Examination of Witnesses (Questions 20-39)
LADY TOULSON,
MR IAN
SPARKS, REVEREND
JOHN GLOVER
AND MR
CHARLES NALL
TUESDAY 18 DECEMBER 2001
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.
Chairman
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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