The Thompson & Clark scandal has claimed its first scalp with the resignation of Southern Response chair Ross Butler.
Butler has stood down before a planned 'please explain; meeting with Greater Christchurch Minister Megan Woods on Tuesday night.
It came after an unflinching State Services Commission report detailed how the private investigation firm spied on Canterbury earthquake victims, at the behest of the government-owned insurer.
State Services boss Peter Hughes laid a complaint with police after it emerged an unlicensed investigator attended and recorded meetings with disgruntled claimants.
"A short time ago, I received the resignation of the chairperson of the Southern Response Board, Ross Butler," Woods said in a written statement on Tuesday night.
"Mr Butler has also resigned from his roles on the boards Otakaro Ltd and Regenerate Christchurch.
"The actions by Southern Response revealed in today's [Tuesday's] report do not meet my expectations as Minister.
"I acknowledge that Southern Response originally hired Thompson & Clark out of legitimate concerns for staff health and safety. That is appropriate. Every New Zealander has a right to be safe at work.
"What the report makes clear however is as the process went on, surveillance was increasingly used as a tool for reputation management, not for the protection of staff safety.
"Secretly infiltrating private claimant meetings and recording closed door conversations without anyone's knowledge are not appropriate ways for Government entities to manage their reputations.
"These actions were wrong, plain and simple. They are unacceptable to me and unacceptable to this Government.
"New Zealanders need to be able to trust that covert surveillance is only ever used in the public interest, with appropriate safeguards and to the highest ethical standards."
Woods said she would appoint an interim chair in the next few days.
A report by former deputy State Services Commissioner Doug Martin and Simon Mount, QC, revealed that Southern Response hired Thompson & Clark between 2014 and 2016, after a series of threats to staff.
They attended several meetings of disaffected claimants, which were recorded without consent. The meetings were for claimants only and two were led by lawyers to discuss strategy and legal options.
The private security firm provided Southern Response with a transcript of comments made at one of the meetings. But the investigator was unlicensed - a potential breach of laws governing private investigators.
The report's authors found Southern Response in breach of a state service code of conduct, because it allowed the snooping to continue without proper controls.
"The use of a recording device involved an element of surveillance, and the contractor's implied representation that he was a claimant perhaps even bordered on infiltration," the report said.
They said Southern Response's health and safety concerns for staff didn't justify the surveillance and they should instead have called in police.
The privacy breach was revealed earlier this year - and sparked the State Services Commission inquiry.
The scathing inquiry report also detailed a slew of revelations about the use of private investigators by government agencies.
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