Good governance means boards embracing the inconvenient truth

It is an unfortunate truth that we live in a world where things can, and sometimes do, go badly wrong. Trains crash, computers fail, large companies and banks go bust, major projects over-run and break budgets – every day that goes by brings new evidence of human folly and fallibility.

The reactions to each successive disaster follow a pattern: “We all knew it was dodgy”. “Mistakes were made, and lessons must be learned”. And often: “Well, it couldn’t have happened here.” Those actually responsible for the mistakes swiftly point the finger of blame at others.

Human nature

The world of housing is no exception to this pattern of behaviour. Every year in the UK, a dozen or more housing associations fall foul of their respective regulator and come to grief of one kind or another. How can this be, when we are so good at learning the lessons from past failures? Why, they are even documented in the English regulator’s evergreen ‘Learning From Problem Cases’ series, of which the 2019 volume is in the pipeline.

The answer comes down to a fundamental human trait. We are not logical beings as we like to suppose, but are rather ruled by emotion, illogicality and entrenched beliefs. When our cave-dwelling ancestors gathered round the fire, they told each other fanciful stories to pass the long nights. And we love stories to this day. As time goes by, we come to believe in them; some are even prepared to die for them.

In this new post-truth era, stories have assumed an even greater importance. The struggle is to ‘own the narrative’ rather than establish any kind of objective reality. Evidence-based policy making is not only out of fashion, but anathema to many of our decision-makers. When inconvenient facts or evidence appear to contradict a favoured narrative, those facts are reinterpreted to support the narrative, or those presenting the facts are attacked to undermine the validity of their position. Reactions to recent reports about the extent of poverty in the UK are a good case in point.

The human mind may be illogical, but it can show astonishing ingenuity in sustaining narratives which, objectively, may be almost laughable. At time of writing, the front pages of every newspaper were dominated by a vicious set of political struggles to establish a dominant narrative about the UK’s national future and relations with its closest neighbours. Any unwelcome contributions are easily dismissed as fake news, ‘Project Fear’ or the like. Indeed, it can be helpful to invent opponents where none exist, to distract attention from unfolding events.

Board room psychology

Moving swiftly on to the psychology of the housing association board room, we see the same forces at work, albeit on a more familiar scale. Narratives are created, which may in some cases be so far from reality as to be delusional. Boards may convince themselves that setting up a commercial subsidiary will be the next best thing to printing money. A new computer system may be accepted as the magical answer to every operational problem. An innovative way of developing new homes off-balance sheet, risk-free, may not immediately seem too good to be true. Boards may collude with the personal fantasies of the long-standing and charismatic Chief Executive, who believes himself (yes, usually him!) gifted with superhuman if not divine talents, financial acumen and judgement.

And when things do go wrong – the ‘profit-making’ subsidiary loses money, or the counter parties demand huge sums of cash to back interest rate swaps, denial immediately kicks in. “We were badly advised”. “It’s just a blip in the market – we can ride it out for a couple of weeks.” The typical reaction, when in a hole, is to carry on digging, at least for a while.

Recovery process

There are many contributory factors. Weak Board and executive skills are often in evidence. Risk management may appear scientific and comprehensive, but in practice prove blinkered to real risks – most problem cases have what (at first glance) appear to be adequate risk maps. In some cases, corruption or the existence of truly hard-nosed, even unprincipled, counterparties may also be a factor. Lack of real challenge is a universal feature.

Sooner or later though, external reality intrudes, and the process of recovery must begin.

Invariably, and with the benefit of hindsight, had recovery begun sooner, things would never have gone so far as they did. Luckily, the sector has generally proved resilient at rescuing its own lame ducks, so far at least. The catastrophe that was Grenfell is the only major UK social housing failure during my career that has cost numerous lives, rather than just money and reputations. The struggle to own the Grenfell narrative will be with us for some years to come; may objective truth prevail.

So – it all comes back to good governance in the end.

Board members, huddled together for warmth around fires by their caves, need to embrace their underlying tendencies to irrationality and magical thinking; this is the simple price of the human condition. Logical systems such as In Depth Assessments, control assurance, committee cycles, succession planning, codes, audits, standards, and lines of defence are all vitally important of course. But there will still be times when they are eclipsed by a dazzling but delusional narrative.

Three parting injunctions for Board members and executives eager to avoid a starring role in the next volume of Learning From Problem Cases:

  • Never believe your own propaganda;
  • Seek out the inconvenient truths; and
  • When it’s your turn to be in a hole, stop digging and call for a ladder!

The next volume of Learning From Problem Cases will be published late in 2019. Working title “Why, oh why, did no one tell us?”.

Further reading for the curious: Mistakes were made (But not by Me), Tavris and Aronson, Mariner Books, 2015.

To discuss this article, contact James Tickell:

A version of this article first appeared in Social Housing magazine

This article also appears in CT Brief 40