Case Studies
Mergers

Merger Case Study: Cincinnati Museum Center at Union Terminal

Based on Interviews with Douglass McDonald, President and CEO; Sandra Shipley, VP of Exhibits and Museum Planning; and Amy Scrivner, Manager of Government Funding

Overview

The merger between the Cincinnati Museum of Natural History (CMNH) and the Cincinnati Historical Society (CHS) germinated over a long period of time. It started with a multi-year discussion beginning in 1988, followed by development of a joint venture in November 1990. This joint venture created a third entity, the Museum Center Foundation. Subsequently, in December 1994, the three entities merged to form Cincinnati Museum Center at Union Terminal (CMC). This merger was followed a few years later (in June 1997) by a second merger with another local entity, the Cincinnati Children's Museum.

Strategic Solutions interviewed three staff members of the CMC in March 2001 to discuss their strategic restructuring processes. All concurred that both mergers had been successful, although they also agreed that the process had been both“ long ” and“ challenging .” As Sandra Shipley, the Vice President of Exhibits and Museum Planning, told us:“ As far as the merger goes, it really was necessary, and in the end made us a greater entity. It has enriched the community by making us one destination with lots of choices. It was just hard to get there .”

In addition to Sandra, who had been with the CMNH since the 1970s, our interview included Douglass McDonald, who in 1999 became the second CEO and President of CMC; and Amy Scrivner, who came on board as the Manager of Government Funding in November of 1999. They provided a detailed chronology, summarized below, of the organizations and the two mergers. They discussed the factors that made the mergers successful and the challenges that occurred along the way. As they talked, they reflected on the lessons learned, including how the challenges might have been handled differently and how certain actions, had they been taken, might have resulted in improved outcomes.

Background

The first merger described above — between Cincinnati Museum of Natural History (CMNH) and Cincinnati Historical Society (CHS) — is the primary focus of this case study. Both organizations had very deep roots in the local region. CMNH was founded in 1818, and CHS was founded in 1831. Both had large and growing collections. CMNH had a more extensive collection and an emphasis on exhibitions, as well as research and education. CHS had a major reference library, but did not have a museum to exhibit its collections.

By the early 1980s, both organizations were feeling the pressure of cramped quarters. In 1981, CHS's ED contracted with a consultant to look at options for new space, which would allow their collections to be exhibited. Three options were presented, one of which was a joint venture with CMNH. However, it wasn't until 1988 that the two organizations entered into discussions.

The joint venture. Concurrent with this development, the Union Terminal — a large, historic, and world-famous art deco building — became available for lease from the city. The availability of this building presented an opportunity for the two organizations to obtain the space they needed without incurring excessive financial obligations. The result was a joint venture: the Cincinnati Museum Center at Union Terminal (CMC). CHS and CMNH remained separate entities, each retaining its own staff, board, endowment, and collections. A third entity, the Museum Center Foundation, was created to develop and manage the property. The MCF had its own board, which included some members from each of the other two boards.

A major capital campaign was undertaken to raise funds for renovating the facility and building a new OMNIMAX ® theater, while also building an endowment. CMC was launched in November 1990 with the opening of the new theater and the new facility. Over the next two years, visitation fluctuated and finances became a serious problem. By early 1994, CMC had a $1.4 million deficit. While they financed the deficit in proportion to the amount of space they occupied, there was significant tension between the organizations. This was heightened by differences in their use of the building: CMNH had revenue-generating galleries, while CHS had a non-revenue-generating research library.

Merger negotiations. In February 1994, a group of twelve board members, drawn from all three boards, formed a negotiations committee and began discussing the options for merger. Neither of the two EDs (from CMNH and CHS) was on the committee. The boards sought to keep information from reaching the staffs so as not to cause anxiety. In December 1994 — to the surprise of the EDs and their staffs — the merger between CMNH, CHS, and the Museum Center Foundation was announced. The new entity retained CMC branding and had a merged endowment of $9.5 million. In addition to merging assets, the three boards were merged, creating a 53-member board. The expected outcome of the merger was that there would be significant efficiencies gained through eliminating duplicate staff positions/functions and services.

Merger integration. In mid-1995 a new CEO, Richard Glover, was hired. Nearing retirement from an executive position at Procter & Gamble, Glover was not a“museum person.” Selected for his management and organizational skills, Glover worked diligently over the next year to merge many administrative functions including finance, membership, administration, human resources, development, public relations, and retail sales. He also made maintenance, housekeeping, and security — all of which had been outsourced previously — internal functions of CMC. These actions reduced the deficit significantly, to only $35,000.

During this time, the former EDs of CMNH and CHS remained on staff, continuing to manage the mission-related functions of these two organizations. When Glover completed the merger of the administrative functions, he turned his attention to collections, exhibitions, and education. He merged these functions and began a strategic planning process. At this point, the two former EDs left.

The second merger. Glover then began a concerted effort to merge CMC with the Cincinnati Children's Museum. Opened in 1994, the Children's Museum was running an annual loss of $250,000 by 1995. The situation continued to worsen over the following year, and was exacerbated when their building flooded in early 1997. The Children's Museum had been on the verge of a capital campaign for new space. The fact that space was still available at Union Terminal prompted the initiation of talks. Merger negotiations were entered into in late 1996, and agreement was reached a few months later. The 16-member Children's Museum board joined the CMC board, creating a 69-member board. The ED of the Children's Museum, who had been involved in the negotiations, soon left for another job. CMC embarked on a major capital campaign, and in fall 1998, the new Cinergy Children's Museum opened as an arm of CMC.

A new CEO. Although the new Cinergy Children's Museum was successful, CMC as a whole was once again in financial trouble. When Glover left in 1999, his successor, Douglass McDonald, inherited a $2.3 million deficit. A leader in the museum field, and having a background in history, McDonald won the confidence of both the staff and board. He immediately initiated several cost-cutting measures, including eliminating five curatorial positions, consolidating the collections departments, and raising admission and parking fees. The fiscal year 2000 deficit was $500,000, and the deficit for fiscal year 2001 was projected at $455,000.

The second strategic plan. Simultaneously, McDonald began a strategic planning process, starting with a weekend retreat attended by 14 senior staff members and the executive committee of the board. The prior plan, created after the initial merger, had over 40 goals. McDonald stressed the importance of reducing these to a small number of key goals with quantifiable outcome measures, and of implementing an ongoing evaluation and improvement process.

Continuing evolution and ongoing integration. As all organizations must in order to survive, CMC continued to evolve. While many functions had already been merged in Spring 2001, some key functions had remained separate over the years. In particular, CMC had retained the original CMNH building, which had continued to house its curatorial staff and the natural history collections. The new millenium found CMNH running out of space in a building that was in poor condition. Renovation was cost-prohibitive. Commitments to the city to retain a nonprofit organization in the historic building severely limited the potential revenue from sale of the building. A solution was found when the Episcopal Diocese of Cincinnati came to CMC with a creative proposal: they would secure and renovate a building for CMC in exchange for the CMNH building. After successful negotiations, CMC opened the new Geier Collections and Research Center in a facility provided by the Diocese. For the first time, curatorial and collections management staff from CHS and CMNH were combined in the same physical space, in a building with the infrastructure and climate controls necessary to preserve and maintain CMC's combined yet diverse collections. This endeavor presented new challenges, as well as new opportunities. Thus, seven years after the merger agreement, the integration process continued.

Focus on funding. In addition to the challenges related to the mergers and integration of the organizations that make up Cincinnati Museum Center at Union Terminal, it has been chronically under-funded since it first opened. Cost overruns while renovating Union Terminal initially meant establishing a significantly smaller endowment than was adequate. At the same time, 70% of CMC's income has been earned at the ticket counter, which makes it vulnerable to a fluctuating revenue stream. Only 30% of CMC's operating budget of approximately $13.4 million comes from contributions. This earned revenue ratio is unusual among museums, the majority of which earn 30% or less of their operating budget, while relying on public funding for the remaining 70% or more. In recent years, CMC's endowment has been tapped for operating costs related to the increasing expenses of maintaining the building. Other factors — such as the negative impact of Cincinnati's civil unrest in April 2001 which has deterred visitors from coming downtown, as well as the volatile state of the economy and its effects on tourism spending and charitable giving — also contributed to CMC's financial challenges.

If Cincinnati Museum Center at Union Terminal continues to tap into its endowment, the endowment will be depleted within five years. Therefore CMC's board of trustees and staff are working to secure viable, sustainable public funding sources within the next two years to ensure the institution can survive, thrive, and grow. While Douglass McDonald remains optimistic CMC will overcome its financial challenges and believes CMC's merger was a strategic and positive move, the question has been raised about whether this merger has actually helped the organization to secure more funding, or if it may have deterred potential donors. Some corporations and individual donors were inclined to reduce their funding levels since they were now dealing with only one organization instead of two, leading to a shaky financial situation for the merged organization.

Success Factors

When we interviewed CMC staff members, the strong consensus was that both mergers had been fundamentally successful. What contributed to this success? Drawing on the detailed history of the process (above), we have identified several general success factors — ones that are common to most successful merger integration processes. In addition, there are success factors that are unique to CMC's situation.

Success factors common to most successful mergers

Board members were focused and committed.
For a merger to be successful, there typically has to be significant involvement on the part of the board leadership. This was clearly the case for CMC.“ One thing that was important was the way that the trustees were able to stay focused and single-minded enough to actually achieve the merger . You really have to give credit to people who are willing to see the potential and push through, especially since they were volunteers. They take on all that grief for no compensation .”

Leadership had strategic vision.
This focus and commitment came from their strategic vision.“ They just did what they believed was in the best interest of the community. That's really a huge story, and I think a credit to all of them .”

Strategic planning processes brought board and staff members together.
The process of planning for the future is helpful in that it brings organizations together in a constructive way, and gets everyone focused on the new organization's future. In speaking of the first CEO, McDonald commented:“ After he had been here about a year, he started a strategic planning process which was helpful. It was important to the senior staff because it forced them to come together, to meet on a routine basis, and to work through issues. ”

A major project got both staffs working together.
In addition, it was beneficial to have the staffs together to work on a project:“ Having a project that all of the people in the museums could work on helped everybody rally behind it. Once you start working at that level, and you start to see things changing and the community responding in a positive way, then you really understand that your effort was worthwhile. ”

Communication was handled well in those departments where there was a champion.
Although overall there were some major deficiencies in both internal and external communications in the integration period (see below), there were some great examples of effective communication at the department level. Not only were the leaders of these departments strong and positive communicators, they served as champions of the process.“ We didn't have a person rising out of the ranks to champion this whole thing for the whole staff, but individual department heads had to be positive and speak about the change being good. In order to keep a department moving forward, in order to rally as many people to feel it was a good thing as possible, there had to be that kind of leadership on that personal level.”

Success factors unique to CMC

Both organizations had very long histories; the community wanted to see them survive.
“The community has a great affection for CMC. It is really a vibrant institution and is increasing its services to the community. The public is pretty excited about the kind of institution we are today .”

The Union Terminal building had great community support and a positive image.
The co-location of the two museums within the same facility leveraged the community's deep affection for the building.“ Union Terminal is probably the most noteworthy architectural building in the city. People have a lot of memories and emotions associated with the building. They have a fondness for it.”

Being in the same building created the perception that CMNH and CHS were already one organization.
The merger was facilitated by the previous joint venture, which placed the organizations in the same building.“A fter a number of years, the community really didn't understand that they were separate institutions. So in a sense, there was a merger that occurred by virtue of just moving into the building together .”

The CEO had a vision for the second merger with the Children's Museum, seized the opportunity, and championed it.
"The second thing he did after that planning process got started was to grab hold of this major initiative, and then just kind of drive everybody towards it with a whole lot of focus. He was pretty single-minded about that, which was probably a good thing.”

The Children's Museum board championed the integration and demonstrated a positive attitude.
“The board of the Children's Museum actually came in without carrying an allegiance to their organization. They helped to lower the territorialism at the board level. That was a major part of the turnaround, in terms of feelings being more positive .”

Challenges

As with the success factors, integrating CHS and CMNH to create the new Cincinnati Museum Center at Union Terminal presented challenges common to most mergers, as well as some that were unique to CMC.

Challenges common to many mergers

Some corporations and donors cut funding.
“The problem is that the for-profit sector sits out there and says nonprofits ought to merge, but they actually create a disincentive for them to do so. What they tend to do is to reduce their contribution because there is only have one organization instead of two. They don't create economic incentives for mergers. And what the nonprofits know intuitively is that they get more support as separate smaller organizations than they would as one larger one .”

The former EDs remained on staff too long and had no clear role.
Speaking of the two former two EDs of CMNH and CHS, McDonald commented:“ They were still here for a year. They didn't even know what their role was, and nobody else knew what it was either. It would have been more effective in the long run, and would have been better for the emotional health of the institution even in the short term, if they'd gotten it over with .”

The two staffs continued to operate separately for too long.
While it was helpful to get the staffs working together on a shared project, too much time passed before this happened.“ The project didn't happen until about three years after the merger. Doing it earlier would have been better .”

There were serious flaws in both internal and external communications.
There was a lack of internal communication, and the communication that did occur was deceptive.“ One of the things that created problems was that the board members who were meeting together to discuss the merger said nothing to anyone. The EDs were told nothing was going on. The rumors were out in the community and the media picked up on it, and the EDs told them there was nothing going on. Then to find out that this had been happening, that's tough. You can understand the emotional reaction the directors and others had: they felt like they had been misled .” Even once the merger was announced, communication remained sparse:“ Nobody knew where they were heading .”

This internal confusion created a lack of clarity in external communications, and resulted in the loss of a great marketing and public relations opportunity:“ When the merger was implemented, we weren't able to express a common mission and vision to the press to even let them know what we were now. So, instead of taking advantage of this great opportunity, we were still hammering out the details. If we had been able to do that sooner or faster, then I think we would have come across stronger sooner .”

There was no plan for integration.
If there had been a plan in place prior to the announcement, the integration would have been much smoother.“ Once you announce it, you should have a plan in place. You have to have clearly focused executive leadership on the ground the day the merger occurs. And from that would flow a coherent message to the community about your mission and your values, and who you are and what you're going to be doing now .”

There was no outside facilitator to keep the process on track.
“It might be helpful if there was an independent facilitator or consultant — somebody from the outside who has worked through these issues who would serve as counsel to the CEO and also to the board .”

Challenges unique to CMC

The organizations' size, their long histories, and different cultures created complexities.
Several characteristics of the organizations compounded the problems caused by lack of communication and an integration plan.“ Both organizations reacted to things very differently, and approached things differently. Each had a long history of its own, and there was a great sense of loss when they merged. So, there was a cultural shock for both. And, this was more difficult because there were no plans set in place as to how the merger was going to work. We were just all of a sudden one. It wasn't clear who would take leadership roles. There was no discussion. There was a lot of acculturation that didn't occur very well because of the different approaches of the two museums.”

The large board was unwieldy.
The boards were merged in their entirety, resulting in an extremely large governing body. Over time, this was reduced to 35. While this is still fairly large, it is significantly smaller than the board was for many years post-merger when it had more than 50 members, and at times more than 60. While this made it more difficult to make decisions, this challenge was effectively met.“ What ended up happening was the officers group functioned as the executive committee, the executive committee functioned as the board, and the full board functioned as a super board to whom reports were made and not a lot of discussion occurred. So, they found a way to make it work. Over time we've gotten it back to where it makes more sense .”

At the time, there was not a lot of information available on nonprofit mergers.
Long-time staff member Sandra Shipley noted:“ One of the most helpful things would have been to know what has happened in other places and how they handled it. Twelve years ago when this started, I had a large department and I wanted to be able to keep the staff calm and full of information. I started reading a lot of literature, the vast of majority of which focused only on for-profits .”

Lessons Learned

After many tumultuous years of change, today CMC is the most highly attended museum in Ohio with more than one million visitors annually, and is recognized as one of the Ohio Valley region's leading cultural attractions. A financial burden still exists, and CMC is working on broadening public support through several initiatives, including state and federal appropriations and a potential county tax levy.

CMC's experiences with merger integration provide many sound lessons for others considering a merger or in the midst of merger discussions or integration. These lessons are drawn from what was done right and what could have been done better, and also, through retrospective reflection, what could have been done but wasn't.

Key lessons learned include:

• Develop an integration plan prior to announcing the merger and begin implementing it immediately. Have a manageable number of measurable goals and monitor progress over time.
• Put executive leadership in place as quickly as possible.
• Have frequent, honest, clear, consistent, and two-way communication with both internal and external stakeholders.
• Get the staffs together as soon as possible to work on a joint project that has an external focus.
• Focus on vision and mission.
• Emphasize the value and importance of each individual's role in organizational outcomes.
• Use an outside facilitator to keep the process focused and on track.