Kids Company: How charismatic leadership does not guarantee success
05 November 2015 -
Fronted by colourful CEO Camila Batmanghelidjh, for years Kids Company was the poster child of charity work – receiving millions in government funding. But as the fallout from the charity’s collapse continues, Insights takes a look at why a charismatic leader is no guarantee of an organisation’s success
Dazzled by the charisma of its leader and the warmth of its cause, the government gave the now-collapsed Kids Company £46m of taxpayers money, according to a new report, despite concerns about how the children’s charity was being run.
As the investigations into the charity’s downfall continue, the fallout demonstrates how having a magnetic, media-friendly chief executive is no substitute for robust and prudent financial and operational management practices.
Led by colourful CEO and founder Camila Batmanghelidjh, the Kids Company was established 1996 in Camberwell, south London, providing a range of care services in London, Liverpool and Bristol to children whose lives had been disrupted by poverty, abuse and trauma.
Going out of business in August, the National Audit Office (NAO)’s report has provided a damning insight into the succession of errors which were made by Batmanghelidjh, former chair of the trustees lan Yentob, who is also a BBC broadcaster and creative director, and the successive Labour and Conservative governments.
Despite worries about mismanagement of finances, including cash flow and sustainability “as far back as 2002”, the NAO report states taxpayers funds continued to support the ailing organisation, including £28m from the Department for Education.
The charitable sector is becoming increasingly important to the government as a means of delivering its social policies, especially in filling the gap in services between what the public expect from their services and what the government can actually deliver.
For charity bosses, there is an innate pressure to adopt a more professional approach to compete successfully for greater government grants and other funding, and public donations, while staying true to meeting the objectives of the charity.
Therefore, a strict control and administration of governance, finances and beneficiaries are core responsibilities of executives.
Batmanghelidjh, who has become a high-profile media personality regularly appearing on prime-time national TV and radio programmes such as Question Time, has been criticised for vastly overestimating the impact the organisation has made.
Speaking to Radio 4's The Report in August, the Iranian-born Londoner had said that there was a group of 15,933 children who represented "the most high-risk group of kids, that's what's sucking up all our money".
However, the charity has handed over records from its database relating to just 1,692 London clients - both adults and children. Of these, the charity had designated 331 as "high-risk". Bristol officials have been given details of a further 175 clients.
A 'culture of waste and extravagance'
Equally, the charity has faced accusations of wasteful spending, with a former intern at the charity describing a “culture of waste and extravagance”, including the vast expenditure on Batmanghelidjh’s office to look more akin to “Aladdin’s den” than a place of work.
Employing around 600 staff by the time of its closure, the charity has been also accused of having a bloated workforce, including Batmanghelidjh, who has learning difficulties, hiring three personal assistants to support her. In a £3million payment made by the government to the organisation just days before its closure, around £800,000 was needed just to cover employee salaries.
Requiring a control of not just cash but also materials and other assets such as computers, well-run charities needs to ensure that finances are kept in order so that any fluctuations in activity are planned within the financial well-being of the organisation.
While Batmanghelidjh has repeatedly denied that financial mismanagement was the cause of Kids Company’s collapse, the organisation’s 2013 accounts suggest it was clearly ill-prepared financially to deal independently with a downturn in fortunes.
Due to most companies in the voluntary sector relying heavily on public donations, charity bosses often ensure there is a reserve of cash stashed away for a rainy day. In Kids Company’s sector, charities have an average quantity of reserve cash fund equivalent to five months of spending, but the general figure across the board is around three months.
Based on its core expenditure of £15m per annum to keep the premises open, the Kids Company would be expected to have a fund of about £4m in reserves. However, the charity's last annual report said its unrestricted reserves were just £434,282 in 2013 (with a further £1.3m in restricted reserves and designated funds).
Former chair of the charity’s Trustee Yentob, should share some of the blame, as he had a clear responsibility to oversee the management of the charity, ensuring that it is solvent, well-run, and delivers the charitable outcomes for the benefit of the public for which it has been set up.
As Chris Cook, policy editor of BBC political programme Newsnight, explained, Kids Company’s financial accounts displayed a clear lack of forward planning.
He wrote: “Building an unrestricted reserve of £6m would mean keeping 7p in reserve for every pound that the charity spent over the five financial years from 2009 to 2013 - a period when the charity was growing fast. Had it done that - which would have required slower growth in service provision rather than cuts - the charity would have been better placed to survive.”
Critics, including other charity organisations, argue the Kids Company had been kept afloat by the government due to an unfair favouritism of Batmanghelidjh.
Often wearing a technicolour ethnic dress and an elaborate headscarf, the soft-spoken and eloquent Warwick University graduate has been championed as a successful leader in the UK charity sector. Appointed a CBE, Batmanghelidjh has won an array of accolades and awards and was listed among the UK's most powerful women by BBC Radio 4's Woman's Hour in 2013.
She’d even been given endorsements from celebrities such as Coldplay.
Despite growing criticisms from ministers, including Michael Gove, for the financial state of Kids Company, her larger-than-life celebrity status had seen her gain more support from Prime Minister David Cameron, possibly fearing the damage that cutting funding would do to the Conservatives’ reputation.
In an email, the Londoner even admitted to colleagues that she used “loving blackmail, arm-twisting and all manner of ghetto-strategies” to persuade the government to send over millions in emergency funds.
However, the subsequent demise of Kids Company has provided further that charismatic leaders have a very limited effect on a company’s performance, and they are just the public face of a complex series of organisational structures and policies needed that are needed for success.
Or as billionaire investor Warren Buffett remarked, when you bring good management into a bad business, it’s the reputation of the business that stays intact.
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