Corporate governance in local government : exploring interpretation and practice in Tasmania

In Australia local government is the third tier of government, with the Commonwealth and State Governments being the first and second tiers, respectively. Local government is often described as the level of government which is closest to the people, with the most impact on the day-to-day lives of constituents. Consistent with global evidence, there is Australia-wide evidence of dysfunctional governance in local councils. Boards of enquiry reports reveal common problems across jurisdictions including dysfunctional relationships, confusion about roles, resistance to change, and loss of community trust and confidence. Legislated changes and the introduction of New Public Management (NPM) in the local government sector in the 1990s were meant to make the sector more efficient and effective and to address these governance deficiencies. It is therefore reasonable to ask why such corporate governance dysfunction in councils continues to occur. This study addressed this issue through an exploration of the understanding and practice of corporate governance at the local government level, with specific focus on senior managers and elected representatives in Tasmania, a State of Australia. For the purposes of this study, corporate governance was broadly interpreted as incorporating all the structures, processes, culture, and principles required to support decisions and actions made and undertaken in the public interest. The primary research question in this study asked how corporate governance was interpreted at the local government level in terms of meaning and application. Secondary questions considered whether factors such as sources of information, leadership influence, scale of municipalities, or best practice guidelines influenced that understanding and practice. The research methodology utilised an interpretivist approach with a multiple case study design, comprising four Tasmanian councils, drawn from four of the five council classifications in Tasmania. The major data source was twenty-three face-to-face interviews, triangulated with data from other sources including an electronic survey, observations, and investigation of websites and documents. Results showed that corporate governance was generally understood and practised by local councils with a strong compliance focus. However, complexities in interpretation were apparent with evidence revealing that significant importance was placed by participants on building and maintaining key relationships, engendering and maintaining trust, and ethical behaviour, but with an inability to integrate these components into a structural and legislative framework. The result was a limited understanding about and implementation of the non-compliance aspects of corporate governance. Participants gained corporate governance knowledge from a diverse range of sources, leading to inconsistencies and lack of a shared understanding. Council leadership had a significant influence on the understanding and practice of corporate governance, but this could potentially mean that embedded beliefs and values were simply passed on without review. The research indicated that size and location of a council did not necessarily disadvantage the understanding and practice of corporate governance, while the best practice guidelines were found to be inadequate in influencing either understanding or practice. The model used to bring about legislative change and to introduce NPM in Tasmania in the 1990s emphasised structural efficiencies at the expense of social and political considerations, that is, a rules-based paradigm which was still evident. This structural efficiency model provided a theoretical framework through which to consider the results, while institutional theory provided an explanation as to why the rules-based system was so deeply embedded in local government. The contemporary acceptance of the importance of the 'soft' components of corporate governance has created a tension point at the intersection of principles and rules for the local government sector, which has not been addressed by best practice guidelines. This study suggests that the solution lies in the development of a corporate governance conceptual framework, which elucidates the linkages between the 'hard and soft' components of corporate governance, that is, it makes clear how principles and rules are integrated, together with the implementation of mandatory training. Whilst there is extensive theorising about both local government and about corporate governance there is a significant gap in theory about corporate governance in local government. This research has begun to address that gap. This study appears to be unique in not only exploring the understanding and practice of the concept of corporate governance in local government, but in addressing key factors which could provide an explanation for that understanding and practice. This exploratory study will contribute to the literature with original findings by identifying a rules-based paradigm in local government, which has created a tension with contemporary principles-based approaches. The rule-based approach is linked to the introduction of NPM and legislative reform in the 1990s and has influenced the understanding and practice of corporate governance in local government in the intervening decades. This study will contribute to public policy debate by recommending the development of a conceptual framework which addresses the main challenges identified in this study. Future research opportunities include the development and implementation of a corporate governance conceptual framework for local government, investigating understanding and practice in other jurisdictions, implementation failure in relation to NPM and best practice guidelines, development and implementation of training packages, and perceptions of leadership in local government.