18 Charity Finance October 2014 civilsociety.co.uk

restructuring at CSV

COMMUNITY SERVICE Volunteers (CSV) has over 50 years’ experience of providing volunteering and social action opportunities for some of the most disadvantaged people across the UK.

With innovation, challenge and passion, millions of people have been inspired to make a difference in their communities through CSV. However, as the first decade of the 21st century came to an end – with the onset of the recession, a new government dedicated to deficit reduction, and a changing political and social climate – CSV was no longer able to survive without major change.

With the appointment of Sir Jon Shortridge as chair in 2010, the retirement of Dame Elisabeth Hoodless after 48 years and my appointment as the new chief executive in early 2011, fundamental change was on the agenda to ensure the survival of the charity.

A major financial crisisBy April 2011 the charity faced a ‘perfect storm’. Historically CSV has had no endowment, no regular income or charitable donations, and had all its assets locked into operational properties. Income was generated from a large number of individual grants, donations and contracts, with the majority being restricted funds.

So the loss of the £1.1m core operating grant from the Cabinet Office (ending a 40-year strategic relationship with government) caused a major crisis in the charity’s finances.

The situation was very challenging. With a series of inherited deficits

from prior years, the loss of the Cabinet Office grant put everything in stark relief and action had to be taken.

As the new chief executive, and only the second CEO in the half-century of the charity’s history, you would have expected me to undertake a fundamental strategic review. In practice, we had to undertake that review very fast, mobilising people within the charity to new ways of working – and in a timeframe that was counter-cultural.

A number of key colleagues from across the organisation responded, and rose to the challenge.

The trustees were very clear that things needed to change. By the

September 2011 board meeting, trustees were able to consider the recommendations of my strategic review. They took the decision to rationalise the charity into two clear operational areas – social action and volunteering and learning.

The new structure reduced the senior management group, took out costs and – equally importantly – created clear lines of management and accountability. It identified a number of consistently loss-making operations on the volunteering and social action side and proposed closure, or urgent review pending potential closure.

We also undertook an independent qualitative perceptions audit of CSV and an independent staff survey, and we started a senior managers’ leadership programme to underpin the need to develop CSV-wide leadership skills among the top 25 managers.

The core message was, and remains, that the charity has got to operate as ‘one CSV’.

We have to harness the undoubted passion and commitment to the ‘cause’ in a much more coordinated, directed and businesslike way. Crucially, we identified the chronic

Lucy de Groot tells how, after skirting with insolvency,

CSV has been fundamentally restructured to create

a more certain future.

Transformation or bust

Losing the Cabinet Office grant caused a major crisis in our finances

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restructuring at CSV

a professional and efficient way.There was also a strong assumption that the autonomy of business units was sacrosanct, and an anarchic approach to compliance with the basic systems and processes.

This was not credible in a multi-million-pound charity.

underinvestment in basic systems and infrastructure as a problem.

Infrastructure ignoredIn September 2011 there was a major IT blackout which added to the sense that we could not go on in the same way, patching

and putting sticking plaster on things. Fundamentally, both the infrastructure and the skills and capacity of key corporate functions – such as finance – had been reduced to the point where the organisation lacked the necessary capacity to undertake what was required in

How we confronted the finance challenge

Finance had to provide the foundation for the CSV transformation; we needed to transform both our function and our fortunes. There were six key steps:• The finance function needed investment in people, processes and systems. The finance system had been

unsupported for seven years, so the first priority was to invest in a new accounting package.

The change of system enabled us to update the processes being followed, and this in turn informed a restructuring of the charity’s resources. We were then able to harness the commitment and knowledge of the finance team and give them a voice across the organisation.

In the past 18 months, we have consolidated our complex contract information (regarding more than 140 separate contracts) and introduced a purchase order system with workflow, both of which have significantly improved our cash management.• Cashflow had to be a priority. CSV had been running on its reserves and, by mid-2013, the situation became critical. The devolved nature of the organisation made cashflow forecasting extremely difficult.

We therefore began a relentless focus on cash, looking at the forecast from every angle. We stopped being complacent about chasing cash and we changed our payment terms to maximise daily cash balances. • We needed a credible business plan to convince trustees and our creditors about the future viability of the organisation. The finance team were spending a large portion of every month forecasting, but the outputs weren’t joined up.

We spent time building a forecasting model which gave an integrated profit and loss account, balance sheet and cashflow.

This was critical to being able to formulate the overall business case in February 2014, set the strategy and build the narrative for the future organisation.

• We had to gain the support of our major creditors. CSV’s membership of a defined benefit local government pension scheme was a key issue. The deficit in the 2012/13 accounts was shown as £9.7m and in October 2013 we were expecting the next triennial valuation. We were struggling to make our quarterly deficit payments and we were running dangerously close to our £1m overdraft limit.

We engaged very openly with both the bank and the pension scheme in order to gain support for our plans. A difficult, but very necessary step, when they hold your future in their hands.• CSV had to realise its property assets. It was clear that we were going to need cash to deliver our plans, and that cash would have to come from the sale of some of the property portfolio.

The first step was to build the business case to justify disposal; obviously it would not have been viable to sell properties and then spend more on leases. We concluded that the HQ building in London was no longer fit for purpose as it needed significant investment to bring it back up to standard and, more importantly, it was now far too big for CSV’s needs.

The right course of action was to begin by selling the King’s Cross HQ to provide enough capital to satisfy our creditors and deliver the transformation. • We needed the right external support. While it was challenging to find the cash to pay for external support, it was critical to the success of the project. CSV was potentially facing insolvency and had a complicated pension situation to deal with.

Trustees were clear that commissioning the right professional advisers was essential to underpin the solid governance framework. It gave them, and the executive team, confidence that at all times we were ‘acting in the best interests of our creditors’ – a phrase which became our mantra through the difficult days. Jo Day, director of finance and resources

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20 Charity Finance October 2014 civilsociety.co.uk

restructuring at CSV

particularly on the learning side. The poor functionality of the finance system and weak management accountability, alongside a deeply embedded devolved culture of autonomy, meant that there was no quick fix.

With five separate subsidiary learning charities, one of which was responsible for 30 per cent of the turnover of the whole CSV group, the governance and management needed urgent attention.

The last chance saloonGetting a handle on the performance forecasts and losses in learning was critical. Trustees agreed to bring in some external expertise to make recommendations. The degree of scrutiny and external challenge involved was entirely new to the managers and was therefore perceived as a threat. However, with a loss of £2.2m reported in the accounts, there was no more time in ‘the last chance saloon’.

During 2012/13 the learning consultants produced a detailed report with a strong recommendation to combine all CSV’s learning operations under single management to drive performance, quality and viability. This would have combined

Alongside the organisational and cultural reforms, it was also clear that the governance of the charity needed to be modernised and made relevant to the contemporary context. A recruitment campaign for new trustees was led by the chair and one of the longstanding trustees.

This produced four new trustees with experience across the private and public sectors. For the first time it also brought in a trustee with extensive experience of the skills and learning part of CSV’s work.

Underlying issues maskedWhile the 2010/11 accounts showed an operational surplus, this masked the underlying issues. The surplus was largely as a result of the Labour government’s short-term, post-2008 recession ‘Future Jobs Fund’ programme, which CSV had been delivering successfully. This came to an end in 2011.

The underlying financial position was serious and systemic. The perfect storm was at its height with the challenge of the loss of the Cabinet Office strategic grant, weak performance by the charity’s learning operations (in the face of the funders’ tight performance-by-results regime) and our substantial local government pension scheme deficit.

By the start of 2012, we had begun to turn things around, with a strategic plan which included targets and impact measures, new people and new roles.

The new ‘one CSV’ culture was the driving force underpinning everything – focusing on impact, efficiency and a rigorous review of every aspect of the finances.

But as we started to set the 2012/13 budget it was clear that we still needed to undertake root- and-branch work on controlling and forecasting operational budgets,

the five separate subsidiary charities with the other nine CSV learning sites.

By the summer of 2013 the overall finances were clearly in a very serious position as we dipped ever deeper into the overdraft. Our new finance director, Jo Day, brought with her extensive private sector finance and business transformation experience.

Within months of her starting we had to introduce emergency measures to control our cashflow. As the cash position became even more difficult it was clear that we had to engage with external advisers to ensure that we continued to trade legally.

While the majority of the reorganisation of the learning operations was completed with a lot of hard work, the leadership changes to move to a single operation were not able to be agreed. This left the learning operation still underperforming and losing money.

In late 2013, with the appointment of a new managing director, Jacqui Oughton, with wide experience from the private and public sector, there was an intensive effort to see if the learning operation could be turned around and start returning a consistent surplus. Time was against us.

The key remained a single, strong line of consistent management and governance accountability, together with a clear process for timely reporting on finance, performance and learner outcomes. This proved impossible to deliver.

So early in 2014 the trustees took the difficult decision to close all of the CSV learning operations apart from Ipswich, and for Springboard Sunderland to become a separate charity as of 1 August 2014.

The agreed strategy involved selling the charity’s King’s Cross HQ

The autonomy of business units was assumed

to be sacrosanct

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restructuring at CSV

Lucy de Groot stepped down as chief executive of CSV at the end of September

finance advisers to ensure that it was robust.

Potential for another 50 yearsWe are now at the start of a new era – focused on our core mission – with a clear business plan incorporating measurable targets, renewed systems and processes, and the opportunity provided by a new HQ in the heart of the community in Hackney, north London.

Trustees are now able to start thinking about the future; about our brand; and about our impact, and how to better support and extend it

building, and other properties no longer required following the closure of learning, so that there would be money to pay our immediate creditors, and to eventually start a small investment fund for the future.

At the same time we produced a business case for the social action and volunteering part of the charity, based on a prudent view of known income, and a detailed analysis of all expenditure and staffing. This was the core building block for the future.

The plan was agreed by trustees and it was also critical to get the support and agreement of our key creditors – namely the bank and the pension fund. The business case was prepared entirely by CSV management, albeit advised and interrogated by our professional

with thousands of volunteers across the UK. The next stage will continue to require robust oversight and will be overseen by the new management team, which continues to reflect wide-ranging experience.

There will be new opportunities and new challenges emerging, but CSV’s mission and determination to enable everyone to contribute to society – and to make a difference – now has the potential to be fulfilled for another 50 years. ■

We engaged external advisers to ensure that we continued to trade legally

In the eye of a storm – the chair’s perspective

Perfect storms are demanding and exhilarating. From a trustee perspective, how did we meet the challenge and, more particularly, what did we learn?

First I was blessed with a totally committed group of trustees. None of us had joined up expecting that

we would have to devote so much energy to turning the charity around in the face of extraordinary financial challenges. Remarkably, none of us flinched from the burdens that this imposed on us. Most importantly, we remained united.

A united boardSo my first learning point is that in a crisis you need a strong, diverse, resilient and united board who are prepared to provide the leadership and support required.

Second, a board cannot deal with crises on their own. The heavy lifting has to be done by the executive team. We were fortunate that two of the directors had recent private sector experience. They understood the imperatives of the commercial world. And, in Lucy, we had someone with the leadership experience to direct this team when others would have been overwhelmed by the problems.

There had to be complete openness and trust between the executive and the board. Critical here is the link between the chief executive and the chair. This is the buckle that holds the whole charity together. I tried to be always ‘there’ for Lucy, even though I live nearly 200 miles from her office.

Third, to survive we had to acknowledge that we did not, even collectively, have the skills and experience to confront this crisis unaided. Although in some ways it was counterintuitive, we had to spend substantial sums on securing legal and insolvency advice – this repaid itself many times over.

Central to our strategy was a determination to be absolutely open with our major creditors. They, in turn, took substantial assurance from the fact that the numbers in our business plan had been accredited by one of the big four accountancy firms.

And finally, the exhilaration? We now know that we have brought CSV safely through the storm. We are smaller, but very much stronger – both financially and in our governance.

We are all very confident that CSV now has more than another 50 years’ life in it. What could be more satisfying than that?Sir Jon Shortridge, chair of CSV

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