Collaboration Case Study – Failed Merger

In the world of nonprofit mergers, sometimes no good deed goes unpunished. Not all nonprofit mergers are successful. In this case, the board and staff of two nonprofits looking to merge did a great job of putting their mission and beneficiaries first, only to be ambushed by their lack of stakeholder communication and buy-in.

Successes.

  1. Both Boards had their own strong reasons to merge their nonprofits.
  2. Benefits to clients and the community were at the forefront of the merger discussions.
  3. There was an early mutual agreement on leadership positions and board structure.
  4. Merger discussions were solution-focused.
  5. A consultant served as a third party and helped staff think of questions and processes they might not have considered.

Lessons Learned.

  1. In an effort to save money, a lawyer with nonprofit merger experience was brought into the process too late.
  2. Inappropriate disclosures were made at the beginning of the process without legal protection (i.e., financials, donor lists, compensation information).
  3. The focus was on communications and selling the merger plan. Meanwhile, the parties were ignoring key due diligence.
  4. Vocal donors challenged the board’s every decision.
  5. Inadequate stakeholder communication resulted in a serious backlash.

Lessons Learned.

  1. Even when process between the boards and staff are generally running smoothly, failure to identify powerful and sometimes non-obvious stakeholders can threaten a merger’s success.
  2. Board’s interest in merging quickly backfired.

Nonprofit mergers are resource and time intensive and can be risky if they are not successful. 

Ellis Carter is a nonprofit lawyer with Caritas Law Group, PC. To contact Ellis, call 602-456-0071 or email us at info@caritaslawgroup.com.