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Mergers Bring Opportunities & Challenges for Nonprofits

12/12/19 – Stephanie Allgeyer

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Getting off on the Right Foot
Merger transitions set the stage for a successful alliance

When two nonprofits merge — as in any alliance that blends two staffs and sets of operations — challenges arise. But knowing what you’re up against, and where the pitfalls lie, is half the battle.

Alliances Abound

Mergers continue to dot the nonprofit landscape as organizations team up to share resources and expenses, or to avoid a duplication of services in their communities. But a merger won’t always  result in improved economic strength.

Many mergers fail to achieve the financial and strategic results predicted during the planning stage. That’s because organizations often make two major mistakes (faulty assumptions and insufficient planning) on the front end, and face two major hurdles (execution and cultural differences) on the back end, once the contract has been signed.

Post-Merger Hot Spots

In a successful blending of two organizations, a lot of legwork — and thoughtful analysis — has taken place before the day of the actual merger. Both nonprofits have, for example, gone through a score of due diligence tasks, making sure that the merger is financially a sensible endeavor.

The following are key issues nonprofits will encounter once the decision to merge is final. Most should be addressed before the date the merged organization goes live. These hot spots will challenge the new management team and lay the foundation for the new entity:

Retaining constituent support. Change often triggers a sense of apprehension among the nonprofits’ past supporters. The new organization will need to assure its supporters, by word and by action, that it will fulfill its reshaped mission as well as, or better than, either organization has in the past.

Communication with constituents will never be more important. The organizations need to make sure their individual contributors, funders and volunteers, as well as the audience they serve, are fully on board as the new organization sets off to reach its goals.

Blending staff. The merging of multiple staffs often results in staff reductions. The transition team, Human Resources, and management will examine ways to reduce redundant positions — one, not two, controllers will be needed going forward, for example.

So, how does management decide who stays and who goes? The team can compare employees’ measurable skills, assessing who has performed better in their previous posts. They can go a step further by having the “candidates” behaviorally tested in having them “apply” for the remaining jobs. Which employees have the best personality traits, for example, to stay level-headed under pressure and adjust to change?

Managing employees. In a merger, those who remain after a staff reduction may still worry about changes made to their position or the new supervisor they report to. They may also have concerns regarding potential changes to their salary or benefits.

It’s the job of the new leadership to create a sense of continuity and assure employees that their individual strengths and value to the organization won’t be lost in the shuffle. Building trust is an essential ingredient in employee retention. Ongoing communication is the best way to get there.

The transition team may have already recommended a similar, or even better, employee benefits package that will kick in after the merger. Improved options are often the case with the new organization’s health insurance plan. A larger pool of employees often equates to economies of scale, and better insurance coverage may become affordable.

Whether employee benefits packages improve or not, management should highlight any pluses under the new plan and consider adding inexpensive perks (a free yoga class at noon, no-cost 15-minute massage sessions, and so on) to help boost morale.

Standardizing operations. The differences in how the two organizations previously handled their daily affairs may seem overwhelming at first. Merging two IT systems is often a bear of a task that will test all of the organizational skills of the IT management team. A timetable for the changes and ample resources to make it all happen are essential, as are the patience and attention to detail of the employees assigned to the task.

Undoubtedly, there will be standardization challenges for other functional areas of the new nonprofit as well. Take accounting, for example. Different accounting systems may be used, and it must be decided which one should prevail. The “up” side: This will be an opportunity to objectively choose which existing practices are most efficient and effective for the new organization.

Standardizing policies and procedures. It can be said that an organization is only as good as the policies it adheres to and the procedures it follows. Standardization won’t happen overnight. The new board of directors will need to methodically review the policies, from gift acceptance to whistle blowing, that have been in place.

Again, this is a chance to look for best practices. Procedures for upholding those policies will likewise need to be streamlined or created.

And in the End

The transition following a merger is no doubt a daunting task but, if the transition team and the organization’s leaders do their job, the new nonprofit will emerge stronger than its predecessors.