Non-board governance

Good governance depends not only on the board – there are outside factors and players that are also crucial in an organisation’s governance framework.

The non-board players

• The executive, and in particular the CEO, whose relationship with the chair is a key relationship that can help the board be more effective.
• The company secretary – the Federation’s code states that housing associations must appoint one to play a leading role in the good governance of the company.
• Committees – the groups set up by the board to assist in the governance function of the organisation.

Find out more on:

• the executive
• company secretary
• committees

The executive

Executive board directors have the same duties as other non-executive members. These duties extend to the whole of the business, and not just that part of it covered by their individual executive roles.

Executive directors should not see themselves only as members of the CEO’s executive team when engaged in board business. Taking the wider view can help achieve the advantage of a unitary system: greater knowledge, involvement and commitment at the point of decision. 

The chair should make certain that executives are aware of their wider responsibilities when joining the board, and ensure they receive appropriate induction and regular training, to enable them to fulfil the role. 

Executive directors have the best knowledge of the association and its capabilities when developing and presenting proposals, and when exercising judgement. They should appreciate that constructive challenge from non‐executive directors is an essential aspect of good governance, and should encourage their non‐executive colleagues to test their proposals. The chair and the CEO should ensure that this process is properly followed.

Executive directors are likely to be able to broaden their understanding of their board responsibilities if they take up a non‐executive director position on another board.

The Chief Executive Officer (CEO)

The CEO is the most senior executive director likely to serve on the board with responsibility for proposing and delivering the strategy. The CEO’s relationship with the chair is a key relationship that can help the board be more effective. 

The appropriate code of governance adopted by the organisation will state that the differing responsibilities of the chair and the CEO should be set out in writing and agreed by the board. Particular attention should be paid to areas of potential overlap.

The CEO has, with the support of the executive team, primary responsibility for communicating to employees the expectations of the board in relation to the company’s culture, values and behaviours. 

The CEO is responsible for supporting the chair to make certain that appropriate standards of governance permeate through all parts of the organisation. He or she will make certain that the board is made aware, when appropriate, of the views of employees on issues of relevance to the business.

The CEO will ensure the board knows the executive directors’ views on business issues in order to improve the standard of discussion in the boardroom. He/she will, prior to final decision on an issue, explain in a balanced way any divergence of view in the executive team.

The Chief Financial Officer

The Chief Financial Officer has a particular responsibility to deliver high‐quality information to the board on the financial position of the company.

Company secretary

The requirement for a company secretary of a public company is specified in section 271 of the Companies Act 2006. Their obligations and responsibilities are outlined in the Act, and the UK Governance Code, and necessitate him or her to play a leading role in the good governance of the company by supporting the chair and helping the board and its committees to function efficiently.

The company secretary should report to the chair on all board governance matters. This does not preclude him/her also reporting to the CEO in relation to other executive management responsibilities. The appointment and removal of the company secretary should be a matter for the board as a whole, and their remuneration might be determined by the remuneration committee.

The company secretary’s effectiveness can be enhanced by his or her ability to build relationships of mutual trust with the chair, the senior independent director and the non‐executive board members, while maintaining the confidence of executive director colleagues.

Role and duties

• Ensure the presentation of high-quality information to the board and its committees.
• Add value by fulfilling, or procuring the fulfilment of, other requirements of the code on behalf of the chair, in particular board director induction and development.

This should be in a manner that is appropriate to the particular director, and which has the objective of enhancing that director’s effectiveness in the board or board committees, consistent with the results of the board’s evaluation processes.

The chair and the company secretary should periodically review whether other governance processes, for example board and committee evaluation, are fit for purpose, and consider any improvements.

The Federation’s code of governance states that housing associations must appoint a company secretary or a person with that function. It’s important that whoever holds the role ensures that good governance principles are established and enacted across the business.

Committees

The establishment of committees is a matter for the board to determine. It is the board’s responsibility to set the terms of reference for all committees, setting out the scope and level of delegated powers given as part of the governance framework.

The board should maintain sound risk management and internal control systems and this should be appropriately reflected in the terms of reference for any committee.

The chair should ensure that sufficient time is allowed at the board for discussion of these issues. All board directors should familiarise themselves with the associated provisions of the relevant governance code and its related guidance, and any relevant regulatory requirements.

Sufficient time should be allowed after committee meetings for them to report to the board on the nature and content of discussion, on recommendations, and on actions to be taken. The minutes of committee meetings should be circulated to all board members and the company secretary. The remit of each committee, and the processes of interaction between committees and between each committee and the board, should be reviewed regularly.

The audit committee

It is for the board to decide the overall role and scope of the audit committee. The audit committee should identify any matters where it considers that action or improvement is needed, and make recommendations to the board as to the steps to be taken.    

It should review annually its terms of reference and its own effectiveness and recommend any necessary changes to the board. The board should also review the audit committee’s effectiveness annually. The main role and responsibilities of the audit committee should be set out in written terms of reference and should include:

• to monitor the integrity of the financial statements of the company and any formal announcements relating to the company’s financial performance
• to review the company’s internal financial controls
• to review the company’s internal control and risk management systems
• to monitor and review the effectiveness of the internal audit function
• to make recommendations to the board in relation to the appointment, re-appointment, removal, remuneration or terms of engagement of the external auditor
• to review and monitor the external auditor’s independence and objectivity and the effectiveness of the audit process
• to report to the board on how it has discharged its responsibilities.

The audit committee should review the arrangements by which employees may raise concerns about possible improprieties. The committee’s objective should be to ensure that arrangements are in place for the proportionate and independent investigation of such matters and for appropriate follow up action.

Where there is disagreement between the audit committee and the board, time should be made available for discussion with a view to a resolution. Where any such disagreements cannot be resolved, the committee should have the right to report the issue to the shareholders in the annual report.

Risk management

Unless there is a separate risk committee it is likely the audit committee should have an oversight of this business-critical issue.

A sound system of internal control depends on the evaluation of the nature and extent of the risks to which the organisation is exposed. Since risk is an inherent and normal part of any business operation the purpose of internal control is to help manage and control risk rather than to eliminate it.

The audit and risk committee or separate risk committee must ensure the business and operational risks are fully understood and effectively managed. The ongoing regulatory framework will continue to emphasise the need for robust business planning, risk management frameworks, stress-testing and control mechanisms.

Reporting of risk is also a key factor for the sector to consider. With a continuing desire for greater transparency in the corporate world, the governance equation will demand open and honest reporting of risks for shareholders and investors. The audit committees, working with the boards, should be ensuring full disclosure in the annual report or corporate website.

The remuneration committee

The remuneration committee’s role is to ensure that remuneration arrangements:

• support the strategic aims of the business
• enable the recruitment, motivation and retention of senior executives while complying with the requirements of regulatory and governance bodies
• satisfy the expectations of shareholders and remain consistent with the expectations of the wider employee population.

The UK Corporate code states that remuneration should be sufficient to attract, retain, and motivate directors of the quality required to run the company successfully, but a company should avoid paying more than is necessary for this purpose. Remuneration committees should ensure that the compensation paid to executives is fair and reasonable and linked to the long-term strategy and success of the business. The remuneration committee should not consider non-executive levels of pay.

The nominations committee is responsible for making recommendations to the board concerning its composition including proposed appointees. The board chair is often the most appropriate individual to lead this committee. However, when recruiting for a new chair it is most likely that the senior independent board member (SID) should chair the nominations committee, unless he or she has an interest in applying for the role.