For more than 70 years, the St Loye's Foundation has been helping disabled people into work. But only three years ago, in 2006, it was on its knees. Rumours of closure circulated among worried staff. Trustees debated whether it was time to close for good. Local newspapers reported that the charity was in a critical condition.
St Loye's was facing crippling financial problems. Its headquarters on 18 acres, on the edge of Exeter, had been poorly maintained, and £2m was needed to fix the problems. The University of Plymouth then moved its occupational therapy department out of the charity's building, causing a loss of rental income.
At the same time, the charity's main income source, the Department for Work and Pensions, cut its funding by 5 per cent. These two decisions sliced £500,000 off the charity's annual £4m income.
Most daunting of all was the ominous pensions black hole. In the 1980s, St Loye's agreed to a 6 per cent escalator on its final salary-linked pension scheme. A valuation was imminent and trustees expected that the scheme, which shut in 2001, would leave them with a multimillion-pound deficit. But the black hole was even worse than they feared - a gaping £9.1m.
Then, as trustees called in management consultants to try to find a way out of the quagmire, the charity's problems hit the local headlines. Soon after that, voluntary donations went into freefall.
Christopher Knee, the chief executive recruited in May 2007 to enact the consultants' rescue plan, admits that St Loye's should have seen many of these problems coming. "It's a perfectly legitimate criticism to say that it was only when the tsunami was about to hit the beach that people took notice," he says. "We knew we had a pensions liability. We knew the direction of travel of that liability. We knew our property was in less than top order. I don't think trustees had grasped the enormity of it, although when they did realise it they did act."
Today, St Loye's is back on its feet. It is opening an office in south Wales and has expanded its services. So how did the charity come back from the brink?
The charity's fightback started with Knee's arrival in June 2007. His first job was to make 35 employees redundant. All had been identified in advance of his arrival. Coming from outside St Loye's made this task easier, says Knee: "The longer you spend with people, the more difficult it is to wield the axe because you know them, you know their family situations and so forth. I didn't have that baggage."
A further 13 employees resigned due to restructuring, and eight left after their fixed-term conracts ended. In total, the charity's head count dropped from 102 to 46 employees. To support staff who lost their jobs, St Loye's hired a consultant to help find them new work. "She placed about 40 of them in jobs, which was wonderful," says Knee.
Catherine Bauer, marketing coordinator at the charity, says the remaining staff were more relieved than panicked by the job losses. "There were lots of rumours going around and nobody knew what was going on, but everyone sensed it was something ominous," she says. "Everyone wanted to have answers."
As the consultants suggested, the charity put up its headquarters for sale. It sold for £16m and allowed St Loye's to dodge its £2m repair bill. "If you were running a business, would you lock up £16m of capital in land and buildings to deliver benefits to 200 people a year?" asks Knee. "No, you wouldn't. You'd release that capital to do a better job for those people and increase the number of people you were able to work with."
Having sold the building, which had been the charity's home since 1947, St Loye's moved to rented offices in central Exeter.
Its training services for disabled people were then overhauled. "We were operating in a fairly traditional college-type environment," says Knee. "When people applied to join us we said: 'You can do certain courses and this is what they will lead to.' We turned this on its head. We said: 'Come in and talk to us, tell us about your ambitions, your desires, your skills and experience and how we can put a package together that allows you to reach the goals you are setting yourself'. Before, the emphasis was on us and what we offered rather than the individuals and what they wanted."
To support this change, three case managers were appointed to provide single contact points for people who enrolled on the charity's residential courses. As well as improving the service to beneficiaries, the changes also helped the charity's financial position: the DWP's payments are partially dependent on whether trainees get jobs.
"The changes have meant a much lower dropout rate," says Knee. "I don't want to mention figures because the dropout rate was embarrassingly high, but we've halved that because we've now got a person-centred approach."
The building sale also provided a way to start tackling the pensions deficit, although that took some bartering. "It was difficult because the pension trustees' first job is to protect pension members," says Knee.
"They knew we had received £16m and the cost of closing the pension scheme would have been about £15m, so their opening line was: 'Give us £15m and you can continue with the £1m you've got left over'. We were very strongly opposed to that, so it took quite a lot of debate."
Eventually the charity and the pension trustees agreed to open an escrow account that requires the approval of both parties to release money into the pension pot or back to the charity. St Loye's agreed to put £6.1m into the account over three years. "At the next valuation, if we find there is more money than is necessary, given the new calculations, we will take some back. If we're still in deficit, we'll put some more money into the scheme," says Knee.
The charity's governance was also changed. Now all senior managers, not just the chief executive, attend trustee meetings to make sure trustees get the full picture. "Before, there was an element of trustees not being properly informed, although one might legitimately say that if a trustee feels they are not getting full information they should damn well dig harder," says Knee.
The charity is attempting to rebuild its voluntary donations with public fundraising activities such as abseiling. Before the crisis, donations made up 10 per cent of its income. The figure currently stands at 2 per cent. "People were unsure whether the organisation would survive," he says.
St Loye's has definitely survived, but challenges do remain. The recession is making it harder to find jobs for trainees, and the DWP wants to slim down the number of contractors it has.
But the charity feels it is able to deal with these threats now. It is constantly reviewing the training it offers to make sure it matches employers' needs, and hopes its specialist skills will allow it to team up with larger contractors if the DWP consolidates its contracts.
"If the recession had hit two years earlier, I don't think we would have been able to turn it around," says Knee. "There would have been a distinct possibility that the building wouldn't have sold. We'd like to say it was more than luck, but frankly, it wasn't."
He says other charities can learn from St Loye's experiences. "Don't just deal with what's in front of you," he says. "You've got to anticipate what's going on, and that's what we didn't do.
"Get the best advice you can, even though it can be expensive. And don't forget why you're doing it - if you keep your purpose in focus and don't lose sight of it, you've got every chance of succeeding."