How not to be the next Kids Company

19 Sep 2016 In-depth

Camila Batmanghelidjh, founder, Kids Company

The collapse of Kids Company was blamed on poor governance. A year on from its demise, Governance & Leadership, supported by haysmacintyre, convened a panel of experts to discuss how to prevent a repeat of its failures. Ian Allsop was there to take notes.

In the last year, two words have become lazy shorthand for over-simplifying the shortcomings of governance structures in the charity sector: Kids Company.

Governance has always been an important issue and can always be improved. But there is a danger that in the rush to react to the failings in one unique organisation the sector will be forced into disproportionate action. There have already been reports by chief executive umbrella body Acevo about chairs overstepping their boundaries as a result of worries prompted by Kids Company.

Therefore charities need to have a sensible and robust discussion about the wider issues highlighted by Kids Company and other high-profile media stories, such as the criticism of many fundraising activities. What does the charity sector do well in terms of governance? How could it be improved? How should authority be delegated? What are the reporting mechanisms to ensure that there is accountability and trustees gain the assurance that they need? Is the current governance model still appropriate?

Ultimately, the question is about where responsibility lies in an organisation. Who ensures that their charity is well-run, and does not go the way of Kids Company?

The simple answer is the one given by Anne-Marie Piper, a partner at Farrer & Co: “Trustees are responsible for everything.”

This is obviously true, but the deeper question is about what trustees should do to meet that responsibility, and what they should ask other people to do. And how do trustees ensure that others perform the tasks asked of them?

The panel discussed several areas of good practice – all of which, if implemented, should ensure that your charity does not become the next high profile organisation to close its doors.

Don’t just rubber-stamp

The first step is for trustees to engage the right amount, and at the right level.

“Trustees need to have confidence in management to make strategic decisions,” says Richard Weaver, partner and head of charities and not-for-profit at haysmacintyre. He says that there is a crucial distinction for trustees. They must set strategy, but not get involved in the day-to-day and interfere.

The question is the extent to which they do so. Too often, says Charles Mesquita, senior director at Stanhope Capital, trustees veer to one extreme or the other in their relationship with senior management. “Open partnership works best,” he says. “But some boards dictate down while in others the trustees are just rubber-stamping decisions. You need a balance.”

Avoid a dominant chief executive

Piper says that the chief executive can be a significant barrier to the effective actions of the board. Too often, she says, it is like a bow tie – everything goes through the chief executive – and this can be a fundamental weakness.

“The chief executive is the part in the middle sitting between the board and other staff,” says Piper. “Unless other members of staff are present things can end up being filtered in both directions.”

“The chief executive can be too central,” says Chris East, founder of the Giving Business. “For example, fundraising is often excluded from meetings. But trustees don’t understand it.”

It is common practice for a chief executive to attend board meetings, but if they are the only executive to have contact with the board, there is a risk that the full picture does not emerge.

“All of Mencap’s executive management attend board meetings, which adds quality,” says Oonagh Smyth, the charity’s director of strategy and influence. “This provides a level of assurance to trustees.”

The disadvantage is that this can become cumbersome, with too many people in the room. Smyth also recommends that trustees and executives have contact in settings other than formal board meetings.

“Sometimes the best debates come in smaller groups outside meetings,” she says.

Jacqui Roberts, chief executive of the Shoreditch Trust, says that the first step is ensuring that you have the skills to deliver.

Sometimes, she says, it is about using external steering groups.

“We aim to set up an ethos whereby the board and chief executive recognise when expertise needs to be bought in,” she says. “It is as much about time as a financial investment.

“Trustees don’t always have the time for training. And it isn’t just about the chief executive but having a strong executive team. We don’t invest enough in this as a sector.”

Know what’s happening

Weaver questions whether four meetings a year is enough for trustees in large charities to exercise their duties. In such cases, he says, does the executive team have a responsibility to help trustees do their job?

The challenge is to get everybody up to a sufficient level of knowledge and awareness.

“As I understand it, the Kids Company board didn’t include trustees with expertise in some of the key areas of the charity’s work,” says Piper. “The recruitment process of trustees is important. You have to get the right people, with an understanding of the commitment required. When I go to meetings now, my starting point is to assume that most trustees haven’t read the papers. If this is the case, how can you have a robust discussion?”

Mesquita sits as a trustee on three different boards, each with a different structure. “The best one is where there is a real engagement from trustees, who are involved in giving feedback,” he says. “There should be no halfway house timewise. You have made a commitment. There is no point turning up to a meeting unprepared.”

What about the areas where it is unrealistic to expect every trustee to understand – the technicalities of finance, for example, or charities where the subject area is highly complex?

“In the medical research charity I am a trustee for we have to make sure we have the right trustees with medical knowledge,” Mesquita says. “I don’t always understand the technical bits but I need to know enough to add value to the debate.”

Piper argues that in such cases the experts have to make things understandable for the whole board and use plain English.

One danger here is the self-appointed expert, who does not know enough about their particular area of expertise. If no one else on the board can challenge them, this leads to problems.

“There is a skill set about asking the right questions,” John Tranter, finance director at the Children’s Trust, says. “It is not about telling people how to do it but using experience to ask the right thing.”

Delegate effectively

Clearly delegation is crucial to the effectiveness of governance structures. The quality of the board is correlated to how things are set up. How do you delegate, and to whom? One governance theory says there should be a document of delegated authority – a general statement empowering management to do their job, and a schedule of delegated roles.

The problem with codifying too much is that when situations change, trustees and executives can find themselves acting beyond their remit.

Piper says that that job descriptions are a useful tool in which to set out what has been delegated. But jobs evolve and descriptions aren’t always updated. This means that an annual review is needed, perhaps through the appraisal process.

“At Mencap we have schedules that clearly set out responsibilities,” Smyth says. “For example, who speaks out publicly on certain issues? When do reputation risks get escalated? Which communications managers deal with risks and incidents?”

Mesquita, on the other hand, says he has an aversion to written procedures. “They can lead to people stopping undertaking due diligence because they think that box is already ticked,” he says.

Several people around the table made the same point in different ways. The written documents may or may not be an aide to effective understanding of responsibilities, but what really matters is culture and behaviour. People must understand their and everyone else’s responsibilities in practice, and it is something which needs to be talked about regularly, or gaps can emerge.

The panel also considered the delegation of duties from the board to sub-committees. Weaver feels it is important to make a distinction between formal sub-committees, and steering groups where little delegated authority is written down. Charities must understand why they have chosen to use one model rather than the other, and also whether those committees should exist forever, or just until a particular problem is solved.

Tranter says there are problems with delegating.

“One problem in delegating powers to sub-committees, for example, is that we can’t delegate both financial control and clinical safety as one can affect the other,” he says. “There is an inherent conflict. Such a trade-off has to be at trustee level.”

He also asks how you can make sure nothing gets dropped between committees.

Piper highlights a common problem – are you delegating thinking or authority? “Sometimes in committees and groups trustees changed with making recommendations think they are entitled to make binding decisions. Reporting back is an important part of any terms of reference. Good committees can go rogue.”

Weaver argues that what is documented in the minutes is vital. “How did the discussion develop? Was everyone comfortable with the decisions taken?”

Piper agrees. “Inexperienced trustees can think that consensus in an email or forum chat is a trustee decision. I’m not a fan of email resolutions because people often respond in a less considered way.”

Get scrutiny and assurance right

Once the skills are in place there must be scrutiny.

“Trustees don’t need to deliver the work of a charity but it is important for them to make visits and assessments,” says Roberts. “They need to understand the mission.”

Tranter says that the Charity Commission expects trustees to provide assurance on everything. But this is only possible, particularly in larger charities, if the lines of responsibility flow clearly.

“The partnership model works if there is a clear understanding over who is responsible for what,” he says.

Given all of this there is a definite importance in the assurance framework – the process by which trustees learn what is happening. Where do trustees derive it? Is it adequate?

Tranter says the setting up of an assurance framework is a rigorous exercise and needs constant refreshing. “Who do trustees look to so as to ensure the information they receive is correct? Internal audit can help make sure trustees can rely on it.”

Part and parcel of this is to assess whether you are taking the right risks. But Weaver wonders whether some charities are simply paying lip service to risk management – compiling a list without thinking about its meaning. He argues that a change of vocabulary can make the difference to the much-maligned risk register.

“You need to take a step back from the risk map,” he says. “For example, one organisation we worked with moved to having a business improvement plan instead, which changed the psychological approach of the charity.”

Smyth says that changing the whole lexicon around risk and “managing with confidence” can be extremely positive.

Mesquita agreed that the whole question of risk is key. “If you are too risk-averse you end up doing nothing. You shouldn’t be frightened to fail. But you must also ask ‘what is our purpose?’ and check whether the risks serve that purpose.”

Roberts says this question is absolutely vital. ‘What is our purpose?’ she says, is a question which should be asked at every board meeting.

Ian Allsop is a freelance editor and journalist

FOR CONSIDERATION

No charity wants to be the next Kids Company. Here are some questions your board could consider to help it secure its best chance at sustainability:

  1. Is your governance structure fit for purpose? Would it be beneficial to have members of your senior executive team actually on the board, rather than just present at meetings?
  2. Is your chief executive filtering too much information? Do your trustees have sufficient access to other members of the senior management team, so they can really understand what is going on within the organisation?
  3. Is the information provided to the board of a high enough quality? Does the whole board understand the papers; are they written in plain English (even the technical topics); are they delivered in enough time before meetings to allow everyone to read them?
  4. Do you have the right mix of skills around the board table? Does your charity regularly appraise the contribution of the board, and of individual trustees?
  5. Does your charity have the right processes in place to enable it to adequately manage and monitor the key risks within the organisation and the environment in which it operates? Have you documented the processes by which decisions are made, and are these adhered to? If the board has delegated authority to subcommittees or to management, are these lines of responsibility clear and do they report back adequately?

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