Strategic Restructuring

Natasha Terk

Strategic restructuring is a term increasingly used to refer to a broad continuum of options for organizational partnerships, including but not limited to mergers, asset transfers, joint ventures, administrative or back office consolidations, joint programs, parent-subsidiary structures, and fiscal sponsorships. Such restructuring is often undertaken by nonprofits in an attempt to anticipate or respond to environmental threats and opportunities.

Organizations usually consider this type of fundamental change in organizational structure because of economic pressures: increased competition from business, government, and other nonprofits; decreasing federal and private funds; a shrinking supply of experienced leaders willing to keep working for inadequate wages; or increasingly urgent and complex community needs. At the same time, nonprofit mergers are no longer considered a last ditch survival move, but an important strategic tool for organizations focused on doing their best for their communities. The benefits that can result from a successful merger include better delivery of services, reduced levels of direct competition, increased efficiency, healthier finances, more powerful fundraising efforts, and a higher public profile.

Over the last decade, the number of mergers being considered and executed in the nonprofit sector has increased. High-profile restructuring efforts in the arts include a merger last year between the Museum of Modern Art and P.S. 1 Contemporary Art Center in New York City, undertaken to broaden their joint collections, programming, and audiences. In Massachusetts, several historic preservation groups merged a few years ago to form Historic Massachusetts, in order to share staff and operate more efficiently.

Whereas informal collaborations between arts organizations happen all the time, formal joint ventures and mergers are very complicated and therefore are less common. Formal restructuring efforts have in common a single, crucial factor that distinguishes them from the broader concept of collaboration. In strategic restructuring, Bay Area consultant David La Piana says, "there is a change in the locus of control of at least a part of one or more of the organizations involved. This change in control leads to most of the complications encountered in strategic restructuring, and in particular to the emotional roller-coaster ride that characterizes a nonprofit merger."
As La Piana says, "you are dealing with financial, legal, and human resource issues. Above all, however, you are dealing with the mission and vision of an organization. When you are working with arts organizations, the process is more tenuous. Two artistic directors rarely have the same vision and therefore a merger represents the adoption of one artistic vision and the diminution of the other." These transactions require expert advice and financial support for the restructured organization. Putting all the pieces together can
be tricky.

We need to take a careful look at the role of the grantmaker in the transaction. Jim Canales, vice president of the James Irvine Foundation and an advisory board member of Strategic Solutions, says that our task as grantmakers is to "apprise nonprofits about the potential of strategic restructuring. We should provide the resources — including consultant fees, meeting space, training sessions — that will help nonprofits make a knowledgeable decision about strategic restructuring's applicability to their own situation.” Grantmakers should be flexible and supportive but should not push a particular agenda. “In the end,” Canales says, “each nonprofit must decide for itself whether strategic restructuring is the right step. The process should not be coerced by funders.”

Requests for support for restructuring efforts don't usually fall neatly into most guidelines. Such proposals might best be evaluated outside existing guidelines. Restructuring is an extraordinary effort. Flexible grantmaking that responds to such efforts can support an organization's risk-taking and perhaps help it more successfully achieve its mission.

In the past few years, resources have been developed to assist both organizations considering various restructuring options and grantmakers being asked to support their efforts. One such resource is Strategic Solutions, a project that is under the direction of La Piana and funded by the James Irvine, David and Lucile Packard, and William and Flora Hewlett foundations. The project will compile case studies and other documentation of restructuring efforts.

One published study is Strategic Restructuring: Findings from a Study of Integrations and Alliances among Nonprofit Social Service and Cultural Organizations in the United States. The study resulted from a collaboration between Strategic Solutions and the Chapin Hall Center for Children, a policy research institution at the University of Chicago. The report, written by Amelia Kohm, David La Piana, and Heather Gowdy, includes descriptions of the primary types of strategic restructuring partnerships: administrative consolidations, joint programs, management service organizations, joint ventures, parent-subsidiary structures, and mergers; profiles of nonprofits involved in each type of partnership; and survey findings on the motivations, goals, benefits, and challenges involved in strategic restructuring. A copy of the report can be obtained from the Chapin Hall Center for Children website or by calling 773-753-5900.

Another book, The Nonprofit Mergers Handbook: Leader's Guide to Considering, Negotiating, and Executing a Merger, is written by La Piana and published by the Amherst Wilder Foundation. It can be ordered by calling 800-274-6024 or online. Other resources include Tom MacLaughlin's Nonprofit Mergers and Alliances: A Strategic Planning Guide (1996, John Wiley and Sons), and Jane Arsenault's Forging Nonprofit Alliances (Jossey-Bass Publishers, 1998).

Natasha Terk is a program officer in the Arts Program at the David and Lucile Packard Foundation.