Organizational Leadership: Considerations for a Nonprofit Merger ~ Part 5

“No nonprofit organization can survive and succeed in advancing its mission while living independently of other nonprofits. Organizations gain information, political power, and personal and professional support from and in concert with other nonprofits. Thus, close working relationships, partnerships and even joint ventures between nonprofit organizations are a fairly natural occurrence.” ~ David La Piana

Organizational Leadership: Considerations for a Nonprofit Merger ~ © by James K. Lewis

OPTIONS FOR CHANGE

Although this paper is discussing mergers and acquisitions, these may not necessarily be the most effective way to deal with the issues at hand. The duty of the steward leader, in concert with his or her staff team and board of directors, is to determine the best course of action for the preservation and sustainability of the organization’s mission. A leader may find that a temporary mentoring, collaboration, or strategic alliance may be the best tool to get the organization on surer footing, providing time to determine the long-term solution. One option I spoke of in a previous paper is increased collaboration with the local church. One should keep all options open at the outset as he or she becomes more aware of the extent of the issues the organization is facing (Carlson and Donohoe 2010, 215-216).

A broadened outlook by an independent third party—such as a consultant or potential partner—can go far in revealing potential blind spots that the leader may have overlooked. Consultation with a professional, or collaborating with a potential partner—although sometimes difficult due to pride and fear of change—can be a great benefit in combining efforts, developing broader resources, and identifying common mission, vision, and core values with others.

While identifying potential joint ventures, in The Executive Director’s Guide to Thriving as a Nonprofit Leader, Carlson and Donohoe discuss several formal options available to the organization seeking partnership opportunities:

• Joint programming or Joint Venture: Broadly defined actions such as program collaboration between nonprofits that may serve to minimize duplication and, competition, or jointly doing business, fundraising, or awareness campaigns.

• Administrative Consolidation: Sharing core administrative functions. Each keeps their separate boards and staffs, however, a portion or all of support systems are shared, such as Accounting, Payroll and HR functions.

• Merger: The legal and permanent blending of two or more entities into a separate entity. Agreeing to integrate processes, programs, governance, and staff – establishing an entirely new organization that merges all operations and programs. This is sometimes referred to as a consolidation.

• Acquisition: Much the same as a merger, except that the surviving entity is usually the larger and/or more capable organization that assumes control of the smaller organization. Much of what is termed “merger” is actually an acquisition of a smaller, weaker organization by a larger, more successful, or well-known organization. Although the term acquisition can have negative connotations, the benefit of both merger and acquisition is the designed potential of the resulting organization being greater than the sum of each organization.

• Only vaguely alluded to by Carlson and Donohoe, is mentoring – or what they might call collaborative assistance. As a stronger, more able organization—and/or perhaps a consultant—comes alongside of a struggling organization, a relational collaboration can take place – helping strengthen that weaker organization in areas of needed growth. This is especially helpful when the organizations are not similar in mission, program or values, perhaps as a preliminary step for those considering a merger or acquisition.

Case Studies

In the following three situations, six organizations followed one of the above scenarios with positive outcomes:

1. In light of external forces causing downsizing and other remedial responses in two similarly recognized and successful organizations, one of the boards sought a discussion with the other on how they could work more closely together – initially without including the topic of merging. They came to recognize their joint efforts could be more powerful and effective than continuing separately. One of the CEOs was skilled in program and the other in administration. As one CEO was adverse to a co-leadership position, the boards set one in place as CEO of a true merger of the two organizations, and the other over program/operations. (Frank 2011)

2. RRM was a newer, larger, more successful and well-managed—but lesser known—service provider. SHMC was a much smaller, less funded—but more recognized—service provider in the same town. Due to external economic and operational issues, they both sensed a need to collaborate – especially when both faced the loss of their respective properties. After an initial period of trading staff and testing the culture of the new combined team, the two boards came together and accepted the acquisition of the larger by the smaller, joining the name, using the prefix of the more recognized name of SHRM. Although a true acquisition, they used the term “merger” as it was more acceptable to the community, who recognized great benefit in this apparent joining of efforts, rather than an acquisition of the more recognized by the other. It was seen as the biggest thing to happen in the Province in years. So positive was this collaboration that they were able to present a new giving opportunity, resulting in a gain of about three thousand new donors in the first year alone. Also, having a single provider, people were less confused about which to support. (Porter 2011)

3. Unlike the first two cases, a third set of organizations realized that one of them desperately needed help and initiated a discussion about how the stronger could best serve the other. Upon examination of the differences in culture and programs, the more established organization offered to come alongside the weaker one and support its reorganization and strengthening through mentoring; leaving intact both viable organizations continuing to serve the community. (Anon 2011)

These are examples of merger, acquisition, and collaborative assistance (or mentoring), respectively. Although these narratives are brief—without detailing issues and processes—they serve to illustrate that every situation calls for its own remedy for a successful outcome. The critical issue is finding the process and outcome that best sustains the mission of the organization and serves the community. Some cases may require amending the mission – or, if there is no longer a recognized related need, to dissolve the organization.