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Putting good governance back in the spotlight – staying ahead of the changes

Posted: 24/05/2021


Over the past few months, there have been a number of key developments in the social housing sector. Actual and proposed changes to legislation, in addition to updated regulatory guidance and best practice, mean that registered providers of social housing (RPs) will need to take proactive steps to remain compliant with the Governance and Financial Viability Standard. They will need to implement changes to existing governance arrangements and internal controls assurance frameworks.

It is up to each organisation to decide the best route for ensuring compliance with the new requirements. The extent to which they are implemented, alongside the level of investment in the governance arrangements, will differ depending on what each organisation is trying to achieve. The pros and cons of piecemeal change versus a full-scale review must be considered. 

The latter route, carrying out a comprehensive overview, might seem to be a daunting task, but we argue that now is the time for meaningful consideration of your governance framework to implement real change. Governance frameworks encompass a large breadth of documents and can, without proper review and management, become extremely large, inconsistent and unwieldly. They govern all areas within housing organisations, which can incorporate complex activities and structures. Ensuring consistencies with other relevant governance documentation is not an easy task but simply looking at individual documents in isolation and using a sticking plaster with tweaks here and there won’t work forever.

As the sector grapples with what the post-pandemic sector will look like, against a backdrop of juggling competing strategic priorities, now is the time to invest in your governance framework. Good governance is the lifeblood of any successful organisation and making real efforts to ensure a cohesive governance framework  will deliver benefits both now and in the longer term. 

Within this article we consider each of the key developments and the changes that will need to be implemented as a result.

NHF Code

Perhaps the most significant governance and regulatory development in recent months has been the publication of the NHF Code of Governance 2020 (the Code) in November 2020. The changes introduced by the Code are largely linked to topical issues that have become prevalent in the sector in the five years since the last iteration of the Code was launched. In particular, the new Code emphasises the importance of:

  • organisational culture;
  • having a framework for ensuring equality, diversity and inclusion (ED&I);
  • increasing accountability and transparency and ensuring that residents are at the heart of decision-making;
  • sustainability; and
  • collaboration within the wider sector.

The breadth of the changes within the Code will prompt RPs to take one of two routes to ensure compliance. The first is to adapt existing policies and procedures (which, although subject to regular review, may not be up to date and in line with best practice), making minor changes to reflect the black letter of the Code. This method will work for changes that are largely administrative in nature; however, this method may not be enough where more profound changes are envisaged by the Code.

As a result, some RPs will view the new requirements as an opportunity for change involving the review and potential overhaul of their wider governance framework. This second route will ensure that the intentions behind the new requirements are adopted, implemented and meaningfully embedded by their organisation.

Areas of the Code intended to promote significant change within RPs and their wider groups include the following requirements:

  • policies and frameworks aimed at enabling accountability, supporting, encouraging and accessing the views and needs of customers and giving insight into their concerns/complaints while enabling them to support strategic decision making;
  • policies and statements on ED&I that set priorities and objectives for the organisation to achieve and against which information on work to deliver these should be published annually;
  • financially sustainable plans that give specific consideration to value for money, financial sustainability, carbon neutrality and environmental sustainability and social sustainability;
  • consideration in the overall corporate strategy as to whether and how active cooperation, collaboration, joint working or formal partnership with other organisations could enable the organisation to deliver its social purpose and strategies more effectively and economically; and
  • the establishment of a positive culture focussed on residents and other key stakeholders.

It is clear from recent societal movements, feedback from the wider sector and the Regulator of Social Housing (the Regulator) itself that these new requirements are intended to promote real growth and change within an organisation, rather than being considered a “tick box” exercise against which compliance must be certified to meet the Regulatory Standards. To ensure that these obligations are met, policies and statements will need to be underpinned by demonstrable, meaningful practices and procedures. This is likely to require a careful and considered approach with dedicated resource.

When the NHF published the final version of the Code, it encouraged subscribers to adopt the provisions by 31 March 2021, with compliance reporting against the new Code to be included within 2021-22 annual reports. A number of RPs are taking the opportunity now to review their existing arrangements and are investing in policies and procedures that require change to ensure that positive practices are embedded within an organisation by the time that certification is required. 

Housing Ombudsman Scheme

2020 also saw the introduction of the Housing Ombudsman’s updated Scheme and accompanying Complaint Handling Code (the CHC). Under the Scheme and CHC, landlords must review their complaints procedures to ensure compliance. The key changes within the CHC relate to:

  • the implementation of a two-stage complaints procedure;
  • minimum compliance timescales;
  • having a dedicated team or individual to deal with complaints; and
  • ensuring that the routes for making complaints are easily accessible to residents.

As with the changes included in the Code, specifically the need for the board to have insight into customer concerns and complaints, landlords will need to properly consider existing systems and practices to ensure that they meet the new requirements.

The CHC also requires “continuous learning and improvement” and encourages landlords to use complaints as a source of intelligence to identify issues and introduce positive changes in service delivery. These lessons will need to be published in each organisation’s annual report. Therefore, it is essential for the correct procedures and policies to be in place to enable customers to make a complaint, for staff to process it effectively and in line with the CHC and for feedback to be passed to and utilised by the board.

As a minimum, an organisation’s existing complaints resolution policy and procedures will need to be reviewed to ensure compliance with the Scheme and CHC. However, many of the new requirements will also necessitate a broader look at the internal reporting mechanisms and the manner in which complaints are handled and analysed in order for the board to have an understanding of the nature of complaints and to utilise the data for service improvements. At a time when the visibility of resident satisfaction will be increasing significantly, organisations should also consider how complaints handling could be perceived as representative of wider customer engagement and involvement and whether more involved changes now could positively permeate through its entire governance structure.

White paper proposals

While several proposals outlined within the recent Social Housing White Paper (the White Paper) have yet to be put on a legislative or regulatory footing, some will necessitate changes to many organisations’ current arrangements to ensure that they are fit for the future of regulation. For example, Chapter 2 of the White Paper aims to redress the balance between landlords and residents by ensuring transparency and accountability. The measures proposed include:

  • the implementation of tenant satisfaction measures;
  • the introduction of a new access to information scheme;
  • publication of financial measures; and
  • the identification of a senior person responsible for ensuring that the organisation is complying with the consumer standards.

Chapter 3 also references the CHC and the possibility of putting it on a statutory footing, as well as the expectation that a greater number of formal complaints will be resolved quickly. Each of these and other proposed measures will need to be supported by the organisation’s underlying governance arrangements to be implemented effectively.

As many of the proposals will not be placed on a statutory footing until “parliamentary time allows”, and with the lack of an announcement of any Social Housing Bill in the Queen’s Speech earlier this month, some RPs may find it tempting to wait before making sudden changes to current arrangements. However, now is a good time to ensure a robust understanding of compliance with the consumer standards and potential areas of weakness in respect of transparency and accountability. Considering this now could save further time and costs down the line, while ensuring that the organisation is prepared and fit for the future.

Alongside the additional requirements introduced under different regimes and legislation, it is worth considering whether any changes implemented now could be made sufficiently flexible to account for the changes proposed under the White Paper. In addition, statements from the Regulator have clearly shown that, in respect of the consumer standards, the Regulator will be expecting the sector to take the lead in determining what best practice could look like. Therefore, instead of waiting for things to happen, the hard work will largely be for RPs to provide worked examples and shape the proposals into workable best practice and there is nothing stopping the sector from making a start on this now.

Fire Safety and Building Safety

The draft Building Safety Bill was published in July 2020 and is intended to ensure that organisations that manage buildings across all tenures prioritise residents and their safety. It aims to bring forward measures to put in place an enhanced regulatory regime for all buildings, give residents a strong voice in the system by enhancing visibility and accountability and driving a culture change to put safety first.

The proposals include the appointment of a “Building Safety manager” for each higher-risk building to produce and implement a resident engagement strategy. This will promote the participation of tenants and leaseholders in decisions that are made about safety risks in their building. These proposals also link to recommendations in the White Paper to legislate to:

  • strengthen the Regulator’s consumer regulation objective so that it explicitly includes safety; and
  • require social landlords to identify a nominated person responsible for complying with their health and safety requirements.

The Fire Safety Act also clarified that a responsible person for multi-occupational residential buildings must assess the fire safety risks for the structure, external walls and flat entrance doors as part of the fire risk assessment process.

These requirements tie in with Code requirements to ensure that organisations have policies in place that reflect how the safety of residents and other customers (as well as that of the workforce and the wider public) is an overriding priority and that the board seeks regular assurance on their operation.

While some of the proposals under the Building Safety Bill have yet to come into force, it is only a matter of time before they become legal requirements and the Fire Safety Act has now passed (although we await details of when it will come into force and further detailed guidance is due to be published). With such significant changes and, in particular, the new requirements for a ‘responsible person’ in respect of health and safety consumer standards compliance, a piecemeal approach is unlikely to deliver meaningful results.

Modern Slavery

Last year the Government published its response to its consultation on transparency in supply chains, promising new measures to toughen up the requirements under section 54 of the Modern Slavery Act 2015 (MSA). Due to criticism that the current regime “lacks teeth”, the Government has plans to strengthen the current regime by mandating the areas to be covered within each organisation’s statement to include:

  • the organisation's structure, its business and its supply chains;
  • its policies in relation to slavery and human trafficking;
  • its due diligence processes in relation to slavery and human trafficking in its business and supply chains;
  • the parts of its business and supply chains where there is a risk of slavery and human trafficking taking place, and the steps it has taken to assess and manage that risk;
  • its effectiveness in ensuring that slavery and human trafficking is not taking place in its business or supply chains, measured against such performance indicators as it considers appropriate; and
  • the training about slavery and human trafficking available to its staff.

The proposed changes would convert current best practice into law and introduce a statutory reporting deadline of 30 September with organisations reporting on the same 12-month period between April to March. The Government is also considering the inclusion of enforcement provisions for failure to publish a statement, including a new enforcement body. It intends to issue further updates on enforcement options in “due course”.

Similar to the proposals outlined in the White Paper, the measures proposed to section 54 of the MSA require legislative changes in order for them to be legal requirements. However, many organisations are choosing to review their existing associated policies and procedures now to ensure that they align with the latest requirements. The incentive to do so can also be linked back to policies that already need to be reviewed and revisited under the new Code (for example, the whistleblowing policy).

It's worth noting that the Government has launched its modern slavery statement registry. Publication of modern slavery statements on the registry is currently voluntary; however, the Government is urging UK businesses to start to use it now.

Conclusion

The direction of travel for several areas is clear; change is ahead, and good governance must be at the heart of it. While a number of these changes await formal statutory implementation, it is evident that some measures require compliance under the Code in any event. The Regulator has been clear that the sector should not wait to address prevailing weaknesses or areas requiring improvement.

Committing time and resource now to ensure the wider governance framework is fit for the future will provide the organisation with the structure and means to focus attention on actual implementation of the changes it has committed to make. Social housing providers, by their very nature, are recognised as community anchor institutions and must therefore carefully consider how their wider governance arrangements will work for the organisation, its stakeholders and wider communities.

Some changes can be implemented simply through the alteration and inclusion of certain wording within existing documentation. However, RPs should ask themselves whether editing and amending parts of the framework in isolation to meet the minimum requirements will work long term, and whether it can demonstrate meaningful compliance.

For example, it is straightforward to include a new paragraph in a Board Code of Conduct to state that the board demonstrates a clear and active commitment to achieve equality of opportunity, diversity and inclusion in its own composition. The Code, however, requires more. It expects policies and statements that meaningfully demonstrate this commitment alongside priorities and objectives for the organisation to achieve. It will require consideration of all policies and procedures that sit behind this objective (such as recruitment, board succession strategies and policies, ED&I policy and job descriptions) to ensure that they all work together in a cohesive manner to achieve an organisation’s mission and strategy.

The same can be said in relation to health and safety and modern slavery requirements. Wording can be added to existing policies and procedures to ensure that they can meet the “black letter” of the impending legislation or the Code, but these organisations may fall down in areas where accountability to and transparency with stakeholders is required to show meaningful changes have been made.

The Housing Corporate and Governance team at Penningtons Manches Cooper LLP has developed a Governance Framework Assurance Toolkit that offers a deep dive into key legal, regulatory and best practice provisions which should form part of every RP’s governance framework. The toolkit considers not only core governance documentation, including constitutions and policies and procedures, but also wider supporting governance documentation such as terms of reference, schemes of delegation, intra-group agreements and more. It details what legal and/or regulatory document obliges your organisation to have the document in place (if relevant) and best practice when it comes to implementing appropriate and robust governance framework documentation. If you would like to learn more, please contact a member of the team using the details below.

 

To read more on the main changes introduced by the new Code, please see our full article here.

To read more on the main changes introduced by the CHC and new Scheme, please see our full article here.

To read more about the proposed changes to section 54 of the Modern Slavery Act, please see our full article here.


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