As presented by John Bailey to the WSR family
Section 1: Context
The WSRA thanks John for engaging in the first part of what we hope will be a process that both resolves the issues at Washford between the S&D Trust and the WSR plc and allows the railway family to explore possible new structures that will indeed bring a much overdue Peaceful Somerset.
The WSRA Trustee response to sections 4 and 5 is set out below. As our colleagues at WSR plc have made clear this would all need the approval of our membership once a definitive proposal had emerged.
Section 4: Current Structure, Culture & Fundraising
We agree with the comments in section 4.1. It is always difficult to balance the competing pressures of an enthusiast membership with the needs of the railway that is, at heart, a commercial tourist-based operation.
We have long realised the fundamental truth contained in 4.2, the funding challenge. The railway probably needs an organisation focussed on fundraising to the exclusion of all else if it is to survive. The WSR plc shared with the WSRA in January its assessment that the Railway needed to generate a seven-figure investment every year for some years into the future. We believe that to be a well-founded assessment which can only be met through fundraising. WSRA recognised this some years ago and there is a process in place to change the charity, but it will never be able to deliver the support the railway needs with the current structure. The report correctly identifies in 4.4 the fact that the WSRA has to stretch its objects in order to provide the level of support that it currently does, and even this level is inadequate to assure the long term survival of the railway. Even if WSRA were to change its objects it’s hard to see how it would deliver the required support to a commercial organisation. The Charity Commission rightly erects barriers to any charity doing this as it can be too easily abused by the unscrupulous to gain commercial advantage. Section 4.5 makes mention of the fact that there is a risk funds will be sought for projects opportunistically. This is, to an extent, true and is driven by the structural constraints identified. While WSRA always strive to seek funds for appropriate projects there will always be some tension due to members wishing to see a focus on the restoration and maintenance of the assets of the charity and rightly asking trustees questions if it seems the focus has shifted to the more general and more pressing needs of the railway.
However, any charitable body needs to understand that if money is collected for a stated purpose then that money must be placed into a restricted fund and must only be used for the purpose for which it was collected. The freedoms that a commercial company has do not exist within a charitable structure and appeals for cash without a stated objective (whoever they are made by) tend not to fare well. Certainly, if one wishes to approach grant funders then projects must be specified in great detail. If funding is awarded, then any significant funder will apply auditing processes to assure themselves the funds are being used for the purposes they were granted.
The point raised in 4.6 about the tax inefficiency of the commercial operator raising funds is well made and has been a long held source of concern to WSRA. In the simplest possible terms it blunts the donation by 25%. That does not sound like a lot for a £100 share purchase or a fiver in an envelope but is significant when one considers that a £0.5M project might only need to bring in £0.4M in donations if they are gift aided. There are inefficiencies or wasted opportunities in the present system. For example, the WSR PLC seeks legacies: if that were done by a charity there would be significant tax advantages to the legator which could encourage donations.
For us 4.7 is at the very nub of the problem. The railway presents itself to the public like chicks in a nest, all vying for the food. Competition is impossible to avoid, and the average supporter is left bewildered by the confused offering and put off by the competitive clamour. This in our view is the major reason why the railway underperforms dramatically on major fundraising .
We have looked very carefully at the Charity commission guidance and the provisions of the fundraising regulator, and do not share the view in 4.8: we believe that we are compliant with fundraising guidelines, and can demonstrate that donations are used for the purpose for which they have been given. However, we accept that this is an area where different people can have different interpretations of guidelines and has been a source of tension between the WSRA and the WSR plc. If we took a very narrow view of the guidelines it would be appropriate for the WSRA to withdraw from all activity in support of the WSR plc and that would have to include all the asset maintenance. WSRA would need to concentrate exclusively on the maintenance or restoration of its own assets namely part of the WSR fleet of rolling stock and its two locomotives. The question of properly constituted hire agreements with the WSR plc and the matter of the land at Norton which is WSRA owned but is a benefit to WSR plc would then become further complications that would need to be resolved. All parties within the West Somerset Railway have experienced problems caused by unwritten “gentlemen’s agreements” in the past.
4.9 seems to suggest that some within the WSRA wish to “take over” the PLC. The current trustees are unclear who these individuals are but wish to make it clear that they have no wish to mount such a take-over. Nor do they have any desire to see the demise of the WSR plc, as set out in 4.10. We have acknowledged tensions created by the current structure and wish to work to resolve them. There are also, inevitably, tensions between the desires of heritage enthusiasts and the fare-paying public. The railway is both an important employer in West Somerset and a vital attraction in a local economy heavily reliant on tourism and must be seen in that way. However, even this is controversial: there are those in the local community that press for the railway to become a commuter service.
It should hopefully be clear that the sort of shareholder coup discussed in 4.11 would not be in any way helpful to the railway. While it is highly debatable that the WSR plc could mount a defence against a coup as is suggested because of a preponderance of proxies in the chairman’s gift that is not at all the point. The disruption to the railway and the fallout in PR terms make it clear that it would be unwise to adopt this course of action unless shareholders collectively became concerned that the board were about to crash the train. Something that the WSR plc board has come all too close to all too often in the past, requiring several bailouts from supporters.
Section 5: Potential new structure
The trustees read this section and immediately fully endorsed it. It actually makes much of the foregoing response redundant. It may be that what is written in 5.1 is only evident to a charity and it may therefore be that we have laboured under a belief that what is evident to the charity must be evident to others.
5.2 speaks, as a charity trustee would understand, to the essential need to separate the charitable and commercial activity. The example has been under the noses of the WSR family for long enough in the form of the WSRA (Promotions) Ltd trading subsidiary but again we acknowledge that being on the inside of a charity organisation with the understanding that brings is not the same as being on the outside.
The remaining parts of section 5 point out some of the essential “must do” items and lay out possible new structures that might work.
Our preference would probably be for the new organisation to be structured in such a way that the new charity owned the assets as described in 5.4 for all of the reasons articulated in that section. It would also be simpler for an existing charity to gift its assets to the new charity using this model thus making the transition simpler. This would also work in relation to the suggestion in 5.6 by allowing an existing membership charity to transfer its members into the new charity which would give an immediate charitable income.
5.7 might be the most difficult point to realise as it would appear to require the conversion of existing voting shares in the WSR plc into non-voting shares. It may however be made simpler if the recommendation to shareholders and charity members is being advanced by the WSR plc, the WSSRT and the WSRA to members and shareholders (supporters are often both).
The new charitable organisation must be inclusive and there must be space for the specialist charities and the smaller charities like the 813 group to exist as part of the railway family. At the same time the changes would need to guard against any supporting specialist charity seeking to grow to become a rival of the newly formed charitable entity. This would surely lead to a loss of the much longed for Peace.
The point is made in 5.9 that none of this change can take place by force is fully endorsed as is the point that members of the railway family should be moving urgently to explore the options.
We fully endorse the outline provided in 5.10 and would see that 5.10(e) is an essential component of the new structure. Anybody unwilling to submit to this level of scrutiny is unlikely to be a suitable candidate for a trustee board seat. We would further suggest that the nominations committee should act as an appointments committee during the initial set-up of the new charity.
We agree with the comments in 5.11 and the proposal to elect some trustees and appoint others should avoid the potential pitfalls outlined.
Section 6: New culture
We agree that the cultural change is an essential pre-requisite and are fearful that without it all else will be much like re-arranging the deck chairs on the Titanic. A clearly defined set of objectives, as suggested, will go a long way to securing the buy-in required from all family members to allow the next steps to be taken.
While the PDG has a strong role to play it is in essence going to be a stakeholder group, albeit one that is able to recognise the contribution of all parts of the railway family and the wider community of West Somerset and the important symbiotic relationships within it. We welcome the re-energising of that group, which is something we have pressed for.
Section 7: What does success look like?
We welcome this pathway, and wish to work together with the other members of the railway family to work towards success.
We firmly believe that the only role for the WSRA is to fold itself into the proposed new charitable structure. In that event, all WSRA assets would be transferred to the new charity, and the WSRA would effectively cease to exist. To do anything else would preserve the current difficulties already articulated and would be sub optimal.
Of course the other charities and support bodies must be free to make their own choices but it is clear that the more support bodies there are then the harder the role of the PDG chairman will be, and the more essential for that person to be independently appointed.
Section 8: Next Stage
We are very grateful to John Bailey for the comprehensive report and wise comments. Clearly, the changes suggested will be challenging, and need to involve the willing participation of the railway family. Some may believe that the time is not right to take on such a challenge, or that it is not relevant to them. However, the difficulties faced by the railway, both past and current, are obvious to all: we have a real opportunity to work together to rid ourselves of those difficulties for the future.
We welcome John’s offer to facilitate a family discussion as a first stage and urge all members of the family to take up the offer.
WSRA Trustees 5/6/2020