unhelpful and counter-productive. The book is full of meticulous analysis and startling facts and figures.

Transcription

1 unhelpful and counter-productive. The book is full of meticulous analysis and startling facts and figures. Mergers and Supported Housing: Paul Key examines the current trend towards mergers, especially between RSLs, and asks whether they are delivering on what they set out to do. I was reading a new book by Will Hutton The Writing on the Wall which is about the relationship between China and the West in the twenty-first century. The basic premise is that globalization and the availability of cheap labour are overly simplified headline factors in a very complex and changing situation where kneejerk reactions, such as the present move back towards protectionism in the US, are seen as I was particularly riveted by a discussion about mergers, acquisitions, takeovers and downsizing in businesses in the United States and Europe. Multiple sources of research over 30 years have found that mergers, far from being the classic route to increased shareholder value and efficiency, are only infrequently successful in achieving these goals. Between 50% and 75% of mergers fail to deliver added value! This is a worrying long term trend. The huge and unprecedented increase in merger and acquisition activity is driven by increasing shareholder power and willingness by Chief Executives to be seen to be taking action to improve share value in a fairly moribund business environment. Clearly Chief Executives don t do too badly out of these deals themselves. The evidence suggests that maybe they are the only ones who are benefiting. Whilst the environment in which big business operates is different to the social housing market in Britain are there some parallels that can be drawn between the two? Certainly the number of mergers or development of group structures, between Housing Associations seems to have been increasing exponentially in the same way as businesses in

2 Europe and the US over the past ten to fifteen years. In addition some of the reasons for going down this particular road seem somewhat similar in that there is a desire for increased efficiency, pooling of resources, borrowing money more cheaply, economies of scale and increasing market share. What is different, of course, is that the social housing market is controlled by government through the Housing Corporation. The government s operation of investment partnering, efficiency measures and value for money standards has been a powerful factor in the acceleration of mergers. The competitive funding regime does tend to militate against smaller organizations. A problem seems to be that the government s carrot and stick approach is pretty broad brush. Whilst it is undeniably true that there may have been too many small to medium housing associations around which led to a justifiable argument about the most efficient uses of funding, the mechanisms put in place to address this seem to have swept all before them. This seems to be leading to an increasing homogeneity of approach to social housing across broader geographical areas, replacing the valuable ability of smaller organizations to provide differentiation and local, mixed housing. This particularly affects supported and sheltered housing which, by definition, is more expensive to provide. Acting in a totally logical and businesslike way it would be difficult to justify providing different and more costly forms of housing where it was more effective to provide ever larger numbers of homogenous units. This is the point at which Housing Associations move from social organisations acting in a businesslike way, to Associations actually acting as independent businesses which is presumably what the Gershon-minded government have planned. There is evidence that this is being resisted in some quarters, and the government s exhortation to involve tenants more in governance does help up to a point. The problem is however that once conditions have been created that reward a pure business approach, those organizations still dancing to an earlier tune will tend to be seen as being increasingly out of step, and, more tellingly, will start to fail financially and be unable to develop. There is little sensitivity or fine tuning to the carrot and stick approach which may serve to penalise organizations unwilling to grasp the nettle of full-on business or bust. These issues can be seen being played out now. There are a block of very successful large merged and grouped Housing Associations acting effectively as private businesses who are striding ahead. The highest paid Chief Executive in the leading

3 organisation is paid 210k per annum and is no doubt doing a good job. The number of board members in that organization has now been reduced, and the remaining members are now also paid, following recent changes in the government s rules in this area. These organizations do represent a picture of efficiency and good business and investment practice. They may not necessarily represent however the social ethos of the underpinning principals in the original creation of the Housing Association movement. The question is whether anyone thinks that matters. At the same time as business is booming for some there are a number of Housing Associations where the move to a merger or group structure has not worked particularly well, echoing the experience in business in Europe and America. The problems being experienced can arise from a number of causes: There is intense pressure on costs to meet regulation requirements. In the last issue of The Briefing I wrote about bureaucracy and I received a letter from one very harassed Chief Executive of a small Housing Association about the issue. He included a list of no less than 54 different new regulatory requirements his organization has had to build in to its operational processes in the last few years. Regulation does cost, and there is no additional funding provided. This particular case was aired on Radio 4 in Ironically this problem may start to be addressed by another merger, that between the Housing Corporation and English Partnerships. It is a stated objective of the new organization that they will remove excessive regulation and bureaucracy. Lets wait and see. Something that is a tough issue to resolve is the bringing together of different organizations and trying to get them to make common cause under the banner of the new merged or group entity. These are people issues and need to be managed extraordinarily carefully. Organisations within the group structures generally don t want to lose their identities and there is potential for duplication and inefficiency where this persists. There are no clear guidelines as to how to manage these sorts of problems and many managers find themselves out of their depth in dealing with the complexities of this type of organizational change.

4 Private sector mergers aim to create efficiency savings by making redundancies and slimming down the workforce. This is all part of the big business approach which, as noted above, has not worked particularly well although it seems to be notoriously difficult for powerful Chief Executives to learn this lesson. There seems to be a reluctance, perhaps understandably, to address this effectively in parts of the social housing sector which can mean that finances may become stretched while waiting for natural wastage to occur, or where it seems necessary to live with some overmanning as a quid pro quo for the merger/group structure agreement. There do not appear to be any published criteria by which to judge whether mergers have been successful or not. This tends to extend to a lack of clear criteria on the benefits for tenants and neighbourhoods of the merger or group structure plan. Whilst consultation often takes place, it can sometimes look like an announcement of the plan, rather than a real effort to understand the view of those who might be affected by it. There appears to be little consistent monitoring of outcomes from mergers and creation of group structures. It is encouraging, however, that quite a number of merger/group structure plans have been dropped in the early stages, following cautious due diligence. The retrenchment of the Supporting People budget has created financial uncertainty for many housing associations involved in Supported Housing which has added to the list of worries. Many commentators point to a larger inefficiency in Supporting People management and bureaucratic structures themselves which could possible be dealt with by having those budgets managed by existing local government structures. This does not seem to be being addressed in the short to medium term, however. What about Supported Housing in the context of these new realities? The case for Supported Housing has always been structured around social values, human rights, caring communities and a strong voluntary sector ethos. Whilst this still remains, and indeed is encouraged by government, the business case for Supported Housing is perhaps more difficult to put,

5 and the newer thrusting very large housing businesses may well feel that this is not an ideal area for investment. We have been involved in developing the Housing Benefit Optimisation Programme for a number of years now and there have been an increasing number of Housing Providers keen to re-finance their operations this way, particularly as there are no costs to existing budgets. The problem has started to become acute where the Supported Housing entity in a group structure is the one that regularly seems to be propped up by the others financially. Reviewing HB revenue streams does provide a secure permanent uplift in revenue and creates the opportunity for Supported Housing to make a contribution. This becomes more difficult without good advice and support where mergers and group structures are not succeeding as well as they might, for whatever reason. Research into the phenomenon of mergers and group structures for this article has been quite limited by the time available. Comments and views from individuals and organizations who have been involved, or who are becoming involved in these new ventures would be very useful, and we would like to publish comments in the next issue of The Briefing.