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Troubled Waters.

Combining saves some organizations

In her seven years as executive director of CompassPoint Nonprofit Services, Jan Masaoka has fielded three calls from other nonprofits wanting to discuss a merger.

After the consulting and training firm for nonprofits (formerly the Support Center) entered negotiations, two deals were turned down and one resulted in a merger.

Although these numbers may not seem high, they are indicative of what some leaders and consultants in the nonprofit sector are calling a trend: Some nonprofits are in trouble, and the only way they can survive is by merging with larger organizations.

"We know that nonprofit organizations usually come to merger because one of the organizations comes into financial difficulties or has lost leadership and is having a hard time finding a new executive director," Masaoka said. "For the most part, organizations aren't merging based on opportunity but because of problems. This is true anywhere."

Indeed, even in rural areas, nonprofits are experiencing what David La Piana, a nonprofit merger consultant, calls "merger mania.

"There is a dramatic increase and interest in mergers and other types of partnerships with nonprofits everywhere in the country," said La Piana, principal of La Piana Associates, a management consulting firm working on strategic issues for nonprofits and funders. "There are a lot of different theories as to why. One that makes sense to me is that there has been a huge growth in the nonprofit sector over the past 25 years. So, the sector is reaching maturity and we're seeing a shakeout. There have been a lot of nonprofits for a long time, and a lot of these have had a good run at doing what they do. There has been a kind of splintering in the sector of lots of nonprofits doing the same things, and leaders are seeing the wisdom of coordinating their efforts."

One such organization is the Association for Conflict Resolution (ACR) in Washington, D.C., the result of a recent merger of three nonprofits: the Society of Professionals in Dispute Resolution (SPIDR); the Academy of Family Mediators (AFM); and the Conflict Resolution Education Network (CREnet). According to Daniel Bowling, executive director of ACR, three main issues led to this merger: lack of a single national voice, administrative duplication and lack of financial resources to individually take on initiatives.

"We felt that a merger would be a huge step m solving these issues," Bowling said. "It may not solve them entirely, but it would give us a lot more power to face them."

This increase in nonprofit mergers has led to the creation of a new industry called "strategic restructuring," a term coined by La Piana. Because organizations seeking to merge face several different challenges, Bowling believes that the first step in the merger process is getting expert help.

"When we started out trying it by ourselves, we didn't do too well -- and we are experts at group facilitation," he said. "An expert isn't someone who just helps meetings go better, but someone who understands the myriad of issues that come up in merger, someone who's done them before and knows what works and what doesn't."

Amelia Kohm, project director of the Study of Strategic Restructuring Among Nonprofits in the U.S., a University of Chicago study conducted in collaboration with Strategic Solutions, an initiative of La Piana Associates, believes that planning is the most important factor when deciding to merge.

"We found that planning can make or break a partnership," Kohm said. "Sometimes when there is sort of a 'shotgun' wedding, there is lots of mess to clean up afterwards. Careful planning to determine you have the right partnership, that you understand each other's motivations and goals, and that all stakeholders in all organizations involved have bought in. This seems to increase the success of a partnership."

La Piana explained that three issues come up in any merger negotiating process: autonomy, self-interest and culture clash. Autonomy refers to the concern every nonprofit has about making its own decisions after a merger. Self-interest refers to the fear among existing management that as a result of a merger, they will lose their job or position of authority, or the fear among board members that they could lose their seat on the board. Culture clash refers to the different cultures inherent in organizations and the difficulties organizations have figuring out how to work together.

"I call them the three 'roadblocks,'" La Piana said. "These are issues that are going to come up and which organizations should be on the lookout for."

Bowling said he experienced similar issues during ACR's merger. "One of the first questions we asked ourselves is what are the principles and values around which we would build a new organization," he said. "It only took 30 minutes to an hour to come up with our principles, but lying underneath the table were the different ways each organization practiced those principles and values, and none of us were consciously aware of that. We had to discover them over time. We're still discovering them. It's an ongoing process. That's why expert guidance is so important."

To overcome these "roadblocks," La Piana suggested focusing on two guidelines when negotiating a merger:

1. Focus on the mission of your own organization and try to determine whether this partnership is going to advance your mission or not; and

2. Always involve board members in the decision-making process. According to La Piana, the staff has a vested interest, and it's unfair to put them in the position of working out deals on their own.

Although a merger is not the duly option available to troubled nonprofits, it is the best -- and most practical -- choice for some. For Bowling, merging meant looking at the world in a more realistic way.

Gina Bernacchi is a reporter for the Denver News Bureau.
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Author:Bernacchi, Gina
Publication:The Non-profit Times
Date:Aug 1, 2001
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