Appointing Senior Independent Directors is ‘business critical’ for housing associations

Housing associations are under greater pressure than ever to help deliver more vitally needed social and affordable homes.

The scale of the challenge means that many have developed bigger balance sheets than quoted private sector companies, and have already adopted stronger governance, boardroom and management structures to support their expanded business models.

But housing associations should now consider going one step further that could be business critical – with the appointment of a Senior Independent Director (‘SID’).

Why now?

There is ever-increasing pressure on housing associations to deliver – whether that is delivering excellence in customer service, new homes, new strategic partnerships and joint ventures or new funding models.

Following the Grenfell tragedy, and in forming our new relationship with Government, RPs are subject to a significant degree of scrutiny. We are increasingly seeing delivery through joint venture vehicles, commercial subsidiaries, and the formation of public limited companies to raise bond finance.

In addition, the number of for-profit housing associations has increased significantly. Many of these organisations have investors that have large portfolios and are familiar with the role of the SID, and in utilising that relationship to build their relationships with an organisation.

Alongside this, the growth of other novel structures, including leaseback structures, increases the number of ‘new’ stakeholders to the sector.  This increases the impetus for the sector to show consistently high standards of governance.

Our governance practices should be aligned to the commercial sector to protect our assets in the same way we would expect a listed company to protect its assets. There seems to be nervousness in the housing sector about SIDs but why should housing be any different to the ‘pure’ commercial world?

After all, housing has evolved significantly over time, becoming more aligned to the commercial sector in the way that we operate, and branching out into ‘commercial’ activities to cross-subsidise our primary social and charitable objectives.

Our corporate and governance structures are changing; we must ensure our governance practices are fit for purpose so that we can continue to meet the highest standards possible

With continued pressure on us to deliver, the role of the Senior Independent Director (SID) can assist us to demonstrate excellence in governance – and better achieve our strategic objectives. 

The role

The SID is not a new concept in corporate governance, but it is relatively new to housing associations. A SID has the same status as any other non-executive director, but their role is expanded in a number of ways.

Firstly, the SID is an important tool for the growth and retention of external relationships (outside of the boardroom). Whilst housing associations are complex, they are significantly different in nature compared with listed companies, with stakeholders ranging from investors and developers, to local authorities, through to customers and wider communities.

The SID’s role is to work closely with the Chair and Chief Executive to build and maintain these relationships. It is not intended to undermine them, but to ensure that where a stakeholder or external party feels they have potentially reached a ‘dead-end’ in negotiations or discussions, that they don’t simply disappear to the detriment of the business.

Instead they can interface with the SID who has to sense-check what is going on and can provide an independent view on behalf of the board. The SID would simply seek to achieve the strategic direction that the board has set. This could be particularly important in sensitive merger situations.

Internally, the SID has an important role to ensure that the board is working well and succeeding against the organisation’s strategic objectives. An extreme example is if the relationship between the Chair and the Chief Executive breaks down. Both roles have a significant degree of power and authority, and therefore should be resolved by someone with sufficient authority and independence to represent the entire Board in resolving the conflict.

In this way it is an additional ‘layer’ of protection for the organisation and the Board to ensure it is working in the best possible way.

Overall, we believe that appointing a SID:

• Demonstrates good governance because it provides an additional level of assurance, and a greater accountability tool in relation to the Chair’s performance, as the SID will lead whole board discussions in relation to the Chair’s appraisal
• Affords the Chair with support in terms of a sounding board when needed
• Allows the board to seek counsel if there are fractious relations with the Chair and can resolve those issues before they escalate
• Acts a control mechanism but should not be a role that undermines other roles, it should compliment and be a trust based relationship
• Assists in relationship-building if the relationship between the Chief Executive and Chair has broken down, alternatively the SID can intervene if the relationship becomes too close that it could damage good governance practices.
• Provides an additional channel of communication for investors, shareholders and stakeholders

Conclusion

When the role was first proposed in the UK Corporate Governance Code it was controversial as it was seen as cumbersome and at risk of undermining the role of the Chair. However, it has now become recognised as best practice for listed companies and is something that investors look at as a positive indicator of good governance.

Work is underway in many housing organisations to change their governance models and (in many cases) make a SID appointment. Yarlington recently appointed its Vice-Chair as the SID for the Group. We believe it is likely that others in the sector will want to do the same.

Authors:

Sarah Greenhalgh - Senior Associate, Bevan Brittan

Gemma Burton-Connolly - Head of Governance and Legal, Yarlington Housing Group