The recommendation was made in a report by the spending watchdog, which also found that financial constraints are having an impact on how public facilities are being run.
The report by Audit Scotland said there were “risks” of conflicts of interests when councillors or council officers took positions on ALEO boards.
The report highlighted an instance where an Edinburgh council officer had been in a “difficult” position concerning the sale of assets from an ALEO back to the local authority.
As an ALEO director his objective was to achieve the best price for the company, but as a council officer he had a duty to achieve value for money. As a result of the conflict of interest, Council officers are no longer nominated as directors
The report found that few councils had laid down guidelines on how councillors or officers should be involved in ALEOs.
It recommended that councils introduce processes to manage conflicts of interest and clearer criteria on how their involvement and how the risks should be managed.
Audit Scotland also said councils had to be aware of risks associated with ALEOs and cited examples where there had been governance or operational issues.
They included East Lothian Council and the Lothians Racing Syndicate Ltd (LRS) jointly commissioning an independent governance review to evaluate the Musselburgh Joint Racing Committee, and operational matters relating to the conduct of business at the racecourse.
The Musselburgh Joint Racing Committee is responsible for the management of the council-owned racecourse.