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Decision making in a crisis: Collaboration and merger

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As the charity sector continues to manage the impact of the pandemic, many charities are facing financial uncertainty. In this context many senior leaders, to ensure their charity’s sustainability, will be considering collaboration and merger. In this webinar, in association with Bates Wells, we aim to answer questions such as: When should a charity in crisis consider merging? What are the alternatives? How can you make the best decision for your organisation? You will also hear about a new online decision-making tool which will help organisations chart the options open to them in a tight financial spot.

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Decision making in a crisis: Collaboration and merger

  2. 2. WELCOME AND INTRODUCTIONS • Josie Hinton, Capacity building programmes manager, NCVO • Philip Kirkpatrick, Partner, Head of charity and social enterprise department, Bates Wells • Erica Crump, Partner, Charity and social enterprise department, Bates Wells • Alex Skailes, Director at the Centre for Charity Effectiveness, Cass Business School
  4. 4. THE SIMPLE ANSWER…. Before the crisis….. But assuming that is too late:
  5. 5. WHAT KIND OF CRISIS? Financial Where the circumstances pose an immediate or imminent threat to the organisation’s: • Existence (insolvency); or • Ability to operate effectively Insolvency Unable to pay debts as they fall due or assets worth less than liabilities An understandable truth: many mergers are undertaken or considered either in, or to avoid, an imminent crisis
  6. 6. WHY DO WE WAIT FOR A CRISIS? • We like what we do • We like the way we do it • We like to think we do it quite well • We like things the way they are • We trust ourselves and those closest to us more than others • We like to maintain our own authority/autonomy • We value the culture that we have become part of • Disruption is time-consuming, unpleasant and wasteful • Merger creates risk • We don’t anticipate crises All valid but not all purpose/beneficiary/outcome-focused
  7. 7. POLL 1. Are you actively considering merger? 1. Yes 2. No 3. Maybe
  8. 8. MERGER: POSITIVE THOUGHTS • Could our combined capabilities improve outcomes? • Could we be better governed? • Could we be better managed? • What more income could we get? • What costs could we save? • What will it cost?
  9. 9. MERGER: NEGATIVE THOUGHTS • What will my role be? • Will I have a role? • How do I protect my team’s influence? • How do I preserve our culture? • Will there be redundancies? • What shall we call it? Again, all valid but not purpose/beneficiary/outcome-focused
  10. 10. MERGER STAGES • Find your partner • Early discussions • Confidentiality agreement • Deeper discussions: • Compatibility of purposes • Principles of structure: • A to B? • B to A? • A+B to C? • Parent/subsidiary? • Principles of operations: who/what/how
  11. 11. MERGER STAGES • Heads of terms (dealing with the above) • Due diligence • Seeking regulatory approvals (if any) • Consent from funders • Consent from important contracting parties • Consultation with employees • Drafting transfer agreement: • Passing over assets • Indemnifying in relation to liabilities
  12. 12. MERGER STAGES • Member approval? • Board approval • Completion • Notices • Wash-up
  13. 13. DUE-DILIGENCE • What assets are there? • What are they worth? • What are the business prospects? • What liabilities are there? • What are they worth? • Other risks • Other sticking points
  14. 14. HOW MUCH TIME HAVE YOU GOT? • Insolvent organisation has much lower chance of achieving merger • Also, very little bargaining power • May be better for prospective partner to let it fail • Not a great place to be
  15. 15. IS A MERGER FOR YOU? • If so, start work now • Don’t wait for a crisis • Gather relevant data • Work for best outcome with best partner • Start preparing – what makes your organisation suitable/attractive? • Build merger case OR consider other options…
  17. 17. COLLABORATION • Why collaborate • Different collaboration structures • Case studies
  18. 18. WHY COLLABORATE? • Share risk/strength in numbers • Reduce costs/increase funds • Sharing skills or knowledge • Increased presence or digital • Better services/preserve or prevent ceasing • Opportunities from funders, stakeholders
  19. 19. OPTIONS FOR COLLABORATION Hiving off activities Group Structure Full Merger
  20. 20. POLL 2 Collaboration options include entering into an informal alliance, a collaboration agreement and setting up a new joint venture entity. How many of these has your organisation done in the past? 1. None 2. One 3. Two 4. All three
  21. 21. INFORMAL ALLIANCE * Can (later) formalise the alliance through rules, association/membership body or contract
  22. 22. CASE STUDY The informal vs formal alliances – a group of organisations coming together for better reach and impact during the crisis. ‘Let’s not stifle all the benefits with red tape…!’ ‘We want there to be voting, democracy and accountability – and the ability to go after funding’
  23. 23. COLLABORATION AGREEMENT Why? But Clear record of responsibilities and division of risk/liability Risk of project not ringfenced in separate entity No separate legal entity to establish/run Arguably less focused than having a standalone JV Easy to amend as collaboration progresses One party may need to take on the lead (for example, with a funder) Can tailor agreement to needs (simple and complex) No separate entity for assets
  26. 26. CASE STUDY The digital collaboration – a collaboration of third sector, commercial and educational organisations to create a digital software product; aiming for stage two joint venture • The funder wanted it • Strength in numbers • Sharing risk • The role of the lead partner • Clear obligations • Complex exit strategy • No JV for the IP!
  27. 27. JOINT VENTURE ENTITY Advantages Disadvantages Sometimes required by funder or commissioner Expense/administration of setting up and managing a new entity Ring-fenced risk(?) Funder/commissioner may require parent guarantees Clear purpose/branding? Harder to exit Separate legal entity which can own IP and employ staff – has its own board No goodwill/reputation in the JV JVFunder Parent B Parent A
  28. 28. Why? • Preserve activities and assets for charitable/philanthropic purposes • Cut costs • Better service • Re-focus But? • Loss of control • May not be able to preserve all assets/staff • May be complexities around transfer HIVING OFF ACTIVITIES
  29. 29. CASE STUDY The hive out and slow wind down – registered charity to commercial purchaser and successor registered charity • Need fair valuation of assets pre commercial purchase • Can be complex to transfer IP/other assets • Who will enforce? • Be comfortable with loss of control • Due diligence needed
  31. 31. NO RIGHT OR WRONG WAY….SOME THOUGHTS • Clarity of purpose; Understand your long term impact; know the added collective value – your impact and wider social value • Leadership, individual and collective • Time strengthens your negotiating position; Strategic moves best done before urgency arises.
  32. 32. “everything we do depends for its quality on the thinking we do first” Nancy Kline,1999 ‘Ease creates. Urgency destroys’
  33. 33. SPECIFICS TO CONSIDER BEFORE ENTERING MERGER OR COLLABORATIVE WORKING DISCUSSIONS • Realism • Attractiveness? • Putting your house in order • Driven by your beneficiaries needs – know your ‘glue’, WHY? • What do you have to offer? What is it worth? • How do you demonstrate? – stats and stories • How well do you know your partner……and yourself?
  34. 34. HOW WELL DO YOU KNOW YOURSELF AND YOUR PARTNER? Give Get Give upGetover Do your homework but avoid entering into analysis/paralysis mode
  35. 35. ASK THE DIFFICULT QUESTIONS, DON’T STAY IN YOUR COMFORT ZONE The original decision maker is leaving How do we get out of this? What will happen to shared property? How does this fit with our metrics? Who will be the CEO/collaborative lead? How do we tell our founder? Can we subcontract? How do we mirror the funding agreement with our Heads of Term? How many seats will we get on the Board? How many redundancies will we need? How can we keep our name?
  36. 36. WHAT OTHER STRATEGIES ARE THERE? Part of full closure? How can we do endings well? Throughout one needs to • Build trust – multi layered, many stakeholders • Communicate constructively and communicate, communicate, communicate • It’s about taking those decisions that can make the biggest difference and which are sometimes very unpalatable Courage, commitment, communication and above all an understanding of common purpose
  37. 37. QUESTIONS
  38. 38. KEY RESOURCES • NCVO Knowhow merger guidance • Bates Wells: A brief guide to mergers • Bates Wells: Crisis Decision Tool • IVAR/Bates Wells publication: Thinking about merger during Covid-19 • CASS CCE’s free resources page • Sayer Vincent Mergers made simple guide • Challenges in Contemporary Governance Chair/Chief Executive: working together to build resilience, Cass CCE (2020) • The Art of Exit, Nesta (2012)
  39. 39. NCVO PRACTICAL SUPPORT OFFER All organisations can access our NCVO Knowhow guidance, tools and resources. Check out our NEW online training on NCVO’s training platform. Watch out for our series of webinars in partnership with Zurich on risk management Recording and signposting to relevant material will be sent round. We would love to hear your feedback.
  40. 40. NCVO champions the voluntary sector and volunteer movement to create a better society. We connect, represent and support over 15,000 voluntary sector member organisations, from the smallest community groups to the largest charities. This helps our members and their millions of volunteers make the biggest difference to the causes they believe in. • Search for NCVO membership • Visit www.ncvo.org.uk/join • Email membership@ncvo.org.uk 40