There are a range of options for collaboration, restructuring or merger which should be studied and discussed by organizational executives and boards as two (or three) organizations consider models for collaboration, restructuring or merger. If there are concerns about financial risks, other risks and liabilities, or other unanswered questions, then it is wise to make fewer large structural changes or changes which leave a large “public footprint” (such as a name change). Remember that it is easier to move forward with closer collaboration using small steps, than acting quickly in ways that make large changes to the organizational structure and “footprint.”
A. Collaboration – Merger Continuum
The collaboration-to-merger continuum options include the following, and are listed with the least amount of change at the top of the list, and the most intensive level of structural change at the bottom of the list:
- Collaboration – includes collaboration between two or more organizations, often using letters of agreement and/or Memos of Understanding (MOUs). Most collaborative initiatives are program or goal focused. Some collaborative initiatives are developed in response to funding opportunities.
- Strategic Alliances – include a more intensive collaboration, usually guided by a series of MOUs and other agreements. Many including having one agency that serves as the coordinator or hub. Some strategic alliances are focused upon shared programs or community initiatives. Others are developed to engage in shared marketing or fund raising,. And still other strategic alliances may focus upon shared back office operations
- Consolidation, Merger, Acquisition or Parent-Subsidiary Restructuring – which provide a range of options, with some variation in the ways that mergers, acquisitions and consolidation of systems are defined. For the purposes of this article, the consultant defines a (1) consolidation as a combination of systems in a per-to-peer relationship that may or may not include a strategic restructuring involving a change in the 501c status, articles, and by-laws; (2) merger as a consolidation that includes a restructuring of all systems including the 501c, articles and by-laws; (3) acquisition as a merger that involves one of the organizations subsuming the other organization with appropriate restructuring and legal modifications; and (4) parent-subsidiary restructuring as the development of an umbrella corporate (normally 501c) structure that maintains certain reserve powers and control over the nonprofits that are report to that entity with respect to those areas, and work individually and collaboratively as subsidiary organizations.
All of these restructuring options involve significant structural changes, risks, opportunities and organizational time and resources to develop. Any of these options should include a full due diligence of all programmatic, financial, staffing, fund raising (grants, donor and endowment funds), and other records of the participant organizations. Following the due diligence (often with consulting support), the organizations should then include formal risk assessment and legal review. If all goes well with these steps, then transition strategies and contractual agreements should be developed.
B. Characteristics of Successful Mergers
Most successful mergers are characterized by the following:
- Organizational mission and values are similar.
- Collaboration is more strengths-based, or asset-based than driven by fear or desire to avoid cutback or dissolution.
- Organizations are driven by affinity of programs and activities and a desire to more effectively serve their stakeholders.
- Boards of both organizations are strongly engaged and invested.
- Senior management of both organizations provide strong leadership, and are very much engaged in research, testing and developing options.
- The plan allows for participant organizations to move slowly and carefully.
- Organizational systems are similar, and they are further synchronized through the merger process.
- Attention is paid to the cultures of both organizations, and issues are identified and addressed in a way that supports those cultures, maintains the unique strengths of both, and weaves those differences into the new collaborative enterprise.
- Continual communication ensures that different stakeholder groups know what is happening, what may happen, and the anticipated effects on the organizations and those they serve.
- Stakeholders are involved throughout the process, and their feedback helps shape the implementation.
- Senior management and the board leadership frequently review progress, look for feedback, and integrate feedback into the implementation of the plan.
- Leaders make modifications as needed, and shift gears to integrate new information or new options if these are shown to be more effective.
- Collaborative strategies are shaped by evidence based practices, or “what works”, and external expertise is sought more often than not.
- Leaders and key stakeholders continue to attend to organizational issues following the merger, to track progress, address issues, and guide the work of the new entity.
- Leaders provide people with the opportunity to celebrate successes along the way.
|Strategic Alliance/ Merger Issues & Questions|
|Are the missions similar, with a common focus? Will a restatement, revision or integration of the two mission statements have an impact on the organizations and key stakeholder groups?|
|How would one characterize each organization’s work and culture? What fuels the staff, boards, donors and volunteers? What is important to each group of key stakeholders, and how might they be impacted by structural change? How can the organizational cultures be both maintained as well as recalibrated?|
|How would one describe the programs of each organization? What are the programming similarities and differences? Where are there cross-programming opportunities? What is unique about each organization’s program? How would a restructuring impact the programming, people served, and core program funders?|
|Does each organization have solid finances, and meet budget projections, with regular recurring blocks of income, and clearly identified expenses? Does each have strong financial oversight, with financial checks and balances in place at board and executive levels with regular financial reports to the board? What do recent audits show about finances? If restructuring were to occur, would each organization be able to have an external firm conduct financial due diligence and an audit? Can back office financial and bookkeeping functions be consolidated for greater efficiencies and cost savings? What would be the costs to the organizations for restructuring? After initial restructuring, would there be short and long term cost savings?|
|Marketing||Can the separate marketing functions continue to serve the organizational mission and programs, integrating the marketing into a unified theme while retaining the unique messaging of key program elements? How can marketing support and facilitate the restructuring process?|
|Fund Development||Do the participating organizations have strong, diversified funding, with development plans? How would restructuring impact core funding? How would major donors respond? Would organizations be able to conduct key informant interviews with key major donors in the organizations? Can the organizations conduct a due diligence on grants and contracts and donor bases?|
|Administration and Staffing||Have the organizations conducted a job analysis of positions and staff, and developed new staffing options? What would the impact of restructuring be on staff? How do senior staff of participating organizations respond to the restructuring options?|
|Governance||Does each organization have a strong and fully functioning governance structure? Are multiple board leaders deeply involved? Where are the strengths and weaknesses of each? Will the process include an analysis of governance models for maintaining a strategic alliance for each restructuring option? Does each organization have a separate committee working with key staff on the project? And, is there a joint committee as well? What are the most appropriate models?|
|Restructuring Models||What are different restructuring models for the organizations? What are the pros and cons of each option for each of the participating organizations? For the joint organizational restructuring committee?|
It is always important for organizations to regularly examine their work, and analyze how their organization can respond more effectively to the needs of people being served. Sometimes, that will point the staff and board leadership toward a strategic alliance, restructuring or merger.