Is Your Nonprofit Considering a Strategic Restructuring?

We’ll spare you the pandemic intro; we know that nonprofits are acutely feeling the effects of the current financial crisis.  And uncertainty about COVID-19 virology and what a “new normal” might look like is frustratingly confounding. But now is not the time for “magical thinking,” according to a panel of experts recently convened by BoardSource.  We participated in their webcast to learn more about how nonprofits can best navigate the hard decisions ahead.

To begin with, panelists Gene Takagi of the Neo Law Group and Nadya Shmavonian of SeaChange Capital Partners, resoundingly agreed that organizations need to dial back into their organizational mission and values with incredible focus. Yet following your organizational “North Star” may require tactical decisions that are “nothing short of extraordinary”, says Shavonian. More specifically, nonprofits should be considering whether a strategic restructuring, such as dissolution or merger, may be the best way to ensure the continuity of your mission and purpose.  Here are some key considerations:

Taking Stock

Along with zeroing in on your organizational focus, nonprofits need to be acutely aware of their financial position and how that impacts the timeline for considering potential moves.  Boards who previously reviewed financials on a monthly or quarterly basis may need to do so more frequently; perhaps on a weekly basis. This could also require engaging expert help from certain board members or outside professionals to ensure that all directors truly understand your organization’s cash position.  Also, past assumptions may no longer be valid. Your board chair may need to employ a bit of “tough love” with your executive director to make sure directors are getting an accurate picture of the situation.  Keep in mind that these are not one-time considerations; inputs may change significantly over the course of days or weeks. Nonprofits have an adaptive stance, continuously engaging in risk management and scenario planning.

Approaching Collaborative Partners.

If a restructuring is on the table, Takagi and Shmavonian advise getting clear on these three things:

  1. What do you seek to achieve through a merger or restructuring?
  2. What do you have to offer to other potential collaborators?
  3. What are you not willing to let go of in a potential collaboration or restructuring?

A recent article from SeaChange, notes that the merger process can take anywhere from six to 18 months.  That means that you need to start the process earlier than you think you do to ensure maximum control over the strategic restructuring process.

Negotiating a Restructuring.

If you’re at the table with a potential collaborator, solvency should be front of mind.  Transferred assets could be subject to clawback provisions by creditors if the transferring organization is facing solvency issues.  In addition to legal and financial considerations, the integration of two organizational cultures into one will require its own set of negotiations.  Whether it involves fiscal or less tangible matters, Takagi advises that the employment of a lawyer or other experience negotiator can be helpful to keep all parties on track and to avoid an impasse, while still ensuring that the final outcome is amenable for all parties.

Finally, strategic restructuring will require sustained intention and a willingness to adjust the mindset.  Government and philanthropic sources will be in short supply which leaves nonprofits facing critical questions about what is best, not only for themselves but the entire sector and those they serve.  Organizations will be challenged to shift their focus from “dying” or “surviving” to a larger conversation about how collaboration between nonprofits can multiply mission reach.

Indeed, nonprofits will soon be put to the proof “that mission is more important than organizational boundaries,” in Shmavonian’s words. How is your organization preparing to embrace the “new normal?”

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.

 

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