The Value of Collaboration
In recent news from the Third Sector website, two Not-For-Profit (NFP) organisations, namely Wesley Mission Victoria and the Victorian and Tasmanian Uniting Church Community Services, are planning to merge.
Given the current difficult fiscal climate, it is likely that we will see more mergers (as well as other creative collaboration arrangements) between NFP’s with similar visions, and whilst the catalyst to this may not be good, the outcomes can be. One such example of a good outcome is the opportunity to work together to increase organisational impact. In this article we explore how two or more organisations may work collaboratively together whilst remaining separate legal entities and also highlight a few important things to consider in the case where a merger is more beneficial.
But first things first – it is important to mention that collaboration will sometimes be hard to foster. This may be as a result of a lack of understanding between organisations as to their shared and complementary resources or because steps have yet to be taken to build trust and break down barriers – both of which are vital. Whatever the reason, this potential issue should not be treated as a ‘soft issue’ and consequently overlooked or downplayed (as if it will take care of itself). For collaboration to work well and the impact of working together be maximised, in the very first stages proper consideration and appropriate investments of resources should be allocated to building and emphasising the alignment of culture and shared values between the organisations. In addition, an ongoing commitment to investing in strengthening the relationship and maintaining transparent communication between both entities will be one of the key elements in ensuring the relationship develops and matures constructively, leading towards the goal of maximising impact.
Collaboration between organisations may come in the form of consortia’s (of varying degrees of formality), joint ventures or through auspicing agreements or memorandums of understanding. Each different form can provide the benefits of collaboration whilst the organisations remain separate legal entities.
“Collaborations between NFP organisations can provide a great opportunity to maximise impact by increasing the efficiency of operations as well as the reach of the organisations.”
Collaboration expressed through sharing costs between the participating organisations can extend the impact of available funds or alternatively provide the scale and resources needed to meet the requirements of different tenders and allow access to further funding. Collaboration expressed through the sharing of knowledge and processes can improve the effectiveness and efficiency of each of the NFP’s involved. This can lead to greater synergy between the organisations and lead to more productive and profitable specialisations in each of the participating organisations.
Although there are some very evident benefits to working together, no organisation should commit to any form of collaboration without conducting proper due diligence and employing careful consideration of the situation and the parties that may be involved. Several things that should be considered include (but are not limited to) the:
size and position of each organisation,
the purpose and values of each organisation,
the organisational cultures, motives for working together, and what each organisation hopes to achieve,
the respective tax and/or charity status of each of the organisations and any potential impact of working together, and
any existing relationship between the organisations and how they may fit together in the future.
Due to our experience in several mergers between NFP’s and the current fast changing economic climate, it is our belief that there may be opportunity to maximise the impact that our NFP sector is having through legal mergers. Mergers predominantly occur in two ways:
When one organisation becomes a part of another organisations (such as a smaller organisation becoming a part of a larger one), or
When two organisations merge to create an entirely new one.
The path to creating a properly functioning merger between two NFP’s and the strategies of doing so must be specifically tailored to the circumstances and stakeholders of each.
After more than 30 years of providing commercial legal advice we know from experience that it is important that proper legal advice is sought early on in the process and that each organisation seeks its own. So make sure you make proper provisions in the budget for legal advice as one of the upfront costs of negotiating any plans for a merger.
The issues to be considered when merging two NFP’s are, for the most part, very similar to merging any two organisations, whether they are in the not-for-profit space or the for-profit space. The alignment of culture and values may seem to be more significant in the context of a merger of NFP’s, but in our experience alignment of culture and values is crucial to any successful merger.
The main potential for difference between a merger of two or more not-for profits and two or more for-profit organisations is in the framework within which the merger occurs. This framework considers the restraints that the orientation of the organisation places upon the merger. In the case of a for-profit merger the restraints will be profit orientated, i.e. how can the merger maximise organisational profitability. Whereas in the case of a NFP merger, restraints are purpose orientated and answer the question of how two organisations are able to maximise their impact in achieving a collaborative purpose.
For NFP’s then, it is the organisation’s purposes which will inform the way the framework is structured to enable a merger to occur. Other things that will also inform the framework include:
ATO eligibility requirements,
Stamp duty relief, and
State land tax relief.
All in all, a merger may be a great opportunity for two organisations to maximise their impact by collaborating and working together. If this seems like a viable option for your NFP, then please contact us at Tri-meridian where we can advise you on the next step.
For further information, please contact the author.
This article is posted in Adelaide, South Australia by Tri-meridian Corporate & Commercial Law and is intended to be used as a guide only. It is not, and is not intended to be, advice on any specific matter. We do not accept responsibility for any acts or omissions resulting from reliance upon the content of this article. Before acting on the basis of any material in this article, we recommend that you consult your professional adviser.