Partner-Up goes live

On Wednesday, 100 guests joined us from across the sector at an event to launch Partner-Up that was hosted by Eversheds.

Partner-Up is an independent marketplace where organisations can explore partnership options safely and receive support in making these new arrangements happen.

I was pleased with the event. We had a good turnout, with excellent speakers and the discussion was lively.

Each of our speakers talked candidly about the challenges that prevent more mergers/collaboration happening. Among other things, they pointed to the fact that charity leaders can often have an excessive attachment to either their corporate or personal brands at the expense of the long term interests of beneficiaries and that Board’s often show a lack of strategic foresight. Both points resonate strongly.

Since we ‘soft’ launched Partner-Up at the start of the year we have collected information from about 200 charities on their interests around mergers and there are 30 organisations that Partner-Up is actively helping to find partners.

For further information on these opportunities visit the website or contact Alex at: alex [at] partner-up.org

"What's mine is mine and what's yours is negotiable"

This pithy statement by JFK could be seen as an epithet for how social sector organisations approach mergers and collaboration. This despite an interesting result of a quick Google search: “social enterprise competition” yields 39,800 results versus 358,000 results for “social enterprise collaboration”. There are nearly 10 times as many web-pages extolling the virtues of collaboration for social enterprise rather than competition. Yet despite the rhetoric meaningful collaboration - especially mergers - remain the exception not the rule across civil society.

This is backed up by research by the Charity Commission which shows that as few as 9% of charities have considered ‘collaborating, forming a consortium or merging with other charities in response to the economic downturn.’ It is worrying to read that 77% of charities which turnover more than £1m have not even considered these issues. Our research shows a different pattern, certainly amongst large charities in the UK, with nearly a third considering merger. ‘Considering’ and ‘doing’ are two different things however and the call to action to collaborate effectively requires a ‘will-do’ rather than ‘would-like-to-talk-about-it’ attitude.

Different reasons are cited for why alliances so often go awry: ego, cultural differences, trustee disinclination. One factor that is important and often taken for granted is actually finding the right partner. Frequently we find partnerships have been formed based on a loose arrangement of geographical or personal convenience rather than a qualified strategic alignment.

In response to this we have launched a service called Partner-Up – www.partner-up.org. Simply put it is a matching service for civil society. Organisations are able to discuss their needs and select other organisations they would like to speak to about specific partnership opportunities. We do offer toolkits and resources to support collaboration and mergers, but the real value is in brining together partners that want to work together rather than talk about it. We believe that this will forge effective partnerships: ‘What’s mine and yours is negotiable’.

Payday Loans

I was interested to read an article this week in Civil Society News about MP Stella Creasy attacking the Wellcome Trust for investing in what she believed to be an unethical “payday loan” style lender. She is at present trying to bring in legislation to curb the ability of payday loan companies to charge exorbitant fees.

I live in Brixton and was sad to see more payday loan places open on the high street last year as more people struggled to keep their heads above water. However, instead of spending a lot of time bringing in legislation why can't our politicians spend more time encouraging enterprising social lenders into the marketplace with more competitive, more ethical offers? Why haven't more Credit Unions and other forms of fairer finance been more successful while payday loans taking huge fees, ripping off their customers seem to grow year on year? There must be some sort of gap between what social enterprise finance lenders offer and what the customer wants? Why else would someone pay huge sums to get money advanced? Surely it can't just be consumer ignorance and ease of access. If it is then there is a lot the government could be doing to help people manage on low incomes and at the same time build the social lending sector apart from just throwing legislation at the market.

By Matt Knopp

http://www.civilsociety.co.uk/finance/news/content/9741/mp_forces_wellcome_trust_to_justify_investment_into_online_lender_wonga

Partner-up: charities and mergers

Nearly a quarter of charities in the UK are funded by the government, with 13% receiving over half their income from local authorities, and for some, this figure rises to more than 90%. According to a report by New Philanthropy Capital, the coalition Government cuts are expected to be 25%-40% from current totals which will result in a drop in income of between £3bn-5bn for civil society over the next three years. Coupled with this are falling donations and investment income.

The merger and charity relationship

In response to these cuts, mergers and different forms of collaboration are increasingly discussed as a means to maintain – and even grow – services within civil society. While mergers are no panacea they can improve financial stability which is an imperative given that many organisations are faced by seeing the demand for their services increase at the same time as their income prospects decline. This tension forces organisations to divert focus from the quality of their service to survival. This is hardly surprising. In light of this we take the view that organic growth alone will not be sufficient to sustain a healthy civil society in the medium and long term.

While the logic for mergers may be compelling, there is mixed evidence about whether more mergers are yet being completed. A scan of the Charity Commission Register of Mergers indicates that 166 were registered in 2010, which is a decline from 230 in the 2008 figures. So far this year, 57 have been recorded. Having said this, our experience at Eastside over the past 24 months is that there has been a definite step change in the level of engagement in the topic at the trustees, boards and senior management levels. Recently we surveyed 120 charities with turnovers above £10m and 30 of these organizations registered an interest in mergers or takeovers. There has been a corresponding interest from the media and over 70 articles on the subject have been published this year in The Guardian, Third Sector Magazine, Civil Society and Social Enterprise Magazine.

Is a merger for you?

The benefits that charities gain from merging tend to be realised in the medium to long term. These include better market positioning, higher public profile and a capacity to deliver a more comprehensive service. In the short term they can be expensive and a soak on management time.

The obstacles should not be underestimated. In the first place it can be difficult to align interests given that charities measure their success by the size of their social impact (notoriously difficult to articulate) rather than the size of their profits. Then, once the merger has been completed the challenge becomes one of organizational integration. Can both organizations harmonise cultural differences?

If this can be achieved it secures a strong foundation for longevity. Above all there must be a strong and clear reason to combine forces: 2 + 2 must equal 5. One high profile CEO recently commented that 2+2 should equal 14 to compensate for the risks and challenges.

While there are many types of mergers, the most common that we see is the ‘reactive merger’ when an organisation in distress seeks the safety of a large partner with deep pockets. In this scenario the struggling charity is an unattractive prospect for any potential partner and reaches out to organizations where there is already a good relationship. This marriage of convenience can frequently turn out to be anything but convenient. Such mergers are rarely based on sound strategic logic and are more likely to fail. It is for this reason that we have launched a new service called Partner-up.

The launch of Partner-up: the matching partnership service

Partner-up does for civil society what match.com does for the realm of human relations. It offers organisations a free confidential matching service to enable new partnerships to be formed, whether that be joint ventures, commercial partnerships or mergers. We launched it as a direct response to widespread research that there is a need for an independent marketplace where organisations can explore partnership options safely and receive support in making these new arrangements happen.

It is initiatives like this that are needed if the sector is to navigate the next years safely. Government, professionals and professional bodies have a role here too and we would welcome greater support for schemes which aid and allow effective collaboration within civil society.

This is a copy of an article we wrote for ICAEW.

A new fund for collaboration

Civil society is facing cuts of £3-5 bn over the next three years according to estimates. Given this, there is a strong argument for a small, innovative fund to finance and rapidly speed up collaboration within the sector.

There are a few offerings to staunch the haemorrhage of money from the sector. A £100m transitional fund was launched at the end of last year. This has generally been met with a response of too little, for too few charities and too short a timeframe.

There is an irony here since the launch of the Transition fund coincided with the withdrawal of Gift Aid on 5 April, which is also worth £100m annually to the charity sector.

Consider a few more lonely offerings: £20m for social enterprises in Yorkshire, a plan to turn the £70m Communitybuilders fund into an endowment, and The Big Society Bank with up to £400m of funding over the next few years. The majority of this money will only be available as loan finance, not something we necessarily disagree with as it encourages organisations to think more enterprisingly, but it will further isolate charities either unable or unwilling to access loans.

We believe that these interventions will at best cover about one-tenth of the expected losses to the sector’s funding (and that’s assuming we take the lower end of estimates for the size of cuts). It is looking bleak and Eric Pickles’ offer of support to the sector will not help many sleep easier.

What the sector desperately needs are innovative ways to collaborate and find ways to save money. Various ways exist to do this, none are particularly new, and all cost a fraction of the current proposals. Examples include: bidding consortia, procurement consortia, mergers, acquisition and joint ventures. Each of these collaborative models require some financing and expertise to set-up but all offer realistic and practical opportunities for charity longevity.

Government should recognise the practical and financial value of activities like mergers and support intermediaries through a ‘Collaboration Fund’. It would be comparatively inexpensive and hugely effective at strengthening the sector for the times ahead.

Can the Work Programme work for civil society?

The final tender stage for the Work Programme opened this week.

Cue a frenzy of flirting as the preferred suppliers (prime contractors) [see list here] seek sub-contractors to enhance their bids and aspiring sub-contractors preen themselves in search of a prime that might offer them a genuine opportunity to deliver.

As the bidding process got underway DWP were reported to be welcoming civil society involvement and claimed that prime contractors would be penalised in line with Merlin standards if they did not involve civil society in their supply chains.

All well in theory. But will this actually happen?

Eighteen months ago, Eastside and partners set up 3SC [www.3sc.org] as a consortium that would enable civil society organisations to mobilise into supply chains to bid for large government contracts such as the Work Programme. 3SC’s vision to be the social Serco has in part been realised and over 1000 organisations have joined as members.

However, 3SC’s bid to be on DWP’s preferred supplier list and therefore able to tender as a prime for the Work Programme was unsuccessful.

This was disappointing for all involved. It also sends out a worrying message to our sector since 3SC offered commissioners arguably the most obvious opportunity to enable civil society to play a significant role in welfare to work contracts.

An even greater ‘limiter’, though, on the extent to which civil society can be involved in the Work Programme is caused by the fact that contract payments will mainly be linked to results. All contractors will have to self-finance to meet cash flow needs until payments are received.

It is hard to imagine how charities will be able to finance these terms. Many do not have sufficient cash reserves. And will banks be willing to lend in the amounts needed given the economic environment?

What is needed is a new fund which is large (tens of millions) and can provide equity-like finance to high performing civil society organisations in order to enable them to provide services in a commissioning environment of payment-by-results.

However worthwhile the Merlin standard may be, it is the social investment market that has the greatest potential to make a difference here. Figure out the way to develop this kind of fund and you enable civil society to be part of not only the Work Programme but also the outcomes-based contracts of the future.