Strength in numbers – consolidation in the non profit sector

The non profit sector has seen substantial change in recent years, particularly with increasing demands in respect to the quantity and nature of the services to be delivered.  Add to this a constantly evolving regulatory and taxation environment, challenges of funding, capacity constraints and an increasing cost base and it is not hard to see why many non profit service providers are considering opportunities to consolidate or collaborate with other providers in their sector.

The benefits of consolidation or collaboration may seem clear, including potential savings in administrative costs, greater geographical reach or a broader suite of deliverables, as well as improved access to funding.  Increased size may also generate greater influence within the relevant sector, especially in respect to policy determinations.  Ultimately, the key driver in deliberations should be about performance improvement.

Irrespective of the anticipated benefits, typically this is by no means an easy decision to make or implement and senior management needs to be alert to the range of issues which may arise by adopting this approach.  Substantial preparation needs to be undertaken to ensure the outcomes sought are clearly identified, as are the possible alternatives to achieving these outcomes and their relative costs and benefits.

If consolidation or cooperation is considered to be the preferred option, then further analysis needs to be undertaken to identify organisations in the sector with which this might be feasible to produce the desired outcomes. 

Key considerations in this process include:

• Governance and risk management: It is important to understand the legal, tax and governance structures of the other organisation and to consider what legal or structural obstacles will need to be overcome as part of the process.  There may also be implications for the decision about what might be the best legal arrangement to implement – be that an MOU, a sharing of resources, a joint venture or a full merger.
• Branding and identity:  These arrangements can often impact the brands and identities of the respective organisations.  Consideration needs to be given to the use or otherwise of the respective brands, how risk to the brand will be handled and, if new brands are to be created, how costs and ownership rights are to be allocated.
• Engagement and communication: The repercussions of consolidation or closer cooperation also ought to be understood from the perspective of other key stakeholders such as employees, funders, clients, supporters and regulators.   The arrangements will require clear lines of communication and effective messaging to ensure that these internal and external relationships are effectively maintained.
• Resource management:  Where there is to be a sharing or pooling of staff it is critically important that staff have clarity about the course of action and what is expected of them.  Similarly, the potential ramifications to the culture of the respective organisations have to be properly understood and managed.  Change can generate uncertainty for employees and gaining and maintaining their trust, acceptance and enthusiasm for the process can be the difference between success and failure.

However, whilst consolidation or closer cooperation may bring a myriad of issues, typically none of these are insurmountable provided that appropriate planning and preparation are undertaken at an early stage.  Usually, this process is significantly aided through the engagement of appropriately qualified and experienced advisers to work with senior management to establish the most suitable pathway and mechanisms to achieve the desired outcomes.

Swain Roberts

As Special Counsel at McCullough Robertson, Swain advises clients on corporate governance, international and non profit matters.