Does Governance Matter?

Governance is…“the systems and processes concerned with the direction, effectiveness and accountability of an organisation”

or as described by Scottish Housing Regulator

“arrangements for leadership, strategic direction and control of a housing association.”

◦Introduced by Housing (Scotland) Act 2010

◦Applied from 1 April 2012◦Set out constitutional requirements

for Associations◦New model rules needed to reflect

new requirements◦Removed Schedule 7◦Set out regulatory standards of

governance and financial management

SHR – New Regulatory Framework

The Committee leads and directs the Association to achieve good outcomes for its tenants and other service users

Regulatory Standard 1

The Association is open and accountable for what it does. It understands and takes account of needs and priorities of its tenants, service users and other stakeholders. Its primary focus is the achievement of these priorities.

Regulatory Standard 2

The Association manages its resources to ensure financial well being and economic effectiveness.

Regulatory Standard 3

The Committee bases its decisions on good quality information and advice and identifies and mitigates risks to the Association.

Regulatory Standard 4

The Association conducts its affairs with honesty and integrity.

Regulatory Standard 5

The Committee and senior staff have the skills and knowledge they need to be effective.

Regulatory Standard 6

◦ Guidance is given on each standard much is generic…due regard to need to

advance equality some more specific…must have

procedures to whistleblow if fraud and other wrongdoing suspected

◦ Payments and benefits policy required (as replacement for Schedule 7)

◦ Payment of committee members now possible

◦ Employees on committee now possible

How do the Regulatory Standards impact on HAs? (1)

◦ Committee succession planning now required

◦ Committee annual performance review now required

◦ Review of committee members who have served 9 years

◦ Requirement for code of conduct for committee and staff

◦ Rules must include constitutional requirements

How do the Regulatory Standards impact on HAs? (2)

“We will take action and may, if necessary, use regulatory intervention to safeguard the interests of tenants and other service users…”

“Our decision on what action or intervention to take will be based on the extent and nature of the failure to comply with the Regulatory Standard and guidance”

How will the Regulator regulate? (1)

“RSLs must notify us immediately if there is, or likely to be, a failure to comply with Regulatory Standards and guidance or breach of code of conduct.”

“Auditors to disclose if significant failure to comply with Regulatory Standards and guidance or a significant breach of code of conduct”

How will the Regulator regulate? (2)

◦Commitment to the organisation and the community

◦Partnership between Committee and senior staff

◦Mutual respect between Committee and staff

◦Recognition of different roles: Committee priority is overall policy and strategy Staff must implement agreed policies and

decisions Staff should advise, guide and recommend Committee must debate and decide

An alternate view of good governance

Key Issues

Governance problems almost always ‘people’ related

Policies, procedures and ‘bits of paper’ do NOT good governance make, or at least not on their own

Relationship between governing body and senior staff is vital

What happens when staff do not have the right skills?

What happens when Committee’s don’t have the skills or knowledge to deal with this?

How does our ‘governance’ work?

• With a Committee made up of tenants and local residents

• With a Committee made up of tenants and local residents• In pretty much the same way as

has been done for over 30 years

How does our ‘governance’ work?

• With a Committee made up of tenants and local residents• In pretty much the same way as

has been done for over 30 years• Who must live in our area

How does our ‘governance’ work?

• With a Committee made up of tenants and local residents• In pretty much the same way as

has been done for over 30 years• Who must live in our area• Who meet very often

How does our ‘governance’ work?

• With a Committee made up of tenants and local residents• In pretty much the same way as

has been done for over 30 years• Who must live in our area• Who meet very often• Who have individually been

doing this for many years

How does our ‘governance’ work?

• With a Committee made up of tenants and local residents• In pretty much the same way as

has been done for over 30 years• Who must live in our area• Who meet very often• Who have individually been

doing this for many years• Who don’t get paid

How does our ‘governance’ work?

A typical Committee

Strengths:

Strong commitment to the communityStrong links with the communityLongevity on Committee – lots of committee and

organisation experienceWillingness to be there when neededGood life skills and experienceConfidence in areas that reflect their strengthsStrong ‘emotional’ ownership of the organisationGenerally speaking, maturity!

A typical Committee

Weaknesses:Similarity of background and work

experienceLack of ‘other’ management or

organisational experienceLack of financial knowledgeLack of confidence with financial issuesRelative maturity! Strong links to one

strand of community but not others?

Balancing the two• External skills vs community commitment• Longevity vs ‘newness’• Trust vs challenge

• Is there some mechanistic answer?• Might the balance in one organisation be

different to the balance in another?• Identifying what’s ‘wrong’ is often easy …

but usually in hindsight• Knowing what’s ‘right’ often only

happens when it goes wrong!

What about senior staff?

Character and culture of an organisation heavily dependent on senior staff

Relationship with Committee fundamental to effective working

Trust and confidence are critical:◦ Easy to say it can be too close◦ There is no simple slide rule answer on this

Many senior staff are greatly experienced but this means age/maturity an issue within the sector

Issues for nowHow do we:

◦ Make best use of our strengths?◦ Address our weaknesses?◦ Ensure new members come forward?◦ Plan for the future?◦ Ensure we have the right skills and

knowledge to do the job?◦ Can we do this within our current Rules and

structures?

The Association is a Person!

◦The Association has its own legal personality can own property enter into contracts sue and be used responsible for own debts and liabilities

◦Members have limited liability

Legal Risk Areas◦Permitted activities for housing

associations◦Charity law and tax rules◦Bribery Act◦Health & Safety◦Equality Act

Personal liability of Committee Members (1)

◦Negligence/failure of duty of care Authorising payments outwith

appropriate process Failure to report dishonesty

◦Fraudulent trading Intention to defraud association’s

creditors Intention to defraud another person’s

creditors

Personal liability of Committee Members (2)

◦Wrongful trading Trading when knowing heading for

insolvency◦Breach of duties◦Acting outwith scope of Rules◦Misconduct under charity legislation

Charity Law Duties for Committee Members

◦Act in the interests of the Association◦Operate in a manner consistent with its

rules◦Act with care and diligence of one

managing the affairs of another◦Ensure the Association complies with

the Charities Act and all other relevant legislation

Recognised Governance Hazards

◦Committee members unwilling or unable to take responsibility and exercise control

◦Failure to match skills and knowledge to activities

◦Failure to seek advice when required◦Failure to keep governance structures

up to date◦Conflicts of interest◦Disqualification of committee members

In practice …We have a system of Regulation based on RISK

What does that mean?◦ It means the onus is on RSL’s to get it right …◦ That we must demonstrate to the Regulator

that we have got it right◦ Failing which the Regulator then acts …. Which

in the current climate can often be catastrophic for the Association

◦ So what are the Risks out there?

Challenges and Risks

Are we responding well …?◦Are our Committee structures

robust?◦Are there risks that we can ‘manage

out’?◦Do we need to change our character

and structure to cope with these changes?

◦Evidence is that some of us are not doing too well …

◦But that most of us are coping

Responding to risk

Regulator’s response?

Most of the focus is on internal governance

Do committees have the right skills, the right people?

What is the relationship between senior staff and committee?

Are senior staff being paid too much? Are Governing Bodies challenging

enough? ‘Governance Matters’ and other Advice

Notes all focus on internal issues

Most of the BIG issues are externalHow many of these issues can be sorted

by ‘Good’ as opposed to ‘Bad’

governance?

How many of these issues would be

addressed if RSLs simply stop doing

things?

Is an RSL that doesn’t build,

doesn’t borrow and does as little as possible a ‘well governed’ RSL?

Regulator’s response?

So how do we respond?Is the Regulator getting it right?

◦ Focus is on individual organisations dealing with systemic issues

◦ Given that, should we all just accept that a percentage of failure is inevitable?

◦ After all, what did corporate governance standards do for the Banks?

Doing our job involves risk. Managing that risk doesn’t mean removing it entirely. Easiest way to not get it wrong is to

do nothing.

An alternative?

Is our regulatory structure right?◦Government sets the standards – the

Social Housing Charter◦Regulator ‘regulates’ against those

standards on behalf of tenants◦Should there be someone looking out

for the sector? ◦Or is that irrelevant?

An alternative?The alternative is that the Regulator and/or the Government takes a wider view?

Does the sector have the right structures to deal with the current environment?

Is the nature of the landlord – big, small, tenant led, professional committees – a value free question?

Should there be clearer limitations on what we can and cannot do?

Should the Regulator take a more interventionist stance?

Should there be a presumption behind the intervention eg helping the organisation?

How did most of us grow and get better?

◦ Lots of development funding from Government◦ Promoting housing associations was seen as a

‘good thing’◦ Growth in numbers and capacity through stock

transfers: Scottish Homes Councils and finally GHA

◦ Increasing statutory and regulatory demands: Tenant demands and expectations Tenants rights to Social Housing Charter

◦ Increasing financial demands: 30 year Business Plans are required by the Banks but

not by the Regulator

An alternative?Reality is that there are choices to be made:

More supportive regulatory structure implies a more prescriptive one – ‘this is the way its done’

Greater freedom of action means dealing with the risks involved

Might there be gradations of freedom and risk? If so, how will we grade, what would be

allowed/not allowed Just because the current structure has been in

place for a while doesn’t mean it’s the best structure