Charities Are Advised to Consider Restructuring to Survive
Alastair Keatinge, Charity Law Partner at Lindsays (pictured below), says that charities may have to consider that their organisation may be better placed for future success if it were structured differently.
Austerity and public-sector squeezing cuts are much in the news and one sector likely to feel this squeeze – indeed, already feeling it – is the third sector. Restructuring may be the only way for charities to sustain their charitable activities. Therefore, as part of the increasing focus on governance, one crucial topic all charity boards should include on the agenda is: “Can we continue on our own? Or should we be considering collaborations, partnerships or a merger?”
We have already seen a number of mergers in education following the Scottish Government’s decision to reduce the number of further education colleges. And the establishment of Scotland’s Third Sector Interfaces also involved some charity mergers. Further consolidation is likely in areas such as cultural and leisure services, service delivery and care services. Some successful mergers have resulted from long-term strategic decisions about synergies and efficiencies. However, many charities are reluctant to be involved in discussions that might lead to a merger.
Mergers are generally perceived to mean a loss of jobs, identity or control but research indicates that around three quarters of acquired organisations were able to retain some form of identity, management control and board representation. Pensions, employment issues and other legal concerns often lead charity boards to push merger options down or off their agenda, however these concerns are often unfounded.
When exploring a possible merger, trustees should consider the following:
- Is a merger in the best interests of the charity and its beneficiaries?
- What is our financial future without a merger?
- Is the proposed partner compatible in terms of objectives, strategy, culture and values, governance arrangements, organisation structure and funding base?
The majority of charity mergers might properly be classified as takeovers, with a large charity generally absorbing a smaller organisation. Whilst ‘takeover’ can be an off-putting description, there are often good legal reasons for a transfer of assets into an existing charity rather than establishing a ‘new’ charity as the merger vehicle.
Good advice on the different options, awareness of the potential risks and advantages, and ensuring rigorous due diligence of the other organisation at an early stage of the discussions will help bring about a successful merger.