Andrew Hind says the dramatic collapse of Kids Company last month is a wake-up call for the whole sector.
When Woolworths went bust in 2008, we all mourned the loss of a much-loved company, but knew that in the cut-throat commercial world brands have to evolve or die.
Woolies’ management had been unable to prevent its customers switching to supermarkets or to the internet to get better value; meaning the writing was on the wall – even for an iconic brand that had been the mainstay of high streets up and down the country for a century.
With the demise of accounting giant Arthur Andersen in 2002, after it was found guilty of shredding documents relating to its work as auditor of scandal-hit Enron, we discovered that the same commercial reality also applies to professional services firms.
Global revenues of $9bn and its privileged position as one of the ‘big five’ audit firms didn’t protect AA when it got on the wrong side of public and political opinion. So we know that commercial organisations will fail if they aren’t well run, have strong financial controls and are backed by key stakeholders and loyal customers.
Rules of the jungle
But until recently those ‘rules of the jungle’ didn’t seem to apply in the same way to charities.
Times, however, have changed. The warm, supportive glow which surrounded the charity sector in the past has given way to a cold blast of reality – with politicians, donors and the general public being much less inclined to give charities the benefit of the doubt when things go wrong.
That is the underlying reason why we have seen an unprecedented string of charity failures recently, not just at local level, but among some of the best-known, large national names.
Perhaps the trend began with Refugee and Migrant Justice (RMJ) five years ago, in the early days of the coalition government.
RMJ was the country’s largest provider of legal advice for asylum seekers, with an annual income of £15m which came largely through a government contract.
A change to the Ministry of Justice’s payment terms created a cashflow crisis which drove the charity into administration, as the government declined to step in to help.
Then at the end of last year we saw BeatBullying go to the wall when a number of its grant funders withdrew their support.
The Charity Commission stated in a subsequent report that the charity “was not in compliance with its own reserves policy and had no reserves. It was therefore quickly affected by the cancellation of anticipated funding.”
Now we have just witnessed the largest and most high-profile casualty to date, with the closure of Kids Company.
Formal investigations will continue for some time, but it is already clear that the charity suffered from inadequate governance, poor financial controls and – crucially – the same withdrawal of key stakeholder support that characterised the RMJ and BeatBullying failures.
The lessons for every charity are clear – the days when underperformers could continue to thrive are fast disappearing. Good governance and robust financial management are more important than ever; while stakeholder support now has to be earned anew every day, and can no longer be taken for granted.