Merging your NFP

Ahead of the AICD’s inaugural Australian Governance Summit, ACNC Commissioner, Susan Pascoe AM FAICD, considers the rapid changes in the not-for-profit (NFP) sector and how NFPs have to adapt, survive and thrive in this new landscape.

The NFP sector is changing, perhaps faster than ever before. At board tables around Australia, NFPs are asking how to adapt, survive and thrive in this new landscape, and many are wondering whether mergers are the silver bullet they are looking for.

The ACNC respects the autonomy of charities and board members in making decisions about running their charity and determining how to best achieve their charitable purpose.

Decisions about merging or winding up are strategic decisions for a charity’s board to determine, and the ACNC provides guidance on the administrative processes for charities that do decide to merge.

The Australian Institute of Company Directors’ (AICD’s) 2015 NFP Governance and Performance Study reported that one third of NFP boards had discussed mergers in the previous 12 months, but only half of this number have undertaken mergers.

Mergers in the NFP space are unique in character. NFPs must not only consider the governance and logistical challenges of mergers between two or more entities, but also consider their purpose and the interests of the community they serve. For NFPs with vulnerable beneficiaries, service continuity is paramount, and many provide specialised services at the local level, the effectiveness of which for some may be diluted through undertaking a merger.

The ACNC’s role is in providing support to NFP boards, assisting them in making prudent and well-informed decisions around mergers. This is achieved through the provision of robust governance frameworks and providing access to reliable data in order to guide decision-making.

NFPs must undertake the same level of rigour in governance and due diligence in their merger process (or, in their process for deciding not to merge) as for-profit entities. They must ensure strong fiduciary oversight, prudent financial management and robust decision-making by the board. NFPs should also be seeking out and interpreting high-quality, reliable data to inform decision-making when reviewing opportunities and potential candidates for merger.

The ACNC’s 2015 Public Trust and Confidence in Australian Charities report and data-set provides valuable insights into the shape of the NFP sector in Australia. Indeed, in many cases, the expectations the community has of NFPs is higher, which reflects the extraordinarily high level of trust and confidence that the public has in this sector.

However, NFPs must also ensure that, even in merging, they stay true to their mission and, for charities, their charitable purpose. This goes beyond identifying a (willing) partner agency or agencies with appropriate alignment in purpose. The mission of an NFP is shared with its members and supporters, and successful NFP mergers require the proper and meaningful engagement of all stakeholders, and broad consensus and support for a merger must be achieved. NFPs carry an enormous amount of goodwill within the community, and the protection of this valuable asset is paramount during mergers.

Want to know more? Susan Pascoe AM FAICD will be discussing NFP mergers and acquisitions at the Australian Governance Summit on 3-4 March 2016. Visit the Australian Governance Summit website to register.