September 20, 2017
 
The Roles of Key Players in a Merger

By Joseph M. Giso

During the merger of two nonprofit organizations, who are the key players? The short answer is management and staff, so their specific roles and needs should be considered carefully in order for a merger to succeed.

However, many constituencies, including board members, executive directors, and donors bring with them to the merger process an awareness of the benefits associated with for-profit mergers. They know about the increase in the types of services provided, better finances, alternative revenue streams, reduction in duplicate costs, and the potential for greater market share.

Yet despite the many potential benefits, mergers still may fail because of a human need for self-preservation and a related resistance to change. Careful communication is key in alleviating both concerns as organizations and cultures feel the impact of the merger process.

In a nonprofit merger, the boards of both organizations must be very active in ensuring both management and staff are involved and believe in the ultimate goal: a stronger and better-situated organization that will accomplish more as a united entity. All individuals involved share the ultimate responsibility of acting in the best interests of the new organization and the consumers that it serves.

Executive Leadership

The board must decide on the executive leadership for the combined entity early on. Selection of a new executive director is the most important action to be taken in the merger process. Who will this person be? One from the merged entities? An outside executive? An interim executive? Will one or both former executives remain in the merged organization and if so, in what capacities and for how long?

One reason nonprofit mergers typically take longer than for-profit mergers is because there is no financial incentive for the executive director or the board to merge. There is no "golden parachute" payment or other large incentive typically found in the private sector. There are no options to cash out, no consulting agreements, and in most cases, no deferred compensation agreements as incentives.

Executive directors are also rightly concerned about the impact of a merger on their staff and their organization's mission. Loyalty to their staff, constituents, and mission after all are major reasons why executive directors have stayed in jobs that most often do not yield the financial incentives of for-profit employment.

Address Employees' Concerns

Employees’ fears need to be addressed early and often. Communication and feedback are essential. They need to be part of the team and have input. Lay-offs – which are common in private sector mergers – are a constant fear. Consistent and timely information followed by open dialogue is important in keeping morale and the merger process on the same path.

Employees should be:
  • Given an overview of why the merger is being considered
  • Provided an up-to-date merger process scenario
  • Given a chance to ask and receive answers on their particular situation
  • Provided assurance and commitment that their voices are being heard at the highest levels
  • Given the time to absorb as much possible (time is an important asset in certain mergers)
When considering a merger situation, it is important to review, understand, and address the following concerns of employees:

Compensation Policies: Integrating the two policies into a fair and adequate system.

Employee Communications: Employees internalize and speculate if no communications are forthcoming. Employees also speak to each other, and these conversations can be the birthplaces of rumors that can destroy morale. Perceptions should be addressed with reality.

Job Titles: Titles often represent the time and energy an employee has committed to the organization. It is one aspect of an individual's core identity, which should not be perceived as reduced in the new organization. Once the title is secured, career advancement and growth need to be addressed as in any other organization.

Joseph M. Giso is senior tax manager at MFA-Moody, Famiglietti & Andronico. For more information, please contact Joyce Ripianzi, partner at MFA-Moody, Famiglietti & Andronico, at jripianzi@mfa-cpa.com.

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