After years of wrestling to patch the holes in his group’s budget, Sabin Danziger decided it was time.
Mr. Danziger was board president of the Lincoln Square Neighborhood Center, which for nearly 70 years had run early-childhood, youth, and senior programs just a few blocks from where he lived on Manhattan’s Upper West Side. Yet severe funding woes meant the center could not advance or even sustain its work. The solution, he concluded, was a merger with another, fiscally robust group.
Though Mr. Danziger says the executive director balked at the idea and left — “We had a fight,” he remembers — the center consummated a union with the nearby Goddard Riverside Community Center.
“It was in the best interest of the community,” says Mr. Danziger, a retired headhunter for Wall Street executives.
Nonprofit board members spearheading a merger are not commonplace. As stewards, many feel compelled to protect the independence of their organizations. But there may be more Sabin Danzigers than you would expect.
That’s according to a new survey in which 62 percent of nonprofit CEOs reported that their boards were open to restructuring that ranges from joint programs and back-office consolidations to mergers and acquisitions. Even that number could be low; survey results suggest CEOs may underestimate the willingness of their boards to consider collaborations.
“We were pleasantly surprised with the number of boards that are open to these conversations,” says Anne Wallestad, president of BoardSource, which conducted the research. “I would have expected it to be lower.”
BoardSource, a research and support organization for nonprofit boards, conducted the survey and related research as part of a campaign launched this year to educate charity leaders about the strategic advantages of collaborations.
Ms. Wallestad says restructuring is shrouded in so much negativity that nonprofits won’t even take the first look at deals that could profoundly improve services or expand their reach. “There’s somehow a sense of leadership failure if an organization even contemplates” such a change, she says. In the corporate world, meanwhile, restructuring is celebrated as smart strategy, she says.
Lois Savage, president of the Lodestar Foundation, one of BoardSource’s partners in the campaign, says board members often throw up roadblocks in merger negotiations. “They’re trained to focus on the organization rather than mission.”
The 19-year-old Lodestar has encouraged alliances and collaboration since its launch, in part to reduce redundancy and make the industry more effective. “We wanted to make philanthropic dollars go further,” she says.
‘Uptick’ in Interest
Ms. Savage points to a recent “uptick” in interest in alliances, in part because the lean times of the Great Recession forced organizations to take a hard look at their operations.
Spending cuts by state governments and President Trump’s proposed reductions in federal grants also appear to be driving new interest.
“Nonprofits in Illinois are really, really in crisis,” says Eric Weinheimer, president of Forefront, a group supporting Illinois nonprofits and foundations.
Foundations have pooled money to start funds aimed at supporting and financing groups exploring mergers and restructuring. These foundations are operating in New York, Los Angeles, and Philadelphia, among other cities. Another one is being planned in Dallas.
In Chicago, a $1.5 million fund has been started by 16 grant makers, among them the Polk Brothers and Robert R. McCormick foundations and the Chicago Community Trust. It is managed by Forefront, a group of Illinois nonprofits and foundations.
The program recently began making grants and working with organizations exploring mergers. Conversations are confidential, as many of these groups don’t want word to get out that they’re thinking about a merger, says Forefront’s Genita Robinson.
“There’s a real fear that the minute they start talking about this, their funding might dry up,” she says.
Between Friends, a 30-year-old, $1.5 million Chicago group that aims to prevent domestic violence, is one of the first organizations to receive a Forefront fund grant. It used the $10,000 to marry its donor database with that of A Night Out, a smaller group it had acquired.
A Night Out, which had a budget of about $100,000, paired survivors of domestic abuse with a volunteer for an evening’s entertainment — dinner, the ballet, plays, and the like — and a chance to escape the stress of their recovery. Between Friends, which focuses on education, advocacy, and legal assistance, saw this work as a natural expansion of its programming.
The acquisition was also a strategic financial move. A Night Out, which was largely volunteer-run, had developed private support; Between Friends relies largely on public funding. Even before merger talks began, Between Friends was exploring how to expand fundraising.
“Government funding is really unreliable, so we wanted to think of an innovative and proactive way of diversifying our revenue stream,” says executive director Yesenia Maldonado.
Key Moments
A shift in funding offers a natural moment for nonprofits to consider an alliance, according to BoardSource’s research. Other key moments include periods of strategic planning or leadership transition as well as a time when the organization is hoping to expand or capitalize on innovations.
As part of its campaign, BoardSource offers resources and case studies about groups that have pursued an alliance.
Other findings from its research:
- Sixty-two percent of organizations surveyed had done some form of restructuring or collaboration in the previous five years. Joint programming was most common. Only 7 percent of organizations had been involved in a merger or acquisition.
- Certain types of nonprofits appear more likely to pursue alliances. Arts groups, for instance, were the most likely to have done some form of restructuring or collaboration in the previous five years. Human-service groups, meanwhile, were the most likely to have gone through a merger.
- The timing of an executive director’s departure matters. Boards appear to be especially open to an alliance in what BoardSource calls the “sweet spot,” more than one year before the exit but not more than two years.
