Kids Company: an anatomy of failure

The recent Commons Public Administration and Constitutional Affairs Committee (PACAC) report repeatedly describes the failure of Kids Company as “extraordinary”. It depicts a charity suffering a chronic failure of governance, tipped into dramatic financial collapse in August last year. But while the high-profile failure of Kids Company is remarkable, it is far from unique: its story resembles other prominent examples of public service failure in a number of ways. By understanding what happened at Kids Company, we can improve our chances of anticipating and averting failure elsewhere.

There are many ways to fail, and a failure of governance is one of the hardest to detect and avert – unlike financial or performance failure, the quality of governance at an organisation is difficult to quantify. It is often the case that interventions are only triggered when the governance is so degraded that it causes related failures in these other, more carefully monitored aspects of the organisation. For this reason, a number of those that we have interviewed at schools, local authorities, children’s services and hospitals have identified the requirement for a strong peer-led element in detecting and averting governance failure – peers are likely to bring the soft skills and experience that allow them to identify the relevant warning signs.

Yet it is precisely the failing organisations that can prove most resistant to this type of support. The problem at Kids Company, also observable at Doncaster Metropolitan Borough Council before the 2010 intervention, is that organisations that suffer governance failure are often marked by their insularity – they are not susceptible to, or will refuse outright, this type of peer-led scrutiny. The PACAC found that Kids Company had been on “a 19-year journey in isolation from the rest of the sector.” There is a question for government about how it can encourage these insular organisations to open up to peer-led scrutiny.

Nevertheless, the PACAC is clear that the data returned by Kids Company should have been enough to set off warning lights in government. The episode points to the need to base performance monitoring and intervention decisions on data rather than anecdotal evidence. The charity enjoyed high-profile support from Ministers despite poor data on finances, governance and outcomes for young people. Our current research on failure has suggested a number of occasions in which data returns made by essential public services to the relevant government department are similarly underused, increasing the chance that poor services are allowed to deteriorate unchecked.

Government departments are just one aspect of the system in place to respond to failure; regulators also require the right powers, resources and profile to intervene. The PACAC report emphasises the need for a change in charity regulation – in particular that the Charity Commission be better equipped to tackle mismanagement. Our work focuses on public sector providers rather than charities, but we have hard similar messages about the need for regulators and watchdogs with teeth. Local government interviewees have expressed particular concern about the demise of the Audit Commission and suggested that, in the Commission’s absence, unreliable anecdote has become the sole indicator of failure.

One of these necessary regulatory powers, missing in the case of Kids Company and elsewhere, is the ability to take action before the point of collapse. The PACAC report is right to observe that Kids Company had serious problems long before August 2015. As past cases in the public sector have shown, many organisations are able to operate in such degraded states for extended periods of time. For instance, in retrospect it was clear that Rotherham children’s services had suffered from chronic failure for more than a decade. Often, intervention only occurs when organisations shift from failure to collapse. Of course, intervening before the point of failure raises its own challenges, particularly in establishing the legitimacy of what is often seen as “interference”. But as a service gets closer to collapse, the turnaround required becomes more difficult and more expensive.

In the current financial climate, where increasing numbers of services will come under strain, Government needs to be more confident in articulating the risk of failure in some of its public services, and more rigorous in ensuring that its tools for managing failure are fit for purpose.

The Institute for Government will publish its work on managing failure in essential public services in Spring 2016.