Third Dimension – A merger by any other name is just as sweet

July, 2015

By Guy Williams, Lawyer

‘Mergers’ are becoming a commonly discussed topic in the not-for-profit sector (NFP sector), and with good reason – they have the potential for long-term benefits for all parties involved. Our experience has shown, however, that it is common for not-for-profit organisations (NFPs) to feel apprehensive about the prospect of merging since:

While the board and management of a NFP should always be alert to opportunities that will improve efficiency and sustainability, the very tight structural integration which is required between merging organisations is not always the best solution. An alternative is collaboration which, whilst much more informal and accessible, can still provide NFPs with tangible benefits if done correctly.

Benefits of collaboration

Increasing impact

There are three main ways that collaboration might increase the impact of a NFP’s activities:

The Southern Grampians & Glenelg Primary Care Partnership[1] found that knowledge sharing was a key benefit from their collaboration. Janette Lowe, Executive Officer of the Partnership, commented that collaborations allow organisations to examine social issues in their entirety rather than being forced by their mandate to restrict their scope[2]. In the US, Big Brothers Big Sisters of America formed an alliance with Boys and Girls Clubs of America to align the mentoring programs of the former with the development programs of the latter to benefit the clients of both[3].

Improving access to funding

Collaboration in the NFP sector has the purpose of increasing market power to improve access to funding. This can happen in one of two ways:

  1. improving the effectiveness of the funding functions: consolidation of the fundraising effort between organisations can increase the efficiency of how funds are raised by delivering more for the same amount of effort; or
  2. improving the effectiveness of advocacy and influence: collaboration between organisations with a common agenda increases impact. Furthermore, an increased presence will assist in marketing to private donors.

In 2014, eight of Australia’s State-based spinal cord injury organisations created the Australian Spinal Injury Alliance in order to collaborate towards common priorities. Each of the organisations has preserved their independence, whilst leveraging the collective benefits of an organisation that represents the interests people with spinal cord injuries, facilitates discussion and promotes co-ordination on a national level.

Reducing capital requirements or costs

Resource constraint is a major driver for collaboration activity in the NFP sector is. Collaborations can reduce costs by increasing the efficiency of resources by:

Collaboration must be done correctly

Delivering more to members without the hassle of a merger sounds like a win-win. However, before jumping into bed with another organisation, you must consider the following in order to have a successful collaboration.

The collaboration must be member-driven

The following comment from Paul Murnane, the former Chair of MS Society of NSW, is something that needs to be at the forefront of any decision to collaborate. Although increased funding had been an important outcome of the merger between the Victorian MS Society and MS Society of NSW, Mr Murnane stated that “we wouldn’t have gone ahead with the merger if it didn’t benefit the client”.

Whilst there may be several reasons to collaborate, a collaboration should only proceed if it is being driven primarily by the pursuit of improving service to members or clients.

Support must come from the top…

Some of the characteristics that give the NFP sector strength (commitment, passion, and single-mindedness) can militate against effective collaboration. Boards must, therefore, take it upon themselves to consider collaborations as a valid strategic alternative. Board members are obliged to always be looking outside the organisation for opportunities to pursue the mission or purpose of their organisation.

…and the bottom

A new collaboration will almost certainly require some change, and keeping all employees informed of any change is imperative. Openness by the board and management is extremely important and organisations need to have the frank conversations at the start of the project to ensure effective communication with stakeholders. In our experience, granting people sufficient time to understand the reason for the change and inviting them to be a part of it is a simple, yet effective, method of earning employee support. Without their support, if not their enthusiasm, the collaboration will not succeed.

Agree to disagree

Deal breakers should be identified at the earliest possible opportunity and shared with the potential partner. In our experience, we have found that ‘difficult’ questions do not melt away. They get more difficult the further down the track the discussions progress. This leads to the final point of…

Formalising the collaboration

The rationale for collaboration must be clear, agreed by both parties and documented. Clarity about the planned outcomes of the collaboration and tracking of progress is critical. It is prudent for any formal contract to be preceded by a memorandum of understanding (MOU) which sets out the broad commercial terms. The MOU is essentially an agreement to agree, and will establish a framework and express the common goals of the parties. This can be followed by a formal contract which will be legally binding and provide assurance before significant further resources are applied towards the collaboration.

This article originally appeared in Third Dimension – Winter 2015

Contact Mills Oakley

For more information, please contact:

vera-visevic

Vera Visevic | Partner
T: +61 2 8289 5812
E: vvisevic@millsoakley.com.au


 

[1] A collaboration between Glenelg Shire Council, Southern Grampian Shire Council and local NFPs.
[2] The Office for the Community Sector, Department of Planning and Community Development, Community collaboration: The changing context of local government and community sector partnerships (1 July 2013), <http://www.dhs.vic.gov.au/__data/assets/word_doc/0005/832172/Community-collaboration-The-changing-context-of-local-government-and-community-sector-partnerships-1-July-2013.doc>
[3] Big Brothers Big Sisters, Two National Youth Charities Strike Partnerships to Share Resources (15 October 2009), <http://www.bbbs.org/site/c.9iILI3NGKhK6F/b.6065577/apps/s/content.asp?ct=8211673>

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