More NFP Boards Tackle Mergers & Collaborations - Report

More than 30 per cent of Australia’s Not for Profit organisations have discussed mergers in the past year and many more organisations are exploring and engaging in cross-sector collaboration, according to a new survey of board directors.

The Not for Profit Governance and Performance Study conducted by research firm BaxterLawley for the Australian Institute of Company Directors is described as one of the largest surveys of NFP governance in Australia.

More than 2,700 directors of NFP organisations with a combined income of $15 billion in 2013/14 participated in the CBA sponsored study.

The respondents included directors from a wide range of NFPs, such as educational institutions, aged care facilities, charities, recreational organisations and social service providers.

Those surveyed represented entities with annual income of less than $250,000 through to very large entities with income of more than $20 million.

The report found that the push for consolidation is greatest among large NFPs with income above $10 million or those operating in social services.

Around one-quarter of boards that have discussed a merger believe the process will be complete within two years, setting the scene for a new round of consolidation in the sector.

Some 47 percent of boards said the main reason for considering a merger was improve efficiency while 40 percent said  a merger would broaden range of services to existing services users.

“While mergers have been on the cards for Not for Profits for a number of years it is fascinating to see such a strong result for the first time in this year’s annual survey,” AICD NFP Manager Phil Butler said.

“It’s important that the conversation is being had. The question then is if a merger is not taking place how is the Not for Profit best placed to achieve its outcomes in the future.”

Collaboration with other Not for Profits is also a high priority for many Directors according to the survey results.

The survey asked directors if their organisations collaborate with other NFPs, how they collaborate and whether a merger is something they have considered.

The results reveal that NFPs are actively collaborating and partnering with other NFPs to deliver services across the sector.

Two-thirds of directors said their NFP works with others to advocate for their sector or to service beneficiaries, and more than a third have an agreement/ memorandum of understanding (MOU) to refer or service clients (this was highest among NFPs in the health sector).

A quarter of directors reported their NFP shares resources, such as buildings and equipment and 18 per cent share back office costs.

Over 40 per cent report subcontracting the provision of some services to other NFPs and 15 per cent outsource their back office functions to another NFP for which they pay a fee.

There are slightly higher proportions of NFPs collaborating with others among organisations with income less than $250,000 and between $2m and $10m.

Collaboration was also highest among NFPs operating in the education, health and social services sectors.

“It is pleasing to see collaboration showing up so very strongly in this year’s survey results,” Butler said.

“However one of the other key issues that many boards are struggling with is performance measures.

Directors who took part in the survey’s focus groups indicated that They also noted that absence of hard outcome measures can result in boards focusing too much on the operations or activities (the things that can be measured); and the difficulty in having constructive conversations of alternative strategies when there is little objective evidence to evaluate alternatives.

“There’s no doubt that performance measurement across the Not for Profit sector is a complex and enduring issue for many boards,” Butler said.

According to the report the data does suggest that organisations with income below $1m are twice as likely as larger organisations to state that they were ineffective at measuring their mission.

It also shows that directors in the education, international aid, philanthropy and research sectors gave their organisations higher ratings for measurement of mission.

Approximately 60 per cent of directors want more measures of achievement of their mission and half want more non-financial performance measures in general. About 40 per cent specifically want more information about risk, data on the sector and information on achievement of financial benchmarks.

“The results of our study show that NFP boards have extremely high standards of governance that allow directors to pursue the strategies that will achieve the best outcomes for their organisations and stakeholders,” Chief Executive Officer of the Australian Institute of Company Directors, John Colvin, said.

“Around 80 per cent of non-executive directors who participated in the study believe the quality of governance in the sector is better than it was three years ago.:

Other key findings of the survey include:

·      Many NFPs are struggling to determine the impact of reforms, or proposed reforms, to government policy and legislation. Seventy eight per cent of respondents called on the Government to clarify its direction and create stability in operating environments as a matter of priority in the next three years.

·      84 per cent of non-executive directors do not receive fees for their roles and the average amount of time devoted to a directorship is 20 hours per month.

·      Only 50 per cent of non-executive directors believe their organisations measure overall performance effectively. Many would like more non-financial information to determine if an organisation is achieving its mission or purpose.

·      62 per cent of respondents identified maintaining or building income as a high priority in the next 12 months as they seek to diversify their organisations’ income streams and reduce their reliance on government funding.

·      Uncertainty about Government funding was ranked as the second most important challenge for school boards in the next three years, behind only the need to maintain or enhance a school’s reputation.

·      Directors of aged care facilities nominated financial sustainability as their biggest challenge over the next three years, followed by compliance with government requirements.

“NFP boards, like those in other sectors, require stability in government policy to be confident that the decisions they make will not be compromised. Uncertainty about potential reforms has a significant impact on NFP’s ability to plan for the future, to secure appropriate resources and to maintain the required number and composition of staff,” Colvin said.

“Further, directors of NFP boards fulfil an important role that benefits all Australians, and it is critical that the environment in which they operate allows them to perform their duties as effectively as possible,” he said.

General Manager Not-for-Profit Sector Banking at Commonwealth Bank, Vanessa Nolan-Woods, said the NFP sector is setting itself up for ongoing success by strengthening its financial foundation.

“NFPs are finding innovative ways to build revenue and diversify their service offering so that they are less reliant on government funding,” Nolan-Woods said.

“Consolidation will also help to underpin the NFP sector’s financial sustainability as more organisations seek to benefit from synergy and scale.

“Creating diverse funding sources and greater collaboration among related organisations will ensure NFPs have more options to use resources in areas where they are needed most.”

Download the report HERE

TODAY’S Pro Bono Australia Executive Webinar: NFP Mergers. The best approach to mitigate challenges and risks October 23, 2pm. Presented by Whitelion's Founder and CEO Mark Watt and Manager of Strategic Development, Rowena Middlemiss, this is a must attend event for any Not for Profit or business leader who wants to understand the process behind mergers and the potential opportunities and challenges for the sector. Book now