The demiseof Kids Company has raised awkward questions for its trustees. One of these will be central to the coming insolvency process: just how involved were they as the charity rapidly grew its revenue and ambitions between 2009 and 2013? Could they have avoided one of the fastest collapses of a major charity in history?
Alan Yentob, the high-profile BBC executive and chairman of trustees at Kids Company, has already admitted the charity had a hand-to-mouth existence, which is not an encouraging sign. "We took on too much," he said in one interview. "Camila always took the view that, because of the nature of our caseload, the government should eventually fund it."
The trustees clearly found it tough, or unnecessary, to challenge the charismatic founder and chief executive, Camila Batmanghelidjh. It is very easy for trustees to be overwhelmed by a big personality, but if that happens it can be a problem.
The buck ultimately stops with trustees of a charity, a fact they sometimes overlook, along with their own importance to good governance. The failure of the trustees in this case to avert insolvency, or even to organise an orderly winding down, is a reminder that their role is anything but decorative. The job – and it is a job – needs commitment and carries significant obligations.
While many charities function as limited-liability companies, which restricts personal risk except in cases of fraud, a finding of negligence by the insolvency process will generate a legal hazard.
So how can trustees avoid the kind of thing that happened at Kids Company?
First, a board should be made up of complementary talents. Professional advice must be brought in as required. Members must be prepared to be fearless.
A board should consist of people with the skills a charity needs, which often change over time, not just of enthusiasts or donors. Some trustees will be valuable for 30 years, others for a shorter time as circumstances change.
I remember one charity chief executive saying that her biggest anxiety was not being challenged enough by the trustees. It was a healthy anxiety to have. A good board will both test and encourage the chief. This can be a tough balance: giving a chief executive autonomy to make the decisions they were hired to make, while also keeping a watchful eye.
Often the first trustees of a charity are appointed by its founder, who might also run it. Ideally, the initial appointees will appoint future members. But that does not always happen and is not legally required. Similarly, an electrifying founder might be a brilliant fundraiser, but raising money is not the same skill as managing it, let alone overseeing rapid growth.
Another problem is that boards are also required to meet only when they need to – vague guidance that puts a responsibility on them to get the timing right. Alternatively, meetings may be bi-monthly, say, but in times of difficulty they might need to be held more often.
A prudent charity keeps enough reserves to cover costs for between three and six months. Kids Company did not. Mr Yentob admitted it was "probably a mistake to operate hand-to-mouth with no reserves". True. It was also still dependent on government support, and remained so despite Treasury signals that voluntary sector funding was going to be squeezed.
Any charity dependent on state money (or, indeed, other significant donors) must make sure it retains constant, amicable contact with the people who sign the cheques. Kids Company appears, at least recently, to have had a fractious, combative relationship with civil servants and ministers.
Having a well-functioning board of trustees should mean that crises are managed, averted or anticipated, perhaps by giving thought to working with other charities in a similar area.
Kids Company was fully audited, as everyone has been at pains to point out. But the relevant question is whether its auditors were listened to, or even allowed to offer business advice based on what the numbers indicated.
The 2013 accounts (the latest available) did identify that some funding would cease in 2015 and that the charity was dependent on what it raised each year. What plans were put in place to deal with these risks?Or did everyone just hope that it would all come good in the end?
It is sad when charities fail, and often traumatic for those who rely on them. The main cautionary lesson from Kids Company is a reminder that charities need effective trustees to oversee a financial plan. Even the best of intentions will not suffice.
- Susan Robinson is a partner and head of charities and not for profit at Kreston Reeves, accountants and business advisers