Nonprofit Mergers: Are You Negotiating with the Right Party?

What happens when you negotiate a merger or collaboration with the wrong person? Mergers and alliances are all about negotiating decisions, sometimes very big decisions, between two or more parties: who gets to be the boss, which programs to grow and which ones to eliminate, which nonprofit survives and which one gets dissolved. It is critical that as the facilitator or nonprofit leader initiating the merger, that you know who ultimately gets to make decisions for your nonprofit partner during the negotiating process. In a recent process I facilitated, a very enthusiastic CEO signed a letter of intent (LOI) to merge with a client of mine, but then immediately turned over the negotiating process to her second-in-command, the COO, to complete the MOU agreement. At that point, I thought the operations director was carrying out the directive of the CEO—but I came to learn otherwise.

In most strategic restructuring transactions, a Joint Negotiating Committee, comprised of a few board members and the CEO, leads the negotiation process. This committee recommends to each board what it thinks the ultimate operating agreement—or memorandum of understanding (MOU)—should contain. However, in situations where very large nonprofits are looking to acquire or merge with small nonprofits, the board may delegate much of the transaction process to the staff. Ultimately, no matter who is involved in negotiating on behalf of the nonprofit, it is important that they:
1) Speak on behalf their nonprofit
2) Support the collaboration concept, and approve signing the letter of intent to negotiate
3) Negotiate in good faith
4) Collectively have the knowledge necessary for developing the MOU

If your potential partner’s board of directors delegates the negotiating to its staff, it’s important to ask the following questions:
1) Have the board members been briefed about the matter, and are they aware of what the organization is committing itself to doing in the negotiation process?
2) Has the CEO fully briefed the management team about the LOI and received its support for entering into the LOI?
3) If the CEO is not the person who will lead the negotiation process for an organization, who will, and is that person supportive of signing the LOI? (Has the CEO gone out on a limb to sign the LOI without the support of his or her staff for the strategic re-structuring initiative under discussion?)
4) Ultimately, who makes the decision about whether or not the transaction is approved—the board, the CEO, or the people assigned to work on the MOU?

Unbeknownst to the parties involved, the operations director in my merger example did not support the proposed collaboration, and he had the final authority to decide whether to proceed with the merger or not. In the end, he chose not to. Small nonprofits entering into negotiations with large nonprofits especially need to be sure that they are negotiating with the right party, and that the participants support the process.

Read more stories by Jean Butzen.