The Role of an Interim ED in a Nonprofit Merger Situation

By on March 07, 2012 under Change Management, Collaboration, Leadership

Guest post by Jack Nokes, Member of Greenlights’ Interim Executive Director Pool

AMOA-Arthouse at Laguna Gloria

AMOA-Arthouse at Laguna Gloria, where Jack Nokes is currently Interim Executive Director

Boards can be at their best (and worst) when hiring a new Executive Director.  Typically, this is the most important decision a board will make. It requires discernment, judgment, patience, and big-picture vision. If a board makes the right decision, the new leader can transform the nonprofit into an effective sustainable force in the community. A wrong decision can be a setback for the organization, continuing a cycle of struggle and (possibly) resulting in another search in the next few years.

The decision to consider merging with another nonprofit with a similar and/or overlapping mission is another momentous board decision. Get it right, and it could mean organizational efficiencies, rejuvenation, and a path to sustainability. On the other hand, a wrong decision could damage the effectiveness—and even existence—of both entities considering merger.

I recently went through a merger process as an Interim Executive Director for one of the merging parties, and I would like to relate some of my experiences and lessons learned from the vantage point of an Interim ED.

Board Leadership Matters

Perhaps the most important key to the merger I experienced was that both board presidents saw the potential benefits of a merger, were committed to the process, and stayed in constant communication. Despite setbacks and fundamental disagreements between the parties, these leaders were dedicated to doing the process right, and they kept “their eyes on the prize” throughout the process. Without their vision and commitment of an enormous amount of time, it might not have happened. However, they did not ramrod the merger through, but instead were both very careful to let the process work, keep their boards informed in a transparent manner, and include every member of their respective boards in the important decisions.

Mergers are Not for Beginners

Typically, key staff and board members will not have had any experience with mergers. Therefore, bringing in experienced consultants can play a key, possibly determinative role. As an Interim ED without merger experience, I had to respect the preferences of the leaders of my board, but I also was there to provide my best advice. In this case, my advice was to meet with Greenlights President and Executive Director Matt Kouri, who has substantial merger experience. Matt’s initial advice on how to proceed was spot on, and I was convinced that not only did we need a skilled facilitator for our merger exploration process, but also Greenlights was the right facilitator to use. Matt will be the first to say that having a facilitator does not ensure that a merger will succeed (and he has facilitated an unsuccessful one), but not having a facilitator may make failure more likely. Early in the process, I called a few colleagues who had been through mergers and I found that the most likely predictor of an unsuccessful attempt at merger was the lack of a facilitator.

Mergers are Complex and Cannot be Rushed

In our initial talks with Matt, this merger appeared to be such a “no-brainer” that our board and staff leaders (including me) felt that a merger could be accomplished in four months. Matt cautioned us that our timeframe was unrealistic, and that six or more months would be required. In our agreement with Matt, we compromised on five months, but Matt was right … it took about seven. Why does it take so long? After all, corporate mergers can be done in six weeks or less. Whereas corporate mergers are typically straightforward takeovers (i.e., the corporation with the most money or leverage does the taking over), nonprofit mergers are more complicated and time-consuming. While financial issues are one important aspect of a nonprofit merger, there are a number of other key issues involving mission, staff leadership, audience, programs, funders, events, etc. Whereas corporate boards normally delegate much of the responsibility and authority to a CEO, nonprofit boards are much more involved. Since these are not financial takeover situations, the nonprofit board has the final say on a merger. In short, the decisions and the decision-making process are more complicated in a nonprofit situation.

Due Diligence Matters; Trust But Verify

The “due diligence” phase of the merger process usually takes place after the groups have decided to merge but before the formal documents are signed. While most of the fundamental reasons to merge are fairly easy to discern early on, the details can be devilish. The due diligence process involves opening up the respective organizations’ financial books as well as legal and operational documents, a good old fashioned Ross Perot “look under the hood.” You hope that everything is as it appears to be, but sometimes you can find surprises. For instance, in a merger of two established visual arts organizations, one would think that there would be a reasonable amount of overlap in their memberships. However, when we merged and purged the mailing lists, we discovered that 4.25% of the members belonged to each group. This surprising fact was not anywhere near a “deal-killer,” but it certainly gave us a sense of what a challenge (and opportunity) it would be to develop programming for a merged institution that would attract two very different audiences.

The above are just a few of the lessons learned from going through a six month merger process.  It was a lot of work, but in the end, the operational efficiencies, addressing the critical needs of both institutions, and the ultimate benefits to the community made the process all worthwhile.

If you have any questions or would like more information about Greenlights’ Interim Executive Director Program or succession planning, please contact Tara Levy.

1 Trackback or Pingback for this entry

Leave a Reply