Charities Merging to Improve Bottom Line
Date: 11-11-2007
Source: New York Times
Charities have long been reluctant to merge, fearful of alienating both loyal donors and longtime employees. But with the number of nonprofits increasing rapidly and donors growing weary of the rise in solicitations, charities are experimenting with mergers as a way to cut costs, reduce duplication of services and increase their reach.
''This is a trend that is going to accelerate,'' said Walt Shill, managing director of North American management consulting at Accenture. ''Donors are becoming more like investors and expecting a greater return on their nonprofit investments, and many people on nonprofit boards have been through for-profit mergers and see the benefits.''
Accenture recently took on its first nonprofit merger, helping to join the Hands On Network and the Points of Light Foundation.
Both work to find volunteers for community service, and combined will have a budget of over $30 million and 370 affiliates working with more than 80 percent of people volunteering in America each year. The merged group seeks to add 3 million volunteers to the 61 million who volunteered at least once in the year that ended in September 2006.
''We both could have continued along the route we were on, growing incrementally,'' said Michelle Nunn, who is presiding over the merger and formerly headed the Hands On Network, ''but I believe neither of us would have achieved the kind of exponential change we wanted. I think that's true of the nonprofit world in general; very few organizations have the scale to tackle the big problems we are all trying to address.''
But experts in the field are not predicting a rash of mergers.
''You have all of the natural tensions you have in a for-profit merger -- which leader loses his job, what name to give the new company, whose employees lose their jobs -- but none of the incentives, which is to say nothing you can reduce to cold, hard cash,'' said Peter J. Solomon, whose investment firm has helped negotiate corporate mergers. ''You cannot tell the C.E.O. or board members of a nonprofit board that if you merge, at least your options will be cashed out and you'll walk away with $300 million.''
Mr. Solomon sits on the boards of several nonprofits, some of which he has tried to get to merge. ''We just couldn't get them to do it,'' he said, declining to name them. A few nonprofits in New York have found a compromise: merging their fund-raising activities. Safe Space NYC, the Children's Village Inc. and Inwood House have created a separate charitable organization to cultivate donors and solicit major gifts.
''A few years go,'' said Jeffrey D. Sobel, director of development at Safe Space, ''I started asking how could a social services agency like mine compete with organizations like universities, hospitals and museums that have full-time staff with expertise on planned giving, charitable remainder trusts and other things that bring in big gifts. For us to pay a full-time planned giving person and have a marketing person would be impossible.''
The Humane Society of the United States has done partial mergers with two other animal advocacy groups, the Doris Day Animal League and the Fund for Animals, since Wayne Pacelle became president in 2004. ''You have many animal organizations out there, and the resources are spread thin,'' Mr. Pacelle said. ''You need one mainstream group to break through all that and have the brand awareness and muscle to achieve the reforms we're seeking.''
The Doris Day Animal League and the Fund for Animals share common legal divisions, technology and accounting systems, mailing lists and other things. By combining those operations, the organizations will save $1.5 million annually, Mr. Pacelle said.
Choosing the name for the merged organization can present a major stumbling block. When the Council of Jewish Federations, United Jewish Appeal and the United Israel Appeal joined forces, it took several years of negotiation before it was named United Jewish Communities.
''Unlike mergers among corporations, which are normally negotiated among a few people who keep it quiet until all details are worked out, nonprofit mergers require any and all stakeholders -- and there are many -- to be involved, which is much more likely to make them go off the rails,'' said Jeffrey D. Solomon, president of the Andrea and Charles Bronfman Philanthropies Inc.
The Points of Light Foundation and Hands On Network settled on Points of Light and Hands On Network as the name for the merged charity. ''It was the best compromise we found,'' Ms. Nunn said, somewhat ruefully.
The merger also was made easier in that Points of Light was searching for a leader to replace Robert Goodwin, who had been its president and chief executive for more than a decade. ''A door opened when Bob resigned last fall,'' Ms. Nunn said. ''We had been looking for ways to grow, but when that happened, we thought maybe we should grab the opportunity to do something more bold and daring.''
The same opportunity presented itself to the Exceptional Children's Foundation, which provides services to children with developmental disabilities in Los Angeles County. The Kayne Eraes Center, a nonprofit that runs a school and other educational services for emotionally and developmentally disabled children, was looking for a new leader and tried to recruit Dr. Scott D. Bowling, the president and chief executive of Exceptional Children's. Instead, they merged in September.
''For the first time, one of our strategic objectives in our three-year plan was to explore mergers, so I was on the lookout for opportunities,'' Dr. Bowling said. ''Exceptional Children's was not providing educational services, and Kayne Eraes would fill that gap.''
Kayne Eraes became a division of Exceptional Children's, and six of its board members joined the foundation's board, with the rest moving to an advisory board. Exceptional Children's budget will grow to roughly $27 million from $14 million and its staff will more than double to around 420.
''There are a lot of things I still have to reconcile, including differences in pay,'' Dr. Bowling said. ''But if we can demonstrate that two organizations of this size can come together successfully, I think we will serve as a model.''
Some mergers can be rocky even when there is widespread support. That is the case in the merger between the Peninsula Community Foundation and the Community Foundation Silicon Valley in California, which serve the adjoining counties of San Mateo and Santa Clara and support a variety of charitable efforts.
Five major foundations -- Hewlett, Packard, Irvine, Skoll and Omidyar -- put up $1 million each to pay for consultants, new offices and other expenses to facilitate the merger. But three months after the merged foundation moved into its new home, those supporters have soured because of over staff departures and discontent among donors and local nonprofits. Emmett D. Carson, its new leader, recently was grilled by officials from the foundations that encouraged the merger, and his future is now in question, those officials said.
Mr. Carson said his critics were passing judgment too soon. He defended decisions he has made, like requiring everyone on staff to reapply for their jobs and reducing the number of executives who report directly to him.
''Mergers take time,'' he said. ''We have to merge investment portfolios that have been managed differently, we have two incompatible and antiquated I.T. systems -- and then we have the dreaded 'C,' the cultures of two organizations that both climbed the mountain effectively but very differently.''
That, he added, ''is the hardest part.''
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