excellence in · excellence in governance forms part of the federation’s series of codes for...

Governance and regulation

Excellence in governanceCode for members andgood practice guidance

Revised edition

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Excellence in governance Code for members and good practice guidanceThis revised code of governance is intended for organisations to adopt and demonstrate that they are continuing to follow the highest standards of governance, accountability and probity, while responding to an environment of change and increasing risk. This latest revision is based on a set of main principles and underpinning provisions. It provides a clear and concise code for members to comply with or explain areas of non-compliance.

Separate to the code but included in this document is a range of good practice guidance and useful resources that organisations can use, if they choose, to demonstrate compliance with the code.

Excellence in governance forms part of the Federation’s series of codes for members. The others are Excellence in service delivery and accountability and Excellence in standards of conduct.

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code for members

1© National Housing Federation. Unauthorised distribution, reproduction or public use prohibited. See notice on page 1.

Excellence in governanceCode for members

and good practice guidance

Revised byStephen Bull

Copyright noticeAll rights reserved. Use of this PDF is governed by copyright law, which prohibits unauthorised distribution, reproduction or public use other than stated in the terms of the designated licence agreement.

The full or part content of this PDF may not be freely copied, and/or distributed to third parties, stored on more than one retrieval system, or used for commercial purposes without the prior written agreement of the National Housing Federation. Printed copies are available via www.housing.org.uk.

http://www.housing.org.uk


excellence in governance


All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publishers.

While all reasonable care and attention has been taken in preparing this guide, the National Housing Federation regrets that it cannot assume responsibility for any errors or omissions.

© National Housing Federation

ISBN 978 0 86297 558 6

First published in 1995Revised January 2000, May 2004, February 2009 and July 2010by the National Housing FederationLion Court, 25 Procter Street London WC1V 6NY

Production Editor Fiona Shand

Printed in Great Britain by Typecast Colour, Hop Pocket Lane, Paddock Wood, Kent TN12 6DQ


code for members


Contents

Acknowledgements 4

Theprinciplesofgoodgovernance 5

Introductionandpreamble 6

Thecodeofgovernance 9A Constitution and composition of the board 10

B Essential functions of the board 14

C Board induction and information 18

D Board recruitment, renewal and review 19

E Responsibilities of the chair 23

F Conduct of the board’s business 26

G The chief executive 28

H Committees of the board 31

I Openness, transparency and accountability 33

J Diversity and inclusion 35

K Audit and risk 37

L Conduct and probity 39




Acknowledgements

The author would like to thank the following individuals who kindly gave advice and reviewed the draft publication:

Andrew Cowan and Amanda Harvey Devonshires SolicitorsArvinda Gohil Gohil ConsultingJames Tickell Campbell TickellJohn Edwards Hyde Housing GroupKeith Exford Affinity Sutton and Board member National Housing FederationKerry Tromenhauser A2 Dominion GroupPhillippa Caine Southern Housing GroupSusan Hickey PeabodyNational Smaller Housing GroupDavid Orr National Housing FederaotinJohn Bryant National Housing Federation


code for members


The principles of good governance

The nine principles set out below are those which have informed the drawing up and subsequent revision of this code. They are reproduced here, not as part of the code, but to set the context, and to assist with interpretation.

The foundation of good governance is that there should be a balanced, diverse and effective board which leads and controls the organisation and complies with its legal requirements. The board should ensure that the organisation upholds the following principles:

EthicsIt operates according to high ethical standards, explicit values and the Federation’s codes of governance and conduct.

AccountabilityThere is proper accountability to, and involvement of, all the organisation’s stakeholders, primarily its residents.

Customer firstOrganisations should put the needs of their existing and potential service users at the heart of business decisions and strategy.

OpennessThere is a spirit of openness, making full disclosure of governance matters and other information.

Diversity and inclusionThere is fairness and equality of opportunity and a recognition of diversity in all aspects of the organisation’s governance.

Review and renewalThere are formal and open processes for the periodic review of the board’s own performance, and to ensure its renewal on an ongoing basis.

ClarityThere is clarity of roles and responsibilities between the organisation’s board members, paid staff and shareholders.

ControlThere are effective systems for internal delegation, audit, risk management and control. The board receives adequate and timely reports and advice to inform its decisions. The board has an effective relationship with internal auditors, external auditors and regulators.

StructuresThere are effective staffing and committee structures to support the board’s work.

The Code of governance aims to assist organisations put these principles into practice. Good governance is more than good practice – it is good business too. It is about organisational vision, mission, clarity of purpose and effectiveness. As such, good governance enhances organisational reputation, and ensures better results are achieved. This code contains guidance for excellent practice in the governance of organisations.




Introduction and preamble

This new version of Excellence in governance provides an update to our 2009 version. It is based on clear principles and provisions that organisations, in considering each principle and provision and having due regard to proportionality and the relevance to their organisations, should comply with them or explain why there is non-compliance. The code is intended for organisations to adopt so that they can continue to be stretched to demonstrate the highest standards of corporate governance.

The code has been widely acclaimed as an example of best practice by a range of bodies including the Tenant Services Authority, the Nolan (now Wicks) Committee on Standards in Public Life, and by Sir Alan Langlands, Chair of the Independent Commission for Good Governance in Public Services. Commitment of Federation members to the implementation of this code can only further improve the sector’s overall reputation. The Federation has also produced a wide range of supporting publications and training material to support its members in the implementation of this code.

The code has been revised as part of the Federation’s commitment to reflect the experience of the sector, emerging best practice and changes in the operating environment. The latest revision emphasises the importance of boards and their control over the affairs of housing associations. It considers The Good Governance Standard for Public Services document, The Combined Code on Corporate Governance and current legislation. The National Housing Federation is particularly keen that housing providers recognise the sector’s commitment to putting customers first, and boards should seek the views of their customers and engage with them to ensure real accountability.

The code aims to support Federation members in being excellent at governing their organisations and being accountable, independent and diverse. Taken as a whole, the code offers a means of reaching excellence in corporate governance. The code is written for organisations wishing to attain excellence in governance and demonstrate that to its stakeholders and the outside world. By demonstrating our individual and sectoral commitment to the code, we will maintain and enhance the good reputation of the sector.

The overall code of governance is split into the main principles and key provisions for each area. Organisations should consider the code in full in a way that is proportionate to their size, profile etc., and provide a statement of compliance against the principles and provisions


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in the code, which should include a reasoned statement about any areas where they do not comply. This follows the ‘comply or explain’ approach adopted in 1992 by the Combined Code on Corporate Governance and re-emphasised in the UK Corporate Governance Code 2010 revision.

Main principlesThe main principles define each section and provide a guide to board behaviour and overall approach. They provide clarity on excellent governance for the wide range of housing associations and related organisations that comprise the Federation’s membership.

ProvisionsThese are the areas that, along with the main principles, organisations must asses themselves against and provide a statement of compliance. They underpin the main principles and provide the evidence for associations that they comply with the main principles. If excellent governance can be achieved by other means, an explanation of non-compliance with the provision should be given.

Following each section of the code there is a Goodpracticeandexcellence section. It provides a raft of guidance, good practice and useful resources that organisations may choose to follow wholly or in part depending on their size, type and complexity and their existing policies. Any areas of non-compliance do not have to be explained in the annual compliance statement. Itisnotpartofthemaincodeofgovernance. If implemented, this good practice and guidance should give members confidence that the code is met. It is recognised that members may choose other mechanisms to achieve compliance with the principles and provisions.

ConstitutionsOrganisations should adopt constitutions, legal instruments, financial regulations, standing orders and other governance frameworks which support and enable their implementation of this code. These should be kept up to date and be mindful of current company, charity, industrial and provident society law and other statutory provisions.




Useful resources

• Excellence in standards of conduct: code for members. National Housing Federation, 2009

• Excellence in service delivery and accountability: code for members. National Housing Federation, 2009

• The UK Corporate Governance Code. Financial Reporting Council, June 2010 www.frc.org.uk

• The Good Governance Standard for Public Services. Independent Commission for Good Governance in Public Services, chaired by Sir Alan Langlands, 2004, available from www.opm.co.uk


http://www.frc.org.uk

http://www.opm.co.uk

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The code of governance

This forms the main code of governance. Organisations are expected to provide an annual statement of compliance to the code and make a reasoned statement about any areas where they do not comply.




A Constitution and composition of the board

Main principleThe board must be effective in leading and controlling the organisation and acting wholly in its best interest. Board members must ensure that the interests of the organisation are placed before any personal interests.

ProvisionsA1 The purpose of the board is to determine strategy, direct, control, scrutinise

and evaluate an organisation’s affairs. Operational management of the organisation must be delegated to the organisation’s staff.

A2 All members of the board, executive and non-executive, share the same legal status and have equal responsibility for decisions taken that affect the success of the organisation. Each must act only in the interests of the organisation and not on behalf of any constituency or interest group. Board members must ensure that the interests of the organisation are placed before any personal interests. This includes those board members that are nominated or elected from specific groups, such as local authority nominees and residents.

A3 Non-executive board members must be in the majority at board meetings.

A4 It is up to each organisation or group parent organisation to decide on the best board composition. Board members who are executive staff must normally be in a clear minority. Boards should have at least five members and no more than twelve, including co-optees.

A5 The roles of chair (and vice chair or senior independent director, if there is one) of the board and main committees (see H1) must not be held by an executive.

A6 Boards must consider any potential conflicts of interest and adopt appropriate policies.

A7 Where conflicts of personal interest arise, these must either reflect:

• Charity law

• The Companies Act 2006 provisions – for conflicts (of interest, loyalty or duty) to be declared and managed

Or conflicts should be recorded and the individual concerned excluded from the discussion or decision.


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Good practice and excellence1 The board has ultimate responsibility for the governance of the organisation. Its central

role is to lead, direct, control, scrutinise and evaluate an organisation’s work. This includes determining strategic direction and policies, establishing and overseeing control and risk management frameworks, satisfying itself on the integrity of financial information and ensuring that the organisation achieves its aims and objectives. Board members of small organisations with no or few staff may also have management responsibilities.

2 Conflict of interest policies adopted should limit the number of board members who are paid staff or board members of other housing providers.

3 The board as a whole should have, or acquire, a diverse range of skills, competencies, experience and knowledge. Each board should determine the key, non-negotiable skills that all board members should have and the skills that individuals can bring that will make the board more effective. It is up to each organisation to determine what is needed to meet its business objectives. The skills mix should fit with current business and environmental pressures and those that can be anticipated. The areas outlined below provide a broad range of some of the skills that organisations may wish to adopt:

(1) leadership and working as an effective team;

(2) direct knowledge of the needs and aspirations of the communities and people served;

(3) general business, financial and management skills;

(4) knowledge of the external framework including financial markets, political imperatives and operating environment for Federation members;

(5) other relevant or specialist skills, such as commercial, financial, HR, investment, risk management, legal, health, social services, property management and housing development;

(6) effective communication skills and an ability to focus on key issues facing the organisation; and

(7) the ability to foster a culture that enhances commitment, enthusiasm and excellent performance from the staff.

4 Boards should be of an appropriate size for the organisation to carry out its business effectively and should consider from time to time whether executive staff should be full or co-opted members. Good practice suggests that a board should have at least five members and no more than twelve, including co-optees.




5 If executive staff are to be full members, the board needs to ensure that the organisation’s standing orders clearly specify where they are to be excluded from decision making. Boards should agree those matters on which executive staff board members will not vote – for example, the membership of a remuneration committee – and should agree what core board committees it would be inappropriate for executive board members to sit on, eg, nominations and audit committee.

6 Each board member should be given a role profile and a formal agreement specifying his or her obligations, and should sign a copy to indicate acceptance. Agreements should set out the key role and duties of board membership, the time commitment involved, and the principle that any approved remuneration is linked to fulfilling the specified role and duties. In addition, agreements should include obligations to:

(1) uphold the values and objectives of the organisation;

(2) uphold the organisation’s core policies including code of conduct, standing orders and financial regulations;

(3) ensure they understand the constitutional and legislative framework as it applies to the organisation, and act within its powers;

(4) contribute to and share responsibility for the board’s decisions, including its duty to exercise reasonable care, skill and independent judgement;

(5) prepare for and attend meetings, training sessions and other events;

(6) attend and participate in reviews linked to individual performance or that of the whole board;

(7) represent the organisation as appropriate;

(8) declare any relevant interests and avoid conflicts of interest;

(9) respect confidentiality of information; and

(10) uphold the Federation’s code of governance and the organisation’s own code of conduct.


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Useful resources

• Companies Act 2006

• Industrial and Provident Societies Act 1965

• Charities Act 2006

• A guide to the Housing and Regeneration Act 2008. National Housing Federation, 2008

• National Housing Federation Model rules, 2005

• National Housing Federation Memorandum and Articles, 2007


• Board member pay: Principles and practicalities. National Housing Federation, 2009

• Trustee expenses and payments, CC11. Charity Commission, 2008

• Governance...the small print (2nd edition): A range of model governance documents covering key policy areas. National Housing Federation, 2008




B Essential functions of the board

Main principleEach board must be clear about its duties and responsibilities. These must be set out and made available for all existing and potential board members.

ProvisionsB1 The essential functions of the board must be formally recorded in the

organisation’s constitutional documents, terms of reference, standing orders or financial regulations.

B2 All boards must have a set of core responsibilities. These will include as a minimum:

(i) setting and ensuring compliance with the values, vision, mission and strategic objectives of the organisation, ensuring its long-term success;

(ii) the appointment and if necessary the dismissal of the chief executive and approval of his or her salary, benefits and terms of employment;

(iii) satisfying itself as to the integrity of financial information, approving each year’s budget and business plan and annual accounts prior to publication;

(iv) establishing, overseeing and reviewing annually a framework of delegation and systems of internal control;

(v) establishing and overseeing a risk management framework in order to safeguard the assets of the organisation.

B3 The board, through its terms of reference, must draw up a schedule of significant matters specifically reserved for the board’s decision, which cannot be delegated to executive staff or committees.

B4 The board of a parent organisation in a group structure must ultimately have the responsibility and the clear powers to direct the activities of its subsidiaries.

B5 Organisations in a group structure must acknowledge and accept the control of the main group board in the governance of the group.


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Good practice and excellence1 Board members of small organisations with few or no staff will also have wider

responsibilities for operational management.

2 The essential functions of the board should, as a minimum, include duties to:

(1) establish a framework for approving strategies, policies and plans to achieve those objectives;

(2) agree or ratify policies and decisions on all matters that might create significant financial or other risk to the organisation, or that raise material issues of principle;

(3) monitor the organisation’s performance in relation to these strategies, plans, budgets, controls and decisions and also in the light of customer feedback and the performance of comparable organisations;

(4) establish and monitor a mechanism for communicating and receiving feedback from the organisation’s stakeholders and shareholders;

(5) establish a strong working relationship between the board, the chief executive and other senior staff;

(6) appoint (and if necessary dismiss) the chief executive following agreed procedures, and approve his or her salary, benefits and terms of employment;

(7) satisfy itself that the organisation’s affairs are conducted lawfully and in accordance with generally accepted standards of performance, probity, good practice and regulatory requirements;

(8) assess how the association follows the recommendations of this Code of governance and state compliance and non-compliance in its annual review and accounts;

(9) follow the organisation’s constitution in appointing (and, if necessary, removing) the chair of the board; and

(10) establish a code of conduct and expected behaviour for the board.

3 The board, through its terms of reference, should draw up a schedule of significant matters specifically reserved for the board’s decision, which cannot be delegated to executive staff or committees. Some examples are:

(1) expansion of the organisation’s operations into new activities or geographic areas;

(2) any decision to cease a material part of the organisation’s operations;

(3) changes to corporate structure, including the setting up of subsidiaries;




(4) approval of resolutions to be put forward by the board at a general meeting;

(5) changes to the structure, size and composition of the board;

(6) approval of committee membership as recommended by the nominations committee, including committee chairs, and committees’ terms of reference;

(7) appointment or removal of any board member and executive officer of the board including the company secretary;

(8) appointments to, and removal from, the boards of subsidiaries or other organisations following recommendations from the nominations committee;

(9) approving and monitoring major capital programmes;

(10) ensuring adequate succession planning for board and senior management appointments;

(11) approval of key policies, including a code of conduct and expected behaviour;

(12) any conflicts of interests arising for individual board members; and

(13) changes to the schedule of matters reserved for board decisions.

4 The board of a parent organisation in a group structure has responsibility and the power to direct the activities of its subsidiaries. It must control the activities of all parts of the group and satisfy itself that all group members are meeting statutory and regulatory requirements, and that their affairs are being conducted in accordance with generally accepted standards of performance, probity, financial prudence and good practice. It should also work to ensure that both parent and subsidiary organisations develop a common vision and shared objectives. The boards of all organisations within a group structure should ensure effective working relationships, including effective management of conflict and dissent, in the spirit of full co-operation for the benefit of the group as a whole.

5 The board has ultimate responsibility for ensuring the organisation develops positive and constructive relationships with its key stakeholders including its funders and regulators. The board should satisfy itself that effective communication and reporting lines are in place with these bodies.


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Useful resources


• ICSA Guidance on Matters Reserved for the Board. ICSA, 2007 www.icsa.org.uk

• Review of the role and effectiveness of non-executive directors (the Higgs Review). DTI, 2003 (now available from BIS) www.bis.gov.uk

• The Effective Director: Building individual and board success. IoD, 2007 www.iod.com


http://www.icsa.org.uk


http://www.bis.gov.uk

http://www.iod.com



Good practice and excellence1 Induction should provide basic information on the role and responsibilities of the board

as well as tailored information and training for each individual board member.

2 The chair, in liaison with the company secretary or equivalent, should ensure that all new members receive induction training and that effective arrangements are made to enhance the skills, experience and knowledge of all its members with regular training and development activity on an ongoing basis. This should be based on an analysis of the training and development needs of individuals and the board as a whole to ensure that individuals remain up to date and continue to add value to the work of the board.

C Board induction and information

Main principleAll board members must receive induction on joining the board and should regularly refresh and update skills. The board must be supplied in a timely manner with information in a form and quality appropriate to enable it to discharge its duties.

ProvisionC1 All board members must receive a properly resourced induction and an

ongoing training programme.

C2 Boards must receive the same up-to-date, clearly presented and accurate information to enable them to make decisions.


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D Board recruitment, renewal and review

Main principleRecruitment to board vacancies must be open and transparent, based on merit and objective selection and assessment techniques. The board must undertake a formal and rigorous annual appraisal of its members and of the board as a whole.

ProvisionsD1 While the contribution of experienced board members is vital, boards also

need new members who can provide an independent challenge to long-standing practices and thinking. Maximum terms of office must be agreed and, where practical and for the best interests of the organisation, should comply with current best practice. To support board renewal, maximum terms of office must be two to three terms, with an overall maximum period of board service for non-executive board members of no more than nine years.

D2 Where the organisation’s constitution provides for one or more board members to be nominated or directly elected, the organisation must ensure that those coming forward bring skills and experience that are relevant to the needs of the board, and are fully aware in advance of the responsibilities that they will undertake.

D3 The board must carry out an annual appraisal of its own performance and an annual appraisal of individual board members including the chair and, if appropriate, the vice chair and any executive who sits on the board.

D4 If the organisation is paying board members, it must ensure that it has a mechanism for establishing payment levels that are independent of the board, possibly through a remuneration committee, an independent adviser or by using published guidance and industry norms.

D5 Agreed payment levels must be proportionate to the organisation’s size, complexity and resources.

D6 If the organisation is paying board members, payment must be linked to the carrying out of specified duties against which performance will be reviewed.

D7 Any payment for non-executives must be fully disclosed on a named basis.




Good practice and excellence1 Boards should ensure their continuing effectiveness. This needs clarity of purpose and

a focus on performance and renewal. Boards, including their committees, should review their own performance and take action to address any identified areas for improvement.

2 Boards should agree and implement succession-planning arrangements, to ensure planned refreshing and renewal of skills and experience over a period of time. This should be carried out for the board, any subsidiary boards and committees and is especially important if a board has a large proportion of long-serving members. In doing so, the board should bear in mind the need for diversity in its composition.

3 New members should be recruited, selected or elected on a systematic and continuous basis, thus avoiding bigger changes at infrequent intervals. The board should agree, in writing, its policies for:

(1) the recruitment, selection or election of new members, including the chair;

(2) the creation of role profiles and competency frameworks for the board;

(3) the preferred composition of its membership, including, for example, residents on the board;

(4) fixed terms of appointment. Non-executive board members should usually be appointed for a maximum of two three-year terms, subject to annual appraisal. Any extension of such an appointment should be subject to annual review, but no non-executive board member should serve for more than nine years;

(5) establishing a process for succession planning;

(6) circumstances in which individuals would be excluded from becoming or continuing to be a board member.

Boards should consider having these policies available on the organisation’s website or via other media.

4 Steps should be taken to identify potential board members who may have no connection with the organisation or existing board members. A range of recruitment techniques should be considered to secure a wider choice of candidates. Larger organisations should delegate board member recruitment to a nominations committee or equivalent, which should lead the process and make recommendations to the board. The membership of this committee should be restricted to non-executive board members, but executive members may advise as appropriate.


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5 It is widely recognised that individual and collective appraisal of boards is positive. It enables the organisation to recognise strengths on the board and any skill gaps that need to be addressed.

6 Where possible, appraisals should be carried out with the help of an independent third party to demonstrate transparency and fairness. Appraisal systems should:

(1) identify the board’s ability to scan the operating environment, think strategically and adapt as necessary;

(2) review how well the board performs its key roles and how successful it has been;

(3) review the effectiveness of board relationships and its role as a team;

(4) assess how the board is viewed by key contacts, such as regulators, investors, local authorities, tenant groups, staff etc;

(5) review the composition of the board, the skills and contribution of its individual members;

(6) review the organisation’s ability to recruit and retain the balance of board members it needs;

(7) assess the effectiveness of board processes, including its accountability;

(8) assess the level and quality of the information the board receives;

(9) review the training and development needs of individual board members as well as the board as a whole;

(10) include the assessment of the chair and vice chair;

(11) result in a clear plan to support continuous improvement of the board to meet the challenges faced by the organisation; and

(12) address whether the board provides enough support, scrutiny and challenge to the senior team.

7 The board should ensure there is an independent review of payment to the board and senior staff taking into account of good practice, market comparisons and industry norms. This should normally be carried out on a triennial basis.

8 Boards should have clear procedures in place for the removal of board members where issues of performance, conduct or conflicts arise that cannot be resolved. These procedures should be covered in the organisation’s governance arrangements.




Useful resources



• Achieving excellence: board appraisal. National Housing Federation, 2007

• To see ourselves as others see us – but first. HQN, 2008

• ICSA Guidance on Terms of Reference – Nomination Committee. ICSA, 2007

• ICSA Guidance on Terms of Reference – Remuneration Committee. ICSA, 2007

• ICSA Guidance on Terms of Reference – Audit Committee. ICSA, 2007

• ICSA Guidance on Corporate Governance Role of the Company Secretary. ICSA, 2008 www.icsa.org.uk



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Good practice and excellence1 In carrying out these duties, the chair should always remember that he or she is acting on

behalf of the board and the organisation. The chair should seek the advice of other board members or the chief executive, as necessary. In particular circumstances, the chair may need to seek external independent advice. This normally should be done with the agreement of the board.

2 The responsibilities of the chair should be formally recorded and should include as a minimum:

(1) ensuring efficient conduct of the board’s business and of the organisation’s general meetings;

(2) ensuring that the organisation provides appropriate role profiles and competency frameworks for all board members;

(3) ensuring that all board members are given the opportunity to express their views, and that appropriate standards of conduct and behaviour are maintained in accordance with the code of conduct approved by the board;

(4) establishing a constructive working relationship with, and providing support for, the chief executive and ensuring that the board as a whole acts in partnership with executive staff;

E Responsibilities of the chair

Main principleEach board must be headed by a properly appointed and skilled chair who is aware of his or her duties as head of the board and the clear division of responsibilities between the board and the executive.

ProvisionE1 The chair has particular duties and responsibilities. These must be formally

recorded.




(5) ensuring that the board delegates sufficient authority to its committees, the chair, the chief executive and others to enable the business of the organisation to be carried on effectively between meetings of the board; and also ensuring that the board monitors the use of these delegated powers;

(6) ensuring that the board receives professional advice when it is needed, either from its senior staff or from external sources;

(7) ensuring that the organisation follows the recommendations of this code;

(8) representing the organisation as appropriate;

(9) taking decisions delegated to the chair.

3 Chairs of the main board working in consultation with other non-executive board members, for instance with a small committee, should ensure that the main board makes proper arrangements to appraise the performance of the chief executive and to determine the remuneration of the chief executive and other senior staff. It is also the role of the chair to ensure:

(1) that the roles of subsidiary boards in these matters are clear;

(2) that, when necessary, the chief executive is replaced in a timely and orderly fashion;

(3) that he or she leads on the appraisal process to ensure proper and appropriate arrangements for the overall board appraisal and that of individual board members;

(4) the implementation of a succession plan for future board membership;

(5) that the level of any agreed board member remuneration results from an approved process that minimises the potential for conflicts of interest;

(6) that the board agrees the role of the vice chair or senior independent director, where there is one.


code for members


Useful resources• In control: The board members’ manual. National Housing Federation,

2005

• How to be an even better chair: Sensible advice about chairing in the charity, not-for-profit and public sectors. Common Purpose, 2006

• Lost in translation: A complete guide to Chair/Chief Executive partnerships. NCVO, 2006 www.ncvo.vol.org.uk

• The role of the chairman – Factsheet. Institute of Directors, 2006 www.iod.com

• Review of the role and effectiveness of non-executive directors (The Higgs Review). DTI, 2003 www.bis.gov.uk


http://www.ncvo-vol.org.uk

http://www.iod.com




Good practice and excellence1 Effective conduct of board business is vital to good governance. Without suitably clear

documents, no board can hope to make wise and effective decisions. All board members should contribute to making decisions which may involve the organisation in significant strategic, financial or other risk, or which raise material issues of principle. Very occasionally, such decisions will be required urgently between meetings. Governance systems must be robust enough to deal with these properly.

2 Each year, the board should set aside time for a full discussion about the effectiveness with which it is conducting its business and consideration of the organisation’s future.

3 The board should have access to independent assistance and advice, when necessary without the involvement of senior staff. This should normally be agreed through the chair.

4 The company secretary, or equivalent, should have direct lines of communication with the chair in order to maintain impartiality and to bring issues of concern directly to the chair.

F Conduct of the board’s business

Main principleThe board must act effectively, making clear decisions based on timely and accurate information.

ProvisionF1 Boards and sub-committees must have clear terms of reference in order that

their conduct is transparent, effective and in the interests of the organisation.

F2 Board decisions should be, wherever possible, based on full agendas and documents circulated to members well in advance of meetings. Decisions and the main reasons for them should be recorded in the minutes.

F3 Urgent decisions between board meetings must be taken in accordance with predetermined arrangements as set out in the organisation’s constitution, standing orders, financial regulations or delegated authority.


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5 Boards should remain mindful of outcomes for residents or service users in the decisions they take.

6 The board should ensure that positive relationships are maintained within the board and with the senior team. It must have a clear understanding of the appropriate board behaviours expected.

7 Boards should ensure they keep abreast of all relevant legislation and changes to operating frameworks.

Useful resources




• ICSA Guidance on Corporate Governance Role of the Company Secretary. ICSA, 2008





Good practice and excellence1 The essential duties of the chief executive should be to:

(1) act in the best interests of the organisation;

(2) assist and advise the board in determining the organisation’s strategies, policies and business planning;

(3) manage the affairs of the organisation in accordance with the vision, values and objectives of the organisation, and the general policies and specific decisions of the board;

G The chief executive

Main principleThere must be clear working arrangements between the board and the chief executive and clear delegation of authority.

ProvisionsG1 The chief executive must be clear about the essential duties of the role and

have clarity over his or her role, legal responsibilities, delegation of authority and relationship with the board. This applies whether or not the chief executive officer is a full member of the board or has responsibility for the company secretarial role.

G2 Like all other employees, the chief executive must have a written and signed contract of employment. Periods of notice of more than six months should be exceptional and should be specifically approved by the board with the reasons for the decision clearly minuted.

G3 The board must delegate to a committee responsibilities that include oversight of the appraisal of the chief executive and making a recommendation to the board on a remuneration package for the chief executive. The committee must not include any executive members of the board.

G4 The chief executive’s remuneration must be disclosed in the annual financial statements in accordance with the applicable Statement of Recommended Practice (SORP).


code for members


(4) draw the board’s attention to matters that it should consider and decide;

(5) ensure that the board is given the information necessary to perform its duties and, in particular, that the board receives advice on matters concerning compliance with its governing instrument, the law and the need to remain solvent;

(6) ensure that proper systems of financial control, risk assessment and risk management, and legal and regulatory compliance are established and maintained, and that regular reports on these are provided, at least annually, to the board;

(7) supervise, with the guidance of the chair, the preparation of documents for consideration by the board;

(8) support the chair to ensure that the business of the board is properly conducted;

(9) ensure that relationships between the senior staff and the board are positive and focus on the business of the organisation;

(10) lead and manage the staff of the organisation and ensure that their performance is appraised; and

(11) represent the organisation as appropriate.

2 The written and signed contract, besides complying with current legislation, should clearly define:

(1) his or her duties and the standards of performance expected;

(2) the procedures for monitoring the chief executive’s performance and fixing his or her remuneration;

(3) The remuneration level;

(4) how complaints and disciplinary matters will be dealt with; and

(5) the length of the contract, whether or not it can be renewed (if it is for a fixed term) and any notice period.

3 The committee responsible for appraising and agreeing the remuneration of the chief executive officer:

(1) should include the chair of the board, but because of the necessarily close relationship between the chair and the chief executive, he or she should not chair the committee;

(2) should not include any executive members of the board;




(3) where there are board members who are also the paid staff of other Federation members, the board should consider whether their appointment to the committee could create an indirect or perceived duality or conflict of interest.

4 Boards should consider the following when agreeing the remuneration of the chief executive officer:

(1) although the board may act on the recommendation of a committee, it is for the board as a whole to approve the chief executive’s remuneration package;

(2) a remuneration package should be given which is proportionate to the size and complexity of the organisation and sector norms and sufficient to attract, retain and motivate the quality of chief executive required;

(3) any performance-related elements of the remuneration package should be linked to the achievement of specific and measurable targets which are reviewed at least annually.

Useful resources

• Good Governance: The Chief Executive’s Role. NCVO, 2007 www.ncvo-vol.org.uk

• The role of the managing director/chief executive – Factsheet. IoD www.iod.com




http://www.iod.com

http://www.iod.com

code for members


Good practice and excellence1 To function effectively, a board needs to have established a process for conducting its

business in a positive and constructive way. Many Federation members have committees to oversee specified areas of the organisation’s work, whether on a geographical or functional basis. These can include audit and risk, nominations and remuneration. Some have specific delegated responsibilities, while others are consultative; in either case they can be channels for decision-making as well as channels of communication with local communities and residents.

2 Organisations should regularly review committee structures, delegated responsibilities and reporting arrangements. Committee structures should be clear and streamlined, adding value to scrutiny and decisions without duplication of effort.

3 Organisations, especially those with a dispersed geographical coverage, should facilitate and encourage local participation.

4 In the case of dispute, the board’s decision must override that of a committee. The chair of the committee responsible for audit should have the right to report any such decision to the external auditors (and where necessary to external regulatory bodies), after

H Committees of the board

Main principleCommittees of the board may be established where the board determines that they will provide expertise and enable it to scrutinise and deliver effective corporate governance and manage risk.

ProvisionsH1 Paid staff of an organisation must not chair the nominations, audit and

remuneration committees, or form a majority of the membership of these committees.

H2 The chair of the audit committee must not be the chair of the board or an executive member of the board.

H3 Each committee must have clear terms of reference approved and reviewed by the board on a regular basis.




discussion at the board about this proposed course of action. The chair of the committee responsible for audit should have access to paid legal advice from the organisation’s appointed or usual legal advisers.

5 The board should ensure that specific arrangements are made to cover the following responsibilities:

(1) financial reporting, audit and risk matters (see section K);

(2) selection, appraisal and remuneration of board members and of the chief executive (see sections D and G).

6 In smaller organisations, all of this work may be carried out by the board itself.

7 The membership of board committees should be disclosed in the annual report.

Useful resources

• ICSA Guidance on Terms of Reference – Nomination Committee. ICSA, 2007

• ICSA Guidance on Terms of Reference – Remuneration Committee. ICSA, 2007

• ICSA Guidance on Terms of Reference – Audit Committee. ICSA, 2007 www.icsa.org.uk

• Audit Committees: Combined Code Guidance (The Smith Report). FRC, 2003 www.frc.org.uk

• Guidance on Audit Committees. FRC, 2008 www.frc.org.uk







code for members


Good practice and excellence1 Organisations should act in an open, transparent and accountable way in relation to

their tenants, residents, service users, local communities, local authorities, employees, investors, lenders, regulators and other stakeholders.

2 Organisations balance the interests of a wide range of groups and must be accountable in different ways to various groups of stakeholders, including tenants, residents, service users, potential residents, shareholders, employees, local authorities, investors, regulators and other community and neighbourhood interests. Accountability through governance structures, as described in this code, is important, but only one part of an overall approach to accountability.

3 The board should review the openness of the organisation’s arrangements on a regular basis and take account of further developments of good practice.

4 Each organisation should identify the range of stakeholders to which it is accountable, and ensure that each group, where relevant, has the appropriate opportunity to influence, or be involved in, planning and decision-making.

I Openness, transparency and accountability

Main principleBoards must provide leadership in operating in an open and transparent manner, having satisfactory dialogue with key stakeholders including tenants. Boards must demonstrate accountability to shareholders and other key stakeholders.

ProvisionsI1 The board must publish an annual report of the organisation’s activities and

performance.

I2 The organisation must have in place a strategy for communicating information about its work to its shareholders and stakeholders.

I3 The organisation should review its policies for admission to shareholding membership on a regular basis.




5 All organisations should adopt and publish their policies for communicating with residents and others in their community about the work and performance of the organisation.

6 An organisation’s policy on complaints should be transparent.

7 Each organisation should decide the purpose and role of shareholders in its governance.

8 Shareholders should be appointed in a transparent and open manner. The policy for admission to membership should be freely available, and organisations should consider issues of equality, diversity and accountability when drawing up and implementing such policies.

9 The way in which shareholding members are chosen should realistically reflect their role in governance, and contribute to the organisation’s long-term constitutional and financial stability.

10 Shareholders should be informed of their role and responsibilities, including the obligation to act in the best interests of the organisation.

11 Organisations should also consider their involvement in corporate social responsibility and may find it helpful to adopt a comprehensive statement of all their accountability mechanisms, and make it available to their stakeholders.

Useful resources

• Excellence in service delivery and accountability: code for members. National Housing Federation, 2009


code for members


Good practice and excellence1 Diversity and inclusion is a core value for all Federation members. Organisations

should adopt good practice in these areas to take a proactive approach in ensuring their strategies, policies and practices contribute to equality, diversity and inclusion. Organisations should also take lawful positive action where minority groups are under-represented within governance or staffing structures or in access to services, being mindful of the need for the appropriate skills required.

2 Each Federation member should adopt a policy for equality, diversity and inclusion and publish it. The policy should include a statement on how the organisation will promote equality on the protected characteristics, including how it intends to promote it in all areas of the organisation’s work including:

(1) identification and assessment of needs;

(2) allocation of housing and other services;

(3) provision of services tailored to particular needs;

J Diversity and inclusion

Main principleBoards must demonstrate leadership and commitment to equality, diversity and inclusion as outlined in the Equality Act 2010, across the organisation’s activities.

ProvisionsJ1 Boards must comply with current legislation.

J2 Boards must provide leadership and clear strategies on how the organisation will meet the needs of diverse communities and the steps it will take, through lawful positive action, to ensure in so far as it is able that it can reflect these communities in its staffing and governance structures.

J3 Boards must ensure that their organisations demonstrate, throughout all their functions, their commitment to the characteristics protected by the equalities legislation, and develop action plans to implement this commitment.




(4) membership and operation of the board and any committees, to reflect the tenant, resident, service user profile;

(5) staff recruitment, selection, training and conditions of service, to reflect the tenant, resident, service user profile;

(6) the organisation’s buying of goods and services and contracting procedures; and

(7) involvement of relevant community groups in informing the work of the organisation.

Useful resources

• Government Equalities Office: www.equalities.gov.uk

• Equality and Human Rights Commission: www.equalityhumanrights.com

• The Equality Act 2010


http://www.equalities.gov.uk

http://www.equalityhumanrights.com

code for members


Good practice and excellence1 Effective audit is essential to good governance. This goes beyond traditional financial

audit into all areas of an organisation’s work and should be integrated into business management. Standards of performance, service delivery and compliance should all be subject to some form of audit if they are to remain effective. Larger and more complex organisations will need to devote substantial time and resources to audit matters, including an internal audit function.

K Audit and risk

Main principleThe board must establish a formal and transparent arrangement for considering how the organisation ensures financial viability, maintains a sound system of internal controls, manages risk and maintains an appropriate relationship with external auditors.

ProvisionsK1 Every organisation must have effective internal controls.

K2 The organisation’s external auditors must be independent and effective.

K3 Larger and medium-sized organisations should have an audit committee, or should ensure that the finance committee can discharge the functions of an audit committee adequately; other organisations should make effective arrangements for discharging the functions of an audit committee.

K4 The committee responsible for audit should meet regularly and its minutes must be available to all members of the board. The reasons for the decisions taken must be recorded in the minutes and presented to the board for endorsement. The committee must be able to meet with the external auditors without paid staff being present at least once a year.

K5 The chair of the audit committee must not be the chair of the board or an executive member of the board.

K6 The audit committee, or equivalent, must ensure that the board receives adequate financial and business management reports, in order to scrutinise performance of the organisation.




2 It is the board’s responsibility to ensure the organisation remains financially viable, that a balanced and comprehensive assessment of the organisation’s financial position and associated risks is presented to the board on a regular basis, and that a sound system of internal control is maintained.

3 Every Federation member should ensure that it observes the following principles:

(1) its external auditors must be independent and effective. External auditors are unlikely to be judged to be independent if they also provide significant non-audit services. Where the external auditor provides non-audit services, such as internal audit services, the committee responsible for audit should satisfy itself that there are safeguards in place to ensure that there is no threat to the objectivity and independence of the audit from the provision of such services;

(2) there should be a proper and transparent procedure for the selection and periodic review of the appointment of external auditors;

(3) medium-sized and larger organisations should have an effective internal audit service; others should make effective arrangements for discharging the internal audit function; and

(4) points (1) to (3) above should be regularly reviewed, along with an appraisal of the effectiveness of the audit committee, and the outcome reported to the board.

4 The audit committee should be responsible for approving and monitoring a risk register for approval by the board.

5 Theaudit committee should review its independence periodically.

Useful resources

• A wider role for internal audit. National Housing Federation, 2004

• Audit Committees: Combined Code Guidance (The Smith Report). FRC, 2003 www.frc.org.uk

• Internal Control: Revised Guidance for Directors on the Combined Code (Turnbull Guidance). FRC, revised 2005 www.frc.org.uk

• Guidance on Audit Committees. FRC, 2008 www.frc.org.uk





code for members


Good practice and excellence1 Members of the Federation have a reputation for high standards of conduct and probity.

These standards are reinforced by legislation, the ethos of the housing association movement and the provisions of organisations’ constitutions. In line with the section above on the need for openness, this section stresses the need for organisations to move towards a culture and regime in which actual and potential conflicts of interest, whether financial or more general, are formally recorded and available for public inspection. An organisation should have a code of conduct for its board members and staff, aimed at upholding high standards of probity and ethics. The organisation should consider making the code available for public inspection.

2 The board, or a committee with the necessary delegated authority reporting to the board, should from time to time review:

(1) the stated values of the organisation, and how they are implemented in practice;

(2) the implementation of this code of governance, and its underlying principles;

(3) the codes of conduct adopted by the organisation for its board members and staff; and

(4) the policies and procedures of the organisation relating to hospitality, gifts, whistle-blowing (in accordance with the Public Interest Disclosure Act 1998), access to information and other matters of business ethics such as corporate social responsibility.

L Conduct and probity

Main principleOrganisations must maintain the highest standards of probity and conduct.

ProvisionsL1 Board membership entails a particular responsibility to avoid any suggestion

of impropriety. Matters such as conflicts of interest, or acceptance of gifts or hospitality, are particularly sensitive. The required standards are set out in the Federation’s Excellence in standards of conduct: code for members, which all board members must comply with (or explain areas of non-compliance).




Probity3 The board should ensure that proper arrangements are made for the referral and

determination of individual cases raising issues of conflicts, ethics or probity. These should include a whistle-blowing policy to allow all board members, committee members and members of staff to raise issues of serious concern without the fear of reprisal, while maintaining their duty of confidentiality.

4 Where a board member has concerns about the way the organisation is being run, these should be recorded in the minutes.

5 The reasons given for a board member’s resignation should also be recorded in the minutes.

Useful resources





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