NAO Workshop #96
2 PM, Tuesday, June 22, 2010, Las Vegas
Merging Organizations
for Sustainability
Gary Crum, PhD, MPH
Executive Director, Southwest Virginia Graduate Medical Education
Consortium and Area Health Education Center (GMEC-AHEC)
One College Avenue, UVa-Wise, Wise, VA 24293
gec8a@uvawise.edu
Susan Alford, MBA
AHEC Director for GMEC-AHEC
Southwest Virginia Technology Development Center
141 Highland Drive, Lebanon, Virginia 24266
swahec@svchs.com
Slide 2
FOREWORD
These MS PowerPoint™ slides are admittedly more wordy than is
typical in order to let your handwritten notes be minor and to let
your attention to the oral presentations be unfettered.
We are more than pleased to share our experiences and the
lessons learned from our merger of two small, rural organizations,
but must start by stating the obvious: we are not the end-all of
knowledge about such things, and are not legal experts. Your
own merger situation will be unique in some ways, we are sure,
but do feel free to call if you have any questions down the road
and think we can help.
Gary Crum and Susan Alford
276 328 0249
Slide 3
1.
First – who are we? The intertwined history of
the Southwest Virginia AHEC and the Graduate
Medical Education Consortium (GMEC):
Appalachian health workforce initiatives
2.
What is currently going on with Virginia’s
AHECs (budget cuts and new AHEC
coordination infrastructure developments)
3.
What is the current status of the GMEC-AHEC
merger? Why is a complicating second
merger being proposed between GMEC and
the Southwest Virginia Health Authority?
Slide 4
Merger in Southwest Virginia
Sw Va
AREA HEALTH
EDUCATION CENTER
(AHEC)
Budget: $90K
VIRGINIA COMMONWEALTH
UNIVERSITY (VCU)
Sw Va
HEALTH AUTHORITY
Budget: zero
(but significant political power)
Sw Va
GRADUATE MEDICAL
EDUCATION
CONSORTIUM (GMEC)
Budget: $215K
UNIVERSITY OF
VIRGINIA (UVA)
Slide 5
Key factors in merging AHEC and GMEC:
 Historical relationship – AHEC helped to form GMEC in 90s
 History of collegial, overlapping Boards and activity in
same statewide agencies (e.g., Va. Rural Health Association)
 GMEC area not mandated, but by practice was inside
AHEC’s
 All Virginia AHECs lost all state money recently, which
they needed for federal match though VCU’s grant. Sw Va
AHEC staff was down to one professional (Susan Alford).
 GMEC’s medical resident rural rotation program budget
was state money available as AHEC match, and had one
professional and one support staff person (Gary Crum and
Elizabeth Mullins)
 GMEC $ was being deeply cut by the state during the
recession but still was viable, and the AHEC had (steady?)
federal funds – both had some modest reserves.
Slide 6
OUTLINE FOR TODAY’S WORKSHOP
 Sustainability and increased effectiveness: basic
reasons to merge
 Specific merger problems discussed and paths to
success suggested :
1.
2.
3.
4.
5.
6.
7.
8.
1.
Choosing/wooing a candidate for merger
Merging missions/goals/roles
Merging geographic areas
Incorporation/legal/auditing issues of mergers
Merging grants and other funding streams
Merging board members and board officers
Merging staff , office space, phone #s, etc.
Organizational angst: who “wins,” merging
special identities and founder histories,
hidden agendas – and solidifying your
new identity
Audience questions and merger experiences
Slide 7
“MARRYING” ORGANIZATIONS
Basic Reasons/Benefits:
 Economies of scale and other
improved cost-effectiveness ratios
(= sustainability)
 Mission impact enhancement
 Positive publicity
This is more than collaboration, it is the
recreation of two previous organizations into
one, and may be frightening to those involved
Slide 8
Marriage
Expectations?
“I can’t
wait to get
out of this
sweaty shirt
so you can
wash it!”
SECTION
Slide 9
1. Choosing/wooing a candidate for merger:
Good human marriages are made between
people that have similar family values and habits,
similar social support groups, similar wealth, and
have known each other a while. Organizations
are much the same.
-------------------Wooing an organizational partner is not so much a
marketing task as an ability to recognize and
communicate natural compatibilities.
Slide 10
Some pertinent human marriage myths *
 Two people in a good marriage
automatically grow closer with time
 Pursuing your own individual needs is
incompatible with making a marriage work
 The goal of marriage is for both
partners to get exactly what they want
-------------* http://www.dummies.com/how-to/content/deflating-six-commonmarriage-myths.html#ixzz0hhWZTe7o
Slide 11
Good organizational candidates for merger with your
organization might have many of these characteristics:
 Similar mission – such as a mission that covers all of
your mission and more, or has the same mission
emphasis for a different demographic group (e.g.,
nurse recruitment versus M.D. recruitment), or has an
overlapping or juxtaposed geographic area
 Overlapping board memberships, past and present
 Staffs that often find themselves in meetings or at
conferences with each other
 Staff that do not unnecessarily have redundant skills
 Complementary funding streams (e.g., one brings a
federal grant in-hand while yours brings needed state
matching funds for that grant, or seasonally-staged
incomes)
Slide 12
If one partner is ‘wounded’ – like facing insolvency
– then, yes, it will probably enter the merger at a
disadvantage and be a little like a junior partner. This
creates a parent-child “transactional analysis-type”
relationship between the two organizations, but if that
is a nurturing relationship rather than a dominating
one, and if both organizations are fine with their
respective parent-child roles, then it can be a positive
merger just the same.
Also, it is probable that each organization will
bring some kind of ‘parenting’ to the merger – perhaps
one with more total money and other with more
permanent (“harder”) funding or more unrestricted
funding; or one with stronger political connections and
the other with stronger staff capabilities.
Slide 13
A Path to Success. One approach would be to have each
organization’s staff or governing body to do a SWOT
analysis (Strengths, Weaknesses, Opportunities and
Strengths), and then do one for their potential partner [this
can be done by your organization even without the other
potential partner(s) knowing yet that a merger is under
consideration]. When representatives of the two later meet
together, a SWOT for a merged operation might be jointly
done. Then the two organizations can meet separately for
discussion of the pros and cons of completing the merger.
If it looks good, a memorandum of understanding (MOU) or
“merger agreement” could be drafted by the two CEOs
and Board Chairs and separately taken to the two
governing bodies for refinement/signature.
Slide 18
A Path to Success. Each organizational mission/values needs to
be given respect in any merger. This discussion is perhaps the
most important, because it is one of deep motivations. Some
differing mission characteristics are related to “right versus right”
ethical dilemmas (after Rushworth Kidder):
a. Long-term versus short-term perspectives (e.g., replacing
retiring MDs versus creating a statewide pipeline for getting
teens into medical school)
b. Community versus small group or self perspectives (e.g.,
increasing community-wide nursing services versus creating a
stronger nurses union to achieve nurse pay increases)
c. Truth versus loyalty perspectives (e.g., offering scholarships for
those who score high on standardized tests versus offering
scholarships only to grads of area high schools)
d. Mercy versus justice perspectives (e.g., increasing local AA
groups versus working for stiffer drug crime sentences)
Slide 14
Chains do not hold a
marriage together. It is
threads, hundreds of tiny
threads which sew people
together through the years.
~Simone Signoret
Source for these and other similar-format quotes:
www.quotegarden.com/marriage.html
SECTION
Slide 15
2. Merging missions/goals/roles
Some organizations are so different that
a merger is like putting chocolate ice
cream on a chili dog – together they
ruin two good things.
----------------------------------
Your missions need to be compatible
(not necessarily the same) in the people
served, the values of their leaders, the
services rendered, the technology
involved, and/or the human skills
required.
Slide 16
The values and roles of each organization is as important as the
missions – analyze plans for conflicts, and resolve them. Avoid
mismatched values – similarity of mission is not always enough:
 Aggressive, dog-eat-dog values versus collegial and
cooperative values. Do you like to destroy enemies more than
building bridges? Do you like honesty more than winning?
 High dollar, state-of-the-art tastes versus frugal ones - do you
hold golf fundraisers at Hilton Head or hold bake sales at Kroger?
Do your Board members wear black tie and gowns to the annual
meeting, or sneakers?
 Should the Board meet often, work/’schmooze’ the community,
and micromanage the staff, or should it let the CEO make the dayto-day decisions and the CEO do the schmoozing? Do your
respective CEOs have similar management styles (e.g.,
authoritative versus collegial) to Board expectations? (More on this
last question later under the section about merging staffs.)
Slide 17
Success in
marriage does not
come merely
through finding
the right mate, but
through being the
right mate.
~Rabbi Barnett R.
Brickner
SECTION
Slide 18
3. Merging geographic areas
Most organizations have a spoken or
unspoken geographic perspective – you must know
what that perspective is.
Will the merged area become too large for
the staff to be able to serve for an expanded
mission (e.g., travel as needed, print enough
materials, etc.)?
If the geography is set in law (like state or
regional AHECs) for one or both organizations, and
the geography is incompatible, it can be a “deal
breaker.” This can be an additional problem in
determining who is on the Governing Board as well:
things like federal AHEC grant requirements for 75%
membership from the AHEC’s service area.
Slide 19
Paths to Success: In dilemmas like this, be prepared to ask
the tough questions out loud – and fight for a path to
success. If the feds say your Board must be 75% from one
area and the other organization’s area is larger, can it live
with just 25%? Can you set up a second (overlapping)
board and have one staff -- and have the two boards meet
the same nights? Can you have a single staff managing by
contract the second organization and still get some economies of scale? Can you have an advisory group
representing the other area and sending its chair as a
member to the full board, to keep the feds happy? Can
you have an out-of-area organization represented by
someone of that organization who lives over the line in your
area? How does your funding chain of command feel
about these types of machinations?
Slide 20
If you made a list of
the reasons why any
couple got married,
and another list of the
reasons for their
divorce, you'd have a
hell of a lot of
overlapping.
~Mignon
McLaughlin
SECTION
Slide 21
4. Incorporation/legal issues of mergers
Good legal advice should be sought before announcing
any merger. Some of the issues that may need to be
considered:
 Are both nonprofit 501c3? What IRS reporting timetables
need to be considered?
 Are the corporate purposes of both compatible (corp.
boards are legally expected not to violate their own
corporate purpose for existing). Will one take over the other
(often best) or will both disappear into a new organization?
 Should the Boards be merged but still operate as
separate organizations for a while (convening twice each
meeting to do separate business/minutes using the same
people)?
continued . . .
Slide 22
continued . . .
 What steps need to be approved by the state
secretary of state’s office, or other incorporation
regulator in your state?
 What audits have been done or need to be done
so that both organizations know the financial
strengths and limitations of the other? (The merger of
funding streams is covered in more detail in next
section)
Slide 23
“I thought we agreed not to
fight in front of the children”
Slide 24
Never get married in
the morning, because
you never know who
you'll meet that
night.
~Paul
Hornung
SECTION
Slide 25
5. Merging grants and other funding streams
Grants held by each of the two organizations are
obligations of only that organization. Mergers may
have to be delayed until grants end; however, most
funders (but not legislatures) are usually OK if . .
 The funders are notified in advance and allowed
to give input
 The principal investigator is the same, or someone
equally qualified
 The resulting merged entity is still eligible for the
grant as it was originally funded (e.g., still
nonprofit, still centered in such and such area, still
with a Board meeting such and such criteria, still
with the same or lower “indirect” costs, etc.)
Slide 26
In merged funding streams, expect annual auditing costs to go
up, plus other problems that might arise include . . .
 Transfers of funds that were restricted donations (e.g., Mrs.
Smith left this money in 1986 to corporation X – can we take it with
us to corporation Z? This may require getting the donor or his/her
estate’s written permission.
 Merging funds that have differing funding fiscal years – this is
not a legal impediment so much as a budgeting complication
that one or both organizations may not have previously faced.
 If other funding oversight organizations are involved
tangentially in the operations of one or both merging
corporations (e.g., through a state government, university, or
social service agency financial service arrangement), then these
other agencies need to be contacted early to see if there are
barriers to the merged agency taking with it its funds.
Slide 27
If two stand shoulder
to shoulder against
the gods, happy
together, the gods
themselves are
helpless against
them while they
stand so.
~Maxwell
Anderson
SECTION
Slide 28
6. Merging board members and officers
The best situation is when there are overlapping
Board members (past or present members of both) who
can allow both of the two old boards in a sense to have
more than 50% of the new one – even one overlapping
Board member can accomplish this by counting
him/her as a member of both boards. Some Board
members may welcome the opportunity to step aside
during a turbulent time, especially if they are not gung
ho for the merger or are overworked.
Consider running a larger Board than usual if many
Board members want to remain on the combined board.
The total number from each board should represent no
less than 50 percent of the new Board even if that
means one Board should unilaterally choose some new
people to represent it after the merger.
Slide 29
As for officers, when merging boards you might have a person
affiliated with both to serve as a convener until new officers can be
selected, or have the two chairs serve as co-chairs. Avoid choosing
new officers all from one of the previous entities by having a
nominating committee set up made from members from both boards.
Finally, before merging boards you need ideally immediately merge the
corporations legally and create a new set of bylaws – otherwise you
may find your corporate responsibilities will suggest that you should
to run two meetings every meeting: adjourning one corporation’s
board and then calling to order the second to approve the same items
(we know this seems stilted and may be ‘overly proper’ if your
organizations have no ‘enemies’ or ‘oversight organizations’ to be
concerned about). This will allow you to use the separate missions,
bylaws and corporation purposes to justify explicitly in separate
minutes the votes. In other words, the justifications may be different,
but the vote(s) not be contradictory to either corporation’s mission.
Slide 30
Once a woman has
forgiven her man,
she must not reheat his
sins for breakfast.
~Marlene
Dietrich
SECTION
Slide 40
7. Merging staff , office space, phone #s, etc. – what needs to be
considered?
 Organizational chart (do this prior to merger and talk to staff)
 Websites (have one lead automatically to the other and merge into a
single home page with both old names displayed prominently for a year)
 P.O. Boxes (forward one to another)
 Fax Numbers (keep both for a year, if you can afford it, but advertize only
the new permanent one as soon as possible)
 Subscriptions & Memberships (do not pay twice!)
 Logos (this is difficult – get a new logo, perhaps made up from a
combination of the old ones, or if one is very well known, use it)
 Business cards and stationary (important to change right away – throw out
the old logo stuff ASAP) – also, take dual inventories and merge lists
 Equipment (e.g., copiers – do you have too many? Do repair contracts
need weeding out?)
 Health insurance (you are a bigger group now, get a better rate)
 Liability insurance (including board member liability insurance – keep up
to date)
 Electronic file backup systems (review IT ‘disaster recovery’ plans)
 Retirement plans (if at all possible, make sure staff do not lose
benefits/vesting even if it means additional financial allocations to
individual staff to make things right)
Slide 41
During a transition year, you may want to spend money telling
people about the merger and sharing the new logo/name of the
organization. You do not want to lose people who are assuming
you have the same fax number, and do not want to keep the old
one forever. This is common sense and will result in different
policies for each merged organization, depending on factors such
as the following:
1. Do you have a large constituency group that will be confused
and alienated by not being able to reach you at the old places?
2. Do you have any for-profit activities that depend on
uninterrupted customer access?
3. Can you afford to run a dual system for a while?
4. How important is it to you for the merger to be well-known and
accepted in the community?
Slide 42
Merging staff requires close consultation by the Chairpersons of the
Board with the two CEOs – if one is now to report to the other, this needs
to be explained early and feedback obtained. Often the assumption of
which organization will keep the CEO is understood based on budgets,
experience, credentials, etc. Also, as mentioned before, the styles of
management may vary between key staff members and the Board – seek
a CEO that can carry the day by being what is typical, or leading into the
atypical.
An entirely new CEO might be advisable, though expensive unless
others are let go. A new person over the new organization sends a
signal to the public and the staff. On the other hand, loyalty to the
current staff can help to make sure the merger is not scuttled by the staff
– who can scuttle it simply by not conveying key facts and timetables.
Our bias is for keeping everyone you can without hurting the new
organization’s chance to succeed.
Slide 43
All staff need to know early to whom they will report
(organizational chart) after the merger, and whether they will
need to change benefit packages, work locations, titles, or
salaries. Try to hold everyone as harmless as possible, but
realize that not everyone may be happy with the changes.
The motives for a merger should be bigger than the concerns
of one staff person, or the merger is probably not worth the
trouble. But also keep in mind this fact: the changes are due
to a friendly merger, not a hostile takeover – do not throw
your weight around or make harsh demands without realizing
it could be a “deal breaker.”
You are not beating up an enemy, you are wooing a partner.
Slide 45
New office locations
Choosing a new office location probably will be necessary –
you lose lots of your new economies of scale if you do not
bring people together into a single office suite with a single
receptionist, single phone numbers, etc. However, it is not
impossible to run things from “branch” facilities, or to keep a
presence in the same localities if you wish to do so,
especially just for a while. What is the main risk of not
bringing everyone together? It makes the merger less real to
the staff, less likely to generate staff interaction and
comradeship, and less likely that the public will understand
how the merger is working.
Slide 46
The course of true love
never did run smooth.
-- William Shakespeare
SECTION
Slide 47
8. Organizational angst: who “wins,” hidden agendas, merging
special identities and founder histories, – and solidifying your
new identity
“Who wins? If both groups do not win (win-win) it is a ‘grief’ scenario
not a ‘marriage‘ one – a loss of face for some portion of the
staff/board, etc. Something is dying more than it is merging.
Sympathy is needed, not celebration, and this presentation is not
completely useful in such situations.
‘Hidden agenda’ merger is extremely difficult, even if many people are
pretty much aware of those agendas. For instance, if a charitable
organization is really a vehicle for person X to get elected mayor, or if
it is a financial conduit for sending donated money back to another
group, you are merging with a fiction. The public statements for the
merger will be at best half-truths. This is a poor foundation for the
future.
Slide 48
Merging special identities and founder histories means that one
or both organizations may be too unique to easily throw its lot
in with another one. Each organization must bring something
to the table if it is to be a friendly merger of more-or-less
equals, and a special reputation or history is a real asset to
bring, but one that cannot often be utilized by the new
organization unless the new organization’s name and public
identity remain as the old ‘special’ organization. This will look
like a takeover more than it is, perhaps, but that may be part of
the cost.
If neither organization wants to yield its specialness, then this
can be addressed by ADBA (also doing business as)
arrangements or by creating a superstructure over both old
organizations and then ADBA both of them under a new name
like “Health System Collaborative of Lower Bearwallow” or
something, but this reduces some of the benefits of merging.
SLIDE 49
Another approach for dealing especially with
historical origins is through the creation within the
new, merged organization of special events or
awards named after the organizations’ different
founding fathers/mothers. The new organization may
have the name of one historic organization, but it has
not forgotten the tremendous benefits brought to it
when it merged with its sister organization “way back
in 2010.” A permanent brass wall plaque
commemorating the merger is another (fairly
expensive) option.
Slide 50
Solidifying your new identity
a) Develop catchy motto and new brochure (spend more than 50
cents on the brochure!!)
b) Press releases (announce the intention, then the doing of it)
c) Press conference
d) Ad in paper and in ‘announcements’ sections of trade journals
e) Option pieces and editorials in local papers
f) Interview on local radio/TV
g) Gala banquet to celebrate the merger – hosted by local or
national celebrity
h) New business cards mailed to each staff person’s contacts
i) Putting upbeat recorded messages on old office phones
j) Provide exhibits/booths at local events and national conferences
k) Write constituents and potential funders an upbeat letter about
how efficient this merger will be
l) Develop a new community award named after a founder (see
previous slide)
m) Hire an advertizing firm (this can be expensive, of course)
Slide 51
Now its time for all of us – those
who supported the merger and
those who opposed it – to pull
together for the benefit of the
company.”
~Carly Fiorina, President of
Hewlett-Packard Co.
SECTION
Slide 52
9. Audience questions and
merger experiences
Slide 53
FURTHER READING
Nonprofit Mergers Workbook: The Leader's Guide to
Considering Negotiating & Executing a Merger. David
LaPiana et al. Publisher: Fieldstone Alliance; Workbook
edition (July 2000) ; ISBN-10: 0940069210
Strategic Restructuring for Nonprofit Organizations
Mergers, Integrations, and Alliances. Amelia Kohm &
David LaPiana. Publisher: Praeger (October 30, 2003)
ISBN-10: 0275980693
The M Word: A Board Member’s Guide to Mergers, A.
Vergara-Lobo, et al. Online 5/2/10:
www.blueavocado.org/content/m-word-boardmembers-guide-nonprofit-mergers -- this is available
for free and goes into additional topics not covered in
this presentation such as hiring a merger consultant
LAST SLIDE #54
You should never kiss a girl unless you
have enough bucks to buy her a big ring
and her own VCR, 'cause she'll want to have
videos of the wedding.
~Jim, age 10
A “Jim” Facsimile: