Inside the Chris Stoddard fundraising method

Stoddard has been at the helm of a series of direct-mail agencies that have gone out of business. Stephen Cook and Andy Hillier chart the story of his comebacks and talk to his charity clients

Chris Stoddard
Chris Stoddard

In 2009 Third Sector was invited to write a feature about CSDM, a company founded in 2005 by Chris Stoddard, a fundraiser and businessman specialising in direct mail. According to the proposal, the firm had the formula to help charities beat the economic downturn by rolling every aspect of fundraising into an integrated package; it had a turnover of £4m, employed 45 people and had 18 charities on its books.

Eight months later, in June 2010, CSDM went into administration, owing large amounts of money to various suppliers. But Stoddard mounted a so-called phoenix operation, using another company called CSDM Fundraising to buy the business from the administrators and carry on as before from the same premises with the same staff. Charity clients transferred their contracts to the new owner.

CSDM Fundraising apparently did well, expanding the number of its staff to 80. But in June 2013 it also went into administration, owing large sums; once again, Stoddard was able to buy the business with a different company called CS Fundraising and continue trading. Stoddard says both firms were closed "for specific and avoidable reasons - failures by our postal services suppliers" (see Business Closures, below).

When CSF also got into difficulties last year, however, Stoddard decided to seek liquidation of the company rather than mount a third phoenix operation. He says that his formula had encountered such opposition that it was time to move to a conventional direct-mail model.

"Through the media and other channels, some commentators in the charity industry voiced the strong view that a service that helped smaller charities to gain the benefit of direct-mail fundraising on a payment-by-results basis was not welcome in the UK, although it has worked successfully elsewhere - notably in the USA," Stoddard says. He alleges a "whispering campaign" and a "personal vendetta".

Meanwhile another Stoddard company, Inspire Fundraising, continues to operate the same system under the trading name of Raisemore. The Raisemore website says: "Payment by results means that all costs are from funds raised - at no point will we ask the charity to fund any activity." Stoddard says: "The affairs of Raisemore are a separate matter and, as a small private business, remain confidential."

So what is the business model of these Stoddard companies? Normally, a charity running a direct-mail campaign has to pay various suppliers for design, copywriting, printing, postage and - unless it already has a substantial database - a list of potential donors. The suppliers' costs are completely independent of any donations and there is no element of payment by results.

Donations are sent directly to the charity or a strictly audited fulfilment house; the charity claims Gift Aid if donors have made declarations and, crucially, retains donors' details for future use. Like other charity expenditure, the appeal is ultimately funded by donations, and charities proceed on the basis that donors expect this to be the case.

Stoddard companies, by contrast, offer to design and write the letters, provide the lists of potential donors and pay the printers and the mailing firm. Under contracts that typically last five years with a two-year notice period, donations are sent to a bank account opened by the Stoddard company in the charity's name, but controlled by it "as trustee acting on the charity's behalf and at the charity's direction and control"; until the contract ends, the company retains control of the list of actual donors and, subject to data protection, can sell it to other companies and use it for mailings to other charities prepared to swap lists.

If donors fill in Gift Aid forms, their details are sent to the charities so they can claim Gift Aid straight away and, if they wish, use them to compile their own lists of warm donors. They are told in advance that it might take 18 months before the scheme becomes "cash-positive", and they receive further income only after the Stoddard company has covered its costs.

This "pay-from-proceeds" model can be attractive to smaller charities because it usually produces a reasonable income with no financial risk - they are not charged if mailings fail to cover costs. The downside is that charities do not immediately receive data for donors who do not fill in Gift Aid forms, and do not have automatic access to details of printing, postage and other services, although Stoddard says they have a right to instigate an audit at 24 hours' notice.

"An independent audit of CSDM/CSF Fundraising between 2010 and 2014 found that £11m in donations had been banked into client accounts and paid out correctly," he says. "£20 could not be reconciled."

Some participating charities are happy with the method; others feel they and their donors do not get a fair deal and have broken with Stoddard companies (see "What the charity clients say... "). Recent mailings from Stoddard companies on behalf of charities typically say: "Each letter costs no more than 65p, including postage and fees, which our trustees have agreed to. However, if a gift is enclosed the cost may be greater. These costs will be met from donations received." Other direct-mail experts estimate that print and postage for a standard mail pack would be about 28p, which would leave the Stoddard company 37p for other costs. Stoddard says about 10 per cent, or 6.5p, is profit.

Unusual arrangements

David Burrows, who has more than 25 years of experience as a direct-marketing fundraiser, says: "Arrangements such as this one are unusual because, as I understand it, the charity does not get ownership of the list of warm donors. If I was a charity considering such a system, I'd be unhappy about that.

"Also, I'd wonder how such a system would be audited. I am sure that, before signing up, trustees would want to see a robust system that accounts for every penny. And there's a question mark over the donors: do they understand what is happening? And are they happy to give money in this way? Charities have to be extra careful to be seen to be acting in an ethical and transparent way, because any fundraising mechanism that gives even the slightest impression otherwise could reflect badly on the whole direct-mail industry and the charity sector."

Five years ago, Stephen Pidgeon, a former business associate of Stoddard who is now a fundraising consultant and a Third Sector columnist, complained to the Advertising Standards Authority that the wording did not give donors enough information and failed to comply with the relevant Committee of Advertising Practice code requirement that donations must not be used for purposes other than those described in the appeal, unless this is made clear. Pidgeon argued the wording implied that only the stated amount (50p at the time) would be deducted from each donation, but in practice the bulk of every donation would go towards paying for the mailing because, typically, only 1 or 2 per cent of mailshot recipients actually donated.

The ASA rejected the complaint, however, saying: "The advertisers do not have any control over how many contributions they will receive, and we believe that readers will understand this. While it may be that the total cost of the mailing will amount to a large proportion of the total level of contributions, there is no direct claim in the advert that all of an individual's contribution, less 50p, will go to the charity's cause."

In 2009 the Institute of Fundraising and the Fundraising Standards Board criticised some charity mailings from Stoddard companies for infringing the IoF code of practice on the use of distressing imagery and enclosures. The following year, Stoddard said he would join the FRSB, but he now says he has not done so because he received no reply to two emails and a telephone call to the self-regulatory body.

What the charity clients say about the Stoddard model

Chris Stoddard says his companies have raised £3m for charities between 2010 and 2014, with a further £1m in Gift Aid. He has supplied approved testimonials from satisfied customers, among which are Action for Street Kids and the Cancer and Polio Research Fund. Peter Tyrer, founder of the African Children's Fund, says: "Chris and his team at CSDM have a developed a new and highly effective solution to direct mail fundraising."

But South West Equine Protection, which was started by Maureen Rolls 35 years ago, has broken with Stoddard companies. It renewed a five-year contract with CSDM in 2010 and received an agreed monthly sum of £14,000 from CSDM successor companies. But in 2013, according to Rolls, some payments were missed or late and in July 2014 the charity's lawyers advised it to give notice on the contract.

Rolls says payments then stopped almost completely. After analysing monthly reports from Stoddard companies, SWEP's lawyers wrote to CS Fundraising asking for a meeting. In response to a request by Third Sector for comment, solicitors for CS Fundraising warned of confidentiality clauses in its contract with SWEP: "Our client denies that it is in breach of contract with SWEP and a letter of response has been sent to SWEP's solicitor in accordance with the timetable set by them."

Soon afterwards, on 19 December, CS Fundraising went into liquidation. Rolls says no meeting happened, she doubts SWEP will receive any more money and the charity had to put a stable building project on hold. SWEP's accounts for the year to 31 January 2014 show it received £1.3m in voluntary income (including Gift Aid), of which £900,000 went on "collection agent fees". Rolls confirms this refers to Stoddard companies. The previous year, there were donations of £1m, Gift Aid of £136,000 and £876,000 in such fees.

Another charity that has ended its relationship with Stoddard companies is the Age Related Diseases and Health Trust. Paul Springer, the founder and consulting chief executive, says the charity could not have been set up without the Stoddard model. But recently appointed trustees decided to end the contract last year.

"We're split in our view about whether this is a very generous man who has done a lot for charities such as ours and is now taking the consequences, or whether there is something else going on that we don't understand," Springer says. The charity's accounts for the period to November 2013 show that it received £70,000, all in voluntary income, and spent £46,000 raising it. The previous year, it received £158,000, all in voluntary income, and spent £84,000 raising it.

Kate Marshall, who set up the charity Dream Connection, worked with CSDM from 2007 and says she was happy at first.

"We weren't paying and he was supplying us with money," she says. "It seemed a fantastic offer." But when she realised that most of the money donated was not actually reaching the charity, she decided to end the contract.

"The problem isn't the charities," she says. "It's the donors who are losing out. The charities are getting a lot of Gift Aid. People were asking us 'does it matter?' Actually, it does."

Records for another charity show that CSDM carried out almost a million mailings for it in one year, raising about £438,000. But the costs were listed as £497,000, meaning it did not receive any money. The charity protested, and says it eventually received £8,000 on top of about £40,000 in Gift Aid.

The charity says it ended its contract with CSDM some years ago and has not received any money since.

A spokeswoman, who asked not be named, says it has heard from donors who have continued to give after the end of the contract. "It took two and a half years after our contract ended for that bank account to be closed," she says. "I've asked for the bank statements, but CSDM won't respond."

Stoddard says he cannot comment because of a confidentiality clause in the contract: "We can, however, confirm that if, at the end of the agreed contract period, there is a surplus of cost over donation income received standing on the client's ledger, the company has the right to continue to collect."

Inside the Stoddard company labyrinth

Business closures

When CSDM went into administration in June 2010, the first report from the insolvency practitioners, Rimes and Co, said the directors blamed a postal strike, reduced donations to smaller charities because of the Haiti earthquake appeal, a legal dispute that cost the company £60,000 and a ruling that it owed £85,000 in tax.

Stoddard later gave Third Sector another reason: that a postal supplier, Delta Data, had dumped all of CSDM's April 2010 mailshots in a landfill site instead of posting them, resulting in a loss of £280,000. Stoddard says he only became aware of this in 2011. Four directors and managers of Delta Data were jailed for up to four years for fraud in 2012.

Before CSDM went into administration, it had assigned rights to use its donor database to another Stoddard company, CS Incentive, for £100,000. The creditors of CSDM voted early in 2011 to pursue a claim that the true value was much higher, although Rimes warned this could mean "a less favourable outcome".

'No prospect of being paid'

Three years later, the administrators reported that the claim had been "rigorously defended" by the directors in "protracted correspondence", and the administrators had decided after legal advice not to go to court. There was now no prospect of unsecured creditors being paid, the report said.

Stoddard says: "Essentially, the creditors spent their own money pursuing ill-founded claims about the alleged sale of assets at an undervalue. After lengthy and expensive legal review, the matter was not pursued because no assets of the company were sold at undervalue."

The administrators' first statement of affairs estimated CSDM's total debts at nearly £1.4m. Their progress report of January 2011 revised this to £788,000.

Stoddard says the correct figure was £400,000. After the expenses incurred by the administration, however, creditors were paid nothing.

Two years after CSDM closed, CS Incentive went into liquidation owing £295,000, according to its liquidators, Smith and Williamson. Their progress report in August 2014 said potential debts were due from four associated companies and the director; after taking legal advice, they had succeeded in obtaining some of the documents requested from the director; a strategy for recovering the debts was now being considered.

Once more into administration

After CSDM Fundraising bought CSDM for £80,000 from the administrators in 2010, it continued to employ the same staff, working for the same charity clients from the same office in Ross-on-Wye, Herefordshire. But it also went into administration in 2013 after another incident involving a mailshot.

CSDM Fundraising had a contract with Swiss Post International (UK), which arranged for the company's Christmas charity mailings to be posted in November 2012 by a subcontractor, Secured Mail. Phil Coleman, managing director of SPI (UK), says that Secured would not act until it was paid by CSDM Fundraising because it had been warned by others about doing business with that company.

Stoddard says that Secured had demanded up-front payment from SPI (UK): "As a result of this issue between SPI (UK) and Secured, Secured refused to post our mailings." He says the delivery eventually went ahead in April 2013, "causing further loss and damage", and that he is not in a position to comment further "due to legal proceedings".

It was this episode that prompted CSDM Fundraising to go into administration in June 2013. Its remaining assets were bought by CS Fundraising, another Stoddard firm, for £35,000. The statement of affairs by the administrators, MB Insolvency, in September 2013 said the liabilities of CSDM Fundraising totalled £523,000 and its assets £5,000. Stoddard says that the correct liabilities figure is £70,000.

The administrator's progress report of January 2014 noted that CSDM Fundraising had, on 23 January 2013 - five months before going into administration - sold its business and intellectual property, including donor information on its servers, to CS Fundraising for £50,000 on deferred terms.

But the progress report said that the firm's records made no reference to the money being paid: "On further investigation it appears that the assets were not transferred and the same assets were those sold to CS Fundraising Ltd as part of the pre-packaged deal." (This refers to the deal for CS Fundraising to buy the assets of CSDM Fundraising at the time it went into administration.)

The progress report then detailed various inter-company transactions, loans and credit card accounts. "I subsequently took legal advice in relation to the transactions that has led to a formal demand being served on the director for repayment of the full amounts," it said. "The total claim made against the director is £1,030,049."

The administrator's next report, in June 2014, confirmed that he had submitted to the Department for Business, Innovation and Skills the confidential statutory directors' conduct report required in all cases of insolvency. A spokesman for BIS says the report is being considered and it has until 3 July to decide what to do. Stoddard says most of the demand concerned "inter-company debt with balancing amounts owed back. No inquiries are made if the conduct report is positive. I confirm no further inquiries have been made."

Out of business a third time

When CS Fundraising went into liquidation on 19 December last year, the statement of affairs from the liquidator showed assets of £15,000 and liabilities totalling £328,000. Stoddard says supplier debt is now £2,000.

One debt of £197,000 is to another Stoddard company, ClearData Direct Media, which rents out charity mailing lists; its website claims to have "the fastest-growing portfolio in the country" and to be "the market leader in charity data in the UK and an increasingly dominate (sic) force in list broking for the commercial sector".

It says one of the lists it sells comes from Children with Cystic Fibrosis Dream Holidays, a charity that ended its contract with CSDM in 2010. ClearData describes a list called Generous to Medical Charities as "sizzling hot with responsive names", and another, Generous to Third World Charities, as "mainly female, 65+".

Companies House records show that Stoddard has held 37 director appointments; he remains a director of 11 firms; he has resigned from 10; and 16 have been dissolved. He says: "I acknowledge that I have been the responsible director in charge when three events caused insolvency: in the mid-1990s, in 2010 and 2013." He declines to give details of the 1990s insolvency.

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