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.
Governance systems can vary depending on the organisation’s purpose and the sector in which they operate. For example, a publicly traded organisation may be subject to more stringent governance requirements, such as regular financial reporting and independent audits, to ensure transparency and accountability to shareholders. On the other hand, a nonprofit organisation may have a governance structure that emphasises mission and impact, focusing on serving its constituents' needs.
A sound corporate governance policy is essential for any organisation looking to achieve long-term success. By promoting effective decision-making, ethical behaviour, and operational efficiency, governance policies can help to mitigate risks, build trust with stakeholders, and drive sustainable growth. As such, organisations of all sizes and industries should prioritise the development and implementation of robust governance systems to ensure their continued success in an increasingly complex and competitive business environment.
Governance Within Social Housing
Within the social housing sector, housing associations' governance and financial viability are crucial to providing low-cost affordable housing, 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 of the management team of the organisation.
- Report to the more comprehensive board of directors within their stewardship.
Housing associations in the UK operate in a highly regulated sector. They are principally registered societies operating 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.
Social Housing Operating Standards
The RSH reviews and publishes its assessment of the financial viability and governance of housing associations by awarding the following standards for governance:
- G1: The housing association complies with RSH governance requirements.
- G2: The housing association is compliant but must improve its governance to increase compliance.
- G3: The housing association is non-compliant because it does not meet the RSH’s governance requirements. There are severe regulatory concerns, which the housing association must agree to improve.
- G4: The housing association is non-compliant as it does not meet the RSH governance criteria. There are severe regulatory concerns, and the housing association is subject to regulatory intervention and enforcement action by the RSH.
The RSH awards housing associations the following standards for their financial viability:
- V1: The housing association complies with RSH financial viability requirements for adverse economic scenarios.
- V2: The 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: The housing association is non-compliant due to severe regulatory concerns, 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 regulatory concerns, and the housing association is subject to regulatory intervention and enforcement action by the RSH.
Corporate Governance and Leadership
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 associations' future.
The Executive Team and Board of Directors
A housing association's executive team works with its management structure to drive its strategic development and raise its performance by establishing and positively reinforcing its vision, aims, and objectives to maximise the use of its housing assets. The executive team provides oversight and accountability without getting involved in the association's day-to-day management.
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 the 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 crucial in providing affordable and high-quality housing to communities nationwide. As such, they must operate transparently and accountably to ensure the well-being of their residents and the effectiveness of their services. To this end, housing associations are responsible for the RSH's operations, with the RSH monitoring their activities regarding the ‘economic’ and ‘consumer’ regulatory standards for registered social housing providers.
The Governance Role of The Regulator of Social Housing
The RSH oversees housing association activities to meet governance and financial viability standards. This includes monitoring their performance in setting rent levels, value for money, economic health, and governance arrangements. By holding housing associations accountable to these standards, the RSH helps safeguard the interests of residents and taxpayers and maintains the integrity of the social housing sector.
One fundamental way housing associations demonstrate their adherence to governance standards is by appointing internal and external auditors. These auditors play a crucial role in assessing housing associations' performance across various critical areas, including financial management, risk management, compliance with regulatory requirements, and the effectiveness of internal controls. By conducting regular audits and reporting their findings to the RSH, auditors help ensure housing associations operate responsibly and accountably.
In addition to monitoring governance standards, the RSH also assesses housing associations' financial viability to ensure they are equipped to deliver high-quality services to their residents over the long term. This includes assessing their financial health, capacity to manage risks, levels of debt, and ability to generate sufficient income to cover their operating costs. By scrutinising these economic indicators, the RSH helps to identify any potential weaknesses or vulnerabilities in housing associations’ financial position and take appropriate action to address them.
By holding housing associations to account for their operations, the RSH plays a vital role in promoting transparency, accountability, and good governance within the social housing sector. Through its monitoring activities, the RSH helps to ensure that housing associations are operating in the best interests of their residents and are delivering high-quality services that meet the needs of their communities. By upholding the ‘economic’ and ‘consumer’ regulatory standards for social housing providers, the RSH helps to maintain public trust in the sector and safeguard the provision of affordable housing for those in need.
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