Saffron revived after ‘belt and braces’ governance overhaul

Saffron was severely criticised by what was then called the Homes and Communities Agency – now the RSH – for failing to report governance issues that surfaced in 2011.

The provider was given a non-compliant rating of G3, and a judgement in September 2016 said its “failure to work openly with the regulator represents a fundamental breakdown in trust which has subsequently been compounded over a period of several years”.

It had noted that “significant decisions” involving third parties and funders were made during a period when a number of its board members had not been appointed properly, meaning that some decisions made at board meetings over five years could have been “inquorate”.

The investigation noted that the issue “appears to have been known at the highest levels within the organisation – yet the matter was not properly and appropriately rectified, nor was it raised with the regulator”.

Following the regulator’s investigation, the chief executive and finance director stepped down in October 2016. The replacement chief executive left after eight months, before the chair of the board stepped down at the end of 2017. Its third chair in 18 months, Bob Walder, joined in May 2018.

The severity of the previous governance issues meant Saffron had to consider its bondholders, having gone to the debt capital markets in 2013 and raised £125m through an own-name issuance amid plans to increase its stock by 1,000 homes.

Although the difficulties it faced had no direct financial impact on the housing association (HA) – and while credit ratings agency Moody’s did not downgrade the HA – Ms Arrowsmith said it did face potential difficulties if it returned to the financial markets prior to a regulatory upgrade.

“If your governance is risky then your finance is risky as well,” she said. “You can’t commit to what you want to commit to [in development programmes ] as you have to look at the market. We talk to lenders who have their own risk profiling, and would have had to assess us on that.”

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Ms Arrowsmith said it could also impact investor appetite for the HA. She added: “In terms of our financial strength it would have had an impact. If we had gone to market [to fund] development, the fact you are a G3 will impact the level of borrowing and the rates you are charged.

“If [financial institutions] have money to lend, will they lend it to us or will they lend it to a G1 organisation? That is where it has an impact on your finances. You can always borrow money, but at what rate? Our lenders were unhappy we were stuck at G3, and if we needed funding they would have charged more than an organisation at G1 or G2.

“The question is at what point do you go to market? What have you got in your business plan? What do you really need to go back to the market? It was an influence on us and our timescales. We do have an active development programme and wanted to clearly continue that, however if we hadn’t sorted out our governance it would have begun to have an impact.”

As part of Saffron’s turnaround plan, one main change since Ms Arrowsmith’s arrival at the organisation has been to give all staff a keener eye to question anything they consider out of step.

“You can go on and tick loads of boxes but that doesn’t change a culture. Our biggest issue was changing leadership and culture. We have worked hard at making our staff curious – they question things and ask, ‘Why do we do it like this?’”

Saffron is now getting set to welcome a new permanent chief executive. James Francis, currently finance director at Southern Housing Group, is set to join in May.

Ms Arrowsmith added: “We’re a G2 now, and we are pushing onwards back to a G1 – we’ve got that in our strategic aims for this year. I would hope it’s not too far off. I think it’s a completely transformed organisation from this time last year. We have a new corporate strategy, which includes continuing to develop as much affordable housing as we can – helping to solve the housing crisis.”