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Damaged beyond repair

24 August 2015

Damaged beyond repair - Read more

Kids Company is the latest charity to fail after a series of avoidable management mistakes

The demise of Kids Company is a shame for the people it helped, the people who supported it and the wider sector. What makes this a tragedy however, is that many of the mistakes made by the organisation could have been avoided. Poor governance arrangements in the sector have hindered many a good cause. Combined with a bit of bad luck, poor governance practice can lead to a once celebrated charity being felled.

Inappropriate financial management

Reports from the NAO, Charity Commission and PAC, alongside the formal documents relating to the company’s liquidation, will shed light on the financial issues in due course. However, much has been made of the financial mismanagement in the charity. An annual income of £23 million suggests that financial management would be suitably sophisticated to manage any income decline in a professional manner. Many charities have recently faced funding shortfalls and cut their costs accordingly.

Kids Company refused to turn those in need away, thereby adding more stress to the shaky funding foundations. Although helping all those that presented a need may be admirable, the trustees had a duty to act in the best interests of the charity, as well as current and future beneficiaries. By not establishing an adequate reserves policy, aligned to a realistic strategic plan, the trustees ultimately let down those in need of the charity’s services.

In addition to this poor governance practice, there is the ongoing allegations surrounding the handing out of money in brown envelopes, along with the historic non-payment of PAYE. There are questions to be asked about what financial and internal controls were in place, or adhered to.

Founder syndrome

The sector certainly has more than its fair share of charismatic leaders evangelising about the need for their particular charity, or cause, to be given more funding and support. Hard social problems require strong voices and visions to sell the world as it could or should be, not as it currently is. That is not to say that other sectors do not have their inspirational leaders. The difference is the beneficiaries.

The emotional and personal commitment given by charity leaders means that the charity founder might not always be the right person to lead the organisation through its different development cycle. A big vision thinker is not always the best person to manage an organisation through downsizing and retrenchment, as it inevitably means making compromises the founder would find unpalatable. For a more objective professional with an eye for detail, such an approach is unsustainable. A decision will be taken, on balance, between short and long-term aims.

Weak trusteeship

Codes of governance always state that unfettered powers of decision making should not be held by one person – whether chairman or chief executive. With such strong and formidable visionaries, it can be difficult for the board to stand up to them and disagree with the direction of travel. Yet for the good of the charity, and its beneficiaries, that is what they must do – legally and ethically. It has to be asked: did the trustees seek any governance and compliance advice? If not, why?

Poor reputation management

The charity claimed to successfully help thousands of young people in need each year. However, the formal reporting and other narratives did not provide the critical numerical and impact evidence the charity said it did.

At the same time, further allegations of lapses in child safeguarding practices condemned the charity. The reputational damage was critical and has been judged to be responsible for a ‘white knight’ donor withholding funds.

Individuals may argue that the best form of defence is attack. It certainly looked like that was the media approach adopted by Camila Batmanghelidjh. Yet such an approach does not always play out well with those listening and watching, further denying the opportunity to attract new funders and supporters. Those with a desire to hand over money require a certain amount of circumspection, an inkling that lessons have been learnt and that the same, perceived or real, mistakes will not be made again.

A question that every charity should now ask is: are our governance arrangements up to the task to deal with a similar wave of negative impacts?

Louise Thomson is Head of Policy (not-for-profit) at ICSA

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