Study: Boards, Senior Staff Holding Up Nonprofit Mergers

Despite financial pressure from reductions in government funding and duplication of services, the overall rate of nonprofit mergers remained unchanged during the past decade according to a new study by the Bridgespan Group.

Authors of “Why Nonprofit Mergers Continue to Lag,” compared merger rates from 2001-2006 to 2007-2012 and found they are essentially the same in the states they examined. The exception is Florida, which had close to 500 mergers from 2001-2006, with only 400 from 2007-2012. The other states studied were Massachusetts, North Carolina, and Arizona. These states were chosen, according to co-author Cristina Botero, because of the availability of the data, and to make the study consistent with their previous paper on mergers from 2009.

“We wanted to keep continuity from our previous research,” said Botero.

According to the report, there is evidence that the majority of proposed mergers are held up because of disagreements over some “highly emotional” topics. “Despite growing support for nonprofit mergers, promising combinations often stumble over three emotionally charged issues: Getting the boards aligned, finding roles for senior staff, and blending the brands. Creating a due diligence process that overcomes these hurdles is critical in order to translate increasing skill to merge into will to merge,” said Katie Smith Milway, one of the co-authors of the report.

As an example of how boards could derail a promising merger, Milway and her co-authors cited the example of Arizona Children’s Association (AzCA) which was considering a merger with Child and Family Resources (CFR). Things were progressing nicely until some members of AzCA’s staff raised concerns about the viability of the merger, which was bigger than any other merger the organization had previously tackled. Given that then-CEO Michael Coughlin supported the deal it sent mixed signals to CFR and merger talks eventually ended.

The report quoted Coughlin as faulting himself for the failed merger, saying he shouldn’t have taken on such a big assignment so soon into his tenure as AzCA CEO. The report also cites the fact that not all board members were present for every meeting.

The report also mentioned that in Coughlin’s previous tenure as CEO of Goodwill Industries of Northern New England, he had completed two mergers by finding room at Goodwill for important senior staff of the acquired organizations.

“One of the things that we have heard from our conversation is the importance of involvement of senior staff and board members at appropriate times,” said report co-author Maria Orozoco. “The organizations that were successful had them all involved in the deciding of critical questions.”

Orozoco added that mergers that have not been successful, such as AzCA’s failed merger with CFR, have gone south because of a lack of communication between all parties. She further stressed that while mergers are an “effective way for organizations to grow,” they can make board members and senior staff uncomfortable.

“I think there are some potentially tough implications for organizations that are merging,” she said, stating that deciding which staff stays and goes and what the composition of the combined board can be particularly hard decisions.

“It’s tough to merge cultures. It’s not an easy process to go through,” she said.

Although merger rates appear to be static, the report’s co-authors wrote that it is not for lack of interest. In fact, the results Bridgespan’s survey of 102 nonprofit leaders found that 81 percent were involved in some form of collaboration, an increase of 20 percent from 2009. For those organizations that were not interested in participating in a merger, they had the following alternatives:

  • Best practice sharing: Advances sector knowledge by promoting innovative approaches and sharing lessons learned.
  • Coalition: Aligns a group of like-minded organizations around a common, agreed upon goal.
  • Formal partnership: Allows two or more organizations to be committed to shared goals without integrating organizational functions.
  • Joint venture: Integrates partnership of two or more organizations in a new legal entity, owned by the partners.
  • Sharing services: Enhances economies of scale, generally for cost savings, revenue sharing, or service enhancement.

You can view the full report at http://www.ssireview.org/articles/entry/why_nonprofit_mergers_continue_to_lag