Merge to Create Super-Charities – Expert

Major Australian Not for Profits should merge with each other rather than with smaller, “weaker” organisations, according to a leading international expert in the field.

David La Piana, based in California, was the keynote speaker at The Future for NFPs in Australia and Insights into Charity Mergers conference presented by Whitelion.

He told Pro Bono Australia News that while organisations in Australia and the United States operated within a “similar legal context… and very similar social context”, Australia was behind in its merging strategy.

“We’re still at the stage here in Australia where people are merging strong organisations with very, very weak organisations, and people will find out through time that’s not the greatest idea,” La Piana said.

“Weak organisations end up being a drag on the strong organisation – they end up having to do all the cut backs that should have been done, that the leadership didn’t do.”

David La Piana

La Piana said Australian Not for Profits were yet to accept the idea of major organisations merging.

“When I’ve raised that so far in conversations people say, ‘well no, no one would ever do that here, there’s no motivation to merge if you’re strong’,” he said.

“But we’re in that place in the US, because rather than it being a strong organisation looking at an acquisition, really, of a program and a weak organisation saying, ‘please help us we can’t make payroll this month’, in the US we’re looking at it more strategically – ‘we’re each strong organisations, together we can do something much more’.

“It’s common now in the US to have two $US50 million organisation merge… to create a $US100 million organisation, so very powerful strong organisations wanting to become even more powerful, and I think we’re a few years away from people realising that here.”

He said that merging two strong organisations presented very different challenges compared to the mergers some Australian Not for Profits would be familiar with.

“When you have the dominant, strong organisation and the weak organisation, the stronger is dictating terms basically and there may be no one from the weak organisation that joins the board, there may be very few staff that come over at the management level, just direct service,” he said.

“When it’s two strong organisations, you might decide half of the board should come from each organisation, so you might change the name to be something encompassing of both groups.

“Sometimes, even in the case of creating the $US100 million organisation, the boards will decide the CEOs running these $US50 million organisations are not the ones we need for this bigger one so they’ll do a search and bring in an entirely new person with much higher-level experience.”

La Piana said, unlike corporate mergers, when two strong Not for Profits merge there were fewer individual payoffs.

“In the corporate space you can buy the people’s goodwill, you can buy the business, you can pay-off the CEO who is going to go away so that they make so much money that they’re happy to be out of a job,” he said.

“In the Not for Profit world that doesn’t happen, you can’t buy the Not for Profit, and the CEO who loses their job doesn’t get a windfall so that they never have to work again.

“The big goal is to build trust and keep the focus on the mission so that people can move forward together.”

He said there was still a place for weak organisations to merge, but it should be treated as a “program acquisition” process, similar to Whitelion’s merger strategy.

“I call it the ‘I have to get merged by Friday’ phone call, where ‘we don’t have any money, payroll is coming up, what are we going to do’,” he said.

“Those will still happen but they’ll happen as an acquisition of the program, which I think is the way Whitelion has done it.

“If the organisation is in trouble but they have a strong program, they just extract that program, move it into Whitelion and let the rest of the organisation fail on its own, which is the smart way to do that.”

La Piana, who made his first Not for Profit merger in the 1980s, also said Australia was trailing the US in the merger process, which he described as too drawn-out and lacking in structure.

He said resources, including the recently released Nous Group and Whitelion online merger toolkit, were important for streamlining mergers.

“That will be very helpful because most people when they are involved in a Not for Profit merger it’s for the first time. It’s not like you do this every day so there’s a huge learning curve at the beginning so having tools… will definitely help,” he said.

“We’ve developed a process that works very well and I think moves fairly quickly, and from what I’ve heard here in Australia is that there’s not yet an organised process.

“We think you can do the negotiations for a merger in four or five months with a meeting a month and then a lot of homework time in-between, and you do it by being very organised in the way you enter the whole process.”

He said a committee should be formed from each organisation composed of board members and the CEOs who meet once a month for the duration of the merger.

“At the first meeting what we ask people to do is to brainstorm all of the issues they would want to negotiate before they make a decision, and those issues always fall into the same categories – there’s financial issues and board governance issues and programmatic issues,” he said.

“For each of those sets of issues you can have a meeting where [the consultants and the staff] do the homework ahead of time.

“By the end of four or five meetings you’ve accumulated the agreements on all the principal issues, and you’ve also along the way developed trust hopefully between the groups.”

La Piana said above all, developing trust was key to a successful merger.

“If there’s no trust you can never nail down all the details, if there is trust you can work it out. If people don’t trust each other as we’re getting down the road in three or four meetings I might recommend they not go forward,” he said.

“It’s a bit like marriage counselling, if it looks like these people don’t trust each other it’s really not a good idea to move forward.”