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Opinion: Hubris and the threat to good governance

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Opinion: Hubris and the threat to good governance

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Published by Max Salsbury for 24dash.com in Housing and also in Regulation

Birmingham City Council teams up with HSE to prevent chimney collapses Birmingham City Council teams up with HSE to prevent chimney collapses

By Phil Morgan, consultant and former TSA executive director for tenant services

About 15 years ago I read Julian Ashby’s seminal “Learning from Problem Cases” – a study of why housing associations went into supervision. What I learned was the importance of sound governance both in housing associations and for housing regulation. When I became a senior housing regulator I started any speech on regulation with a clear recognition that good governance was key to tenant involvement and the services for which I was responsible.

Earlier this year, in my role as vice chair of Wulvern, I started thinking about co-regulation and how boards could seek assurance that they were regulatorily compliant. I knew that the regulator had become more active and had issued a range of rulings. But thinking back to Julian’s work, I didn’t know of anyone who had sought to capture it and use it to inform good governance in housing associations.

So I sat down and read all the recent governance rulings. I started to understand that there were common threads running through the regulatory judgments and that these threads would help boards, executives and others trying to ensure compliance, and effectiveness.

Under co-regulation it is boards that have the responsibility for ensuring that their landlords meet the regulatory standards. This report helps highlight a number of areas where boards, and the staff working with them, can learn from where others have failed.

Too often in this report it appeared that hubris prevented boards from implementing basic rules to ensure compliance with their own agreed code of governance. At times it was like watching a car crash in slow motion – I kept wanting to put my foot on the brake pedal but it had no effect, as boards failed in their core duty for their organisation. So what are the five steps to compliance heaven?

Firstly, boards have to get regulation right. Under co-regulation, boards are responsible for ensuring the regulatory framework and standards are met. This means understanding - and meeting - those requirements, as well as ensuring a professional approach to the regulator and regulation. The regulator consults formally, and informally, on changes to the regulatory framework and regulating the standards. Boards should keep abreast of such consultations and the impact of subsequent changes.

Boards have the responsibility for telling the regulator about major changes, including when things go seriously awry and ensuring returns are completed on time. Gas safety is important and just because it is ‘consumer’ regulation is no excuse for boards not to comply with their legal and regulatory duties. Likewise the emphasis on good governance and viability does not mean that directions on rents can be ignored or forgotten about.

Secondly, boards have to be well governed. As with Julian Ashby’s earlier report, governance remains key to the effective running of housing associations and there are a number of areas where compliance can be achieved very easily. However, for some landlords, rules are ‘meant to be broken’ - or ignored. Often, these are the same landlords who experience other difficulties as hubris clouds their vision of what their role should be.

The purpose of having a code of governance is to help boards. Boards need to take seriously the maximum term of office, undertake regular reviews and appraisals and ensure they have the right blend of skills. Board payment should be proportionate and comparable to others.

The recent downgrades and warning letters on value for money statements were a wakeup call for the sector and demonstrated the new vigour of the regulator. There is lots of advice and good practice emerging. In regulator terms there are two simple lessons from the downgrades – publish your VFM statement, and publish it openly. The wider lesson is for boards is about ensuring that they are compliant.

Risk is the new black, featuring in fourteen of the 29 non-VFM cases that involved poor coverage of risk. It is essential for the business to have a robust risk framework in place, monitored and used to drive mitigation and improvement.

When planning for the future, boards will need to ensure that plans are robust and well founded. It’s important that there are robust internal controls, ensuring the business is well run and the organisation’s money is handled properly. Central to this is the correct use of (externalised or internalised) internal audit, which gives assurance that the organisation’s internal controls are effective.

Finally, as well as meeting basic rules on good governance, boards need to establish and maintain proper working relationships with staff, ensure meetings are well run and seek and take notice of external advice.

In a nutshell: Don’t give your departing chief executive a big severance package. In particular, regularly review your employment policies and executive contracts well away from the emotion created by the departure of a hard working stalwart. You need to have a good working relationship between board members and executives based on clearly defined roles. Boards shouldn’t delegate too much to staff and should be particularly clear about roles where chief executives are also board members. It is important that boards provide robust challenge.

There will be times when boards cannot have all the skills they need within the set of board members to provide adequate expertise and advice when considering courses of action. It is right to seek external advice in these situations and use that to support decision-making. It is also important that, having sought advice, boards should heed it and act accordingly.

Board meetings should be run properly - and minutes should be taken. Post-Cosmopolitan it is essential to have a firm grip on complex structures and subsidiaries. To provide robust challenge, boards need to ensure they have access to adequate and accurate information.

So I hope my report will be of use for those wanting to learn from the recent set of problem cases and use that learning to improve their approach to regulation. More importantly I hope it halts the spread of hubris, that attitude that says “rules don’t apply to us” and helps everyone understand that the vast majority of the cases were easily avoidable.

The report is available on http://wp.me/p4FN1n-7 and from Phil Morgan at pjsunited@gmail.com There will be a roundtable discussion on the report and assurance mechanisms at the CIH Conference. Further details available from Phil.

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