Mergers and Strategic Alliances
By Joe Kluger and Dr. Thomas Wolf
“Too many organizations chasing too few resources.” That is how some grantmakers have described the state of the cultural nonprofit sector today. “We have spent more than a half century creating organizations and building an infrastructure that is now overbuilt. We simply cannot support everything that is out there.”
Is it inevitable that Darwinian principles will sift the strong from the weak and lead to the demise of beloved organizations? Or are there other solutions that are more strategic and will strengthen the cultural sector even as it is consolidated?
In recent years, WolfBrown has helped many organizations with mergers and other kinds of collaborations. Often, these actions are a viable strategic alternative to cutting mission critical programs or launching an unrealistic capital campaign. Mergers and alliances are a common strategy in the commercial world, where market forces provide incentives for organizations to seek greater efficiencies. But among nonprofit groups, there are worries that hold organizations back:
Who will control decision-making?
Whose programmatic voice will dominate?
Will it lead to increased bureaucracy and inefficiency?
Will there be a loss of institutional identity?
Whose power and influence will dominate (organizationally and individually)?
Will there be a loss or change of mission?
Will the scope of programs and activities be reduced?
Will there be a reduction in overall philanthropic resources?
Will key stakeholders (e.g. funders, members) become alienated?
To address these fears and to realize the benefits of mergers and alliances, we recommend a disciplined process of assessment, negotiation, and decision-making, containing the following steps:
Step 1 – Complete Organizational Assessments: Make sure each stakeholder organization has gone through a process of analyzing its current situation and the pros and cons of a collaboration with others.
Step 2 – Form Collaboration Subcommittee : Determine who from the board of each organization will serve on a small joint committee, responsible for drafting plans and recommendations.
Step 3 – Engage Neutral Facilitator : A facilitator minimizes the risk that institutional or individual egos will be a barrier to decisions that are in the best interests of the organizations’ respective constituents.
Step 4 – Develop Decision Making Schedules and a Communications Plan : Make it clear who will have the authority to make which decisions, who will need to be consulted in advance, who should be informed immediately after decisions are made, and how the public will be informed.
Step 5 – Interview Stakeholders : The facilitator should conduct confidential discussions with key stakeholders of all organizations to identify opportunities and barriers in negotiation.
Step 6 – Choose Organizational Structure Options : Delineate the options for collaboration or merger, with the goal of consolidating in those areas where there is a commonality of interest, activities, or operations.
Step 7 – Identify Key Policy Issues : Discuss issues of mission and program compatibility, organizational culture, governance, board leadership and composition, professional leadership, personnel, branding, office space, approval process, and timetable, including agreement on which issues must be resolved before deciding to proceed with the collaboration/consolidation
Step 8 – Obtain Consensus : The collaboration subcommittee should present its recommendations at separate meetings of the organizations’ boards, facilitate an open discussion, and obtain final approval. We have asked three experts (including some clients who have been through this process with us) to provide their views on mergers and strategic alliances.
President and Chief Executive Officer
Woodruff Arts Center
In today’s economy, mergers and alliances are increasingly seen as an innovative strategy for addressing challenges in the nonprofit sector. So, it is appropriate to consider the nduring success of the Woodruff Arts Center, which has for four decades provided a unique organizational structure to showcase diverse arts of extraordinary quality.
The Center was forged from the tragic loss of over 100 Atlanta arts patrons in a 1962 air disaster and was built as a model of organizational collaboration and efficiency with corporate support, other private funding, and leadership. The Center is named for Mr. Robert W. Woodruff, whose great leadership of The Coca-Cola Company was matched by his civic commitment to Atlanta. Mr. Woodruff believed that strong arts are an essential part of a growing community and could be strengthened and accelerated by combining the arts physically and fiscally.
The Center functions as an “arts alliance” that combines into a single corporate 501(c)(3) the Atlanta Symphony Orchestra, the High Museum of Art, the Alliance Theater, and The Atlanta College of Art. Over time, the College of Art was merged into The Savannah College of Art and Design, and Young Audiences merged into the Center as a new division that conducts arts programming in the schools.
While there is a single corporate board, each division has a board with artistic autonomy, but with financial responsibility to the Center.
Today the Woodruff Arts Center is one of the four largest performing arts centers in the United States, universally recognized for its artistic excellence. Structurally, it includes four different businesses, “products,” and organizational cultures in a single corporate entity that provides shared services to all the divisions. This makes for a very dynamic and occasionally raucous creative environment. The challenges and benefits are the combined financial base, economies of scale, shared venues, and leadership structures that attract support to advance the arts and education.
President and Chief Executive Officer
At our foundation, we had the experience of encouraging three existing organizations to merge and getting two other entities to join them. It proved to us just how difficult such processes can be. Even with plenty of resources to devote to the challenge, we ran into obstacles and disappointments, but ultimately realized success.
We had the advantage of an external threat. Our City government was not prepared to keep opening its purse to these organizations, so there was a funding cloud that made people pay attention. Even so, many of the parties involved were willing to retrench rather than consider merging. Our foundation provided initial funding for the organizational assessment and follow-up work that Joe and Tom describe in their opening piece and then we gave them more money to implement the recommendations.
When a joint board was assembled, we saw many individuals who served still concerned with representing the interests of their original organizations.
In time, though, two related events were critical to success: hiring a CEO and bringing on new board members, none of whom were affiliated with any of the original organizations.
What this has taught me is that we funders not only have an obligation to help organizations merge but we also need to help people with good ideas find ways to avoid establishing new nonprofits in the first place. One of our most important accomplishments was to establish a grant and resource center that, among other things, helps people find existing organizations to host their projects. This can be done through a combination of advice and money and is well worth the effort.
Celeste Wilson and Jim Grace
Arts & Business Council of Greater Boston
Here are a few things we learned through the merger of our two organizations – Volunteer Lawyers for the Arts of Massachusetts and the Arts and Business Council of Greater Boston.
• Serving constituents more effectively must be the guiding force through the entire process. Unless the merger can guarantee this, there is no validity in pursuing it.
• A merger must make the organizations and programs involved more sustainable for the long-term.
• Go into the merger with your eyes open. We understood that one of us might be out of a job but we were each willing to take that risk because we wanted our organizations to prosper and grow.
• Seek outside help. In addition to the background consulting research we received from WolfBrown,
we contracted with a neutral project manager who knew all the players, kept things moving, set benchmarks, and maintained open communication among all parties.
• The name’s the thing. Board members did not want to lose their individual organizations’ identities but something has to give. In our case, it was decided to keep the name of the Arts & Business Council because its national network affiliation was so strong. Volunteer Lawyers for the Arts became a program within the merged entity.
• The culture of each organization must be taken into account and staff, board members, and funders must be involved throughout the process.
• The actual merger is only the beginning. Critically important work begins after all the papers are signed.
So are we glad we did it? Absolutely!