GOVERNMENT RESPONSE TO THE FIRST REPORT OF THE COMMITTEE OF SESSION 2001-02, ON THE CHILDREN'S SOCIETY IN WALES (HC 525)
1. It is proper for the Trustees, rather than the Society's professional management, to take major policy and strategic decisions such as the one in question. It is right that in doing so they should take account of advice from management. That does not mean that the management bear no responsibility at all for the decisions, especially in a case where, according to the two Trustees who gave evidence to us, they have given the Board a strong steer towards a particular course of action. We are concerned that a situation has arisen in which, for various reasons, neither the Chair of the Board of Trustees, nor the Chief Executive of the Society feels able to acknowledge responsibility for, or mount a robust defence of, such a controversial decision.
The Government notes the Committee's views. Decisions as to when and where a charity operates are for the trustees of the charity to make. Trustees are charged with acting in the best interests of their charity. Provided they are acting within the law, it is not for Government to substitute its judgement for that of the trustees in operational matters.
2. It is important that the Charity's Trustees are able to fulfil their duties fully from the outset, carefully scrutinising proposals which emanate from the Society's management and making informed decisions about the Society's future. To this end we believe the Society should consider providing a comprehensive programme of training and induction for new Trustees.
The Government notes the Committee's views. The Government acknowledges the very valuable role played by trustees of charities. Government recognises the voluntary nature of the important work they undertake. Without their input, charities would not be able to provide the wide range of services they do. Government shares the Committee's view that, as a matter of good practice trustees of charities should be suitably equipped for the tasks they undertake and that they should receive appropriate training and induction. The Charity Commission has recently published a report on Trustee Recruitment Selection and Induction which underlines the importance of induction and what the Commission would like to see as best practice.
3. We commend the Assembly for its swift response to the situation and we are pleased that negotiations over the future of the Children's Society 's services in Wales are making progress. We call on the Government to monitor further developments closely with a view to offering assistance which it might reasonable give.
The Government is pleased to note the Assembly's implementation of a new task force. Provision of services in Wales is a matter for the Assembly.
4. It is important that charities and other organisations providing services in partnership with government at all levels understand the new political geography of the UK, post-devolution.
The Government concurs with this.
5. Following the Children's Society's decision, we believe that a code of practice which voluntary bodies operating in more than one country of the UK could choose to adopt would be a welcome development. A public commitment from voluntary bodies to consult properly before withdrawing from, or significantly reducing services in, Wales (or any other constituent part of the UK) would help to remove some of the uncertainty surrounding the work of the voluntary sector in Wales which has arisen in the aftermath of the Children's Society's decision. We urge the Government to support such a code of practice and to consider whether its adoption should be a condition of bodies receiving funding from the UK Government.
In England, a framework already exists for relations between Government and the voluntary and community sector. It is set out in the Compact, a memorandum concerning relations between Government and the sector. It is not a legally binding document but one which derives its authority from its endorsement from Government and the sector through its consultation process. The Compact is underpinned by various codes of Good Practice, including one on funding. The Compact sets out the key principles and undertakings which should underpin relations between Government and the sector.
One of the most important undertakings which the Government has given is to recognise and support the independence of the sector, including its right within the law, irrespective of any funding relationship that might exist, to determine and manage its own affairs. The Government is committed to honouring that undertaking. The Compact does also contain an undertaking from the sector to involve users, wherever possible, in the development and management of activities and services. That undertaking is repeated in the Code of Practice on Funding. Neither the Compact nor the Code, however, at present makes funding on the sector's acceptance of a requirement to consult with users.
As part of the Home Office's ongoing work on developing the Compact consideration could be given to the Committee's proposal to attach conditions concerning mandatory consultation to any offer of Government funding. Any proposal for change would have to be considered by and agreed with the Sector's Compact Working Group.
6. Despite the publicity that has surrounded the decision to withdraw from Wales, it is reasonable to assume that many people will continue to believe that the Society, which has worked in Wales for 113 years, will continue to be active in that country. People in Wales who wish to support a children's charity must not be given the false impression that, by donating to the Children's Society, they will be supporting continuing work with children locally in Wales. The Children's Society must therefore take pains to ensure that neither the content nor the placement of any of its advertising, or of any other publicity or public statements issued by or on behalf of the Society, gives the false impression that it will continue to work in Wales.
The Government notes the Committee's views
7. We will send a copy of the Report to the Charity Commissions so that they may consider what action, if any, it would be appropriate for them to take in view of our findings.
The Charity Commission has received a copy of the Committee's Report. The Commission contacted the Society for further information and their response. The Commission is currently considering which of their concerns falls within its jurisdiction and are evaluating the information the charity and the Report have provided. When the Commission have completed their evaluation they will tell the Committee whether they have found any of the concerns to be substantiated and what, if any, further action they will take.
18 April 2002
THE CHILDREN'S SOCIETY IN WALES RESPONSE TO THE FIRST REPORT OF THE COMMITTEE OF SESSION 2001-02, ON THE CHILDREN'S SOCIETY IN WALES (HC 525)
The Committee considered in its First Report of Session 20012002 the decision in October 2001 of the Board of Trustees of the Church of England Children's Society ("the Society") to close its work in Wales with effect from July 2002. In paragraph 38 it referred to a number of aspects of the case which it believed might merit investigation by the Charity Commission. I am writing to inform the Committee of the outcome of the Commission's examination of those matters.
Powers and Functions
The Charity Commission is the statutory regulator of charities in England and Wales. Its general function, set out in section 1(3) of the Charities Act 1993, is to promote the effective use of charity resources by encouraging the development of better methods of administration, by giving charity trustees information or advice and by investigating and checking abuses. It has powers under section 18 of the Act to intervene in charities where there has been mismanagement or misconduct or where necessary to secure a proper application of charity assets (that is, "proper" in law and within the terms of the charity's governing document). These powers are designed for circumstances where drastic action is needed to protect the charity. They enable the Commission to suspend or remove trustees or officers, appoint additional trustees, freeze financial transactions, appoint temporary managers (Receivers and Managers) in the place of the trustees, and impose new schemes of administration.
An essential feature of charitable status is that charities are independent, with very wide freedom to take decisions, provided that they do so properly within the charity's constitution and wider charity law. This has important implications for the Commission's regulatory stance. While the Commission may intervene in decisions on grounds of propriety and compliance with legal requirements, the independence of charities means that it does not have discretion to overrule on merits decisions which have been validly taken by the trustees. (Reflecting this principle, section 1(4) of the Act provides that the Commission does not have power to act in the administration of a charity.)
Accordingly, the Commission approached the matters referred to it by the Committee by considering whether the decisions taken by the trustees of the Society would be likely to be regarded by the courts as improperly taken, as inconsistent with the requirements of the Society's governing document or of wider law. At the same time, it considered whether there had been departures from good practice which, while falling short of material impropriety, might call for comment or advice, either to the Society or to charities generally. In this process the Commission obtained and reviewed large amounts of original documentation and sought further information and comment from the Society, which co-operated throughout. The results of the analysis are set out in the Annex.
While the Commission understands the extremely strong feelings that the trustees' decision aroused, its conclusion is that it was a decision which they were entitled to reach in the interests of the charity within the scope of the relevant legal framework. While the process contained shortcomings, these were not so material that the courts would be likely to rule that the decision was invalidated.
In coming to this conclusion, the Commission implies no view on the relative merits of the decision that the Society took and of the other options that were before the trustees. The decision is one for the Society's governing body to account for and to justify to stakeholders and the public in their capacity as independent charity trustees.
The Commission has also concluded that, in certain other respects, the Society's handling of the issues fell short of good practice, and has advised the Society accordingly. The main issues concerned are the Society's monitoring and management of its financial planning between 1997 and 2001, and the extremely limited consultation it undertook prior to taking and announcing the decision to withdraw from Wales.
Following are comments on points af in paragraph 38 of the Committee's report. The references are to paragraphs in the Annex.
(a). Financial forecasting
- Given that the charity was already in deficit in 1997, it may seem excessive that in 1998 plans were made to spend a further £12m of the charity's reserves to develop new work. However, this was in line with the charity's reserves policy at the time, as it involved using excess reserves in expectations of future increased income. (II 3.i, p8)
- With hindsight it is clear that the hoped-for returns from fundraising investments were not being realised, or were too delayed for the growth in expenditure to be sustainable, given the ongoing drain on reserves. It could be argued that the charity continued to budget on an overly optimistic basis for too long, and that the decisions in July 2000 and October 2001 to make substantial cuts to expenditure were overdue. Had they made the decision sooner, they would have had more time for consultation and handover, or for identifying other options (although it is not possible to be definite about what these might have been). (II 3.ii p8)
- Given the inherent risk in forward planning on the basis of ambitious projected income growth, it would have been a matter of good practice, and good financial management, to have contingency plans in place should income not reach certain levels in certain timescales. Had clear contingency plans been in place, allowing for regular retrenchments in the growth of certain new streams of activity, or the planned closures of other projects to enable the growth elsewhere to proceed, then the charity could have avoided being in the situation of making such difficult decisions on the basis of financial imperatives. (II 3.iii p8)
(b). Absence of justification
(c). Contrary to established policies of the Charity
(e). Inaccurate and incomplete information
- While another body of trustees might have made a different decision, given the (clearly very serious) financial situation of the charity, it is unlikely that the courts would conclude that the decision was one which no reasonable body of trustees could have taken. (I 2.5 p3)
- The courts would be unlikely to find that the trustees had taken their decision invalidly by placing reliance on irrelevant, or excluding relevant, matters. The documents show that, in legal terms, the trustees informed themselves broadly adequately for the purposes of making their decision. (I 4.2 p3; I 6.8 p6 & I Conclusion 4 p6)
- Given the financial situation and the options being considered (a partial or a total reduction of services/presence in Wales as part of a wider programme of cuts), it is unlikely that the courts would have found it unreasonable in legal terms for the charity to take into account the costs of the Welsh Language programme, and of fundraising in relation to fundraising returns in Wales. (I 4.2 p3)
- One particular point of accuracy commented on by the Committee was the duration of contracts in Wales, on which the information provided to the trustees subsequently proved to be inaccurate. This was clearly unfortunate, although the correct information was subsequently provided at the meeting in December 2001 at which the trustees reviewed and upheld their decision. The Committee dealt in some detail with this and other aspects of the briefing of trustees for the October 2001 meeting at its own meeting on 18 December. (I 6.7 p6)
(d). No consultation of any kind within or outside the Society prior to the decision
- The documents show that the trustees carried out a measure of internal consultation, but they did not consult managers in Wales, the charity's own Welsh Advisory Group or any interested parties externally other than the Church in Wales. The charity found itself under acute time and financial pressure to reach a decision, and in the absence of any explicit or implicit legal requirement for more extensive consultation, the courts would be unlikely to find that the failure to carry it out invalidated the trustees' decision. However, the trustees' handling of this aspect of the matter has fallen short of best practice, and exposed them to understandable criticism for the following reasons:
- the public presentation of the decision as a fait accompli had the effect of excluding valid Welsh interests, including its own Welsh Advisory Group, Welsh Assembly Members and Welsh MPs, from the opportunity to be consulted on matters of clear and significant interest to beneficiaries and the Principality;
- it would not be realistic to suppose that consultation could have avoided altogether the adverse reaction from opinion formers that followed the decision, but its absence was bound positively to alienate them, with some avoidable detriment to the wider interests of the charity;
- the possibility cannot be excluded that consultation of statutory funders might have generated "rescue" funding opportunities (although this should not be overstated in the light of evidence that such funders' budgets were under strong pressure at the material time). (I Conclusion 5 p7 and I 5.5 p 4)
(f). Amount of the Society's reserves to be made available to a successor body or bodies
- The Charity Commission's powers do not enable it to apportion the Society's reserves between it and a successor body or bodies, or to intervene in negotiations to that end. It has been pleased to learn, however, that agreement has been reached to enable the bulk of the Society's former projects in Wales to continue, and notes that this has involved the use of just under £1million of the Society's reserves and some £200, 000 made available by the Welsh Assembly. It warmly welcomes the initiatives by the Assembly's Minister for Health and Social Services, the Archbishop of Wales and the Society's staff in Wales which made this outcome possible, along with the Society's work in partnership with the parties concerned.
Conclusion: further steps.
Having evaluated the evidence, the Commission has decided not to open a formal inquiry into the Society under section 8 of the Act, as the enquiries that it has pursued in connection with the Committee's report have already been of comparable depth and thoroughness. It has concluded that it would not be desirable to take formal action under section 18 of the Act, as the powers available there do not appear apt to the current needs and interests of the charity and its beneficiaries and former beneficiaries. The Commission will, however, continue to monitor the Society's financial management and planning, and maintain contact with it as necessary on the other lessons of the case. (III 1, 3 & 4 p9).
I am copying this letter and attachment to the Chair and Chief Executive of the Church of England Children's Society.
Chief Charity Commissioner
26 June 2000