The TSA and co-regulation – reasons to be cheerful?

At one of plenary sessions at the National Housing Federation’s National Board Members’ conference at the weekend, the delegates were asked to put up their hands if they were optimistic about the future for housing associations in the brave new world of the Tenant Services Authority.

The TSA’s new approach to “co-regulation” (neatly described as self-regulation with a backbone of intervention in the Cave review of social housing regulation) is a new departure. The TSA is having a bonfire of over 50 pieces of regulatory guidance.

From now on housing associations will be regulated on the basis of “outcome” rather than “process”. It’s not a new idea – “by their fruit you shall know them” has been around almost 2000 years. It may be more tricky in practice for regulators to sit on the hands and await outcomes – especially if things go wrong elsewhere and fear of blame fosters risk aversion. Moreover, it is worth noting that a good process is not guarantee of a good outcome even with effective risk management – we live in uncertain times meaning that bad things happen to good organisations and vice versa.

All this may be academic - the TSA may well end up slung onto its own bonfire by a quango-culling Conservative government.

Nevertheless, a more targeted approach to regulation must be a good thing for housing associations – especially as it is associated with a re-orientation towards customers through resident scrutiny. As well as a welcome development, it does pose challenges – grown-up governance requires an end to clinging to regulatory guidance as a substitute for serious thinking.

So I did put my hand-up. I hope my optimism is not misplaced.

Public sector pay – political dynamite?

Last week’s hopeful news on unemployment overshadowed some interesting facts from the Office of National Statistics on pay. Over the last year public sector total weekly pay rose by 3.8% compared with a year ago but in the private sector it fell by 0.1%. On the same day local authorities proposed a 0% pay rise for their employees.

This issue (plus public sector pensions with imminent local authority fund valuations) may well see some industrial unrest and political debate in forthcoming months.

2010: which way now?

It seems like commentators don’t know where we are going. There is inevitable uncertainty as the fiscal and monetary stabilisers are likely to come off in 2010.

The uncertainty is most acute with the housing market. Last weekend the Financial Times had a couple of articles setting out predictions for house price rises – or, rather, falls.

In one of the articles the predictions varied from a optimistic 5% rise from Stuart Law, the chief executive of Assetz, to a more than 10% fall from one of the paper's own columnists.

The other article asked 70 professional economists if houses were now reasonably valued: 13 believed they were, 55 said they were not and two did not want to hazard a view. Naturally those who thought house prices were over-valued disagreed on by how much. The respected National Institute of Economic and Social Research suggested that house prices were 10-15% too much.

Of course, a double-dip recession, maybe triggered by a crisis budget or the end of quantitative easing, may have a few ramifications for the housing market.

Happy New Year.

Change on the way: accounting in education, housing and charities

Today I am heading for London. I am on CIPFA’s FE/HE Panel. One of the items on the agenda is convergence towards International Financial Reporting Standards in the accounting for the education, housing and charities sectors (so-called UK “public benefit entities”).

The week before last I was at a consultation event for these “third sector” sectors following an Accounting Standards Board discussion paper. A key issue for debate is whether there is a need for further sector guidance, possibly filling a similar role to the SORP guidance for these sectors. I think this a recognised need within the three sectors as they have together and individually particular issues. I am confident that accounting regulators are listening.

Pay day: salaries in the news

Today’s news that employers' group CBI and recruitment firm Harvey Nash have found that half of all British employers plan to freeze pay will no doubt stir the debates around pay and fairness.

I’m not a regular reader of The Times but on Friday I picked up a free copy last week and read a couple of articles about pay.

The inflammatory headline Public sector workers laughing all the way to the bank caught my eye. In fact the content was a bit more subtle than that. A typical public sector worker may now earn £74.20 a week more than their private sector equivalent. The figures are partly distorted by bankers joining the public sector. (One factor not mentioned is the fact that now a lot of the lowest paid jobs have been out-sourced by the public sector to the private sector.) Nevertheless in the run up to next spring’s election the pay and the public-private divide will be a sensitive issue.

There was also a report about criticism of “greed, bonuses and supersized pay packets” in the voluntary sector from the union Unite. I personally do not have a problem with high salaries for managers in the not-for-profit sector, including the general secretaries of my old union Unite. The key thing is transparency and payment for (good) results.

Code unknown: the third sector code of governance

In a couple of weeks the consultation ends on the revised third sector code of governance. When it was launched in 2005 the original code, Good Governance: a Code for the Voluntary and Community Sector (pdf available), was a real step forward for the voluntary and charitable sector. As there was more talk and even action on the third sector running public services, it was vital that the sector raised its game.

It was disappointing to read on the Third Sector website that more than a quarter of the respondents to the code consultation had not heard of the original code. There is still some way to go…

Going Dutch – self-regulation and the problems of housing associations in the Netherlands

The Conservatives’ plans for social housing will re-open the debate over regulation: if the TSA is abolished, many in housing associations (and certainly the National Housing Federation) will advocate self-regulation on the Dutch model. Meanwhile the housing associations in the Netherlands are having some problems.

Last week it was reported that Dutch housing associations had posted an average loss of €1.2m - the first time the sector has failed to make a profit in well over a decade. This will put under strain the sectors own arrangements to rescue troubled associations. While the financial problems may be largely outside the control of the associations, the self-rescue and the self-regulation arrangements tend to support each other.

Cuts: Labour and further education colleges

Yesterday’s Observer published confidential papers that show plans for £350m of further education cuts in 2010/11.

The paper listed options including:

- Cutting by 10% of the funding of adult apprenticeships.

- Delaying the introduction of "skills accounts".

- Reducing funding for Train to Gain scheme.

I hope FE colleges are preparing for the future whoever wins the election.

Catchup - the Conservatives and regulation of social housing

Life has been busy - mostly working with organisations in the overlap of the public, charitable and education sectors. This month I will try to reserve more time for this blog.

This weekend I have been catching up on last month's issues of Public Finance. It was disappointing to see that the Conservatives appear to be planning to re-arrange the regulatory landscape for English social housing as part of the crusade against quangos. If the Tenants Services Authority is doomed, there will have to be a new regulatory regime otherwise lenders will be wary of lending to housing associations - or, if they do, it will be at higher margins.

Can’t get no satisfaction (statistics): reporting performance

One of the most promising developments in public services in recent years has been the increasing attention to customer satisfaction - whether those customers are students, patients, residents, or whoever. Often regulators require the publication of satisfaction statistics. When the results show improvement, public sector organisations do no need much encouragement.

I was therefore interested in the latest newsletter from my local NHS hospital trust. The headline was "Survey reveals patient satisfaction is on the up":

Significant improvements since 2007 included:

- The hospital room or ward was very clean - up 12%
- Always offered a choice of food - up 12%
- Doctors always washed or cleaned their hands between touching patients - up 10%...

But where did that take the Trust? What were the new percentages? (How many doctors had dirty hands?) How do the new percentages compare with last year's? What were the old percentages? What about the average rates for other comparable hospitals?

There were no charts illustrating any of this. Just words.

Perhaps the article was not intended to report performance - only tell of how the Trust was on "on the up". But accountability is about reporting performance.

Death by Powerpoint

If you’ve ever suffered death by Powerpoint in meetings or training, this may amuse:

(I found the link on Jon Moon's website, which I have recommended before.)

10:10 vision: making a carbon commitment

Last week I was pleased to see that public and third sector organisations making the 10:10 pledge i.e. committing to cut carbon emissions by 10% in 2010. There are ten universities as well as dozens of schools.

While some carbon-reducing measures will have cashflow and budget implications which may preclude speedy implementation at the current time, other measures may save money as well as the planet.

I am actively seeking to reduce my business mileage which is significant albeit driving a low carbon car. Making the 10:10 is consistent with that. I will sign up although I am no sure whether I do that personally or as Deed Consulting.

The Combined Code review – board evaluation and external facilitation

Another issue in the Financial Reporting Council’s Second Consultation on its Review of the Effectiveness of the Combined Code is the suggestion that the Code be amended to recommend that board evaluations should be externally facilitated at least every two or three years for some or all companies.

This proposal follows the Walker Review of the governance of the banks. The Walker Report recommended:

The board should undertake a formal and rigorous evaluation of its performance with external facilitation of the process every second or third year.

I certainly believe this is relevant to the public sector and third sector. (And its not just because I would happily facilitate, support or validate board evaluation.) While many organisations in these sectors have adopted board self-assessment (and in the case of housing associations board member appraisal), these processes can be lacking in rigour. Too many board members are asleep either metaphorically or literally. An outsider can more easily challenge a board member than his or her peers. Moreover, an external facilitator can bring an independent perspective and wider experience when some boards may not realise that they are not performing as well as they could or should.

No limits? Board renewal and good governance

Writing governance codes must seem like painting the Forth Bridge. It only seems like yesterday that the Combined Code was revised – now we have a new revision. In fact this summer saw the Financial Reporting Council issue a Progress Report and Second Consultation on its Review of the Effectiveness of the Combined Code.

I will not try to summarise the ideas kicked around in the Second Consultation. (KPMG’s Audit Committee Institute have published a useful guide in its Quarterly.) A couple of ideas did catch my eye.

In the section on Board Balance and Composition, one of the specific issues for further consideration is the question of:

whether the so-called “nine year rule” has resulted in a loss of continuity and valuable experience.

While the Combined Code applies to listed companies, it sets the pace for governance beyond – not least the public and third sectors.

The nine year rule is definitely an issue in the housing sector. A nine year rule has been recommended by the National Housing Federation for several years. It remains controversial. Several housing associations dodge the issue by starting the clock for the nine years when the rule was introduced rather than when the board member was appointed. Imagine the uproar if banks were so blatant in ducking best practice on board renewal! (I know that many long-standing board members bring commitment, experience and continuity but perhaps those board members could bring even more to other organisations as well as allow fresh blood.)

Sadly, there is barely an issue in the college sector where I have done work on governance since the mid-1990s. The Learning and Skills Council raise the issue in its guidance but in the absence of any code of governance for the sector, the recommendation lacks profile.

I hope that the Financial Reporting Council will keep the nine year rule although it needs to be framed appropriately and applied flexibly so that board renewal - with effective succession strategies – supports “continuity and valuable experience”.

Whatever happens, I’ll be stepping down as a board member in the not-to-distant future when my time is up.

Post-16 education changes: things can only get better?

This week’s Public Finance reports that the Learning and Skills Council’s chief executive has warned of something close to chaos as the quango is dismembered – part becoming the Young Peoples’ Learning Agency and part the Skills Funding Agency.

Geoffrey Russell writes in the LSC’s annual report: ‘As the transition progresses over the next year, there are significant risks that the LSC will not be able to meet its objectives, staff morale will be affected and systems of internal control will break down.’

Those of us who have worked with colleges for several years will remember the dislocation caused when the Further Education Funding Council and forty-plus Training and Enterprise Councils were put together less than a decade ago – pulling organisations apart is even more disruptive than putting them together.

The histories of the FEFC, TECs and LSC suggest that the SFA and YPLA will share the same fate.

If the Conservatives enter government next year, the next upheaval may come even sooner. David Cameron’s rhetoric about a bonfire of quangoes chimes with noises from his party about resurrecting the FEFC – re-creating a funding body with a narrower remit than its successors and removing from local authorities their new funding role in 16-18 education.

We’ll have to watch this space.

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.