Purpose

1 The purpose of these guidelines is to assist departments and Crown entities (host organisations) with the management of leased executives.

Background

2 It is not uncommon for a host organisation to enter into executive leasing arrangements with agencies. Often leased executives are sought to fill gaps in senior positions at times when other options are not considered to be flexible enough to meet the work demands of the host organisation.

3 The reasons for obtaining a leased executive may be well founded. However the situation can result in leased executives increasing their knowledge base with little or no knowledge retention, in people capability terms, to the host organisation. As the leased executive is not an employee there are few incentives to ensure that the expertise within a host organisation is developed formally.

4 Risks may arise when the host organisation and the leased executive are embroiled in disciplinary or performance issues. Current practice suggests that in some instances, a lack of clarity about accountability arrangements can lead to untenable relationships between the host organisation and the agency, the agency and the leased executive, and the host organisation and the leased executive. In particular, the usefulness of the leased executive option is diminished when the host organisation cannot terminate the arrangement readily.

5 One way of mitigating potential risks is for the respective parties to provide each other with explicit assurances about the three-way relationship for disciplinary and performance purposes.

6 As a result of the Government raising concerns about leased executive arrangements, the State Services Commission has prepared these guidelines for departments and Crown entities (host organisations).

Focus

7 It is in the interest of departments, and through them Crown entities, to develop risk management processes which:

• explicitly assess the costs and benefits of any executive leasing proposal against alternative ways of obtaining the necessary services with particular attention to full-time or part-time employment options (both permanent and fixed term);
• ensure that, as well as a lease agreement with the leasing agency, there is also an agreement between the host organisation and the leased executive which clearly sets out the requirements that the leased executive must meet while working in the host organisation - the two agreements need to be consistent;
• provide for regular (quarterly) review of the nature and justification of the leased executive arrangement, including a review of costs; and
• ensure that where leased executive arrangements are used to redress skill shortages, the transfer of skills and capabilities is a key responsibility of the leased executive.

Definition

8 A leased executive is a contractor who has entered into a contract with an executive leasing agency or management consultancy. That agency in turn has a contract with a client (host organisation), which is charged for the cost of the executive including a fee for administering the service.

Relationships

9 The diagram below shows that a three-way relationship exists between the host organisation with an agency and a leased executive. The main features are:

• there may or may not be a formal agreement between the host organisation and the leased executive;
• it is normal practice for the leased executive to enter into a formal and legally binding contract with the leasing agency or management consultancy; and
• it is normal practice for there to be a leased executive agreement between the host organisation and the agency.

Advantages

10 An executive lease may provide a timely response to pressure points, which need to be addressed quickly. The quality of the placement is assured by the agency so that the risk in employing someone in a hurry, on a short-term contract, is reduced.

Disadvantages

11 Leased executive arrangements make it difficult to build the capability of senior management in the Public Service and State sector especially when a highly skilled part of the labour market prefers this kind of arrangement rather than permanent employment.

12 The arrangements are by definition temporary and often there is little emphasis on transferring skills to the host organisation.

Justification

13 The use of a leased executive may be appropriate when:

• there is a need for short-term coverage during the absence of staff with skills critical to the organisation and where the skill capability is not immediately available in-house;
• there is a need for additional management resource around the introduction of new initiatives where in-house capability is not sufficient;
• there is a need for particular expertise, which is not readily available through any other source, or on any other basis;
• there is a need to retain flexibility until major decisions are made; or
• there are other reasons that outweigh the government's expectation for building the capability of the Public Service and State sector, the fiscal cost, and the management implications.

14 Whenever possible, before entering into leased executive arrangement, a host organisation should consider whether there are employees or potential secondments within the Public Service or Crown entities that can fill the skills gap, or, whether the host organisation can enter into a direct contractual relationship with an individual.

15 The expectation in the normal course of events is that these arrangements are for a short and limited period.

Management Practices

16 The host organisation should be able to assess the risks and rewards of engagement with a well-informed marketplace that can organise and offer opportunities to use leased executives. A clear understanding of the leased executive market is essential in order to assess and compare the benefits of a leased executive arrangement with other options.

17 A host organisation can benefit from the following management practices when leasing executives from an agency:

• a very clear agreement between the host organisation and the agency supplying the leased executive, relating to work requirements, quality assurance, checking any conflict of interest (as between the particular leased executive and the host organisation), duration of agreement and provisions for extending the term if any, termination of the agreement (e.g. where the leased executive does not meet the requirements of the host organisation for whatever reason), and payment for the services provided;
• a very clear written statement recording any work-related requirements that the leased executive will be expected to comply with while working in the host organisation. This agreement should not be inconsistent with the agreement between the host organisation and the agency and should be attached to the agreement with the leasing agency so that all parties know what is going on;
• the statement could include the following:
• the task(s) or job the individual is to perform and the time period this will take;
• who the individual is to work with or to in the host organisation;
• what to do, who to advise, and when, if the individual is unable to work because of illness or other difficulty;
• any arrangements for termination of the lease as a result of disciplinary, competency or other issues (Note - the individual is not an employee of the host organisation so it is termination of the lease arrangement with the agency that needs to be provided for);
• requirements for compliance with any code of conduct - the Public Service Code, departmental or Crown entity-specific code - and any relevant policies and procedures (e.g. health and safety requirements and security arrangements);
• confidentiality requirements; and
• requirements for disclosure of any conflict of interest arising during the term of the agreement.

Note: host organisations would need to be very careful about the wording of the statement, and its implementation, to ensure that it cannot be construed as an employment agreement (e.g. see definition of employee in section 6 of the Employment Relations Act).

Conclusion

18 The use of leased executives may be justified in specific circumstances. However, host organisations should be mindful of the government's intention to strengthen the capability of the Public Service and State sector and, if that cannot be achieved by employing and training employees, then any leasing of executives should include as one of its requirements, the passing on of knowledge to employees of the host organisation.

(Note: legal advice should be obtained before entering into any leased executive arrangement.)

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