The Nonprofit Ethicist | Perplexed about Mergers

NPQ's The EthicistDear Nonprofit Ethicist,

My human-services organization is in the early stage of merger discussions with a nearby agency. The merger makes a lot of sense. But now I have learned that the agency submitted a bid on a project we started decades ago and anticipates continuing in some capacity—whatever the outcome of the merger. (The contract was open for bidding for the first time this year.)

We won the contract, but I’m perplexed by the other agency’s failure to be open with us. Knowing that our agencies are exploring a merger and—I thought, looking for collaborative opportunities—I expect more transparency. We’ve executed a nondisclosure agreement as we undertake due diligence, but I didn’t think a noncompete would be necessary—until now. Where is the line between professional courtesy and ethics?

Perplexed

Dear Perplexed,

How about the line between ethics and common sense?

Nonprofit mergers are always dicey, and it’s always wise to conduct a trial run to test the waters. Submitting a joint proposal would have been a good exercise to determine whether synergies are possible and your staffs can work together. Alas, that is water under the bridge.

Effective due diligence requires full disclosure. This includes information on projects in prospect, in addition to funded projects. The Ethicist assumes that you had access to the agency’s board minutes, and its board should have discussed pursuing this contract—but that is another issue.

The key to good ethics is anticipating the effects of a decision on others. Your “partner” should have considered that you could construe its interest in the merger as a façade for obtaining inside information that would aid it in preparing its proposal, which would sour your mutual relationship and inhibit future cooperation. Certainly professional courtesy and common decency required the agency to disclose its intent to bid on your long-standing contract.