The Chedbury Town Trust exists to promote arts, culture, heritage, education and community development in the eponymous town.
75% of its income comes from a contract with the council to operate the town’s main arts venue, Chedbury Market Hall, (involving films, exhibitions and live events). The Trust has done this for many years and the contract and the venue’s lease with the council is a 5 year renewable arrangement. The Charity does not regularly meet the council, preferring instead a laid back, sleeping dogs approach, responding to any issues raised.
15 people are employed exclusively for the venue’s operation as well as there being a group of loyal volunteers; many other employees spend a significant portion of their time on the venue. The Charity has a small number of other, less significant activities and also makes some grants.
The Charity’s heavy reliance on this contract is the elephant in the boardroom. Discussions about this risk have included the need to shore up reserves in case the contract is ever lost, ensuring a good relationship with the council is maintained and operating a first class venue so it never goes out of their hands. The Charity has a risk management process which involves the Trustees meeting briefly with the Senior Team once a year to review the risk register so they can report on risk in their annual report. Risks are not routinely covered in board meetings nor the Senior Team’s work.
The Charity recently came to the end of its 5 year lease and contract; this was its fourth term of 5 years and the arrangement usually carries over without question. This time, however, the Council had been having financial difficulties and it conducted a full tender process, to which the Charity responded as best it could. However, the contract and lease were awarded to another operator and as a consequence the Charity lost 75% of its income as well as its main activity.
At this point, let us leave the Trust to resolve the consequences of the end of its arrangement with the council regarding the Market Hall. A medium term prospect involving light activities and grants awaits. Let us, rather, step back and focus on the risk management aspects of this cautionary tale.
Reserves are not the answer: those are for a temporary stop-gap or for smoothing out a transition, not fully replacing a principal activity and income stream. The Charity’s risk management process was wholly inadequate. Whilst it is true the periodic award of the contract was within the council’s and not the Charity’s control, the Charity could still have taken steps to improve its position and its management of risk. Here are some measures it should have considered:
- Regular meetings: say quarterly, with the council, to ensure the Charity continued to fulfil the council’s expectations.
- Continual preparation: preparing for the contract renewal should have begun on the first day of each 5 year period, with a project plan extending from there.
- Scenario planning: to model what should be done if and when the contract ended.
- Risk management: with appropriate focus; a dedicated Committee which met 4 if not 6 times a year; a standing item on board agendas; a detailed policy; an action plan capable of swift implementation.
- An annual review: at a combined Trustees and Senior Team meeting, to consider how the contract was playing out and what should be improved.
- Strategic creativity: strategy including more than just the Market Hall contract, to ensure the Charity fulfilled its purposes in other ways and so spread the risk.
Risk management is central to healthy governance. But it must be active not passive: it should not be risk hoping or risk ignoring but risk management. Risks and serious incidents do occur in the charity sector but the governance response is to have a management strategy. Oven gloves.
If you want to know more, have a look at my free risk management guide.
And happy Christmas!
