Councillor Sandy Cluness told a public inquiry, ordered by the Accounts Commission into the departure of chief executive David Clark, that there had been failings during the recruitment of Mr Clark, a business consultant with no previous experience working for a public body.
During his brief tenure in office Mr Clark was the subject of an internal inquiry about an alleged threat to a Lerwick councillor and a drinking session in his office with a former business associate. Mr Clark was also the subject of a 20-point complaint signed by six of the council's 22 members.
The Accounts Commission hearing in Lerwick was also told that the islands council had a proper system for appointing staff for everyone except the chief executive.
As a result no external consultant was asked to help recruit Mr Clark, advice from personnel managers was ignored, and the whole council carried out the interview.
Mr Cluness accepted this was "not good enough". And he told the hearing: "I can assure this commission and the people of Shetland that, in that respect at least, lessons will be learnt and any recommendation made by your commission will be implemented to the letter."
Mr Cluness added that it became impossible to pursue the complaint made by the six councillors against Mr Clark because it had been immediately leaked to the local media.
This, he said, led to advice that Mr Clark would have a strong legal case if the council tried to take disciplinary action and dismiss him.
Instead, the council called in local government umbrella group COSLA to help them reach a negotiated settlement that led to Mr Clark leaving office with A 250,000 lump sum and three months' pay, with the council covering his legal costs and his tax bill.
Mr Cluness told the hearing he would take legal advice on whether full disclosure of the settlement would be possible.
He added: "Clearly it was distressing that such a sum would have to be paid. Nothing would please me better than having this whole information in public."
Mr Clark is expected to give evidence to the inquiry when the hearing resumes today.