Organizational Leadership: Considerations for a Nonprofit Merger ~ © by James K. Lewis
CRITICAL CONSIDERATIONS
In Nonprofit Board Answer Book II: Beyond the Basics, Robert Andringa strongly cautions organizations to think first about creating collaborations before even breathing the word merger. There is so much angst connected with mergers and acquisitions, that putting the effort forward into collaborations will benefit all involved – as well as lessen the chance of one’s intentions being misrepresented at the start of what is difficult enough without causing discord. Besides, if collaboration were a priority all along, one might not be in the place of needing to merge.
Analysis
Thomas McLaughlin begins his book Nonprofit Mergers and Alliances: A Strategic Planning Guide with the admonishment that the best time to consider change is “when the collective energies and creativity of the two entities can be used proactively instead of being sapped by the demands of crisis management” (McLaughlin 1998, 3). If conditions move an organization’s leadership to consider a merger, Andringa provides several factors for analysis and discussion that will clarify your positions (Andringa, 118-123):
1. What is the reason for the merger? Zero in on your goals. Is your desired outcome organizational growth; a greater diversity of services; a wider geographical scope; a larger market; an enhanced public profile? If the reason is your organization will not survive financially in the short term without merging, be honest about it. Discussions with the board and key staff will help bring consensus around the desired outcomes.
2. If a similar organization has been identified, how compatible are your missions? If not already knowledgeable about other organizations, do the research. History, reputation, programs, and fiscal stability are a few main concerns. Do you target the same general ends and utilize similar means for successful outcomes? How do you measure success?
3. What about your publics? Performing a focus group and feasibility surveys will help get a consensus from your stakeholders. What is the perception of the other organization/s in the eyes of the community; to civic and church leaders? Will a potential merger be looked at positively or will it create suspicion or undue confusion? Whose identity is more prevalent to the public? Or will donors follow the resulting entity as they did one or both of the organizations, or will the combined gifts equal the amount of one gift? This needs to be part of your feasibility study and financial forecasting.
4. Do your cultures conform or clash? Are both organizations’ core values compatible? Are there traditions to recognize as needing melding? How is each organization structured? How much effort will it take to integrate the two systems if they differ? Does either organization have anything that is non-negotiable?
5. Who will assist in the process? A consultant; a joint committee; an attorney? Defining parameters of roles, expectations, timetables, and communication will be key to the successful merger. What will the resulting staffing look like? Will some not survive the transition? Be clear in the process so as to be inclusive as possible in any negotiations. Ultimately the buy-in of all concerned will go far in building a new team.
Additionally, when analyzing a potential merger or acquisition, some critical questions must be discussed of the core competencies and sustainability of the resulting new entity: 1. What core activities would be combined, and how? 2. Would any revenues be lost? 3. Will there be efficiency savings? These questions can assist the two organizations in understanding the “strategic imperatives” of their individual core competencies and can more preemptively coalesce the two into an entity that can operate the combined program services in a fiscally responsible manner – with sustainability as the common goal (Bell, Masaoka and Zimmerman 2010, 123).
Decision
Once the subject is broached and leaders of both organizations have decided to move forward, the leadership will create a Joint Merger Explorations Committee (JMEC) as outlined in the sample Nonprofit Merger Process as shown in the attached Appendix. Key leaders and staff from both organizations will continue the process forward internally and in a combined effort to reach a joint venture. The process facilitated through go/no-go decisions provides the structure and procedures that will guide each transition step as outlined in the Appendix. Due to the intricacies of that progression this paper will not unpack that procedure here. I recommend the books which are included in the Bibliography. Primarily, I suggest the texts Nonprofit Mergers and Alliances: A Strategic Planning Guide by Thomas A. McLaughlin; Nonprofit Mergers: The Power of Successful Partnerships by Dan H. McCormick; and The Nonprofit Merger Workbook: The Leader’s Guide to Considering, Negotiating, and Executing a Merger by David La Piana.
CONCLUSION
McLaughlin provides an excellent assessment of what our environment is saying to today’s nonprofits: “. . . existing nonprofit organizations, as instruments of society, must change their ways of doing things. A big part of that change is to embrace mergers and integrated service delivery as the preferred strategic option of the next decade, rather than as something one must be forced to consider” (McLaughlin 1998, 8). As we see an increase in economic and other external factors causing change in programs and funding, more companies, subsidiaries, nonprofits, churches, and other service agencies with similar products and/or services will experience an ever-increasing need to consolidate services and/or merge . . . or risk the consequences. Unfortunately, the two major issues I hear most nonprofit executives lamenting are limited government funding and an increasingly frugal private donor base. Currently, there exists an inverse relationship between increasing service needs and decreasing funding.
In light of this decline in sources of funding, Gose calls on nonprofits to not just continue to rely on donors to pick up the slack, but urges merging with similar providers. In an environment of challenges, nonprofits need to seek out net-gain options. In the sphere of cultivating communities of practice, Wenger calls for “inter-organizational partnerships.” Full mergers; joint ventures; loose networks – even joining forces with “competitors” – will provide greater access to new capabilities and resources. He cautions, however, that doing so requires a large measure of trust and vulnerability (Wenger, McDermott and Snyder 2002, 222). It is not to be considered lightly – but through much prayer and counsel.
I believe wholeheartedly that these times demand more from our leaders, and that they need to recognize steward leadership as the crucial element for success. In The Leader’s New Work: Building Learning Organizations Peter Senge points to steward leadership as the issue that must come to the forefront in any question of an organization’s future. The primary purposes of the organizational leader are stewardship of the people and resources, and sustaining the organization’s mission and purpose. In fulfilling that duty, the role of steward becomes central. The resulting question becomes: in what manner can the organization’s people continue within a community of shared purpose and how can the mission be sustained? Will it be accomplished through mentoring, reorganization, restructuring, or through a third party merger or acquisition? Ultimately, I feel that as Christians we are to seek missional outcomes in our organizational development. We are not called to build complex structures of disconnected and remote organizations; rather, we are to create synergistic and holistic ministries that create a feeling of wholeness and connectedness of community, within which people thrive and are empowered to develop their full potential.
It may be that one nonprofit’s success is the answer to another’s adversity; leaders of both organizations should take note and be open to innovative collaboration.
BIBLIOGRAPHY
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Parker, Glenn M. "What Makes a Team Effective or Ineffective?" In Organization Development, edited by John V. Gallos. San Francisco: Jossey-Bass, 2006.
Piana, David La. The Nonprofit Mergers Workbook. Saint Paul: Amherst H. Wilder Foundation, 2000.
Porter, Michelle, interview by James K. Lewis. Interview of Michelle Porter San Diego, CA, (May 24, 2011).
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Senge, Peter M. "The Leader's New Work: Building Learning Organizations." In Organization Development, edited by John V. Gallos. San Francisco: Jossey-Bass, 2006. 776.
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Appendix A
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