...do more to report on its governance
A review of reporting on governance in the financial statements of the social housing sector, by leading business and financial advisors Grant Thornton UK LLP, has found that many organisations are failing to provide sufficient detail of their governance practices. The report, Steering The Way To Excellence In Governance, highlights that as the sector comes under increased pressure from stakeholders, governance information shared in annual financial reports will need to be more insightful and reflective of specifics.
“For many housing providers, the details they give on governance processes in financial statements and annual reports doesn’t provide the insight that it could. It appears that these reports are seen as compliance exercises rather than opportunities for greater transparency,” explains Jenny Brown, Head of Housing, Grant Thornton UK LLP. “While there has sometimes been the view that sparsely written financial statements are a mark of efficiency, it may be that this is increasingly seen as a sign of weakness rather than strength.”
The report analysed a number of governance criteria, including compliance with adopted codes; leadership; effectiveness; assurance; accountability; and remuneration. The information assessed related to the top 60 housing associations in England by income. On the topic of codes of governance, the study reveals that while the majority (87%) of registered providers use the National Housing Federation’s Excellence in Governance Code (NHF Code), a growing number (13%) have adopted the UK Corporate Governance Code 2012, usually associated with listed companies. At the same time, just over two thirds (68%) of housing providers have declared full compliance with their adopted code, compared to 57% of FTSE 350 companies.
“The interplay between government funding, regulation and responsibility to tenants drives a high consciousness in this sector of the importance of good governance. Equally, increased scrutiny by the Homes and Communities Agency (HCA) has revealed instances of non-compliance, sometimes where full compliance has been reported in the financial statements,” said Donald Sadler, Senior Manager, Governance.
Looking at leadership, social housing boards are showing good levels of independence, with the majority (84%) of board members being non-executives. However, only 22% of providers give details of their board evaluation, which makes it difficult to see whether they have complied with their governance code. To compare this with wider UK practice, 63% of FTSE 350 companies share details about their evaluation processes.
The social housing sector is also one of the best performing in terms of board diversity – 28% of board members are women, compared to 19% in the FTSE 100, and 15% in the FTSE 250.
Jenny Brown added: “The housing sector faces significant obstacles due to budget cuts and changing government policy, so it is even more important that the board is equipped with the skills it needs to meet these challenges. The board’s role is key to guiding the housing provider’s strategy and in directing, controlling and scrutinising its affairs. As a result, boards must have a mix of appropriate skills to do this effectively. Demonstrating evaluation is vital for showing that the board is delivering what it needs to in order to support the wider organisation.”