Good Governance Matters Birmingham 28 November 2018

Your Team Today Gemma Bell Partner T: 0121 214 3596 E: gemma.bell@anthonycollins.com @gemmabellACS Rose Klemperer Associate T: 0121 214 3638 E: rose.klemperer@anthonycollins.com @rklempererACS Sam McGrady Director T: 07961 204 771 E: s.mcgrady@dtp.uk.com @DTP_Sam

Agenda 10.00 – 10.45 - Legal & sector update; 10.45 – 11.30 - Lessons to be learnt from downgrades; 11.30 – 11.45 – tea & coffee break; 11.45 – 12.30 – Operational vs strategic governance; 12.30 – close

LEGAL AND SECTOR UPDATE

Regulatory focus Re-cap: Office of National Statistics reclassification as public – 2015 EU Referendum & new PM – June 2016 Housing and Planning Act 2016 – de- regulation (6 April 2017) Grenfell – June 2017 Office of National Statistics reclassification as private – November 2017 New Value for Money Standard 2018 Social Housing Green Paper – August 2018 – ‘strengthening the Regulator’ 2019…

The Regulatory Framework Seven Standards Economic standards Rent standard Value for money standard* Governance and financial viability standard* Consumer standards Tenant involvement and empowerment standard Homes standard Tenancy standard Neighbourhood and community standard * = Code of Practice 6

Tenant involvement ‘New’ Tenant Involvement and Empowerment Standard – July 2017 Registered Providers shall: “have an approach to complaints that is clear, simple and accessible that ensures that complaints are resolved promptly, politely and fairly.” “ensure that tenants are given a wide range of opportunity to influence and be involved in…the scrutiny of their landlord’s performance…” “Where RPs are proposing a change in landlord for one or more of tenants or a significant change in their management arrangements, they shall consult with affected tenants in a fair, timely, appropriate and effective manner…”

Tenant involvement - Social Housing Green Paper Chapter 3 ‘Empowering residents and strengthening the Regulator’ Arming residents with information on landlord performance: “For residents to be empowered they need good information on how their landlord is performing compared to others” “We consider that the most effective way of doing this is for the performance of all landlords to be assessed against a number of…key performance indicators…”

Tenant involvement - Social Housing Green Paper Ensuring residents’ voices are heard “We want to understand more about whether the regulatory framework is setting the right expectations on how landlords should engage with residents, and how effective current resident scrutiny measures are.” Strengthening choice over services “Our preferred approach is to increase transparency for residents over the performance of landlords, including through KPIs and league tables. Following that increase in transparency we want to offer residents greater opportunity to exercise more choice over their day-to day services...”

Deregulation – then Government view of social housing and housing associations Rent decreases ONS reclassification and deregulatory measures - Housing and Planning Act 2016 Asset freedoms Constitutional consents Golden share Notification regime Increased professionalism of the sector – skills based boards Diversity of views about the ‘role’ of housing associations

Deregulation – now Grenfell The Hackitt review Rent settlement announcement Welfare reform u-turns Role of tenants Government view of social housing and housing associations “This Government values housing associations…You asked for our support, and you have our support. Not mere lip service, but real policies, real change, real action.” Theresa May – 19 September 2018, NHF Summit £2 billion initiative – long-term certainty? Social Housing Green Paper consultation

The Social Housing Green Paper 2017 Housing White Paper includes emphasis on new homes for rent, including those provided by councils and housing associations June 2017 Grenfell triggers debate about role and provision of social housing PM commits the (then) Housing Minister to meet with social housing tenants September 2017 Sajid Javid announces ‘a wide-ranging, top-to-bottom review of the issues facing the sector’ Consultation events and SHGP published August 2018

The Social Housing Green Paper 5 themes: Safe and decent homes Resolution of disputes Empowering residents/strengthening the Regulator Tackling stigma Boosting supply

The Social Housing Green Paper Changes to Social Housing regulation? 8 years since the last review Review of Consumer Regulation Serious Detriment

Sector Risk Profile Intended to help boards understand the risks in an ‘increasingly complex and diverse sector’ 11 October 2018 Health and Safety Reputational risk Sales exposure

Sector Risk Profile Health and Safety Boards are ultimately responsible Be clear about your landlord responsibilities (stock owned and/or managed) Not just fire safety Core requirement ‘Three lines of defence’ – have comprehensive control systems in place that staff know how to implement

Sector Risk Profile Reputational Risk Social Housing sector under greater scrutiny than ever before Will be scrutinised by a wider range of stakeholders Vital that boards have regard to stakeholders’ expectations in their decision making

Sector Risk Profile Sales Risk More and more RPs reliant on sales income to fund development programmes Boards should understand markets operating Skills gap? – need appropriate skills on the board

Mergers and consolidations Joint ventures Partnership working Trends in the sector Mergers and consolidations Joint ventures Partnership working Diversification Simplification of structures Moves away from the regulated sector Strategic disposals programmes

Key questions How do we hear the tenant voice in the Board room? Do we have the ‘three lines of defence’? Are we seeing the worst cases as well as the best cases? Do we have a culture of transparency and openness where people aren’t afraid to open up? Is there real challenge of the status quo?

Lessons from the downgrades Sam McGrady, Director 28 November 2018

Introduction to DTP What’s going on? Lessons from recent regulatory downgrades and IDAs Top tips Discussion

Introduction to DTP Established by David Tolson 12 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 120 housing clients last year More than 40 RPs over last 2 years supported through IDA Me – 3 years with DTP, previously HouseMark Deputy CEO, interim and change management, housing management…

What’s going on? Governance, always governance Aside from ‘regrades’ to V2, vast majority of downgrades have been for governance Almost all the G2 (or worse) downgrades have resulted from an IDA And don’t forget VFM

Governance focus Clear culture, behaviours and standards Defined and understood expectations for contribution & conduct Clarity about strategy, mission and values Risk management 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 A strong, objective and capable audit committee – clarity of role and remit

Governance focus Strong but inclusive chairing – leadership & ambassador Taking personal responsibility Good governance support – role of the Co Sec Collaboration and co-production Seeking and gaining assurance Balance of challenge and support And also: Assets and liabilities register Stress testing and golden rules The Green Paper, tenant voice and consumer regulation Partnerships and joint ventures

Value for money Shorter, sharper standard Clearly articulate strategic objectives / approach agreed by Board Articulate strategy for delivering homes to meet range of needs Ensure optimal benefit derived from resources and assets Must demonstrate: Robust approach to achieving VFM (decision-making, appraisal of potential options for improving performance) Regular consideration by Board of potential VFM gains (including costs/benefits of alternative commercial, organisational and delivery structures) Consideration of VFM across whole business (including non-social housing activity) Appropriate targets in place for measuring VFM; regular monitoring and reporting against targets

Some lessons Equity: G2 – Lack of strategic oversight and holistic control, over-delegation to committees, too much operational focus 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)

Some lessons Knowsley Housing Trust: G3 – compliance (H&S), group structure, risk management Advance: G2 – financial reporting, risk management and assurance Suffolk: G3 – leadership, internal controls, risk and financial management Leeds and Yorkshire: G2 – compliance (H&S), performance reporting, risk management and internal controls DAMHA: G2 – board skills, term of office, risk management/mitigations and H&S reporting

Some lessons Severn Vale: G2 – risk management of financial position and covenant compliance Joseph Rowntree: 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

Top Tips Be prepared Document review, preparation and collation Facts and figures What’s your story? Practice makes perfect Good governance Assets and liabilities register Stress testing and risk – extra focus Value for money and know your costs Keep calm and carry on! And have a look at our videos https://www.youtube.com/watch?v=a9QDbMadC0s https://www.youtube.com/watch?v=LFX2farXK2Y

Discussion

OPERATIONAL GOVERNANCE Vs STRATEGIC GOVERNANCE

Scenario See hand-out Split into three groups 34