Impact of governance on performance of Scottish RSLs explored in new thesis

In his research paper, ‘The Impact of Governance on the Performance of Registered Social Landlords in Scotland’, Eric Hollanders investigated how governance is organised, identified the main drivers related to governance that explain the disparity in the performance of housing associations and formulated suggestions that are likely to improve performance.

Among his findings, Mr Hollanders said corporate governance models for the sector have evolved through self-regulatory codes as the Scottish Housing Regulator (SHR) has moved away from an inspection-based approach to risk-based regulation that relies heavily on landlords assuring themselves, tenants and the SHR itself, an approach he argues has “a few flaws”.

He said: “The SHR expects conformance but provides a framework without sufficient guidance in implementing it; the reporting framework does not provide early warning signals of imminent issues. The recent introduction of the annual self-assurance statement may well be aimed at increasing accountability at RSLs and encouraging them to reflect on how to monitor and affirm conformance and compliance.

“It is too early to tell if this will be sufficient to address these shortcomings. SHR’s policies and actions do not seem to fully match their stated objectives. This is the prevailing perception. An interesting finding was that the power balance between boards and executives impacted by the regulator demanding increasing levels of evidence of board compliance.

“This external conformance pressure can and has been used by executives to reduce the ability of their boards to take independent decisions for fear of breaching external regulatory requirements. It may further managerial hegemony. Ironically, the regulator may achieve the opposite of what they set out to do, ie increased board oversight. I expect that also here self-assurance will over time improve this balance.”

Internally, organisational conditions such as size, type of activity, continuity of strategy, staff professionalism and organisational learning ability are not necessarily independent variables but they place different requirements on governance as well as impacting the organisation’s ability to meet these, the paper adds.

Mr Hollanders said: “An initial survey revealed divergent views on the importance of size and how it should influence the oversight over an RSL as well as its governance. The subsequent interviews provided a more nuanced understanding of this. They confirmed that the size of an RSL is indeed a factor in its governance and performance.

“Large RSLs may be classified as ‘systemic’ and will attract more scrutiny from the regulator. They will also have more staff and will be more likely to have a broader skills basis and deeper in-house knowledge than a small RSL. Arguably their staff can be expected to be more professional as well.”

Mr Hollanders said most of my data gathering and analysis was dedicated to influences focusing on attributes and characteristics of the CEO, chair and board.

He added: “My research observations confirmed that chair and CEO attributes are relevant to the workings of governance and the performance of the company they manage and direct. This is equally valid as it regards individual board members. Tenure however is seen as an area for vigilance: it does assure sector knowledge but may be indicative of complacency, ill-preparedness for handling change and, in some cases, collusion.

“Selecting people based on the desired attributes is an important part of the process and I see room for improvement in the sector. The balance of power between chair and CEO and between the board and executives has tangible consequences for the effectiveness of governance and the performance of the company.”

One feature that solicited diverging views is the remuneration of board members.

Mr Hollanders added: “My interviewees were divided on whether paying board members is important in ensuring the right skill levels and professional qualifications are represented on the board. An additional factor became relevant: the size of an RSL influences the salary of a CEO. This, in turn, can be expected to positively impact the professionalism of the CEO but it will also impact the balance of power between the CEO and the board. This is then compounded by the increasing skill sets demanded by the regulator. Positive developments appear to have a reinforcing undesired effect on the power balance.”

Among the paper’s recommendations are:

• External conditions: RSLs should maintain a risk register that needs to be reviewed regularly by its board. The risk register should also contain external elements that could have an impact on the RSL. Boards will typically consider mitigating actions to reduce the risk. External elements are readily seen as difficult to predict and too complex to deal with. But rather than trying to predict the future, I would argue that organisations need to strengthen their abilities to cope with uncertainty. Scenario planning can help companies reframe their long-term strategies by developing several plausible scenarios around the most important external factors. This technique has proven to be very effective.
• CEO attributes: When recruiting for a CEO or appraising the performance of the CEO, the chair should not only evaluate their sector knowledge and managerial skills, but also screen for the required core values and fit with the mission and ethos of the RSL
• Chair attributes: When selecting a chair, the board should use all available information from annual appraisals to select the person with the right attributes. This is not an easy discussion to have as the chair is usually selected from among the sitting board members.
• Engagement: Introduce a standard practice for filling vacancies in the board. Prepare a full induction package and include the expectations in terms of engagement. Make sure it is reader-friendly: spend more time drafting it so the new member can read a summary and will need to delve into piles of policies only if and when needed.
• Staff professionalism: As a board avoid the temptation to compensate for a lack of professionalism in the senior staff. If senior staff is not sufficiently competent or professional, direct the CEO to remedy it.