The Kids Company collapse had all the elements that the media loves in a story: A flamboyant founder, financial scandal and, most lamentably, vulnerable people who depended on the charity.
The youth charity was founded by Camila Batmanghelidjh [pronounced Batman-gay-litch] in 1996. The charity’s goal was to provide vulnerable kids a steady guiding force, breaking the cycle of failure that’s all too common in many communities.
Kids Co was a fabulous success in terms of fundraising, and Batmanghelidjh was feted throughout Britain’s high society for her work with the charity.
In 2015, however, Kids Co collapsed in ignominy. Amid allegations of mismanagement and the squandering of funds, Batmanghelidjh was forced to step down as the charity's chief executive, and Kids Co declared bankruptcy, despite receiving millions of pounds in government funding.
Batmanghelidjh was extraordinarily passionate about the cause, and she was clearly the dominant force in the charity. At last year’s Practice Excellence Conference, Chas Howes, the former CFO of SuperDry, spoke very eloquently about the CFO’s role when working with entrepreneurial, highly charismatic individuals.
The primary lesson that CFOs and FDs can learn from Kids Co, said Howes, is “whatever the organisation's style, the finance team and particularly the CFO has to fit in with the culture of that organisation”.
“When I was at SuperDry, Julian [Dunkerton] was incredibly good at some things and not very good at others,” Howes told AccountingWEB. “And as long as he knew that I was going to pick up the bits he wasn’t good at, it gave him freedom to go ahead, do his stuff and know that none of the balls were going to get dropped.”
Howes is also a trustee of a disabled children’s charity in Cheltenham. According to Howes, he’s had to completely pivot his style. “The charity I work with is so conservative and taking risks is so against their nature. I find myself playing a different role where I’m challenging them, saying, ‘we can do this!’
“It’s really important that you have that dynamic working at the senior part of the organisation, and it has to be appropriate to where that organisation is.”
Matching passion with principles
It has become painfully clear that Kids Co, under Batmanghelidjh, lacked the calm fiscal captaincy of an experienced financial director. As Howes explains, the finance director has to interpret what the founder or CEO lacks, and “fill the gaps that other people don’t have”.
“[Julian and I] worked incredibly well on that basis, and I changed my style and he changed his,” said Howes. “It allowed me to do what I needed to do to put in all the financial controls and structure and ways of working that entrepreneurs frankly aren’t interested in. All he was interested in was driving SuperDry forward.”
Dunkerton used Howes as a springboard for his ambition, whereas Batmanghelidjh allowed her passion to completely consume Kids Co. As Caron Bradshaw, the director of the Charity Finance Group, puts it, leaders need to be “self-aware enough to recognise when they have gaps in their skill set and bring in other people to complement their weaknesses.”
“[People like Batmanghelidjh] leave a vacuum and unless you’ve got some strong financial leadership that vacuum will just suck in everything,” said Howes.
“You have to your chief executive’s conscience. I’ve had some very difficult conversations with CEOs and entrepreneurs in my time because I felt they were doing the wrong thing. I was the guardian of good, sound financial and corporate management.”
Charities’ financial trap
“The view we would take in how organisations are run is if you don’t match the passion for the cause with passion for the financial management of the organisation, you will come a cropper at some point,” said Bradshaw.
According to Bradshaw it’s a mistake made in charity finance planning all too often. Charities allow the people who are driven by the cause, like Batmanghelidjh, think through what they want to do, what impact they want to have, and then they wheel in the finance person and ask, ‘How do we do this?’.
“Rather than, saying, right at the beginning, lets have the finance person in the room, lets have an agreed understanding of what the organisation is, what resources are available to us to deliver it, and what can we do towards our mission and vision with what we have available,” said Bradshaw.
Ultimately, the people most affected by the collapse of a prominent charity are the vulnerable individuals the charity was meant to serve. It’s something Howes has reflected on in his time acting as a trustee for the disabled children’s charity. “I went in thinking, I can help to build and grow this charity. But then I reflect, we’re dealing with incredibly vulnerable young people. You can’t do anything that even begins to put their support and safeguarding at risk.
“I learned that no, we have to make the right decisions for the overall benefit of the young people we help. That doesn’t mean you can’t still have robust conversations, we still do.”
If anything, said Howes, the vulnerable children reliant on the charity’s success has pushed him to strive for even higher standards. “You never, ever compromise on standards from a finance perspective. Ever. You build up a deep knowledge of your organisation and you amend your behaviour according to what’s going on at the time and where the organisation hopes to go strategically.”
This will require a change in how people think about charity finance, said Bradshaw. The percentage of charities’ money being spent on charitable activities is often emphasised in the press and parliament. This metric is one of the reasons why Kids Co was popular with politicians. “It is important to look at that measurement, of course,” said Bradshaw. “But support costs are also imperative to a charity’s health. Without sustainability and resiliency in the organisation, you potentially - like Kids Co - end up letting down a broad range of people who need you.
“We have pressure on us, to use our money on the front line. People will often give you money strictly for front line services, but they won’t give you money to cover your entire costs.” It can leave charities in a position where they are incredibly successful at raising money, but don’t support core costs a la Kids Co. This is an area where charity finance directors can deliver a reality check.
“Unless we start thinking about finance differently, unless we change the narrative to finance being an essential part of the cause, we’re never going to break these sorts of cycles.”