Acuity Annual Conference 2018 Workshop: good (and bad) governance – dos, don’ts and lessons learnt Sam McGrady, Director 19 April 2018 Intro to DTP

Content of workshop Introduction to DTP Why governance? Governance – regulatory expectations What good governance looks like Dos and don’ts Lessons from recent regulatory downgrades and IDAs Discussion/questions

Introduction to DTP Established by David Tolson 11 years ago Strategy, governance and finance experts Core team of 11 plus associates Work across UK with housing organisations, charities, commercial organisations and higher education More than 100 housing clients last year Strategy, finance, treasury, governance, business planning, growth, mergers and regulatory compliance Me – 2.5 years with DTP, previously HouseMark DCEO, interim management and housing management; CIH Policy Advisory Committee and RSH Advisers’ Panel

Why governance? More focus on good governance now than ever Sector risk profile changing (more risky) Operating environment less benign Deregulatory measures Co-regulation IDA (for larger providers) ……..so HAs need to have strong, effective boards to make right decisions

Governance – regulatory expectations Governance and Viability Standard Adherence to chosen Code of Governance (usually NHF Code 2015) Regulatory judgements: G1 / V1 - Compliant G2 / V2 - Compliant (but RSH will monitor improvement action plan on G2) G3 / V3 - Non-compliant and intensive regulatory engagement. G4 / V4 - Non-compliant, serious failures leading to either intensive regulatory engagement or the use of enforcement powers.

Board induction and information Board recruitment, renewal and review NHF Code of Governance Composition Role and function Board induction and information Board recruitment, renewal and review Chair Conduct of Board business Chief Executive Committees – role, TORs etc Open, transparent and accountable Diversity and inclusion Audit and risk Conduct and probity Right skills, knowledge, culture; consider conflicts of interest TORs, standing orders, financial regs etc Includes succession planning Chair - responsibilities, skills, leadership Agenda, papers, decision-making CEO – clear role, responsibilities, contract etc Annual report, comms strategy, shareholding policy Legal compliance, culture Effective internal controls, external audit, committee Code of Conduct

RSH Governance Standard Governance … deliver aims, objectives and outcomes Effective, transparent and accountable Code of governance - compliance Clear roles, responsibilities and accountabilities for Board, Chair and Chief Executive Probity arrangements Assess effectiveness of governance arrangements each year Manage affairs with … skill, independence, diligence, effectiveness, prudence and foresight Communicate in timely manner with regulator re non-compliance Appropriate, robust and prudent business planning, risk and control framework ‘have effective governance arrangements that deliver their aims, objectives and intended outcomes for tenants and potential tenants in an effective, transparent and accountable manner’ ‘adopt and comply with an appropriate code of governance….establish and maintain clear roles, responsibilities and accountabilities for the Board, Chair and Chief Executive and ensure appropriate probity arrangements are in place. Areas of non-compliance with chosen code of governance should be explained….assess the effectiveness of governance arrangements at least once a year’ ‘ensure they manage their affairs with an appropriate degree of skill, independence, diligence, effectiveness, prudence and foresight’ ‘communicate in a timely manner with the regulator on material issues that relate to non-compliance or potential non-compliance with the standards’ ‘ensure an appropriate, robust and prudent business planning, risk and control framework’

Good governance Clear culture, behaviours and standards Defined and understood expectations for contribution & conduct Clarity about mission and values Strategic (not operational) Exercising appropriate internal controls Board composition - balance of continuity and renewal Right skills and competencies Annual performance appraisal – individual and collective Clear and considered succession planning Strong but inclusive chairing – leadership & ambassador Taking personal responsibility Good governance support Seeking and gaining assurance; being challenging

Set out your culture, behaviours and standards Governance ‘dos’ Set out your culture, behaviours and standards Be clear about purpose, mission and values Get your committee/subsidiary structure right Have an effective Chair Exercise good internal controls Understand and manage risk Do annual appraisals and effectiveness reviews Have an up to date skills matrix Understand and prepare for succession planning Get the right support (including role of Company Secretary)

Think this doesn’t apply because you’re smaller Governance ‘don’ts’ Think this doesn’t apply because you’re smaller Think it doesn’t matter because you won’t get an IDA Pay lip service to good governance Ignore maximum terms of office – they’re there in the Code of Governance for a reason Dismiss Board member remuneration out of hand Be afraid of dealing with those who fall short of agreed expected standards Underestimate the impact of poor governance on your (social) business

Arches Housing – G2 – poor risk management and internal controls (H&S) Lessons from downgrades and IDAs Aside from ‘regrades’ to V2, vast majority of downgrades in last 18 months have been for governance Some examples: Gentoo – G3 – Board failed to exercise adequate internal control and scrutiny; lacked oversight and appreciation of risk; executive contracts and severance payments. Teign Housing – G2 – control failure in rent setting over number of years = governance weakness Arches Housing – G2 – poor risk management and internal controls (H&S)

Broadacres – G3 – failure to manage commercial activities effectively Severn Vale – G2 – risk management of financial position and covenant compliance Joseph Rowntree HT – G2 – preventable control failures around risk management; safeguarding and covenant compliance; ineffective stress testing; failure to address very high cost areas Broadacres – G3 – failure to manage commercial activities effectively First Priority – non-compliant – failure to operate strategic planning control framework; poor risk management; insufficient consideration of implications of risk of delivery plans; poor skills and capabilities No RJ for First Priority as currently registered with less than 1000 units (has since exceeded that).

Questions and Comments?