Welcome to our snapshot of key changes and current affairs for Company Secretaries working in social housing.
Awareness: Pension Reforms - A Seat at the Table
The Pensions regulator is expanding its arsenal of powers with new notification obligations around certain events, which it believes may have the potential to harm pension schemes by reducing employer covenant or possible return for the scheme on an insolvency. These changes seem likely to guarantee it or scheme trustees a seat at the negotiating table on certain corporate activity.
The existing list of specific notifiable events is broadened with the following:
- A decision in principle to sell a material proportion of its assets (broadly 25% or more of its gross revenue or gross value) – this includes a transfer of engagements or amalgamation, even if an internal re-organisation; or
- A decision in principle to grant or extend security over 25% of its gross assets or revenues, assets and the secured creditor ranks ahead of the pension scheme.
Note that refinancing of existing debt outside of these two tests will not be included in the notification obligation.
This notification requirement is triggered at ‘decision in principle’ stage – this would be prior to any heads of terms or preliminary agreements are entered into, and prior to even preliminary negotiations i.e. from the moment a decision is made to proceed.
Notifications should set out:
- Details of the event
- Any proposed deal terms (even if not agreed)
- Details of the adverse impact on the pension scheme and any mitigation that will be provided to offset the adverse impact
- Details of the communications between the employer and trustees.
Rolling 12 month periods for reviewing the impact of multiple transactions and assessing the 25% thresholds are envisaged so careful thought as to timing will be needed.
Further duties will be introduced for employers (and associated and connected advisers) when the main terms have been proposed. Any material changes to the transaction or event or is aborting will trigger a further duty to report to the Pensions regulator.
Failure to comply with the requirements could in theory find individual subject fines of up to £1million.
Question marks remain around, for example, what amount of planning becomes a decision ‘in principle’ or indeed who makes that decision. For example - decision making power is usually held at Board level, but in scoping the initial proposal a HR manager may be asked to look into the impact of a TUPE Transfer - that person has no power nor does it appear a decision in principle has been made.
Whilst most industry focus has been on the criminal sanctions and huge fines in the Pensions Act, these new notification requirements have the potential to be a bigger driver in changes in behaviour. It may necessitate more thought or investigation of issues and better recording of thought processes early in any potential transaction ahead of decision in principle to proceed.
Organisations will also need to balance this with the requirements around Insider Information for those RPs with listed debt.
The Financial Reporting Council (FRC) publishes its annual review of corporate governance reporting
The FRC has published its annual review of corporate governance in which it assesses the quality of reporting against the UK Corporate Governance Code. This is a Code that sets out standards of good practice for listed companies. Whilst the majority of RPs adopt the NHF Code, the UK Code is also adopted by some RPs.
The review found there to have been a general improvement in reporting however also flagged various areas in need of improvement. The recommendations include:
- Code compliance. Companies should make it clear where their reporting is non-compliant with the Code and should give clear explanations for such non-compliance.
- Purpose and culture. Companies should demonstrate how purpose, values and strategy are connected and should give greater attention to linking different culture-related initiatives across the organisation.
- Succession planning. Improvement is needed in companies’ reporting on the processes of identifying and developing potential future leaders. Such reporting should show how these processes link to assuring the make-up and diversity of the board.
- Diversity. Companies should improve explanations of their diversity policies with objectives and targets and demonstrating their connection to company strategy.
- Stakeholder engagement. Companies should report on the actual or intended outcomes of engagement with their stakeholders and should provide supporting evidence when reporting on the performance of particular decisions.
- Modern slavery. Companies should build trust with investors and wider stakeholders by explaining how they are combatting modern slavery in their supply chains. The review flags the quality of reporting in this area as “concerningly poor”.
- Remuneration. Better explanations should be provided in relation to how executive remuneration is aligned to a company’s purpose, values and strategy. Where a company has a remuneration committee, the company should state whether the committee has used its discretionary powers in determining the remuneration awarded and should clearly explain the reasoning for this.
- Audit and risk. Companies should have a greater focus on assessing and ensuring the effectiveness of the risk management and internal control systems.
Glass Lewis Policy Guidelines
Glass Lewis has published its policy guidelines for 2022. These are updated annually and aim to incorporate global governance best practices so as to remain current with market practice, regulations, governance codes, and evolving standards of best practice.
The main updates that have been made to the guidelines are as follows:
From 2022, Glass Lewis will generally recommend against the re-election of the chair of the nomination committee of any FTSE 100 board that has failed to appoint at least one director from a minority ethnic group without a clear and compelling reason for failing to do so.
Glass Lewis has amended the language in the guidelines to clarify that an assessment of board-level gender diversity is based on the self-identification of directors and that directors that self-identify as non-binary contribute to the gender diversity of a board.
Glass Lewis has recommend that shareholders vote against the re-election of the remuneration committee chair where there are substantial concerns with the remuneration policy presented for shareholder approval and/or the pay practices outlined in the remuneration report.
From 2022, Glass Lewis will generally recommend that shareholders vote against the re-election of the governance committee chair (or equivalent) of FTSE 100 companies that fail to provide explicit disclosure concerning the board’s role in overseeing material environmental and social issues. Glass Lewis believes that companies should be considering material environmental and social factors in all aspects of their operations and that companies should provide shareholders with disclosures that allow
them to understand how these factors are being considered and how attendant risks are being mitigated.
Consumer Regulation update
The Regulator published its Tenant Satisfaction Measures consultation last week – see the link below to our Webinar for full discussion around this!
A couple of other publications to be aware of in this area:
1. Tenant jury publishes conclusions on how RPs should tackle net zero
A group of 30 tenants from the North of England have made a series of recommendations on how housing associations should tackle climate change and deal with residents in the process.
The recommendations include:
- Retrofit programmes being quicker to take into account the urgency of climate change
- Housing associations working with contractors to ensure work is completed to the highest standard
- Housing associations collaborating with other housing associations, councils and other agencies so as to share their progress in implementing carbon reduction measures, update each other on any delays and problems and share information on how they are solving them
- Housing associations communicating with communities about how to tackle climate change through a range of channels and by using clear and accessible language
- Housing associations being proactive in training and employing their own skilled workforce necessary to complete the work within timescales by 2050 and allowing for any repairs and replacements
2. Housing Ombudsman’s latest Insight Report
The Housing Ombudsman has published its latest quarterly report on the complaints it receives and the key learning points that can be taken away.
Its data shows that in the third quarter of 2021, there was an 83% increase in the demand for their services in comparison to the same time last year. The types of complaints the Ombudsman is dealing with has varied, with there being a decrease in the number of complaints relating to property condition and an increase in the number of complaints relating to anti-social behaviour. Nonetheless, the three most common types of complaint are those relating to property condition, anti-social behaviour and complaint handling. The region of Greater London is recognised as having one of the highest rates of complaints.
Looking forward, the Ombudsman advises that the following learning points may be helpful in reducing the number of, and increasing the efficiency of dealing with, the types of complaints they regularly deal with:
- Landlords should have clear complaints policies in place and ensure their staff follow these policies. This will help to ensure the complaint itself is dealt with just as well as the substantive issue and will result in higher resident satisfaction.
- Mediators are experts at navigating difficult conversations and may be useful in increasing resident engagement in resolving an issue. Residents may well respond more positively where an independent expert is involved and where the suggestion of mediation comes from the independent expert themselves.
- Living in properties with longstanding damp and mould can have a great impact on the residents of the property and landlords should prioritise responding to these types of complaints.
Where the Ombudsman finds maladministration on the part of a landlord, it will issue a recommendation or an order which may include ensuring that repairs are done, providing individual redress for residents or taking action to prevent reoccurrence such as requiring changes to a landlord’s policies or procedures.
Our monthly review of regulatory upgrades/downgrades/regrades in the sector has highlighted the following themes:
- Emphasis on appropriate, robust and prudent business planning, risk and control frameworks, and management of risks to ensure long-term viability
- Reliance on the co-operation and agreement of third parties to maintain compliance with financial covenants representing a fundamental loss of control on the part of the board and executive.
- The importance of information presented to the board and RSH being consistent.
January dates for your 2022 diary
NHF Code of Conduct
The National Housing Federation has just published its draft new code of conduct and asked for NHF members to send their feedback by Friday 14 January using their online form. We’ll be reporting on the new code during the course of 2022.
Fit for Purpose Structures - Mergers
The next in our Fit for Purpose Structures webinar series will be taking place on Thursday 27 January from 10am-11am. This time we will be discussing mergers, with colleagues from Abri providing their knowledge and experience.
Senior Independent Network
If your Senior Independent Director is looking to expand their peer network, our next SID Network event will be taking place on 31 January.
Articles and on demand items of interest
With workload continuing to increase before the festive break, you may have missed some of our recent articles and webinars:
The Regulator of Social Housing (RSH) shared its policy paper on 17 Nov 2021 providing an overview of its early thinking on how it plans to re-shape consumer regulation and implement the changes set out in the Social Housing White Paper. In this webinar, our panel provide an overview of the Regulator’s proposal document and outline:
- What Registered Providers should be doing now in preparation for the changes
- A ‘compare and contrast’ with consumer regulation in Scotland
- Your next steps
In this introduction to inquests and ancillary investigations for housing providers. In this session we covered:
- An overview of legal processes which can arise from an adverse incident;
- How to engage effectively with other organisations and regulators involved in these processes;
- An introduction to the inquest process;
- Role of staff during the inquest process, including tips on providing documentary, written and oral evidence.
Two short videos providing top tips for stock rationalisation