Saint or sinner?

John Freeman
Thursday, August 13, 2015

Over the last week or so I had decided not to add to the often ill-informed comment about Kids Company. Too many articles have had this sort of reductive headline and most of them were about Camila Batmanghelidjh and her management and leadership of the charity. There have been lots of articles and blogs but there are a few important aspects which have had little or no coverage.

To start, my view of the whole debacle. Kids Company was a good idea with a charismatic leader and ambassador who was able to secure large amounts of government and philanthropic funding. The aim was to support young people on the edge of care – but below the threshold of local authority action - and to help them develop. There were a wide range of activities, some good, others less so, and the charity was able to expand fast, indeed too fast, with poor financial and management controls, and poor prioritisation. Money was spent inappropriately on both stuff and staff, and there were no significant reserves. The whole operation seems to have operated on a hand-to-mouth basis. While Kids Company was expanding the problems were masked by increasing income – but, as with all Ponzi-like schemes, the whole house of cards collapses very rapidly once there is the slightest problem.

How did it all go wrong? At the root of the difficulties was the inadequate governance of the charity, and to an extent the role of the Charity Commission as regulator. All the charities I know of or have worked with operate on a basis of maintaining significant financial reserves so that if the funding dries up there can be an orderly wind-down. One charity I know well, as my wife works for it, has an operating reserve of 10 months of routine expenditure. Kids Company failed to operate prudently, partly because of Camila Batmanghelidjh’s insistence that any child who turned up in need would be supported – and this is, clearly and obviously, just not possible. The trustees were seduced into believing that government bail-out funding would always come, and proved incapable of injecting any sort of reality into the operation, and as a result it has closed in a chaotic and uncontrolled way, to the great detriment of the children, the workers, the good name of the charity sector, the good name of the trustees, and with a huge waste of public and philanthropic money.

Other charities just do not allow themselves to grow beyond their means. This can cause problems, as funding bodies, including the government and philanthropists, do not generally want to contribute to reserves – however necessary these may be. They want instead for ‘every penny to be spent on front-line services’. It is a constant battle for all charities to maintain reserves, but if they fail to do so, disaster awaits.

There are uncomfortable parallels with RBS and Fred Goodwin who took a sound bank and expanded it into a huge operation with global reach but with far too little resilience and reserves – leading to one of the most serious financial crises that we have faced.

So, is Camila Batmanghelidjh a saint or a sinner? The answer is of course neither and both. She had a good idea, started well, but she believed her own rhetoric and did not react well to ‘ordinary’ management. The people who should be castigated over the finances are the trustees. The Charity Commission has clear guidance for trustees that goes into much detail, but the six duties of trustees are:

1. Ensure your charity is carrying out its purposes for the public benefit
2. Comply with your charity’s governing document and the law
3. Act in your charity’s best interests
4. Manage your charity’s resources responsibly
5. Act with reasonable care and skill
6. Ensure your charity is accountable

I leave it to the reader to decide where the trustees of Kids Company were lacking.

There are two other aspects of the whole business that are worth mentioning. The first is simply that the children and young people concerned did not generally meet the thresholds for social care intervention, so it is unclear how much support local authorities will be able to give. The children and young people who benefited from Kids Company might well have benefited from other local authority support, including youth work, and other aspects of social care, but local authority budgets are now so constrained that little of this remains.

The second, related, point is that Kids Company was a major operation in the region of £30 million a year. Let’s assume for the sake of argument that it was rather inefficient and could have got by on half that, so £15 million a year. But Kids Company operated only in a small part of London, in Liverpool and Bristol – admittedly very deprived areas, but replicated across the country. My back-of-the-envelope calculation is that the population served by Kids Company was perhaps 3% of the national total potential demand. This would lead to a total scale of £500 million – or £1 billion on the actual basis of Kids Company.

This is a very, very rough calculation, but indicates the scale of the challenges facing children and young people, local authorities, and charities. The government is continuing to reduce public funding under a banner of austerity – and while Kids Company can be criticised for many things, it was attempting to meet a real and substantial need. The children and young people it served, and who it could have served both in the future and in other areas, will lose out. The real tragedy of the collapse is that Kids Company could have been made sustainable and a positive role model, while the poor management and governance led to absolute disaster.

There are lessons in this for all of us working in the children’s sector, as well as for national and local politicians, and those of us who have the courage to be trustees.

John Freeman CBE is a former director of children's services and is now a freelance consultant