Accountability and transparency are critical to the reputation of an organisation, and the housing sector as a whole.
Measures of accountability
- Code compliance – both the UK Corporate Governance Code and the Federation’s code of governance have introduced a general principle – comply with the code or explain where and why you do not comply.
- Code of conduct – under the Federation’s code it is expected that housing associations establish a board code of conduct. The code aims to set out how housing associations can achieve the highest standards of conduct and safeguard the sector’s long-standing positive reputation for integrity.
- External parties – as part of good governance it is essential that the board are aware of the view of external parties on the organisation they are responsible for leading and governing.
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Transparency and reporting
Since the introduction of the UK Corporate Governance Code and the Federation’s code there is a general principle that has applied – comply with the code or explain where and why you do not comply. Transparency is critical to the reputation of the organisation and the housing sector as a whole.
The annual report
The annual report is a key tool for publishing the results of an organisation and should cover a spectrum of issues focusing on performance. It is important that associations consider the most appropriate and relevant platforms for informing tenants, customers, shareholders, investors and other stakeholders.
Key contents of the report
- Board performance: The chair should state in the annual report how performance evaluation of the board, its committees and its individual directors has been conducted and the core findings and recommendations that have flowed from these vital processes.
- Directors' opinions: The directors should state that they consider the annual report and accounts, taken as a whole, to be fair, balanced and understandable and providing the information necessary for shareholders, stakeholders and investors to assess the association’s performance, business model and strategy. They should also give a statement of how the board operates, including a high level statement of which types of decisions are to be taken by the board and which are to be delegated to management.
Board directors should report at least annually in their financial statements that the business is a going concern, clearly setting out their supporting assumptions or qualifications as necessary. There should be also a separate statement by the auditor about their reporting responsibilities.
The annual report provides shareholders, investors and other stakeholders with a range of relevant and timely information. This should include at a minimum:
- the names of the chair, the deputy chair (where there is one), and the Chief Executive, the Senior Independent Director and the chairs and members of the board committees;
- the number of meetings of the board and those committees and individual attendance by board directors
- an explanation from the board directors of their responsibility for preparing the accounts and a statement that they consider the annual report and accounts, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders and external stakeholders to assess and understand the company’s performance, business model and strategy. There should also be a statement by the auditor about their reporting responsibilities
- a value for money statement and an explanation of the basis on which the association generates or preserves value over the longer term (the business model) and the strategy for delivering the objectives of the company
- a statement from the board that the business is a going concern, with supporting assumptions or qualifications as necessary
- a statement from the board that it has conducted a review of the effectiveness of the company’s risk management and internal controls systems
- a statement setting out how internal audit function is carried out and any significant findings and, if necessary, the reasons for the absence of such a function
- a statement from the board regarding compliance with its chosen code of governance
- a statement from the board regarding its overall compliance with the Regulatory Standards and a particular focus should be given to demonstrating the organisations approach and actions to ensure it embraces the value for money challenge set by the RSH.
Where the association has chosen to pay its board members they should fully disclose this in the annual report. The following information should be made available (which may be met by placing the information on a website that is maintained by or on behalf of the association):
- the terms of reference of the nomination, audit and remuneration committees, explaining their role and the authority delegated to them by the board; and
- the terms and conditions of appointment of non-executive directors
The board should use the AGM or other appropriate means to communicate with shareholders, investors and other stakeholders and to encourage their participation.
Other information to consider for an annual report
In addition to the above, and depending on the complexity and size of the organisation, the annual report may also consider including the following information:
- an explanation of the basis on which the company generates or preserves value over the longer term (the business model)
- the strategy for delivering the objectives of the company
- the outcome of their review of the effectiveness of the company’s risk management and internal control systems, covering all material controls, including financial, operational and compliance
A separate section of the annual report could also describe the work of the audit committee in discharging its responsibilities. The report should include:
- the significant issues that the committee considered in relation to the financial statements, and how these issues were addressed;
- an explanation of how it has assessed the effectiveness of the external audit process and the approach taken to the appointment or reappointment of the external auditor
- if the external auditor provides non-audit services, an explanation of how auditor objectivity and independence is safeguarded.
In addition the report could contain a separate section describing the work of the nominations committee, including the process it has used in relation to board appointments; a description of the board’s policy on diversity, any measurable objectives that it has set for implementing the policy and progress on achieving the objectives. An explanation should be given if neither external search consultancy nor open advertising has been used in the appointment of a chair or a non-executive director. Where an external search consultancy has been used it should be identified and a statement made as to whether it has any other connection with the company.
Other things to consider including
- any changes to the other significant commitments of the chair during the year where the board does not accept the audit committee’s recommendation on the appointment, reappointment or removal of an external auditor, a statement from the audit committee explaining the recommendation and the reasons why the board has taken a different position.
- a description of the work of the remuneration committee
- where remuneration consultants are appointed they should be identified and a statement made as to whether they have any other connection with the association
- the steps the board has taken to ensure that members of the board, and in particular the non-executive directors, develop an understanding of the views of tenants, shareholders, stakeholders and investors about the association.
Code of conduct
Under the Federation’s Code of Governance it is expected that housing associations establish a board code of conduct. To support the sector the Federation published Code of conduct 2012, which is an essential read for board members in the housing sector.
The code aims to set out how housing associations can achieve the highest standards of conduct and safeguard the sector’s long-standing positive reputation for integrity.
Provisions and principles
The provisions of the code relate primarily to those areas where attention to probity and propriety need to be exercised. It is firmly based upon the seven Principles of Public Life established by the Nolan Committee in 1995. The seven principles are:
- Selflessness: Holders of public office should act solely in terms of the public interest. They should not do so in order to gain financial or other benefits for themselves, their family or their friends.
- Integrity: Holders of public office should not place themselves under any financial or other obligation to outside individuals or organisations that might seek to influence them in the performance of their official duties.
- Objectivity: In carrying out public business, including making public appointments, awarding contracts, or recommending individuals for rewards and benefits, holders of public office should make choices on merit.
- Accountability: Holders of public office are accountable for their decisions and actions to the public and must submit themselves to whatever scrutiny is appropriate to their office.
- Openness: Holders of public office should be as open as possible about all the decisions and actions that they take. They should give reasons for their decisions and restrict information only when the wider public interest clearly demands it.
- Honesty: Holders of public office have a duty to declare any private interests relating to their public duties and to take steps to resolve any conflicts arising in a way that protects the public interest.
- Leadership: Holders of public office should promote and support these principles by leadership and example.
Whilst it is not expected that housing associations formally confirm annual compliance with the code it is expected that they comply with it or explain the reasons for any areas of non-compliance.
Shareholders, stakeholders, customers and investors
It is the board’s responsibility to decide the association’s shareholding policy. This should be reviewed annually and included in the annual report. Housing associations with a shareholding basis have clear responsibilities for engaging with and reporting to shareholders which are set out in the rules or articles of association.
Whilst many associations do not have an open membership policy for shareholders they do have a large and varied group of stakeholders interested in the conduct and performance of it. That stakeholder group may vary from large commercial institutions who have invested in the organisation to provide affordable housing, local authorities, community organisations and customers. Housing associations are independent organisations that are not covered by the Freedom of Information Act but it is important that associations are seen to be transparent in the way they operate and communicate with this diverse stakeholder group.
The relationship between the association and its customers the majority of which are likely to be its tenants is vitally important. At its core there is a contractual basis, enshrined in the tenancy agreement or lease for the property the customer lives in. However housing associations have had a long and successful track record of successful customer engagement and involvement strategies.
Some associations have chosen to have customers directly engaged in the board and committee governance structures. Others have chosen to work with customers in scrutiny roles. All are relevant but it is for the board to determine the most effective way that customers should be involved or not in the governance of the organisation.
The relationship with investors is, like that with customers, largely contractually established. The loan agreements will undoubtedly set out the reporting mechanisms and cycles required. It is important that the board are able to take the temperature of these important relationships.
Each association should develop its customer engagement strategy or consider how it should interact with it’s investors or local authority stakeholders. However, as part of good governance it is essential that the board are aware of the view of external parties on the organisation they are responsible for leading and governing.