November 4, 2016; New York Times
When can the merger of two nonprofits be a good strategy? The Metropolitan Chicago Nonprofit Merger Research Project analyzed 25 nonprofit mergers that took place in the Chicago metro area from 2004–2014, as well as a selection of mergers that did not succeed. One key finding was that in 88 percent of the mergers, both sides felt that the resultant amalgam was stronger in terms of organizational goals and increased impact.
Other interesting findings: Of the mergers studied…
- In 44 percent, donors paid for the costs of the merger.
- Eighty-five percent had a board member as the main advocate for the merger.
- Sixty percent of the acquired nonprofits initiated the merger discussion, leading to more proactive than reactive strategies.
- Over 50 percent of the mergers began during a time of leadership transition.
- Fifty-six percent asked funders and grantors to offer advice on the merger decision.
Some of the more difficult issues that arose from the mergers were staff retention and board member retention and transition. Naming and branding the newly formed organization predictively led to some contentious conversations. The top hurdle is organizational pride—the reluctance to let go or give up control from the shared sense of ownership.
One of the cases in the study was the merger of the Eleanor Foundation (EF) with the Chicago Foundation for Women (CFW), which was initiated by a board member from the EF. Although both boards focused on empowering women, they had different methods and programs. After eight months of active discussion, the boards were able to work out an agreement.
Why did they merge? EF traces its roots to the early 20th century, in the time of the well-known social activist Jane Addams. CFW began in the 1980s by leaders in Chicago’s philanthropic community. When EF lost its CEO in 2012, the committed effort to explore options began. EF faced a future of choices: spending down its assets and going out of business, working with a partner, or reducing its expenditures.
CFW agreed to continue the work of EF in the area of funding work on economic self-sufficiency under the name “The Eleanor Network.” As a result, the Eleanor Foundation gifted its assets. Additional considerations included board composition: Six of the 12 EF board members ultimately joined the CFW board, and while CRW previously had an intentional all-woman board, some of the EF board members transitioning to CFW were men. The gender issue did not break the deal, but did involve serious discussions by both boards.
The study highlights and identifies four common types of merger, though many would not term all of these exactly mergers:
- Acquisition mergers, in which one organization dissolves and merges into the other
- Asset transfer mergers, in which assets are transferred to another organization, with the liabilities disposed of by other means
- Merger of equals into a new organization
- Change of control involving a transfer of control, such as management services contract or parent-subsidiary
Not all mergers go well, and the reasons for a merger’s success or derailment can commonly be found among the board members. Each merger needs board members involved with many decisions over an extended period. Board members should be cognizant of the organizations’ assets, programs, and donors. Boards need to determine whether they’re seeking a full merger or an acquisition of another nonprofit’s assets or joint programming.
“Often, board members get very inflexible about who the leader should be of the combined organization, or they can get very inflexible about the name,” says Jean Butzen of Mission Plus Strategy Consulting.
The study included both types of 501(c)(3) nonprofits—private foundations and public charities. Private foundations, often with small and insular family stakeholders, face different issues when merging becomes a consideration. Often, this discussion arises when members serving on a private foundation’s board do not agree on the current direction or simply don’t get along. Rather than merging, family foundations often choose to split or put the remaining money into a donor-advised fund.
The best takeaway is the hope that this study can diminish the negative anxiety around nonprofit mergers. Gillian Darlow, CEO of Polk Brothers Foundation, offered, “People might worry that it looks like kind of a failure, when actually it’s a strategic choice.”—Jeanne Allen