Steering the right course
Housing organisations are experiencing change at a rate of knots. Here, Simon Brandon analyses the results of a new governance survey to find out how their leaders are coping
The nautical analogy for the way businesses are run is well known: the chief executive and their team are the captain and officers, responsible for keeping things safely on course, while the ship’s destination and purpose are decided by the board.
Only it’s not plain sailing for many businesses these days. And - to stretch the seagoing metaphor even further - the housing sector is entering particularly choppy waters.
As well as the economic pressures felt by everyone, landlords also face a future shaped by welfare reform, co-regulation and funding cuts. Strong navigational skills - sorry, leadership - are more important than ever.
‘As we learned from the banking crisis, boards must be in control of their organisations,’ says Arun Misra, managing director of governance consultancy Boardview. ‘Society and stakeholders expect this and boards are working harder. Change is affecting housing organisations as much as other organisations.’
But are the sector’s boards prepared for the changes and challenges that lie ahead? Responses to Boardview’s 2011/12 governance survey suggests the answer is mixed.
Boardview polled 62 board members and chief executives at more than 20 housing associations and arm’s-length management organisations of varying sizes in England to find out how they view their boards’ effectiveness and preparedness for the future.
Some of the findings are sad reflections of the times. For example, 30 per cent of respondents say they have dealt with fraud over the past year - only 10 per cent of those who took part in the same survey last year had to tackle this problem. ‘That’s a concern - but with pressures on income, benefits and businesses, you would expect that,’ says Mr Misra pragmatically.
It is respondents’ answers to questions about the strength of their boards that are most concerning. Although a whopping 91 per cent of board members and 73 per cent of chief executives say they are indeed satisfied with their boards, under the surface the situation is far from calm.
Contentment plummets as the questions become more specific. When asked whether they are satisfied with their boards’ preparations for the future, just 42 per cent of board members’ and 46 per cent of chief executives answer ‘yes’.
The low scores continue. Just over half (55 per cent) of the board members surveyed are happy with the skills of those on their boards. Even fewer - 46 per cent - of chief executives are satisfied.
Satisfaction levels with their boards’ effectiveness are even lower - 42 per cent of board members are happy, while a miniscule 15 per cent of chief executives say they are content.
The size of it
Break those figures down by the size of respondent organisations, and a more revealing picture emerges. Satisfaction among respondents from large housing providers has increased slightly over the last year. But those from smaller organisations feel less positive about their boards’ achievements than those polled 12 months ago.
Of those participants from large and very large organisations - providers with 5,000 or more properties under management - 59 per cent believe their boards are sufficiently effective. This is a 3 per cent increase on the numbers who said they were content in 2010/11 survey.
Just 39 per cent of small and medium-sized landlords are happy with their boards’ effectiveness - a significant drop of 30 per cent from last year’s poll.
The breakdown of responses to the question about how prepared boards are for the future is equally enlightening (see graph 2, overleaf). Bang on half of large and very large providers are satisfied this year, compared with 53 per cent last year; but that compares with just 31 per cent of small and medium-sized landlords, a fall from 65 per cent last year.
So why do the smaller organisations seem to be performing so poorly in these areas?
Stephen Bull, head of governance at the National Housing Federation, believes they are failing to adapt quickly enough to the changes engulfing the housing sector.
‘We are living in exciting times,’ he says. ‘The amount of change taking place is very significant [and] my gut feeling is that some boards haven’t got to grips with just how big that change is - especially smaller organisations, which can have a tendency to keep the same board members for a number of years.’
This, he adds, can mean no new blood, no fresh ideas or up-to-date skills. In turn, it means the boards of smaller organisations can be slow in reacting to new challenges.
Under the Tenant Services Authority’s co-regulation regime, which comes into force from April, boards are asked to regulate themselves - meaning they need to be more on the ball than they’ve ever been.
Simon Dow, chief executive of 60,000-home Guinness Partnership and a former chief executive at the TSA’s predecessor, the Housing Corporation, says there ‘is no doubt that the TSA framework, which I wholeheartedly support, does place more pressure on boards’.
‘Through this survey, boards are telling us they feel less confident [as a result]; it is exposing some weaknesses,’ he says.
It’s not only the regulator that is applying extra pressure. A more general shift is taking place, says Mr Misra. Across the business landscape, responsibility for strategic direction is passing from executive teams to boards.
‘In the private sector, non-executive board members have a sharp focus. Strategic decisions have been made jointly between them and executives,’ he explains.
‘Traditionally in the housing sector executives have set strategies, but now they are having much more robust conversations with their boards.’
The TSA has made it clear that boards are going to be very strongly accountable in future, Mr Misra adds.
‘The transition period will be difficult for some organisations with weak boards,’ he says. ‘The first time a crisis hits, those boards won’t be able to handle it.’
The NHF’s Mr Bull, another erstwhile employee of the Housing Corporation, has also noticed this shift in power. ‘If there was an issue I wanted to raise [when I worked at the Corporation], I contacted the [landlord’s] chief executive,’ he recalls. ‘Now we are seeing boards engaging with the regulator, behaving more like boards should and not just passively accepting what executives tell them.
‘The days of just coming in and sitting down around the table - the volunteer ethos - have gone. It was worthy, but now you have to run a business.’
Some providers have already reached that conclusion, and Mr Bull believes the majority of NHF members are on the right track. But, as the survey suggests, smaller housing providers are still getting up to speed.
Larger organisations do have built-in advantages. An increasing number pay their board members, or provide a range of business interests and professional support out of reach of smaller businesses, explains Mr Dow, whose organisation pays the chair of its board £20,000 a year, and board members £10,000.
‘When Guinness started paying [board members], we had a much broader range of people to choose from,’ he adds. ‘Clearly, the boards themselves at smaller organisations are feeling more pressure. They have the same responsibilities as the boards at larger organisations but without perhaps the same servicing arrangements.’
But smaller organisations as well as larger ones, ‘are no longer complacent about board performance’, insists Elizabeth Clarson, chair of the g320, a group of small housing associations working in London, and chief executive of Housing for Women.
She suggests the drop in satisfaction among respondents from smaller organisations in the survey reflects ‘a greater awareness of what is required of boards’ amongst respondents from organisations owning fewer than 5,000 homes.
‘Speaking for g320, we see governance very much as a live issue which we are addressing,’ Ms Clarson says.
The worst thing that those organisations with ineffective boards can do now, is nothing. Happily, though, those who were polled seem well aware of any deficiencies, and are making changes so they can start moving in the right direction.
In this year’s survey participants were asked about changes in their boards’ focus over the past 12 months. A majority of board members reported better oversight of business risks and their mitigation; more effective scrutiny of executive proposals; more time setting and overseeing strategy; and a greater emphasis on governance.
The big question now is whether boards can update their working practices and make these changes before they are tested and found wanting. ‘Staying still is not an option,’ concludes Mr Bull. All hands on deck.
Boardview’s governance survey launch event takes place on 1 March at Devonshires Solicitors in London.
Methodology: Data is based on responses from 62 individuals (53 per cent board members, 21 per cent chief executives - the term ‘chief executive’ in this report includes company secretaries and governance directors and managers), representing more than 20 housing associations, arm’s-length management organisations and councils in England. Some percentages don’t total 100 per cent due to rounding
What does a well prepared board look like? Sue Ratchford, chair of Manchester-based arm’s-length management organisation Northwards Homes, and her chief executive Robin Lawler - also the recently inaugurated president of the Chartered Institute of Housing - have focused on keeping their board and its members ahead of the curve.
‘We’ve already had these discussions [about preparations for the future],’ Ms Ratchford says. ‘We are going to have to become more of a business-like board.’
In October, the Northwards’ board - which consists entirely of volunteers - set up a futures group to ‘look at how it needs to run the company in the future’.
‘What challenges are we going to face?’ asks Ms Ratchford. ‘We have been identifying additional risks - the impact of the introduction of [local authority] self-financing in April will be a big one.’
Along with Mr Lawler, she has also had one-to-one sessions with each board member to identify any gaps in their skills, and they are organising sessions to help individuals in areas where they are lacking knowledge. For example, says Ms Ratchford, ‘one board member has plenty of housing experience, but none working with ALMOs, so they have asked for some training around that’.
Complacency, she says, is not an option. ‘With so much going on, you’ve got to plan for the future.’