Goodbye to the golden share?

Put simply, it would empower the Secretary of State to make regulations that sweep away a transferring local authority’s so-called “golden share” in, and nomination rights to the boards of, the RP to which it transferred its housing stock.

This could be a welcome lifeline for RPs that have delivered their offer document promises and that feel their ability to control their own destiny is fettered by local authority influence at member level, and those whose governance arrangements are tied into historic constituency nomination rights for the transferring local authority.

Conversely, there may be RPs out there who see this as a material risk, particularly those who fear being pressurised to join a larger group and who may therefore depend on their transferring authority to use its constitutional clout to prevent this happening. The requirement for local authority consent was found to be a hurdle in solving the Cosmopolitan crisis.

The amendment itself, tabled by Conservative Peer Baroness Williams of Trafford, is potentially extremely wide in its scope. If implemented, it gives the Secretary of State the power to make regulations that limit or remove the ability of local authorities to exert influence over RPs either by appointing board members or controlling voting rights at member level (the “golden share” arrangements). These regulations could take the form of limiting or “softening” local authority powers, potentially by:

• reducing the number of board appointments or nominations a transferring authority can make;
• restricting how the transferring authority exercises its voting powers at member level; or
• simply abolishing nomination rights and local authority membership altogether.

These rights are typically entrenched at the point of transfer through the RP’s constitution and covenants given by the RP to the transferring council in the transfer agreement itself. Passing a law that effectively enables the Government to retrospectively abolish or amend constitutionally and contractually agreed terms between two legal bodies is extremely radical, and potentially open to challenge.

The justification given for the amendment by the Government is that it is intended to support the suite of de-regulation measures designed to reverse the Office for National Statistics’ ruling, in October 2015, that RPs are “public bodies”.

No doubt many RPs will welcome the potential that the amendment creates for them to escape the residual control of their transferring authority and perhaps move to arrangements which allow them to more meaningfully achieve the requirement of having boards comprised of those with appropriate skills and experience.

A 2015 report commissioned by Bolton and Home, Incommunities and Magenta Living and produced by Altair entitled “LSVT Governance that is fit for the future: exploring sector trends and best practice examples” observed that

“…the ‘golden share’, which exists for some but not all LSVTs, was seen as a significant barrier to change if the authority did not want to relinquish its influence over the association. In addition, an anomaly continues to exist in some group structures where golden shares have remained in subsidiaries. For several LSVTs this remains a significant obstacle and can mean that the primacy of the parent is not clear or consistent.”

The Altair report concluded that some LSVT RPs with legacy board nomination arrangements risk not being capable of accessing “the right range and depth of skills, knowledge and experience. Those who do not adjust to the challenges they face are likely to find the capacity, viability and adequacy of their organisations’ governance threatened and their effectiveness and resilience undermined.”

The outcome of the Parliamentary process and the detail of any subsequent regulations is yet to be seen, and these proposals could be watered down (or strengthened!); however, they could provide useful to RPs already seeking to move away from constituency-based Board arrangements with their relevant local authorities. It seems clear that the greater freedoms proposed for RPs will lead to a different landscape for social housing in the future and potentially a more “mature” relationship between LSVT RPs and their local authorities.

For more information

Contact Gemma Bell or Victoria Jardine.

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