Corporate governance aims to facilitate a practical, prudent, entrepreneurial ethos and management policy that can deliver an organisation’s long-term success and is a system by which companies or organisations are directed and controlled.
Organisations listed within the UK must, from 01st January 2019, comply with the UK Corporate Governance Code for any accounting period that falls after the above date, irrespective of whether they are incorporated in the UK or elsewhere if they operate within the UK.
Corporate governance describes how a Board of Directors of an organisation operates and how organisational values are defined. This is distinctly separate from the daily operational management of the organisation. The significant differences between a corporate governing body (both Executive and non-executive) and a management team are:
- The Board of Directors sets the organisation’s strategic goals,
direction, limitations, and accountability frameworks.
- The management team manage the daily allocation of operational resources and oversight of an organisation.
A Board of Directors is responsible for their companies' effective and efficient governance. In contrast, the shareholders’ role in governance is to appoint Directors to the Board and an independent auditor to ensure adequate governance structures are in place.
Within the social housing sector, the governance and financial viability of Housing Associations are crucial to providing low-cost affordable housing, which is funded through public financing in the form of housing benefits, amongst other income streams. The responsibilities of Executive Directors within Housing Associations' are:
- To set Housing Association strategic aims and objectives.
- Provide leadership to put the aims and objectives into effect.
- Function as Leader to the management team of the organisation.
- Report to the wider Board of Directors within their stewardship.
UK housing Associations operate within a highly regulated sector. They are principally Registered Societies under the Co-operative and Community Benefit Societies Act 2014. As such, housing associations are accountable to the Regulator of Social Housing (RSH) for how they are run and operated.
The RSH reviews and publishes its assessment of the financial viability and governance of Housing Associations by awarding the following standards for Governance:
- G1 – Housing Association is compliant and meets
RSH governance requirements.
- G2 – Housing Association is compliant but must
improve its governance to increase compliance.
- G3 – Housing Association is non-compliant as it
does not meet the RSH’s governance requirements as there are severe issues
of regulatory concern, which the Housing Association must agree with the
RSH to improve.
- G4 – Housing Association is non-compliant as it does not meet RSH governance criteria. There are severe regulatory concerns where the HA is subject to regulatory intervention and/or enforcement action by the RSH.
The RSH awards Housing Associations the following
standards for their financial viability:
- V1 – Housing Association is compliant and meets
RSH financial viability requirements to deal with adverse economic
scenarios.
- V2 – Housing Association is compliant and meets
RSH's financial viability requirements to deal with adverse economic
scenarios. However, it must improve its financial risk management to
ensure continued compliance.
- V3 – Housing Association is non-compliant as
there are severe issues of regulatory concern, which the Housing
Association must agree to improve.
- V4 – Housing Association is non-compliant as it does not meet RSH's financial viability criteria as there are severe issues of regulatory concern where the Housing Association is subject to regulatory intervention and/or enforcement action by the RSH.
The UK National Housing Federation has published a
Code of Governance detailing the standards of leadership and control required
to assist Housing Association Boards in defining their operating values. The
Code of Governance requires Housing Associations to ensure that:
- Customer views, needs and requirements form the heart of the
Housing Association's strategic decision-making through such initiatives
as “Together With Tenants”.
- Customers and staff are kept safe.
- Housing Association Boards and Executive Teams oversee risk and robustly evaluate the impact of risk scenarios on the Housing Association's future.
Corporate governance may also impact organisations
that are not listed, as corporate governance fundamentally defines their
probity, transparency, and accountability in how they operate. Corporate
governance that excels ensures that an organisation’s Board of Directors:
- Meet regularly.
- Retain control over the organisation.
- Have clearly defined roles and responsibilities.
- Ensure that risk is robustly managed.
A sound corporate governance policy encourages effective decision-making to be made and enacted through robust operational processes. It provides a first line of defence against allegations of dereliction of corporate duty or corporate malpractice. Governance systems vary according to the organisation’s purpose and the sector in which they operate.
It should be noted, however, that the UK Corporate
Governance Code was developed with the governance of listed organisations in
mind but still needs to be implemented to cover organisations with different
accountability structures. A governing Board of Directors or Executive Team has
three core functions:
- To ensure clarity of ethos, vision, and strategic direction.
- Holding the management team to account for the organisation’s
performance.
- Overseeing the organisation's financial performance and ensuring that monetary resources are used to advantage.
A Housing Association's Executive Team works with its management structure to drive the strategic development of the Housing Association to raise its performance by establishing and positively reinforcing the Housing Association's vision, aims and objectives to maximise the use of its housing assets. The Executive Team is tasked to provide oversight and accountability without getting involved in the day-to-day management of the Housing Association.
Housing Association Boards may be made up of any
number of members from any number of different roles and meet formally at
prescribed times throughout the year; they may Chair other committees and
comprise:
- Chair of the Board.
- Chair of Customer Experience Committee.
- Chair of Asset and Investment Committee.
- Chair of Audit and Risk Committee.
- Executive Directors.
- Customers / Tenants.
- Interested third parties.
The elements of achieving and improving prominent
levels of governance are based on the following aspects:
- Delivering the Housing Associations' organisational aims and
objectives effectively and sustainably.
- Providing strategic leadership aligned with the Housing
Associations' values.
- Reflecting a Housing Association's integrity, ethics, and values in
everything it does.
- Making sure that decision-making, risk, and control processes are
informed, rigorous and timely.
- Working as an effective Board team to make critical and informed
decisions.
- Having a transparent, practical, and agreed approach to supporting
equality, diversity, and inclusion.
- Ensuring organisational openness and accountability.
Housing associations are accountable to the RSH for how they are run and operated. The RSH monitors the activities of Housing Associations on both the 'economic' and ‘consumer’ regulatory standards for registered social housing providers.
The RSH takes an initiative-taking approach to regulate its governance and financial viability standards by monitoring Housing Associations and awarding standards for governance. Housing Associations prove their adherence to governance standards through their appointed internal and external auditors, who report on the performance of Housing Associations across many critically essential areas.
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