Trustees always have to remember that their primary duty is to seek to achieve the charitable purposes for which their organisation is established, and keep up-to-date about charity law. It is not to preserve its independence at any cost. While the pros and cons of mergers and the big/small and local/national debate continues, and should continue, my view is now is the time for some charities to accelerate discussions about their medium term survival, by which I don’t necessarily mean retaining their independence, but preserving the good work they do for beneficiaries. The Charity Commission is now actively encouraging charities to think about whether merger or collaboration is a route that will work for them and is generally willing to exercise its powers to assist that process.
For a charity in gradual decline the alternative to merger is often a premature winding up which generally incurs significant expenses of liquidation leaving little, if anything, as a legacy. A merger or collaboration can preserve and enhance the legacy, even if the charity itself disappears.
Changes in the market place
Now is a particularly important time to be considering merger and collaboration as in certain areas of the charity sector there are significant changes afoot. An increasingly demanding regulatory environment is making the trustee role more difficult and a number of charities are finding recruiting trustees can be difficult. Data protection and fundraising regulations, in particular the requirement for “opt in” consent, is likely to cause a drop in income for some charities. The public services market has changed considerably, with Commissioners favouring large contracts covering wider areas than before. In the international development arena the requirements of pre and post financing by DFID calls for a greater level of reserves. While merger and collaboration are not the only solutions to some of these difficulties they should clearly be considered.
Merger – some key considerations
Merger is not just about reducing costs but are also about increasing efficiencies, utilising space more effectively, fundraising with two sets of potential donors and creating the opportunity to win larger service contracts.
It can take a significant amount of time to identify, approach and settle on a merger partner. Both charities need to ensure that the merger is right for their organisations and their beneficiaries. Once a partner is identified, due diligence must be carried out and key stakeholders and funders need to be engaged and reassured.
Merger is not the answer for all organisations and is not a quick-fix solution for an already sinking ship, but considering whether a merger is right for your organisation should be taken before a crisis arises. Once a crisis hits, the benefits of time are lost and the uncertainties increase.
Andrew Studd, partner at Russell-Cooke solicitors, will be discussing the practical and legal issues relating to merger and collaboration at the Charity Law Conference on 14 June.