Why Culture and Engagement Are Strategic Imperatives for Local Governments

A CompassPoint Advisory perspective on Gallup's ANZ Local Government Report 2026

Gallup's Local Government at a Turning Point: Evidence and Insights From Councils Across Australia and New Zealand (2026) is one of the more important pieces of sector research to land this year. Drawing on World Poll wellbeing data and candid interviews with 33 council chief executives, general managers and directors across both countries, it sets out — with unusual clarity — a structural challenge that will define the decade ahead for local government.

At CompassPoint Advisory, we read the report through a strategy lens. And the strategic conclusion is striking: the pressures bearing down on councils are largely financial and structural, but the most durable levers available to leaders are organisational and cultural. The institutions that navigate this turning point well will be those that treat customer engagement, employee engagement and workplace culture not as soft adjacencies to strategy, but as the strategy itself.

The structural squeeze

The headline tension is one of mandate outpacing capacity. Australian councils manage roughly 32% of the nation's public infrastructure and 75% of its roads, yet receive only 3.6% of national tax revenue. In New Zealand, inflation-adjusted sector debt has risen 226% since 2009, while rate revenue has grown just 42% over the same period. Councils are being asked to deliver an expanding remit — social, environmental and economic — on a revenue base that has not kept pace.

This is the textbook definition of a productivity problem: more obligations, fewer resources, and rising community expectations. Importantly, much of the gap is driven by factors outside any single council's control — cost-shifting between tiers of government, reform agendas, rate constraints and inflation. Gallup is candid that councils cannot close this gap through their own efforts alone.

That candour matters strategically. When a meaningful share of the pressure is external and structural, the question for leaders becomes sharper: where can we actually exert leverage? The report's answer — and ours — is that the highest-return ground is the experience councils create for the residents they serve and the employees who serve them.

Residents are sending warning signals

The customer side of the ledger is flashing amber. Resident satisfaction with their city or area sits at its lowest point in nearly two decades, according to the Gallup World Poll, and younger residents are notably less satisfied than those aged 35 and over — a gap that is widening. Confidence in the local economy has fallen too: the share of ANZ adults rating economic conditions as "excellent" or "good" dropped from 69% in 2020–21 to 55% in 2025.

Performance indicators tell the same story. In Victoria, the State-wide Council Performance Index has fallen from 61 in 2021 to 53 in 2025 — the lowest reading since the series began in 2012 — and the share of residents rating their council's overall performance as "good" or "very good" has slipped from 50% to 38% over the same period. Across 21 New Zealand councils, fewer than six in ten residents, on average, believe their district is heading in the right direction. OECD data puts trust in local government at around 50% in Australia and 45% in New Zealand.

There is also a harder edge to the trust story: rising incivility, disinformation and harassment directed at elected members and staff, increasingly amplified by digital platforms and AI-generated content. Beyond the human cost, this diverts scarce resources toward safety and legal protection and erodes the constructive relationships on which civic life depends.

The strategic read is that resident satisfaction is a leading indicator, not a lagging one. Declining confidence shapes how residents experience every interaction, how willingly they engage, and how much latitude they extend to councils making difficult trade-offs. Customer engagement, in other words, is becoming a precondition for governing effectively — not a communications afterthought.

The engagement gap inside the workforce

If residents are the customers, the workforce is the engine — and here the report is most sobering. Only 39% of local government employees are engaged, compared with 48% across the broader regional benchmark. Almost half (48%) are "not engaged", and 13% are actively disengaged, against a regional figure of 10%. Set against a backdrop where the working population's wellbeing has fallen to its lowest in over a decade — with 55% now classified as thriving — the consequences for service delivery are direct and compounding.

This is the crux of the strategic argument. Councils facing a productivity crisis cannot afford a workforce in which engagement runs below the wider market. Disengagement shows up as lower discretionary effort, weaker service quality, higher turnover and greater difficulty attracting scarce talent — precisely when capacity is already stretched. Engagement is not a wellbeing nicety; it is operating leverage.

The bright spots are a strategy playbook

Encouragingly, Gallup's interviews surfaced four "bright spots" that point directly to where leaders can act. We read them as an evidence-based playbook for engagement-led strategy.

First, leader impact: most council leaders attribute their effectiveness to their own actions and behaviours rather than the formal authority of their role. Influence is earned at the level of everyday conduct — a reminder that culture is set in behaviours, not org charts.

Second, talent that stays: councils competing for scarce skills found that the most effective retention strategy was not external recruitment but developing the capability of the people they already had. Investing in existing talent compounds; chasing a thin external market does not.

Third, communication and recognition: leaders were emphatic that both must be consistent, visible and reciprocal to lift the employee experience and organisational performance. Recognition that is specific and timely — and a genuine two-way communication loop — provides daily, tangible proof that work matters.

Fourth, human-centred technology: the strongest leaders treat technology, including generative AI, as a deliberate choice — making tools available, allowing staff to experiment, and redeploying people toward higher-value work, while ensuring adoption moves no faster than systems and the workforce can absorb.

Running through all four is a single thread: the manager. Gallup's evidence repeatedly returns to the frontline manager as the point at which strategy either translates into engagement and service, or fails to. The report's five priorities — equip managers, close the communication and recognition loop, build a culture that promotes wellbeing, make talent development a daily habit, and build readiness to adopt new technologies — are, in effect, instructions for strengthening that translation layer.

The CompassPoint Advisory view

Our experience advising organisations through periods of constraint mirrors Gallup's findings. When external pressures cannot be removed, the differentiating capability is internal: the quality of the culture, the strength of customer and employee engagement, and the effectiveness of managers in connecting strategy to daily work. You cannot restructure your way out of a trust and engagement problem, and you cannot cost-cut your way to a high-performing workforce.

For councils — and for any organisation being asked to do more with less — the strategic priority is clear. Protect and invest in the human systems that drive performance: equip your managers, build genuine recognition and communication loops, make wellbeing a designed-in feature of the operating model, and treat both resident and employee engagement as core measures of strategic health.

The gap between mandate and capacity will not close overnight, and much of it sits beyond any council's control. But the organisations that thrive in the decade ahead will be those that maximise the full potential of their people in service of the communities they exist to serve. On that front, the levers are firmly in leaders' hands.

CompassPoint Advisory partners with leaders to turn strategy into measurable performance, with a particular focus on customer engagement, employee engagement and organisational culture.

Reference: Gallup, Local Government at a Turning Point: Evidence and Insights From Councils Across Australia and New Zealand (2026) — https://www.gallup.com/workplace/711335/anz/local-council-report.aspx

TOPIC: Local Government, Culture Transformation, Employee Engagement, Leadership, Customer Engagement

Date: 25 June 2026