Whistleblowers: Rescuer's central role and rewards under fire

February 6, 2004

Phil Baty reports on scrutiny of the president of Regent's College.

The charity watchdog is investigating the payment of millions of pounds by Regent's College and its sister charity, the European Business School, to companies run by the woman who helped rescue them from financial disaster in the 1990s and who has in effect run them both ever since.

After inquiries by The THES , the Charity Commission this week confirmed that the two educational charities, which are jointly run from their shared campus on the Crown estate in London's Regent's Park, are subject to an inquiry under the terms of the 1993 Charities Act.

The commission would not reveal details of the investigation, but lawyers acting for the two charities have confirmed that it "concerns the relations between the charities and Gillian Payne". Ms Payne is the president of both Regent's College and the EBS.

The THES has learnt that the probe is focusing on the degree of personal control Ms Payne has exercised over the charities. It will look at the extent to which this may have compromised the previous trustees, who must exercise proper stewardship of the charities' affairs.

It is also assessing the accountability, appropriateness and value for money of payments amounting to several million pounds given by the charities, under agreed management contracts, for Ms Payne's management services.

When the EBS was threatened with bankruptcy in the late 1980s, businessman John Payne and his wife, Gillian, led a parents' action group, provided a loan to save the school and, in effect, assumed management control of the EBS and Regent's College. The Paynes became governors of the institutions.

In 1990, they replaced themselves as governors with two companies, MJ Payne Limited and GM Payne Limited, which they owned. The companies remained in place with just one other governor, Charles Bunker, for more than a decade.

It is understood that this arrangement was changed recently, but it was still detailed on Companies House records in early 2003. It in effect transferred control of the charities entirely to Ms Payne, as the rules for both charities prescribed that just two governors needed to be present to make governors' meetings quorate.

After the rescue, Mr Payne became president of Regent's College and chairman of the EBS. He was succeeded in both roles by Ms Payne when he died in 1994.

Ms Payne formed two management companies, Regent's College Management Services (RCMS) and European Business School Management Services (EBSMS), and signed separate seven-year management services contracts with the charities in 1994.

A report for the charities' trustees on the renewal of these contracts made in 2000 by auditors Baker Tilly notes that "the cost of the current management contracts in overall terms... is exceedingly high when compared to jobs of a similar nature in the educational world and even jobs in commerce and industry".

RCMS charged £5.2 million for its services over the seven-year period, and EBSMS charged £2 million.

Despite noting the cost, Baker Tilly still recommended that the management arrangement should be renewed. In accordance with the advice, the two charities signed new management services deals in 2001 with another Payne company, Mergeprime, of which Ms Payne is director and majority shareholder. It is understood that the Mergeprime contract costs the two charities at total of £800,000 a year and 15 per cent of profits.

As Baker Tilly argued, the Paynes instigated a welcome "cultural change", ran the institutions along "sensible business lines" and brought stability and success. They overcame financial crises at the charities - turning a £234,000 loss at Regent's College in 1993 into a £990,000 profit in 1999, and converting a £500,000 loss at the EBS in 1993 into an £880,000 profit in 1999. They provided loan capital at personal risk. But the charities have had their share of management problems.

A report to the chairman of trustees in February 2003 by Anne Busby, head of human resources at Regent's College, noted that there were "considerable concerns around the contracts of employment (for staff)". She said:

"Salaries are decided on an arbitrary basis and, therefore, there are concerns around consistency and equality."

She said: "The biggest hurdle is the training of managers."

Staff turnover was 21 per cent, she said, and had been as high as 44 per cent in 1999 and 33 per cent in 2002. This compared with about 16 per cent in the education sector in general.

An EBS internal strategic plan for 2003-08 notes that although the management structure has changed recently, the school has been run for the past ten years on an "anachronistic" model that separates academic and administrative areas of activity.

The EBS has two academic departments, but, the plan says, "it has become apparent over the past two years that there are serious weaknesses in the leadership capabilities of the two academic departments linked in part to the overall absence of a clear strategic direction for the school as a whole".

A statement from Bircham Dyson Bell, the lawyers acting for the charities, said the trustees of both the college and the EBS had been running an internal investigation and had brought concerns to the attention of the Charity Commission, with which they were "cooperating fully". It said: "The charities will act promptly with regard to any specific recommendations made by the commission in terms of structure, operations or personnel.

"In August 2002, a number of new trustees of the charities raised issues concerning the extent of Ms Payne's degree of control over the operations of the charities. As a result of their concern, the trustees (all of whom hold unpaid voluntary positions) initiated an investigation into the activities of Ms Payne.

"The investigation evaluated the services being provided by her to the charities and the cost of the management services agreements carried over in 2001 for the provision of services by Ms Payne.

"Independently, the trustees have already taken a significant number of steps to improve the running of the charities and to ensure that they are fully in control of the operation and strategic direction of the charities."

It added: "The trustees will take all action necessary to ensure that the charities' assets are fully safeguarded and are taking professional advice to ascertain the extent to which the charities may have made excessive payments to any commercial companies."

The Charity Commission said: "We have been working closely with the trustees that have been running the charities since February 2003 and are now satisfied that they are addressing the issues that we raised with them.

We do not have any ongoing concerns at present and anticipate we will be able to conclude our investigations very soon."

Want to blow the whistle?

Contact Phil Baty on 020 7782 3298
or email him at phil.baty@thes.co.uk

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