The Soapbox and Toolbox for New York State's Nonprofits

March 29, 2017

Thinking "Local" in Nonprofit Restructuring

By Doug Sauer, CEO, New York Council of Nonprofits, Inc. & Governance Matters, Inc.

In nonprofit mergers, bigger somehow always seems to mean better. But are we losing what made nonprofits unique in the first place.... strong local ties and community connections?

It is no secret that certain state agencies and some auditing firms are sending a strong message these days that many nonprofits, especially those that are Medicaid funded, need to be of a certain (seemingly arbitrary) financial size to survive and thrive. To achieve that size, there is a push for shared backroom operations, merger, or other forms of corporate restructuring. This same sentiment has been expressed for quite some time by foundations, United Ways, and corporate and individual donors as they see valued nonprofits struggling for limited resources amidst a proliferation of competing organizations and a perceived cycle of unnecessary duplication. 

Corporate restructuring or affiliations are by no means "magic bullets" to achieving organizational sustainability and mission success. They can, however, be viable options to achieving economies of scale, expanding and diversifying resources, attracting and retaining staff and board talent, creating a robust infrastructure, and ultimately, delivering more mission-driven services with higher quality and impact.

As I observe strategic restructuring conversations unfolding in nonprofit board meetings across the state - the questions I keep hearing are: "Is the local connection getting lost? Does local connection even matter? Are mergers and affiliations good business solutions but not necessarily mission solutions?"

Concerns of leaders often include:

  • Loss of organizational and community identity
  • Loss of brand equity
  • Board and staff turnover
  • Compensation differences
  • Risk of disenfranchising those served
  • Risks associated with alienating local donors and funders
  • Loss of a signature organizational culture, or a unique and effective approach to services, that may not be easily transferrable.

Leaders also ask the question, "What is local?" The answer is in the eye of the beholder and the definition can, and often does, change. Rural and suburban communities are increasingly concerned that urban "control centers" are allocating resources and directing services for their communities without adequate engagement at the board and other levels. On the other hand, urban neighborhood centers are increasingly pressured to expand geographically or add satellite providers located elsewhere. At NYCON, we are seeing a trend of regional and multi-regional organizations looking to acquire local nonprofits to fill identified geographic or service gaps. Governmental funding sources are also driving some of this regionalization as they work to reduce the number of contracts in a given area. Interestingly, "local" appears to be increasingly identified as "regional," and not necessarily tied to a municipality.

All of these issues can significantly impact the nonprofit leadership "psyche" when nonprofits are exploring a corporate affiliation. Even in this modern era of cloud computing and social media, where the bonds of geographic communities are seemingly becoming a thing of the past, it is important to recognize that nonprofits play a critical role in civic engagement, advocacy, innovation, program delivery, and combatting disenfranchisement of the populations they serve.

For nonprofits exploring restructuring, it is often wise to look for a local partner and resources first, before going outside of the community or region.

Tips to Help Nonprofits "Merge Local"
Practically speaking, nonprofits seeking out local partners for merger or affiliation should consider the following in preparation:

1. Negotiate from a position of strength. Explore your options when things are generally going well for your organization - don't wait until forced or when you don't have any "chips" with which to negotiate. Nonprofits weakened by financial shortfalls or other adverse circumstances are vulnerable to what they dread most: the "take-over" of either the organization itself or its core funding contracts.

2. Clarify and get consensus from leadership about motives for merger and what a potential partner would need to bring to the table. While getting your own house in order and before looking at partners, it is critically important that your leadership has reached a consensus as to the why you are seeking a partner, what your aspirations are, and what may be unacceptable. Regarding "deal killers," be mindful that what may appear unacceptable now, might not be later when additional information has been provided and deliberations have progressed with a potential partner. 

3. Identify valuable assets. Identify and shore up, where possible, your organization's distinguishing assets and competencies. Ask yourself: what makes your nonprofit different, valued to your constituents and stakeholders, and is not readily duplicated? Also, think about the reasons another organization would want to merge or affiliate with you.

4. Executive transitions are opportunities.
One of the key opportunities for affiliation is the departure of an executive director, whether through a planned retirement or otherwise. A leadership change is always an opportunity to reevaluate and think strategically, so before immediately replacing a departing executive, boards should consider whether the organization's mission would be best served by exploring an affiliation. Interim executive directors are an option for the time that exploration might take.

5. What personal connections do you already have? When considering local partners, there are usually already existing connections between some staff or board members. Maximize those connections where you can, recognizing that in local communities, there can be complicated interpersonal history that may need to be addressed. Sometimes local affiliations do not happen because of personality or competitive conflicts leading to a lack of trust. Put these aside and let mission and sustainability be your driving motive.

6. Change is going to happen, so allow for creativity and don't box yourself in. Form follows function and every affiliation changes both parties in some way. Open yourself up to considering possible local candidates that are outside of your traditional relationships, business model, or funding "silos", and be open to creating something new. Remember, you are engaging in this process with an eye towards the future, not the past.

Considering these tips will help ensure your bargaining power, including negotiating for board member slots (thus community representation) in the newly merged organization. Having board representation is the single most important thing you can do to maintain community connection and focus.

Funding and Resources for Mergers and Restructuring from the Dyson Foundation

Visit the Strategic Restructuring Initiative section of the Dyson Foundation website for information about funding support available to Mid-Hudson Valley nonprofits interested in exploring strategic restructuring opportunities.  

Share This Article

NYCON develops and promotes an effective and vibrant charitable nonprofit community throughout New York State.  We strengthen organizational capacity, act as an advocate and unifying voice, help to inform philanthropic giving, and conduct research and planning to demonstrate relevance and impact.