Leadership Lessons From Nonprofit Mergers And Closings

Financial challenges facing nonprofits are driving organizational mergers and closings. Because the role of the nonprofit board is to ensure that the organization’s assets are used for designated purposes, the board must be thoughtful in deciding if and when a nonprofit is no longer viable, and then exploring options for the future. There are valuable leadership lessons to be learned from boards that have undertaken the serious responsibility of merging or closing a nonprofit.

Consider that nonprofits provide vital services in education, housing, healthcare, employment, international development, and the environment, among others. The continuity of particular services might be essential to the welfare of certain people in a community; the legacy of a mission might be valuable to the future of the world.

David H. Roe, a Rhodes Scholar, Brig. General USAF (Ret.), and successful business executive, chaired the board of the U.S. Center for Citizen Diplomacy (USCCD), when they decided that the organization was no longer financially viable. USCCD had been dependent on private philanthropy and one donor in particular. After two years of deliberations, the USCCD board and CEO decided to merge with CDC Development Solutions (“CDS”) in the summer of 2012. (Note: CDS is a client.)

According to Roe, it was most important to the USCCD board to “preserve and the brand, a convening brand that catalyzes citizen involvement in work with people from other countries here or abroad.” For Deirdre White, president & CEO of CDS, the merger of the two organizations would strengthen CDS. “The core values of citizen diplomacy, the spirit of volunteerism, and of international engagement have been at the heart of our work since we were founded in 1990 to deliver business skills, pro bono, to markets and entities in need of that expertise,” said White. For both organizations, this was a win-win.

By integrating citizen diplomacy with CDS’s work in international corporate volunteering, local content development, and MBAs Without Borders, both the USCCD and CDS boards saw the opportunity to leverage their respective strengths to achieve their newly crafted mission: “To reinvent how public, private, and social interests converge to address global challenges,” and vision: “A culture of sustained collaboration that improves lives and communities worldwide.”

The merger also addressed USCCD’s financial dilemma; CDS’s revenue model is driven primarily by fees for services, particularly through corporate programs.

Dione Alexander is vice president, Midwest region, of the Nonprofit Finance Fund (NFF), one of the nation’s leading community development financial institutions. Alexander chaired the board of Detroit’s Simon House, a residential shelter program for women with HIV, when the board closed the organization this year. The government funding on which the nonprofit depended was shifting away from smaller organizations making Simon House unsustainable. The ultimate closing represented the culmination of two years of board work-– deciding which programs to transfer into which nonprofits, how to transition buildings to nonprofits that could make good use of them, and most importantly, how to assist each and every client and resident so that services and housing would be seamless.

A third example is the Merce Cunningham Dance Company, a critically acclaimed modern dance troupe and NFF client. According to NFF, the organization decided that it would sunset after the death of its artistic director and founder of 46 years. “While the dance company had the talent to remain relevant, they purposefully chose to disband and preserve their vast body of work,” according to Alexander.

With donor support, the company launched its Legacy Plan, which financed an international farewell tour, provided transition support for the dancers, digitally documented their artistic works, and transferred creative assets to a trust. “Instead of ending the influence of Merce Cunningham, the dissolution had the effect of making their work broadly available to future audiences,” said Alexander.

Leadership lessons
In each case, the leadership and the board were honest with themselves about the reality, put the mission first, and explored the options with the interests of the community in mind. These and other stories tell the following leadership lessons:

  1. Face reality: In each case, the leadership and the board recognized that the organization was no longer financially viable.
  2. Put the mission and the interests of the community first. “When you are considering the fate of the organization, its viability, and potential partners, think only about what’s best for the community. Take your ego out,” cautioned Alexander.
  3. Establish a purposeful process in exploring options: Take account of your assets, including programs, funds, real estate, etc. Consider the variety of potential partners as well as organizations that might be interested in taking responsibility for core services or use your real estate to advance programs for the benefit of the community.
  4. Draw on the experience and expertise among your board members: Alexander believes that having social workers on the board influenced their approach in being so thoughtful about each client’s transition. In the case of USCCD, Roe said that “my experience in managing the mergers of publicly traded companies made me more comfortable managing the ups and downs of the merger discussions and negotiations.”
  5. Communicate your decision to your stakeholders: Be thoughtful in the messages you communicate to employees, funders, partners, and other stakeholders.
  6. Implement thoughtfully: Simon House took particular care in transitioning its clients. The leadership of USCCD and CDS invested in thoughtfully merging the two boards, thereby gaining the value of the perspectives, experience, expertise, and networks of outstanding board members. “We were delighted at the prospect of combining the boards of both organizations, bringing some terrific new talent, skills and profile to our Board,” said White.
  7. Get effective professional advice—legal and accounting—early in the process.
Since it's ultimately the board that is responsible for the decision and process to merge or close, and to take any newly merged organization forward, I want to give the last word to Michael Kernan, chair of the board of CDS who presided over the merger of CDS and USCCD. Kernan is also general counsel and secretary, Macquarie Infrastructure Company LLC. “My take on the importance of the integration process for the two boards cannot be overstated. Achieving the best possible success of the combined organizations—where both bring value to the future—depends on a successful melding of the personalities, cultures and visions of all the board members. It requires thoughtful and selfless behavior by many people to keep the mission at the forefront.”

[Image: Flickr user Sanford Kearns]

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