UIS

Why are charity mergers still so rare?

Written by Richard Litchfield
17/01/18

Our new report, launched this week, confirms that charity mergers are a niche hobby – 70 were completed in a sector with 163,000 organisations. This is in spite of ongoing challenges to the sector in the form of funding constraints and intense competition, and heightened discussion about mergers that has followed. But why is this the case and does it really have to be this way?

One of the major barriers to a merger is simply that it’s not routinely considered by charity boards (“it’s just not done”, in the words of one chief executive). Chief executives are busy running their organisations on the assumption that their independent charity is best placed to achieve their mission, instead of pooling efforts and resources.

In good organisations, the boards will challenge this premise and encourage the executives to consider strategic options like mergers. Sadly though, this is rare and in many cases ego and self-preservation can pull organisations even further away from examining how best to deliver on their mission.

The comparative rarity of mergers means that it is unknown to many. Knowledge about how to find a partner and go about a merger, or what the potential benefits are, still isn’t widespread. This is why the provision of greater information, tools and support would be useful. More research would be helpful to measure and communicate the financial and social outcomes of past mergers, so that others can learn from these.

Mergers are a complex endeavour and needs to be undertaken with care and proper scrutiny. But the risks of not merging at the right time often aren’t appreciated in proportion. Many charity mergers are in reality bail outs and when struggling organisations only explore it as a last resort, this almost inevitably leads to poor mergers, which are associated with failure and a loss of autonomy.

Finally, capacity and resource are a challenge. Planning and executing a merger can be time-consuming and can entail temporary ‘hidden costs’ stemming from the disruption. Others find the direct and fixed expenses from procuring technical support a burden, and funding that caters fully to these needs is not readily available from grant-makers.

From speaking with many charities, funders and other advisors, I think the solution is two-pronged. Firstly, the sector needs a merger fund that provides flexible financing and technical support, in exchange for some of it being repaid when the economic gains from a merger are unlocked. This is why we have been working with sector funders to explore a potential ‘merger turnaround fund’, which we hope to report on soon.

Secondly, and harder to achieve, is that there needs to be a cultural shift in governance so that charity boards more routinely reflect and ask important questions about their beneficiaries and how best they can serve them. The end here is ‘impact’ rather than merger, although merger is one of a range of tools towards that end. With public confidence in charities sadly now in question, it is imperative that social sector organisations grasp the nettle and demonstrate that we have the checks and balance to manage the country’s finite charitable resources sensibly. This means partnering for impact when it is the right thing to do.

Richard Litchfield is chief executive at Eastside Primetimers



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