How to respond to a G2 downgrade
Receiving a governance downgrade from the Regulator of Social Housing should be seen as an opportunity for change and improvement
GOVERNANCE
Image: Istock
Doug Wynne
Senior Consultant, Campbell Tickell
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Issue 66 | June 2023
A downgrade of your organisation’s governance rating by the Regulator of Social Housing (RSH) is never a welcome development. But if it is responded to appropriately, it can be a catalyst for change and improvement.
What does a G2 rating mean?
A G2 grading means your organisation remains compliant with the Regulatory Standards. As the RSH definition says: “The provider meets our governance requirements but needs to improve some aspects of its governance arrangements to support continued compliance.”
A G2 grading usually arises from one or more of the following issues:
- An acute compliance issue (e.g.: rents; health and safety; stock condition; complaints)
- Failure to manage key financial or strategic risks (e.g.: loan covenant compliance; stock reinvestment; sales or subsidiary performance)
- General governance weaknesses (e.g.: in areas such as: control and assurance; risk management; equality, diversity and inclusion; data integrity; stress-testing; performance reporting; board composition and effectiveness; third-party arrangements)
In the near future it is probable that there will be G2 downgrades arising from more general service delivery issues as the RSH rolls out its revised approach to Consumer Regulation.
Action plan
To resolve the G2 situation and return to a G1 grading, your organisation will need to establish the extent of the issues and design and implement an action plan to address them.
In establishing the extent of issues and your approach to resolving them, consider the following questions:
- What are the presenting issues?
- Are those issues repeated elsewhere in the organisation or its services?
- What are the underlying causes?
- Does the board and RSH have full details of the situation?
- Is further investigatory work required?
- What are the impacts (if any) on customers, financial viability, service delivery, funding, lending and reputation?
- Does the organisation have sufficient capacity and skills at board level to resolve the situation?
In designing and implementing an action plan your organisation should:
- Ensure board leadership of the resolution of issues – a board-led working group or task and finish group to oversee delivery of a resolution plan is usually a very good idea.
- Adopt and resource a project management approach – a project management approach is essential as your resolution plan is likely to involve different strands of work proceeding at different paces. Ensure sufficient project management resources are in place.
- Establish whether there is a need for additional support – whether independent specialist consultants, additional staffing or board resources.
- Draw up a full and detailed action plan setting out:
a) Actions
b) Owners
c) Timescales
d) Success measures
e) Dependencies
f) Key milestones
g) Risk management arrangements
h) Progress reporting
- Ensure that regular reporting of progress to the main board and to the RSH is in place. Agree with the RSH what information they wish to see and when.
“A board-led working group or task and finish group to oversee delivery of a resolution plan is usually a very good idea.”
The resolution process has three main phases that your action plan should encompass:
01
Making necessary changes – in areas such as policy, practice, people, systems, performance reporting, assurance mechanisms and board oversight.
02
Embedding those changes – so that the organisation can demonstrate it has learned lessons for the future, that the revised approach has become business as usual and that intended improvements have been achieved. This is an important phase of the process and it can be both difficult and take time to deliver.
03
Demonstrating full compliance with the Regulatory Standards – the RSH will take a holistic approach to reviewing progress and overall compliance with the standards. If there are any additional regulatory issues, the RSH is likely to roll those up with the existing G2 concerns and will require they are all resolved before an upgrade will be considered.
Top tips
- Avoid doing things in a rush
- Set realistic, achievable timescales
- Ensure both presenting issues and underlying causes are addressed
- Don’t assume the RSH will tell you what to do
- Maintain a positive working relationship with the RSH
- Establish clear lines of communication and progress review milestones with the RSH
- Have a positive story to tell to media and key stakeholders, including your customers
By following the right steps in responding to a downgrade, your organisation can use it as an opportunity to improve and return stronger for the experience.
“Set realistic, achievable timescales.”
