Special Guest Post from Karen P. Brown, MPA, Vice President of Programs, Fairfield County Community Foundation
There has always been a lot of interest in the grantmaker community about nonprofit mergers, but now there is significant interest in mergers from nonprofit executives and board members. Reductions in public and private funding are a driver. In addition, retirements of executive directors have also been a factor.
My perspective is informed by knowledge of the Fairfield County nonprofit sector as Vice President of Programs at the Fairfield County Community Foundation. As a place-based funder, the Community Foundation has been closely tracking merger activity for the past five years and has even facilitated several mergers by introducing similar nonprofits to each other and funding mergers with special grants.
Most of the mergers in Fairfield County involve the closure of a small organization and the transition of its flagship programs into the larger organization. What have we learned about mergers from this work?
First, the retirement or resignation of the executive director often opens the window for discussion of a merger among the board of directors. In some cases, the executive director’s future, planned retirement forces boards to start thinking about potential mergers far in advance. This advance thinking is extremely smart, as mergers take time.
Second, the support of the executive director of the smaller organization is key. In many cases, these executive directors championed the merger opportunity with their board. They realized that their operating budget could not adequately support their administrative “overhead” and that continuing as a “stand-alone” nonprofit would not be in the organization’s best interests. These executive directors were also more interested in seeing that their services continue, rather than the organization. This can happen when the services of the smaller nonprofit continue post-merger as a program or division in the larger nonprofit. Many executive directors of smaller organizations are also compelled to consider mergers because they see the opportunity for achieving greater impact and scale as part of a larger organization.
Third, engaging the board – for both organizations – is critical. In some cases, larger nonprofits interested in mergers have created merger subcommittees of the board. The board subcommittee works with the executive director to scan the landscape and begin meeting with similar, albeit smaller, nonprofits for exploratory conversations. Some of these conversations do not result in mergers, but often do result in other important collaborations.
The governance aspects of nonprofit mergers are potentially tricky. Often, the smaller nonprofit merging into the larger organization will request that 2-3 board members join the board of the larger organization.
Fourth, it is often important that an organization embarking on merger conversations receive outside consulting assistance. These consultants provide an objective, expert perspective on the merger process and help staff the considerable work involved in getting to merger.
Finally, it’s important that the smaller nonprofit not wait until the 11th hour to start thinking about mergers. Smaller organizations are only attractive for mergers with larger organizations when they are still relatively financially viable and strong. When they are three months away from going out of business, the larger organization is not likely to be interested in talking merger.
Most thoughtfully planned mergers turn out to be good for the community. And in the end, that is really what is most important.
For more information about nonprofit mergers, visit the Fairfield County Community Foundation’s web site. Our Center for Nonprofit Excellence will be publishing a report on this topic shortly, based on survey data from the Fairfield County nonprofit sector. www.fccfoundation.org.