A Merger By Any Other Name Is Just As Sweet
Published: December 12, 2016
Read Time: 5 minutes
‘Mergers’ are becoming a commonly discussed topic in the not-for-profit (NFP) sector, and with good reason – they have the potential for long-term benefits for all parties involved. Our experience has shown, however, that it is common for NFPs to feel apprehensive about the prospect of merging since:
- boards and working cultures must be responsive and cooperative towards a merger;
- a proposed merger could be resisted, poorly received or opposed due to the emotional investment of board members, staff, members, volunteers and funders; and
- a merger takes careful and considerable planning, time and money.
While the board and management of an NFP should always be alert to opportunities that will improve efficiency and sustainability, the very tight structural integration that is required between merging organisations is not always the best solution. An alternative is collaboration which, whilst much more informal and accessible, can still provide NFPs with tangible benefits if done correctly.
1. Benefits of collaboration
(a) Increasing impact
There are three main ways that collaboration might increase the impact of an NFP’s activities:
- leveraging better people, systems, facilities and infrastructure from one project/organisation to improve the other;
- adopting processes from one project/organisation such as practices, standards and guidelines; and
- introducing strong projects to new communities/markets/industries.
The Southern Grampians & Glenelg Primary Care Partnership1 found that knowledge sharing was a key benefit from their collaboration. Janette Lowe, Executive Officer of the Partnership, commented that collaborations allow organisations to examine social issues in their entirety rather than being forced by their mandate to restrict their scope.2
In the US, Big Brothers Big Sisters of America formed an alliance with Boys and Girls Clubs of America to align the mentoring programs of the former with the development programs of the latter to benefit the clients of both.3
(b) Improving access to funding
Collaboration in the NFP sector has the purpose of increasing market power to improve access to funding. This can happen in one of two ways:
- Improving the effectiveness of the funding functions: consolidation of the fundraising effort between organisations can increase the efficiency of how funds are raised by delivering more for the same amount of effort; or
- Improving the effectiveness of advocacy and influence: collaboration between organisations with a common agenda increases impact. Furthermore, an increased presence will assist in marketing to private donors.
In 2014, eight of Australia’s State-based spinal cord injury organisations created the Australian Spinal Injury Alliance in order to collaborate towards common priorities. Each of the organisations has preserved their independence, whilst leveraging the collective benefits of an organisation that represents the interests of people with spinal cord injuries, facilitates discussion and promotes co-ordination on a national level.
(c) Reducing capital requirements or costs
Resource constraint is a major driver for collaboration activity in the NFP sector is. Collaborations can reduce costs by increasing the efficiency of resources by:
- rationalising shared services and back-office functions: integrating back-office functions (e.g. IT, finance and payroll) for multiple organisations will save costs, allowing more resources to be focused on project delivery; and
- increasing asset utilisation: for example Social Ventures Australia, Career Trackers and AIME all share an office in Melbourne, defraying costs and using heating, lighting and fixed office equipment more efficiently.
2. Collaboration must be done correctly
Delivering more to members without the hassle of a merger sounds like a win-win. However, before jumping into bed with another organisation, you must consider the following in order to have a successful collaboration.
(a) The collaboration must be member-driven
The following comment from Paul Murnane, the former Chair of MS Society of NSW, is something that needs to be at the forefront of any decision to collaborate. Although increased funding had been an important outcome of the merger between the Victorian MS Society and MS Society of NSW, Mr Murnane stated that “we wouldn’t have gone ahead with the merger if it didn’t benefit the client”.
Whilst there may be several reasons to collaborate, a collaboration should only proceed if it is being driven primarily by the pursuit of improving service to members or clients.
(b) Support must come from the top…
Some of the characteristics that give the NFP sector strength (commitment, passion, and single-mindedness) can militate against effective collaboration. Boards must, therefore, take it upon themselves to consider collaborations as a valid strategic alternative. Board members are obliged to always be looking outside the organisation for opportunities to pursue the mission or purpose of their organisation.
(c) …and the bottom
A new collaboration will almost certainly require some change, and keeping all employees informed of any changes is imperative. Openness by the board and management is extremely important and organisations need to have the frank conversations at the start of the project to ensure effective communication with stakeholders. In our experience, granting people sufficient time to understand the reason for the change and inviting them to be a part of it is a simple, yet effective, method of earning employee support. Without their support, if not their enthusiasm, the collaboration will not succeed.
(d) Agree to disagree
Deal breakers should be identified at the earliest possible opportunity and shared with the potential partner. In our experience, we have found that ‘difficult’ questions do not melt away. They get more difficult the further down the track the discussions progress. This leads to the final point of…
(e) Formalising the collaboration
The rationale for collaboration must be clear, agreed by both parties and documented. Clarity about the planned outcomes of the collaboration and tracking of progress is critical. It is prudent for any formal contract to be preceded by a memorandum of understanding (MOU) which sets out the broad commercial terms. The MOU is essentially an agreement to agree, and will establish a framework and express the common goals of the parties. This can be followed by a formal contract which will be legally binding and provide assurance before significant further resources are applied towards the collaboration.
This article was originally published in the Better Boards Conference Magazine 2015
A collaboration between Glenelg Shire Council, Southern Grampian Shire Council and local NFPs. ↩︎
The Office for the Community Sector, Department of Planning and Community Development, Community collaboration - The changing context of local government and community sector partnerships - 1 July 2013 ↩︎
Big Brothers Big Sisters, Two National Youth Charities Strike Partnerships to Share Resources 15 October 2009 ↩︎
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At the time of writing, Vera heads up the Sydney Not-for-Profit, Human Rights & Social Impact team at Mills Oakley. Acting for numerous charities, religious and not-for-profit organisations, Vera has close to 30 years of experience in the legal profession.
In the Not-for-Profit sector, Vera focuses on constitutional reviews, mergers, governance and fundraising issues and regularly advises on ACNC and ATO endorsements. Vera has written several academic works, including a chapter within ‘Charity Law’ (2012, 2016 and 2018) published by Thompson Reuters.
Vera sits on numerous charity boards, associations and committees including the ACNC Professional User Group, the Community and Consumer Consultative Group, Cemeteries and Crematoria NSW, Everyday Justice and CatholicCare, Diocese of Parramatta.
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