By Henry Lane
Everyone knows mergers in the charity sector are rare. There are 168,000 charities in England and Wales, yet in the last year there were fewer than a hundred mergers.
Firetail surveyed 39 Charity Chief Executives and senior leaders from across our network to understand why. We wanted to get a sense of why there are so few mergers in the sector, who should merge and what, if anything, should be done about the issue.
Charity sector leaders agree that there are too few mergers in the sector.
Everyone can see the benefits of mergers and yet they are not happening.
The barriers are primarily cultural and internal.
They recommended 29 potential combinations, with some nominated by a number of respondents.
Sector leaders agree that mergers don’t form part of their strategic toolkit and the mergers that do happen are normally defensive, or a response to crisis.
76% of charity sector leaders agree that there are too few mergers in the sector.
84% agree that charities do not think about mergers as a proactive tool for growing their impact.
76% agree that most of the mergers that do happen are defensive or the result of a crisis
Chief Executives remarked that it was often down to a lack of imagination and a lack of capacity:
“Essentially there is a lack or horizon scanning by trustees who tend to only think about it when things are looking tricky, by which time financial constraints become a reality.”
“I think we just lack imagination about it and are very busy elsewhere, rather than it being actively considered and then abandoned for any of the reasons above.”
"[There is a] lack of imagination in the sector. Trustees [face] asymmetric risk (no upside, all the downside), lack of time and capacity for long term planning"
Good merger opportunities exist, yet Chief Executives identify the barriers as internal and cultural.
59% identity “staff resistance” as the major barrier to more mergers, followed by “trustee resistance” at 49%
The cost of exploring merger opportunities is identified by 35% as a major barrier
CEO resistance was also named as a factor
Structural barriers, like a lack of merger opportunities, resistance from funders, or restrictions in governing documents, are seen as less significant.
Chief Executives identified capacity, as well as cultural issues as major barriers:
“Strategic capacity, opportunity cost of serious exploration seem foundational. The other barriers don't get triggered without that.”
"Capacity to get the deal done whist keeping the day job going"
“Ego - both of staff / passion for THEIR charity and THEIR way doing things. Threat of losing jobs for senior staff in a constricted space.”
"Too much 'we're different' rather than looking for common ground"
"Senior management inertia and fear of jobs losses"
"Senior management/founder resistance more likely to be influential than staff resistance"
When asked to recommend combinations, Chief Executives see the opportunity for some "mega-mergers" to create “category-leading” charities to drive greater impact.
Respondents identified 29 specific mergers that they thought should be seriously considered. Although the precise combinations differed, cancer charities and children’s charities were the most frequently identified. In most cases, Chief Executives recommended mergers of organisations with similar beneficiary groups, to create stronger organisations in their sector.
Children & Young People, International Development and Disability are seen as the top areas for consolidation. A large move among one or more of the biggest children's charities (NSPCC, Action for Children, Barnardo's and the Children's Society) was most frequently mentioned.
Recommendations focussed on large and mid-sized charities, but many also noted the need for consolidation among very small charities.
Chief Executives believe larger charities could have a greater impact:
“A mega merger [among the biggest children’s charities] would be powerful and benefit funders, clients and be a stronger voice to government.”
“I think consolidation is required in much of the health and social care sector given funding is being driven down and regulatory requirements increase so some consolidation to face that would help.”
"The principle benefits [of merging cancer charities] would be a reduced cost base, more spend for front line activity, great advocacy weight, working capital freed up from reserves."
"These [examples] are more high profile charities but the majority of mergers should be of the proliferation of small charities. The number of tiny charities in the UK is needlessly huge."
Bigger is not better. There is no “right” number of mergers, nor the “right” size for a charity.
Chief Executives know that bigger is not necessarily better.
However, the "right size" for a charity is as big as it needs to be to tackle the issues it exists to address. It should be the scale it needs to be to have the greatest impact.
Charities with overlapping missions, activities, beneficiaries and stakeholders should seriously consider the benefits of consolidation to reach the scale they need to achieve meaningful impact. It is clear from the lack of proactive combinations that this is not happening.
Those who had been through mergers were keen to note that merging two organisations took serious time, effort and investment. One talked about a year or two of "standstill" to make a merger happen. Mergers are hard work.
Identifying the main barriers as cultural rather than structural means that the responsibility for addressing these issues lies with the sector - with Chief Executives, Trustees and leadership teams. Changes in the policy and regulatory environment might be desirable, but not sufficient.
Funders also have a role to play. The ability to consider a potential combination in a "low stakes way" does not exist. There is no safe space to have those conversations.
As one Chief Executive remarked "the systemic issue is that the conversations aren’t happening. The challenge for the sector is how to make space for this.”
To discuss this report, please contact Henry Lane at firstname.lastname@example.org