Address to BDA/Malcolm Governance Conference
Edinburgh
Excellence in Governance
29 February 2008
“If it’s no broke don’t fix it.”, “We’ve always done it like that.”, “It’s served us well so far.”
Everyone here will be familiar with these phrases. And they’re fine. They’re accurate….to a point, and what’s more they’re comfortable. But when you think about it they’re also superficial and I think they can lead to complacency. If it’s not broke don’t fix it? Well a coach and horses wasn’t broke, it served our forebears well but you don’t see any in the car park today do you? Fair enough, a bit of an exaggeration but the point is….things change, society moves on…develops. The 3rd century Greek Philosopher Diogenes said, rather wisely I thought, “There is nothing constant, but change”. More up to date but still with the same message, the 20th century Business Leader Jack Welch, Chairman and Chief Executive of General Motors from 1988-2001 said “If the world is changing faster outside your organisation than in….the end is near.” Now I’m not going to examine the dynamics of change here but those introductory remarks on change will I hope set the scene for what I’m going to say about governance and indeed what I believe to be excellence in governance against a background of change. This conference today is called “Excellence in Governance” and you’re going to hear from people talking about such diverse topics as Board recruitment, skills and competencies and performance reviews. The topic I’m going to address today is my personal opinion of the future of governance in social housing. And this will cover why - in Scotland in particular – against a background of almost constant legislative, economic, political and institutional change in the housing landscape in the past 20 years, the basic governance model for social landlords has remained largely unaltered. Some might argue that indicates a strength in the model – it has withstood environmental change and remained stable. I take a different view. I think the basic model of housing association governance has remained unchanged because of a narrowness of thought and a failure to move – let’s call it unwillingness - from a secure zone where the concept of voluntarism has served as a comfort blanket to those in the housing association movement who have rejected out of hand as far as I can see any suggestion to changes in governance that I and others have been promoting since 1994 when Weslo Housing Management was formed. Indeed, the phrases I used at the start of my remarks, “If it’s no broke don’t fix it”, “We’ve always done it like that”, “It’s served us well so far” have all, regrettably, been said to me in the past when discussing this matter, with senior executives of Housing Associations.
So before I elaborate on my thoughts on the future of governance, I’ll give you a little background, some contextual information on myself and the organisation I work for. I’m then going to explain Weslo’s form of governance – the way the company is run at its highest level – because this will be different from what the majority of you are used to. I’ll also explain why Weslo as a company chose this form of governance, what influenced us and why we feel that as a model it is strong enough and robust enough to secure a future in the 21st century. In the course of doing this I’ll explain why I believe some changes are needed in Boardrooms. I will also touch upon a sensitive area which I believe has true potential to cause conflict in these Boardrooms and in our day to day operations. Although we haven’t quite formed our view on this and the issue remains open to conjecture, I also intend to address, from a legal point of view, the integrity of the placement of local authority Councillors on our boards of governance.
So, first though, some background on Weslo. It was set up by myself and 3 colleagues who worked in Scottish Homes for what was, in fact, the first of the in-house large scale transfers of Scottish Homes housing stock in the 90’s. In 1994 we took over 1800 houses in West Lothian and in 1997 a further 500 houses in Bo'ness. When we were setting the company up we were of course in discussion with tenants groups in West Lothian. We wanted to find a Landlord model that would be attractive enough for the tenants to vote for and – this is also important – to be secure enough for the staff to be happy to work with. Waverley Housing Management had just come to the fore in the Borders and in my then capacity as Customer Services Manager with Scottish Homes I had a hand in monitoring the management contract awarded to Waverley by the SSHA before that organisation was wound up and its duties taken over by the newly formed Scottish Homes.
I had therefore been able to see at first hand the good work and improved service that Waverley had introduced to the Scottish Homes' tenants and concentrate on that, rather than the more negative aspects of that particular project which unfortunately captured the lion's share of the attention. We felt therefore that here at least was a viable alternative to the more traditional housing association structure. Not, I hasten to add that we had anything against housing associations, but we were convinced that to sell the idea of transfer to tenants – and in those days remember, stock transfer was a very radical measure - we should be able to put before them at least a couple of options, capable of changing to suit tenants demands and aspirations, rather than just present them with an off the shelf housing association as it were. We had no strong views either way but did feel that if possible, as senior staff in the organisation whatever shape it finally took, we should seek to bring a professional influence directly to bear on the way the organisation was run. Not having any experience or involvement in the voluntary or housing association sector our debate was driven not by ideological arguments over voluntarism and whether board members should be paid, but by pragmatic considerations of what was required to direct and manage the business effectively.
And that, very briefly is the bones of how Weslo became a private company limited by guarantee, with charitable status. Like virtually every other company in the country, it is set up with its senior staff playing a full part as executive directors on its board along with a number of what we call non-executive directors but what in general housing parlance are termed volunteers. Our voluntary directors number nine on a twelve person board. They consist of a Chairman, four elected tenants whose places are constitutionally reserved, a representative of each local authority in which we operate – Falkirk and West Lothian – and two others, community representatives if you like, who bring to the table their own special expertise.
Does this make for a better board? Well frankly I’m not sure there’s a definitive answer to that. It’s about people really - rather than structure. A good structure won’t improve a bad director but a good director can improve a bad structure. What I would contend is that the structure Weslo employs allows for a flat organisational form and the senior staff on the board, myself included, are able to bring a professional influence directly to bear on how the organisation is run and how it shapes policy to confront the larger issues with which it deals in the housing world. Every member of the board, whether they be staff on the executive side, or tenants Council or Community representatives on the non-executive side, has a vote and an equal say in policy matters. That is how companies work and the fact is that, despite that model being enshrined in company law and despite Communities Scotland having the power to regulate companies through the Housing (Scotland) Act 2001, this structure remains unique in social housing in Scotland. I said at an Institute of Housing Conference some time ago that the time was right for a relaxation of registration criteria to allow senior staff of RSL’s to sit on Boards of Governance and I am glad to say that the time may finally have arrived as we have now with this constitution, finally achieved registration as an RSL with Communities Scotland and I’ll say a little more about that later on.
The housing world is growing ever more complex. One of the by products of this growth in complexity is an increasing interest in the governance of the sector, which itself has helped to initiate today’s session. In the midst of this interest has been a call from some people for paid Board members, particularly in England where its actual introduction has caused much comment and discussion. Whether you are for or against that particular argument, you would have to acknowledge that the call is fuelled by increasing demands on Board members. In the face of governing larger and larger concerns, backed by larger and larger loan portfolios running to hundreds of millions of £’s who can blame those making that call? Board members now have enormous responsibilities, which bear little or no resemblance to the responsibilities their predecessors were asked to bear in the somewhat simpler regimes of the early 70’s. Larger RSL’s in Scotland today have turnover up to and over £20m a year and there is no doubt the business of running a business is becoming ever more complex. [NB – GHA]
There also seems to be a shortage of suitable board members. No wonder, with the advent of stock transfer and the resultant proliferation of new Landlords. You can regularly read adverts in the housing magazines from organisations seeking new Board members. We’ve all seen them no doubt. All for independent Board members. All looking for experience or expertise. Typically they’ll be looking for experience in some – not one – of the following fields: commercial, large scale re-structuring, strategic planning, risk management, asset management, financial management, legal and regulatory framework and oh yes…… have a interest in social housing. Do people with such wide ranging skills exist? Well of course they do, but why should these services come free? There’s a lot at stake – obviously, when you look at the skills required – but skills and experience of this nature seldom come free in the world at large. How long, I wonder can we expect it to come free in social housing?
I want to be clear on this. I’m not making these points to advocate paying voluntary board members in recognition of the complexities of their remit these days. What I’m saying is that these volunteers are being asked to assume a greater responsibility than was ever envisaged and this must be recognised and they’re being asked to do it against a background of a shortage of volunteers. My way of recognising it and indeed, in passing, supporting the concept of voluntarism, would be to encourage acceptance of a governance model which, in common with companies throughout the country in any other field, would blend a mix of senior staff, tenants and other interested parties. After all there is a very rich seam in this country of skilled professionals who are working at senior levels in Housing Organisations. The mining of that seam – the elevation of these key people to the Board of the organisation in which they work and incidentally the clear assumption of legal responsibilities as Director – would reduce at a stroke the shortage of skills and experience that is apparently current. With skilled executive directors on Board, I think the argument for “paid” volunteers becomes diluted, and perhaps for those like SFHA there can be a modification of its historical position where any kind of paid board members have hitherto been viewed as a threat to voluntarism.
I do not believe we need be over concerned about how boards are run if executive directors become part of the accepted norm in Landlords Boards. It’s been said to me before that letting staff on the board will be the thin end of the wedge. Once they’re on they’ll start to run things their own way – the way they want. All I can say to that is that is not my experience. It is a mistake to assume, and many do, that any groups whether they be staff or tenants will vote as a block – they aren’t clones after all. Every board member is an individual with his or her own ideas and our Board have had differences of opinion on many issues in the past 14 years, but have never split into recognised factions.
In any case, we have a regulatory body to govern the activities of each landlord. So within a framework provided by the 2001 Act, there’s no reason why organisations that wish to can’t make a business case for governance model of their choice. Certainly that should be a matter between the organisations and the regulator and a matter not disproportionately influenced by other organisations who may have differing priorities, differing agendas and who operate in different circumstances. A one size fits all approach is no longer appropriate, if indeed it ever was.
Now, what I’m saying I’ve been saying for some time now. But, while my opinion on these matters has been fairly constant, the environment we operate in changed greatly. And the changing housing, political, legal and regulatory landscapes and the mixed stakeholder involvement dictates that an organisation must be adaptable, light on its feet if you like, with flexible foundations for the years that lie ahead. After all, we’re on our fourth Government and (nearly) third regulator since Weslo opened for business in 1994. Up until recently, just about every time Weslo attained some publicity in our quest for registration and the press would look for a reaction as I’ve mentioned earlier, someone from the SFHA would be wheeled out to say “we don’t agree with this, it’s a threat to voluntarism”. This just isn’t true – we only wanted to be able to operate in the regulated sector using a model of governance that had served us well in the 7 years prior to the introduction of the Act. But clearly the SFHA at that time was against aspects of our governance model. If I could just go back a bit to the time of the consultation prior to the introduction of the Act, we were also told that the Council of Mortgage Lenders were also against the placing of Executive Directors on Boards of Governance of RSL’s. I thought at the time that was a bit strange. What objections could a body, whose members funded the majority of social homebuilding and stock transfers in the country, have to the placing of executives on a Board of Governance? The answer to that question was – none. The CML were not against Executive Directors at all! They subsequently confirmed to me their position and it was this (and I quote): The presence of Executive Directors on RSL Boards is acceptable, even desirable. Executive Directors can raise the skill base of RSL Boards and this becomes more important as RSL’s now engage in a complex range of activities and have in some cases very substantial assets. The CML would want the number of Executive Directors to be in proportion to the board as a whole so that the board can hold management properly to account. That remains the CML’s position today and it’s basically what we’ve been advocating for some time now. And what of the SFHA’s position now? If I said to you that the present situation where Committees being run on a voluntary basis is “increasingly ludicrous” you might say well he would say that wouldn’t he? Well I didn’t say that – the Chairman of the Scottish Federation of Housing Associations did, in an interview with the Herald in January of last year, and he was talking about a situation we are in where most housing associations – he said – were businesses of significant size. We are in effect he said, asking volunteers to run multi million pound businesses. And this in a regulatory framework governed by legislation and stemming from that used to guide Industrial and Provident societies in the 19th century! I think the Chairman is to be commended for taking this position. He has articulated well the points I and some of my colleagues have been making for some time now, and it is so refreshing and welcome to see such realistic commentary coming from the SFHA, unfettered by dogma and ideology. The fact is that if we were starting with a blank sheet of paper today to design a governance model for Registered Social Landlords, we would not end up with the models many of you are operating today. I believe change is in the air. Not as much as I’d like to see but there is definitely an appetite at least for examining current conventional governance arrangements and testing their validity for today’s world. Again, I would point to this conference today as testimony to that.
As I’ve said, we’re very much in favour of senior staff sitting on the Boards of Registered Social Landlords IF that Landlord feels that such an arrangement would be beneficial to the organisation. On another topic, my personal view, but not that of Weslo at this stage I must stress, is that the prevailing climate of political change certainly at least has the potential to create some very real difficulties with regard to the placing of elected Council members on the Boards of Registered Social Landlords.
I’ll come back to that – let me deal first with the matter of senior staff as ex officio Board members.
At Weslo, I sit on the Board as Chief Executive, along with my two senior members of staff – the Operations Director and the Finance Director. And, just to recap, we sit along with four tenants, two Councillors, two Community representatives and a non-Executive Chair. Now, that Board make-up has changed since our inception in 1993 and no doubt will change again. For now though, I’m confident that at present we’re in good shape for the foreseeable future. Equally important - we can maintain the high standards of service we’ve delivered to our tenants since they voted for us so positively in 1993. The fact that we finally received registration as a social landlord last year was a source of great satisfaction to our organisation. Satisfaction that reason and logic had prevailed and the position of the Executive team on our Board had been accepted by a Regulator who had been reluctant in the previous six years to recognise any model of governance that did not look like a traditional housing association. No matter the contents of the Housing (Scotland) Act 2001, no matter the recommendations of successive government reports on company governance, we couldn’t get into the RSL club because we had paid Board members. For the regulator that did not sit easily with the concept of voluntarism which underpinned governance in the housing association movement. Fair enough, in Housing Associations, senior staff don’t serve on the board but they do of course advise the board. In other words, the professionals serve the board of volunteers. An excellent model born and raised in Glasgow in the early seventies and adopted throughout the country as the Housing Association movement grew. But it wasn’t for us. I’ve already explained we’re a company – but guess what? Once we got in the club and started to engage with more and more of our fellow social landlords we found out there’s not really any difference in how our organisation is run from any other housing organisation! It’s just that the concept of voluntarism, is retained, almost at any cost it seems, by Housing Associations while in reality, the part played in the running of a Housing Association by its Chief Executive or Director bears little difference from mine in Weslo!
The difference in law barely exists. Let me explain. As Chief Executive I’m a Director on Weslo’s Board, I advise the Board and proffer advice to them as any Chief Executive of any company does.
Similarly, a Housing Association Chief Executive regularly advises his Board and is a source of advice on which the Board consistently relies. That position could be construed in law as a de facto member of its board – the term given is a shadow director. As such, a shadow director is subject to the same legal duties and responsibilities as any Company Director. Don’t believe me? Ask your lawyer!
Housing Associations of today – most of them anyway and certainly larger ones – bear very little resemblance to those conceived after the passing of the Industrial and Provident Societies Act of 1965. These organisations were governed within the spirit of voluntarism when Housing Associations were created from the Friendly Society model. It is indeed an honourable spirit to respect but in today’s world when some of the organisations so governed can and do have several subsidiaries, hundreds of staff, thousands of houses, multi-million pound turnovers and debt portfolios running to hundreds of millions, are we really still kidding ourselves that these vast organisations are being run and controlled by volunteers? Sorry, I don’t buy that and it is time I believe, for the sector to come clean and examine carefully this oft made claim and its relevance. I’d like to see an independent working party to look at the sort of governance model needed for the 21st century and the de facto role of the Chief Executive and other senior staff members. In my view a study of this kind can point the way forward to a more rigorous governance structure for the future. It need not signal the end of voluntarism as such – and I know that is still a concern of many of my colleagues in the sector – but more a repositioning to take account of the many responsibilities and tasks now faced by the Boards and Committees of today which just didn’t exist 30-odd years ago.
We already know the Regulator can now accept change. Both the Chartered Institute of Housing and the Council of Mortgage lenders have no objection to Executive Directors taking places on Boards of Governance. Indeed the latter body positively support such a shift in thinking. What of tenants? Is it an issue for them? Well it’s not for ours and, I suspect, the vast majority of the tenants who live in houses owned and managed by RSL’s. Certainly Weslo’s tenants in a 2005 independent survey confirmed they did not in fact hold strong views on the make up of our board (70%) but when asked to express an opinion large majorities felt it appropriate that tenants themselves and senior staff should be represented on the Board (83% and 79% respectively) (in the same survey lesser numbers (73% and 68%) supported representation on Board from Councils and the Community respectively).*
In the recent past I’ve posed a question to a couple of colleagues at various conferences and it is this – “Don’t you think, taking into account the sheer size of your organisation you, as Chief Executive should be on the Board?” The answer, when it comes has at least been consistent – “I don’t want to be on the Board.” What I’m saying is that this is not, or shouldn’t be a matter of personal choice. It is a matter of personal responsibility for the Chief Executive and his or her team
to start considering exactly where they, as housing professionals, actually fit in the reality of governance in their organisation. In my view they have a duty to sit on the Boards they serve.
* ‘Weslo Housing Management Tenant Satisfaction Survey’ 4Eighty, 2005
I’ll turn now to this business of having Councillors on the Board. I know some Landlords have this arrangement on a voluntary basis, but when the specific measure was introduced for stock transfer Landlords by the incoming Labour government via Communities Scotland in 1997, you could see the merit. Stock transfer was a radical Tory policy and if we’re to have it, then let’s ensure that local authorities are part of it by being involved at Board level. And of course it makes sense to have such close contact between landlords and local authorities. But now…. 10 years on is it still appropriate? Well of course it’s still appropriate to maintain close relations. There is so much interaction between RSLs and Councils it just makes sense. Allocations, referrals, housing benefit and countless other areas where there is day to day contact. But Board level? I have to confess here that I think local authorities – or certainly the one where we work – have been going through the motions when nominating Board members to landlords. Why else would we have on our Board, nominated by West Lothian Council, the current convenor of housing, who also doubles as the Council’s nominee for the Board of another social landlord in West Lothian? So this guy is the main man for social housing in West Lothian and sits on the Board of two other social landlords in the area. Falkirk? ….. the exact same I’m afraid. The Councillor sitting on our Board is the housing convenor and the Council nominee for the Board of another social landlord in Falkirk. Now that may have been acceptable – was acceptable – in 1997 but is it appropriate today? I think not. Certainly we need to maintain good solid relationships with local authorities and that is done. The relationships we need are there at other levels but I believe the recent political changes in particular raise questions about whether Board membership is appropriate. Let me give you an example: Councillors nominated to our Board by the Councils become Directors of Weslo and are registered as such at Companies House. They have a fiduciary duty – a legal obligation – to act in the best interests of Weslo. But things have moved on and the incoming government is introducing incentives for Councils to initiate new-build programmes again. Councils are going to be building houses again, which frankly – in a business sense – makes them competitors. Not for customers; demand has been outstripping supply for housing for as long as I can remember - but for example - land to build the houses on. Opportunities for land purchase, approaches from and to developers and owners of land are the bread and butter staple of development for RSL’s. Discretion is paramount. How can that be guaranteed when one of the Board has a duty to a competitor? (or two competitors?) More to the point in fact, how can we expect nominees to meet their legal obligation to the landlord and also the obligation they carry as Councillors? Yes they can declare an interest. Yes they can leave the room, ….. that’s happened before but very much as an exception. If potential exists however for the exception to become more of a rule then I think you have to question the process. If you’re serious about the governance procedures you’re obliged to operate then you have to address this. Councils in my view need to give more thought to the position they are putting their nominees in. Does anyone in these circumstances think it appropriate for one person to sit on the decision making body of 3 landlords? I’ve used the examples of land and development to illustrate my point here but I’m sure all of you could come up with examples of your own. More immediately, recent papers have reported on a public disagreement between Glasgow City Council and GHA about what elected members who are also nominated to the Board of the GHA, can and cannot say to their constituents! Now there is clear conflict there and it seems to me from the outside, a total disregard either by the Council, or the Councillors themselves, for the legal obligations bestowed upon Councillors when nominated to sit on the Board of GHA.
So, closing my personal view of the future. I think we’ve got to ensure membership of our Boards, our Committees reflect legal, commercial and fiscal reality. They must respect their legal status and be aware of their legal obligations. If they do that they must find places for key people, key employees to assume formally the legal responsibilities and obligations many of them have anyway. And they must create an environment in which everyone round the table can feel comfortable that they are able to meet the duties and obligations bestowed on them by their status without having to juggle and prioritise between differing competing interests.
Mike Bruce
Chief Executive
Weslo Housing Management
66 North Bridge
Bathgate
EH48 4PP
www.weslo-housing.org.uk
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