On 10 February 2022, the Charity Commission released a report outlining findings from the inquiry into the collapse of Kids Company. In this blog, our crisis and governance lead Jenny Berry outlines some key governance advice to support sector leaders.
The collapse of Kids Company in 2015 received widespread attention and media scrutiny into the misuse of public funds, alongside wider failings at the charity. The High Court found that the chief executive and directors of Kids Company should not be excluded from directorship in the future, and last week’s report concluded that “there was no dishonesty, bad faith, or inappropriate personal gain in the operation of the Charity”.
While the case of Kids Company, and the combination of factors – which led to the challenges they faced – is unlikely to be repeated, there are lessons to be learnt for our sector. Amongst other things, it demonstrates the importance of good governance and how its absence can have serious consequences for the work of charities and to those they serve. Charity leaders should, therefore, reflect on whether their current governance structures are fit to withstand such challenges. ACEVO members can read a briefing on the specifics of this case on the website, written by one of our legal partners.
Those of you who know me and my hashtag #ItsAllAboutGovernance will have heard me referring to the processes and behaviours that lead to good governance, the essentials and things to work towards. There are lots of resources available, and the best starting point is the Charity Governance Code.
Balancing your board and executive
A key lesson from this case is around board responsibility for a wide range of issues, and how this can change when an organisation grows significantly in a short space of time. A range of expertise is needed to support decision-making. While chief executives should be included in governance decisions, it is the trustees’ responsibility, and therefore vital that boards are equipped with the information to make decisions. When considering the skills needed on boards it is important to consider the broader level of experience needed by candidates.
A key element of this is board turnover and diversity, which is referred to under Board effectiveness in the Charity Governance Code. There should be stated terms of office for trustees to ensure that fresh perspectives and assessment of risk continues to be brought in. Charities are not defined by individuals, and it is vital that any longstanding team or board members are questioned appropriately around their decisions from a wide range of skills and perspectives. A diverse range of views on a board helps avoid complacency around decision-making and offer appropriate challenge. When recruiting for the board, think how you can attract perspectives and experiences which may not be represented.
Governance tools like a clear delegation of authority, clear role descriptions for chief executives and trustees, a transparent appraisal system for the CEO and board members, and a code of conduct for the board should be in place to underpin board functions.
Innovation, growth and demand-led models
It is for boards and trustees to make decisions about how organisations are run. Demand-led models, where charities respond to need and seek funding to cover their services separately, are not uncommon across the sector but require careful management to ensure the level of risk does not continue to increase without mitigation.
An important way of mitigating risk is by focusing on reserves. If demand continues to grow, there may be a need for trustees to use their discretion to invest reserves that provide services to meet demand. However, this needs regular review and is an approach that cannot normally be maintained safely for consecutive years. Where there is a clear spike in demand for services, consider discussing with trustees what this investment means for longer-term sustainability of the organisation. A high-risk operating model, combined with year-on-year growth, needs careful management and oversight.
This is included in the Charity Governance Code under Decision making, risk and control.
What you can do
Considering these issues before challenges arise is the best way to be prepared for governance challenges. The Charity Governance Code provides a strong starting position for organisations to assess where they may need to look at governance structures. This is particularly helpful in ensuring you have all the necessary processes and documents in place to support good governance.
The Charity Commission’s report provides some useful learnings for all charities from their inquiry and highlights the following points:
- The importance of checks and balances, and the right blend of skills and knowledge, in charity boards
- The requirement for operating models to reflect the nature and scale of the charity
- The role of financial planning and reserves policies
- Considerations when charities grow
The above points could provide a helpful framework to begin assessing your organisation’s position in each of these spaces. You can also make use of ACEVO’s wide range of tools and templates and governance support expertise to support you when taking the first steps in this direction.
Finally, if you are currently experiencing any challenges around the governance of your organisation, or you are dealing with regulatory and compliance issues, you can get in touch for personal support and advice. Part of running a charity is facing challenges and addressing risk, but managing them appropriately is vital in demonstrating that your organisation is best prepared to deal with any future difficulties.
