Merger Motivations

I have recently moved on from my role as chair of HACT, after five years of working with wonderful people who were leading the way on innovation in housing. It was not the end of my time of office and no one suggested that I should give up the role. I decided, as I have done in the past, that it was time for new leadership at trustee level to meet the challenges of an ever changing housing environment. I have always believed that those who have the privilege of leading should recognise when it is time to go and that it should require no incentive to encourage them do so.
I did exactly the same when I moved on from my role as Chief Executive of Midland Heart at the relatively young age of 60. I had no pressure to move on and I could have stayed in my post for another 5 years at least. As with HACT, I believed that it was time for new blood at the top and I was happy to make way to enable that to happen. During the time when it became known that I was planning to leave I received a number of approaches from other housing associations suggesting that I could use this opportunity to negotiate a merger and benefit from a payoff. I made it very clear in these discussions that I did not believe in incentives of this type and that in my opinion they were always a poor basis for a merger.
That Is why I was surprised to hear that a leading chief executive had suggested that without a pay-off there is often “no incentive” for bosses to consent to a merger. It is reported also that she went on to say that poor performing chief executives should also receive a financial incentive to encourage them to leave or merge.
Let us deal with poor performance first. During my career I have been placed on or invited to join the boards of four failing housing association. Each one the subject of regulatory intervention. In each case the main cause of failure was poor leadership and in each case the board had failed to challenge poor leadership and deal with it. It is the board’s primary duty to hold the chief executive to account and address poor performance without the recourse to incentives to move on or otherwise. If the board is not doing this it is the duty of the regulator to intervene. It would be sad if this duty is removed in the pursuit of independence and deregulation. If any payment is made to a departing chief executive it should be purely contractual and it is the board’s responsibility to ensure that these fall within normal employment practices.
In a merger it is essential that any process is led and controlled by the board. This avoids the egos or individual needs of chief executives and others getting in the way. In an ideal world a good leader would put the best interest of an organisation before their own and not need an incentive to do so. But we do not live in an ideal world and therefore mergers must be based upon an independently verified business case upon which the board should take a final decision. Too often in the housing sector mergers take place when it is convenient for one of the chief executives involved. I am not against retiring chief executive putting a merger case to a board as one of the options for replacement but there should be no need for an extra incentive for this over and above the normal retirement arrangements. To put it bluntly most housing chief executives are already very well paid with excellent pensions. Why should a further incentive be necessary to ease a merger process? The decision to merge or not to merge should be based purely on the business case and it should be made by the board acting in the best interest of the organisation and its tenants and customers not the individual needs of executives.


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