Northern Rock Foundation, UK

The Northern Rock Foundation, based in Newcastle-upon-Tyne, UK, aims to tackle disadvantage and improve the quality of life in north-east England and Cumbria. It was established when former building society Northern Rock demutualized in 1997 and became a bank. Northern Rock pledged to give 5 per cent of its annual pre-tax profits to the foundation.

Fiona Ellis, former CEO

The week of 10 September 2007 began normally enough. Our investment committee met uncontroversially. We hosted a 24-hour meeting of progressive trusts. I attended various London meetings. On Thursday, I opened a new education centre and visited a new gallery, both substantially funded by the foundation. However, when I turned on the late TV news that evening to hear that Northern Rock had sought emergency funding from the government, Friday no longer looked like the end of the week but the beginning of a very long haul. Northern Rock is the foundation’s sole and extremely generous funder. Our intended 2007 budget was some £34 million. What came later is public knowledge. The story of how we managed it is not.

The next morning my chairman and I planned an emergency trustees meeting. I tried to reassure my worried staff: our reserves would see us through a lean year – that’s what they’re for. We had carefully separated our committed funds from our surplus funds so we could meet obligations; as things stood, there was no need to panic.

However, the situation worsened rapidly so that when the trustees met on Saturday 22 September, the chairman asked that only key staff with specific ‘crisis roles’ be present. We assessed our in-house skills against what we would need and appointed the best charity lawyer we could find and some excellent local and national media advisers.

But our planning was hampered by lack of knowledge: was this a single-year phenomenon or something more long-term and damaging? Moreover, we knew that any action we took would be misinterpreted by the press and read for indications of the health of the bank. We were making decisions under a microscope with a distorting lens.

As more information emerged in the next weeks, we decided to revise our budget for the rest of 2007. We abandoned our proposed move to a new building. We had set aside substantial funds for new special initiatives; those were cancelled, with one exception, which was considered both too important and too far advanced. This went ahead with a commitment for three years, instead of five, and a promise of review. We cut back any of our own initiatives that would not have immediate consequences for organizations – for example, we effectively put on hold our rolling programme of professional development for local charities and gave notice that the 2008 training budget, if there was one, was likely to be substantially reduced. Planned follow-up grants for long-running initiatives were indefinitely postponed. All flexible funds disappeared. We reduced the grant programme budgets, though not drastically.

Between September and Christmas it looked possible that we might receive no further funds and the trustees considered options for winding down the foundation (I stress that this was always seen as possible not inevitable). There were several possible responses: the legacy option – plan as soon as possible to hand the remaining capital to a community foundation as a Northern Rock Foundation endowment generating small grants in perpetuity; the Darwin option – go out and compete with community foundations for donations; or the spend-out option – spend all the remaining funds and go away gracefully. Each had its merits and its adherents among the trustees. The question was regularly revisited over the following months.

By December, we had agreed to reduce the grants budget for 2008 to £7 million with a promise to review it if any further funds became available. At this point we made a brave and serious decision. We had always believed that larger grants that achieved their purpose were better than small, inadequate ones. So we decided to cut programmes instead of budgets. We assessed each programme in terms of who else was working in the area; how long it had been running and how effectively; and what the effects of a cut would be on organizations and beneficiaries. The decisions were difficult and imperfect – as any decisions would have been. On this basis, we closed four out of seven grant programmes. All of this was communicated as widely, as clearly and as quickly as possible.

By Christmas, having reduced budgets and grant programmes, we accepted that we could not continue as before, so we prepared to reduce staff numbers.

Then in February the government nationalized Northern Rock and saved the foundation, albeit in reduced form. We completed our staff reductions and reviewed our strategy yet again. We reinstated one of the programmes we had cut. Despite constant and thorough efforts in the meantime, we still heard that people thought we had closed down. There was also an expectation outside our region that, since Northern Rock was a nationalized bank, we should fund nationally. The government was helpfully clear on this: the trustees were in receipt of a donation from a business and, as an independent board, they would make their own decisions.

In terms of managing the crisis, the trustees struck a good balance between being cautiously optimistic and careful. They asked for alternative strategies to be produced regularly as the story unfolded. Most tasks of course fell to the staff team but the chairman – who, like all charity chairmen, is a volunteer – willingly took on many additional responsibilities, ranging from liaison with the bank to media interviews and, later, behind-the-scenes discussions and information-seeking.

This was a grim time but the foundation survived. I attribute its survival to a combination of rigorous thinking, a strong track record, excellent staff and trustees, loyal grant-holders and much good luck.

For more information
www.nr-foundation.org.uk
generaloffice@nr-foundation.org.uk