Are you an effective NonExec Director?

Do you have what it takes to manage a CEO like Camila Batmanghelidjh?4282

The article in today’s Guardian,”Camila’s Kids Company: The Inside Story review – both damning and vindicatory” by Sam Wollaston  accurately summarises my feelings on watching the fascinating BBC programme last evening about Camila Batmanghelidjh and Kids Company.  It was a extraordinary exposé and very revealing – if you are interested in running businesses do watch it.

I am left reflecting on how important it is that Trustees, Non-Executive Directors and Board Governors really, truly scrutinise the operational decisions of management and how difficult it can be to do this with a charismatic, single minded CEO who, no doubt in Camila’s case, brushed off probing questions and deliberately kept information away from the Board.

It strikes me that to get it right, the Board needs to be not just seen as additive but actually is additive to the company.  In addition, they must overtly demonstrate they have the same common interest as management, namely delivering the mission of the business and safeguarding the interests of the stakeholders.  This makes sure the relationship with Board Directors is positive and supportive so that CEOs and managers are confident about bringing bad news to the Board table – Board Directors are not parents to tell the management off which is how I think Camila saw it.

It also intrigues me that she tried to hide behind the audits and because they were ‘clean’ everything was therefore fine.  Given what we now know this not only reveals her own inadequate financial understanding but begs the question why didn’t her Finance Director explain it to her.  Interestingly the TV programme doesn’t show any of the finance professionals in the business – they must have been there but obviously they were so way down the ranks of importance in Camila’s mind they didn’t merit featuring on the documentary.  I think CEOs not seeing (or demoting) the value of the finance function is always a bad sign and the Board should have treated this as a warning and investigated it.

And since when are we expecting moral judgements from our auditors? Auditors make sure money is properly accounted for, which is entirely different than passing judgement on how its used, unless, of course, it has been used illegally.  It was the job of the Board to query the brown paper envelope payments to individuals which would have been documented in the accounts as ‘food vouchers’ and similarly the Trustees needed to decide if splendid interior of the “White House” home (paid for by Kids Company for psychotherapy) was appropriate, as the accountants would have signed off ‘costs of refurbishment’.   This also speaks to having Trustees who are qualified to do the role.  The financial mismanagement at Kids Company is now well documented – unrestricted reserves in the 2013 accounts of less than £500k when benchmarks suggest this should have been nearer £4m – and yes, in this case I would have expected the auditors to alert the Board that the reserves were too small, so were the Trustees sufficiently financially literate?

The list of the Trustees of Kids Company looks good, indeed it looks impressive.  Actually this list was quite hard to find; Alan Yentob is referred to all the time in the media but I had to dig into the Fourth Report from the House of Commons Committee to find the list of the other Trustees in Annex A.   One can only surmise that these, on the face of it, well qualified business individuals just didn’t take the time to get close enough to the business; that were they just ‘stuffed shirts’.

The lesson to CEOs is there’s no value in having stuffed shirts around your Board table: you need to get over any delusions of grandeur you have that you don’t need oversight because you do.   Board Directors or Trustees should be selected on the basis that they will both do their job well and work with the management team effectively.  In my mind, there is no doubt Kids Company could have been saved if the Trustees had done their job properly.

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