How to approach a proposed merger of nonprofits

They present issues that go far beyond conventional corporate transactions

Whether by choice or out of necessity, nonprofit organizations are often faced with the prospect of considering a merger with another nonprofit.

Organizations should periodically consider merger opportunities that would promote the most effective and efficient use of charitable resources. However, and as New Hampshire has witnessed on several occasions, proposed mergers of charitable organizations present considerable challenges that can derail the process if not managed effectively.

First and foremost, nonprofit mergers present issues that go far beyond conventional corporate transactions. They cannot be successfully constructed within the confines of the boardroom or by crafting necessary legal documents alone.

As nonprofit organizations by definition exist to serve others, efforts must be taken to engage stakeholders early and often any- time a merger is contemplated. Those stakeholders include the community served by the organization, donors, funding sources and the Charitable Trusts Unit of the New Hampshire Attorney General’s Office. Organizational leaders must listen and be attentive to the reasonable needs and concerns of all of these interested parties; many a nonprofit merger has failed because leadership has failed to sufficiently do so.

This is not to say that nonprofit leadership is beholden to its stakeholders. Indeed, there are times when merger is the responsible course even when all stakeholders are not supportive. Nonetheless, stakeholders are a powerful constituency who will have standing to contest the propriety of a merger should they believe it runs contrary to the mission of the organization.

As a result, they must be included in the process and their views respected.

A merger is the right course when it serves to maximize the beneficial use and deployment of charitable assets. In some instances – such as a case involving comparable charities that are competing for limited charitable resources – a merger is often the preferred course.

In order to successfully advance a contemplated merger, nonprofit leadership should carefully consider and be able to articulate precisely why a merger is not merely potentially beneficial, but instead is strategically critical to mission fulfillment.

A merger is not an action to be taken lightly or without careful consideration of the ramifications and available alternatives, if any. Organizational leadership must conduct an appropriate evaluation so that it can state the case as to why a merger is not just a good idea, but is necessary to optimize the public benefit.

“Cy pres” is a legal process in the New Hampshire Probate Court through which proposed changes to the structure or mission of a charitable organization is fully and fairly evaluated.

All stakeholders are given the opportunity to present their positions. The Charitable Trust Unit is, by law, a party to all cy pres actions. Cy pres provides a public forum through which the myriad of issues that accompany nonprofit mergers may be considered from the scope of the charitable purpose and historical context, to community impact and economic considerations.

Not all mergers require cy pres. However, nonprofit leadership who apply cy pres principles to their evaluation of and approach to a proposed merger will be better positioned for success, as cy pres requires the organization to focus its attention to its obligations of external accountability.

Organizations that are insular in their approach are setting themselves up for failure.

Nonprofit leadership is about achieving community benefit, not perpetual existence. In considering whether a merger is desirable or how it should be structured, leadership must stay focused on who the organization exists to serve and not be distracted by individual agendas or notions of winning and losing. The latter is an easy trap to fall into and results in mistrust and wasted opportunity.

The public benefits when two organizations truly focus their energies on doing right by those who they exist to serve. Where both are not equally committed to this altruistic end, beneficial mergers become difficult or impossible to achieve. nhbr

Attorney Donald Crandlemire, a shareholder in the law firm of Shaheen & Gordon, can be reached at DCrandlemire@ShaheenGordon.com  or at 603-617-3035.