How foundations discourage charity mergers

This article first appeared in Third Sector magazine.

Esmee Fairbairn Foundation (a large UK grant-making foundation) has launched a fund to encourage mergers. It’s ironic, because Esmee’s own rules penalise them

Fairness, presumably, is behind the Esmee Fairbairn Foundation’s rule that it (normally) will only give a charity one grant at once. But it’s misplaced. One effect is that it discourages mergers which, through a new fund announced last week, Esmee Fairbairn Foundation is – somewhat ironically – trying to encourage.

I personally have seen mergers killed by this rule, which sadly isn’t unique to Esmee. Once upon a time, I was exploring a sensible merger between two charities, both of which fitted Esmee’s areas of interest. Separate, we were eligible for two grants. Combined, we’d have been eligible for just one. By merging, we’d automatically forfeit our eligibility for a second grant. For us, that price was too high and it nuked the deal.

The evil twin of the ‘one at a time’ rule is some funders’ obsession with small charities. For example, the Polden-Puckham Charitable Foundation will only fund charities with revenue below £300,000. So, separately, two charities each with revenue of, say, £200,000 might be eligible for two grants, but combined, they’d be eligible for none at all.

Notice that in each case, those charities are disqualified irrespective of the quality of their work. What?? Surely, now that we’ve all noticed that some charities perform better than others, foundations and others should allocate charitable money solely on the basis of performance, rather other spurious criteria like these. 

Notice too that the disqualifications are irrespective of the logic of the mergerThe case for mergers is very strong, for two basic reasons. Firstly, large organisations can normally do things more cheaply. For instance, two charities each with revenue of £500k will pay two audit fees, whereas one of £1m will only pay one. And secondly, staff in bigger organisations are typically more productive. The Economist recently reported that, for example, workers in European manufacturing companies with over 250 workers create 30-40 per cent more value each than workers in firms with fewer than 10 employees. This is partly because they can ‘focus on a specific problem [and will] not be asked to fix the boss’ laptop as well’. If we could solve global poverty or nail cancer 30-40 per cent sooner just by mashing some organisations together, then we should do so without delay.Click here to find out more!

But what about fairness? The problem is that Esmee has got the wrong unit of analysis. It’s trying to be fair to charities. But who cares about charities? We should all, charities included, obsess instead about what’s best for beneficiaries. We can see this by doing a thought-experiment for a second. Suppose there are three charities in a particular sector, two of which are brilliant at serving beneficiaries and one is rubbish at it. Is it ‘fair’ to beneficiaries to support those charities equally? Hell, no! The beneficiaries are best served if the good charities are enabled to grow and take over the work of the rubbish one, which is killed off, toute suite.

These foundations’ arbitrary rules are not based on evidence or merit, and therefore do not promote performance. Just as evidence-based medicine has saved a squillion lives, and evidence-based policy is saving squillions of tax-dollars, it’s time for philanthropy to be based on evidence about what works – and that alone.

Who is looking at which charities are best–>

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3 Responses to How foundations discourage charity mergers

  1. An interesting issue which I hadn’t come across before. It does indeed seem silly to have such internal contradiction.

    By the way, the French expression for “straight away” is “tout de suite”.

  2. Tim Watkins says:

    An interesting point in relation to merger. But I don’t buy the Big is Beautiful line.

    Merger is almost always a response to internal financial pressure within a charity rather than any serious consideration of what is best for beneficiaries. Moreover, merger can result in a lowest common denominator approach to beneficiaries needs together with mission creep, where the new organisation seeks to “represent” as many people as possible if necessary by expanding the aims and objectives of the merged charities. This often means losing the key differences that account for why a charity was set up in the beginning.

    Nor are the productivity gains necessarily there for the taking. Even large charities do not have 250+ core employees – project workers will presumably have to continue to do the same job after merger that they were doing previously. In any case, merger is usually about the redundancy of core staff who are duplicated across the merging organisations. So, actually, even after merger the Public Relations Manager may still be required to tell the CEO to try pressing ctrl-alt-del.

    There is also a tacit acceptance here that big organisations find fundraising much easier than small organisations. This is leading us toward a massive loss of public confidence in charities that have become multi-million-pound businesses hoovering up taxpayers money, foundation funding and voluntary donations primarily because they can make more noise than smaller groups (rather than because they are better at meeting beneficiaries’ needs). At least those funders that restrict money to small charities provide a space for innovation (something you will not get from organisations that are making money from the status quo).

    I would suggest that a genuinely innovative approach to charity in the post-credit-crunch world would be to follow the public sector’s lead and farm out the “back room functions” – set up a single organisation separate from the charities to do all of those tedious admin tasks that funders hate. Charities might also want to do something even more radical and close all of those expensive London offices and move somewhere cheaper. If you need to have meetings in London, you can rent serviced office space by the hour, half-day or day. The train fare from Birmingham to London is just £3 if you book in advance, and the journey takes a little over an hour. These are preferable to watering down a charity’s mission and its support to beneficiaries that is likely in a merger.

  3. Pingback: The Truth, The Whole Truth | Giving Evidence

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