An Audit Commission corporate assessment found Leicester was performing adequately but warned that capacity problems at the top were hampering its ability to deliver on its plans.
It said: “Recent managerial changes are challenging the council’s capacity at a senior level.”
Auditors also found Leicester’s “application of the ethical governance framework and standards is unsatisfactory”, and called for an immediate end to the practice of cabinet members doubling up as members of regulatory committees.
Chief executive Rodney Green and adult and housing services director Mike Forrester announced their retirements in January after an audit had criticised contracting in housing services, though without ascribing blame to either man.
Bradford performance dips
In other Audit Commission reports Bradford City MDC's leadership has deteriorated with the council performing only "adequately".
Areas attacked included housing and improving the eco credentials of its transport system while inspectors said councillors should be more involved in managing the council's performance.
The council insisted the downgrading was because the test has been made tougher but added that inspectors found it was "moving quickly in the right direction".