Select Committee on Welsh Affairs Fourth Report


Church of England Children's Society

Consideration of recommendations in Welsh Affairs Committee Report, regarding the decision of the Church of England Children's Society to withdraw from Wales.


On 19th October 2001 the Board of Trustees of the Church of England Children's Society ("the Children's Society") decided to close the Children's Society's work in Wales with effect from July 2002. The decision was announced on 6th November 2001.

Representatives of the Children's Society gave evidence to the Welsh Affairs Committee on 18th December 2001, and the report of this session was published on 15th February 2002.

The report contained recommendations, particularly in paragraph 38, highlighting various concerns the committee has with regard to the actions of the Children's Society, which they believe merit investigation by the Charity Commission. The concerns relate primarily to the decision of the Children's Society to cease working in Wales. The Commission has carefully considered the matters referred to it by the WAC. This has involved examining a large amount of documentation in order to address the following issues:

I.  Was the decision properly taken?

II.  Was there financial mismanagement?

III.  Is any further intervention by the Commission required?


I0  Was the decision properly taken?


Charity trustees in the exercise of their discretion are required to act within the objects and powers of the charity and to act reasonably, that is to say not perversely or irrationally. They must act in good faith, adequately inform themselves of the matters under consideration and take into account only relevant and not irrelevant factors.

The courts would apply a number of guiding principles in deciding whether trustees' discretion had been properly exercised.

1.  Was the decision within the powers of the trustees to make?[8]


1.1.  The Children's Society's primary objects are stated in clause 3 of its Memorandum of Association:

"to care for and support children and young persons in need, whether material, physical, mental, emotional, or spiritual, and to promote their physical, mental, emotional and spiritual development (whether through their families or the community or otherwise howsoever) in accordance with the principles of the Church of England that they may grow to full maturity as individuals and members of society"

1.2.  While merits are a separate issue, the absence of any geographical reference in these objects means that a decision not to operate in Wales does not fall outside the legal powers of the trustees.

2.  Was the decision made by the trustees one which a reasonable body of trustees could have made (i.e. was the decision perverse or irrational)?[9]

2.1.  Charity trustees are required to act in the interests of the charity and its beneficiaries, both present and future, in carrying out the charity's objects. It is the trustees' responsibility in the management and administration of charitable facilities and services to ensure that due and proper attention is paid to the interests of these beneficiaries and effective delivery of these facilities and services in the long term interests of the charity.

2.2.  The charity had very serious financial issues to consider. It had already attempted in July 2000 to address these by means of cuts of 2m from March 2001 (50,000 from Wales). By the time of the Board meeting of 19th October 2001, however, the information available to the trustees left them with no option but to take further remedial action. To do nothing would have entailed risk of severe and uncontrolled curtailment of activities, or even of insolvency, for which the Commission would have held the trustees accountable.

2.3.  The charity's records show that the Board meeting considered a full range of options, including some which did not cut operations in Wales, or which reduced them short of closure.

2.4.  The Board concluded that, owing to the scale of reductions necessary, an impact on the Welsh operations could not be avoided. They further concluded, on advice in the documentation provided to them by officers, that to reduce activities in Wales short of closure and carry the remaining necessary savings on the rest of the charity's operations would have reduced the operations in Wales to ineffective levels, and affected the rest of the charity's work, coming on top of the existing cuts, to the extent that it would not be feasible.

2.5.  While another body of trustees might have made a different decision, given the 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.

2.6.  In addition to the financial considerations, the records show that the trustees considered a wide range of other factors, including the likely reaction of its and the Church of England's Welsh supporters, and of members of the Welsh Assembly and UK Parliament. This further information is discussed further below.

3.  Did the trustees act in good faith?[10]

3.1.  The record and the documentation scrutinised by the Commission contain nothing to suggest that it was not made in good faith.

4.  Did the trustees take into consideration any factors which it was not proper for them to take into account?[11]

4.1.  The Welsh Affairs Committee Report criticises the trustees for taking into account the costs of the Welsh Language Programme, as well as the lack of voluntary income from the Welsh constituency (paras 13 - 16). It also criticises the decision as running contrary to the WLP and Welsh Advisory Committee policies of the charity (para 38(c)).

4.2.  Given the financial situation and the options being considered (including a partial or a total reduction of services/presence in Wales as part of a wider programme of cuts), it is unlikely that the Court would have found it unreasonable for the charity to take into account the costs of the Welsh Language programme, and of fundraising in relation to fundraising returns in Wales, provided that they were not treated disproportionately to the other factors in its overall financial position.

5.  Did the trustees fail to take into consideration any factors which they should have taken into account?[12]

5.1.  The Committee raises a concern that "there was no consultation of any kind either within or outside the Society prior to the decision being taken" (para 38(d)).

5.2.  Consultation within the charity was clearly essential if the trustees were to take a properly informed decision. The documents show that they did consult internally to the extent that the framework for the Children and Young People's division (CYP) and the Fundraising Strategy were presented to the General Purposes, Social Work, Fundraising and Finance Committees. Discussion also took place with the MSF union on behalf of staff affected, and a paper from the union was presented at the 19th October trustee meeting. The views of key senior managers in the CYP responsible for delivering other project closures and the new focus of programme work in England were touched on by the CYP leader Penny Dean in documentation considered at the October Trustee meeting.

5.3.  It is, however, correct to say that there was no consultation with managers in Wales, and no external consultation at all, save for discussions, via his nominee on the trustee body, with the Archbishop of Wales (a letter from the Archbishop himself was presented at the 19th October trustee meeting).

5.4.  It is undeniable that 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 to consult further than they did, the courts would be unlikely to find that a failure to do so invalidated the trustees' decision. However, the significant criticism that the Committee and others have made of their handling of this aspect of the matter is understandable.

5.5.  There are a number of reasons for this:

_  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 comment 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 funders' budgets were under strong pressure at the material time).

6.  Did the trustees adequately inform themselves in order to make the decision in question?[13]

6.1.  Para 38(e) of the Welsh Affairs Committee report raises the concern of the   Committee that the trustees did not adequately inform themselves (or were not given accurate information by management).

6.2.  The Commission considered the adequacy of information available to the trustees   in 3 areas:

_  Strategy

How did the decision fit in with the programme of work planned/focus of the charity?

_  Resources

What was the financial situation of the charity? Were there sufficient resources for planned activities? If not, either expenditure or activities needed reducing in line with the overall strategy of the charity, or further income needed to be found to finance activities.

_  Reputation

What were the likely reputational consequences of making the decision/not making the decision?

6.3.   The information provided to the Trustees at their meeting of 19th October 2001 was as follows:

a0  An overview of Re-alignment savings and transformation

b0  Re-alignment and transformation plan presenting costed options

c0  Proposal for re-alignment and transformation from the Children and Young People's Division

d0  Summary of fundraising strategy Oct 2001 - March 2004

e0  Financial strategy 2001/02 to 2004/05 and aspirations 2005/06 to 2006/07

f0  Letter of 12th October 2001 from Most Revd Dr Rowan Williams, Archbishop of Wales and Bishop of Monmouth

g0  Representations to the Council by MSF TCS Branch

6.4. These papers covered the charity's strategy with regard to Children and Young People, the programmes and services the charity wanted to focus on delivering, emphasis on influencing at governmental level, and critical mass necessary to justify support costs.

6.5.  The Fundraising and Financial Strategy documents give full and detailed information on the charity's current situation, desired situation, and plans for achieving financial stability within a reasonable time frame, including examinations of worst case scenarios. One potentially weak area relates to the amount of non-voluntary funding, and whether there are options for increasing income in this area. However, the Society subsequently told us that non-voluntary funding options were considered, but were not seen as offering sufficient or viable long-term solutions to the issues faced.

6.6.  The papers discussed reputation in relation to credibility as a service provider, with reference to quality and quantity of services deliverable under the options being considered. They considered possible implications for the charity's reputation as an employer. They also show that publicity and handling, and the impact of the decision on supporters and the Church in Wales, staff and Assembly members were all highlighted and put to the trustees for consideration. A wide range of further material was considered by the trustees at a meeting on 14 December, when they revisited and confirmed their decision in the light of reactions to its announcement.

6.7.  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.

6.8.  It appears that the trustees did take broadly adequate steps to inform themselves in order to make the decision. While there were shortcomings in the process, it is unlikely that the courts would regard them as sufficiently material to invalidate the Trustees' decision.


10  While merits are a separate issue, the absence of any geographical reference in the charity's Memorandum and Articles means that a decision not to operate in Wales does not fall outside the legal powers of the trustees.

20  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.

30  The record contains nothing to suggest that the decision was made otherwise than in good faith.

40  Having considered the process followed by the trustees, there is no evidence to suggest that it was impaired to the extent of invalidating the decision by any failure on the trustees' part to take into account relevant and to exclude irrelevant material, or by not fully informing themselves as to the matters under consideration. There were shortcomings in the process, but the trustees informed themselves sufficiently to comply with legal requirements.

50  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 a failure to do so invalidated the trustees' decision. However, the criticism to which trustees' handling of this aspect of the matter has exposed them is understandable for the reasons set out in full in section 5 above.

II.   Was there Financial Mismanagement?

Evidence considered:

_  Annual Reports and Accounts for the years 1998 to 2001

_  Report of Welsh Affairs Committee

_  Response by Children's Society of 6th March

_  Extracts from Minutes of Council and Finance Committee 1997 - 2000


Over the period 1997 - 2001, the charity planned for higher levels of expenditure connected with an expansion of activities and increased investment in fundraising, with calls on reserves as a means of covering any disparity between income growth and higher planned budgets. In the event, while income did rise, it did not keep pace with increased expenditure, leading to a deficit which eroded the charity's reserves.




































1.  Neither planning for growth in expenditure on the basis of planned increases in expenditure, nor the use of reserves to cover variances occurring in practice, is intrinsically unreasonable for charity trustees. Risk is involved, but this is acceptable provided that the risk is monitored and managed. Planning budgets wholly on the basis of achieved, historic income levels involves the converse risk that levels of activity in support of beneficiaries may be lower than reasonably achievable.


2.  The levels of income growth planned for by the charity were not out of line in these respects with the practice of a number of comparable charities. It was reasonable, also, for the charity to anticipate some increase in income as a return on the increased investment it was making in fundraising. The charity has realised increased returns in fundraising as a result of some of these investments, although a number of factors contributed to lower growth than budgeted for, including increased competition in the fundraising market coinciding with a general fall in the value and yield of many investments.

3.  It is clear from the documentation that the financial position of the charity was kept under close review. The trustees showed that they were if necessary prepared to retrench, while continuing for as long as possible to allow time for fundraising initiatives to produce results. This approach was combined with a consistent aim to return to surplus, while maintaining at least a minimum level of reserves in accordance with an agreed reserves policy. However:

i. 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. This was nevertheless in line with the charity's reserves policy at the time, using excess reserves in expectations of future increased income.

ii. 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).

iii. Given the inherent risk in forward planning on the basis of ambitious projected income growth, it would be 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.


The charity's approach to financial planning was not intrinsically unreasonable, and active steps were taken to monitor and respond to risk. With hindsight, however, the Society cannot be said to have managed its financial circumstances as successfully in some respects as could, and arguably should, have been the case.


III Is there any cause for further involvement by the Charity Commission?

1.  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. The trustees have co-operated with the Commission's enquiries.

2.  The Commission's view is that there were shortcomings, both (with hindsight) in some aspects of financial management between 1997 and 2001, and in the handling and announcement of the decision to withdraw from Wales.

3.  The Commission has given its views to the Society on the lessons to learn from this case, and will maintain contact with the trustees about them.

4.  No breaches of trust or charity law have been involved in the shortcomings mentioned above. In the circumstances, the Commission's formal statutory powers to intervene to protect the charity and its assets, for example by suspending or removing trustees, are not appropriate to the case. The issues involved, though highly controversial, are ones which fall within both the discretion of independent charity trustees to take, and their responsibility to publicly justify.

The Commission believes that there are lessons from the case which are of wider relevance to charities, and will take a suitable opportunity to give general guidance on these.


8   re Hastings-Bass infra Back

9   Lee v Showmen's Guild of Great Britain infra, Scott v National Trust infra Back

10   re Hastings-Bass infra, Armitage v Nurse infra Back

11   Mettoy Pension Trustees v Evans infra and Dundee General Hospitals Board of Management v Walker and another infra Back

12   Mettoy Pension Trustees v Evans infra and Dundee General Hospitals Board of Management v Walker and another infra Back

13   R v Charity Commissioners ex parte Baldwin infra, Scott v National Trust infra Back

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