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Complaint no. LA/NL/745 concerning an alleged contravention of the Councillors’ Code of Conduct by Councillor Gerard McElroy of North Lanarkshire Council

1. Complaint number LA/NL/745 alleged a contravention of the Councillors’ Code of Conduct (“the Code”) by Councillor Gerard McElroy (“the respondent”).

2. It was alleged that the respondent had contravened the Councillors’ Code of Conduct and, in particular, the key principles of Duty, Selflessness, Integrity, Accountability and Stewardship, Openness, Honesty, and Leadership set out in section 2 of the Code.

3. Councillor Alan O’Brien (“the complainant”), alleged that Councillor Gerard McElroy had breached the Code by accepting the chairmanship of the Campsies Centre Cumbernauld Ltd despite lacking appropriate qualifications and experience; that his acceptance of remuneration for this position was not in the interests of the Council or community; and that his support for a fellow director was influenced by political allegiance.

4. The Council, as successor to the former Cumbernauld Development Corporation, owned land in and around Cumbernauld town centre which was vested in a company known as the Campsies Centre Cumbernauld Ltd.  The purpose of this company may be summarised as the redevelopment of Cumbernauld town centre by the promotion of business activity.  The company was originally formed by the Development Corporation and incorporated on 22 January 1996.  It was subsequently transferred to the Council which remained the sole shareholder.  There were six directors, all of whom were elected members appointed by the Council.  At the period to which this complaint referred the Board comprised the respondent Councillor McElroy (Labour) as Chairman, the complainant Councillor O’Brien (SNP), and Councillors Carrigan (Labour), McCulloch (Labour), Homer (SNP) and Brooks (Labour).  The directors were nominated in the first instance by their political groups, and the political allocation of the appointments was in accordance with the structure of the Council.

5. Following the May 2007 elections the respondent was informed by the Labour Group Business Manager that he (the respondent) was to be nominated as Chair of the Campsies Centre Cumbernauld Ltd, and that a proposal that the post should attract an annual responsibility payment should be taken forward by the directors. 

6. At the first statutory meeting of the Council on 17 May 2007, the then Chair of the Campsies Centre Cumbernauld Ltd, Councillor McCulloch (Labour), intimated his resignation from that post due to the workload arising from his new appointment as Chair of the Housing and Social Work Services Committee.  Councillor McCulloch remained as a director of the company.

7. The first meeting of the Board of Directors of the Campsies Centre Cumbernauld Ltd following the Council elections took place on 6 June 2007.  At this meeting Councillor McCulloch (Labour), seconded by Councillor Carrigan (Labour), proposed that the respondent, Councillor McElroy (Labour) be appointed to the Chair.

8. A counter-proposal by the complainant, Councillor O’Brien (SNP), that Councillor Homer (SNP) be appointed as Chair fell as it did not attract a seconder.  (Councillor Homer was not present at this point in the meeting.)  The respondent was accordingly appointed as Chair with effect from 17 May 2007.  The complaint lodged by Councillor O’Brien arose from his criticism of the means by which this appointment was made, as detailed below.    

9. The complaint related solely to alleged breaches of the key principles set out in section 2 of the Code.  These principles underlie the interpretation of the Code and should be read in tandem with the substantive provisions contained in sections 3 to 7.  Nevertheless the issues raised by the complainant required detailed consideration to ascertain whether individually or cumulatively they could be viewed as conflicting with the principles to such an extent that they could, in the specific circumstances of this case, be regarded as amounting to a substantive breach of its terms.

10. The first point to be considered was whether the Code extended to the actions of councillors while acting in their role as directors of a company – the Campsies Centre Cumbernauld Ltd – which was a separate legal entity from the Council.  Paragraphs 3.18 and 3.19 of the Code refer to appointments made to partner organisations and state that Councillors so appointed a) will be bound by the rules of conduct of those organisations and that responsibility for their actions in that role will be to that organisation; b) must continue to observe the rules of the Code in carrying out the duties of the organisation to which they have been appointed; and c) when nominated as a director of a company should seek advice on potential conflicts of interest between their responsibilities to the company under the Companies Acts and their responsibilities to the Council as elected members. 

11. In this case it was a matter of fact that the directors of the company held their positions as nominees of their respective political groups and appointees of the Council.  While the term ‘partner organisation’ is not defined within the Code, the transfer of the Campsies Centre Cumbernauld Ltd from the former Development Corporation to the Council, which was the sole shareholder, the vesting of public monies within the company, and the involvement of council officers in its operational management, left me in no doubt that the company acted effectively as an arm of the Council.  It was therefore my view that the terms of paragraphs 3.18 and 3.19 of the Code applied to those elected members who were appointed by the Council as directors of the company.  

12. The rules of the company were set out in the Memorandum and Articles of Association.  The former document detailed the aims of the company and the application of income and property.  The latter dictated the powers of the directors, the terms of their appointment or removal, and the procedures to be observed at Board meetings.  I considered that compliance with the terms of these documents would be consistent with the Code, and that non-compliance would require close scrutiny to ascertain whether or not this also conflicted with the Code.

13. Where issues such as the appointment of the Chair and payment of remuneration to a director could give rise to an external perception of political bias, or possible conflict with the terms of the Memorandum, Articles of Association, or Councillors’ Code of Conduct it would be appropriate that professional advice (such as from the appropriate officers of the Council and the company) should be sought to consider and resolve any potential conflicts of interest.

14. In this case the motions, amendments and votes in relation to the appointment of the Chair, his substitute, the payment of remuneration and its extent, divided in accordance with political allegiance, and thus potentially gave rise to a perception that they were influenced by political loyalty.  No evidence was adduced to show that advice was sought on the nomination of the respondent as Chair, or of the original proposal that directors’ fees should be paid.  Indeed these proposals were raised initially by the Labour Group Business Manager rather than from within the Board.  In this context reference is made to Regulation 91 of the Companies (Tables A to F) Regulations 1985, as amended, which empowers the directors to appoint their Chair, and the absence of any contrary provision within the Articles of Association.  While Article 12 of the Articles of Association gave the Council, as the holders of the majority of the issued shares, power to appoint or remove directors, no reference was made to a similar power to nominate the chair.  However, as sole shareholder in the company the Council both appointed the directors and had a legitimate expectation that the Board would act in accordance with wider Council policy in relation to the commercial activities of the company, and I considered that the appointment of the respondent as Chair did not conflict with the company rules.  

15. The situation was further complicated by the status of the Campsies Centre Cumbernauld Ltd as a legal entity in its own right, and the perception of the directors, endorsed by the Executive Director of Corporate Services, that their decisions as Board members were constrained, or at least subject to confirmation, by the Council as sole shareholder in the company. 

16. The complainant listed the key principles which he alleged had been breached by the respondent.  To ensure clarity in my consideration of the complaint it is appropriate to examine the terms of his complaint as they referred to the principles which he identified. 

17. Duty: The complainant alleged that the respondent lacked the qualifications or experience appropriate to his appointment as Chair of the Board of Directors and that his acceptance of that position was not in the interests of the Council or community; that his acceptance of remuneration for this position was also not in their interests; and that his appointment of a political colleague to chair the vote on his remuneration was also motivated by self-interest. 

18. The evidence to support the complainant’s allegations was largely a matter of perception rather than fact.  The Memorandum and Articles of Association made no requirement for the Chair to have any specific qualifications or experience.  Article 10 of the latter document stipulated that the holder of the majority of the issued shares – which in this case was the Council – could appoint any person as a director but was silent as to qualifications or experience and made no reference to the method by which the Chair was to be selected.  In the absence of any specific requirements within the company documents I did not consider that any exception could be taken to the respondent having accepted his nomination by the Council as a director, or his subsequent appointment as Chair at the meeting of the Board on 6 June 2007.

19. As a matter of fact I noted that the respondent held an Honours Degree in Economic History, had relevant work experience, and extensive service as an elected member dating back to 1979 which included the chairmanship of major decision-making bodies.  Prior to his appointment as a director of the Campsies Centre Cumbernauld Ltd the respondent served on the Boards of three organisations, including Cumbernauld Development Corporation. This record was not supportive of the complainant’s assertion that the respondent lacked qualifications and experience.

20. The issue of financial remuneration was originally proposed to the Board by Councillor McCulloch and intended to apply to all six directors.  The justification for such payment was however restricted to the Chair, being the respondent, who, it was stated, would require to spend considerable time on company duties.  Clearly the remuneration could only be paid from the company funds and was permissible under the Articles of Association. It should be noted however that the proposal itself did not originate from the respondent and that the decision as to payment was referred to the Council (in its capacity as sole shareholder), firstly for advice as to the appropriate level of remuneration, and secondly for approval to make such payments.  I did not consider that acceptance of a payment which had been recommended for approval by a professional officer and was broadly in line with that paid for similar public appointments could be regarded as conflicting with the Code.  The decision itself was entirely within the remit of the Council acting as sole shareholder.

21. In regard to the appointment of Councillor McCulloch to chair the meeting on 29 October 2007 during the discussion of payment to the respondent, the respondent took the view that he should withdraw from the meeting during the discussion of remuneration to the Chair, and it was therefore necessary to appoint one of the remaining directors to the Chair in his absence. While no criticism could be made of Councillor McElroy in this respect, I did not however consider that this was a necessary step.  Paragraph 5.8 of the Code permits discussion by councillors on their own allowances or services provided to them without the necessity of declaring an interest and this principle can be extended to outside bodies.  It should be noted, however, that the directors were being called upon to consider the remuneration issue as individual directors and required in that capacity to apply their minds to the interests of the company rather than be unduly influenced by political allegiance.  There was no evidence that the respondent’s selection of Councillor McCulloch was motivated by self interest. I therefore concluded that the respondent had not breached the key principle of Duty, and found accordingly.

22. Selflessness: The complainant asserted that the respondent’s acceptance of remuneration for his role as Chair was motivated by self-interest which as I have stated above I considered to be an unjustified assumption.  The complainant went on to suggest that further weight to his assertion was provided by the backdating of the payment to 17 May 2007 when the respondent was appointed as Chair, and the acceptance of that backdated payment by the respondent despite his admission that he had undertaken none of the duties on which the payment was based during that period.

23. This element of the complaint required to be supported by robust evidence as to the terms under which it was agreed to remunerate the respondent, and whether he had complied with these terms to the extent necessary to justify the payment.  

24. It was by no means clear that the respondent’s remuneration required to be justified by the performance of specific duties.  The respondent provided information as to duties undertaken and presented a report on his activities as a standing item on the agenda for Board meetings.  No evidence was adduced to show that the respondent had failed adequately to undertake his role as Chair and/or that he had neglected to carry out his functions.  It was a matter for the Board and the Council as sole shareholder to assess the performance of the Chair.  The backdating of the respondent’s payment to 17 May 2007 was approved at the meeting of the Board of Directors on 20 March 2008 without demur from the complainant.  I did not consider that the key principle of Selflessness had been breached by the respondent and I found accordingly.

25. Integrity: The complainant alleged that the respondent’s performance as Chair of the Board of the Campsies Centre Cumbernauld Ltd was influenced by its remunerated status.  In support of this he referred to the meeting of the Board on 24 January 2008 when he alleged that Councillor McCulloch acted in a threatening and abusive manner towards him.  The failure of the respondent to intervene, his refusal to comment on the matter at the meeting on 20 March, and exclusion of reference to the matter in the minutes, were, in the complainant’s view, indications that the respondent was influenced by Councillor McCulloch’s part in the decision to remunerate his role as Chairman.

26. The role of the Chair is essentially to ensure the efficient conduct of the business of the meeting, to ensure that those in attendance are afforded sufficient opportunity to contribute to debate, and to exercise a disciplinary control over the meeting.  The precise manner in which the Chair exercises these functions is very much a matter for judgement in the light of the particular circumstances of, and to some extent the character of, those participating in the meeting.  Clearly some conduct will be inappropriate and require intervention but critical comment may be justified and permissible.  The interpretation of comments, or the tenor in which they are expressed, may differ depending on the stance of participants or witnesses and it is not my role to opine on these from a historical perspective or attribute a particular motivation to the response of the Chair. There was no substantive evidence to the effect that the respondent acted without integrity and I therefore concluded that he was not in breach of the Code in that connection.

27. Accountability and Stewardship: The complainant made no specific allegation in relation to this key principle but expressed a view that the alleged breaches of the other principles cited also impacted on the observance of Accountability and Stewardship.  As I had found that breaches of the other key principles had not occurred it followed that the respondent had not breached the principle of Accountability and Stewardship.  I found accordingly.

28. Openness: In support of this aspect of his complaint Councillor O’Brien pointed to the respondent’s part in threatening to report the complainant to The Standards Commission if he did not apologize and withdraw his comments.  The complainant also alleged that Councillor McElroy collaborated with other directors who were members of the Labour Group to censor the minutes of Board meetings to remove damaging material.  As evidence of this Councillor O’Brien pointed to the minute of the meeting of 20 March 2008 which excluded mention of critical comments made about him by another director, and a motion passed to record only the decisions of the Board without reference to prior discussion in subsequent minutes.  The complainant also cited the respondent’s refusal to answer questions about his background and experience as showing a lack of openness.

29. The consideration of reporting the complainant in relation to his comments was open to the respondent and I did not consider that this impacted on the key principle of Openness in any way.  The precise format and contents of the minutes of Board meetings were a matter for the directors and provided they adequately disclosed the business conducted it was not necessary to make a verbatim record.  The style of minute kept by the Board of the Campsies Centre Cumbernauld Ltd had tended towards a verbatim record, and the adoption of a more abbreviated format was both in line with other comparable Council bodies, and acceptable as a record of business.  I did not consider that the respondent was under any obligation to answer questions about his background and experience in relation to his appointment as Chair, although such information might have been helpful in establishing his qualifications.  I did not consider that the respondent had breached the key principle of Openness and found accordingly. 

30. Honesty: No evidence was adduced to show that any relevant interest had not been declared, or that the respondent’s declared interests conflicted with his role as a director and Chair of the Campsies Centre Cumbernauld Ltd. I accordingly found that the respondent had not breached the key principle of Honesty.

31. Leadership: I did not consider that there was any evidence that the respondent had breached the key principle of Leadership in relation to the circumstances of this complaint, and found accordingly.  It was essential however that, while acting in his capacity as a director of the Campsies Centre Cumbernauld Ltd, the respondent (and his fellow-directors) should draw a clear distinction between that role and their status as elected members of the Council.  The split in political allegiance between the members highlighted this point, and as Chair the primary responsibility was on the respondent to ensure that a perception did not arise that his own actions, and those of the other directors, were being improperly influenced by political considerations. The fact that the Council held all the shares in the company did not alter this responsibility and the directors should apply their minds independently to the interests of the company and irrespective of political considerations.

32. General Comment

As detailed above I found no evidence that the respondent, acting in his role as a director of the Campsies Centre Cumbernauld Ltd, had breached any substantive term of the Councillors’ Code of Conduct.  The complainant had attempted to attribute motivation prompted by self-interest or political allegiance on the part of the respondent, (as was also the case in his related complaint against Councillor McCulloch) but in the absence of specific evidence to establish this, the complaint relied on interpretation rather than fact.  The reality was that the Board of Directors of the Campsies Centre Cumbernauld Ltd was made up of six members who were drawn from the Labour and SNP political groups on the Council, and it was difficult to distinguish this political affiliation from their separate and non-political role as directors and in particular their ability to act as a cohesive Board.  I noted and endorsed the attempts by the Company Secretary to remedy this by arranging training sessions and encouraged the Board as a whole to strive to achieve a modus operandi that acted in the interests of the company.

33. Having considered the information that arose from my investigation, I concluded that Councillor Gerard McElroy had not contravened the Councillors’ Code of Conduct.

D Stuart Allan

Chief Investigating Officer

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