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The urge to merge.

A common-sense approach to association consolidation.

Remember the good old days, when associations were immune to economic cycles? Those days are a distant memory for associations experiencing financial woes similar to those of their members. Increasingly, in fact, members expect associations to share their suffering.

Financial constraints are now causing some association leaders to look carefully at merging with related or competing organizations, particularly where the incidence of dual membership is high. More and more, corporations and individuals alike are unwilling to support two associations that provide essentially the same services to their members.

In the case of the Independent Insurance Agents of Michigan and the Michigan Association of Professional Insurance Agents, both of Lansing, the membership overlap was in the neighborhood of 50 percent. This overlap, coupled with a shrinkage in the independent agency universe of from 6 percent to 10 percent annually, had been causing strain on the two associations. Independent agents were becoming reluctant to support both associations, and pressure for consolidation was beginning to mount.

Discussions between the two organizations began two years ago, amid predictions from some skeptics that these two highly competitive associations could never come to terms. To be sure, the negotiations between the two groups were very difficult at times. In the end, however, the consolidation was accomplished and was approved by the members of both groups by a stunning 98 percent margin.

Just as important, the merging of the two association staffs has been remarkably smooth during the transition period, with no remnants of the we-versus-they mentality that had pervaded relations between the two organizations before they combined. The lessons we learned in our struggle for unity may serve as a model for other associations that walk the same path in the future.

Lesson 1: The association executives must be involved. From the association standpoint, the learning curve for even the most dedicated and knowledgeable volunteer leader is too steep. This results in delays, unnecessary consultant fees, and worst of all, extreme caution on the part of volunteer negotiators who fear making a mistake. In our case, however, the two executives reached agreement on all essentials in 2 1/2 days of intensive negotiations. This approach makes sense; after all, corporate mergers are usually negotiated by management, not boards of directors.

From the executive's standpoint, it also makes more sense to be involved and have some input into the process rather than to be an unwitting and unwilling victim. It is vital that the two executives meet early in the process and attempt to establish a close working relationship. This can be a great time-saver for the negotiators and carves out a place for the executives in the negotiating process. One very simple way of starting is to jointly develop a list of questions and/or issues the negotiators will need to resolve.

Our review of prior consolidations showed us that when the two executives are "at war," cannot work together, or are unwilling to consider working side by side in the new organization, they are generally frozen out of the process. This also increases the danger that both may be passed over as the consolidated association looks for its future management.

Lesson 2: All associations are created equal. Approaching each other on equal terms benefits both parties in the marriage. Takeovers may be the hot ticket in the corporate world, but in most cases they are inappropriate for tax-exempt organizations whose missions are to serve their members. Domination by one of the partners because of size or financial resources is a recipe for failure.

Obviously, this argument is harder to make for the smaller of the two associations, so responsibility falls on the executive of the larger partner to point out to his or her negotiators that issues such as member equity are meaningless in the marriage of two nonprofit organizations. If the two associations are grossly unequal, this principle may have to be modified. However, in the vast majority of cases, association consolidations occur between organizations of roughly similar size.

Lesson 3: Handle the deal breakers first. These questions are usually the high-visibility perceptual issues, such as selection of the chief executive officer, headquarters location, election of officers, and the official logo. They should be handled with the idea of striking a rough balance, without keeping score.

While some would argue that it is better to start with the smaller, less-volatile issues and work up to the tougher ones, nothing could be more devastating than to spend months successfully negotiating minor issues, only to discover irreconcilable differences at the last moment. One of the dynamics of the negotiating process is the inevitable exhaustion that strikes team members after several months. This wearing-down process makes negotiators more testy and less likely to compromise than at earlier stages, when energy and commitment are at a high level. We suggest putting the deal breakers up front and, if consensus cannot be reached, putting those issues on hold to deal with later. Everyone in the process deserves to know at the outset which issues are the potential deal breakers.

Lesson 4: Avoid the two-headed monster. The issue of who will be the chief staff officer is typically the most difficult question to resolve. Some negotiating teams succumb to the temptation to avoid controversy by making the two existing executives coleaders in the new enterprise--for example, they appoint one to head the association and the other the for-profit subsidiary. Avoid this at all costs because it just doesn't work. Ask those who have tried it and they will regale you with horror stories of confusion, competition, and divided staff loyalties. There can only be one captain.

Another "solution" favored by some consolidation committees is to look outside for executive talent, selecting neither current executive to head the new organization. Obviously, this is an enormous waste of experienced management and a disaster for the current executives. Nevertheless, it is frequently considered as a last-ditch option when an impasse is reached. The wise executive will attempt to eliminate the necessity of such a draconian measure. One possible solution is for one of the executives to assume the overall direction of the association as chief executive officer and the other to take responsibility for day-to-day operation of the organization as the chief operating officer. But even in this scenario, there should be only one number one.

Ultimately, this issue boils down to a question of egos. Can the two chief executives from the merging associations agree to work together with one as the 51 percent partner? Can the two executives approach this on a win-win basis, rather than focus on who winds up as numero uno? Our experience suggests that when the executives can agree, the negotiators breathe a huge sigh of relief and are likely to show their gratitude by protecting the futures of both.

We strongly believe that the best solution is the one we used: The negotiating teams authorize the chief executive officers to negotiate this issue and recommend a solution. If this fails, the issue can be thrown back to a joint committee to decide how best to use the talents of the two existing executives. However, experience suggests that the volunteer leaders tend to protect their own executive, and this is where many mergers either break down or prompt a search for outside talent.

Lesson 5: Don't carry too much baggage. Particularly when you are attempting to merge two very competitive associations, you need to be on guard against too much carryover leadership. If you are looking for a smooth transition into a unified entity, your purposes will be better served by a new board of directors, rather than by perpetuating the status quo with the old relationships intact. You may wish to consider, as we did, prohibiting existing board members from running for positions on the new board if they have served more than a specified number of years for one of the existing bodies. Continuity and experience can be preserved by specifying that a limited number of people going through the chairs be piped into the new leadership chain. However, this should not exceed three to four years and should not favor the leadership from either of the parent organizations.

Lesson 6: Don't sweat the details too early. While there are a million decisions to be made as part of any merger, you need to decide early which questions must be answered in order to decide whether to consolidate. It is easy to get bogged down by minutiae about how to consolidate. In fact, opponents of consolidation frequently bring up trivial points to stall negotiations.

Some issues that determine whether a consolidation is desirable and achievable include whether the associations.

* represent compatible memberships;

* can agree on a common purpose or vision;

* can agree on governance, particularly board composition and initial officer succession;

* have the ability to agree on staffing, both overall levels and senior and executive management selections;

* are able to agree on a name for the new organization;

* can reach agreement on an initial budget;

* can agree on a headquarters location; and

* are free of outstanding financial liabilities that would hamper the new association.

On the other hand, it is not necessary (and may be counterproductive) to address such issues as

* details of administrative or operational aspects of the new association;

* specific projects or programs (this should be the purview of the new board of directors);

* specific salary and fringe benefits for individual employees;

* determination of specific vendors for such services as telephones, automation, and printing; and

* long-range planning.

While admittedly certain assumptions must be made in order to produce a proforma budget, these should not be cast in stone, thereby tying the hands of the new board of directors. Many decisions can be made effectively after consolidation, either by the new board or by a transition committee provided for in the consolidation plan.

Lesson 7: Don't blow all your money on the wedding--save some for the marriage. Be very judicious in selecting your consultants--that is, make sure they all have experience in merging tax-exempt organizations. Otherwise, they may simply "borrow your watch to tell you what time it is, and then charge you for it." The general rule is that the more you can get the staff involved, the less you will spend on legal, accounting, and organizational consultant services.

Lesson 8: The longer the engagement, the better the honeymoon. Time your consolidation to ensure an adequate transition period between the membership vote and the actual effective date (six months seemed comfortable to us). If you give yourself adequate time to get organized as a new entity, you will find it easier to hit the ground running on the effective date of your merger and meet the expectations of your members.

Lesson 9: Don't neglect the human element. Be sure that the two existing staffs are fully integrated into the new organization. Keeping the existing lines of authority intact sounds fine in theory, but in reality it will only serve to perpetuate the illusion of two separate staffs operating in the same building. In the worst-case scenario, it can lead to the development of two armed camps.

Be sensitive to bruised feelings. In any merger, employees feel some sense of loss even if they retain their jobs. Fight this with staff social functions, joint staff task forces for problem resolution, and a lot of reassurance and handholding, particularly during the transition period. You might also consider offering contracts to department heads or other key staffers to lower their anxiety levels, keep them on board, and provide them with the security to make the difficult decisions that are part of any transition.

If your consolidation plan calls for the elimination of some duplicate positions, make your decisions known to those involved immediately and treat them generously. The longer the staff is forced to wait for a decision on job security, the more morale and productivity problems you will face. Once the decision has been made not to extend an invitation for a particular employee to join the new staff, dismiss that individual as quickly as possible. Holding on to a departing staffer to "aid in the transition" is unfair to that person and places the rest of the staff in an awkward position at a time when maximum cooperation and unity is required.

Lesson 10: Keep your head when all about you are losing theirs. A merger is by nature a stressful experience. Under such circumstances, it is imperative that the chief executive officer and other senior staff maintain calm, positive demeanors, being ready at all times to deal with the inevitable tensions. While you're bound to have some negative feelings, be careful not to poison your own well by sharing them with the staff.

Here again, open communication, honesty, and sensitivity between the executives of the consolidating associations is critical. This is a period in which it is impossible to overcommunicate. We took special pains in our own transition to discuss problems in private, reach consensus, and then speak as one, particularly on we-versus-they issues. A well-developed sense of humor is also helpful in dealing with problems as they arise.

The end result

We have no patent on successful consolidations; we learned from the experiences of other associations and avoided some of the problems they encountered. The result is that after more than a year of wedded bliss, the new association is more productive and sensitive to member needs than either of its predecessors, and the "Michigan Model" is being copied by a number of other similar agent groups throughout the nation.

The bottom line for the executive is that depending upon how you approach the questions of whether and how to consolidate, a merger can be either one of the most threatening or one of the most professionally satisfying experiences of your career. The fundamental decision is whether you want to become part of the process and have input or whether you are content to leave your future entirely in the hands of others.

Fritz C. Lewis is chief executive officer of the Professional Independent Insurance Agents of Michigan, Lansing. Charles R. Chandler, CAE, is executive president/chief operating officer.
COPYRIGHT 1993 American Society of Association Executives
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Author:Chandler, Charles R.
Publication:Association Management
Date:Mar 1, 1993
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