Kids Company Closure: what happened to the Trustees?

06/08/2015 16:15:23 | with 6 comments

Written by Emma Knights

Click here to read Gillian Allcroft's update on KIDs Company (5/02/2016)

This morning saw the closure of Kids Company’s services to children in deprived neighbourhoods, mainly South London but also more recently opened in Liverpool and Bristol. What a sad day for those young people who have received support that no other agency was providing, some of them having had their lives turned round by the relationships with the staff of Kids Company.  And so much worse that it is happening during the school holidays without any notice or plan for the young people and families affected. This is not to say allegations should not be acted upon swiftly and fully – of course they should.

Why should school leaders and trustees take note?

·         Academies have a very similar legal structure to the Kids Company – funding sources are very different and much more secure than much of the rest of the charitable sector, but without strong governance, could any academies be at risk of insolvency?

·         This is a case study with lessons to learn about the role of founders – again a common issue in the charity sector, but a new and growing issue in the education sector with free schools 

·         HMCI Sir Michael Wilshaw has bemoaned the short supply of ‘maverick’ leaders in schools: Camila Batmanghelidgh, Kids Company’s founder and until recently chief executive, was very much a charismatic leader who many might suggest met Sir Michael’s description, and this alone does not guarantee success

·         Lastly, schools have a huge interest in having sustainable support services for disadvantaged and vulnerable children and young people.

Although the fate of this one charity has perhaps been receiving disproportionate media coverage - journalists attracted no doubt because of the colourful character of its founder and her relationship with the Prime Minister - it brings together a number of critical issues for those of us running charities, and that of course includes academies.  As someone who’s worked for charities for 30 years, and in the children sector for a good proportion of this time, it’s been at one level fascinating to see different issues emerging over the past weeks, but also enormously frustrating that it took until last night on Newsnight and this morning on Radio 4’s Today programme, for the media to even begin to consider what’s happening to services for children and their funding across the country. The reduction of support services for pupils has been increasingly raised by school governors and trustees across England over the past couple of years. School staff are not generally qualified or employed to deal with the problems of these very children that seek support from Kids Company and other such agencies.  When statutory services cannot provide the support, to whom can schools refer these very vulnerable pupils?

The BBC has just this afternoon posted their explanation of ‘What went wrong with Kids Company?’ which is rather a Westminster take on the issues, with the political issues primarily around the role different ministers took, rather than the pressure on services for young people across the country.

We don’t yet know the details of what was going on within Kids Company but I feel confident that I can already conclude it wasn’t well governed.  Yes, income generation is incredibly hard for many in the third sector, but charities facing the possibility – let alone a high probability - of a reduction in income should have a Plan b, c and where necessary a plan z as well as the plan a. From what we know so far, the trustees’ plan seems to have been to rely on pleading with central government departments; anyone who has operated in the third sector for this length of time should know that this is not a plan which tends to work, but perhaps the board of Kids Company has been confused because they had had the very unusual experience of this tactic succeeding in the past. Well-governed organisations issue redundancy notices to staff at the appropriate time, and do not get themselves to the point where they can’t honour the remaining payroll. 

So where have the trustees been over the past months, let alone decade?  It is the board of trustees that are accountable for the charity delivering its aims while remaining solvent.  At this point one might have expected the chair of the board, the BBC’s Alan Yentob, rather than Camila, to be fielding the press coverage; however he was criticised by a journalists for accompanying Camila when she was being interviewed by Radio 4 Today programme last week.  Actually it’s a perfectly reasonable action of the chair of a board to be there to support a chief executive having a very difficult time with the press.  However the journalists were raising suspicions that he was trying to use his influence as a BBC manager.  Such a conflict of interest – in this case a conflict of influence – is again one that those leading and governing charities and other schools too need to be well aware of.  NGA has written on the subject of conflict of interest  a number of times over the recent months, and sought the added weight of the Charity Commission in the our most recent edition of Governing Matters.

One of the reasons that governing boards exist at all is to ensure that chief executives are held to account, especially those more maverick amongst us who do not fully accept that the usual rules apply. It has ceased to surprise NGA how often the school leaders who are name-checked by ministers as exceptional and even honoured are later investigated for financial irregularities or other significant lapses of due process.  If attention to detail is not part of a chief executive‘s leadership style, then s/he needs to be surrounded by a team who has that covered. 

About one-third of pupils in state funded schools in England now attend academies, which like Kids Company are charities and companies limited by guarantee.  As I said when I spoke to the Education Reform Summit last month, badly governed charities can and do go to the wall as this example has so horrendously shown, as well as a less dramatic example in the education sector recently with the folding of Independent Association of Academies.  Trustees of academies need to double check their risk analysis and financial planning is absolutely sound, especially as school funding tightens. I have recently had a conversation with a chair of trustees of an academy wondering whether their board should set a deficit budget while waiting to hear whether the Education Funding Agency might be willing to help.  The answer is an emphatic ‘no’.

It can be difficult for a governing board to hold any charismatic leader to account, but especially one who is a founder; in the schools sector we also have increasing numbers of trustees who are founders of free schools, although it is not totally unknown for founders to become employed, such as in the case of Toby Young one of the founders of West London Free School who is now the chief executive of its multi academy trust. We are also aware of a different founder turned academy employee who is currently being investigated for fraud. Moving from being a founder to a Trustee once an organisation is established can be a difficult move, and one a free school may want to seek advice with. 

Governing boards work best where a skilled team with diverse backgrounds have honed the art of challenge and oversight.  If more attention was paid to developing Boards of trustees we would have fewer such heart-breaking examples as today’s, and we need to ensure that this implosion never occurs within an academy trust.  

PS  7 August: since we posted this there has been more coverage of the financial context in which the trustees were taking decisions (for example, http://www.theguardian.com/society/2015/aug/06/kids-company-directors-were-warned-to-build-up-reserves ) and the chair, Alan Yentob, has begun to answer press questions.

From the coverage, we learn that Alan Yentob has been chair of the board for 18 years; if this is correct, Kids Company also can’t have had any limits on terms of office for its trustees. Limiting terms of office is commonly accepted to be good practice to help prevent a board becoming too cosy and complacent. NGA and our partners advise governing boards, unless there are exceptional circumstances, to have limits of eight years on governing and six years for chairing the same organisation: www.nga.org.uk/expectations.

 

UPDATE ON KIDS COMPANY

Members will remember the summer fall-out from the collapse of Kids Company and Emma Knights’ blog on the role of the trustees of the charity, and some of you might have watched Wednesday’s evening’s BBC One’s documentary on the organisation’s demise.

The Public Administration and Constitutional Affairs Committee (PACAC) instituted a Parliamentary inquiry and summoned the former chief executive and chair of Kids Company, Government ministers (past and present) and others Kids Company’s auditors to give evidence.  On Monday it published its report setting out its findings and no organization involved with the trust, Ministers, government departments, auditors, advisers and the Charity Commission were spared criticism, although the former chief executive and board of trustees were held most culpable for the charity’s demise. 

 “… the Chief Executive and Trustees relied on upon wishful thinking and false optimism and became inured to the precariousness of the charity’s financial situation … A charity of Kids Company’s size and complexity requires a Board of Trustees that will demonstrate leadership, judgement and a willingness to challenge assumptions … 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. This resulted in Trustees suspending their usual critical faculties ... 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.”

The PACAC made a number of recommendations, mainly aimed at government and the Charity Commission.  In relation to the latter, the committee said that the Commission needed to do more to ensure trustees are informed about their roles and responsibilities, an understanding of the need and role of charitable reserves and including having at least one trustee with a detailed knowledge of the area of work in which the charity operates.  The committee also recommended that the Commission revise its guidance to auditors and make clearer the need to report concerns about a chairty’s sustainability.

The Committee were also fairly scathing about the role of successive governments in establishing an ‘unconventional relationship’ with Kids Company in which ‘special grants’ were awarded outside of the usual reporting arrangements.  It made clear that Government should develop capacity within the Civil Service to assess the governance of a charity before awarding its funds including: the quality of its decision making, objective setting and culture are effective and it is has good internal controls.  It expressed the view that Government should express particular caution about awarding grants where ‘Trustees have held their positions for more than two terms’.

Maximum length of service is already a feature of many charity’s articles of association (including the NGA) and is in accordance with NGA’s view that governors and trustees should not serve any more than two terms of office in one school. 

While as Emma said in her original blog above, the funding model for the KIDs Company was different to that of academies, there are still some parallels.  The need to refresh and revitalise your board of trustees regularly, individuals with the knowledge, experience, attitudes and confidence on the board of trustees to ask questions and interrogate the financial plans put before you, and in particular a board of trustees should not agree an annual budget with a deficit unless there are reserves to fund the shortfall; care must be taken not to introduce a structural deficit which prevents the trust fulfilling its purpose.

The former trustees published a statement in response.

Emma Knights is the Chief Executive of the National Governors' Association. 

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