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Gentoo non-compliant over executive payoffs
Sunderland’s largest housing association has been made non-compliant with the regulator’s basic governance standard due to a failure “at the most basic level” relating to payoffs to outgoing executives.
Gentoo Group received the downgrade from G2 to G3 in a damning judgement released by regulator the Homes and Communities Agency (HCA) this morning.
The regulator said the organisation “exercised weak governance and internal control when agreeing executive contracts and severance payments to outgoing executives”.
“In doing so, the board has failed to safeguard its reputation, and that of the sector,” the regulator said.
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Issuing a strongly worded rebuke to the 30,000-home landlord, the HCA added: “The board has failed to ensure adequate control and scrutiny in discharging its responsibilities.
“It has lacked effective oversight and an appreciation of risk in discharging its responsibilities in line with its own governing documents and scheme of delegation. It has failed to ensure that governance arrangements were operating at the most basic level.”
The HCA said Gentoo’s board and renumeration committee “lacked clarity and transparency” with regard to executive pay and severance arrangements and proposals “were not diligently scrutinised and challenged” as a result.
John Craggs, former chief executive of the organisation, left with immediate effect last week. Keith Loraine, former chief executive of Isos Housing, came in as the new chair.
The organisation declared itself “bitterly disappointed” with the failings in a statement released last week ahead of the regulator’s downgrade.
In October 2016, Inside Housing revealed Gentoo made payouts totalling £1.1m to 17 departing executives in the 2015/16 financial year, with the largest payment in excess of £370,000, including annual pay.
Three members of staff received packages of more than £290,000, made up of loss of office payments plus annual pay.
A Gentoo spokesperson said the severance payments referred to by the HCA did not relate to three senior executives who left during this period.
The organisation let 330 members of staff go during the 2015/16 financial year, with total payouts reaching £11.3m.
In a statement Mr Loraine said the Gentoo Group board recently identified the issue and self-reported to the regulator.
He said the matter related “in particular [to] a severance payment made to a senior staff member”.
“We are bitterly disappointed that this flaw in past governance practices has led to this downgrade,” he added. “We are now seeking further legal advice about the possibility of obtaining redress or recovery. Such payments are not in keeping with the group’s ethics as a responsible business, and it will not happen again.”
The organisation plans to commission further external advice in relation to its governance structures “in particular to look at delegations and authorisations”.
The regulator’s judgement said the organisation “has so far responded positively and is working with the regulator to agree a plan to resolve the issues”.
The judgement gave Gentoo a compliant and unchanged financial viability rating of V2, one below the top rating of V1.
It said it is “satisfied that the provider’s financial plans are consistent with and support its business strategy”.
However it warned that an increased reliance on sales in its business plan may affect its future financial viability, adding that “forecast margins appear optimistic in the light of recent performance”.
It added that the discovery of a “substantial number of properties” which are not compliant with the Decent Homes Standard would add costs to the organisation’s costs through to July next year, making it more vulnerable to risks.
Gentoo owns 29,000 homes, largely for general needs rent in Sunderland and the surrounding areas, with a further 900 leasehold and shared ownership properties on its books. It employs 1,343 staff and turned over £193.3m in 2016/17.
