Governance Structures
Good Governance should ensure that your new building:
- fits well strategically with mission and is compliant with structure;
- is the subject of effective risk assessment and risk management;
- is driven by well planned resourcing, procurement and delivery systems;
- is led by a well supported staff team bringing in other expertise as needed;
- remains under the board’s overall control through effective reporting at all stages.
At each stage of the development process there are questions that need to be asked and actions that need to be taken with regard to governance structures. This page guides you through each stage in the process.
The Getting Started Stage
Questions and Issues:
- Do you need your own building?
- If the development involves an offer of an asset from, say, a local authority, what is the Council’s agenda?
- What control will they wish to have over the process and use of the building?
- What are the views and aspirations of your current service users and local partners?
- Will they and the local community buy in and support?
- Has the organisation the legal capacity to take the project on, to take loans?
- Are there organizations which have been down a similar path and with whom you can talk?
- What resources will be required to undertake feasibility work and who should help with that?
- What will it cost and what are possible sources of finance for the feasibility report?
Actions
Thinking long term the Board should assess whether the proposed asset development will deliver the right step forward for the organization. Require a scoping paper from senior staff considering the inception and pre-feasibility issues. The views of partners and communities affected need to be sought out and external expert friends should be interviewed. Use of reserves to cover all or part of the feasibility cost is an option. The early stages of the process, while often driven by senior staff, must be under the control and guidance of an interested but measured board that is considering the wider agenda and the longer term. The board must ensure it is kept very well informed. It is worth having a look at what the National Council for Vountary Organisations (NCVO) have to say. Charities should get advice from the Charity Commission on the particular legal issues relating to owning land and property.
The Getting Investment Ready Stage:
Questions and Issues
- Is a new legal structure required to undertake the development?
- Will it be better to separate the development legally so that any unforeseen liabilities cannot impact on the core organization?
- Has the Board the capacity to control and oversee the process or are new members needed to add expertise?
- Is board development and training required for existing members?
- Should a committee be designated from the board on to which experts can be co-opted?
- What reporting and management changes will be needed for the development?
- How can the ongoing momentum of the organizations core work be sustained?
- What other risks apply and how can they be managed?
The Ethical Property Company offers services which may be of interest and the DTA’s 2005 publication by Lorraine Hart is also highly useful resource: To Have and to Hold; DTA 2005.
Actions
In deciding to go forward the board must address its own capacity, ensure good reporting systems and undertake a risk assessment. Refresh your skills audit as a board, identify new skills required and meet them with a mix of new members and training. Organise an away day to set out in detail what the board needs to do and bring in outside expertise. Take legal advice on what you should do to carry the development. Remember that it is often best for the charity (if that is what you are) to hold the asset but if it carries significant debt that may not be appropriate. Talk to others who have ‘done it’ and look carefully at options for incorporation. Remember that the full board needs to have ownership and that it is the board that must take the key decision to undertake feasibility, to commit resource, to contract, and to take loans. Have a full session on risk and how to manage it and draw up a comprehensive risk assessment for the project and for the organisation as a whole. Incorporate this in to the project reporting process. Consider what demands the development will make on people, management time and finances, and how you will meet them. Look carefully at the financial projections and make sure that the costs and revenues are fully understood.
Make sure you have a number of ‘What if’ scenarios to look at:
- What happens if costs increase and rental values drop?
- What if you cannot let the parts of the building you need to let?
- Or the rentals you hope for cannot be commanded?
Consider how you want reporting on the project to work and whether you want to handle it through a committee. Identify the stop/go gates at each stage, the points in the process at which you commit resource to a stage and at the end of which you can still stop.
The Taking a Stake stage:
This is the point at which the organisation commits to make a major investment. While you may be still able to stop the process later on, this will be at very considerable cost. This is the deep end! Good governance up to this point means you will have had detailed information and full understanding of options and risks at all stages so far.
Questions and Issues
- Will you get the level of control over the asset that you need?
- Will you be able to use the asset as security for further finance if you need to?
Actions:
Even if you are building your own asset with debt finance, bankers can place restrictions on the tenancies that you can offer and rental levels that you can charge. Leases will have terms and conditions and may place restrictive covenants. The extent to which you can use the asset to benefit the community in the way you want will depend on the detailed nature of the agreement that you sign and on the financing and loan agreements that you commit to.
Take professional advice from a lawyer who is expert in property. Expect to pay for it. Knowledgeable comment from a board member who may be a solicitor is not enough. If you have a legally qualified board member get him or her to lead and drive the process. If there is grant input pay particular attention to the issue of clawback and charges and the duration for which these may apply.
The Property Development Stage
If you have arrived at this point, then as a board you have a clear rationale and business case, specification for the building, detailed costs, and funding for the development and a forward business strategy for your soon to be expanded operation. You are now addressing contracting and contract management through to completion and taking ownership of your new building.
Questions and Issues
- How will this major and complex process be resourced?
- What needs to be done to minimise the effect that the process of development has on your core business?
- What needs to be done to prepare for the future expanded operation?
Actions
Managing construction and development internally will place a big demand on capacity. If your senior staff say they can handle it, challenge them. Using professional help will incur cost but could take a huge load off your collective shoulders. Your architect may be the right person but project management is a particular skill. Get the team focused on preparation for operating the new building. If you will have units and spaces to let then marketing well in advance is important and often gets lost in the immediacy of the construction process. The team need to be on with planning / recruiting required staffing resource, establishing appropriate leases or licenses and ensuring they comply with any banking covenants. Ensure that appropriate policies are being drafted. Have a lettings policy which addresses community requests for free use of space, or for use by political groups (will you let a room to the Green Party but not the BNP? OK, Have a rationale!).
The Property Management Stage
So you are open and ready for business. You have been through a challenging journey and hopefully the outcome is as you had hoped or even better. Your staff team has been working hard to achieve the completed building and to put the right systems in place for operations. It will take time for everything to ‘bed down’ and operational changes will be needed frequently in the first three months. New staff will need time to settle and the existing team and business needs time to adapt too. Financial challenges will arise. What you had thought was a ‘commitment’ from a prospective tenant may not work out and unforeseen costs may turn up.
Questions and Issues
- Have you invested enough in marketing and sales?
- Have you the right skills set in the staff team to win new business?
- Is the signage really adequate?
- Have you really provided for enough security and caretaker cover for evenings and weekends.
Actions
If you cannot meet your financial targets you will have nothing left in the end. So it is financial performance that needs to command the undivided attention of the board. Whatever financial challenges emerge, you need to take remedial action with your director and finance manager as soon as possible. If you are heading for early difficulties, talk to your bankers early. They will be much happier knowing in advance and may be able to extend for example a capital repayment free period. The board’s role here is to ensure it receives high quality and timely information and ensures action is taken. Agree the reporting formats very early. Make sure all members of the board know and understand what the critical measures are. The Board needs to look carefully at cash (and not just at the profit and loss accounts), to focus on debtors and to make sure big public sector debtors are pushed to pay up.
You should have a programme of visits and meetings happening with partners and potential users and tenants. Your profile should be rising all the time in the early months. Board members should be using all their external contacts and supporting the staff team in this promotional effort.
For those who are charities, many now pay a subscription so that all of their board members receive a copy of governance a publication that tackles themes and challenges as well as providing updates and information. Go to
http://www.charitygovernance.co.uk/home/
The Getting Started Stage
- Rushing it. The opportunity to take a major step forward can generate enthusiasm. This is positive, but not to the extent that reason is left behind. The board’s job is to think carefully about the bigger picture, about what you are there to do, and to assess whether what is being proposed is the best way forward.
- The apparent gift horse of an offer or deal that is driven by someone else’s agenda. Don’t take on the liability. Turn the offer in to an opportunity to undertake a full development appraisal with you and the landlord working together to achieve what you both want.
- Watch for ‘mission switch’. The opportunity to take on asset development can switch the attention of your senior staff and the board away from your core business. The pressures will intensify as you go further.
The Getting Investment Ready Stage
- Plans for a big development may bring out any divisions within your board. Ensure that all board members are involved and that the project is not seen as being ‘owned’ by some board members only.
- Don’t allow rushed decisions. If the information is not adequate, refuse to commit. Demand full information before deciding on each stage.
- Make sure that the feasibility study is not ‘forced’ or constructed as a rationale for an assumed ‘go ahead’ position. If your feasibility study points towards stopping, then STOP and write off the costs incurred.
The Taking a Stake stage
- Any limitation on your ability to use the asset should be avoided. Some charities have long leasehold assets that they cannot use as security for debt because covenants stipulate that should the assets cease to be used for specified charitable purposes, the asset returns to the freeholder. These are of very limited use as security for finance.
You can find information on professional advisers elsewhere in this guide but for third sector practitioner based advice the best source is probably the DTA’s consultancy network, The Pool.
The Property Development Stage
- Detail. Stay with the big picture. Make sure that the project management role is thought through and well taken care of. Find out about options. For example would a ‘design and build’ contract work?
- Being Railroaded. You will have built up relationships with some professionals but you may need new input. Keep your options open.
- Uncertainty. Know what is covered and what is not covered in contracts for the development and with professionals; make sure the board and team stay focused on risks and risk management.
The Property Management Stage:
• Any temptation to interfere in the detailed operation of your gleaming new facilities. Leave that to the staff team!