The importance of failing well

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The importance of failing well

Seriously, if I hear the words ‘lesson’ and ‘Cosmopolitan’ in the same sentence again I might just choke on my muesli.

Nonetheless, the sector is undoubtedly flexing and adapting to the new realities. Just a few years ago, the concept of charitable social housing organisations engaging in hard-nosed commercial enterprise was restricted to a very small minority of organisations. Now, in the post-grant world, most organisations would, at least, have had the discussion about how to achieve and enhance their strategic objectives without state-provided capital injections. Most, but not all, would have come to the conclusion that operating in the commercial space for activities that appear to have a cross-over into the core competencies of a housing association (such as development for sale, student housing, private sector renting) would seem to be the logical choice.

Leaving to one side for a moment the huge and unsubstantiated assumptions that underpin that particular logic – as they have been well considered elsewhere and will continue to be so – it is the case that many organisations have already made their first significant forays into commercial activities. Many more will follow. For those organisations the question is how will organisational and governance design mitigate the risk of failure. And let’s be clear – at some point some commercial enterprises run by housing associations will fail. If that were not true, it would mean that the sector had found a way to run risk-free commercial entities that would never fail; a really neat trick if it could be pulled off.

The regulator has recently consulted on the question of ‘living wills’. In other words if it all goes completely wrong, you’ve worked out in advance what the plan is. However it would seem sensible that the first approach to mitigating the risk of commercial failure is to ensure (as far as possible) that there are appropriate legal, constitutional and governance ‘fire-breaks’ in place that insulate the rest of the organisation from the impact of the commercial failure; think amputation rather than death. That way the value-at-risk can be quantified and isolated, leaving the rest of the organisation with the social purpose relatively protected.

So now is the time for boards to be asking those searching questions of their executive – what would happen if our commercial entity did fail spectacularly? How have we designed our business for minimising the impact? How can we be assured that those design characteristics would work as planned?

On a final point, if any board member has already asked these questions and been re-assured that there is no risk (or even if there is, that it was minimal and nothing to worry about) could you let us know please? The queue of investors for risk-free commercial ventures is likely to be a long one and we’d like to be near the front of the queue – unless, of course, it involves a goose and golden eggs.

Mark Sweeny. Mark can be contacted on 07887 512165, mark.sweeny@nullaltairltd.co.uk