Getting it together

Monday saw the launch of this year’s Eastside Primetimers Good Merger Index. The headline figure is that there were 70 charity mergers in 2016/17, up from 54 in 2015/16. This is a significant increase given the small number involved but, given that there were 61 in 2014/15, it doesn’t necessarily represent a major upward trend.

The debate around mergers is a strange one. I’m a big fan of the work that Eastside do on the issue and enjoyed working with them last year on some research for Social Investment Business looking at how social investors could better support mergers (report to be published this year).

But (to a lesser extent) Eastside’s output and (to a more significant extent) the recent output from Civil Society on this issue seems partly based on some curious, under-developed assumptions. This curious outlook is particularly reflected in the recent post: ‘Charity mergers scuppered by the self-interest of staff and trustees’ which is part of a wider focus on the issue in Civil Society’s print magazine, Governance & Leadership.

The article includes a couple of anecdotal examples of staff and trustee action that has prevented mergers that would otherwise have gone ahead.

I’m aware of other similar anecdotes from research I’ve worked on but I’m yet to encounter evidence (or indeed clear arguments) that these personal objections and obstructions are a key reason why there’s 50-70 mergers a year rather than 500, 1000 or however many merger advocates believe would be appropriate.

There’s (at least) two assumptions underlying the blame the staff/trustee rhetoric that I think are under-explored and at least partially wrong:

There are 167,000 charities who should be actively thinking about merger: the figure from Eastside’s research as reported by Civil Society is “only 70 mergers involving 142 charities took place in the year to March 2017, out of 167,000 registered charities.

It’s a phenomenally small proportion but it doesn’t involve any estimate of the number of charities who are potentially in the ‘market’ for mergers. Even without (at this point) getting into the more complex issues about the wide range of different activities that a registered charity might be undertaking – just based on size the actual pool is far, far smaller than the headline figure suggests.

The latest Charity Commission figures report that out of 168,237 charities in the UK, 65,656 (39%) have an income of £0-£10,000, while another 57,570 (34%) have a turnover of £10,001-£100,000.  Another 11,247 (7%) have income which is ‘not yet known’ so likely (in most cases) to be fairly low.

That’s 80% of registered charities accounted for. While there may be a few exceptions where organisations have a low turnover but own assets, there are not going to be many instances where a formal merger process involving an organisation with a turnover of under £100,000 is economically justifiable or socially useful.

In the event that an organisation is unable to continue but there is a need and funding for some of its work to continue, another organisation might take on a particular project and run it. This happens. Consultants, lawyers and formal processes may not be necessary or helpful.

Multiple charities means duplication of services: after that, we have 33,764 charities left with a turnover of £100,001+. That’s an average of around 52 charities for each of the UK’s 650 parliamentary constituencies.

The 13 descriptions of charitable purposes in the 2011 Charities Act cover quite a range of stuff – from the more obvious tackling of social need via ‘the prevention and relief of poverty’ to ‘the advancement of the arts, culture, heritage and science’.

Those 52 organisations in your area could include include charities helping older people, young people, people with disabilities, learning difficulties, physical and mental health conditions. It can include community centres and open spaces, museums and arts centres. On what basis, do merger advocates believe that 52 charities is too many the social, cultural and spiritual needs of (in English constituencies) over 70,000 people?

Even in the event that there are – for example – 10 different charities in the constituency of Leyton & Wanstead both turning over £100,001+ and offering activities for older people*, they may be offering different services to older people in different ways.

If 10 groups of trustees in Leyton & Wanstead (many of whom may be local older people themselves) have decided at some point they want to do something for older people, the Charity Commission has confirmed their purposes are charitable and they’re somehow finding the resources to make the activity happen, on what basis are outside experts getting upset that they don’t merge into 3 organisations?

Is there any evidence that there are significant numbers of £100,001+ organisations offering the same help to the same people in the same places in – competing with each other in ways which diminish the overall social offer to the people they aim to serve?

Is there any evidence in the current funding climate that there are any local charities *at all* currently offering the same help to the same people in the same places in competition with each other using public money?

I’m not assuming that the answers to these questions are necessarily ‘no’ but those who are angry about the idea of duplication and see the need for mergers in response really need to have – if not actual data – a more developed hypothesis to back up their rhetorical position.

Is it in inherently socially beneficial for charitable activities to be carried out by the smallest possible number of charities? If so, why?

I’m not posing these queries based on belief that merger is a bad idea. Merger has always been a good option for some organisations and the current economic climate for charities means that it is now likely to be a good option for a (relatively) increased number over the coming years.

My (qualitative) impression is that there are (at least) 10s of organisations in the UK where some combination of staff and trustees have decided that merger if the best way to achieve their charitable purposes: because it’s the only way to keep going or because it’s a better way to move forward as part of a stronger, larger entity. There are practical and financial barriers to those organisations taking the merger route and I want to see social investors and other funders help tackle them.

What I’m not seeing is evidence (or a even a meaningful hypothesis) that significant social harm is occurring because senior managers and trustees of 1000s (or even 100s) of organisations are ignoring a clear, economic and social case to merge based on self interest.

If that case exists, merger advocates need to make it.

*This is hypothetical. It is highly unlikely that there are 10 or more £100,001+ turnover charities providing services specifically for older people in Leyton & Wanstead.

 

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4 Comments

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4 responses to “Getting it together

  1. Dean Nigel Chambers

    Yes. I am a new Social Innovator with giant radical plans. I have experienced a struggle ‘ on the ground’ for myself and others in the bewildering array of funding sources, the crop up every day. I have also seen the confused struggle that they all seem to endure blindly since, if they were to join together, they would me more about able, more focussed,more informed.
    I will study more!

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  2. Until Jim Bennett brought this to my attention yesterday I wasn’t aware that the charity Everychild had merged. 12 years ago we met them to discuss childcare reform. There appears to have been some influence: https://www.linkedin.com/pulse/family-every-child-jeff-mowatt/

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  3. David Ainsworth

    Hi David

    I think I disagree with your characterisation of Civil Society in your blog, and I think you’ve misrepresented our view. In part, it might be helpful if you drew a distinction between the view of myself and my fellow journalists, and new stories which reflect the views of third parties. What you characterise as a blog post containing our own view is in fact a news story in which we report the views of others.

    Contrary to your assertions here and on Twitter, we do not believe there are too many charities. Nor would we characterise ourselves as “merger advocates”. Nor do we believe that 167,000 charities should be considering merger. Nor do we feel that 1,000s or even 100s of charities should be merging each year. Nor, indeed are we particularly angry about duplication.

    I personally do believe that self-interest among senior staff is a relatively significant barrier to merger, and that this is amply demonstrated by the evidence of the dozens of merger stories I have been involved in reporting over a decade of charity sector journalism. These show almost without exception that mergers only take place at a point when there is minimal damage to the job prospects of the chief executives involved, or when financial distress has left organisations with no other choice. I can point to many mergers which meet these two criteria, and I would be interested to see your evidence of those which do not.

    My key point would not be to cast blame on staff or trustees acting in rational self interest, but to say that if self-interest is a barrier to merger (and it must be a greater barrier here than in other activities – in no other activity a charity undertakes is there a 50 per cent chance of a CEO losing their job) then we should help those who want to merge and have self-interest as a barrier, by providing support for a more sensible resolution.

    In any case, far from being miles apart from your own view about how many mergers should take place, I am actually broadly in agreement with your previous public statement on the issue. You said:

    “The staff/trustee problems do happen – I’m aware of one merger than failed at the end of lengthy, successful, due diligence because the two chairs couldn’t who should chair the new org – but I suspect they might account for the fact there’s 70 mergers per year not 100.”

    I think perhaps it’s 70 not 140, but it’s obviously hard to produce conclusive evidence of what didn’t happen, so I would not say this view is set in stone. Your challenge that “merger advocates” should either provide evidence of things not happening or effectively shut up, is, I think, heroic in its expectations.

    You have challenged me, perhaps correctly, over the line: “Very few charity mergers take place because staff and trustees in danger of losing their positions choose to block them” which is the first sentence of my news story. It is perhaps fairer to say that trustee and staff self-interest is one of the main factors leading to relatively few mergers taking place.

    However if I have perhaps over-reached in my interpretation of others, in order to produce a piece of work that people will be keen to read, I am afraid I must assert that you have done likewise in your refutation.

    David Ainsworth, group online editor, Civil Society

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  4. Beanbags admin

    Hi David,

    In terms of the way this is reported in the blog: describing your post as ‘the recent output from Civil Society’ is not intended to suggest that these views are your personal opinions or the corporate position of the Civil Society group.

    It is intended to suggest that my impression is that they’re views you’ve chosen to give prominence to – over other views that are available. I’m happy to amend the wording to make that distinction clear. And also to make clear, if you feel it’s appropriate, that my impression doesn’t accurately reflect your intention.

    On the ‘self-interest’ issue. I think we’re still misunderstanding each other’s position to the extent that needs either needs another blog (which may not interest many readers), an offline email exchange or a meet-up for a cup of tea.

    For example, on your point: “in no other activity a charity undertakes is there a 50 per cent chance of a CEO losing their job”. There’s at least one activity a charity undertakes that gives the CEO a 100% chance of losing their job: closing.

    And I’ve been a trustee of two charities – one national and one local – which chose to close rather exploring merger options in detail.

    In terms of: “Your challenge that ‘merger advocates’ should either provide evidence of things not happening or effectively shut up, is, I think, heroic in its expectations.”

    I’m not telling anyone to shut up. I am asking the people putting forward the ‘there’s 169,000 charities’ line – if they want to move the merger debate forward – to *put up* a hypothesis beyond this headline-grabbing but misleading stat.

    A research project that gives a plausible estimate that, for example, 150 or 750 or 2,500 out of 33,764 charities with a turnover of £100,001+ are likely to have a viable clear economic & social case could help take that discussion forward.

    But in the absence of that, the 169,000 team could – if they chose to – explain the circumstances in which they believe it is or isn’t useful for two local charities with 5 staff to merge etc. What I’m interested in is moving the debate – which is worth having – beyond big stats and rhetorical statements that don’t help us (as trustees and people running organisations) work out what to do.

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