Maximizing Impact – Charitable Mergers

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With the continued growth of the charitable sector in Canada, we need to ask ourselves, “How do we have the greatest impact possible, with the limited resources available?”

Canadian charities reported over $251 billion in revenue in 2015. To put that in perspective, this amount is more than twice the revenue of the big Canadian banks (RBC, TD Bank, Scotiabank, BMO, CIBC) combined. But while Canada’s charitable sector is large, the vast majority of Canadian charities are small. Eighty per cent of the roughly 85,000 charities in Canada reported under $500,000 in revenue in 2015, and only 7% had donations totaling $2.5 million or more.

Given the revenues outlined above, measured against the causes served, to what effect are these smaller charities impactful?

Canadians appear to be giving more than they ever have—according to the Canada Revenue Agency’s most recent data; charitable donations had reached $9.1 billion by 2015, an impressive number. But simple numbers don’t tell the whole story. When we consider inflation, we see that the real value of charitable donations—that is, their so called “buying power”—has not changed much at all since the 2008−2009 recession, which is one of the reasons that so many charities are struggling to deliver services and solve social problems that affect us all. And not just small charities, either—last year the Canadian Cancer Society and the Canadian Breast Cancer Foundation, Canada’s two largest cancer charities, merged in an effort to cut administrative and fundraising costs by eliminating duplication in the face of falling donations. Many of the 300 smaller cancer charities may well consider joining them.

All of us applaud the efforts of those who, seeing a community in need, strive to create an organization to provide a valuable service to this community. However, there are some who do so without properly considering if there are existing organizations effectively serving this community already, rather than embarking on the road to creating a new organization. It is very easy to register a charitable organization in Canada, and as such, there are many registered organizations whose purpose for registration may be questioned.

Are some of these charities just inactive, with short-term objectives that have already been reached? Or are they just hanging on, with not enough capacity to operate effectively? Did their founders fail to anticipate the competition for donations and volunteers? Were these charities duplicating programs and services that already exist?

Given the proliferation of charitable growth in Canada, within the challenges outlined above, it becomes apparent that some charities should at least consider joining forces with like-minded organizations with similar goals, sharing resources and knowledge to strengthen their collective impact and institutional sustainability.

Mergers combine two or more organizations into a larger organization for a common purpose. There are many reasons that charities will consider merging as a viable strategy for future sustainability. While no two mergers will be the same, in every case it is important that an organization’s decision to merge is driven by the merger’s potential to help the organizations involved to fulfill their now-joint mission and serve their now-merged communities.

Unfortunately, not all merger decisions are made with this critical consideration at the forefront. In fact, organizations often decide to merge as a possible solution for financial or other crises—a shortfall in revenue goals, say, or after a change in leadership or as a response to disruptive shifts within the sector.

And unlike for-profit companies, the transfer of ownership provides few financial or career incentives to directors and staff.

But for the right organizations in the appropriate circumstances, mergers have several real benefits besides economy-of-scale and efficiency savings. These include the protection of an organization’s most valuable assets and possible organizational synergies.

“Merger” is a term that may apply to many kinds of consolidation, but broadly implies a significant and permanent change, unlike collaborations such as office-share arrangements or shared fundraising campaigns.

The three most common forms of mergers:

Amalgamation: Charities bring their memberships, assets, and liabilities together to form a new entity;

Merger: One or more entities winds up their affairs and transfers their assets to another registered charity; and

Consolidation: All the original bodies dissolve and then transfer their assets to a new entity.

Assessing a charity’s impact on society or on individuals is never a simple matter, however, and it may be difficult for charities to measure the possible benefit of a merger as well. How may a charity anticipate how a merger might change its culture, for example, or affect the personal passion of its employees, volunteers, or donors, or their sense of personal ownership of the cause? What impact will a merger have on the overall communities that they serve? And how would we even evaluate the impact of any such change?

Charities must think about both their short- and long-term objectives, requiring the board and management to consider what is most important for the community they serve, beyond the needs of the organization itself. Mergers must be part of the toolkit of the charitable sector’s boards and management teams. Moreover, it is part of the board’s obligation to consider whether a merger might better fulfill the organization’s charitable purpose.

And since it is in the Canadian public’s interest to have good, legitimate, effective charities that may make a significant difference in the lives of the various publics they serve, it might also be our interest to make the registration of charitable organizations more rigorous in the first place to avoid charitable redundancies.

Peacock’s Point – Rob Peacock, MA, is a Certified Fund Raising Executive with 30 years of fundraising experience and is CEO of Peacock Philanthropic and a Senior Associate with Charity Careers Canada. Rob is a Past Chair of the Association of Fundraising Professionals in Canada and is a faculty member for the Masters in Philanthropy and Nonprofit Leadership at Carleton University.

Original publication date: July 24, 2018