Select Committee on Welsh Affairs Minutes of Evidence

Examination of Witnesses (Questions 20-39)



  20. Perhaps Mr Sparks can.
  (Mr Sparks) I cannot give you an accurate figure, I am afraid. I would say it was considerably more ambitious because the fund-raising team at that time felt that they had the opportunity to move ahead quite significantly and they spent quite a long time drawing up that fund-raising strategy and discussing it with the fund-raising committee and the finance committee. There was a view generally that it was achievable, although it was ambitious.

  21. They were mistaken and they failed to invest adequately in fund-raising?
  (Mr Sparks) With hindsight it proves to have been mistaken. There is no evidence at the time that people were entering into that strategy lightheartedly or carelessly. There had been a great deal of work gone into developing it.

  22. I am sure it is not lighthearted and I am sure it is not intentional, it is whether a reasonable person or a body of trustees in your position could have foreseen that you might not have able to achieve the targets you set?
  (Mr Sparks) The Boards's view is that they were acting reasonably and carefully at the time and made what they believed to be a correct judgment, which proved to be mistaken.

  23. What about your investment portfolio, did that meet its projected returns over the period in question?
  (Mr Nall) The difficulty with projected investment in terms of equity is that you need to look over a longer time scale. If you go to a financial adviser they will normally tell you with equities you should have a minimum period in mind of five years. Long term actuarial projections vary, they are currently starting at about eight per cent. It is a slightly movable feast I am afraid. If you wanted a clear statement of what an investment objective should be it is typically over a long time-frame and typically against inflation. You hold equities as a real asset to protect your reserve from inflation.

  24. One factor in deciding the strategy must have been that you surely must have taken into account the projection of what your investment portfolio was going to yield?
  (Mr Nall) Yield is a different matter from capital gains. I am sorry if this is not a familiar area to you, yield is the income, the income is obviously partly independent from the capital value you are basing the calculation on.

  25. All I am trying to find out is, you have an investment portfolio, it was a factor, it is presumably taken into account in deciding on the new strategy, or was it not?
  (Mr Sparks) What was taken into account was the level of the investments, which was in the high 30 millions. The income that was generated from that was something round 1.4 to 1.6 million, so the financial strategy included the acknowledgment that that income would decline as the 12 million reserves would be spent. I think the view that was taken, as I recall it, was that the value of the portfolio in capital terms would remain roughly the same and then as they were spent it would decline by that amount. The value of the income would decline as the 12 million reserve was used. The income was actually a small part of the Society's total income.

  26. You say the net delivery of fund-raising is projected to increase by 38 per cent in the two years up to March 2003, does that take into account the savings from closing down in Wales?
  (Mr Nall) That is net fund-raising, that comes from fund-raising activities. We are constantly looking for more effective ways of structuring our society. We have seen modest growth targets for our fund-raising activity and we have restructured fund-raising over the past 12 months. Projected modest growth aligned with reduced cost base will deliver sharply greater net returns, so at the risk of oversimplifying, if you have £120 coming in for every £20 you spend, that is six pounds to one, if you then increase your income to £130 and reduce your costs to £10 suddenly you have a ratio of 13 to 1, so your net returns do rise sharply.

  27. Okay. Thank you.

Adam Price

  28. Do you think the negative publicity arising from your decision in relation to Wales is going to impact on your ability to raise funds in England, it is hardly a caring charity, if you do not mind me saying so?
  (Mr Sparks) I think it is impossible to say. I think it is impossible for me to say.

  29. Will you be factoring this into your projected income as you draw up your business plan for the next year?
  (Mr Sparks) Yes, but clearly we need to take account of what staff are saying on the ground about what supporters are saying and what response they are getting from supporters. It will not be just for me to say, we will put in a factor, we obviously want to talk to our staff and ask them what people are saying.

  30. You, presumably, have already had significant negative reaction from fund-raisers and from supporters in England?
  (Mr Sparks) No. All I am saying is if we were going to factor in anything it would be on the basis of what people told me rather than my making a general assumption.

  31. Can you explain what happened with the appointment of your fund-raising director? I understand that the post was unfilled for two and a half years, is that the case?
  (Mr Sparks) Yes. It is quite a complex story, so I wanted to make a note of what happened. The existing fund-raising director left early in 1998, round March or April, and we advertised straightaway. In June we reported to our committee that we had not had a reasonable range of responses to that advert and we readvertised and deferred the interviews until September. In September 1998 we offered it to a candidate who decided not to take the post. We then decided we would start another round of advertising but appoint an interim director. We recruited somebody who had long experience in fund-raising, who worked as an interim director and she came to us in October 1998 to March 1999 so that we could have time to do the interviewing. We interviewed four candidates in February 1999 but none of them were suitable. The interim director agreed to stay until May 2000. One of the reasons we decided to defer the formal appointment until May 2000 was that in the lead up to the millennium there was a huge explosion in recruitment, particularly of senior fund-raisers, one of the views that the recruitment agency took, "charity people", was that demand in the market for fund-raisers was well in excess of the supply. We decided we would have Veronica Ashworth as the Interim Director through to May 2000. In March 2000 we readvertised and were not successful. We decided at that point rather than readvertising we would use executive search, we used a firm called Saxton Bampfylde who were headhunters. In that interim period Bob Reitemeier, who is our operations director, took over as Acting Fund-Raising Director. Saxton Bampfylde actually made the appointment in September 2000 and a new fund-raising director started in January 2001.

  32. It was a fairly long drawn out process.
  (Mr Sparks) It was a long period. The point is that the division was not without leadership, Veronica Ashworth came with a lot of experience for a long period of time and because she needed to leave to go and do other work one of our internal managers then managed the division.

Mrs Williams

  33. During that time whilst all this was going on how much money in salaries do you think you saved then by delaying the appointment?
  (Mr Sparks) I do not know whether there was much saving at all because we spent a lot of money on advertising and recruitment. When Veronica Ashworth was Interim Director we were paying her as an interim director, which is more expensive, someone who works as an interim charges a higher daily rate.

  34. Without going into details of the four candidates you mentioned, what were the main unsuitability points that you referred to?
  (Mr Nall) I would just like to make a general point for the Committee's awareness, my sister is a headhunter, she was recently asked to recruit a fund-raising director, her short words on the subject were, "it was very hard work and very hard to find anybody who was any good". We recruited our own candidate from outside the sector, it is a sector-wide problem, not unique to the Children's Society. We believe we have found an outstanding candidate and it has been worth waiting for that candidate rather than put in place leadership that could not take the fund-raising division forward in the way that it has been and is being taken forward now.

  Mrs Williams: Mr Sparks did not answer my question.

  Chairman: We are taking a lot of time over this one issue.

Adam Price

  35. I take the point about the competitive nature of recruitment within the charity sector, notwithstanding that you were a prestigious charity in the sector do you think the fact that you had a vacancy for such a long period impacted negatively on your fund-raising activity during the course of the two and a half years?
  (Mr Nall) I think that is a difficult judgement to make, in the sense that it is always difficult to disentangle every last impact over a time period with such varied leadership. One can generalise and say, of course, consistency and leadership is always preferable and a lack of consistency of leadership in any function, whether you are the army, a business or a charity. We had what we felt were the best available candidates at the time. Given we were unable to source an outstanding specialist candidate from the outside world we appointed an excellent fund-raising interim director and she took a very strong grip on the direction for the 15 months she was there. Whilst it was not ideal it was not a disaster.

Chris Ruane

  36. My previous question highlighted the fact that you went on a £12 million spending spree. From 1998 onwards for a two and a half year period or three financial years you failed to appoint a chief fund-raiser. Did you review your decision to spend that £12 million within those three years, each financial year did you have a check on it and say, "this year we have no fund-raising yet, let us review it", or the following year or the year after?
  (Mr Nall) That is a very fair question. When you say no chief fund-raiser, there was either an interim or an acting fund-raising director throughout that period. Secondly, what we were doing in the meantime is the basic thrust of your question? I do not want to get too technical on the accounting terms, but the first thing we did is we reviewed where we were going and started reining back in expenditure. In our published accounts you will see anticipated gross expenditure features in the annual accounts and each year it is reined in in terms of what actually happens, lower and lower. Originally there had been spending projections to take spending as high as £49 million per year, that came down to £46 million, it is now at £42 million and we are now at a level of £39 million for next year. In terms of controlling expansion and avoiding it running away, over the last three full financial years, we have held the total spending that is dependent on our reserves and fund raising income, as opposed to dependent on contract income, flat. This current year, last year and the year before, we have been—and we expect to be again this year—within about £100,000 on some £33 million-worth of expenditure. We put the brakes on very sharply.

  37. I know these decisions were made back in 1998 when you were not on the board, Lady Toulson, but in your opinion to start to spend £12 million without having a chief financial fund raiser in place—does that sound like mismanagement to you?
  (Lady Toulson) I do not think it would be appropriate for me to sit here and criticise the board as a newcomer to it. We are corporately responsible and of course I am now chairman of that board. I was not there and, particularly as you have been given very extensive explanations today, I do not think it would be appropriate for me to add anything except that, when we are looking for senior management, we do ask that they are practising Christians. Sometimes this may delay the process of getting a permanent member of staff on our senior management team. That is a specification that we ask for as a Christian charity.


  38. When did you join the Society? Am I right in thinking you were at the meeting on 19 October?
  (Lady Toulson) I sat at the meeting of 19 October. I was invited to attend and I was voted onto the board on the Saturday at the AGM in Peterborough.

  39. You went from being an observer to chairman in one meeting?
  (Lady Toulson) That is correct.

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