(September 2010)

Community Foundation Network Seminar Collaborations and Mergers

I'm delighted to be here at this seminar.

The relationship between the Commission and Community Foundations has long been close and fruitful.

Our work together has included the award winning Boost Initiative, of which I think we can be rightly proud. I also know that Dame Suzi, the Commission's Chair, received a warm welcome at this event last year.

So I feel very much at home here with you.

And I'm delighted to have been asked to talk about the subject of collaboration and merger, an issue of increasing interest to charities of all sizes.

It's great that, yet again, Community Foundations and the CFN are proving to be ahead of the game, deserving of their reputation as innovative, flexible, forward-thinking charities.

Your interest in exploring the benefits that can emerge from collaborating or merging with other charities is another characteristic example of your positive approach.

And of course this event comes at a critical time for charities – especially those, like Community Foundations, relying for a proportion of their income on local and central government grants or contracts.

That currently applies to a quarter of charities with incomes of over £100,000 a year.

Those grants are looking less secure than they have for a very long time. We are entering what will be the most challenging funding environment since Community Foundations first developed in this country in the 1980s.

Your model of community based charities, focused on meeting real local needs and supporting real local initiative does seem right up the new coalition government's street. Or should I say, up their “square mile”.

But the reality is of course that public sector funding will decline. We won't know exactly how the pain is to be shared until the outcome of the comprehensive spending review is made public next month.

But we have been given some fairly unequivocal hints that the pain will be severe.

This will come on top of charities' existing financial difficulties. The Commission's Economic Survey of Charities, last conducted in March this year, revealed that nearly 60% of charities said they'd been affected by the downturn.

That was up from 38% in September 2008.

At the time, only 9% of charities said they had considered collaborations. That was up on 2008, when we first asked. Then, only three percent – only three in every hundred – charities had considered collaborating with others.

But nine percent is still low – and represents a genuine cause for concern for the Commission.

Because working with other charities with similar objects and groups of beneficiaries can be associated with significant economies of scale as well as greater effectiveness.

Of course, financial difficulty is not, by any means, the only motivation for charities to consider collaborating with others.

Often charities in very good financial health chose to come together because they realise that doing so is in the interests of both charities' beneficiaries. And because they realise the new unit can be more effective than the sum of its previous parts.

Indeed, our case work suggests that 58% of charities merging do so in order to improve service delivery.

But money does matter, and we are encouraging charities, especially those with uncertain funding futures, to consider the option of collaborating or merging with others.

That's why we've published guidance for charities, both on collaborative working and on the more complex issue of formal organisational mergers.

I'd like to focus first on collaboration.

The options for charities here are enormously diverse.

They can start from very informal agreements to lend or borrow equipment or to share information and expertise.

An example of this type of collaboration is set out in our toolkit “Choosing to collaborate”. A small charity called African Prisons Project, whose objects are to improve the lives of prisoners in Africa, has learnt how best to apply for government funds from an older, more established charity, working more generally on social justice – called African Initiatives.

Collaboration can of course be more formal and contractual. For instance, small charities might come together to share office space, or to jointly employ members of staff – perhaps HR or IT professionals. These types of arrangements are often aimed at achieving cost savings for all involved.

Coalitions for action are another type of collaboration. For instance, Stop Climate Chaos is a coalition of over 100 not-for-profit organisations which share the aim of reducing the impact of climate change on the world's poorest communities.

The goal of the coalition is to increase public awareness and improve the charities' influence over policy makers. It is flexible, allowing members to sign up to the coalition's main aims while continuing with their own activities and pursuing their individual priorities.

While these examples are very different, there are basic principles underlying all types of collaboration.

The Commission's toolkit summarises these as key questions trustees of all charities should ask before embarking on joint work.

These include:

Is our suggested partner compatible with us in terms of objects, culture, governance arrangements and funding base?

Does any private benefit result from this – if so, is it incidental and in line with Commission guidance?

Are there any risks associated with our proposal - such as reputational damage or financial loss?

It is also very important that partners agree, from the very beginning, what the main aim of their collaboration is.

That agreed desired outcome should then form the basis of any actual plans that are developed.

And charities should also consider carefully any potential barriers to success. These can be very ‘human' and include communication failures or personality clashes, which, in the Commission's experience, can be toxic. More on that later.

So I hope I've given you a sense of the broad range of collaborative partnerships available - personally, I find it difficult to imagine that there is a single charity operating in England and Wales today whose work could not be improved by some form of collaboration with another charity.

I'd like now to move on to talk about full mergers between charities.

These, as you can imagine, are altogether more complex affairs. But their benefits can be all the more extensive.

Merged charities can often reach a wider number and range of beneficiaries.

They can reduce costs and duplication.

They can improve their access to funding, improve their public profile and become more innovative in their ways of working, taking the best from each constituent charity and combining them into a much more effective force.

And, charity mergers are often beneficial for the wider sector by enhancing trust and confidence in charities generally.

We know that having a huge range of charities working in very similar areas can be confusing to the public.

They can be perceived as over-competitive and insufficiently focused on the best outcomes for their beneficiaries.

But despite all, this, it is not, in fact, on the Commission's agenda to push for mergers. We're certainly less evangelistic about them than we are with respect to other forms of collaboration.

Our role is simply to help make charities aware of their options and to help them with any legal or constitutional issues that arise.

Making mergers work, our guidance on the subject, which was published near enough exactly a year ago, is a really useful document with which to start.

It sets out not only the key regulatory, legal and process issues to consider, but also includes information on common pitfalls – all drawn from the Commission's own casework.

It's a 44 page document – and I don't think you'd thank me for going through it in detail.

But I will highlight some of the issues it raises, focusing on those most likely to be relevant to Community Foundations.

The first is the role of the Commission itself.

Please, if you are considering a merger, come to us for advice, support – a chat – at the earliest opportunity.

We can help you timetable the process and provide advice on statutory considerations.

We have a dedicated team whose members have knowledge, expertise, and merger-instinct at their fingertips.

And in fact many charities that contact us do not proceed to full merger.
Our research tells us that around a third of the charities that don't proceed to full merger choose some form of collaboration instead.

The next issue I'd like to highlight is cost.

Of course mergers can lead to the more efficient long term application of charitable funds.

But in the short term, they are often resource intensive. Charities need to consider the costs of professional fees, rebranding, staff time, relocation, consultation, among others.

I note that your organisations are not strangers to this issue. I understand that, in 2008, two London Community Foundations explored the possibility of a merger but decided that the costs associated with it did not, at the time, merit the undertaking.

That is understandable – but I hope that if those two Community Foundations really consider merger in the best interests of both charities, they revisit the option at a future date.

Another key area merging charities often fail to consider adequately is personality.

It is important for trustees of merging charities to agree, from the beginning, which parties from each charity will carry the merger process to its conclusion.

And issues such as ‘who will be the CEO of the new charity?' may seem trivial. But personal rivalry between individuals has seen many attempted mergers come to grief.

I don't want to curb your enthusiasm though – there are many examples of successful mergers between charities.

Recent examples include:

• The merger between Age Concern and Help the Aged to form AGE UK;

• The merger between Imperial Cancer Research Fund and the Cancer Research Campaign to form Cancer Research UK;

• And the successful if complex coming together of the RNIB with Action for Blind People.

And Community Foundations themselves of course look back on a proud tradition of coming together for the common good.

The Boost Initiative, which of course the Commission was part of, has seen Community Foundations benefit from millions of pounds of dormant charitable funds once used by other charities.

The processes of transfer involved in the Boost Initiative were a form of organisational merger resulting in huge benefits to recipients of community foundation grants across the country.

However, while, you have extensive experience merging with much smaller charities, you will understand that the dynamics are quite different when the proposed merger involves two community foundations of equal size.

Because it's in your DNA to be close to the ground, to be grass roots, to support the neighbourhood projects that wouldn't get noticed, let alone supported, were it not for the networks you command.

No doubt some of CFN's members harbour concerns that Community Foundations that become too large, too ‘corporate' will lose that local connectedness.

I do not have the magic answer for you – but they key question to ask is:

Would merger be in the best interests of all our beneficiaries? Would it help us become a more effective, a better charity?

Speak to the organisations you support, speak to those who benefit from the organisations you fund, speak to those who fund you.

Do they think merger is in the long term interests of your causes?

If so, then take the plunge. And if you have any questions about the logistics, the ‘legalistics' or the process involved – come to the Commission.

And don't forget – deciding against merger does not mean deciding against collaboration.

Working together, not in competition – is at the heart of the charity ethos.

It's central to what makes charities special. And like many activities associated with charity, collaboration might be hard work - but it's hard work that can make a big difference to your beneficiaries and to society at large.

Thank-you.