When Should Charities Throw In Together? November 04 2016 Paul Sullivan, The New York Times K. Sujata, president and chief executive of the Chicago Foundation for Women, oversaw a merger in 2012, when her nonprofit group took over the Eleanor Foundation. Credit George Etheredge for The New York Times FOR some well-heeled donors, venturing out on their own to start a family foundation or serving on the board of a public charity is appealing. But sometimes, merging individual charitable organizations can have a greater impact on the people served. That was the conclusion of a report from the Metropolitan Chicago Nonprofit Merger Research Project, which examined 25 mergers of charities and foundations around Chicago from 2004 to 2014. The researchers also looked at attempted mergers that failed. Many organizations, the report said, need to merge or consider other partnership strategies if they want “to grow, improve services and become more effective — or in some cases, just remain viable.” “The truly successful mergers start with a focus on the mission,” said Gillian Darlow, chief executive of the Polk Brothers Foundation, which helped finance the study. “Is this a good strategic choice for us? Can we increase our impact?” In 85 percent of the cases, the study found, a board member served as the main advocate for the merger. In 44 percent of the cases, donors paid for the costs of the merger. The study also found that in 88 percent of the mergers, the people involved thought that the new organization was stronger and more effective. But the study also provides ideas on how family foundations, which are generally smaller and do not have the public oversight of charities, can consider their futures, particularly when later generations lose their connection to where the foundation started or the organization’s grant-making abilities dwindle. Public charities and family foundations are completely different entities. But when it comes to mergers, strategic partnerships or even dissolutions, the two share one thing: individuals, either board members or family members, will drive the big decisions. While the report found benefits for the causes served by public charities, several hurdles typically stand in the way of collaboration, let alone mergers. The top one is pride in the organization itself. “There’s a tremendous sense of ownership, not just to the mission but the organization,” said Eric Weinheimer, chief executive of Forefront, a nonprofit consulting group in Illinois that started a program to help organizations sustain their missions. “There’s a reluctance to give up control and a sense of ownership.” But, he said, there can also be either a lack of resources to investigate partnership opportunities or too little money left by the time the group realizes it needs help. Ms. Darlow said the report found that more than half of mergers were begun during a change in an organization’s leadership. “Nonprofits don’t have the same incentives to merge that for-profits do, namely the financial incentives,” she said. “The merger of two organizations can get tripped up at the leadership level if both of them aren’t on board. But if they are going through some leadership change, they’re more open to exploring that.” K. Sujata, president and chief executive of the Chicago Foundation for Women, oversaw a merger in 2012, when her nonprofit group took over the Eleanor Foundation. The idea for the merger, Ms. Sujata said, came from a board member of the Eleanor Foundation who knew her from when she worked there. The impetus was a change in leadership. While both organizations focused on helping women, they did so in different ways. She said it took members of the two boards eight months to work out an agreement. In the end, the Eleanor Foundation agreed to make a gift of its assets in exchange for the promise that the Chicago Foundation for Women would continue to fund work on economic self-sufficiency, make at least $1 million in grants in that area over the first three years and take six board members from the Eleanor Foundation onto its board. David A. Levitt, a lawyer at Adler & Colvin in San Francisco, said active, engaged board members were crucial to smooth mergers of nonprofit organizations. But he said one big question for board members to decide was whether to go for a full merger or an acquisition of another organization’s assets. With a merger, he said, board members need to be aware that the organization’s liabilities come along with its assets, programs and donors. “With a merger, you need to know what you’re getting,” he said. “With an asset acquisition, you can get what you want and not all the other liabilities.” Short of a merger, board members could suggest collaboration among organizations with a shared mission. Mr. Weinheimer at Forefront said there were opportunities for strategic alliances and joint programming when organizations had similar missions. And in those instances, he said, boards can put structures in place so that organizations can work productively together. “There are more and more nonprofits being created every day,” he said. “We need to be very diligent to have the systems and structures and the capacity to provide this as a nonthreatening coordinated position.” Like anything involving people and organizations, not every merger or partnership goes well. Jean Butzen, president of Mission Plus Strategy Consulting, said mergers commonly become derailed or succeed for the same reason: board members. “Often, board members get very inflexible about who the leader should be of the combined organization, or they can get very inflexible about the name,” Ms. Butzen said. “Sometimes, they can’t let go of that.” She said in those cases she tried to explain to board members that the environment had changed and that without merging, the organization could become less effective or cease to exist. “They insist on remaining in the past,” she said. “We see that a lot. It’s because they love the organization and the mission so much.” Mergers are not as common with family foundations. “It’s deeply personal,” Mr. Weinheimer said. “This is the legacy of your father, mother or grandmother. There is a great deal of pride in the name and history.” Yet more so than public charities, which are intended to exist beyond their founders and the current board members, family foundations demand the advice of family members, since most of the foundations do not have the resources for larger staffs. When descendants move away — or disagree with one another on the mission — there are options. Norah L. Jones, a partner at the law firm Quarles & Brady, said it was difficult to find another family foundation that shared the same goals. “It’s often hard enough to balance these things within one family,” she said. But she has worked with families that want to find ways to collaborate on administrative matters or share office space. She said she had also seen funding collaborations between foundations that work in a similar field. While these are often less formal than they would be between public charities, they can exist for a specific cause and then fall away. A more challenging reason for a family foundation to merge with another foundation, or even dissolve, is that descendants do not agree on what the foundation is doing — or for that matter, do not get along. In that case, Ms. Jones said a foundation can sometimes be split, giving descendants their own pot of money. Or the entire family foundation can be put into a donor-advised fund, a less costly charitable structure that allows family members to recommend grants to organizations. Ken Nopar, senior philanthropic adviser at American Endowment Foundation, a sponsor of donor-advised funds, said his parents put their family foundation into a donor-advised fund about a year ago. They had given away the bulk of the money in the foundation and the administrative costs no longer made sense, he said. So they made one last grant, to the donor-advised fund, and closed their foundation. For some, that may be an extreme step, even though family members can still propose grants. But with any charitable endeavor, the focus should be on the beneficiaries. “The mergers in the study weren’t all roses, but the real reason for them was to grow the impact,” Ms. Darlow said. “The study shows really strong mergers can create strong impact.” Read the original article here.