Tuesday, May 5, 2009


-- With thanks to Ed Schoenberg who between sets at this morning's squash match asked me about what was going on in the nonprofit world.

Right now there is a lot of talk about nonprofit mergers. I hear this stuff most whenever the economy tanks and I generally get a few inquiries as I have recently.

For all the chatter, when the sun comes up on the next bull market I believe we'll see that there were almost no nonprofit mergers of any significance or any new paradigms to re-define the nonprofit mindset. And when mergers do rarely occur they don't work. I'd love for someone to give me an example of a true, successful nonprofit merger.

Some years back the schools of medicine at NYU and Mt. Sinai (New York) decided to merge. No doubt the outside MBAs, the business folk on both boards and top managers in both institutions rationalized the upsides. What they didn't reckon on was the doctors who - at both institutions - vitriolically opposed the jointure. And that was that.

You might think that with the same mission of treating, healing and curing the ill or the hurt - and with the potential economies of scale this was a natural. But you'd be wrong. In the "real" world a business looks at a merger in terms of share price, potential earnings, ROI and so on. Usually the stockholders or bondholders on the boards of two companies see the synergies and even in a forced marriage (viz. Chrysler's parlous finances and Fiat's crappy cars) the union is consummated or whatever cars do. Profit and self interest lubricate the process.

But charities are mission-driven. Most of the time this lends the cloak of nobility to whatever else might be going on - and though that is often irreproachable I think the mission drive is a real disincentive for merger. Some years ago two literacy groups came to me - coincidentally within a week or two of each other. Also by coincidence I knew the founder of each. Trust me if I say that to a layperson their programs were mutually indistinguishable and the missions were identical: teach inner city kids to read. I immediately proposed consideration of a merger. There was a skunk-at-the-picnic reaction and my proposal went nowhere.

Another time we were hired by a consortium of prestigious but impecunious historically black colleges and universities. We did an extensive study, recommended a merger or at least some form of consolidation or takeover. Despite the horrendous financial exigencies and the rather insignificant differences in their student bodies or educational programs except for one of the schools, a seminary, the idea of any relationship beyond the neighborhood they shared was off the table immediately, opposed by each president and thus by their boards.

Despite the need the different church bodies that had founded each school could not overcome their doctrinal differences and the presidents quickly calculated the prospects of early retirement. Presidents of HBCUs seldom retire. They almost always go out toes up so between their bishops and their boards business didn't stand a chance. On the other hand we went on to work separately over time for four of the five.

Takeovers don't happen much either usually because the acquiring entity has little or no dowry, and unlike a company can't just go out and print stock certificates (or money, like the government). But I was involved in one. Years ago Harold Oram was hired by the Parsons art school (where believe it or not I studied as a child but-we-won't-go-there). Parsons was up to here in debt, exsanguinating and indeed about to expire. At the same time we were working for The New School under president Jack Everett. Who knew he was looking for an art school as a way to expand offerings? Harold did the deal: Jack and his board took Parsons over for its debt. The head of Parsons an avocational jazz musician and also a gifted craftsman was so pleased (and maybe relieved) he hand-made an absolutely exquisite harpsichord for Harold. It sat in his living room for years, never touched.

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