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Is anything too much or


something not enough? Exploring
the assumptions and implications
of introducing payment for boards
of housing associations
Voluntary Sector and Volunteering
Research Conference 2014

Bruce Moore, Birmingham University


Interest in and Understanding of Housing
Association Governance
When things go wrong with the performance and operation of housing associations (as they
inevitably do) the underlying cause is almost always attributed to a failure of governance (Tickell
and Phethean, 2006). Concern about corporate governance is not new, nor are the challenges
unique to housing associations and it has thus been characterised as the original sin of all large,
modern organisations (Klein and Day, 1994).
But, despite numerous inquiries, codes and reviews and renewed interest in the integrity and
effectiveness of corporate governance, it still remains an elusive concept. The term governance
is derived from the Latin to steer or give direction with corporate governance being specifically
focused on the structures, systems and processes concerned with ensuring the overall direction,
control and accountability of an organisation (Cornforth, 2004). But there is no unanimity of
view about what effective governance actually looks like or how it can be achieved and much of
the advice about how organisations should be governed is simply based on normative views or
prescriptions for success.
I want to look beyond the rhetoric to consider the ways in which roles that housing association
board members perform can be seen and conceived. My specific concern is with the assumptions
and implications associated with the introduction of the potential to pay housing association
board members. How governance issues play out in housing associations is of particular interest
to me. I have held executive and non-executive positions in a number of housing associations,
public organisations and charities. As well as being a PhD student at Birmingham University, I am
now also the chief executive of large housing association with paid board members that had
recently experienced governance difficulties. I accept that there will not be a right or true way to
do governance and I am not seeking to prove or prefer one particular view point or approach. I
also recognise that my views and perspective will inevitably be partial, prejudiced and ignorant
(Austen, 1791), but I hope my insights and observations will nevertheless be of interest and
relevance to others both within and beyond the housing association sector.
Housing associations are positioned at the intersection of the private, public and charity domains,
so consideration of their governance has the potential to be both influenced by and to influence
the governance approaches adopted in other sectors. This hybrid nature of housing associations
has arisen as a consequence of a heterogeneous history and the effects of the shifting sands and
prevailing winds of the social, economic and political environment.



Housing Association Evolution and the Path to
Professionalisation
Many housing associations were formed as charities and evolved from medieval almshouses,
Victorian philanthropic trusts, church societies, activism of socially concerned professionals or as
off-shoots of existing charities. The Housing Act 1974 marked a watershed in the development
of the housing association movement, when substantial public subsidies became available
through the dual regulatory and financing role of the Housing Corporation. The prospect of
obtaining funding prompted a rush of organisations wanting to be registered and a substantial
growth in housing association development activity. These halcyon days, however, came to an
end in 1989, when the Housing Act 1988 put risk back into housing association development,
requiring the equity established in properties built with public funds to be used as security to raise
private finance to help support future growth. This exacerbated a divide between large and small
housing associations and effectively meant that only the housing associations that had been
ambitious and built up a strong asset base during the boom times or were otherwise well
resourced were in a position to continue to expand and grow. The large housing associations
that have formed since 1989 have either been created by the merger of existing housing
associations or by the large scale voluntary transfer (LSVT) of local authority properties to new
housing association providers with the backing of bank funding.
While housing associations remained relatively marginal and small scale, issues of their
governance, accountability and control attracted little attention, but this has changed as housing
associations have become major players and moved center stage. Housing associations have
usurped local authorities to become the main providers of social housing and financially have a
combined turnover of some 15 billion and assets of over 125 billion (Homes and
Communities Agency, 2014). The risks facing housing associations have also increased
inexorably as they have been exhorted to do more for less and to sweat their assets.
As risks increased so did the prescriptiveness of regulation until the Housing and Regeneration
Act 2008 abolished the Housing Corporation and replaced it with the Tenant Services Authority
(TSA) which was itself abolished by the 2011 Localism Act, with its regulatory responsibilities
becoming the concern of a committee of the Homes and Communities Agency. Focus now is
ostensibly on co-regulation that puts the onus for good governance back onto the board of each
housing association to demonstrate that it is well governed and in control. The emphasis of
regulation is as a consequence now limited to safeguarding the public subsidy in the sector by
requiring conformance with standards of financial viability and avoiding serious detriment rather
than enabling and ensuring that housing associations fulfill the social purpose for which they were
established.
The profile of the housing association sector is incredibly diverse. There are in total some 1,500
housing associations that together own or manage around 2.7 million homes. The vast majority
of housing associations are still relatively small, with 1,200 organisations having responsibility for
fewer than 1,000 homes and between them accounting for less than 5% of the total stock of


housing association properties. But even amongst the biggest 300 housing associations, there is
still a considerable differential in scale and significance. The largest 71 associations each have
more than 10,000 homes and account for almost 55% of the total stock (Homes and
Communities Agency, 2014).
Is it still practicable to try to compare and apply the same models and approach to governance
across all housing associations? Common sense suggests that the governance challenges and
dynamics in the small corner shop housing associations led and run by volunteer board
members with few (if any) paid staff are likely to be both quantitatively and qualitatively different
from the position of the mega supermarket housing associations that are now likely to have paid
boards as well as the support of a professional workforce and a chief executive to lead and run
the organisation.
It was the concern about the standards and quality of governance in larger associations that were
now operating as commercial and entrepreneurial businesses that ultimately led to the significant
determination in June 2003 to permit board member remuneration (Housing Corporation,
2001). This was though highly controversial and had been preceded by considerable debate of
the question to pay or not to pay? that had polarized opinions. The National Housing
Federation sponsored Inquiry into Housing Association Governance (Hancock, 1995) had
previously concluded that the case for payment was not proven and was persuaded by claims
that payment might undermine positive public perceptions and raised concerns that people
who can only be attracted by payment may not be best placed to balance social with financial
objectives. However, despite the reservations and objections, the introduction of payment was
seen as a necessary price to pay to satisfy expectations for improved governance and to meet the
regulatory requirement for housing associations to be headed by an effective board that will
give capable leadership and control (Housing Corporation, 2003).
Sandel (2013) notes that in recent decades, markets and market oriented thinking has reached
into spheres of life traditionally governed by non-market forms. He questions though the
merits of remaking of social relations in the image of markets and the growing use of
monetary incentives to solve social problems.
Governance Form and Function
The extent to which corporate governance is considered significant is a consequence of the
nature and perceived importance of the role it is required to fulfil. The primary aim for
governance in commercial companies is generally an agency function to address the economic
imperative for accountability that arises from the separation of ownership and control (Berle and
Means, 1932). There are though various other theoretical perspectives, each with their own
advocates, that give rise to competing views about the primary role that the board is expected to
perform (Hung, 1998). Stewardship theory would regard the board as having a strategic
performance function, management hegemony sees the board in more of a support role and
stakeholder and resource dependency theories see the board as undertaking a linking and
coordinating role to connect the organisation with it sources of external influence. Perhaps it is


the lack of clarity of view about what the problem is that governance is expected to address that
makes it so complex and contested.
The track record of corporate governance in the commercial sector has been less than perfect
and concerns have been expressed about the adequacy of the theories of governance and
effectiveness of boards in protecting the interests of owners (e.g. Mace, 1971; Lorsch and
McIver, 1989). Doubts have also been raised about the applicability of these governance models
to not-for-profit organisations or whether they require a wholly different conception of the role
that governance is required to perform (e.g. Carver, 1990; Lohmann, 2001).
The search for profit is not inconsistent with social sensitivity, nor is the absence of profit motive
incompatible with a desire for sound economic performance. There is also an undeniable
commercial imperative and separation of authority and responsibility within larger housing
associations that has parallels with the governance of commercial companies. But is the not-for-
profit form of housing associations more significant than scale or function? Hansmann (1980)
would suggest that the key point of difference and defining characteristic of housing associations,
from a governance perspective, is that they do not operate for profit and are subject to a non-
distribution constraint.
The non-distribution constraint prohibits a not-for-profit organisation from paying out its net
earnings (profits) to owners or those in control of the organisation. This provides assurance that
funds invested will only be used to further the goals of the organisation. Although it is now
possible for for-profit companies to be classed as Registered Providers and compete with housing
associations to build and manage affordable housing, to do so they need to be subject to
additional controls and restrictions to stop the value of social investment being seized for
shareholder benefit. The not-for-profit status of housing associations remains dominant because
of the benefits the non-distribution constraint provides in situations where normal market
conditions do not operate (e.g. where a third party pays; provision of public goods; difficult to
monitor complexity or quality) (Hansmann, 1981; Fama and Jensen, 1983b; Weisbrod, 1998).
Boards of commercial enterprises are required to serve the interests of the equity shareholders
who, as owners of the rights to profits and the residual value of the organisation, can hold the
board to account and rely on the operation of the market for corporate control to protect the
value of their investments (Fama and Jensen 1983a; Easterbrook and Fischel, 1983). But in not-
for-profit housing associations, even though there may be members who nominally hold shares
they dont have any economic interest or stake making their legal ownership a virtually
meaningless condition. The Committee on Standards in Public Life (Nolan, 1997) suggested
housing associations should consider adopting open membership policies, but in practice few
large housing associations regard members as a primary source of accountability. Although this
can leave housing associations open to accusations that they operate as self-perpetuating
oligarchies, the fact that housing association boards can control and manage their membership
may paradoxically be an advantage in ensuring the interests of the board are aligned with the
interests of stakeholders.


Hansmann (1996) suggests that stakeholders of a not-for-profit organisation should be treated
as quasi owners and become a mechanism for determining and legitimising the purpose and
interests to be served. Because boards of housing associations have considerable power and
influence over the composition of their membership it allows them to determine who should be
treated as a stakeholder of the organisation. The board thus acts as a microcosm that seeks to
epitomize, within its own composition and that of its membership the wider macrocosm of the
organisations moral ownership thus internalizing the competing tensions, complexities and
dynamics of interests and concerns. Fama and Jensen (1983b) therefore propose that the
primary role of the board of a non-profit organisation is to reflect and represent the views of
stakeholders in holding management to account.
Board Authority, Control and Composition.
Can non-executive board members, with limited and episodic participation, really be expected to
be responsible for actually running the business of major housing associations? As the size,
complexity and exposure to business risks increases the boards of housing associations inevitably
and necessarily have to place greater reliance on the chief executive and senior management.
This, however, increases the likelihood of boards becoming isolated from the operations of the
organisation. If the executive managers control the channels of communication then the board
may end up being excluded from the core of the organisations decision making and become
dependent upon managers for access to information and to identify, select and define the
questions they get to address. Boards can end up being directed to endorse management
recommendations and approve decisions instead of considering wider issues of strategic purpose,
priorities and performance. The question has therefore been asked whether housing association
boards are in control or if it is just a charade (Platt et al, 1985).

Although boards have hierarchical authority and are at the apex of the corporate structure, it is
often the management executives of large housing associations who have functional control of
the organisation. Even if not formally designated as members of the board, the power and
position of executives is such that they may still recognised under company law as being shadow
directors (S.251 Companies Act 2006).
Notwithstanding the apparent imbalance of power between boards and executive managers, the
boards of housing associations do still have a value as a source of discipline and potential to act as
an effective means of control. Boards can constrain and circumscribe management discretion by
setting the limits and boundaries within which they are required to act and performance
expectations to be achieved.
Boards must therefore ensure that their representation of the moral ownership and purpose of
the organisation does not become subservient to management prerogatives. The relationship
between the board and management of a housing association is often characterised as a
partnership, but in reality it may be more appropriate for it to be considered as position of power
interdependency and latent conflict (Kramer, 1965).


The principles of volunteerism and professionalism may though sit uneasily together with
managers reluctant to have their judgment and competence questioned and held to account by a
board of amateurs. The case for payment of housing association board members was at least in
part based on a perceived need to attract more people with professional skills and management
experience. The National Housing Federations own inquiry into housing association governance,
however, suggested that board members should instead be recruited with wide experience and
critical detachment so they can bring an independent judgment to bear on issues of strategy,
performance, key appointments and accountability (Hancock, 1995). If boards are formed and
assessed in terms of functional competencies they may lack the cognitive diversity to avoid
becoming over-run by managerialism and less effective in ensuring that the interests of other
stakeholders and the moral ownership are effectively represented.
Housing association boards are seldom representative of the constituencies they serve and
despite a common aspiration to achieve a degree of demographic diversity the stereo-type
remains of housing association board members as white, middle-class, late middle-aged males
(Cairncross and Pearl, 2003). There is therefore a risk that stakeholder views will be filtered and
distorted to such an extent that they bear little resemblance to the actual views and opinions of
stakeholders. The alternative strategy of including representatives of customer and stakeholders
groups on the board of housing associations, however, may be equally problematic. This is can
lead to tokenism or the formation of factions (e.g. Cowan et al, 2006). There can also be a Catch
22 situation (Heller, 1961), whereby once a stakeholder is appointed to the board they then
become a part of the establishment of the organisation and as a consequence a less typical
representative of their stakeholder constituency. Personal agendas and motivations can also
come into play to justify the continuation of the status, privileges and position afforded to
housing association board members and there is clearly a potential for these issues to become
more pronounced when board members are also paid.
Integrity, Accountability and the Impact of a
Power to Pay
Since the members of a not-for-profit organisation lack the financial incentive or market
opportunity to challenge the board and because boards of housing associations tend to appoint
and manage their membership, the result is that board members are virtually immune from
external challenge or being ejected. Therefore, in order to provide assurance that board
members of not-for-profit organisations can be trusted not to succumb to the temptation to
become self-serving, they are normally expected to serve as volunteers and prohibited from
being paid or receiving any other direct or indirect benefit or advantage from their position save
for the reimbursement of justified out of pocket expenses.
Whilst this provides a degree of protection against misappropriation of funds, the absence of
payment does not guarantee competence or that a board members motives will be necessarily
altruistic. Board members could still hold personal ambitions or prejudices that might conflict
with or distort pursuit of the organisations objectives. The people who are most willing to


volunteer are also not necessarily the people who are best suited or have the skills and experience
required to discharge the responsibilities of a governance role.
The Housing Corporation decision in 2003 to permit housing associations to make payment to
their board members marked a fundamental shift of position and approach. Despite being
subject to a number of protections and safeguards this determination in effect set aside the
normal fiduciary duty that prevented board members from obtaining any benefit from their
position. The determination did not however change the law. Charity law remains that being a
charity trustee is not an office of profit and trustees are therefore forbidden from deriving any
benefit from unless this is expressly permitted by the constitution of the charity and approved by
the Charity Commission because of particular and exceptional circumstances (Charity
Commission, 2012). This is in marked contrast to the position now applied to housing
associations that are exempt charities (by virtue of incorporation as Industrial and Provident
Societies) where there is now an apparent presumption that payment will be permitted. Housing
associations were initially required to develop a business case to demonstrate that payment of
board members would improve the quality of governance and would be in the interests of its
beneficiaries, but in practice these were never scrutinised or tested. In the modern era of co-
regulation the Homes and Communities Agency imposes no specific conditions or tests that a
housing association wanting to pay its board needs to satisfy beyond general considerations of
value for money.
Take up of the power to pay wasnt immediate. The Housing Corporation reported that in the
first year board payment was introduced by 25 housing associations, of which 11 were amongst
the largest 100 associations (Housing Corporation, 2004). Ten years later there are has been a
steady shift towards payment, especially amongst the larger associations where around 90% have
now introduced board payment arrangements.
A survey undertaken on behalf of the National Housing Federation to ascertain the reasons
housing associations gave for determining whether they should pay or not did not produce a
conclusive picture (Burrows and Manning, 2014). It did not indicate that the introduction of
payment had radically altered the perceptions of the role of the board. The main perceived
benefits of payment were simply that payment had enhanced the ease of recruitment and
retention of suitable board members, given more significance to an annual appraisal process and
ensured a greater level of attendance and engagement.
But if, as appears likely, boards of large housing associations are going to paid, who should
determine whether that pay is reasonable and appropriate and ultimately hold the board to
account?
The Homes and Communities Agency is unlikely to intervene to hold housing associations
accountable save to ensure an overall governance responsibility to safeguard taxpayers interests
and maintain the reputation of the sector. The scope for management or boards to pursue their
own ends and desires to the detriment of the organisation and its intended beneficiaries is not
therefore externally constrained by regulation or scrutiny. Housing association managers (and
boards) might have been expected and relied upon to exercise a degree of self-restraint by virtue


of social ethos and values of the sector. Such normative constraints are diminishing as the sector
diversifies and larger housing associations become more corporate and commercial in the way
they operate. Will paying housing association board members make them more or less likely to
be effective in holding the management to account so as to make sure that the organisation
performs to its full potential and is effectively representing the interests of its stakeholders?
Motivation, Symbolism and Sufficiency of
Remuneration
The motivation of board members is inherently personal and thus inextricably bound up with the
messiness, subjectivity and unpredictability of human behaviour. What people say motivates
them may not always provide and accurate reflection of what they actually do (Rynes et al, 2004).
Whilst economists assume that monetary incentives will always be beneficial, there are many
psychological experiments and social studies that suggest the opposite and that the introduction
of payment and financial rewards to certain types of activity may undermine altruism and crowd
out the inherent intrinsic motivation (e.g. Gneezy and Rustichini, 2000; Lepper and Greene,
1978; Kohn, 1993; Frey, 1997; Titmus, 1971). Money has the capacity to take on greater
significance and symbolism than merely its economic value as a medium of exchange (Simmel,
1900; Zeliizer, 1994). Money changes everything and it cannot therefore be assumed that once
payment is introduced that boards of housing associations will continue to operate and conceive
their role as they did before.
The quantum of payments to housing association board members has remained relatively
modest and, apart from a couple of exceptions, has remained within the parameters initially
proposed when payment was first introduced (Ashby and Ferman, 2003; Ferman and Appleby,
2009; Burrows and Manning, 2014). This is considerably less than the remuneration that non-
executive board members would receive for service on the board of commercial companies of an
equivalent scale and complexity (Lowe, 2013). For most large associations the total payment to
all board members is considerably less than the salaries they pay to the chief executive and often
under 1% of the turnover. Is this quantum of pay enough to produce the maximum benefit?
But for some even a small sum is considered too high a price to pay. A NCVO Report on the
Future of the Voluntary Sector (Nathan, 1996) concluded that if trustees were paid even
modest sums, there would be a risk of manipulation. More important, the public perception of
the raison dtre and the ethos of the voluntary sector might gradually change and public support
for the sector be damaged. Hence my opening question: Is anything too much or something
not enough?
Board members of small housing associations might be seen to be the drivers effectively
steering and controlling the running of the organisation, whereas the proposition for a large
housing association may be fundamentally different with board members merely acting as
guards or conductors checking things are in order, but also ready to sound the alarm or pull on
the brakes if something goes wrong. Irrespective of whether this proves to be a valid analogy it
does at least indicate that an assessment cannot be made of whether a board is being effective or


whether its performance has been enhanced or hindered by the introduction of pay until a clear
understanding has been reached of what it is that the board exists to do.
Conclusions and My Research Intentions
I want to avoid a polemic approach that neither valorizes nor deplores the marketization of
housing association governance by the introduction of pay. It would be wrong to automatically
equate voluntary effort with inefficiency and paid service with competence, but it would also be a
mistake not to see that as the governance task and context within which housing associations
operate changes so new methods and approaches to secure control and accountability may also
be required.
Effective governance is specific and situational, so perhaps it is only ever going to be possible to
assess whether it was achieved retrospectively and with the benefit of hindsight. Is it really
feasible to try to isolate the impact that payment may (or may not) have had from the multitude
of other factors, influences and circumstances? Perhaps the key factor therefore is not to try to
understand governance per se but to instead consider how board members see themselves and
their role.
I am proposing, through my PhD research, to adopt a mix of methods to gather multiple
perspectives and views of how the role of governance is seen and operates in housing association.
I do not expect these disparate and paradigmatically different elements to triangulate to a
universal view of ideal governance. Instead I am proposing to adopt Q methodology to find the
ways in which participants from across an array of housing associations subjectivity sort and make
their own sense of the set of assessments and evaluations I manage to assemble. I hope this will
then provide some insight into the alternative ways in which housing association governance
should be appreciated and evaluated.
My Other Paper
I am still at the start of my research journey. In this paper I have tried to outline the territory I
hope to explore and some of the questions I intend to address. I am fortunate enough to have
also been invited to present a paper as part of the New Researcher Programme of the NCVO
Research Conference. Rather than go over the same ground again I am proposing to present a
short second paper to consider how the challenges of housing association governance and
consequences of payment for board members could be considered from an alternative
theoretical perspective. Could the construct of Exit, Voice and Loyalty that Hirschman (1970),
identified as key factors in understanding an organisations ability to self-correct in response to a
decline in performance, provide a useful tool to assess the reality and effectiveness of
governance?



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Abstract
When organisations get into trouble it is inevitably a consequence of poor governance, but it is
not a simple matter to say what constitutes good governance. Housing associations are classic
hybrid organisations and this paper considers the implications of their evolution to a point where
professionalisation of their boards was thought to be a necessary step to ensure the quality of
their governance.
I ask whether the scale and not-for-profit status of housing associations means that the boards
role should not be to run the organisation but to act in a manner akin to an owner by scrutinising
and holding the management to account. The introduction of payment may also affect the
integrity or the commitment of board members and the way they see their role.
The paper suggests a direction for future research may be to identify the array of different
conceptions of what good governance could be.