The Center for Ethics, Governance, & Accountability

A while back, I wrote an article on the subject of non-profit mergers (and whether the time was right for some non-profits to disband). Since I wrote the article, funding sources for community non-profits continue to dwindle and there does not appear to be an end in sight in the near term.

The beginning of the year offers an excellent opportunity for non-profit boards and executive directors to take a fresh look at their operations. The purpose of this article is to outline a number of issues to keep in mind when considering a merger.

I believe the best merger candidates are organizations with similar service missions. However, there is a tendency for much competition among peer non-profits, so very careful planning is highly recommended. It may start out with the board chairs meeting for a ‘what if’ chat, and may include the executive directors. There are major issues from the very beginning:

• The executive directors will fear losing their jobs.
• Will there be an ‘acquiring’ non-profit or truly a merger?
• Under what name will the merged entity operate?
• Are the missions in the IRS Form 1023 sufficiently similar to allow a merger?

These are a few of the initial realities. Board chairs should also be aware that certain board members may have such an allegiance to the organization that there might be board opposition to a merger. Of course, it is implicitly assumed that the boards of both non-profits (or it could even be three of four organizations merging) are of the belief that a merger makes sense and/or is a necessity to survive the current economic climate which is definitely not favorable to non-profits. Still, the key point: beware of the naysayers and a history of infighting that may not even be known even to those associated with the organizations.

Assuming that there is initial interest in a merger, the next move should focus on operations of a merged entity. I strongly recommend that the focus on operations be directed toward the fulfillment of the mission, not the continuation of ‘business as usual’ operations. This will be a challenging concept for the staff to accept, but if the goal is to become stronger, more financially secure, and offer better performance/service toward the mission and for its stakeholders, reasonable people should be able to agree that a merger could make sense.

It would also be advisable to make clear that the merger is a possibility, not a done deal. This gives stakeholders an opportunity for input, which is almost always a good thing. Take care, however, to avoid the opportunity for passive-aggressive behavior that could torpedo the merger study at the eleventh hour. And, when necessary, take care to keep confidential issues guarded until the appropriate time for announcement.

I think it’s time to face the reality that there is too much duplication of effort in the non-profit sector. A lot of money has been thrown at a lot of problems and there are not sufficient outcomes to justify continuing this behavior. (How many more ‘community rooms’ do we really need to build?) Just as government (federal, state, and local) is now forced to look at cutbacks and realignments and improved efficiency – as has the private sector – so must the non-profit sector.

The mission, the power, the need, and the leadership of the non-profit sector are vital to building sustainable communities. It will be interesting to see how many partnerships can be forged or how many mergers completed during 2011 to mutual benefit of all involved. If you are in a position of leadership at a non-profit, explore the potential that merger offers your organization.