Independent reviewer Warren Larsen said some councillors had a "poor" record of turning up at what he described as important meetings relating to the companies.
"They are, after all, representatives of the owners."
Mayor Dave Cull said yesterday there were meetings when "few" councillors turned up, but suggested it was more formal communication between the company and the council that was the problem.
The report, released publicly on Thursday, follows confirmation recently there was an annual $8 million shortfall in the expected dividend to the council from the companies.
It noted a series of "key governance issues" within the group of companies, and the council, that emerged from "an analysis of the current dysfunctional behaviours within the DCC group".
Key information on important issues was often held by a small group of individuals and not appropriately shared.
"Internal and external communication processes are poor.
"For example, some elected councillors have a reasonable awareness of financial matters related to [the] DCC.
"Others certainly do not.
"This position represents an ongoing external communication and adverse publicity threat to [the] DCC.
"Key participants are not part of the existing communication 'loop'.
"In the current situation this type of behaviour could easily become hostile for [the] DCC and very difficult to manage."
Mr Cull responded yesterday there had been occasions where the board of DCHL had made presentations, and "few councillors turned up".
The import, though, of the Larsen report was that formal communication with the council was not as good as it should have been.
"That being the case, it [information] may only have got to some people."
Mr Larsen's report said internal conflict existed about the ability of DCHL to meet the council's cash demands, which led to a breakdown of trust with council management "partly as a result of a belief by the latter that if enough pressure is applied, extra cash can always 'be found' as past practice has allegedly shown".
Communication within the council - between councillors, staff and the companies - needed to be substantially improved, as did formal reporting between DCHL and companies, the finance, strategy and development committee, and the council, the report said.
"For example, historical attendance records of elected councillors, at such important meetings, are viewed as poor."
Councillors needed to be encouraged to participate fully in a revised process.
The council has blacked out some sections of the report it released publicly, including part of Mr Larsen's discussion on the skills needed by directors.
His report suggested the skill base at present was strongly weighted towards accountancy and financial abilities, rather than the actual activities of the companies.
The new board should include financial skills, as well as engineering, infrastructure, property development and "extensive business experience".
The key requirement was proven business and governance experience, the report said.
The next sentence, though, was blacked out.
