Mergers and partnerships are critical for survival in the charity sector

With growing competition for attention and funding and demands for better governance and financial management, charities and NGOs should consider partnerships with others in their own sector.

Sadly, the recent Kids Company debacle has yet again drawn our attention away from the achievements of the charity sector to its shortcomings. It makes us spectators to some very public, legal and media skirmishes between charities and their detractors on allegations of poor governance, questionable fundraising techniques, activism at odds with donors’ expectations, dated processes and poor emulation of the corporate sector ( for example, in areas of woolly marketing and senior executive compensation).

About two years ago, I suggested in a previous blog that the sector was far too crowded, too reliant on transactional relationships with the corporate sector, competing for a finite resource; and that charities and NGOs had to be much more strategic in building partnerships. I have not changed my views. The sector remains crowded and fragmented. The dominant model is still that of running the charity as a fundraising business, where resource is spent on yet doing more fundraising.

Unlike a business, charities cannot draw on capital markets or debt facilities. They rely on discretionary expenditure of variously motivated, often fickle, individual and institutional donors for their cash flow. This can lead to the high pressured ‘sales’ techniques on the street, over the phone or by mail, which we have now come to dislike.

Tens of thousands of charities(note 1) are competing for funding from the same sources, overlapping on work and causes.  Proliferation and fragmentation when combined with lack of skilled resources, woolly strategies, financial shortages, ineffective or inefficient management processes will put many charities under severe pressure to improve – or leave the sector.

There are solutions. Mergers and different types of partnership structures , for instance.

In the corporate world I operated in, consolidation was a natural market response to proliferation in a particular sector:  mergers and acquisitions (M&A) were a familiar occurrence. As indeed were partnerships, consortia and alliances to support everything from market entry and development to business growth.

There are already precedents for successful mergers in the charity sector. Cancer Research UK and Age UK (note 2) are good examples. There are also legal instruments such as the Charities Act of 2006 )note 3) to make mergers possible.

So why don’t we see more of these in the charity sector?

There could be several reasons, both procedural and behavioral. Unlike the corporate sector, there appears to be no mechanism in the charity sector for mergers. Whereas legal and financial advisers and M&A specialists abound in the corporate sector, there are likely to be very few, if any, working with trustees or managers of charities and NGOs.

In theory, as charities tend to be typically much smaller and less complex organizational and financial structures than companies, you would expect the merger process to be relatively straightforward. In practice, however, behavioral and/or ideological resistance is likely to occur, emphasizing the loss rather than the gain. Fear of losing or upsetting donors and beneficiaries, loss of agility and flexibility, loss of assets, loss of touch with local needs and conditions, loss of influence and voice in local communities, dilution of ‘brand’, loss of jobs or status, as well as lack of capacity for implementing ‘sophisticated’ financial or indeed collaborative models could all be factors. The traditional structure of control, cultural inertia and personal passions vested in charities by their founders (charismatic founders especially may resist merging with others for fear of losing their own private fiefdom) and staff tend to favor the status quo. To some, a merger may in fact be a ‘no-no’ if it implies aggressive and predatory behavior on the part of a larger, or more dominant organization.

Mergers are not the only option – same-sector partnerships are a valid solution

As with most structures, mergers are not without risks. If done badly, they can destroy value. They may not suit every type of charitable cause or service. The resulting organization might remain too large and unwieldy.
There is an alternative: remain as you are but collaborate with other organizations with similar missions, services and values and build new partnership institutions. Multi-stakeholders partnerships between the corporate, public and civil society sectors are commonplace. What I am advocating here is creating partnerships, alliances and coalitions within the same sector.

Charities have several options. They can start off with forming context-specific coalitions and alliances around major campaigns or programmes, and once they have built knowledge, experience and capacity – and confidence – , they can transition into a more formal merger with a particular organization or a formal coalition. If they have a revenue generating component from sale of merchandising or services, they can partner with others operating a similar model and transition into a social business or enterprise; they can even consider ‘acquisition’ of other organizations to fulfill their model.

A partnership within the same sector organization can follow the same building, governance and management processes as in the Partnering Cycle (note 4) . All partners are given an equity of involvement and decision-making responsibility within an independent formal structure operating locally or globally ; partners have an agreed common aim but are mandated and empowered to address a particular service or group of beneficiaries or territory and complete tasks on behalf of the partnership to which they are ultimately responsible and so on.

There are precedents in same-sector collaborative alliances and partnerships within the non-profits field. The Start Network is a good example. A consortium of 24 leading NGOs working in the humanitarian aid system, the network extends to nearly 7,000 partner agencies, comprising over a million staff working in 200 countries and territories. It sums up its imperative thus: ” in order to meet the needs of crisis-affected people in a future of great uncertainty and complexity, we believe that the humanitarian sector must change. The Start Network members collaborate because the change that is demanded cannot be achieved by any single organization acting alone. We promote a way of working that enables international and local humanitarian actors to coexist. The vision is of a self-organizing system where the agencies best placed to respond to a crisis are empowered to do so. To realize this vision, we are working to catalyze a humanitarian sector that is more diverse, decentralized and collaborative”.

This consortium has several elements which support the case for consolidation through collaboration. For instance, it recognizes the need for radical change in a dynamic, complex and competitive landscape; it leverages the power of economies of scale and collaboration to deliver more effectively for the benefit of the communities which it serves and it suggests how individuality can be kept and leveraged within a big group.

The latter point is worth stressing. It tackles the fear many charities have that a merger or alliance with others – especially with bigger more established or high profile organizations – will dilute their individuality. If handled sensitively, this may not be so. An example – in 2006, ChildLine’s trustees decided that the best response to dealing with the growing challenge of raising money in a crowded sector  was to join forces with the NSPCC. Nearly a decade on, ChildLine’s brand has remained intact and its work has thrived under the NSPCC umbrella.

The approach in the humanitarian sector as evidenced by the Start Network can be replicated in other charity and development areas. Well-formed strategic partnerships between charities and NGOs with similar missions and target beneficiaries can combine their power, resources, influence and impact:

  • Flexibility – charities can retain their social virtues, strong sense of local ownership, freedom of operation and self-determination while reaping the rewards of scale and collaboration;
  • Diversification – charities can improve the range and quality of their existing services, and expand their  ‘portfolio’ to create new benefits for their beneficiaries;
  • Economies of scale – charities can be more efficient through consolidating, streamlining and sharing financial and back-office support functions, systems and structures; as well as manpower ( for instance, building more field versus back office capacity) and physical assets;
  • Operational agility and efficiency – charities can share tasks, define clear goals to optimize their collective and individual interests and impacts, allocate appropriate resources to achieve quicker response time, permit the sharing of crucial data and consortium bids for larger public contracts or major donor funding;
  • Capacity building – charities can pool their knowledge and expertise; learn from each other; create new collaborative paradigms, bring in innovation and move away from conventional models and silo /protectionist thinking and ‘power bases’ ; and encourage new forms of leaderships; greater freedom of operation, between partners;
  • Influence and reach – charities can combine their influencing power, pool their ‘marketing’ and advocacy for more systemic impact on policy making and public debate , be more outward facing, (focused less on internal issues) and hence more effective in mobilizing and retaining public, government and private sector support for their shared causes and beneficiaries.

Charities typically go to the private sector for both financial and in-kind support in terms of employee volunteers for their community projects, marketing, IT, HR or other functional support. To this list of what companies can bring to the table, I would also add their expertise in M&A. I cannot see why advisers who are capable of getting giant boardroom egos to work with each other cannot persuade the managers of small charities and NGOs to join forces to serve a community.

Similarly, many charities and NGOs may already be in multi-stakeholder partnerships – there is no reason why they cannot apply the same knowledge to create same-sector partnerships with other charities or NGOs. Furthermore, they may also have mandated internal or independent external partnership brokers to support partnerships. If not, then a competent and experienced partnership broker with a clearly defined mandate can help instigate the partnering process. Good partnership brokers have the requisite skills to facilitate partnerships … those coming in from the corporate sector may indeed have delivered or know people who have delivered successful mergers.

Charities and NGOs do not need to wait until they are in a serious financial or personnel crisis to consider partnerships or mergers as a response. It is better not to be forced into change but to plan and control it. The reality of the marketplace is such that trustees and managers have to consider how they can fulfill their charitable purposes in an over-crowded marketplace with thousands of players vying for attention and funding, fragmented by geography and type of service and under increasing pressure to reform. They may find they can no longer defend a case for a closed, protectionist and isolationist way of thinking when external pressures demand an open, innovative collaborative mind-set.

 

Note 1: UK Charities Commission: around 180,000 charities with a combined income of nearly £65 billion at the end of September 2014.

Note 2: Imperial Cancer Research Fund & the Cancer Research Campaign merged in 2002 to form Cancer Research UK, Britain’s fifth-largest charity, with an annual income of £665 million. Age Concern England & Help the Aged merged in 2009 to form Age UK was similarly successful.

Note 3: Charities Act of 2006 & Charities Commission – offer information to charities that wish to merge and to their trustees; give even the smallest charities the ability to hand their resources to another charity without having to do so via The Charity Commission’s procedures; operate a charity mergers register, under which donations to a merged charity are transferred automatically to the new charity.

Note 4: The Partnering Toolbook An essential guide to cross-sector partnering. R Tennyson, The Partnering Initiative, International Business Leaders Forum, 2007

 

  • Leave a Reply

* Required Fields.
Your email will not be published.


eight − 8 =