02/09/2015 11:18 BST | Updated 01/09/2016 06:59 BST

A Business-Like Approach Is Key to Good Governance

As a charity chief executive, I've been asked a lot recently about the demise of the Kids Company charity. It has generally led to a wider conversation about charity fundraising, what "business-like" means in relation to running a charity and what the role of a charity chief executive is. So, I thought I would give my overview.

The Kids Company story has a few threads and more seem to get added every week. A strong chief executive has used charisma, or force of personality, or single-minded determination (you choose which) to keep the charity alive, despite a lack of incoming cash to fund the longer term needs of the charity's beneficiaries. Alongside this there appears to be a Trustee Board recruited less for their ability to govern a charity and more for their high level connections and the kudos they bring.

For many of us who work in the charity sector, we are all too familiar with "founder syndrome". This commonly means that an individual has been the driving force behind a charity's establishment, usually drawing on their direct personal experience of the cause. They then stay on to run the charity, becoming the most senior paid employee. The problem is that s/he is usually then identified as being the charity, and can often take exception to any suggestion that things should be run differently, in a more professional "business-like" manner. S/he will often see this as a deviation from the purity of the charity's purpose, and taking much needed resource away from the front line. This happens too often in the charity sector. That is why you need a robust and independent Trustee Board.

The job of the Board is to ensure the charity can meet its purpose, defined by the charity's Memorandum and Articles of Association. Charities can't operate outside this without breaking the law. The Trustee Board is ultimately liable for everything the charity does, although it delegates day to day power to the Chief Executive it appoints. The Chief Executive sits between the Trustee Board and the charity's staff as a key adviser to the former and a leader of the latter. The Chief Executive has to know where the boundaries lie between these two and, crucially, must advise the Board about its governance responsibilities.

The relationship between this person and the Trustee Board Chair is pivotal. Their relationship often dictates the charity's strategy, its appetite for risk, and its ability to scrutinise activities with a critical eye. The Chair is as key to the charity's success and direction as the Chief Executive. The Chair can share in success but must also be responsible for failure.

I often hear people say that charities need to be more "business-like" and know that for many this means that they should be focused on results, measuring impact and outcomes, and taking decisions using proper and robust processes. However, for me, business-like begins with another assumption - that the charity should make sure it is a "going concern", that it is able to conduct the business for which it was set up, and that it has an eye on building for the future, as much as addressing the immediate need. Therefore, establishing what the charity's business model is, how it proposes to grow, where it will go for funding, how to build a sustainable income stream and even where the "competition" is, are all reasonable and primary concerns for a charity chief executive and Trustee Board.

Kids Company, and also other charities that have had to close down recently because of financial problems, have in my view failed to have a proper business-like approach. They have failed to anticipate the storms ahead and have not planned ahead for a significant drop in income by building up suitable levels of reserves. They have allowed themselves to believe they are too good to be allowed to fail, expecting the great and good, or other sources of support, to come to the rescue.

I hope, and expect, that a result of such failures will be closer attention by other charity Trustee Boards to their risk management, their financial strategy and their own roles and responsibilities. I also hope, however, that it doesn't make too many charities so risk averse that creativity and innovation are driven out in favour of a safety first approach.