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The Charity Commission should up its game on mergers – here’s how

Richard Litchfield EP

This week we published the second Good Merger Index, providing an unprecedented overview of not-for-profit merger activity in 2014/5.

We have added a section on housing associations this year as well as charities, which shows a fascinating gulf between the regulatory approaches of the Charity Commission and the housing sector’s own regulator, the Homes and Communities Agency (HCA).

Let’s start with the Charity Commission whose role in a merger is primarily to assess any object changes – it has no powers of consent. Even after the event there is no obligation for a charity to record its merger. The Commission does keep a register but this is voluntary and its principal purpose is to help pledged legacies to find their way to the new entity after an organisation has been dissolved. In practice it includes many deals which are registered years after completion and internal restructures (which we wouldn’t recognise as mergers).

The HCA, however, has a very different approach and vets each deal by requiring Associations to prepare a business case for approval. It will occasionally put the brakes on mergers that it judges are not robust. The business case must include a survey of tenants ensuring housing mergers have a much higher level of beneficiary participation than charity mergers (where consultations tend to be limited to Membership bodies). The HCA may also act pre-emptively and seek potential takeover partners for associations who are in financial difficulties.

Julian Ashby, the Chair of the HCA Regulation Committee, is outspoken on the subject of mergers as a tool to improve efficiencies and collaborative working. He has warned the housing sector that some mergers are still “driven more by retirement dates than by commercial or social logic” (the latter is true of charities too) and he has advocated for a ‘merger code’ to govern takeovers.

Why does all this matter?

Our study found that the overall level of consolidation in 2014-15 was surprisingly low – with 129 charities or 0.08% of well over 160,000 charities joining forces.

There are many reasons why charities don’t merge – some justified around implementation risks and merger costs, and others less so, such as Boards who want to preserve personal positions and organisational identities. Yet proactive regulation is almost certainly necessary to address some of the structural concerns of the sector and create an environment where Trustees put beneficiaries first.

While the HCA is not immune to criticism itself – I’ve heard ‘overbearing’ and ‘under-resourced’ mentioned by housing executives – I believe they are moving in the right direction by advocating for more mergers and stimulating better ones through their vetting process.

By contrast what guidance the Charity Commission does give is woefully inadequate. In their latest trustee guidelines we found the word “merger” mentioned once in 40 pages. They don’t even recommend it as either something that Trustees “should” let alone “must” explore.

The appointment of Paula Sussex as chief executive of the Charity Commission last year signalled a potential shift towards a more active regulator. I really do hope that she’s able to give the Commission more teeth as greater scrutiny will be a defence against the winds buffering the sector. In the case of mergers our regulator can draw on some simple lessons from its housing cousin – and the survival of many charitable services may come to depend on it.

Richard Litchfield is chief executive of Eastside Primetimers

 

  • Pete Ridley

    In my opinion, after undertaking due diligence research into numerous organisations involved in the business of “charity”, the UK’s “third sector” is in a mess.

    Without effective governance that is how any business ends up and governance of the UK’s 3rd Sector is the ultimate responsibility of the Charity Commission, with oversight from Government via Rob Wilson’s Ministry for Civil Society”.

    In mid-2013 Margaret Hodge, then Chair of the Public Accounts Committee opining that ” .. The Charity Commission’s approach to regulation and enforcement lacks rigour .. “. In my opinion there has been no improvement since.

    David Craig puts it very nicely in his 14th Dec. 2015 “Snouts-in-the-trough” blog article “Don’t waste your money on these fake charities”

    QUOTE: ..

    While writing my recent book THE GREAT CHARITY SCANDAL, I became convinced that many of Britain’s larger charities have sadly become job creation schemes for their bosses and bureaucrats. And many smaller ones are just frauds where the founders use their charity to fund their multi-millionaire lifestyles while doing little to nothing to help those they’re supposed to be helping.

    But, here are a few supposed ‘charities’ you really should not waste your money on:

    Cancer Research UK

    This bunch of buffoons employs 2,553 people in administration and fundraising, but just 1,411 in ‘charitable activities’. Seems like a paradise for useless over-paid, over-pensioned bureaucrats.

    Age UK

    Looks like another heaven on earth for desk-jockeys and paper-pushers. Age UK raised around £174m, but had just £71m available for ‘charitable activities. I wonder where the other £103m went? Executives, managers and bureaucrats? Fancy offices? Generous expense accounts?

    Sue Ryder

    These self-serving clowns spent £47m on themselves, but just £37m on ‘charitable activities’. So, around £5.60 of every £10 raised went on the comfort and well-being of bosses, managers and bureaucrats.

    British Heart Foundation

    OK, you’ve probably guessed by now. Yup, a gloriously generous £172m on themselves, but just £114m on ‘charitable activities’.

    Conclusion
    I could go on with some of Britain’s best-known names. But it would just be more of the same. Most of the money disappearing into the bulging bank accounts of executives, managers and bureaucrats. While less than half the money we give goes anywhere near ‘good causes’.

    If you want to give to charity, choose small local charities that only use volunteers. But avoid the self-serving, wasteful, over-bureaucratic ‘big beasts’ of Britain’s bloated charity industry.

    And please, ask your contacts to go on to YouTube and view my latest short (3 mins) video – CHARITIES: CAN WE TRUST THEM?

    https://www.youtube.com/watch?v=0TTm9yyOEkQ ..

    .. UNQUOTE (http://www.snouts-in-the-trough.com/archives/15021).

    Pete Ridley, 3rd Sector Sceptic