Why aren’t more charities considering merging

During the pandemic and the subsequent credit crunch, many predicted that there would be an increase in the number of charity mergers, but recent data suggests that this has not been the case. 

Changes brought in by the Charities Act 2022 and due to be implemented by the end of 2023, reduce the need for charities which have merged or incorporated to maintain the empty charity as a non-operation shell after the transfer of assets has taken place.  Previously these non-operation shells were used to save legacies which might otherwise fail.  But they came with an administrative burden and the change to the Charities Act would help to reduce this.

The most common barriers to merger opportunities are generally:

• Cost of exploring merger opportunities
• Structural barriers including Trustee resistance
• Staff retention
• Lack of opportunities
• Resistance from funders
• Governing document restrictions
• Lack of knowledge and experience

But even if these barriers are overcome there are always hurdles to challenge mergers, which individually or collectively become a barrier too high to cross, such as:

• Aligning policies and procedures even when charities have very similar objectives
• Resolving IT issues
• HR issues
• New image and rebranding
• Communication to beneficiaries, grant providers and supporters, as well as suppliers

What can charities do to overcome these barriers?

Right from the start, communication is key. Trustees need to be open-minded and seek expert professional advice. For example, in the due diligence process, some of this may be able to be undertaken by the Trustees themselves or within the charity’s staff, but they might decide to use a firm of Accountants to review the financial aspects and a firm of solicitors to review the legal and governance aspects of the organisation that they are considering merging with.

The key for Trustees is to gain as much value as possible from the professional advice that they receive – a detailed specification of the areas that the Trustees want covered should be agreed at the outset.

Communication can help greatly when dealing with the barriers relating to staff, funders, beneficiaries, and suppliers but also amongst Trustees’ too. The questions of – how to best serve beneficiaries and how you are doing that? Are you acting in the best interests of the charity and its assets? Will a merged charity make more impact? – should be asked frequently by Trustees boards.

With the increased pressure on the recruitment of Trustees, should merging be considered more often? Would this be a better option than having a Trustee board which is lacking in certain areas, is under too much pressure or is made up of Trustees that have been Trustees for a significant number of years? Mergers need to be considered in the answer to these questions and not ignored. This means identifying the options and not ruling out any too early in the process. Mergers are a complex endeavour and need to be undertaken with proper care and scrutiny.

Moving forward, we recommend that the newly merged charity have Trustees from both ‘old’ charities.  Previous successful mergers have included those where the chair of Trustees is from one charity and the CEO of the newly merged charity is the CEO from the other charity.  One organisational structure and board composition does not fit all, and it is important to ensure that whatever the make-up merged charity settles on, it works for them.

Mergers are a complex endeavour and need to be undertaken with proper care and scrutiny.

We have a specialist charity team who can advise on such matters.  If you require support on this subject, please do not hesitate to contact us here.

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