Governance: Codes, Conduct and Responsibilities – in Light of The Social Housing Green Paper

We work with over 300 clients in any one year. These range from the largest in the country, to some of the very smallest; from some of the oldest, traditional housing associations to some very new registered providers; from specialised supported housing providers to highly diversified commercial organisations. All have one thing in common, they are expected to have adopted a Code of Governance and to comply or explain their compliance with their adopted code. The majority of English organisations with whom we work have adopted the NHF Code of Governance (2015). However, with the publication of the UK Corporate Governance Code (July 2018), the impending publication of the Social Housing Green Paper and the recent challenge (albeit entirely one-sided) from the Channel 4 Dispatches programme to the sector in relation to its responsibilities to its communities, there is a strong argument to suggest that the current NHF Code no longer adequately serves its purpose. Instead, many of the principles in the new UK Corporate Code and the accompanying ‘Guidance on Board Effectiveness’ may help the sector to better challenge its approach to demonstrating excellence in governance.

The new UK Corporate Code focuses on five areas and a number of Principles, that it sees as crucial to effective boards and great governance.

These are:

Board Leadership and Company Purpose– The expectation is that there are a set of Principles that guide an organisation’s governance and that reporting on their compliance would enable shareholders to evaluate how the Principles have been applied. For shareholders read stakeholders in a housing association context. And although the principle of comply or explain still holds true, there is a heightened expectation of comply, or explain when you will comply, rather than explain why you haven’t. The Code describes explanations as ‘a positive opportunity to communicate, not an onerous obligation’.

The Principles state that the board should establish the company’s purpose, values and strategy, and satisfy itself that these and its culture are aligned. They also state that the board should assess and monitor culture, that it should seek regular engagement with major shareholders, and that the chair has a specific responsibility to ensure the board as a whole has a clear understanding of the views of shareholders. The debate about whether the sector has or hasn’t lost its social purpose, should by this Principle start in each organisation’s boardroom and then be reflected through engagement with stakeholders. For housing providers read residents, customers, partners, funders.

And also read staff. In the revised code there are enhanced provisions for engagement with the workforce from board level down. Increasingly nominations committees will become people committees, with line of sight on HR and personnel performance, culture and staff feedback. This is very much in line with the direction of government thinking that organisations should have a greater focus on hearing the views of staff at board level.

Division of Responsibilities- The chair and the board are expected to provide ‘constructive challenge, strategic guidance, offer specialist advice and hold management to account’. Organisations therefore need to be clear on the division of labour and the role of a non-executive director. Positive challenge and scrutiny should be a core part of a board member role.

And under Composition, Succession and Evaluation there is strong emphasis on appointments and succession plans being ‘based on merit and objective criteria and, within this context, should promote diversity of gender, social and ethnic backgrounds, cognitive and personal strengths’. The Principle specifically states that annual evaluation of the board should consider its ‘composition, diversity and how effectively members work together to achieve objectives’. And in its annual report, the organisation should be ‘transparent in its reporting on performance, including its policy on diversity and inclusion, how it has implemented and progress on achieving the objectives’. The challenge to the sector has been made through a number of reviews, including the Altair review of diversity in sector leadership – and there is a general acknowledgement that more needs to be done.

Audit, Risk and Internal Control – a fair, balanced and understandable assessment of the company’s position and prospects is the requirement. This chimes with the Regulator of Social Housing requirement that the value for money assessments speak on the areas for improvement, not just the areas of success. Transparency is the watchword here.

Remuneration – Formal and transparent processes are key. ‘Directors should exercise independent judgement and direction when authorising remuneration outcomes, taking account of company and individual performance, and wider circumstances’. Key amongst these must be both effective attraction and retention strategies, but also wider organisation and sector reputation.

The Guidance on Board Effectiveness goes way beyond the tick box exercise of comply and explain to get under the skin of great governance. The questions are probing, challenging and ask the board to positively reflect on how well it is doing its job.

There are though some things in the UK Corporate Code that are not appropriate for social housing providers, particularly those who don’t have shareholders, and we do not advocate its adoption over other codes.

However, the adoption and use of fit for purpose principles that help boards and executives genuinely reflect on their approach to effective governance is something that the governance team at Altair will be urging all housing providers to consider. Not because the Regulator says so, but because boards are ultimately responsible for their organisation’s purpose and reputation. It is the responsibility of the board to undertake its stewardship role to a standard of excellence that its tenants, residents and customers need and deserve.

As organisations prepare for board strategy season in the autumn, this should be food for thought.

Along with Devonshires solicitors, Altair recently jointly hosted a seminar on this topic. If you want to find out more speak to any member of the governance team