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Tips and Answers to Your Questions
The Negotiations Process
What should be included in a letter of intent
to merge? At what time is it appropriate?
This question raises the larger question of what to communicate about
the negotiations—both at the beginning of, and during, the process,
and at the subsequent endpoint of the process when the decision is
made as to whether the organizations will merge or not.
Let's start with the initiation of the negotiation process .
Most negotiations are preceded by informal discussions—such as,
those between acquaintances or colleagues who serve on the board of
complementary organizations, or who are executive directors of these
organizations. If these conversations develop into more formal discussions
with additional board and staff leaders, there comes a point when,
in order to more further into a formal process, it is essential to
gain the authorization of the full boards of directors. Since only
the boards can approve an agreement to merge, they must first-and-foremost
approve the process that might lead to an agreement.
Typically, after informal discussions, the board chairs and executive
directors bring the idea to their respective boards. Each board meets
to consider and then vote to either move forward with formal negotiations
or stop the process. Assuming both boards vote to move forward,
we recommend that they formalize this by approving what we term a “good-faith
resolution.” ( See the side-bar for an example. )
By doing this, each board:
- Commits itself to good-faith negotiations toward a possible merger,
- Establishes an ad hoc committee to carry out the negotiations and
report back, and
- Sets a time period for the negotiations.
Sample Good-Faith Resolution
ABC Corporation commits itself for a period of six months to good-faith
negotiations toward a potential merger with XYZ. During that time,
ABC will not enter into merger negotiations with a third party, nor
will it make any material changes affecting the corporation, its
leadership, or its financial commitments without fully informing,
in advance, XYZ. ABC's delegation to the merger negotiations committee
shall consist of its executive director and the following four board
members: 1 ____, 2 _____, 3 _____,
4 _____. At the end of the above authorized negotiations period,
if not sooner, the committee will submit its report and recommendations
to the full board. The six-month time period may be extended by vote
of the board, upon request by the negotiations committee.
Note that the good faith resolution does not specify an intent to
merge. That would be premature. At this point, the organizations are
committing to careful consideration of a merger.
Assuming that both boards approve this resolution, the organizations
are able to move forward into formal negotiations. We note that typically
a simple majority of the board is all that is necessary to authorize
this resolution. However, if it passes by a slim margin, this is cause
to pause and address any concerns voiced by dissenting board members,
prior to entering into the negotiations process.
During negotiations, once approval has been secured, it is helpful
to have a statement ready to provide to external stakeholders (e.g.,
donors, community leaders, and the media) who may wonder what is going
on. This statement can help stop rumors and prevent miscommunication.
The sidebar below provides an example of such a statement. ( We
note that internal communications are addressed in our tip on “How
and What to Communicate to Staff Early in the Negotiations Process” )
Recommendation to the boards. As mentioned elsewhere
(Communicating with Your
Board During the Negotiation Process), during the negotiations
process careful minutes are kept of the process. Over time, these minutes
evolve to form the basis of an agreement. When the negotiations committee
has determined that its work is complete, it turns the minutes into
a decision. This may be either a positive recommendation to merge or
a recommendation not to proceed. At this point, the question before
the board is usually one of intent . There are no legal papers
at the meeting, and no legal action must be taken. The board is asked
to vote on a resolution, such as:
Example of a public statement regarding the negotiations:
ABC has entered into negotiations with XYZ to see if it makes sense
for us to join forces. While it is too early to speculate on the
outcomes, a positive working relationship has been established and
a committee representing both organizations is working diligently
on the many issues involved.
- “The executive director is directed to engage legal counsel
in order to cause a merger between our corporation and XYZ/ABC .”
or:
- “The board commits the corporation to a legal merger
with XYZ/ABC at the earliest date .”
Decision to merge. If both boards approve this statement
for their organizations, then the organizations proceed with the legal
component of merging their organizations.
Decision not to merge. If the boards do not approve
the statement, then they should issue a joint statement, such as:
ABC and XYZ have concluded that at this time it is not in the best
interest of either the organizations, their clients, or the advancement
of their mission to affiliate. Throughout the negotiations, we have
been impressed by each other's honesty, openness, and dedication
to ( the general shared mission ). While we will
not be moving forward with the affiliation, we will remain in communication,
working together toward a brighter future for our community.
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