Experts urge nonprofit mergers as way to better help groups serve
For nearly nine decades, Life’s Work of Western Pennsylvania has helped people overcome barriers to find jobs.
The nonprofit began with seamstress training for women who sought to contribute to their family budgets in the late 1920s. Since then, its more than 100,000 clients have ranged from disabled veterans returning from World War II to those grappling with mental health challenges.
As the Uptown-based organization enters 2015, its scope will expand significantly through a merger with another longtime nonprofit, the 119-year-old NorthShore Community Alliance, whose goal is to help families overcome poverty, discrimination, isolation and crisis situations.
“Getting together is a good thing for the clients that we serve,” said Everett McElveen, president and CEO of Life’s Work. “We would prefer to be part of the future as opposed to holding onto the past.”
The move will save money, but cutting costs didn’t drive the merger — strengthening programs did. That’s how it should be, experts say.
The ideal merger happens before a nonprofit falls into such dire financial straits that it needs to be saved by a larger one, said Sandi Clement McKinley, vice president of the New York-based Nonprofit Finance Fund.
“That happens, but we kind of bite the inside of our cheeks when it does, because it should not be the impetus for mergers,” Clement McKinley said.
Some observers and funders are pushing for more consolidation within the United States’ nonprofit sector, which is growing rapidly in jobs, wealth and the number of organizations.
The number of American nonprofits filing annual returns nearly doubled in the past decade, up to nearly 1.1 million in 2013, IRS data show.
“We have too many people doing very similar things and all pursuing too little a pot of money,” said Jim Roddey, who has served on more than 40 nonprofit boards in the Pittsburgh region and overseen multiple mergers. The former Allegheny County executive is on the board for the Blind Vision Rehabilitation Services of Pittsburgh — a result of the 1997 merger between the Pittsburgh Blind Association of Oakland and Greater Pittsburgh Guild for the Blind of Bridgeville.
“We both realized that we were serving exactly the same constituents, and we were actually competing against each other,” Roddey said.
Government contracts for nonprofit services increasingly favor large organizations, and funders such as the Allegheny Regional Asset District have established grants that encourage consolidation and collaboration.
Yet nonprofit mergers don’t happen that often.
Just 4 percent of American nonprofits — about 200 of 5,019 surveyed — reported plans to merge with another organization in the next 12 months on the Nonprofit Finance Fund’s 2014 State of the Sector survey , which included responses from 171 Pennsylvania nonprofits.
“It’s really hard to jump into a merger,” said Kate Dewey, president of The Forbes Funds, a supporting organization of the Pittsburgh Foundation. The Forbes Funds worked on at least 32 efforts to restructure local nonprofits between 2005 and 2011. Many do not pan out.
“Everything can make sense on paper,” Dewey said, “but if they don’t fit together culturally, ultimately it’s not going to work.”
Looser forms of collaborations are much more common. Fifty-five percent of nonprofits told the Nonprofit Finance Fund they planned to collaborate with another organization to improve or increase programs or services in 2014.
Last month, five Pittsburgh arts nonprofits hired a shared chief financial officer. Dozens of nonprofits have used RAD funds to develop ways to join forces, from sharing a database system to hiring a shared development officer.
Sometimes those smaller steps lead to a formal merger. Life’s Work and NorthShore Community Alliance combined their back-office functions — human resources, bookkeeping and information technology — in July, months before knowing whether a legal merger would pan out. They also had success hosting a joint corporate golf fundraiser.
“I think the biggest hurdle is trust,” McElveen said. “It’s sort of like a marriage or actually getting engaged, and during that engagement period you show, ‘This is who I am,’ and put it all out there.”
RiverQuest, a science-based education program in the North Side, is working on a potential merger with Homestead-based Rivers of Steel Heritage Corp., but the groups already share RiverQuest’s boat and printed brochures for new tours.
“You can date before you get married,” said Charlie Humphrey, executive director of Pittsburgh Filmmakers, which merged with the Pittsburgh Center for the Arts in 2006. “What you want to avoid is a shotgun wedding, where one organization is so distressed that if it doesn’t merge, it can’t go on.”
Mergers can takes six months to two years to complete, and cost from $5,000 to $100,000, according to a 2007 Forbes Funds study of 22 Pittsburgh nonprofits exploring or completing mergers. Of the 16 that completed mergers, most reported saving $100,000 annually. The majority of those who tried but decided against merging said the process was worthwhile.
That was the case for the Filmmakers/Center for the Arts and the Pittsburgh Glass Center, whose merger talks fizzled in 2011 . Leaders of the independent groups continue to meet every Friday and even purchased a van together.
Keeping up employee morale amid a merger is another challenge, said NorthShore Community Alliance CEO Carol Washington, who is becoming chief operating officer of Life’s Work as NorthShore becomes a division underneath it.
She’s happy to report the merger did not involve any layoffs. The groups have downsized to a combined 95 employees through attrition since starting the merger process in August 2013. Two of NorthShore’s board members will be part of the new Life’s Works board.
“The boards also have to see the value in the idea beyond the individual organization,” McElveen said. “That can get bogged down where board members are personally involved in an organization and they’re not willing to let it go for future benefit.”
Natasha Lindstrom is a staff writer for Trib Total Media. She can be reached at [email protected]