Merger or Acquisition? The birth of the Foreign, Commonwealth and Development Office
Sue Griffiths is GPG’s Executive Director. In the following article, Sue explains the challenges of the FCDO merger and how both departments will have to harmonize their strategy and leadership.
Mergers and acquisitions have a chequered history in business and there is a litany of corporate disasters resulting from optimistic decisions to bring two organisations together. Research has found that over 60% of business mergers result in the destruction of shareholder value. Nevertheless, prior to the pandemic, M&A activity was booming, with leaders lured by the prospect of leaner, meaner delivery or perhaps the simple assumption that the whole can be more than the sum of its parts.
In Whitehall, departmental mergers and acquisitions go under the somewhat menacing name of “Machinery of Government Changes”. These can often result in an alphabet soup of acronyms as DfT and DfE merge into DETR before becoming ODPM (for example). But beyond the editing of nameplates and letterheads, do Whitehall mergers stand better chances of success than corporate acquisitions?
The most significant departmental merger for some time is about to take place between the Department for International Development (DFID) and the Foreign and Commonwealth Office (FCO). Together, they will form the new Foreign, Commonwealth and Development Office, or FCDO (perhaps some further thought could have been put into that acronym…). The Prime Minister set out the objectives of the merger in an announcement on 16 June, saying:
“The UK possesses the third biggest aid budget and diplomatic network in the world: we owe it to our people to make best use of these assets… distinctions between diplomacy and overseas development are artificial and outdated…It makes no sense to ask whether it amounts to aid or foreign policy: they are one and the same endeavour, designed to achieve the same goals, which are right in themselves and serve our national interest.”
The immediate perception of the merger was of a “hostile takeover” of DFID by the FCO. The House of Commons International Development Committee, which itself stands to be dissolved when DFID ceases to exist as a separate department, warned in its report Effectiveness of UK aid: potential impact of FCO/DFID merger, that “The loss of an independent DFID, with poverty reduction at its heart and years of specialist development expertise, risks damaging the quality of UK aid and undoing hard won development gains.”
As might be expected, the Foreign Affairs Committee (which will not be abolished) struck a somewhat more optimistic, though still cautious, tone. Its report, Merging success: Bringing together the FCO and DFID, found that “Creating the Foreign, Commonwealth and Development Office from two Departments with their own cultures will require strong strategic direction and leadership from the beginning.”
History suggests that Whitehall mergers often face similar challenges to those in the corporate world. A 2010 Institute for Government/LSE paper Making and Breaking Whitehall Departments notes “At their best, these machinery of government changes provide a way to adapt government departments to meet long-term policy and administrative goals” but concludes that: “long term governance arrangements are seldom the primary motivation for machinery of government changes. Reconfigurations always provide the opportunity to reorder the Cabinet, reward allies and signal new priorities to the electorate…the current insistence on doing machinery of government changes quickly and in secret makes it nigh on impossible to manage them well”.
Extensive research from the corporate world has examined what is needed to pull off a successful merger. Internal challenges include the need for cultural compatibility as the basis of a genuinely unified organisation (as Simon Sinek puts it, “you wouldn’t marry someone for the operational efficiencies”) and the avoidance of a persistent ‘us and them’ mentality among staff. The size of the two departments is interesting in this regard and may belie the assumption that the former FCO will automatically be the dominant force. As a recent RUSI blog notes, 96% of the combined FCDO budget (£14 billion) will be drawn from the aid budget, whereas spending on ‘traditional’ FCO functions (the diplomatic network, policy support, consular assistance for UK citizens) represents just £600 million of the annual budget.
Studies of successful business mergers also conclude that compatible organisations are likely to be those whose services and customers are complementary, adding value to one another, rather than continuing to move in entirely separate worlds. The new FCDO aims to bring together diplomacy and development under UK Ambassadors in countries around the world, reporting under a common strategy to the Foreign Secretary. It remains to be seen, however, how this approach will be managed in practice. To what extent will each Embassy be free to create its own strategy and select its own ‘customers’ among the often-competing interests within the host country?
Finally, rumours persist that this is not the end of Whitehall M&A activity, with speculation that, as the Brexit transition period draws to an end, FCDO may also subsume all or parts of the Department for International Trade. While DIT staff are commonly located within UK Embassies, the involvement of a third organisation in the merger is sure to add to the complexity of the endeavour.
Both DFID and the FCO can draw upon talented and committed staff and partners who have proven highly effective in their former roles, but bringing them together successfully will require leadership, strategic direction and flexibility. The ultimate test of FCDO is to count as one of the minority of mergers which create rather than destroy value.