The Governor by HQN Limited

Governor the

HQN'S MAGAZINE FOR BOARDS, EXECUTIVES AND LEADERS

The tasks facing Mark Prisk

The HCA on regulation

SEPTEMBER 2012

Boards of the future

Governance round-up

HQN’S MagaziNE foR BoaRdS, ExEcuTivES aNd lEadERS

Congratulations to New Charter Homes Accredited for estate services It's a pleasure to ﬁnd an organisation such as New Charter Homes. They're really focused on delivering improvements for residents and adding value to everything they do. Getting estate services right is no easy thing. We're thrilled that New Charter has achieved HQN accreditation in estate management services.

Damian Roche, HQN’s Operations Director and accreditation assessor presents the trophy to Emma Marsh, Director of Communities, cheered on by residents and the neighbourhood teams

“After tough scrutiny, we’re absolutely thrilled that our performance has been independently recognised at a national level. It’s reassurance that we’re delivering a high standard of service while focusing on the right things for our customers and communities. I’m so pleased that the neighbourhood teams received such glowing feedback for their incredible dedication. To be awarded accreditation without conditions or any recommendations is a dream result and a true testament to my teams.” Emma Marsh, Director of Communities

All summer long we’ve seen Richard Branson bleating on a grainy Skype link from his holiday home. Who cares if blue trains are going to oust his red trains? The answer is a lot of people. One hundred and seventy thousand of them signed a petition urging the government to think again. It was another nail in the coffin of the transport minister. She got the sack. Does this matter to us in housing? Yes it does. Branson claims he transformed a poor service and boosted satisfaction. Our leaders say that too. Virgin outscores the First Group on satisfaction. Despite that, the bid was lost to First Group as they promised to give the government a lot more money. Branson says the government will never see the cash. In any case many of us will be pushing up daisies when the payments fall due. For years in housing we have struck a balance between quality and cost. Many tenders place more weight on quality than price. We try and build affordable homes in popular areas. All of this is under attack.

Are you up for the challenge?

Rail passengers are a captive market. Sooner or later governments will take advantage of that. Tenants are in the same position. Rents and fares are rocketing up. The government’s PR machine is crucial.

HQN’s accreditation tests your services and demonstrates that they are best in class – giving you, your staﬀ, your investors and, most importantly, your customers conﬁdence in your service.

To ﬁnd out more, please contact Anna Pattison on 01904 557197, or email anna.pattison@hqnetwork.co.uk

support services

You see a hard-working commuter hunched over a laptop. The government spies a greedy playboy hogging more than their fair share of subsidy. You see a tenant in a home bringing up a family. The government spots a bed-blocker stealing a home from someone more deserving. Good old-fashioned divide and rule. Don’t look for any help from our regulator. Its predecessor tried to stand up for tenants. Its one job now is to drive down costs so you can build more homes. I expect the new housing minister will be demanding to know why the HCA doesn’t have a firmer grip on value for money. We just can’t have an industry where the regulator does not know why costs vary.

It’s an ace for Nottingham City Homes!

The challenges are mounting up. Costs must fall, balance sheets need to support more building and tenants could run out of money to pay the rent. The private sector may get its act together. What are boards doing in response?

“We’re delighted and extremely proud to be the first ALMO in the country to receive HQN Accredit: Income Management”

HQN Accredit: Income Management Congratulations to Nottingham City Homes HQN recognised the sustained performance and improvements made over the past few years. The Panel was particularly impressed with NCH’s focus on balancing eﬃcient income management with support for customers, especially those feeling the eﬀects of the current economic downturn.

The NCH team, including front row, second from left, Nick Murphy (Chief Executive), second from right, Janet Storar MBE (chair of the board and tenant), third from right, Victoria Chilvers (Rent Account Manager); back row, fourth from left, Ben Chilvers (Rent Operations Manager), third from right, Tim Millns (Rents and Leaseholder Manager)

Predicting house prices is a big part of everyone’s business plan. The Sunday Times found that nearly all of the top property analysts we use were wide of the mark. That’s hardly a surprise as we are engaged in speculation pure and simple.

“The accreditation reﬂects the work that’s gone into transforming our income management service. It’s been made possible by all the hard work the team has done both with local partner agencies and with our own tenants to ensure their views are reﬂected in our policies and practices.

Over the next few years we will find out who got it right in housing. Will all the bonds, REITs and other devices work out? Time will tell. Should you be dancing to the government’s tune on costs like First Group? Is it better to enjoy customer support like Virgin does? Can we cut costs and keep tenants happy at the same time? That’s the prize.

“The accreditation process was objective, rigorous and challenging with a particular focus on positive outcomes for customers. It demonstrates that the work we’re doing really is creating homes and places where people want to live.” Richard Holland – Assistant Director of Housing Operations

Alistair McIntosh Chief Executive, HQN

To ﬁnd out more call Anna Pattison on 01904 557197 or email: HQNAccredit@hqnetwork.co.uk Rockingham House St Maurice’s Road York YO31 7JA

Telephone 0845 4747 004 Fax 0845 4747 006

HQN Limited Registered in England Reg No. 3087930

We are seeing two trends. Some boards are going down the mutual road. This locks them down into the community. At other places a small group of executives and non-executives come together to call the shots. It doesn’t really matter what you do as long as people of quality and integrity take the decisions. And they have to get it right. Heaven help them if they rely on experts.

Internet www.hqnetwork.co.uk Email hqn@hqnetwork.co.uk

accredit:income management

CONTENTS 3

Lessons from the Virgin/First Group squabble Comment by HQN Chief Executive Alistair McIntosh

Today I will... The new housing minister and the challenges ahead

The regulator We talk to the man in charge of regulation at the HCA

A changing landscape Richard Moriarty looks at lessons we can learn from other regulated sectors

Boards of the future Challenging times call for even better boards – but how to develop them?

Private property Is the increased use of the PRS a game changer for the housing sector?

Building the future It’s time to take a fresh look at good old-fashioned council housing, says Chloe Fletcher

Tweet the neighbours Housing providers need to be part of the social media conversation From the press Our regular round-up for the world press’s view of governance

Balancing act How can councils improve performance while managing funding cuts? (E)merging issues The spectre of future merger plans being held up has receded The hand that rocks the cradle Grant Shapps said he was cutting the nanny state’s apron string – but will they be retied? The stock answer Stock rationalisation deals are becoming more popular

All articles in The Governor were written by Kate Murray unless otherwise stated. designed by Paul Miller Print management

Prontaprint Scarborough

Turnstone Media & PR (www.turnstonemedia.co.uk)

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When a new minister is appointed, it’s only a matter of minutes before wishlists start landing in the ministerial in-tray. For the latest housing minister Mark Prisk, the pile of requests was a long, and at times contradictory, one. Build more homes to boost the economy and house those who so desperately need a place to live. Don’t build too many homes for fear of another boom and bust. Cut the burden of regulation radically to allow developers to build more homes. Introduce more regulation to oversee the booming private rented sector. So which way will Mr Prisk go as he settles in to his new job? Will he pursue the new ideas he’s already said are needed to build new homes? His track record suggests he’ll be get stuck in quickly, if only because his housing learning curve may not be as steep as some of the new housing ministers we’ve seen over the years. Certainly, with career experience as a chartered surveyor and then a stint as construction minister, he’s no stranger to the broader housing market. But what about social housing? Riversmead Housing Association, based in Mr Prisk’s constituency, has worked with him over the years and welcomes his appointment. But the association’s executive director Paul Huckstep is in no doubt about the challenges he will face. “The message coming out of government is that housing is very much at the top of the political agenda but at the moment it is quite difficult to see where enough new homes are going to come from that are affordable for the majority of people on low incomes,” he said. “The bottom line is there is a huge mismatch between supply and demand that is potentially going to affect a whole generation of families. Housing should be a concern to everyone.”

”It is a really important job, and I am sure he will bring to it much-needed skill and insight, and I sincerely hope he will also bring a new sense of understanding and urgency. My experience from dealing with [Mark Prisk] is that he is a modest man, unlike his predecessor, who gave hubris a bad name.” Jack Dromey Shadow housing minister

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”The National Housing Federation has long argued for the vital role housing has to play in driving growth and Mark Prisk's strong economic and business experience will prove invaluable in making that case.” David Orr, chief executive, National Housing Federation

”Enter Mark Prisk. He does not come with a brief to rewrite housing policy, nor with any obvious axe to grind. But he does arrive at a moment when the government is acutely interested in what housing can do to reboot the economy.” Matthew Warburton, policy adviser, Association of Retained Council Housing

Talking the talk The government is certainly talking the talk. In the days after the reshuffle, Mr Prisk said the new housing package, announced just after he took on the new job, was an ‘ambitious’ programme in response to the scale and importance of the challenge ahead, while his fellow MP Jake Berry said housing was now ‘front and centre’ of government policy. Many in the housing sector might be tempted to reserve judgement on that. For although many measures included in the housing package launched by David Cameron and Nick Clegg this month are welcome, there’s a focus on private rent and owner-occupation which might just make the social housing sector uneasy. Coming on top of months of outright negativity towards social housing – on everything from housing association pay and transparency to the ‘unsweated’ assets landlords hold in high value stock – it suggests that the government has yet to be convinced of the central role social housing can and should play in ensuring the balanced communities of the future. Yes, the recognition of the link between housing and growth is important. So too is the need to get development moving again, and some housing providers will play a big role in that. But will we there be recognition and support too for social landlords in the work they do for those for whom the private rented sector and homeownership are not an option – and for their existing tenants as welfare reform bites? As social landlords strive to do more for less, what the new minister says and does beyond the numbers game will be crucial.

”The ultimate test for [the housing package] announcements will not be in the corridors of Westminster and Whitehall but on streets up and down the country: will they result in new bricks on the ground and a significant increase in the delivery of new, decent, affordable housing?”

”We call for the structure of the UK house building sector and restrictive planning laws to be reviewed. Also, steps should also be taken to ensure house prices are aligned with people's wages, which would allow more people move out of private rented and social housing accommodation to becoming home owners – a key aspiration for many.”

Leslie Morphy, chief executive, Crisis

Grenville Turner, chief executive, Countrywide

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“There’s a paradigm shift.” That’s how Matthew Bailes, director of regulation at the Homes and Communities Agency, describes the changes shaking up the social housing sector. Less public funding, new pressures to drive efficiency, greater complexity in stacking up financing deals, coping with the affordable rent model and the impact of welfare reform head the list of challenges for housing providers – and the new set-up charged with regulating them. “It’s a very different world from the world four or five years ago – and it’s still changing,” says Mr Bailes. “The big challenge for me and for the rest of the team is to keep pace with that.” As he points out, the move away from what he calls the ‘settled model’ of social housing – where providers focused on one or two core products, had straightforward access to funding and where they were guaranteed their rental stream by the benefit system – is transforming the face of the sector. And as that change continues, providers need to ensure their leadership teams are well placed to respond. A risky, complex world “What we really need is the skills and capacity of organisations at board and executive level to line up with this riskier world and more complex world,” says Mr Bailes. “We would expect boards and executives to evolve quite rapidly to meet these challenges. Different providers are very different – some will concentrate on their core rented business and that’s a perfectly reasonable strategy. They may not need some of the commercial skills that other organisations pursuing different things might do, but the key thing is that the quality of the decision-makers lines up with the risk and complexity of the business.”

He says that ‘by and large’ the new regulatory set-up, in place at the HCA since the abolition of the Tenant Services Authority in April, has the assurances it needs that housing providers are ready to cope. But he admits that there are some areas where some organisations have struggled – he cites treasury managements as one. And with ‘some big challenges around the corner’, the regulator will be expecting boards and executives to be at the top of their game, especially if they are planning on going into new business areas. “The challenges will grow over time. People need to go in with a clear mind and clear strategy for managing risks and with the right skills and experience to manage those risks,” he says. “It will be a matter for boards to determine the best way of meeting their objectives in this new world.” Appropriate safeguards The regulator plans to do more work in this area, he reveals, in particular looking at ring-fencing and what the ‘appropriate safeguards’ might be to protect a social housing business against the risks of unregistered activities carried out by another part of the organisation. One of the big changes for providers is the new expectation that they will drive value for money. That will require them going further than they have before in looking at the way they run their business. The HCA’s own work on unit costs could, through the statistical method of regression analysis, only explain about half of the variation in unit costs across different providers. But it is up to boards, says Mr Bailes, to be asking the questions about their running costs and those of other organisations. Plus, they should be looking at new ways of running their business better.

Governance and regulation: what the HCA is saying

It’s tough out there for housing providers. How does the regulator plan to ensure they’re up to the job? The Governor spoke to the man in charge of regulation at the HCA to find out 6

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”Boards are responsible for running their organisations and the regulator is looking for assurance from them that risks are being managed effectively. This places a premium on the boards and executive teams having the appropriate skills and insight to manage their business. One of the biggest dangers to the long-term success of providers is having a board or senior staff with inappropriate skills trying to manage risks they do not really understand… The underlying message is that good governance is at the heart of a strong business and those organisations most likely to mismanage these risks are those with poor governance.”

”Within this new world of social housing there is space for a range of business models from small, locally focused providers of social rent to large diversified businesses undertaking a full range of activities including considerable commercial activity. The strategic issue for boards is to have a clear view of how their organisation is going to navigate this new environment and how they can continue to deliver their organisational objectives.” Sector risk profile, June 2012

“The provider’s ability to drive value for money across its operations and asset base will be taken into account by the regulator as a key indicator of the quality of governance.” Regulating the standards, May 2012 ”It is providers’ responsibility to define objectives against which value for money is assessed. Unit costs do not equal value for money, but are an important part of it.” Understanding unit costs of housing providers – regression analysis, July 2012

Sector risk profile, June 2012

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a cHaNgiNg

“Traditionally value for money has been seen as shaving money off running costs and procurement costs, which is important,” he explains. “But there are wider questions such as ‘what about asset values?’” For some organisations, he says, that might mean considering whether the social benefits of retaining a home in a higher value area worth, say, £300,000 are worth more than the opportunity to dispose of it to another landlord better placed to manage it or to sell it and ‘build two down the road’. It’s a suggestion which chimes with recent calls from the Policy Exchange for stock in higher value areas to be sold off to fund new development. It’s your responsibility… But Mr Bailes says he is not talking about disposal ‘writ large’ – simply a willingness to look at the issue. “There are options with assets we are expecting people to explore,” he says. “There are bits of the sector which have thought about this but for the majority of the sector it’s something they have got to go a bit further with. There is not one story on value for money – what we are looking for is the assurance that organisations have a clear set of objectives and a strategy for meeting them.” Value for money and the other economic standards are clearly the regulator’s prime focus. But Mr Bailes warns that providers cannot afford to be complacent over their services to residents just because the regulator will not be pro-actively monitoring the consumer standards: “The key message to boards is ‘this is your responsibility’. It always was, but boards shouldn’t be loosening grip on these issues one iota. They still need to meet the standards.”

We all have an interest in successfully managing the introduction of profit-seeking landlords in affordable housing. It is a key priority for the HCA’s new regulation committee and you can expect a detailed consultation from us on the issue later this year. Might we be able to draw any lessons from other regulated sectors where it is the norm, not the exception, for directors to have legal duties to shareholders rather than more socially orientated objectives? The provision of social housing has been well served by its traditional and diverse model of public and private not-for-profit landlords such as local authorities, charities, and industrial and provident societies. This broad group is likely to remain the dominant delivery model for the foreseeable future. But it does not have exclusive rights over the Social Housing Register. Parliament lifted its restriction against ‘for profits’ coming on to our register in 2008. So far we have seen only a trickle of ‘for profit’ registrations. But many expect this could build to a steady flow in the future as the twin political imperatives of deficit repair and returning the economy to growth continue to challenge our sector for new thinking and new approaches towards delivering more affordable housing. Real opportunities

The regulator will only step in on the consumer standards side where it believes failings are likely to cause ‘serious detriment’ to tenants – an area where there is not yet enough ‘case law’ to show exactly how or where providers will be most at risk of intervention. But areas like health and safety and discrimination are those where the regulator might need to intervene – and Mr Bailes stresses providers would be ‘extremely unwise to take their eye off the ball’ in their core business. Yet some across the housing sector have voiced fears that the lack of pro-active regulation on the consumer side will inevitably lead to falling standards. That has prompted calls, most recently from the Lib Dems in their housing policy paper, for a return to inspections. The prospect of yet more regulatory change doesn’t faze Mr Bailes. “We are focused on the day job, which is economic regulation. We are not worrying about changes which may or may not happen in the future,” he says. “The day job is more than sufficient to keep us busy.”

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There are real opportunities from encouraging greater diversity and innovation in the provision of new affordable homes. In regulated sectors such as energy, water and communications, shareholderbased providers have supported massive investment in badly needed infrastructure. The current shortage of affordable homes has echoes of the past in these regulated sectors where demand increased but a lack of public funds built up a cumulative infrastructure deficit. It is understandable that some people are anxious that the profit motive cannot be reconciled with the ethos of affordable housing. But these same fears accompanied the introduction of shareholder-based models in other regulated sectors too. And in most cases these fears proved misplaced as the public got used to their telephony, water, energy and transport being provided by companies driven by their bottom line.

LANDSCAPE The housing landscape is changing as for-profit providers enter the market and social landlords diversify their businesses. Richard Moriarty looks at what lessons might be learned from other regulated sectors As the economic regulator, it is our role to be mindful that with new opportunities come new risks that might need managing. Although most profit-seeking registered providers will be motivated to deliver shareholder returns through a genuine commitment to provide great service, new investment and fresh ideas, we need to be vigilant to instances of profit being driven by less creditable means. Safeguards Other regulators have developed a range of safeguards to ensure profit is generated from genuine effort and skill rather than by unfairly exploiting customers or abusing unintended regulatory loopholes. In these sectors, clarity on some regulatory boundaries is important: the letter of the rules can be just as important as the spirit of the rules – something that has been less of a feature in the regulation of not-for-profit social housing providers as we rely on simple outcome-based regulation and avoid prescription where possible. For example, a casual glance at the rules in place for profit-driven regulated companies such as National Grid, Thames Water, BT and Heathrow airport suggests the regulatory boundaries for these companies are more defined than some of the rules applying to social housing providers. Typical features include caps on prices, minimum service standards and restrictions on the activities that the business can undertake and risks it can assume. With unacceptable routes to profit blocked, the business has no choice but to earn its returns from genuine endeavour on delivering value for money, innovation and service. Does this suggest we need to evolve our co-regulatory philosophy for profit-seeking providers? Not necessarily – we shall be keen not to throw the baby

out with the bathwater. But it may be prudent to ensure that the regulatory rules that protect ‘public value’ in the social housing stock, such as rent monitoring and disposal consents, cannot be abused in a way that would simply end up with the taxpayer funding dividends rather than them being generated through more productive endeavours. Other regulated sectors may also offer insight into how to respond to providers seeking to diversify as part of more complex group structures that involve profitseeking and related non-regulated businesses. For example, regulators of vital services such as water, energy, and air traffic control set rules to avoid the regulated business being exposed to unacceptable risk bridges with non-regulated activities within the same group structure. Financial ring-fence provisions are designed to put a firewall around the regulated business and rule out practices such as pledging regulated assets as security for non-regulated purposes. Regulators tend to ensure these businesses have sufficient independent governance and they are not unduly beholden to the interests of the parent group’s non-regulated enterprises. Our consultation later this year with stakeholders will enrich our view on the opportunities and risks. By ensuring that our regulatory response is risk-based, proportionate and transparent, we shall be able to embrace innovation and new funding models while at the same time safeguarding the interests of taxpayers. In doing so, we can achieve our aim of successfully managing to profit in affordable housing. Richard Moriarty is a non-executive director on the regulation committee of the Homes and Communities Agency. He is director of economic regulation at the Civil Aviation Authority and the former director of regulation at the TSA

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Back in the old days, so the story goes, getting onto a have an idea what they were being asked to do.” When the housing association board was more about who you knew Future-proofing is certainly the approach of Orbit Housing than what you knew. Someone would recommend an Group, which has recently been recruiting board members individual they’d come across who might fit the bill, and going gets tough, with a quick word in the right ear, the new recruit would be and a new chair, who is due to be named later this month. Orbit’s chief executive Paul Tennant says: “One of the things around the board table before knew it. the tough gettheygoing. we have been using as a bit of a mantra is ‘the board of the “It was John Baker, a former deputy chief executive of the future’. Organisations do need to be thinking about how The woman at the top of Housing Corporation who called housing association they will develop a board that will take them into the future.” boards self-perpetuating oligarchies,” says Malcolm Levi, the CIH explains why she thinks High-level skills and experience a current board member looking back over his long career in housing. “It caused an awful fuss at the time but he was Housing providers now often hunt for specific high-level strong and effective hold the right really. At many associations, the chair wouldboards just invite skills and experience – particularly in finance, given the his friends or business acquaintances onto the board. growing complexity of funding deals. Life on a board is key housing sector’s success In practiceto it wasthe not always terrible, but you got a very much more challenging than it used to be, says Mr Levi, one-sided type of board.” Hotting up Things have been changing for some time now, of course. But thanks to the increasing challenges and complexity of the housing world, the pace of that change is hotting up. There’s a huge premium on valuable skills and experience, with housing organisations increasingly seeking to professionalise the way they recruit, train and performance manage their boards. “Organisations are looking for people sitting at the top table to drive the business forward and we are seeing them really skill up, getting in new people and younger people,” says Stephen Bull, head of governance at the National Housing Federation. “Organisations are really looking at what skills they need for the future, rather than maybe as it was in the old world where somebody was elected on and didn’t really

formerly chief executive of Home Group and now a board member at Peabody Trust and Richmond Housing Partnership. “If you go back to when I started in housing, provided you didn’t cock it up, life for board members was pretty easy. Nowadays everything is more complex. We are getting treasury reports usually by expert outsiders. I’m not saying I struggle, as it’s an area I’m quite strong in, but you have to really think it through. Being a board member is deeply interesting and fascinating but, yes, it’s hard.” Yet as important as the technical skills are, says Mr Tennant, the right attitude to change is also crucial. “It’s very easy for organisations to get carried away by a skill set. Sometimes boards think they are a ﬁnished product, but they need to be encouraged to develop as a team,” he says. “In the past, unless you really wanted to drive change, you could

satisfy the regulator without necessarily embedding a desire for change. The new world will require something else – organisations need to embrace the idea that we are changing because we believe we should not because the regulator is telling us to.” Emotional intelligence So what are housing providers now looking for in prospective board members? Bill Barkworth, lead associate for HQN’s Urbica search and selection service, says breadth of experience, the ability to challenge constructively and a capacity to work well in a team are all important. So too is emotional intelligence. “You need to be sensitive to others’ points of view and specialisms,” he says. Housing providers are getting much better, he says, about thinking about the mix they need on a board – and tailoring their recruitment process to match. “It’s changing quite dramatically. Organisations are doing more long-term planning, scoping out the skills they need and pulling together better role profiles and job descriptions.” But there are still some, he says, who need to go further. “There are still examples of boards that need more experience and stronger leadership. There are some pacesetters who have gone a long way in the design of a professional selection process but it’s often the small or medium-sized organisation which needs to invest in board training and development and selection processes. That requires time and money and the issue is persuading them that there’s that a long-term benefit going in getting a better qualified board.”

Nine-year limit According to Mr Bull, a key catalyst for change has been the introduction of the nine-year limit for board membership set out in the federation’s code of governance, which gives organisations the opportunity to review their board membership as their organisation takes on new challenges. Payment too is a factor. “It’s about identifying nine to 12 people, each of whom is really adding value. Organisations aren’t in a position to carry slack on the board.” Paul Tennant says the need to ensure organisations ‘get every penny of benefit’ from their board members might seem ruthless – but it’s a necessary reality. “At one time organisations might have been stuck with their board members. Now we need to actively manage what we’ve got.” But with this increasing professionalisation, how do you ensure that the values upon which housing providers are founded aren’t squeezed out? Bill Barkworth says ensuring your selection process is built around your values will safeguard your organisation’s ethos. And Paul Tennant says: “We are very keen to retain our social purpose, and whoever joins has to buy into that. We don’t want a plc-type board, purely and only driven by profit. That’s where accountability is important and that’s why values are so important as part of the interview process.” For the future, some observers believe we will move to even more streamlined boards across the housing sector. “Longer term I’m sure we will move to unitary boards with equal numbers of officers and board members,” says Malcolm Levi. “It’s all becoming more professional. But I would hope that the values that we like to think are taken for granted with most housing organisations will continue.”

BOARDS of THE fuTuRE

Challenging times call for even better boards. How are housing providers developing their boards of the future? 10

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BOARDS of THE fuTuRE

JOINING THE BOARD: RECRUITS OF 2012 Baroness Jo Valentine Baroness Jo Valentine joined Peabody Trust’s board earlier this year. As chief executive of business membership organisation London First – of which Peabody is a member – she was already familiar with the work of social housing providers. “I am very interested in how one does regeneration for real as opposed to what most people do, which is a great deal of talking about it,” she says. She says she likes the role of Peabody board member for its combination of ‘harder’ issues – like development – and ‘softer’ ones, such as its work combating social exclusion and promoting employment. But was joining the board of a housing association very different from her previous experience, which includes

corporate finance? “It’s not wholly new. The way the board works is very professional,” she says. “I don’t know the evolution the board has gone through in the past but people seem to think about things the way I do. Taking a businesslike approach but having a broader perspective on the issues is one I’m quite used to. But what I’m still on a learning curve on is housing policy.” Baroness Valentine is keen ‘not to go native too quickly’, but is busy listening, asking questions and visiting Peabody’s estates. “It’s like going into any company – if people tell you everything on the first day it tends to go in one ear and out the other. I’m beginning to understand the questions I should have asked and need to know answers to.”

Abigail Lock Abigail Lock is another 2012 recruit. She says her interview for her place on the board of an arm’s-length management organisation was very challenging and she’s also been struck by how good the induction process has been. “There is a real commitment to offering training and support,” she says. “And there’s a real sense of supporting each other on the board. Other board members are really open to you asking questions. They realise that you are in a learning stage and encourage that.” Ms Lock has plenty of expertise to bring to the table – she is head of external relations at contractors Mears and has also been a councillor. But she’s also keen to develop her skills in areas where she might not have so much experience. “It’s still early days for me as board member. They went through my various interests and expertise and they have said these

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are the committees that are most applicable, but also, do you want to learn different skills in other areas?” she says. “There’s a real flexibility there. It’s been great as a new board member to feel you can explore the different areas that board members can involve themselves in.” Most important for Ms Lock is her keenness to make a difference. “I have expertise in communications and in the equality agenda and in care and support, but for me it’s more about the fact that actually I’m passionate about the sector. I have a really strong belief that I can make a contribution to driving up standards. It’s all about that commitment to being a critical friend, to ask questions and to challenge. To me, it doesn’t matter what walk of life you come from: if you’ve got passion and commitment you can make a real contribution.”

PRivATE PRoPERTy It makes up a growing share of the housing sector. And now the government wants to boost the private rented sector further. Will this be a game changer for the housing sector? When Sir Adrian Montague was invited to look at encouraging more investment in the private rented sector he found ‘real potential’ for growth. “Conditions now are more favourable to this kind of development than they have been in recent years,” his report, published at the end of August, said. The government was quick to pick up on a couple of his key recommendations. As part of this month’s housing package, it announced it would be putting £200m into making housing sites available to institutional investors to provide rented homes. It will also be establishing a taskforce which, according to communities secretary Eric Pickles, will ‘bring together developers, management bodies and institutional investors to broker deals and deliver more rented homes’. Barriers Will it be enough to overcome the barriers the Montague review talked about? After all, we’ve been here before. As Sir Adrian points out, ‘signiﬁcant interest’ for several years has not been translated into large-scale investment. A key problem, his report says, is that the market is still not offering what investors want. Novelty too is an issue. Investors have apparently been pulling out of deals because they haven’t wanted to be prime movers in a big expansion of the market. That’s where the experience of those who are already involved will no doubt be crucial. Not just on the private sector side – social housing providers are moving in to get a slice of the market. Some, like Thames Valley HA, with its Fizzy Living subsidiary highlighted in the Montague report as an example of good practice, are already very involved. Others, keen for new opportunities which can help cross-subsidise their core business, are likely to make their presence felt over the coming months and years.

Game changer Government support for the Montague recommendations has been welcomed by those with a strong stake in the market. Property company Grainger, which manages residential assets of £3bn in the UK and Germany, says building quality homes for rent will be a ‘game-changer for the UK economy. According to the firm’s executive property director Nick Jopling, who sat on Sir Adrian’s review group, it is ‘imperative to provide enough homes, and the right type of homes’. As Grainger points out, renting is the fastest growing housing tenure in the UK. Some 3.6 million households now rent privately – up from two million in the 1980s. That number is set to soar, with Savills suggesting a further 1.1 million homes will be needed to meet demand by 2016. Yet, given that demand is in large part fuelled by negatives – the difficulty of getting on the homeownership ladder, the shortage of social housing – how will we ensure that the continuing boom in the private rented sector delivers high quality well-managed homes? The involvement of the best, from the private and social sectors, will be important. But the poor landlords, and worse, the rogues, continue to blight the experience of many renters. The CIH supports looking at how a voluntary standards regime could improve the quality of private rented homes, and their management and maintenance. But might we see even more? How far to go with landlord accreditation and regulation was a key issue in this year’s London mayoral election – and the calls for more intervention are likely to grow as the sector continues to expand. It remains to be seen how new housing minister Mark Prisk will approach the challenge of ensuring the quality as well as the quantity in the new rented homes the government wants to see. Those keen for more regulation of the sector may find encouragement in his attempt five years back to introduce more regulation for lettings agents. He said then: “As a Conservative, I am instinctively cautious about arguing for more regulation. However, as a chartered surveyor and a constituency Member of Parliament, I know that we need to put lettings on the same regulatory footing as sales.” More regulation was, he said, long overdue then. A step too far now? Watch this space.

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BuiLDiNg ThE As the coalition government looks for ways to encourage house building to boost economic recovery, it appears to be focusing on the housing association and private sectors to solve the problem. Ideas such as government-backed housing association bonds or loan guarantees to associations and private developers are being trailed. Yet the government seem to be ignoring the very sector best placed to provide quick, easy and financially transparent new build schemes – councils. Private house builders are having a hard time not just because of a lack of finance for their developments. They are also facing a lack of demand for their product as first-time buyers find it difficult to access mortgages. Some see institutional investment in private renting as the solution; but as welcome as a stable, long-term high quality private rented market would be within Britain’s housing market, its development is still at an early stage. And it would only provide for a section of the housing market – leaving many still in need of good quality, affordable housing. Social housing is vital The social housing sector is still vital, possibly more than ever. But the government’s favoured delivery agents, housing associations, are also having a tough time. With cuts to Homes and Communities Agency grant levels, a reduction in loan finance from banks and building societies and many associations already heavily debtladen, there just isn’t the capacity that there once was across the sector.

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Before the credit crunch, associations enjoyed easily obtainable 30-year loan agreements from banks and building societies at attractive rates as well as grant rates of up 50% of the total cost of building. These bank facilities have all but ended and margins are much higher. At the same time the government has cut grant levels and introduced a new higher rented ‘affordable housing’ product. Some associations have also had to tie up assets to cover their financial deals and that means these assets are not available to cover borrowing for new development. These factors have sparked a renewed interest in bond finance, essentially loans from other investors, on which an agreed rate of interest is paid by the company issuing the bonds for a set period until the original investment is repaid. Investors still require a return on their investment and if some housing associations are already too indebted these bonds may be of little help. Yet as housing associations grapple with a riskier and more complex financial world to help fund new affordable housing, councils, tied down with arbitrary and restrictive debt caps by central government, are being denied an opportunity to utilise their public assets to help deliver the new homes the country so desperately needs. A real route to what society needs Council housing – now a self-financing, self-contained business with comparatively very little debt – could offer a real route to delivering what the government and society as a whole needs. As the debt settlement for

FuTuRE With the economy stuck in recession, a chronic lack of affordable housing and politicians desperate to find a cheap and easy way to kick start growth again, it’s time to turn once more to good, old-fashioned council housing. Chloe Fletcher explains... self-financing only allowed councils to have an average debt of up to £17,000 per unit there is clearly more capacity for sensible, affordable borrowing within the prudential borrowing framework. This is especially true if that borrowing is for building new homes that rent is payable on. Councils are able to borrow relatively cheaply and easily and crucially over a 30- or 40-year period from the Public Works Loans Board. This mechanism already exists and requires no new legislation or systems. Any borrowing undertaken to build new council housing would be repaid through the rents collected on the new homes and would therefore not be a call on taxpayers’ money. In this respect it is similar to any government-backed loan to a housing association or private developer. There are a number of options that government could consider to allow councils to join housing associations and private developers in helping to kick start the economy through house building. It could temporarily raise the debt cap to recognise the need for an economic stimulus and the under-utilised capacity in the local authority sector; raise the debt cap now and then link it to RPI for the future to allow for continued prudential and fairly low level building by councils; or acknowledge that council housing as a trading activity isn’t a call on

taxpayers’ money and funds itself through rental income and use the GGGD to measure national debt and let councils manage their finances according to the well-tested prudential code.

WiTH cuTS To Hca gRaNT lEvElS aNd MaNy aSSociaTioNS alREady HEavily dEBT-ladEN, THERE juST iSN’T THE caPaciTy THaT THERE oNcE WaS acRoSS THE SEcToR

CIPFA estimates that, with Social Housing Grant, councils could build an extra 100,000 homes in the next five years, if released from the restriction of the cap. Even without grant, they could build some 50,000 new homes. Many local authorities and ALMOs have shovel-ready schemes that could be got underway very quickly. This new development would help use under-utilised land and help regenerate communities. It would provide local jobs and get money flowing into the real economy once again. It would even help the private house builders as councils and ALMOs tendered contracts for the building works. And most importantly of all, it would provide the housing the country desperately needs. Chloe Fletcher is policy manager at the National Federation of ALMOs

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Social media is changing the way government works. So says @sirbobkerslake – better known to the nonTwitter addicts simply as Sir Bob Kerslake, the head of the civil service. The former Homes and Communities Agency chief says tools such as Twitter and Facebook are becoming an ‘integral part’ of the work of the civil servant, allowing the government to be more in touch with its staff and the public than ever before. Just as the civil service is embracing the social media revolution, so social landlords too are realising its potential. As the government points out, half of the UK population now uses Facebook – so organisations can’t afford to ignore the potential for engaging residents and stakeholders alike. Yet some landlords have been wary of getting involved – often for fear of the complexities and risks – or have done little more than establish a Facebook page and then pretty much leave it at that. For both the novices and the more seasoned users the government’s recent social media guide makes worthwhile reading. Although designed for the civil service, the guide has some good pointers for social landlords looking to build their social media presence. As it points out, using social media can really help organisations to consult, engage and be more transparent – but it takes work to get it right. Interesting pointers in the guide include:

There’s a big conversation going on around social media – and housing providers need to be part of it

fRoM THE PRESS The banking crisis has advanced the cause of women in the boardroom, because organisations now realise they need ‘fewer Bob Diamonds’ and more people prepared to challenge macho culture. That was the view of city fund manager Helena Morrissey, speaking at an Evening Standard-sponsored debate on women in the boardroom this month. Ms Morrissey said the crisis had made company leaders realise that having ‘different types of people making decisions, challenging each other and creating the right culture’ could help avoid similar problems in future, the newspaper reported. “We have travelled a huge way and the real driver is the financial crisis,” she said.

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Meanwhile the Evening Standard also reported that smaller organisations have ‘finally woken up’ to the need for more female bosses. The paper highlighted research from the Quoted Companies Alliance and accountants BDO, which found that of small and medium-sized companies that had recently hired directors or senior managers, almost a quarter sought female candidates, 38% had had women on their shortlists and almost 30% ended up appointing a woman. No cause for celebration yet, you might think. There's a long way to go in the private sector – of the 1,039 companies on the Stock Exchange’s Alternative Investments Market for younger, growing businesses, 77% had all-male boards. Job descriptions often list ‘leadership ability’ among the must-haves for senior posts – but what do they

• “The use of social media is not simply a numbers game. The quality of interaction and audience demographics should influence your choice of social media channels” • “Use social media to have discussions with your service users or the people whose behaviour you want to change. Ask them to elaborate on the issue, and if you know something that could help, share it with them”

mean? According to Mike Myatt, writing for Forbes, the attributes of a good leader are rarely defined – meaning many at the top end up suffering an identity crisis. His response is a definition of leadership which says: “Leadership is the professed desire and commitment to serve others by subordinating personal interests to the needs of those being led through effectively demonstrating the character, experience, humility, wisdom and discernment necessary to create the trust and influence to cause the right things to happen, for the right reasons, at the right times.” How many do you know who match up to that? Nearly half of businesses plan to restructure their HR departments over the next year, according to a survey reported by People Management magazine. Of those planning an overhaul, four in ten said they were moving

• “If you're receiving praise for work done within your team, make sure you pass it on. Social media is one of the few ways you can directly and instantly receive feedback on your policies and decisions” • “Decide whether you want to engage or not based on if one, or both, of you will gain something from the exchange. You don’t have to respond to everything” • “In social media the boundaries between professional and personal can sometimes become more blurred – so it's important to be particularly careful” All of this is good stuff – and the organisations who are blazing a trail report that a positive approach can pay off, with their feedback from and consultation with tenants often much increased through the use of social media, particularly Facebook. But there are still question marks about how seriously landlords can and should take social media as an engagement tool, until more residents have online access. It’s estimated that half of social housing tenants have never gone online – a situation former housing minister Grant Shapps last year called ‘digital apartheid’. The signs more recently are more encouraging. Work and pensions secretary Iain Duncan Smith has pledged to explore the idea of a broadband tariff for social housing tenants to encourage more to go online. This ‘crusade’, as he called it, is particularly aimed at helping benefit claimants to claim online – but it could also have a significant impact in improving communications between landlords and their residents. As the voices joining social media grow, surely all landlords will need to join in.

to a shared services environment, while one quarter were proposing to outsource. And finally… if you’re looking for a way to get your board or senior team to work together even more efficiently, how about board breaking? No, we’re not talking here about another governance review, but instead a way of splitting a wooden board using martial arts techniques. Apparently it’s become a bit of a craze among companies looking for a new team bonding exercise. Martial arts instructor Chris Allen, quoted in the Hemel Gazette, said: “It’s about telling yourself that you are going to put your hand through the wood and by doing that you reinforce your belief in yourself… It works well as an added extra after a management meeting.”

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govERNaNcE ROuND-uP

BALANCiNg acT It’s a big ask for councils. How do they improve performance and respond to the demands for more transparent decision-making while trying to manage huge funding cuts? Key to responding to the challenge effectively is good governance. So are existing arrangements up to the job?

• Around 80% of councils carry out annual governance reviews

A review of local authority governance by Grant Thornton gives a few pointers. According to the review, based on information from a survey, desktop reviews and a roundtable discussion, local government has more to do to ensure its procedures and systems are good enough to improve performance and manage risk. Key areas for improvement include training, scrutiny and anti-fraud measures.

• Some 85% felt their authority had good arrangements for engaging with local people and other stakeholders to ensure robust public accountability

The review identified that:

Councils could significantly improve on their reporting, the review suggests. There is a strong case, it says, for all councils to publish a consolidated annual report, with performance and financial information.

• One-fifth of respondents did not feel their authority had robust enough systems to develop the capacity and capability of officers and members

• A third of respondents felt their council’s scrutiny function was not effectively responding to the changing risks their authority faced

• Nearly 30% of cabinet members – but just 12% of leaders – are women.

(E)mERgiNg iSSuES

The spectre of future merger plans being held up by competition rules has receded after the Office of Fair Trading ruled that they would not investigate Harvest and Arena’s merger. The two housing groups came together in April this year, creating a new organisation called Your Housing Group with some 32,000 homes across the north west, Cumbria, Staffordshire and Yorkshire. The Office of Fair Trading launched an investigation

the Governor SEPTEMBER 2012

earlier this summer into the move, and its inquiry was being watched with interest because of potential implications for future merger plans. But the OFT has now said the merger does not fall under its jurisdiction both on the size of turnover and on the share of supply of the newly merged group. The share of supply test is met when the merged parties supply or acquire at least 25% of all goods of a particular type in the UK or in a substantial part of the UK. As part of its inquiry, the OFT asked the new organisation for figures on their market share in a number of areas, including social housing stock and repairs and maintenance work.

THE HaNd THaT RockS

ThE CRADLE When Grant Shapps announced the end of housing inspections, he said he was cutting the nanny state’s apron strings. But could those strings be retied in the not too distant future? The former housing minister may have seen inspections as a waste of money. But there are others who still hold the view that inspections were vital in raising standards across the housing sector – and that without them, services to tenants could slide. The Lib Dems are the latest to join the fray. The party’s housing policy paper, due to go to its conference this month, recommends reintroducing inspections as part of a more proactive approach to protecting tenants’ interests. “While broadly accepting the standards with the present regulatory framework, Liberal Democrats believe that the social housing regulator should have a more comprehensive remit,” the paper says. The current approach to regulating on the consumer standards, it adds, means there is ‘no external check on the quality of housing services delivered to tenants and little or no enforcement if the provider is not complying with the standards’.

As The Governor reported in our last issue, stock rationalisation deals are becoming more popular as housing providers strive for greater efficiencies – and for new business in these challenging times. But organisations which are keen to take the plunge need to approach each deal carefully to avoid landing themselves with financial or reputational problems. Now Sovereign has produced a useful guide to the process – based on the ‘steep learning curve’ it has gone through in acquiring some 2,700 homes in stock rationalisation deals since 2006. There are some fascinating insights into the problems which can emerge. For Sovereign, issues it has discovered – in some cases only after a deal has been completed – include supposedly general needs stock which was in fact supported housing for people with learning difficulties, and restrictive covenants preventing the sale of some properties. In another case, a poorly managed leasehold scheme led to a leasehold valuation tribunal post-transfer which brought ‘considerable charges for repairs and maintenance

“We believe that social housing tenants need and deserve more protection than this as their social landlords are effectively monopoly providers,” it says. The paper proposes proactive regulation of the consumer standards and bringing local authorities fully within the regulatory framework as well as the reintroduction of an inspection programme. Interestingly the paper says the party would also introduce a ‘value for money regime’ for all providers, including councils, requiring them to report VfM performance data on a ‘transparent, timely and consistent’ basis. And all providers in receipt of public funding would need to demonstrate that they are ‘fully accountable’ to their tenants including having guaranteed involvement in decisionmaking. “We will also give tenants the right to trigger a vote on whether to move to another housing provider when things go wrong. Tenants would choose their preferred manager, subject to approval from the Housing Ombudsman,” the paper says. So how likely are we to see the kind of proactive consumer regulation regime the Lib Dems talk of? Will inspectors be back at a landlord near you any time soon? It’s too early to say, of course. Not only will it depend on who’s in power next time around, but also on just how effective local resolution has been at dealing with failings in performance. A few horror stories, and we might just find that the ideas floated by the coalition bedfellows of today’s red-tape-cutting ministers start to find favour at the top once more.

THE STock

ANSwER obligations unfulfilled by the selling association’. So what are the key tips to be distilled from Sovereign’s experience? As Sovereign chief executive Ann Santry stresses, with all stock rationalisation deals ‘the devil is in the detail’. Organisations should not rush deals through and should ensure they have effective due diligence and dedicated resourcing for each deal. Good communications and relationship building are also essential. And of course, deals need to be part of a well-thought-through organisational strategy rather than seen as a short-term opportunity to boost stock numbers. http://www.sovereign.org.uk/media-centre/ current-press-releases/stock-rationalisation/ the Governor SEPTEMBER 2012

in association with

Thursday 4 October 2012 “We will expect to see evidence that boards are up to the job of navigating their organisations through some challenging times ahead.” Julian Ashby, chair of the HCA Regulation Committee Each and every day the papers are full of scandals in governance. Banks are usually the culprits. How well are the boards of housing organisations doing? What can we learn from the best? What are the pitfalls to avoid? What are the expectations of the regulator?

This is a must-attend event for all board members and executives HQN has put together an intensive programme to examine the key elements of governance today.

• Julian Ashby will set out his views on the serious challenges we all face and how boards should go about meeting these – including the key ingredients of eﬀective co-regulation

• Liz Potter (chair of Orbit Group) will share her experience of what works and what doesn’t in boards

London

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• Anne Hayes, head of market development, governance and resilience, The British Standards Institute will explain their approach to governance and the new BSI governance standard

• Bill Barkworth, HQN lead associate Urbica executive search and selection, and Susan Kashyap, HQN lead associate Urbica leadership assessment, will discuss how to select and assess the right people for your board

Delegate fees The standard delegate fee is £265 + VAT. The fee includes refreshments, lunch and a detailed e-information pack. Please inform us in advance of any special dietary requirements. www.hqnetwork.co.uk/forthcoming_events

Timings Registration Start Finish

10.00am 10.30am 4.30pm

• Our chief executive Alistair McIntosh will chair the event and is on hand to make sure all your questions get answered. This event will be directly relevant to: chairs and board members of housing associations and ALMOs, housing related not-for-proﬁt organisations, charities and community land trusts, chief executives, directors, senior executives, governance managers and oﬃcers that work with boards.

Who are we?

KEEP CALM

Fast, practical guidance on everything to do with housing. HQN provides A ND high-quality advice, tailored support and training to councils, ALMOs, housing associations and other housing providers. Find out more about us and our network membership by visiting www.hqnetwork.co.uk or call us on 0845 4747 004.

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