Regulation, governance and social housing: moving from self-assessment compliance to continuous improvement

A couple of flights across Europe offer the opportunity for catch-up. I used some time to read Governance: A discussion paper published last month by the Tenant Services Authority. The paper asks how the TSA should regulate governance on a cross-domain basis for all social housing providers – i.e. “across whole entities for not-for-profit registered providers and across the housing activities of for-profit providers”.

The discussion paper clearly sets out the issues and recognises the diversity of providers in a potentially mixed social housing economy. However, I am not convinced it faces up to the challenge of the kind of rigorous but focused regulation needed when addressing not-for-profit and for-profit providers. (I would argue that the financial turbulence buffeting social housing recently requires regulation targeted at promoting tenants interests and protecting public investment – which is not the same as more prescriptive or interventionist regulation.)

The discussion paper describes the current regulatory arrangements and notes that the self assessment compliance statement is “a key and significant part of our regulatory engagement”. The first question asked by the discussion paper is:

What elements of the existing approach to the regulation of governance should the TSA carry forward?

I would suggest that the self assessment compliance statement should be rejected or , at least, radically re-cast. I think it encourages a tick-box compliance mentality rather than fostering self-reflection. The TSA should ask where they see weaknesses and areas for action rather than requesting a “compliance statement”.

A document based on identifying scope for improvement should then be validated against an organisation’s financial and operational performance – internal and external audit reports, audited financial performance, reported operational performance indicators, etc.

The TSA says:

We are considering applying a range of assessment methodologies including:

- self-assessment by registered providers’ boards

- feedback/assessment from residents

- and stakeholders

- benchmarking and peer review

- independent validation/audit of a particular function/s

- accreditation

- the TSA’s assessment of certain key indicators of good governance

If that is focused and rigorous validation of performance about ensuring that governance is delivering for customers and protecting the public interest, I am in favour. But social housing providers do not need a paper chase.

School league tables: past performance is not necessarily a guide to future performance

Many of the opponents against choice in public services rely on weak arguments. “The middle class will benefit” – yet they already win by having the resources to choose through moving into catchment areas (or buying in the private sector); ”the poor don’t want choice” – yet surveys demonstrate otherwise; “what people want is a good local school/hospital/whatever” – yet choice (with competing providers) is a means to that end.

I was therefore interested to read an article in the latest bulletin of Bristol University’s Centre of Market and Public Organisation, Research in Public Policy. The authors of Are league tables any use for choosing schools?

George Leckie and Harvey Goldstein studied the statistical significance of value added scores and concluded:

... when taking account of this uncertainty, the comparison of schools becomes so imprecise that, at best, only a handful of schools can be separated from the average school or from one another with an acceptable degree of precision. This implies that publishing league tables to inform parental choice of school is a meaningless exercise, as parents are using a tool which is not fit for that purpose.

In particular, they noted the lag of over five years between the parents looking at league tables when choosing a school and the children sit their exams. Five years a long time in the life of a school.

Does this information problem blow a hole in the argument for empowering parents and other customers of public services? I would suggest not – there are other measures of performance other than exam league tables. (There may, of course, still be value in value added league tables if failing or coasting schools raise their game through being either “named and shamed” or spurred by fear of falling school rolls.) Nevertheless the research does pose more of a challenge than the arguments usually wheeled out against choice.

Board members, finance committees and financial monitoring – need to know basis?

I recently heard a partner of an accountancy firm (and provider of audit services to the housing sector) say that housing association board members did not need any quarterly financial reports – as long as the board had a finance committee doing the board’s financial monitoring. My immediate response was one of both disagreement and disbelief.

In case I had missed something. I thought I would consider Treading the Boards (pdf available) – the Housing Corporation’s self-assessment framework for board performance. (A guide to housing association governance published in 2001 but still relevant. It also informed the Corporation’s regulatory expectations).

Treading the Boards stated that the “key roles or functions” of a board include:

Monitor[ing] the association’s performance against agreed targets and milestones through regular critical appraisal of financial, operational and development information

It made it even clearer saying that the board should be able to demonstrate that it:

regularly and critically reviews management information on financial and operational performance against budget /targets, the previous year’s figures and external benchmarks

It interprets regularly as monthly or quarterly.

But can board members contract out their financial monitoring role to a finance committee?

Larger, more complex, associations may have established business activity sub-committees that can address the critical issues in more detail than would be possible for the main board.

I read that as giving finance committees a role of detailed scrutiny – not the rest of the board ducking out of this key function. (While I am a great believer in the value of committees in governance structures, I’ve seen governance failure arising from boards being oblivious to the concerns being raised about financial issues in committees.)

What about guides to good practice outside the world of social housing? The 2003 Review of the role and effectiveness of non-executive directors by a committee headed by the now late Sir David Higgs noted:

Non-executive directors should scrutinise the performance of management in meeting agreed goals and objectives, and monitor the reporting of performance.

That report considered this to be a “key element”. Subsequent events in social housing as well as the wider world have surely proven this and reminded everyone that we live in financially hazardous times.

Anyone suggesting that board members can pass the buck of financial monitoring to a finance committee should also pause and consider the fact that housing association board members will generally have the duties of a company director and/or charity trustee. These cannot be evaded in some kind of governance pass-the-parcel.

The NAO on the LSC: Train to Gain taking the strain

The recent select committee report on the Building Colleges for the Future programme received plenty of coverage in the media. The LSC escaped similar publicity following this week’s National Audit Office report on Train to Gain: Developing the skills of the workforce.

The NAO report concluded on the scheme’s value for money:

In our view, however, over its full lifetime the programme has not provided good value for money. Unrealistically ambitious initial targets and ineffective implementation have reduced the efficiency of the programme. While the rapid changes to the design of Train to Gain to gene rate employer demand have presented a considerable challenge for the LSC, inconsistent management and communication have led to confusion among employers, training providers and skills brokers, and have increased programme risks. Some providers have achieved high learner success rates, but for a minority success rates have been poor. Half of the employers whose employees received training would have arranged similar training without public subsidy, though it is possible that some of these learners (any not already qualified at level 2) were entitled as individuals to receive full public funding for such training.

In its recommendations the report went onto make a link with the Building Colleges for the Future crisis:

It is vital that Train to Gain avoids the pitfalls of the further education capital programme which became severely over-committed.

Perhaps it’s too late as many colleges face a financially and operationally difficult year as a result of their 2009/10 employer responsive funding allocations from the LSC.

Pandemic flu, absence rates and risk management

It now appears that the number of people off work due to coughs, colds and flu is three-times higher than normal for the time of year. What will happen when pandemic peaks? What if it comes back worse in the autumn?

What we do know is that many organisations risk management will be tested in the near future.

Over the last few years many people were disinterested in preparedness and tended to humour those of us were encouraged attention to the issue. I suspect this was, in part, due to the Year 2000 risk that never materialised. Hopefully next time people will look at the facts and assess the risks objectively.

Telling Fritz: lessons for the public and third sectors?

This weekend’s FT reports on the resurrection of General Motors. I was interested to see that the GM Chief Executive Fritz Henderson is to have a Tell Fritz website where employees and consumers can voice their views and concerns.

Perhaps organisations in the public and third sectors could so something similar. Certainly one or two organisations have drifted out of touch with heir customers and other stakeholders. I would allow engagement, involvement etc for those without the time and/or inclination to attend meetings or fill in questionnaires.

I would be interested in any examples of where organisations delivering public services are imaginatively using blogs to open up communication channels.

Ethics – not expenses?

It now seems that the expenses furore has died down. Its effects will be legion. One effect will doubtless be in the audit plans that internal auditors propose and audit committees consider.

Thousands of internal audit days will be devoted to checking the processes for expenses as internal auditors and audit committees will have been unsettled by the Westminster expenses scandals. If anyone needed a reminder of the seriousness of reputational risks, they have had it. (It’s worth noting that the ripples of the expenses row have reached both the BBC and charities.)

Will those internal audit days be well-spent? Definitely, sometimes.

Where expenses policies are poorly worded, inadequately applied and widely disrespected, some lessons may be learned and culprits may be caught. However, I do wonder if elsewhere the internal audit resource might be better deployed looking more widely at the ethical environment of organisations.

How often do internal auditors look at:

1) How a culture of ethical responsibility is fostered across the organisation?

2) How well codes of ethics are agreed, communicated and bought-in to?

3) How responsibility for ethical matters, legal compliance and reputational risk is allocated?

4) How effectively are social, environmental and ethical risks integrated into risk management?

5) How does the board set itself ethical standards (along the lines of the IoD’s Standard for Directors)?

The answer is not very often and maybe not very well. There is a risk that these kind of reviews degenerate into empty tick-boxing.

I am aware that some housing associations have renamed their audit committees as audit and ethics committees. It will be interesting to see if that means more than a nod in the right direction.

Certainly audit committees do need to look at the wider ethical scene rather go searching for duck houses.

Independent advice: governor training

The Independent website is carrying an article from the Chair of the Association of Colleges announcing the setting-up of a Governors’ Council to provide support and guidance. The Council is a useful addition to the college sector landscape.

John Bingham notes both the value and the limits of institution-specific induction and training.

I would also suggest that college governors (and other board members) can get value from being briefed and challenged by an external trainer or facilitator. (I declare an interest.) Too often colleges exclusively rely on “insiders” (the college’s own managers and auditors) to provide training on how to monitor performance (of managers and auditors).

A pre-election fix for the local government pension scheme?

This weekend’s FT reports that the government is thinking about allowing the local government pension scheme to have more relaxed funding levels than private sector schemes - as local government has “constitutional permanence” ie it does not have the same risk of going bust. This resolves a thorny problem – it makes the next actuarial valuation (and coverage of the funding black hole) in spring 2010 less of an issue in the run-up to an election.

What is less clear is how this would leave entities outside local government – notably some housing associations and all FE colleges – whose support staff are members of the local government pension scheme. These entities do not have the same permanent. Perhaps they will still face increased pension costs in 2010 and into the foreseeable future with implications for both their finances and their services.

Capital mistake: halving public investment

Amidst the arguments about cuts versus investment (and the unfortunate reference to “zero per cent” public spending rises by Gordon Brown), there is the undeniable fact that the government is winding down capital investment – the government plans to halve in the four years from 2009/10.

Earlier in the month Public Finance carried a useful survey of Capital Punishment - the implications of reduced capital spending. The college sector is already feeling the pain with dozens of rebuild projects being turned down for funding.

The FT on governance and risk management

Today’s Financial Times has a Special Report on Corporate Governance (available for free pdf download on FT.com). I’ve not yet read the full suite of articles but there is a good piece on risk management in the light of recent corporate failures.

Jeremy Grant notes:

… [T]here is much work to be done to figure out what kinds of risk management systems boards should have in the wake of the financial crisis. That exposed how information flowed far too slowly up to the board level to allow early diagnosis of problems.

While boards have policies and processes for risk, the critical information is not getting though in time. (I’ve certainly seen that in the public and third sectors – the private sector has no monopoly on risk management failure.)

The article also reports he wariness of some experts about whether the issue of risk management is too big for audit committees.

Latest instalment at Glasgow Housing Association

The situation appears to be worsening at the Glasgow Housing Association (GHA). It appears as if the Scottish Housing Regulator (SHR) is about to step in triggering a loan covenant default. (This isn't a good thing when such breaches lead to increased financing costs.)

The GHA with over 100,000 customers was created through a huge stock transfer.

We'll soon now more about what is going on when the SHR issues its new report on the association. One lesson that I think we’ll learn when we look back on this stock transfer is that changing a huge local authority housing department into a housing association in a big bang poses certain problems. Big is not always beautiful.

The feeling's mutual: building societies in the news

Today FT.com is carrying good and bad news about building society mutualism. The government is looking to promote and strengthen the mutual model in finance. Meanwhile, it looks like the West Bromwich Building Society may have to give up its independence and merge.

College principals’ pay shock!

Sorry. The figures don’t really justify the headline. Last year college sector principals had fairly modest pay rises - especially sixth form college principals. This would appear to contrast with chief executives in the universities sector.

With the data on college accounts published by the Learning and Skills Council, I calculated the median pay for principals in 2006/7 and 2007/8. I also separated general further education (GFE) and tertiary colleges (TC) from sixth form colleges (SFC). (I chose the median as it is less likely to be distorted by, for example, large severance packages or interim principals.)

In 2007/8 the median GFE/TC principal was paid £111k – up 5.7% the previous year. The median SFC principal was paid £87k – up 3.6% on 2006/7. (These figures omit the value of non-pay benefits.) Between August 2007 and July 2008 the RPI fluctuated between about 4% and 5%.

(If anyone would like more details, please get in touch via my website.)

With the public finances being increasingly squeezed, it looks like principals are leading by example.

UPDATE: The Universities and Colleges Union has also looked at the data. UCU have a different perspective. They also use the figure for pay rises given by colleges rather than calculating the rise in pay (which includes bonuses).

DIUS deceased

As was speculated this week the Department for Innovation, Universities and Skills is no more. It is now merged into Lord Mandelson's BERR business department.

When public finances (and hence public services) are under-pressure, the short-lived DIUS cost over £7 million to set-up - around £10,000 per day over its short and unhappy two years.

Re-shuffling bureaucracies

Today’s Financial Times indicates that Downing Street is thinking about “another Whitehall restructure” – i.e. re-shuffling departments as well as cabinet ministers. Earlier in the week there were suggestions at the Association of Colleges’ Finance Directors’ Conference that the Department for Industry, Universities and Skills might be merged into Department for Business, Enterprise and Regulatory Reform. (What would you call the offspring of such a union?)

It is a sad fact that the government periodically lapses into bureaucratic shuffling as if merging, de-merging or re-naming departments will fix problems. (Readers of this blog will know that I believe that genuine reform is more likely to involve creating customer choice and competing providers in he delivery of public services.)

Sometimes re-arranging bureaucracies is appropriate but it involves time, effort and resources which could be used for other purposes. How often is the cost-benefit analysis done?

DIUS has existed less than two years. It has major issues on its agenda – like the LSC capital funding debacle. Let’s hope the rumours are unfounded and DIUS can get on with its job.

What do you call a group of college finance directors?

Tomorrow I am off to the Association of Colleges’ Finance Directors' conference. The cynics might suggest that a meeting of a few hundred accountants would never be fun but this year there'll be extra despondency thrown in with LSC capital funding crisis and the imminent tightening of the screw in public finances.

This week’s Times Education Supplement quotes the chair of the College Finance Directors’ Group suggesting that half of England’s FE colleges could be categorised as economically vulnerable over the next two years. He also predicts swathes of redundancies across the country.

Governors Needed: effective governance in schools

Today Radio Four broadcast a documentary on the challenges facing school governing bodies. Hopefully Governors Needed will be made available on the BBC’s listen again.

The programme highlighted the obstacles that can hinder effective governance and result in rubber-stamping. Many of the themes will be familiar to those charged with governance in other parts of the public and third sectors.

The documentary featured comments (and concerns) from the National Governors' Association. If you are a school governor, it will probably worth looking at the resources available on the NGA website.

Tortoises and hares: public sector pay and pensions in the news

Yesterday several newspapers carried articles about a PricewaterhouseCoopers study of relative pay and pensions in the public and private sector. The good or bad news – depending where you sit – is that public sector pensions are shifting balance of advantages towards he public sector.

The PWC study assumed the private sector Hare and the public sector Tortoise both started work in 1981 at age 21. The Hare earned and spent more up to the stock market peak in 2007. Thereafter, a more broken employment history and a much less secure and generous private pension meant that the Hare ends up losing. The accumulated non-pension wealth of the Tortoise is higher from around age 55 and, by the time both die at age 80 in 2040, the Tortoise has accumulated non-pension wealth of around 30% more than the Hare to pass on to his descendants.

We can all query some of the assumptions but the delicate issue of public sector pay remains.

I would be interested in the relative positions of the Tortoise and Hare’s female equivalents. When the affordability of public sector pensions is queried, the unions (quite legitimately defending their members’ perks) point out that many public sector pensions are looking forward to “tinfoil” pensions rather than “gold-plated”. The reasons for the small size of pensions reflects the structure of public sector pensions – with their final salary basis which favours full-time career civil servants rather than those female members who are often part-time and passing through the public sector. It would be good to see the unions promoting the interests of their female works in the debate about the fairness and affordability of public sector pensions.

Charities harnessing the power of the internet?

The research consultancy nfpSynergy have issued the results of its Virtual Power survey on The power of the internet for charities. (The report can be downloaded if you register.) the report has some interesting figures although I hope some analysis is to follow as 345 pages is a lot to go through.

Some figures do stand out. It was perhaps surprising to read that 48% of charities are now using social networking sites. (I do wonder how many public sector organisations do likewise.) Less surprising is that only 28% bother to blog.

Strangely the latest survey shows fewer organisations look at the possibility of SMS and mobile telephony as a communication tool. Similarly fewer are using these tools. I do wonder if the mix of respondents may have changed in the recent surveys.

Only a quarter of respondents agree with the statement: “My charity is making the most of the internet".

Only 23% of charities agree with the statement: "Our trustees are involved with our internet strategy". (That may be due to a lack of such a strategy!) Meanwhile 32% of the respondents agree either strongly or slightly that "Our internet strategy is ratified and approved at Board level". That sounds like a rubber stamp being applied – uninvolved approval!

I’d recommend charities (and others) have a look at the survey. The questions – even more than the answers - should get you thinking.