5 Reasons Why Charity Mergers Work

Based on the for-profit track record, charities should stay away from mergers. Given that many academic studies find that a large proportion of for-profit mergers actually decrease profits and efficiency why would charitable organizations risk this path?

As discussed previously merging charities has risks, but I'm increasingly of the opinion that the benefits outweigh the challenges. Here are 5 key reasons why merging can and does make sense.

1. Like-minded organizations that come together to focus on a single issue or cause can accomplish far more than each working alone. What's been called "collective impact" is all the buzz right now in the charitable world simply because it works: just ask Advancing Philanthropy!
2. My contention is that there are simply too many charities - think about the number of different organizations that have overlapping Missions or seek to duplicate the work already being done by another group.  With 161,000 charities and non-profits in Canada alone surely there's room for fewer to do better work with reduced confusion and re-work.
3. In the spirit of reduced confusion, clearly mergers would allow precious donor dollars to be more accurately and effectively applied.  And the obverse is that fewer charities would also allow donor dollars to support more impact and less overhead: two charities that merge into one only need one photocopier, one reception area, and one kitchen microwave, not two of each.  Also, with fewer competing messages for donations it would be easier (and more cost effective) for vital charitable messages to break through and be heard.
4. The charitable world is all about passion, but like money there are only so many volunteers and so many donated hours to go around.  A merged organization would (ideally) draw on the strengths that existed in the originals, ensuring that 1+1=3.
5. The best reason to pursue mergers, collaboration and collective impact in the charitable world is that it's very hard to do.  Albeit a simplification, in the for profit world the firm with enough money can buy out the one that's smaller.  In the charitable world that doesn't work (donor backlash, government regulations, volunteer boards, etc.), and organizations that seek to "merge" need to find common ground and shared passion.  The same volunteers and varied stakeholders that can make decision-making within charities so challenging present natural barriers to ill-considered collaborations.  So the fact that it takes so much work and trust to merge mean that it is likely the outcomes will be better in the long run.  Remember, money can't buy you love...

I'm personally aware of several great examples where charity mergers, collaboration and collective impact are already working well, and expect we'll see more examples in this tough economy. It appears that 1+1 does indeed equal 3.

Charities: The Model of Efficiency?

As governments at all levels decrease support of the charities and non-profits I see both risk and some potential for positive impact on these sectors. However, for the record I believe that strategically guided government funding provides unique efficiencies that no other amount of individual or corporate giving can match.  By its very nature the gifts of individuals and corporations are guided by their unique scope, which is unlikely to be as encompassing as that of government.  For the same reason that schools and roads are deemed public goods and thus funded through taxes, I argue that some degree of government / tax funded support is required to support the public good delivered by way of charities and non-profits. The real debate is how much of these good works should be funded by - if you will - forced donations through the use of taxes.

This debate is informed at least in part by the argument that for-profit businesses are more efficient than charities and non-profits. Certainly that was the case made recently page 9 of the Globe and Mail’s Report on Small Business by Catherine Swift of the CFIB. Her suggestions that reduced government support to charities will result in greater small and medium size business donations is plausible and may actually prove true.  While this doesn't mitigate my concern over sufficient funding for the best organizations guided by a broad strategic view, she also highlights the “more efficient” private sector.

And on that front I argue that the most efficient model is often already found in the charitable and non-profit world.  I’m not suggesting that learnings can’t be found in the for profit world, but here’s why many charities already win on the efficiency front:

1. Charities and non-profits leverage volunteers – this keeps costs down and multiplies the effectiveness of the organization
2. Charities and non-profits generally pay less for talent and staff than their for profit peers, and have a reputation for passion and commitment from these same staffers
3. Charities and non-profits by their very definition don’t seek profit – this eliminates a “middleman” who desires maximum profit as opposed to maximum impact, which increases efficiency

So while I would welcome increased support by small and medium sized business with or without decreased government support, I also hope we won’t confuse this with a sign that these same generous donors are by their nature more efficient than the recipients. The learnings around efficiency can actually flow both ways.

Charitable Mergers: A recipe for change, challenge and opportunity

Here’s a recipe we should all be thinking about… Take thousands of charities, dozens of great causes, and bring to a boil through limited financial resources and increasing demand. Blend in a desire to leverage for-profit best practices around mergers and you have the potential for a tasty dish to serve many new stakeholders. But how do you ensure that the dish ever even gets made, and if so how do you ensure it doesn’t boil over to make a huge mess?

Corporate mergers often fail. And charities that have been poorly merged have failed too. Moreover, the same passion that is at the core of every successful charity can actively resist the kind of change required for a merger. Worse yet, very real issues of maintaining donors and ensuring long-time supporters don’t leave can scare off even veteran Boards and charitable leaders.

Here are three top ways to help make this process less intimidating and more likely to succeed.

First, seek what is common in the charities in question as opposed to strictly what is different. Craig Dearden-Phillips’ article http://www.guardian.co.uk/society/2010/feb/17/charity-merger-journey
sheds light on this perspective.

Second, seek engagement from corporate funders in particular early in the process. With the growing trend towards Collective Impact http://www.ssireview.org/articles/entry/collective_impact/ corporate funders are beginning to "reward" organizations that are considering ways to "do more" with combined resources.

Finally, consider all your stakeholders and communicate a vision that underscores benefits (even if it may only be survival) for all concerned. Collaboration, transparency and openness have helped other organizations achieve success http://www.insidetoronto.com/print/43149 and are the key ingredients of successful corporate mergers as well.

Not undertaken lightly or without risk, a charitable merger – even of one function or via shared space – might be worth your consideration on the menu at least as “food for thought”.

Of Stars and Charities

Every year well meaning people start up new charities, some of them stars who have the ability to donate large sums or use their fame to encourage others to do so. For example (albeit not a Canadian one), you may have heard about Madonna’s costly exploits in Malawi where £2.4 million has been spent, but her school project has not even broken ground (www.guardian.co.uk/world/2011/mar/25/madonna-malawi-charity-squandered-millions). Perhaps this is an example of what can happen when a well-intentioned star takes up a cause or starts an organization without any real understanding of charitable processes or what’s required to deliver programs.

However I believe that even stars who create well-run, impactful and successful charities may be inadvertently undermining their own potential results. Unless there is truly no other organization addressing the need that the star’s new charity seeks to address, however different the new group may be it is (by definition) adding a new set of costs and infrastructure to address their cause.

One example is Guy Laliberté’s One Drop (http://www.onedrop.org/). Having visited their website and read their Annual Report it seems to be a wonderful organization, supporting much-needed work supplying fresh water and related project work in many parts of the world. In 2009, One Drop raised over $10 million. And of note, the "Founder’s Contribution" was over $7 million – generous and wonderful indeed! However, notwithstanding the One Drop partnership with Oxfam, One Drop also spent almost $2 million on Fundraising Costs and Administration. Don’t get me wrong, One Drop seems to be a lean and apparently efficient organization, so I’m not suggesting almost $2 million is too much to spend on the operational side.

But it is $1,900,000 that could have gone towards another, already existing organization that pursues the same mission, and not added the incremental costs of this new organizational infrastructure. There are already lots of charities that seek to improve water availability around the world – 3.7 million hits to a Google search under "charity clean water". Imagine the influence (and impact) stars like Guy Laliberté could have if they focused this kind of support and passion on an existing, effective and efficient, organization, and simply generated the full $10 million to support one of them...

In the end, perhaps our stars should first consider if there isn’t a way to achieve their vision through partnership or being a spokesperson rather than through creating something entirely new.