The Role of Governance in Social Housing

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 01^st 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 an organisation's Board of Directors operates and defines organisational values. 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 manages the daily allocation of operational resources and oversees the organisation.

A Board of Directors is responsible for the company's 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 a leader of 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 because it does not meet the RSH’s governance requirements. There are severe issues of regulatory concern, which the Housing Association must agree to improve.
• G4: The Housing Association is non-compliant as it does not meet RSH governance criteria. There are severe regulatory concerns, and 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 complies with RSH financial viability requirements for adverse economic scenarios.
• V2: Housing Association complies with RSH's financial viability requirements for 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: The Housing Association is non-compliant because it does not meet RSH's financial viability criteria. There are severe issues of regulatory concern, and 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 initiatives such 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 and enactment 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 it operates.

However, it should be noted that the UK Corporate Governance Code was developed with the governance of listed organisations in mind. However, it must still 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 and 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 Association's organisational aims and objectives effectively and sustainably.
• Providing strategic leadership aligned with the Housing Association's 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-upon approach to supporting equality, diversity, and inclusion.
• Ensuring organisational openness and accountability.

Housing associations are accountable to the RSH for their operations. The RSH monitors Housing Associations' activities regarding both the 'economic' and ‘consumer’ regulatory standards for registered social housing providers.

The RSH takes an initiative-taking approach to regulating its governance and financial viability standards by monitoring Housing Associations and awarding governance standards. Housing Associations prove their adherence to governance standards through their appointed internal and external auditors, who report on their performance across many critically essential areas.

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