Kids Company. It couldn't happen here. Could it?

4 Aug 2017 Nick Garbutt    Last updated: 4 Aug 2017

...and good governance will keep us here. Pic: Ian Schneider, Unsplash

The Insolvency Service is seeking to ban the former trustees of Kids Company from holding directorships for up to six years. It couldn’t happen here. Could it? 

Leading governance expert Roger Courtney of Courtney Consulting believes that many charitable boards in Northern Ireland lack the expertise and even understanding of the principles of good governance and are therefore at risk.

He said: “If you come from the private sector you don’t have the expertise in charity governance, nor do you if you come from the public sector, and if you are from the voluntary sector you will only know if you come from a background in good governance. “

It is instructive to examine the collapse of Kids Company from a governance perspective and sobering to note that many of the errors made are commonplace.

It is easy to be complacent about governance when you have a good team. Kids Company had a board that charities in Northern Ireland could only dream of. The chair was Alan Yentob, one of the BBC’s most creative and powerful forces, his deputy was Richard Handover former Chair and CEO of WH Smith there was a lawyer, an internationally respected PR expert, an HR specialist from a multinational and the leader of a £30 million company who specialised in strategy.  

It is hard to imagine a stronger board to provide direction and leadership to the flamboyant and charismatic Camila Batmanghelidjh, a celebrity in her own right and one of the most effective fund-raisers of her generation.

Yet this team of people – so brilliant in their respective fields – ran an organisation so ineptly that they now face not just the wrecking of their personal reputations but the humiliation and potential financial losses from being excluded from directorships in the private sector.

Lesson One: Having good people on the board is the start of, not the end point for good governance

Critically none of the board members had expertise or experience with vulnerable young people, and so therefore did not have amongst them anyone with inside knowledge of the area of work.

Lesson Two: Some specialist knowledge on the board is vital for effective governance.

The Westminster Public Administration and Constitutional Affairs Committee published its report into the affair last year. It is X certificate stuff.

It concluded that trustees suspended their critical faculties such was their admiration for Ms Batmanghelidjh’s apparent vision and fundraising abilities.

The company collapsed after allegations of sexual abuse in newspapers emerged. A police investigation ensued which was later dropped but the charity folded a few days later, presumably because of the impact on cash flow and fund raising.

The primary reason for this was the lack of reserves. The charity pursued a demand-led operating model which proudly asserted that no child would be turned away. This in turn meant that reserves could not be built up, and the organisation was living hand to mouth, relying on Ms Batmanghelidjh’s formidable fund-raising skills to survive. It continued to pursue this policy despite repeated warnings of the risk most chillingly from HMRC which it owed money.

HMRC set out in writing that Kids Company’ was “not viable with a business model in its present form. Both the level of your income and its profile clearly does not match the capacity you are operating on.” It also stated that, while “HMRC have provided the Charity with significant support over the last 10 years…it must be stressed that this is the final opportunity we will give to allow you some breathing space to get your tax payments up to date and finances on an even enough footing to ensure that future tax liabilities are paid on time.”

Despite this the last available accounts showed reserves of £434,282. Based on the industry norm of six months revenue it should have been £12 million.

Mr Courtney says it is not uncommon for charities to assert that they run demand-led services and turn nobody away, but he says that can never really be the case because, logically, you cannot guarantee to do this when you cannot anticipate demand and be sure that you have the resources and revenue streams to satisfy it.

How worldly-wise trustees from private sector backgrounds missed this obvious truth, seems staggering, although Courtney says it doesn’t completely surprise him. Too often boards are more concerned with being support clubs for chief officers and staff rather than governance mechanisms and in that scenario common sense and prudence can be lost.

He cites personal experience of a trustee, recruited to a board because of his skill sets being reluctant to exercise them on behalf of a charity “because that’s what I do in the day.”

Lesson Three: Prudent financing and rigorous scrutiny of the books are just as important for charities as any other organisations. Doing good is not an excuse for not doing it right

The Commons committee specifically criticised the fact that Mr Yentob had been chair for 12 years.

It states: “The length of the Chief Executive and Chair’s tenures were not conducive to challenging the Chief Executive herself. There was a clear link between the failure to correct serious weaknesses in the organisation, and the failure to refresh its leadership.”

Courtney believes it is vital to regularly refresh trustees and that the long tenures are unhealthy. Fresh pairs of eyes are constantly required to inject energy, impetus and provide fresh insight into good governance. Sadly there are many boards in Northern Ireland who are neglecting this important task.

Lesson Four: A cosy board is an unhealthy board, continually refresh and renew.

Ms Batmanghelidjh was passionate, driven and genuinely charismatic. She charmed the media, celebrities, philanthropists and politicians. Perhaps that’s why so much happened at the organisation that the trustees did not appear to be aware of. The committee report cites an incident where a philanthropist offered unlimited funds and extra staff. She turned down the offer because she believed that the prospective donor lacked “emotional authenticity”. There was no evidence that trustees were involved in this decision

 Similarly they were not alerted to Ofsted concerns about a facility in Bristol which the regulator had written was unlikely to meet the “necessary standards”.

Nor did they scrutinise claims that the charity cared for 36,000 young people, a figure which appears inconsistent with the number of case files retrieved by authorities when the charity closed. The Commons committee concludes: “The evidence is that the figures were significantly over-inflated.”

They also do not appear to have examined discretionary payments to some clients. In 2014, one client received £13,493 in allowances, £4,704.26 for clothing, in addition to £19,788.33 for housing costs. It also uncovered other purchases of high-value items: £305 designer shoes, John Lewis “blanket/ throws costing £80 each,” “four items of men’s Outerwear costing £149, £105, £85 and £70, one item of Women’s knitwear costing £60”

The fact that no trustee had knowledge of youth services meant that the board was not in a position to question clinical judgements made by Ms B. But the committee concluded: “It is nevertheless extraordinary that Trustees were content to accept this without more rigorous examination.”

These failings seem so extraordinary many will conclude that they could not happen in their own organisation. Yet they are symptomatic of “Founder’s Syndrome” whereby a dominant and often visionary founder of an organisation is supported, rather than scrutinised by the board, creating a culture whereby trustees do not necessarily know what is really going on, because they are not governing and even when they do notice unorthodox activities they fail to challenge and question. The committee put it like this: “The admiration that Kids Company’s Trustees had for Ms Batmanghelidjh’s apparent vision and fundraising capabilities led to a false confidence about other areas of the organisation. The Charity Commission’s guidance to Trustees warns that Trustees should not allow their judgement to be swayed by personal prejudices or dominant personalities, but this is what occurred in Kids Company.”

Lesson Five: Boards are not support clubs for sainted individuals, they are bound to impose sufficient control over the organisation. The fact that the chief executive felt empowered to turn down an offer that would have saved the charity on the basis of intuition shows just how badly things can go wrong when the controls are not in place.

Roger Courtney believes that it is imperative that all boards in Northern Ireland refresh and renew their attention to governance. He says that they all should have governance improvement plans in place and get into the practice of meeting, or holding parts of meetings without staff present (ie the CEO) to focus on governance issues.

Being a trustee of a charity can be incredibly rewarding. Trustees should always remember though that they are there because of their skills and experience to support, but also to challenge, and over and above that to ensure that everything is in place to ensure that the charity is properly run. The consequences for neglecting that can be devastating and the risks much greater than is generally thought.

 

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