Cast your mind back to 2011. It was the first year of the coalition government’s austerity programme and charities were only just starting to feel the chill of the changing economic winds. It was also the year when Ian Theodoreson, chief financial officer at the Church of England, became chair of the Charity Finance Group. At the time, its members were starting to feel the squeeze of cuts in public sector finances and the CFG was, in Theodoreson’s words, "drifting", with falling membership and a lack of clarity about its role in the sector. The board, along with the recently appointed chief executive, Caron Bradshaw, launched an ambitious change programme in 2013 to address the situation.
"I remember saying to colleagues at the time that history would judge if we made the right decision or not," says Theodoreson, who is stepping down as chair later this year after six years in the role. "It is very hard in the midst of all the fur flying around to know if you did the right thing. But I think history will look kindly on us and say it was a significant change."
The changes included a new name – until 2012 it was the Charity Finance Directors’ Group – three new directorates and a stronger focus on how to enhance the CFG’s role in the charity sector. But the transition was not entirely smooth: in 2014, two senior appointees departed within weeks of starting, leading to negative coverage in the sector press, and the news that its free reserves had fallen from £251,500 to £61,500 in 2013/14 caused further alarm.
Three years on and the CFG has grown substantially, bringing its reserves back to previous levels and continuously increasing its income, which exceeded £2m for the first time last year.
Theodoreson accepts that the CFG did change "at a pace that I think was a bit alarming", despite the positive outcome. "The one thing I would change is communication," he says. "If you’re going through change, you have to explain why you’re doing it, explain again why you are doing it, and allow people to express their anxieties. You cannot over-communicate change."
But he says he remains "slightly puzzled" by the negative coverage, arguing that by the time the news broke the accounts showed the
reforms were probably going to be successful.
He says the changes have helped the CFG to maintain its hard-earned reputation of being an independent voice for the sector, and its business model means it is "not beholden to anyone". And Theodoreson says the spending of reserves – controversial at the time – ultimately helped the CFG to increase its reach and capacity.
The past six years have been far more onerous for the charity sector as a whole because of cuts to grant funding from central and local government and the criticism of the sector’s practices after the suicide of Olive Cooke in 2015.
But it is perhaps the collapse of Kids Company, and its ramifications for the sector and government, which remains the most pertinent for finance managers. Theodoreson describes it as an "aberration" that happens once "in every generation" in the sector. He says that Kids Company’s finance function was "isolated and wasn’t integrated into the thinking of the leadership team".
But he adds that the resulting reputational damage has reduced charities’ influence in government. "One of our problems is that we’ve got ourselves into a vicious circle of poor press and reputational stories," he says. "The sector ought to be seen as the answer to society’s problems, but instead we are seen as part of the problem. That is a terrible position to be in: as a sector, that is your worst nightmare."
Theodoreson also remains concerned about further cuts to local government budgets over the next few years, which he says will hit the charity sector.
"We’ve got this time-bomb still to come, and I’m afraid to say it is our beneficiaries who will get crushed in the middle" he says. "As a sector, we have to stand up for our beneficiaries. If we stop doing that, we have completely lost our way."
In common with most that came before it, the government doesn’t have much regard for the charity sector, he says, and ministers rarely consider the charity sector when devising new policies. Theodoreson says that the apprenticeship levy – paid by organisations with payrolls of more than £3m to fund apprenticeships – is an example of a good policy that does not work in a charity context, but which has been introduced regardless.
He is also concerned that, in the rush for government and council contracts, charities have lost their old campaigning zeal. Theodoreson says: "What has happened through things like contracting is that, instead of challenging the establishment, we’ve become the establishment – and in so doing we’ve lost the edge to our voice. I would like to see us get back to a position where we are challenging the establishment, challenging the status quo and saying we can have a different world."
To achieve this, he says, charities should be bolder, more vocal and less dependent on government money, and they should focus on beneficiaries. "Maybe the sector does need to retrench a little bit and get a bit smaller," he says. "It’s a radical thought, but certainly if you are worried about losing money you will not respond according to your instincts.
"I go back to the CFG: because we’ve never taken any sort of government money, we have always been able to choose our battles, and we have never been in a position where we felt we couldn’t say anything because someone would be offended by it."
Although Theodoreson does not support dissuading people from starting charities, he says that people who are keen to set up their own charities could be encouraged to work with other organisations that are doing something similar. To achieve this would require significant input from the Charity Commission, probably at the point of registration, he says.
But he is adamant that charging charities for their own regulation, as the Charity Commission has proposed, would not be the best way to fund this. "It’s a battle we’re not going to give up on," he says. "Frankly, the argument for it has not been made. Why wouldn’t the government invest the necessary money to properly regulate and give people the confidence in this sector so that it can get all the benefits of a strong, dynamic charity sector to help it address its issues?"
Many in the sector are pessimistic about the future, with Brexit adding to pre-existing concerns about finances. But although Theodoreson predicts more tough time ahead, he’s optimistic in general. "I think we are going to be needed more than we have ever been before," he says. "The next few years are going to be really difficult.
"At some point government will realise this and wake up to it. But if I thought we didn’t have a role to play, I think I’d be pessimistic. There’s so much opportunity out there.
"If I look back to 1987, the sector was much more amateurish than it is now, but it was more passionate. I think we’ve lost that passion, and we need to rediscover it. We need people to stand up and say that this sector is really important and not lose that vision."