Determination will only have application to the remuneration ‘paid or provided to chief executive officers of councils’ and not to the remuneration for a CEO/EO of a subsidiary; and
• any contractual provisions for an incremental increase in remuneration, including by CPI, for an incumbent CEO, are not affected by the amendments.

If you have any questions about this, or any of our previous Alerts, please contact:

Michael Kelledy on 08 8113 7103 or mkelledy@kelledyjones.com.au;

Natasha Jones on 08 8113 7102 or njones@kelledyjones.com.au; or

Tracy Riddle on 08 8113 7106 or triddle@kelledyjones.com.au