Consolidation of federated charities and not-for-profits

November, 2017

By Clarissa Sukkar

Mergers amongst existing federated organisations[1] with related and like minded national and state based arms is being increasingly viewed as an avenue to better realise the common objectives of otherwise separate legal companies or entities. Competition within federated charities or not-for-profits, especially arms which share the same name, has been cited to be as fierce as that of competition from outside organisations.[2] With most national Australian not-for-profits and charities structured as federations, thousands of these organisations could stand to benefit from the efficiencies of consolidation.[3]

In particular, the Community Council for Australia and other peak bodies have been calling upon charities to consider merging or closing down in a bid to reduce competition for increasingly limited funding.[4] Inability to secure adequate funding not only stumps capacity to achieve successful outcomes, but threatens the very survival of such organisations.[5]

Why is consolidation beneficial?

Consolidation of federated structures through the combining of resources, funds and other specialised infrastructure provides a significant cost and efficiency booster. With particular regard to charities, this offers a creative solution against reduced government investment and fewer bequests and donations in recent years. Large charities, for instance, reported $38.2 million less in donations and bequests in 2015 than 2014, a drop of 2.1%.[6]

Consolidation of federated structures is also a strategic avenue for realising a collective mission statement that multiple related bodies are struggling to achieve alone. Consolidation results in the reduced duplication of work (noting that approximately 600,000 not-for-profits and 54,000 charities registered with the ACNC currently operate across Australia),[7] lowering of administrative burdens and associated benefits to an organisation’s financial sustainability. For charities, consolidation also works to eliminate competition for fundraising and government contracts. These combined efforts contribute to the deliverance of strengthened services that can reach further in benefiting intended communities or target groups.[8]

Can large federated organisations continue to justify the significant expense of multiple CEOs, finance, administration, IT, communication, marketing, human resources and fundraising teams that do the same thing?[9] Good people can make federated structures work, but this requires them to work against problems inherent in their structure – why work against a problem when that very problem can be eliminated?[10]

What are some common misconceptions?

When consolidation embodies open dialogue between State boards in developing a clear national strategy, is well planned, well managed and tailored to the specific requirements of individual cases – common traps can be avoided. Of particular importance is aligning existing boards, defining roles for senior staff, blending the various brands and managing priority between the strategic directions of national and State based arms[11] in a way that is mutually acceptable.[12]

Removing separate governance structures, boards and CEOs that operate on a smaller localised level need not diminish the quality of services and community relationships. Consolidation in an effort to better achieve common goals can in fact encourage this as a priority when negotiating cultural and branding differences. Priority can be placed on growing core business outcomes, rather than singular organisations. This encourages potential self-interests and rivalries to be put aside in pursuit of a wider shared goal.[13]

Moreover, consolidation delivers the opportunity to develop more holistic national strategies rather than limited State based outlooks. It also encourages otherwise State interested players to have greater influence and voice over national issues. This works to combat criticism that hierarchical federated structures deny people at the more local/State level the opportunity to have a direct say in the election of their national leaders or policies.[14]

Additionally, the increased size of a consolidated national organisation provides better positioning to lobby the government in respect of applicable policy. Other potential benefits include:

Furthermore, consolidation among federated structures which are already functionally related carries fewer operational risks compared with mergers among completely unrelated organisations where wholesale change can occur.[15] Some level of change in the consolidation process is, however, inevitable. Acceptance of change can be better achieved where it is openly justified, explained with clear reasoning and where procedures for evaluation/monitoring are created. Negotiating acceptable time-frames for individual State arms to transition to new processes can also assist.[16]

It is important to remember that, while the legal separation of State arms as individual entities is removed by the consolidation process, some functional division can be maintained. This occurs via the grouping of individual State members into chapters, which retains some ability for State arms (and particularly members of professional or industry associations) to manage specific matters, dealings and issues at a State level.

Is it actually happening?

According to the YWCA’s National Merger Project website, the YWCA (Young Women’s Christian Association) is currently considering consolidation to create a single, national entity. As at 2017, the YWCA comprises of 11 member associations, each with its own board, constitution, set of programs and media presence (this follows a trend which once saw over 54 separate YWCAs across Australia). These 11 associations (operating across different States and Territories) are members of YWCA Australia which is affiliated with the World YWCA.

The proposed consolidation, publicised formally as the ‘YWCA National Merger Project’, has been encouraged by the YWCA, as a mechanism to ‘ensure that YWCAs in Australia can continue to efficiently and effectively deliver for current and future members… who rely on their services’. It has also been supported for its ability to increase the organisation’s impact and influence as well as assist in keeping the YWCA current in the changing market place. The YWCA has particularly highlighted the merger as being a response to competitive pressures experienced by the not-for-profit sector in Australia.[17]

Some operational steps that have occurred in the YWCA merger space are summarised as follows:[18]

Eleven YWCA branches reaffirmed their commitment for a national merger, with a targeted merger set for the end of the 2017 calendar year.

Correspondence with YWCAs in the Hunter and Canberra has commenced to establish pathways for inclusion and collaboration.

YWCAs across Australia continue to encourage feedback and engagement with staff and members. A formal merger booklet will be published for members prior to any formal decision to merge.

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References

[1] Neil Primrose, Best Structure for Best Practice NFPs – Federated or Unitary: A Primrose Solution Discussion Paper (February 2009) Primrose Solutions (WordPress) <https://onesma.files.wordpress.com/2013/04/best-structure-for-best-practice-for-nfps-federated-or-unitary.pdf>.

[2] Alexandra Black, ‘Charities body calls for mergers’, The Canberra Times (online) 11 November 2015 <http://www.canberratimes.com.au/act-news/charities-body-calls-for-mergers-20151109-gkuwpv.html>.

[3] Ibid; Primrose, above n 1, 1.

[4] Black, above n 2; Xavier Smerdon, ‘Merge or Shut Down, Australian Charities Told’, Pro Bono Australia (online) 11 November 2015 <https://probonoaustralia.com.au/news/2015/11/merge-or-shut-down-australian-charities-told/>; Judith Ireland, ‘Peak body calls for charities to merge amid funding squeeze’, The Sydney Morning Herald (online) 11 November 2015 <http://www.smh.com.au/federal-politics/political-news/peak-body-calls-for-charities-to-merge-amid-funding-squeeze-20151110-gkv9fy.html>.

[5] Black, above n 2.

[6] N Cortis, A Young, A Powell, R Reeve, R Simnett, K Ho and I Ramia, Australian Charities Report 2015 (2016) Australian Charities and Not-for-profits Commission <http://australiancharities.acnc.gov.au/download/> 89.

[7] Australian Government Productivity Commission, Productivity Commission Research Report: Contribution of the Not-for-profit Sector (January 2010) <http://www.pc.gov.au/inquiries/completed/not-for-profit/report/not-for-profit-report.pdf>.

[8] Black, above n 1; Smerdon, above n 4; Ireland, above n 4.

[9] Smerdon, above n 4.

[10] Primrose, above n 1, 1.

[11] Willa Seldon, ‘If Nonprofit Mergers Seem Obvious, Why Aren’t There More?’, Huffpost (online) 24 February 2014 <https://www.huffingtonpost.com/willa-seldon/if-nonprofit-mergers-seem_b_4849062.html>.

[12] John Vaughan-Williams, Charitable and Not-for-profit Mergers: Solution or Generalisation? (February 2015) Mills Oakley <http://www.millsoakley.com.au/charitable-mergers-solution-or-generalisation/>; Primrose, above n 1, 3.

[13] Smerdon, above n 4.

[14] Primrose, above n 1, 2.

[15] Vaughan-Williams, above n 12.

[16] Primrose, above n 1, 6.

[17] YWCA, About (2017) YWCA Merger <http://www.ywcamerger.org.au/about/>.

[18] YWCA, News & Media (2017) YWCA Merger <http://www.ywcamerger.org.au/news/>.

 

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