Getting Our (Charitable) Act Together

The need for consolidation in the Not for Profit sector isn’t as critical as popular opinion would have us believe. However, greater collaboration, integration and mergers can be beneficial writes Social Ventures Australia (SVA) Consulting’s Executive Director Duncan Peppercorn.

This is an edited version of the full article published in SVA Consulting Quarterly.

So what are the obstacles and how can we nurture tighter collaboration?

It’s an ‘article of faith’ in the Australian charitable sector that there is a proliferation of non-profits, many of whom have similar causes and programs. If some of these organisations ‘merged’ then back office costs could be saved, and there would be less confusion in the market.

However, mergers and very tight integration between organisations is difficult and not always the best solution. An alternative is to encourage more and deeper collaboration.

Proliferation: problem or potential?

Funders, observers and even executives in the sector often say that there are ‘too many’ Not for Profts in Australia; that this is a problem; and that more ‘mergers’ are required. In 2010, the Productivity Commission report: Contribution of the Not-For-Profit Sector observed that the sector “…should be more open to the possibilities of restructuring and forging new ways of collaboration”.[ii] In 2007, the SEEEN report: Contrary and Congruent Views of Leadership and Management in the Australian Social Economy found that respondents were critical of the sector having a large number of smaller organisations.[iii]

However, two arguments cast doubt on whether there really is a compelling case for restructuring.

In the first place, there is value in proliferation. If we are to embrace innovative approaches to old problems, then the sector needs to encourage small initiatives to set up and grow. Small, new organisations potentially bring new supporters and new funding into the sector. There is also an argument that small, ‘niche’ challenges will only be addressed by dedicated organisations, and would get lost in larger non-profits – for example the Brown Nurses based in Glebe, NSW, who are specifically committed to ‘…offering holistic care to the sick poor in their own homes’.

These smaller organisations can also be more nimble and flexible and therefore better able to respond to changes in their operating environments than larger organisations.

Secondly, it is unclear what the benchmark is for proliferation. Compelling, comparable data for the US and the UK to demonstrate that Australia has more, or fewer non-profits per capita (or per unit of GDP) is hard to find. Colleagues in Europe and the US bemoan proliferation there, so maybe it is simply that any duplication causes confusion and discomfort, even though it may in fact be a good thing.

Furthermore, mergers are, in fact, rare in other sectors: when businesses ‘merge’ the actual mechanism is more likely to be ‘takeover’. This involves one entity buying the shares of the other, and the ‘merger’ will be agreed based on whether shareholders believe that they are getting a good deal. This mechanism simply doesn’t exist in the non-profit space: there is no dividend flow to buy. As a result, the mechanism driving consolidation is, largely, absent. Whether or not there is proliferation, the main mechanism to control it through mergers is absent.

While mergers might not happen often, there are in fact increasing numbers of collaborations – many of them deep and tight.[iv] Given the problems of merging (explored in more detail later), an alternative approach is to encourage more and deeper collaboration, and to make it more evident, in particular to those concerned about inefficiency in the sector.

A spectrum of collaborative options are available, however we will concentrate on very tight structural integration of programs between organisations, and on structural amalgamation.

The reasons to collaborate tightly

Closer collaboration or indeed merger in the Not for Profit sector is all about performance improvement. This is a narrower driver set than in the for-profit sector where ‘mergers’ can be motivated by a different valuation perspective or by financial considerations such as access to cheaper capital.

Performance improvement can be any or all of:

• Increasing impact

• Improving funding

• Reducing capital requirements or operating costs.

Increasing impact

There are four main ways that collaborating on programs or integrating organisations might increase the impact of a program) or, indeed, allow the organisation to survive to continue to deliver impact:

• Improving one or both of the existing separate programs, or increasing their sustainability

• Providing a better combination of programs to clients

• Entering new communities/geographies

• Managing onerous legal or compliance responsibilities.

If two organisations have similar programs, or different programs that address the same issue, it is likely that one program will be more efficient or effective, and it is certain that one program will be better in some dimensions than the other.

By effectively integrating learnings from both, a better result will be achieved for the beneficiaries of the programs.

The full article can be read here.

Endnotes

[i] This article is based on SVA Consulting’s work with organisations who were merging, considering merging, or had tried and failed to merge; research reviewing other case studies from around the world; and two roundtable discussions with non-profit CEOs, chairs and funders in 2011 and 2012 hosted by Macquarie Bank Foundation.

[ii] Productivity Commission, Feb 2010, Contribution of the Not-For-Profit Sector, pg.229

[iii] Social Economy Executive Education Network (SEEEN), Nov 2007, Contrary and Congruent Views of Leadership and Management in the Australian Social Economy, pg.70

[iv] Based on SVA Consulting’s work with organisations who were merging, considering merging, or had tried and failed to merge; research reviewing other case studies from around the world; and two roundtable discussions with non-profit CEOs, chairs and funders in 2011 and 2012 hosted by Macquarie Bank Foundati