Structure of DCHL slammed

Dave Cull
Dave Cull
A hard-hitting review of the Dunedin City Council's trading companies has identified a "high level of dysfunction" in the organisation, and financial problems with the potential to become "very serious", if they have not already reached that stage.

The governance review's recommendations would, if adopted, spell the end of a situation where directors serve on, and earn fees from, different council companies.

The report, by independent reviewer Warren Larsen, has suggested asset sales to offset the need for increased debt, "however unpalatable from a historical perspective".

It said the forecast 2014 debt position for the council and its companies of more than $700 million represented "a very substantial increase in debt exposure".

The issue, Mayor Dave Cull said late yesterday, was not about "saying anyone has done something wrong, but that the system has come to a point where it's no longer appropriate".

Mr Cull also said it was important to distinguish between recommendations and "opinion" in the report.

"It's informed opinion, but opinion nonetheless."

The council accepted the recommendations that had been made, but not all the opinions.

That included the conclusion asset sales were necessary.

DCHL chairman Paul Hudson said late yesterday he had no time to discuss the matter, but he took issue with the recommendation of three independent directors "recruited nationally".

"To suggest there is nobody in Dunedin capable of looking after the interests of the holding company is an insult to directors that work in Dunedin." The report follows confirmation recently there was an annual $8 million shortfall in the expected dividend to the council from the companies.
The issue has prompted angry debate in the city, and a flurry of activity at the council to deal with the issue.

The report, commissioned by the council following concerns over the DCHL structure, was released yesterday after debate at the council on Wednesday.

Under a section of the report, labelled "the problem", Mr Larsen said it was clear significant governance issues existed within the council's group of companies.

That was a result, he said, of a breakdown in critical governance elements.

It was clear the problems had existed for some time, but had become more obvious because of a need to fund several infrastructure projects at the same time, projects that "include the Forsythe [Forsyth] Barr Stadium", the Settlers Museum, Dunedin Centre and wastewater treatment.

The council debt position was made more uncertain because of the quality of estimates for future earnings of stadium management company "Dunedin Ventures Management Ltd" [Dunedin Venues Management Ltd].

Increased debt funding was an option, but it came with "the prospect of a credit downgrade and consequent increase in borrowing costs".

Mr Larsen said there was a general understanding a financial problem existed, but no shared agreement on its magnitude. The management reaction was to obtain more cash from DCHL, and some, if not all companies within DCHL were borrowing to pay dividends.

"This is an untenable governance position to maintain."

Mr Cull said an implementation plan would be put together for the changes, which he wanted in place "as soon as possible".

Legal and accounting advice would be sought from outside the council on the changes to the boards of the companies.

He wanted that to be done before an annual meeting in October.


Recommendations

• Councillors may not hold directorships in DCHL or its subsidiaries.
• Directors of subsidiaries may not be directors of DCHL and vice versa.
• Senior council managers should not hold directorships.
• Directors may not hold more than one position in subsidiaries (Aurora and Delta one entity) unless in exceptional circumstances.
• DCHL board reconstituted with three new independent directors recruited nationally.
• Council property investment subcommittee transformed with board-type structure.
• Dunedin Venues Management Ltd and Dunedin Venues Ltd boards part of DCHL group.
• Chairmen to have board succession plan, annual review of board composition, annual evaluation.
• Governance actions to include reviews of: all companies; reporting format; dividend policies; Dunedin Treasury Ltd role.


david.loughrey@odt.co.nz

 

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