Partnerships and Mergers: The Hype and the Promise

Last summer I wrote a piece, Should you go it alone: partnerships and collaborations, on giving organizations a useful tool for the ifs and hows of partnerships and mergers. It is one of the most requested pieces I have ever written. It was based on fairly extensive experience in the area: both as the ceo of a foundation which invested heavily in such partnerships and as a periodic consultant to organizations which were exploring mergers and partnerships.

Any observer of the independent sector is well aware that this topic continues to be at the top of the agenda of many organizations and funders. The reasons are obvious and persuasive: are there duplications of services or back-office support that can be eliminated for immediate financial savings? Can one larger better-funded organization reach the scale to truly have an impact? Can a merged organization inspire influential volunteers/board members who might be less interested in smaller or more local initiatives? Is there a leveraging of influence which might impact public policy or encourage greater voluntary support if funders joined forces?

Over the last 2 or 3 years, the answers for many non-profits and for many funders to these questions has been “yes.” Barely a week goes by without the announcement of another merger or partnership. It is time to take a glance to see if we are going the right direction.

Observation 1. Takeover or merger?

Upon close examination, most of the mergers are not true mergers except in name. In the vast majority of cases they are really take-overs by a stronger organization which identified a common interest or missing competence. The new organization may have a revised name and board, but it is rarely a merger of equals.

This probably represents one of the more successful models of organizational marriage. Success means that there are efficiencies and scale. Often there is a loser as well. The absorbed organization may find that its staff is soon considered expendable, its signature programs revised or replaced, and constituencies or locations once served by the absorbed organization don’t make it past the new strategic plan.

This is not to say that there never is a value in such a takeover. The weaker organization may be truly vulnerable or fragile and may well have had to close; their prize programs may have outlived their value; funders may simply have lost interest in the unique constituencies. Such a takeover may serve to preserve and add value to programs and projects that would have been lost without them.

What makes these successful is when there is clarity ahead of time about what is really at stake, what the trade offs will be, and who really will be in control. If there isn’t a good self-awareness by both sides, resentment and resistance is likely to surface pretty quickly.

Observation 2. Cultural compatibility

The greatest challenge to successful partnerships and mergers is cultural incompatibility. While a shared mission, agreed funding, negotiated governance and staffing are necessary preconditions, they are insufficient. What is harder to determine but ultimately the most crucial component is if the 2 or more organizations have compatible cultures. These cultures don’t have to be identical – they have to be compatible.

Most organizations would do well to avoid shotgun weddings and most funders would be wise to not force them. They would be better to try some joint projects, a shared planning effort, a mutual board retreat, a safe space for staff to converse openly with each other about their own organizations and visions for the future.

Some might argue that in these crisis times this kind of planning takes time, money, and risks the benefits of the merger. And they are correct that there is an investment which hard pressed organizations may feel they don’t have. But these investments are not luxuries – they are essential. We have learned all too well that financial investments made with due diligence can be risky; investments made without them are downright dangerous. The same can be said with proposed mergers. Done too quickly or with too much naïveté can bring disaster and bring down 2 organizations quite quickly.

What is culture? The affective issues that say something about the style and character of any organizations. How are decisions made? How much empowerment or micromanagement is there? Do aesthetics matter? Is the workplace competitive or collegial? Is risk rewarded or penalized? And this is just the beginning.

Integration of programs may take time. Integration of cultures takes much longer.

The message for funders is that they/we need to be quite cautious in our trying to be directive and helpful to our grantees. What may seem obvious from a slight remove may be less so from the inside. The funder may be right, but only if the funder allows for the merger process to work its way carefully and thoughtfully.

Observation 3. Efficiency is not always the same as Effectiveness

Efficiency and scale may not always be the most effective way to achieve an end. As we saw in “observation 1”, a merger may well lead to some external efficiencies. But if an entire constituency is abandoned because of it, is it always the most effective way to do things?

The pressure for scale and replicablity seems enticing. But only if the problem being solved is one that lends itself to scale and replicability. Food stamps work well because it is a large and easily applied solution; food pantries are much more dependent on local realities.

Funders much be careful to make sure that they are clear what problem they want to solve when they urge their grantees to scale up or to follow developed models. All too often programs and projects are viewed as cookie cutter solutions without adaption to local, regional, ethnic or cultural circumstances. Fortunately, among sophisticated funders this tendency has begun to ebb. But as the perception grows that good funding is to use leverage to encourage efficiency, there has been a surge among funders who haven’t had the depth of experience to know how and when to use this leverage.

Observation 4. Innovation matters

Innovation matters. But innovation only occasionally comes from large bureaucratic organizations [and is particularly true during these times of stress when organizations are doing all they can to stay afloat]. It is vital that there be as much commitment to continued innovation as there is to enhanced efficiency. Innovation and start-ups have a high failure rate, but the best innovation eventually becomes mainstream and predominant.

Let me be clear: I am not saying that funders should insist that they will only fund new projects even when it may be clear that the best grant is for operations or technical assistance. However, more than ever there are pockets of creativity that need start up or mezzanine funding. And while it may seem to be good practice to encourage these small free standing organizations to be adopted or absorbed or merged, funders who choose to encourage mergers and partnerships would do well to keep some of their funding dry to support start-ups on their own terms.

Certainly as every early investor knows, good exit strategy planning is key. There will be a time when the start up needs to sink, swim, swallow or be swallowed. Hopefully at the right time and not because of an externally motivated push for efficiency.

Observation 5. Courage to Explore

The first 4 observations might well be read as cautionary. I wouldn’t want a reader to assume that these cautions suggest a resistance to partnerships and mergers. In fact, quite the contrary. It is probably true that never before has there been a better time. Survival challenges focus the mind. It is time for many organizations and projects to drop their isolation and self-importance. It is time for many organizations to look more closely at whether their business model is really sustainable looking forward. It is time for many organizations, which claim a transcendent mission, to confront whether they really believe it – and accept that fulfilling their mission may require surrendering their own autonomy. It is time for many organizations which have done many more things than they could possibly do well to drop the mediocre parts of their portfolios – for their own and for greater good. It is a time for courage, reinvention, and honest self-examination.

The caution is to do these things right – or at least as well as humanly possible. But avoidance is not the same as thoughtful and courageous exploration. It is time for nothing less.

Richard Marker serves as an advisor to foundations, independent funders, and not-for-profit organizations; and is a Senior Fellow in Philanthropy at NYU’s George Heyman Jr. Center for Philanthropy. He specializes in strategic philanthropy and planning. He can also be found blogging at Wise Philanthropy. Richard is an occasional contributor to eJewish Philanthropy.