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May 27, 2011

Comments

The Guardian article at http://www.guardian.co.uk/uk/2011/may/26/innocent-smoothies-charity-cash stated that the Charity passed charitable funds into the bank accounts of the Company and that the Trustees of the Charity are also the Directors of the Company. This is no different from the kind of "money laundering" that Robert Maxwell did and even he didn't use charities.

I can't believe that your response made no mention of this extremely serious governance failure and possible breach of charity financial regulations.

Agreed with Dave Dawes. Answer the allegation.

I'm disappointed as a customer. If its true charity money has been held back whilst the execs of Innocent has made good dividends!

Could this be independently audited or the charity commission investigate? I would feel happier as a customer that there is independently no evidence of wrong doing. I still love Innocent though :)

Hmm, the key here is transparency and money in a firms bank account does not LOOK as it it's in the charity bank account does it? As a young business perhaps you need to take a tip from older more established businesses about how they run their charitable affairs e.g. The Co-operative, where external auditors look in detail through their activities every year and publish a comprehensive (not glossy) report, sometimes including criticism. It's called "warts and all" reporting and in my experience it improves business practices.

Hello Dave, just to clarify, in 2007 our donation to the Foundation was over £670k. The Foundation took £150k and left the remainder in our account, as the interest rates were double what the commercial banks were offering and we could offer the Foundation instant access to the funds whenever it required. The Foundation legally owns that money and we would never hold back or spend any of those funds. The Foundation accounts are audited annually (previously by Ernst & Young, and BDO in 2010). The audit procedures comply fully with legislative requirements and are submitted annually to the Charities Commission. Linda Perry, who runs our Foundation, has over 30 years experience in the voluntary sector (formerly working at Oxfam). She runs the charity professionally and with the highest standards of best practise. In short, Linda does whatever is in the best interests of the Foundation. To suggest otherwise is 100% incorrect and completely misguided.

I can't believe Innocent won't turn a profit this year with the amount I spend on smoothies ;)

Joe - In 2008, according to the Guardian piece Innocent as a company did not have enough cash retained to pay the outstanding balance to the Foundation.

Had the Company failed (and thank goodness it didn't - not sure what I would do without my regular intake of Innocent Smoothies), the Foundation would have been left high-and-dry as a creditor, probably an unsecured one at that.

Regardless of where the best interest rate could be achieved, that was an act of poor financial management on the part of both the Foundation and the Company - another reasons why you need separation of the two to ensure good governance and transparency.

I would hope that most of us posting here, myself included, are not wishing to attack Innocent. However, as loyal customers we feel that the activities detailed in the Guardian piece - if accurate - are inappropriate and are not wholly inkeeping with our expectations of both parties based on their public statements and perceived image.

Instead of just complying with legislative requirements - do better than the requirements expect to ensure that the Company and the Foundation are free from the risk of questionable financial conduct.

Joe - thanks for posting, and being responsive on the comments here. But I do think you need to address the central allegation of the article (as alluded to above).

I'm a fan of Innocent (and regular consumer!), and also like the amount it has done for charities. Even an acknowledgement that this was not ideal and it won't happen again would help restore a bit of confidence.

We all appreciate the challenges of growing a business, but it's grown on the back of its ethical values / commitments.

Hi Joe, thanks for your response but this doesn't answer the key issue. If the Company gave £670k to the Charity then it should have been transferred to the Charity. If what you are saying is that the £670k went to the Charity and £520k was loaned back from the Charity to the Company then there are 2 major governance failings:

1) The Trustees who were also Directors of the Company should never have been allowed to be part of that decision as there is a clear conflict of interest. Charity Trustees should never make a decision which financially benefits the Trustee or any company that they have a controlling interest in. Linda Perry should have flagged up the conflict of interest, insisted that you leave the room and minuted all of this.

2) Depositing Charity money into a current account of a legally seperate Company is extremely dodgy and possibly illegal. If you simply wanted to increase the interest earned, then there are far higher rates at deposit accounts for charities than are available to corporates. In any case, of all the bank accounts to deposit it in, the bank account of the Trustee's own company should have been the last on earth you should have used! Your Charity is not a slush fund for your Company!

I have been the Trustee of two large national charities, set up five of my own social enterprises and have advised dozens of organisations about board governance. I am really familiar with charity law, the legal duties of directors and the legal relationships between companies and charities. It is very clear that you made 2 big mistakes but I am more worried by your response which suggests that you genuinely think you did nothing wrong.

If you had come out and went "we are relatively inexperienced directors and we think we may have made a mistake", apologised, appointed an independent team or body to transparently investigate everything that happened and pledged to fully reimburse the charity for any shortfall, then you could actually have come out of this looking better. We all make mistakes and the main thing is how we act when we get found out and what we learn.

What you have done is come out with the standard legal/PR approach that any large private company would and certainly makes me wonder about the real values and ethics of the company and it's leadership team. I am personally disappointed as I had been holding you up as an example of a private company trying to act in an ethical way even though you aren't a social enterprise. In 24 hours, you have now become a case study in how not to respond to the media/customers and a great example of a poorly-handled conflict of interest of a board of directors.

I'm neither an accountant, 10 times charity trustee, lawyer or director. But having read the article and post I can't help but feel that it seems fairly sensible. Leave money in Innocent's account (when there is not a need for it) helps the foundation accrue more interest whilst Innocent gets a cheap loan, contributing towards a move back into profit which in turn means that it can donate more to the charity. That's win win surely?

I'm also not an accountant, charity trustee or lawyer but I do hope (and expect) to learn that innocent have acted honestly and with integrity. I feel there is more to learn about this case. I appreciate the thoughtful comments on this blog, as usual (altho I think innocent should have linked to the G piece).
And maybe we should question not only innocent's intentions but also the Guardian's. The article comes across as setting out to knock innocent's reputation ("The glowing image of Innocent ... But ...") Isn't this a journalistic version of tall poppy syndrome? Is the Guardian, which I read and really appreciate, trying to generate interest/sales (they need to, figures not looking good!) by using a middle class version of Daily Mail tactics?

Thanks for all your comments guys. We are truly, truly sorry if the article or our response to it has left anyone feeling that the way the Foundation has been funded or run is not completely above board. We want to reassure everyone that the financial security (and legality) of the Foundation and our ability to honour funding commitments to project partners has never been compromised in any way. There was no transfer or loan of funds from the Foundation to the business. At the Foundation's request, payment of the remainder of 2007's donation from innocent was delayed as the money was not required at that point in time by the Foundation, and it could obtain a higher rate of interest if reserved within the business. There was no other agenda at play.

We have always remained true to all of our charitable commitments and in some years we have donated more than 10% of our profits. Charitable donations have been made every year despite no profits from 2008 - 2010 (we donated on average £160k per year), and when we recognised that 2011 would again be a no profit year we committed to an ongoing annual donation of £250k to protect the activities of the Foundation.

To work here at innocent is to know just how incredibly proud we are of the Foundation, and just how much it means to each and every one of our employees (many of whom work on a voluntary basis for the Foundation). To know our Founders personally is to know just how much it means to them too. I can't think of too many companies that commit to donating 10% of their profits to charity, and to have had the integrity and value of this commitment questioned has left us very upset indeed.

I am also a very dissapointed ex-customer (as of today) and to post this article and not even mention what the Guardian said just goes to show that it is true. Yesterday you were a brand I felt proud to buy.....today that has gone!

Thank you Joe for your further comments but some of what you have said does not stack up with the figures in the Guardian report which they say are based on documents from Companies House and the Charity Commission.

You claim that the £520k was given by the Charity to the Company because it could earn more interest. According to the Guardian article, the Company paid no interest back to the Charity for this money in 2007 and then only at 2% for the year after. In 2008, there were many deposit accounts offering 4% for this level of funding and so "the higher interest rate" was dramatically less than you would have got putting it in a standard deposit account. So whatever the reason for having the money in the Company bank account, it certainly wasn't to generate higher levels of interest for the Charity.

Also according to the Guardian's figures, the Company only had £425,000 in cash at the end of 2008 which is less than the £520k you were supposedly "holding" for the Charity. In other words, Innocent Smoothies was technically insolvent and had used the Charity money to bail itself out. Given that the Directors of the Foundation are also the Directors of the Charity, using Charity funds to keep a separate Company solvent seems pretty inexcusable morally and legally.

You say that "at the Foundation's request" there was no transfer of funds from the Company to the Charity but in the article an Innocent spokesman said that this was the Charity's money that had been lent to the Company and was still the Charity's money even though it was sat in the Company bank account.

The more details that emerge, the worse this whole situation appears.

I really wanted to believe that this was a mistake and had held your brand and your products in really high esteem, both for flavour and for your quirky humour and ethical stance. This now looks exactly like the sort of dealings that emerged about how Robert Maxwell ran his companies, by siphoning off cash from one to another to juggle cash-flow and the fact that you have done this with a registered charity seems really low.

Until I see the results of a genuinely independent investigation that shows you really didn't move money from a Charity to bail out the Company (which may well come from the Charity Commission) I am sorry to say that I won't be buying any more smoothies from you.

Dave Dawes: A company does not become insolvent when it has less than 0 cash in its account. The vast majority of companies (especially while they are still growing) would be "technically insolvent" under your definition, since they usually borrow cash to finance their growth, and secure it against the assets they purchase (property, factories) and the future revenue of the company.

If Innocent (without its charitable arm) had run out of cash, they would normally have done what any other company would do in the same situation: go to a bank, or to investors (such as Coca Cola) and either take a straight forward loan, or sell some portion of their company for cash in order to provide the liquidity they needed to expand. In their case however, they were able to skip out the bank, and borrow directly from a charity with a surplus of cash.

It's worth remembering that if they hadn't been giving some portion of their profits to charity in the first place, then there would have been no need to borrow anything since the money would have been sitting in their account anyway! Is that really a better situation?

It seems clear that the morality of the underlying actions has been net positive. The charity benefits perhaps a little from the arrangement, and the company benefits a lot. But without the company, the charity wouldn't even exist!

Having said that, it's a tricky case, because on the surface of it, there is huge potential for conflicts of interest between a charity (with its tax breaks, charitable status, and 'ethical marketability') and a private company ultimately run at least partly for profit (however noble the intention of the founders, Coca-cola now has a large stake in the company).

Clearly the way forward would be to bring about a greater degree of separation between the charity and the commercial arm of the company, and ensure that both are subject to rigorous independent audits. It sounds like Innocent are at least partly moving towards that, which is positive.

Innocent are clearly doing far more than most other companies to give to charity, and even if it's helped them out with marketing and financing on the side, it's still also helped out the people whose lives who are improved by the charitable work that they do. And that is by far the most important thing.

On a side note, why does the Guardian persist in deliberately misunderstanding anything to do with finance and casting any sensible financial arrangements as somehow being unethical and cheating? Not least when the paper itself is run as an offshore fund not subject to usual UK accounting laws and which pays no tax! It justifies this financial sleight of hand and tax avoidance by saying that it wouldn't otherwise be able to compete with the other papers, and that the world is better with it than without it. Seems a reasonable defence of Innocent too.

You can see the Guardian's defence of their own tax avoidance here:
http://www.guardian.co.uk/help/insideguardian/2011/feb/22/blogpost

Charlie, fair point about insolvent - that was a poor choice of words. Running out of cash isn't insolvency but there wasn't enough cash in the Company account to pay back the Charity money in 2008.

Looks like Innocent's halo has slipped a little

I read that article before seeing it here and what I saw was a journalist desperately trying to find some muck to rake and then tacitly accepting there wasn't any but still writing it up as though there was.

I'm sorry so many people have been taken in by the attention grabbing and dishonest headline.

The company and the foundation have both passed auditing. No one's trying to hide anything, and no laws have been broken. What, exactly, is all the fuss about?!

It seems no matter how hard people try to do the right thing, there will always be those who wish to tear them down. It makes me sick.

INNOCENT ARE INNOCENT!

I agree with Ellie, of course any talk of dodgy practice is concerning but both the company and foundation passed auditing so I am happy that their integrity is intact! Keep those lovely Apple and Lime Smoothies coming! :-)

Hi Ellie! Welcome to nightmare side of the third sector. These comments don't surprise me. The challenge should be to the auditors if we think something nefarious is going on, and innocent should say as much. It's funny that when the reverse happens, the charity benefiting while the company is distressed, the guardian isnt writing articles about our heroes. The befuddling thing here is that even with audits, no one is satisfied. Dave, seems to me that innocent did not benefit unusually, and the charity gained interest payments. I doubt very much that innocent would have been unable to raise the money commercially and separately if they had chosen to. Therefore, it sounds like two closely aligned entities worked together to sort a near term solution that is both legal and practical.

I believe you are good people who work hard and made an honest mistake. Happens to the best of us.

I also think you should offer Dave Dawes a job.

Oh just f**k off Dave Dawes.

Is Graham an Innocent employee??!

The halo has slipped but least they have attempted explain the situation.

The way they respond in a business way will dictate how it's brand is affected.

Accusing Innocent of being unethical would be like saying the Guardian only print the truth.

I am sure Innocent will learn from this; perhaps complete transparency is the key. The Guardian? Clearly they will never learn whilst we lap up their inferior journalism which increasingly seems to come from the Daily Mail school of reporting.

For the record, I don't buy smoothies or newspapers.

In this day and age of companies not communicating to clients we should admire innocent for replying to everyone's comments and for sticking up for themselves.
People are highly critical nowadays and tend to focus on negative press stories but in my mind any company that gives even 1% of it's profits is doing some good for the world.
I think it is safe to say that Innocent have learnt from this and will be doing everything in their power to win back their consumers' confidence. This could be debated for a long time yet but why not just accept what they have said, they won't do it again and leave them to do what they are good at? Making delicious things and trying to make the world a better place?

I don't think 'Graham' does work for Innocent, he's merely stating what a few of us are thinking. If what Innocent say is true then, no harm - no foul? surely?

A mutually beneficial agreement (so long as its legal) between corporate and charity is presumably something we should be aware of, yes, but condemn? For what reason? They created a charity, they fully support the charity (and others) even whilst making no profit? It seems unfair to suggest anything too 'outrageous' is happening. Comparisons with off-shore bankaccounts, money-laundering and Maxwell's behaviour seems a lil far-fetched.

I've met Richard Reed and the guy spoke passionately and whole-heartedly about the foundations beliefs in 'doing good things'. To claim their PR department is failing or they're not 'telling us' everything. Just give it a minute...

It is very simple.

The Guardian article is libellous and hugely damaging to Innocent who have built a business on clean ethics.

If Innocent are true to their name they will be suing The Guardian for a six figure sum for damages.

If they do not take any action then Innocent are guilty.

My money is on the Guardian. This is so obviously libellous they will have checked it out with accountants and lawyers before it was printed.

PS I must say I admire Innocent for posting my last comment.

As a former innocent employee and one who was personally involved with the Foundation (I was part of the Foundation Committee which liaised with partner organisations and also spent some time in Kenya back in 2008 visiting Excellent Development, one of the Foundation partners) I have to agree the article is pretty disappointing. Innocent and I parted company nearly two years ago but I maintain my respect for what they represent, and I don’t normally post on blogs but felt compelled to in this case.

First off, I’m not going to pretend I know much about the legalities of what is and isn’t supposed to be done with charity finances but nothing I saw ever gave me cause to think the Foundation was being run unprofessionally – I’ll leave people on this blog who know more than me to argue about that kind of stuff. However, as innocent have said the Foundation accounts were independently audited by Ernst & Young and BDO and they made the necessary submissions to the Charities Commission – they also know more about legalities than me and apparently they didn’t have any concerns, which is good enough for me.

However, what I do feel qualified to talk about is the innocent Foundation more generally. It’s a relatively small Foundation that manages a set number of projects that can be run effectively and finances were managed in such a way that in the event innocent were not able to make a donation for whatever reason all commitments made to partner organisations could be honoured. However, despite not making a profit in recent years innocent have continued to allocate funds to the Foundation. I also think a couple of things have been overlooked…

There are very few private companies that give anywhere near 10% of their profits to charity (or would even consider continuing to donate if making a loss). For example, Tesco set themselves a target of donating at least 1% of their pre-tax profits to good causes (www.tescoplc.com/corporate-responsibility) – I’m not questioning Tesco’s commitment to good causes, just trying to make the point that for a company of innocent’s size their donations have been substantial and way beyond what is necessary to play the ‘social responsibility’ card so I don’t think their generosity or the intent behind the Foundation should be in question.

Few people seem to mention the work that the Foundation has been doing – as I said I was lucky to personally visit one of the projects funded by the Foundation in Kenya and witness firsthand the lasting impact the Foundation is having on hundreds of people in a very poor part of the World, a situation being played out in dozens of other countries. In my time at innocent this was the thing I was most proud of. There are matters of principle at play here, which I’m sure you will carry on debating, but what it boils down to for me is that thousands of people around the World continue to benefit from the Foundation and in all honesty I don’t think the people I met in Kenya who now have a chance of a better future would care much for the contents of this article. We seem to have a media-driven culture of trying to shoot down or find flaws in positive things which is why it makes me really sad to read this kind of journalism. The Guardian could have run a story on the actual work of the Foundation and the human impact, but that wouldn’t sell papers would it?

Well, i am doing my research on PR side of innocent drinks, i beleive innocent has been successful in creating a culture of healthy eating and we appreciate that, but after all my research i have concluded that since innocent has come under focus of bad press, innocent has been handling its PR and CRM issues ineffectively and there was more that could have been done by reviewing communication strategy. anyways, my fellows at armstrong security are not great fans of smoothies as its too sweet and they avoid sugar, can you also make some smoothies withour sugar???? you can get back to me for more details and finsings of my research by visiting at www.armstrongsecurity.co.uk or by mailing me at info@armstrongsecurity.co.uk

David, have anything to say? :D

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