Collaboration in the charity sector is nothing new. Many charities already collaborate successfully with a range of other organisations at many different levels.
Considering the potential benefits of increased collaboration with other organisations, and reviewing the effectiveness of existing collaborations, should be a top priority for the charity trustee roles and senior management.
But is there is scope for more joint working and collaboration to take place in the sector? Could there be more sharing of resources such as staff, premises, facilities and other infrastructure? Or increased collaboration between charities to provide a more integrated approach to beneficiary needs?
What are the benefits of a charity collaboration or charity merger?
Ultimately a collaboration is only worth embarking on if it is going to lead to better outcomes for the charity’s beneficiaries which it couldn’t achieve by itself. However, charities that work together can operate more efficiently, deliver better services and save money.
The National Council for Voluntary Organisations has outlined the following potential benefits for collaborating charities;
- New or improved services
- Wider geographical reach or access to new beneficiary groups
- More integrated or co-ordinated approach to beneficiary needs
- Financial savings and better use of existing resources
- Knowledge, good practice and information sharing
- Sharing the risk in new and untested projects
- Capacity to replicate success
- Stronger, united voice
- Better co-ordination of organisations' activities
- Competitive advantage
- Mutual support between organisations
Trustees have always been under a duty to consider regularly whether collaborating with others would be a better way of achieving the charity’s purposes.
The Charity Commission views collaboration, for the ’right’ reasons, as a key way in which a charity can demonstrate it is ‘living its values’ and helping maintain public trust in the charity. Baroness Stowell, chair of the Charity Commission, commented the following regaurding the merger between Breast Cancer Care and Breast Cancer Now.
“…..The two former charities made the difficult decision to merge ...not because it was convenient for anyone involved …. And not because it was a last resort borne of financial imperatives. Both were financially stable. But because the merger was the right thing to do for the beneficiaries of both charities, and because it was right in principle”
What types of charity collaborations are there?
Charities should take time to consider how ‘deeply’ they wish to collaborate and the nature of any legal relationships they wish to create. This is an area where professional advice at an early stage can add significant value.
Charity collaborations can be categorised broadly into four different types:
- Loose working arrangement – informal, non-legally binding, although more permanent relationships may subsequently develop.
- Contractual arrangement – where the collaboration is legally binding but no new legal entities are being created, for example where a lead contractor charity engages with subcontractor charities to deliver a commissioned contract.
- Corporate joint venture – where the parties form a new entity through which the collaboration will be conducted- for example a jointly-owned company to provide shared services to the charities involved.
- Merger – where all the assets and operations of 2 or more charities are permanently combined. This can be achieved by:
- One charity acquiring the assets and liabilities of another charity (a takeover).
- One charity acquiring control in governance terms of the other charity (creating a ‘group’ relationship).
- A completely new charity being established into which the assets of existing charities are transferred.
What are the risks of a charity collaboration or charity merger?
Any collaboration will not be without risks and trustees will need to assess these carefully.
Effective collaborations don’t just happen, they can require considerable effort and resource over a prolonged period that can risk disruption to existing activities and priorities. Trustees will need reassurance that the business case stacks up and the outcomes from the collaboration will justify the required input and resources and consequential impact.
A key legal risk area for trustees is to guard against mission drift- where the activities of a collaboration stray from the participating charities’ individual objectives. This must be avoided as it can lead to personal liability risks for trustees.
Many collaboration risks can be mitigated if careful planning and due diligence is carried out in advance. Properly drafted legal agreements documenting the terms of the collaboration will be vital for all but the most informal arrangements.
How to overcome the barriers of charity collabortaion
Differences in organisational culture between the charities involved can be fatal to a successful collaboration. This is a key issue for trustees to identify at an early stage if a formal collaboration, particularly a merger, is going to work.
Lack of experience in collaborations can lead to a lack of confidence. It is often advisable to ‘start small’ as a means of building mutual trust and confidence between organisations before embarking on more significant collaborations. Indeed many successful charity mergers have been helped by a high degree of mutual trust and confidence already having been built up by previous collaboration between the charities involved.
Not every charity is fortunate to have trustees or senior managers who have been through a merger or have other experience of commercial collaborations or reorganisations. Where there is this gap, on more significant collaborations it can be very useful to engage external change management expertise to support trustees through the process.
Unwanted VAT consequences can present a stumbling block to some shared resource arrangements. Whilst there are some potential solutions out there, for example through the use of a cost sharing group to supply shared services, these are not straightforward and so early VAT advice can be extremely valuable to help address any VAT concerns.
It may also be necessary to overcome a general resistance to change on the part of trustees or senior management. Some may feel a collaboration will lead to a loss of independence or autonomy- it needn’t and shouldn’t in anything less than a full merger. Others may feel that a proposed merger is somehow an admission of failure- it isn’t. It is just a recognition that the interests of beneficiaries could be better served in a different way.
Find out more