Funders Urged to Improve Strategy on Mergers
April 5, 2010, Stanford Social Innovation Review — In the midst of the worldwide financial crisis, funders are increasingly suggesting that nonprofits consider merging—that is, fusing their boards, management, and legal entities to form a single organization. In 2009 alone, my consulting firm delivered nearly 60 presentations and workshops on mergers and other partnership forms to more than 6,000 participants—double the previous year’s tally. Similarly, our strategic restructuring practice (which handles mergers and other partnerships) grew 60 percent last year, during the worst part of the recession.
Now 2010 is upon us, and the urge to merge shows no signs of abating. Underlying this trend are two core beliefs: The nonprofit sector has too many organizations, and most nonprofits are too small and are therefore inefficient. Mergers, the thinking goes, would reduce the intense competition for scarce funding. Consolidating organizations would also introduce economies of scale to the sector, increasing efficiency and improving effectiveness.
Yet a closer look at the nonprofit sector suggests that this thinking is too simplistic. Mergers are risky business. They sometimes fail, although not so frequently as in the corporate world. They usually cost more than anticipated. They sometimes create more problems than they solve. And the problems that they allegedly solve—too many nonprofits, too small in size—may not be problems after all.