When Your Powers Combine: Why Nonprofit Mergers Should Not Be Feared
In the early ‘90s, a new superhero burst onto the scene.
With his bright green hair, crystal blue skin and environmentally-focused attitude, Captain Planet was the ultimate do-gooder.
However, Captain Planet didn’t exist all the time. He only appeared when the five Planeteers combined their powers. Whenever faced with a problem too big for any one of them to tackle, the Planeteers called upon Captain Planet to save the day. (EARTH-FIRE-WIND-WATER-HEART!)
Nonprofits can sometimes be like the Planeteers. They are all working toward the same purpose, but when they come together they can achieve more. This teamwork is manifested through partnerships, management agreements or even a full-fledged merger.
Although common in the for-profit sector, nonprofits often shy away from mergers. The Stanford Social Innovation Review cites three issues that stop nonprofit mergers from happening: getting the boards aligned, finding roles for senior staff and blending the brands. Here are some tips that you can use if you’re thinking about merging or at least developing a partnership with another nonprofit.
We Can Work It Out
Often, nonprofits don’t want to discuss mergers because the work they do is so personal. Many nonprofits are born out of personal experiences and individual beliefs. Yet, a quick scan of the community might reveal multiple nonprofits that are trying to achieve the same mission. (This is why the first lesson we tell nonprofits is to examine the nonprofit landscape.)
When you start encountering nonprofits who are doing the same work as you, don’t immediately close up shop and hitch your wagons together. First, just talk. In what ways are the two organizations similar? How are they different? What would working together look like? These discussions should explore all possibilities. Talk about partnerships and how you can work together. A management agreement allows the nonprofits to remain separate, but share leadership and resources.
The Long and Winding Road
After the discussions, you might find that combining leadership or operations is the right route for your nonprofit. Before you proceed with the legalities, you need to make sure the executives and boards of each nonprofit are in favor of the plan and understand what the new arrangement entails.
The nonprofits can go about merging in two different ways. In a technical merger, both nonprofit boards agree to dissolve and then form a new organization. More common is when one board of directors votes to dissolve and transfer its assets to another organization. Then the surviving board votes to accept the assets from the dissolved organization.
Mergers don’t just happen with a handshake, but instead take filing of legal documents and updating the Secretary of State on the new arrangement. It helps to consult with an attorney to make sure the transaction is in compliance with all your local state laws.
The first step is to write up a merger agreement between the two parties. This document will address the terms of the merger. It will include when the merger will take effect, which organization will survive, the name and address of the new organization and how the new organization will be governed, including which directors will served on the combined board. Then, the nonprofits will have to address how the financial assets will be merged, including what will be transferred to general operating funds, what happens to assets and liabilities and how gifts will be transferred. Finally, with a new organization comes new articles of incorporation and bylaws.
Mergers aren’t something to be afraid of. While they aren’t as common as in the for-profit world, more nonprofits are realizing the benefits of a merger. John Kobara, Executive Vice President and COO of the California Community Foundation, has worked with the Nonprofit Sustainability Initiative to help nonprofits restructure. Kobara wrote an article in the Huffington Post citing some of the lessons he has learned working with the Nonprofit Sustainability Initiative, including:
- Funders can play a key role in facilitating and funding restructuring opportunities for willing partners.
- A neutral third-party facilitator is essential to the process.
- We are changing the perception that “strategic restructuring” and “mergers” are partnerships of “weakness” or “last resort.”
- Funders should be flexible and manage the uncertainty of the process.
The third point is an important one. Too often nonprofits think of a merger as a nonprofit that has failed to achieve its mission, so it is teaming up with another nonprofit. Instead, it should be thought of in the Captain Planet mindset—when multiple nonprofits’ resources are combined, they can achieve greater things.