As I wrapped up the third conversation in less than a week with a ministry head with merger on the mind, I found myself wondering if the nonprofit sector has fallen prey to the law of the instrument. You know, the idea that if all you have is a hammer, everything looks like a nail. Or in the case of a nonprofit organization, when the only “tool” in the board’s or CEO’s emergency “toolkit” is merger, everything looks like a reason to merge.
If this sounds like you and/or the organization with which you serve, a word of advice: Put down the hammer and consider your options. Chances are good that a more appropriate tool(s) is available for your use.
Don’t get me wrong. I’m not suggesting that merger should be the route of last resort, but neither should it be your default position. There’s a huge middle ground between undertaking a merger and continuing to go it alone. Returning to the metaphor of the hammer, a big, beautiful tool box is available to leaders in nonprofit settings.
Joint ventures, project-specific collaborations, program partnerships, and sharing space, back-office functions, or specialized program offerings are some ways that nonprofits use to advance their missions and achieve economies of scale. The challenge comes in deciding which tool will get you where you want to go.
MAYBE, MAYBE NOT.
When a ministry head or board member asks if I think a merger is a good idea, I respond with, “Why do you think it is?” If the answer is shot full of dollar signs, I predict that disappointment is ahead for the organization. Nobody cares about the trouble you’re in (except Jesus, but that’s another article). Desperation and near insolvency aren’t attractive qualities in a potential suitor. It’s the rare CEO and board who’ll be willing to make your mess theirs.
If, on the other hand, the goal for pondering the idea of merger is mission advancement, greater service, and enhanced capabilities, this could be the way to go. A merger can pave the way to more and better services at lower cost. Success attracts success, resulting in even greater achievement than is possible for either of the merged entities on their own. That said, you may be able to achieve the same good outcomes by plucking another tool out of that big, beautiful toolbox.
COUNTING THE COST BEFORE PUTTING HAND TO PLOW
Excuse the mixing of metaphors, but before putting hand to the merger “plow,” organizational leaders need to school themselves concerning possible obstacles ahead. It’s one thing to join forces over a time-bound project but quite another to go all in, to merge. Governance leaders must enter into merger talks with eyes wide open, prepared for years of hard work, negotiations, and political wrangling.
When successful, a merger can do great things for two or more organizations, expanding the reach and revenues for all. A merger can improve the organizations’ cost structure, benefiting the people and communities served. A well-crafted merger can propel the shared mission forward further and faster than either organization could achieve going it alone.
In other words, merger can be the right tool when used at the right time and for the right reasons. But it’s not the only tool available. So
Understand your options.
Be honest about your motivations.
Temper your expectations.
Count the cost of getting a merger right and the even greater cost of getting it wrong.
Then pick your tool and get to work.
For more on the benefits of cooperation among ministries, see:
Riding the collaboration bandwagon
Symbiotic mutualism and growing givers’ hearts
Having studied thousands of post-secondary institutions in the United States that have disappeared since 1950, I offer the two following observations. 1)Colleges and nonprofit organizations lack a language to speak about the discomforting aspects of disbanding or combining operations. 2) Colleges and nonprofits don’t want to use the language that the commercial sector and for-profit organizations have developed to talk about closing up shop.
Lee Bruder writing in his post “Nonprofit Dissolution: What to Do When Closing the Doors” that appeared on the Nonprofit Quarterly website on August 18, 2017 suggested there are two kinds of reasons which force an organization “to make the difficult and momentous decision to close”. The two kinds of reasons are (1) involuntary (the shutdown is required by an external entity) or (2) voluntary (internal reasons forcing the action). In my study of post-secondary institutions, these are definitely the two kinds of reasons that precipitated the closure of schools. Unfortunately, there are hundreds of examples of each these two kinds of reason at work in the disappearance of schools.
In my work related to colleges, I have found that the term “merger” is often misunderstood and more often misused. When two colleges enter into an agreement and only one college emerges, most of the time, I do not believe that the result should be called a merger.
Martin and Samels in their 1994 book, “Merging Colleges for Mutual Growth: A New Strategy for Academic Managers” attempt to outline when and how two college can effectively merge for mutual benefit. Two key points that Martin and Samels make are the following: (1) the two institutions should both be strong enough to stand on their own (When one institution is already dying, a merger will not benefit that institution); (2) the two institutions should have complementary missions and strengths (Each institution must bring something to the table to further the mission and operations of the resultant institution).
In my study of the disappearance of colleges there are two distinct types of “dissolutions.” These are Bruder’s voluntary and involuntary dissolutions. In most of the literature both are called “closures.” However, I believe we need a distinct word to describe an “involuntary dissolution”. The best word that I have found so far is “termination”. I would greatly appreciate any suggestions for another word.
For the two colleges into one college scenario, I find four distinct cases. The first I have called “absorption”. In this case the controlling entity of the first institution voluntarily cedes control of its operations to the controlling entity of a second institution. In these cases, the first institution ceases to exist, while the second institution usually continues with its old name and possibly a slightly changed mission. In many of these incidents, the only assets that change hands are the human capital of students, faculty and staff, the intangible assets of programming, and possibly some physical assets such as libraries, laboratories, buildings and grounds. As much as possible the liabilities of the first institution are discharged in some manner (either sale of assets or forgiveness) and do not pass on to the second institution. When the liquidation of assets of the first institution exceed it final liabilities, those excess funds are typically used to endow some aspect of the mission of the first institution and do not “profit” the controlling entity of the first institution.
The second case I have labeled “acquisition”. The only difference between this case and absorption is that the second institution offers financial considerations for the control of the first institution. Although this occurs most often when both institutions are proprietary (for-profit). There are cases involving public and nonprofits being acquired by proprietary or public institutions for financial considerations paid back to the first institution. This case looks more like the business deal that it is.
The third case I have labeled “merger”. In this case the controlling entities of both institutions agree to combine operations, In this case, the original two institutions effectively cease to exist and a brand new institution is spawned.
I do not have a good term to describe my fourth case. This case is akin to a “hostile takeover” in the business world. In this case the controlling entity of one institution is forced to concede control to a second institution by an outside entity. In this case the first institution ceases to exist and the second institution emerges in a new form. These cases are almost exclusively restricted to the public or proprietary segments of higher education. I am using the term “takeover” but I would greatly appreciate a more appealing term that I could use.
Since my project dealt with the disappearance of institutions I have not considered the possible case of two institutions combining forces and continuing to operate as two separate institutions. In the business world, this would be called a partnership. There are a few incidents of partnerships in higher education. However, higher education is very much a competitive world and partnerships are not highly regarded, in spite of the rhetoric to the contrary.
Thank you, By, for your thoughtful and well-documented response to my article about merger. I am especially grateful for your call to clarity of language. As you suggest, the fact that “merger” is often perceived as the only option available to nonprofit leaders can almost always be traced to a limitation in our vocabularies.
Truth be told, and again as you note, most of what happens isn’t actually a merger but the dissolution of one organization into another. The result isn’t the creation of an entirely new entity, the sum of which we could hope would be greater than the two parts, but rather, one organization with bits of the other showing up now and then in the continuing organization.
I encourage you to press on with this good work. In a future post, I will direct readers to your insights and invite comments.
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