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By Alistair McIntosh, Chief Executive, HQN
Welcome back to the fight. That’s what the hero of the film Casablanca says to Bogart when he gets back to what he does best. And it’s what we should be saying to the HCA.
This year’s Sector Risk Profile is spot on. The less said about last year’s effort the better. The fire has made everyone take a long hard look at themselves. In 2016 health and safety was bottom of the pile of HCA risks. Money was the be all and end all. This time around tenants shoot to the top of the list. If you trash the reputation of the sector in any way the HCA will jump in.
The HCA has made the change and so must we. But that doesn’t mean money doesn’t matter. Of course it does. You need cash to look after the homes you have as well as paying for those you want to build. The HCA wants to see lots of stress testing for things like build costs going up faster than rent rises. And they are worried about the shift to sales being a bigger deal than grant and debt put together. This leads to some desperate stuff.
Do you see all the adverts in the papers from associations writing off stamp duty for investors? I can’t recall the same special offer for the bedroom tax. So much for social hearts and business minds. I’ll tell you a stress to test for – control of house prices. An empty tower in West London looks out over lots of empty money boxes. Did associations build any of these fake flats? If you did then prepare for a rough ride. The rules just changed. And you are on your own.
This time around the HCA is on the warpath for associations that have “chosen to” take on too much debt to build and for those that botch mergers. You will see that the questions they ask about mergers are strikingly similar to those that Placeshapers put in their Form Follows Function guide. Now some of you might have thought that you were under orders to build more and merge. At all costs. Was the White Paper just a ship that passed in the night?
While we are at it, is de-regulation going the same way? The HCA does not think you can stand on your own two feet. So it might do. They say there were “many occasions” where the HCA made associations think again about obvious flaws in their plans. Hold your horses. In most sectors there are doubts about civil servants ability to keep up. Here, they say, it’s the other way about. If true, that’s a poor show. Anyway the days of cutting red tape are gone. The HCA wants to know more and not less about what you get up to. It could be that the judge at Grenfell has something to say on this.
Now what does this all mean for boards? Let’s look at three powerful quotes. This is from the minutes of the TMO at Kensington. “Grenfell Tower refurbishment – close liaison with LFB and Fire Risk Assessor throughout the duration of the project. At the conclusion of the work some of the operational firefighters from the local Fire Station attended an onsite briefing where the contractor demonstrated the fire safety features of the building.” That sounds great. But what was the reality? Boards need to ask better questions. How do we know that is true? – is a good place to start.
Next up. This little quote shows that you must get to grips with what your advisers are really saying. This is from the FT’s report on the dispute between PWC and the NHBC. “PWC accepts that it breached its duty by failing to identify the tax adjustment. It added that it could not be expected to detect “non-compliance with all laws and regulations.” Now where have we heard that phrase before? Yes the HCA insists that you “adhere to all relevant law.” Good luck.
And don’t get above yourself. The boss at C4 said – “The board… is not obliged to be the cash machine for the latest well-meaning government policy that is drifting along.” Hmm I can hear a few of our chiefs saying that can’t you? Lord Grade called this “insolent”. And he pointed to all the loot we had given to C4 over the years. Mind you we can all feel for C4. The government is threatening to force them out of London. How will they cope on Ilkla Moor Baht ‘at?
So what’s the message for board members? It would be easy to scare them off. How do we hang onto them?
First the HCA needs to show some humility. It didn’t see things coming. So don’t go smashing everyone else on risk. It won’t wash. Cut boards a bit of slack so they can adapt to the new rules. And please do something to get tenants back in the frame. Too often the sector's herd mentality takes over if they are not at the top table.
Next we have to allow more time to get things right. Executives and advisers have to show their workings. The HCA is right to slam option reviews. Yet in truth many of them are set up to send you down a road. We can all do better here. And we need to speak up. When the wheels come off what do the powers that be do? They go right back to the report that triggered the mistake. And they ask questions. The very questions that the board should have put at the start. So you must dare to be different.
Going on from there, and I know there are pros and cons. But if I was on a board today I’d be the doubting Thomas. And you need to be. Lives depend on it.