Archive for the ‘Mergers, acquisitions and consolidations’ Category

Here we go again: whose urge to merge?

November 12, 2007

Check out yesterday’s New York Times piece about a trend toward mergers among nonprofits.  Looks like deja vu all over again: in 1997 your faithful correspondent wrote about the selfsame trend for Chicago Philanthropy
(of blessed memory).  In the 1980s the United Way got credit for
pushing charities toward consolidation and its attendant efficiencies;
in the 1990s the pressure ostensibly came from the foundations.  Today,
apparently, the moving force is those new ultra-skeptical
entrepreneurial donors who expect not an ounce of fat on their trophy
charities.  The coverage is the same–only the names have been changed.

To protect the guilty, maybe?  Nonprofit executives have the same
motive to seek mergers and acquisitions as for-profit executives,
namely, to improve financial results without the bother of actually
improving what they’re doing.  It’s a lot easier to fire an extra
accounting department and trumpet your "efficiency" than it is to make
a new product people can’t live without.  And while you’re at it you’ve
eliminated a competitor whose efforts might have outshone yours, and
with him the likelihood that consumers will be able to find something
they prefer to what you’re offering right now.  So you’ve increased
profit and reduced financial risk without actually producing anything
of value.  No wonder M&A  people get paid so much: they make bricks
without straw.

If you run a nonprofit, you can do the hard work of persuading
people that what you do is worth supporting with their charitable
dollars, and the even harder work of offering your clients the best
possible service at the lowest possible cost to them and everyone else,
and the still harder work of determining whether those services or some
others would actually solve their problems and taking action based on
the outcome of that evaluation.  Or you can look around for someone
else’s accounting department to fire, and someone else’s Board of
Directors to poach; and your Board can continue its untroubled sleep
and your services can remain in their comfortable groove because
there’s no one left to challenge the way you do things.  And if anyone
complains?  Blame it on the funders.

Somehow the whole thing is made more delicious by the fact that the merger at the core of Stephanie Strom’s article is one between the two largest clearinghouses for volunteers (as the superseded name, Points of Light, recalls: "a thousand points of light . . .").
The original idea, of course, was that solutions to social problems
should come individually and locally; but the behemoth which will
result from the merger will "work[ ] with more than 80 percent of
people volunteering in America each year."

If someone proposed to take control of 80% of any other valuable
resource–oil, say, or bandwidth–the Antitrust Division of the Justice
Department would have something to say about it.  At what point does
"market dominance" in the nonprofit sector begin to pose a similar
danger to proper economic function?

You know those complaints we all hear about the difficulty of
finding suitable volunteer opportunities, on the one hand, or qualified
volunteers, on the other?  If that’s what the current system produces,
does it make sense to reduce the number of available alternatives?

It does if your goal is to be able to ignore complaints.  For, as
the great Lily Tomlin said about a monopoly of an earlier era, "We don’t care.  We don’t have to.  We’re the phone company."

Parting is sweet sorrow, but go already!

July 24, 2007

An RFP came across our desk recently from an agency about to lose its founding director, asking for a consultant "to guide an executive transition process
comparable to that described in publications of the Annie E. Casey Foundation."  Intrigued, the Nonprofiteer went to the Casey Website and found, sure enough, a series of white papers on executive transition, including a step-by-step method for its management.  But after reading it, she wonders whether it’s much ado about nothing.

There’s no question that losing a founding or long-time executive director is a traumatic experience for nonprofits, and that this experience is likely to become more frequent as the ever-popular Baby Boomers begin to retire in large numbers.  There’s also no question that the transition offers an opportunity for reflection on the nature and purpose of a charity, and finally no question that this combination of trauma and opportunity should be managed with some awareness of its pitfalls.

That said, the Casey formula (created by CompassPoint, a consulting firm with a specialty in executive transition) needlessly complicates (complexifies?) the process, making it appear impossible for an agency to undergo it without–guess what?–the services of a consulting firm with a  specialty in executive transition.  Based on such guidance, the RFP that sparked all this investigation contemplates a process that will take nearly two years–an extended bout of navel-gazing during which, presumably, the agency also has to maintain its raison d’etre, not to mention the quality of services for its clients and relationships with its funders. 

The emperor has no clothes.  "Executive Transition Management" is nothing more than a species of strategic planning, and that in turn nothing more than the process of asking, "What are we trying to do, and for whom?  What’s in the way?  How can we remove those obstacles?"  Certainly the earlier an agency begins to address these questions, the more likely it is to be able to find a new chief executive who can lead it in the direction it determines, and certainly a wise Board will hire a leader to execute a strategic plan rather than create one.  (Particularly if commenter underalms is correct, and the only truly strategic decision for any nonprofit is merger with a larger agency, it only makes sense to consider going out of business before hiring someone whose job will be to keep you from doing so.)

But really: a two-year five-step process?  As described by Casey/CompassPoint, there’s–

  • An initial consultation and assessment with required competencies and priorities for the next executive;
  • A capacity building plan;
  • Compensation review;
  • Candidate screening and selection assistance; and
  • Post-hire plan.

Given this level of elaboration, no wonder (as the Casey report says) "Change is hard . . . . Change is costly . . . . Help is hard to find."  Let’s try this instead:

  • A planning process to determine the agency’s future; and
  • Appropriate follow-up, including anything from merger negotiations to recruitment of a new CEO on the basis of the plan.

There’s no earthly reason this should take two years; 6 months for each step is generous.  And by the way, though it’s essential to ask the retiring CEO to do a core-dump description of his/her regular tasks and thoughts about them–which, if it’s honest, will include observations like, "We really should do this but we haven’t because I don’t know how and am therefore afraid of it, but my successor won’t have those handicaps"–nonprofits should resist the urge to create a lengthy overlap between EDs.  Having been on both sides of such long goodbyes, the Nonprofiteer knows that they produce little except a double helping of frustration and resentment.

[The only advantage of a lengthy transition is to give the new ED time to find out that the old ED has been cooking the books--and honestly, if that's the case s/he'll know soon enough and will be better-positioned to fix it if not subject to the baleful glares of his/her prison-bound predecessor.]

A final note: all of the foregoing applies to social service agencies.  Arts groups with a charismatic founding artistic director need to focus a bit differently, and decide whether the group has a vision worth carrying forward, or whether in fact the vision was a personal one that will (and should) end with the passing of the old regime.  Probably more arts groups should go out of business at this stage than currently do: it’s very common for them to limp along for two or seven years before finally dumping assets (including good will, if any remains) onto a willing taker.  Arts groups must decide whether to become institutions or to remain forever ideas in the minds of their creators–and if it’s the latter, to know how to go gentle into that good night. 

There’s no growing old gracefully in the nonprofit sector–there’s only the quick, and the dead.

Civil war, or just insurgency?

June 19, 2007

The article in yesterday’s New York Times about the upheaval at the umbrella group Autism Speaks–in addition to being a sad story about how children’s disabilities can tear families apart rather than knit them closer as the Hallmark cards and After-School Specials always insist–is a sort of high-speed version of what goes on every day at every multi-modal social service agency.  That is, it’s a battle about what really causes the problem, and every day the people who run the Head Start program and the people who run the food pantry go head-to-head, if not explicitly, over whether the real cause of poverty is lack of education or just lack of money. 

The autism charity’s big tent/agnostic approach in funding research into both [all] possible root causes is exactly right–just as it’s exactly right for the Salvation Army to operate work programs AND drug rehab programs in battling social disconnection among recently homeless men.  It seems elementary that the biggest agencies, with the best access to resources, should share the wealth among different approaches unless and until one shows itself clearly superior.  Isn’t that what program evaluation is supposed to be all about?

But then the Autism Speaks story is also a sort of cautionary tale about the risks of nonprofit mergers.  There’s a place in the charitable universe for the tightly targeted approach of a freestanding counseling center or preschool or microcredit program as well as for the broad-spectrum behemoths.  People who are really committed to the idea that mercury in vaccinations is the culprit in autism should certainly focus on that to the exclusion of other possibilities–but only on their own, and on their own dime. 

Maybe the dispute isn’t really over causes but over the relative priority of symptomatic relief (food pantries) and thoroughgoing cause-based cures (education).  In the autism struggle, of course a parent would be most interested in symptomatic relief.  That doesn’t mean the grandparents are wrong to fund basic research. 

So it’s not clear whether we should root for Autism Speaks to heal itself, or whether it’s not actually an "it" but a "them" whose constituent parts need to go their separate ways.

Should you start your own nonprofit?

March 5, 2007

The March 5 Time Magazine addresses a question from the "Didja ever notice?" category of nonprofit management, namely why people seem so ready to start new nonprofits instead of cooperating with existing ones.  (One example: Mayme Clayton Agnew’s private library of black history, which her son is now warehousing in Los Angeles as he seeks structure and funding for its preservation and display.  Isn’t that precisely what public libraries are for?  Doesn’t Los Angeles have one?  If not, wouldn’t New York’s be happy to step in, given its own extensive collections in the field?  Does there really have to be a separate museum?)  Author Dan Kadlec includes pertinent questions for prospective founders–is my idea different?  is a start-up necessary?–and references to the Foundation Center and other Websites (what, not the Nonprofiteer?) for management advice. 

Kadlec puts the proliferation of institutions down to Baby Boomers (the answer to the lazy reporter’s prayer!) for their/our unwillingness to do things anyone else’s way.  There is, of course, at least one alternative interpretation, offered by scholar Robert Putnam in Bowling Alone: that civic life requires the creation of appropriate voluntary groups; that most of the major voluntary structures of today arose in the late 19th and early 20th Centuries, and that it’s time for another spasm of institution-invention of the sort that spawned the YMCA, the Boy Scouts and the settlement houses.  Or, as it is written, everything old is new again.  This is great, provided the newcomers review history instead of repeating it; the Saguaro Seminar’s site on fostering civic engagement is one place to start.

Interestingly, the Time article seems to see "starting a nonprofit" as one of the options available to retiring Boomers, right next to "lowering golf handicap."  If that attitude gets adopted generally, we could be spending the next 35 years in tugs-of-war over helpful-sounding names (Lock up your intellectual property now!) or engineering mergers for the final few groups left standing.

Push ‘em back, push ‘em back, waaaay back!

October 20, 2006

A craze for mergers and consolidations among nonprofits appears every seven years or so, like locusts; but this current one has produced a byproduct new to the Nonprofiteer: a desperate search for someone to take on the back-office functions of the combined entity.  This is not the same as trying to find someone to handle leadership (see "Take My Nonprofit–Please," below) but nearly as difficult.

It’s not clear why it’s not economy enough just to have one bookkeeper instead of two, one data-base-entry person instead of two; but many charities are persuaded they don’t need full-time administrative assistance at all, and can get what they need on contract from a shop specializing in maintaining mailing lists and doing mailings, issuing checks and depositing withholding taxes.  And maybe they’re right.  Certainly corporate America seems to think outsourcing is the greatest thing since canned beer.  (It shouldn’t be as much of a savings to nonprofits, though: many of them weren’t paying employee benefits to begin with!)

But small nonprofits are finding that it’s easier to find a dedicated dogsbody than to find a management services firm interested in their business.  The consultant who takes as her niche the back-office functions of small nonprofits will be a very rich woman.  And, as a colleague pointed out, much of the work can be done remotely.

Say, from Sri Lanka?

If not government, who?

July 11, 2006

At April’s eponymous O’Bannon Institute conference, Ellen Annala, President and CEO of the United Way of Central Indiana, urged social service agencies to seek opportunities to merge.  She decried the nonprofit sector’s needless proliferation of administration and its costs, offering her own agency as a worthy counter-example: it shares back-office functions with a number of other United Ways. 

This is familiar: every decade or so United Ways start recommending wholesale mergers to their client agencies.  A few shotgun marriages later, and–more important–when the United Ways’ own fundraising ticks up, those recommendations fade.  But if we take the advice seriously, it raises two questions: Are nonprofits really inefficient and wasteful?  And if they are, is merger the solution?

Operating nonprofits are inefficient the way poor people are inefficient: they buy toilet paper by the roll instead of the carton because they never have enough cash on hand to buy the large economy size.  And if charities "waste" money on administrative personnel like fundraisers it’s because they have to scramble for every nickel, creating a different program and writing a different application for every grant and consuming client-service time reformatting evaluative information in the hundred different ways funders–including the United Way–require.  Inefficiency is the symptom; the disease is poverty.  And its cure is for funders–including the United Way–to give each recipient more money.  Fund fewer agencies if need be, but recognize that what charities need is more money and less advice to be frugal or go out of business.

But assuming that larger nonprofits would in fact be more economical (and thus, narrowly speaking, more efficient), should we in fact be seeking to create them?  In my view, the only possible justification for having essential social services provided by anybody but the government is that community-based organizations are better able to understand and respond to community needs.  If we’re going to create city- or statewide mega-agencies, let’s create them with tax dollars.  That way at least we’ll get accountability to go with bureaucracy.  Otherwise, we’d have a system of essentially random allocation of social goods by large conglomerates based on the whims of the wealthy.

Oh, right.  That’s what we have now.


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