Tips and Answers to Your Questions
Funding the Strategic Restructuring Process

Understanding the Cost of SR … and how best to fund it

Nonprofit organizations embarking upon strategic restructuring face an array of costs related to both the negotiations process and integration. The importance of funders in providing financial support for these processes cannot be overstated.

Funding in the negotiation phase

The costs of negotiation include:

• Legal costs
• Consultant costs
• Meeting costs
• Communications (both internal and external)

Generally, in the negotiation phase, we recommend that funders provide support for the out-of-pocket costs of consultants, travel, and meetings. We recommend that funders should not provide core funding for staff salaries so that people are “freed up” to negotiate. The work of negotiating a strategic restructuring is part of the work of being an executive director.

The consultant's scope of work during negotiations typically includes:

• Preparation for and facilitation of negotiations meetings
• Preparation of minutes
• Crisis management
• Assistance with internal and external communications
• Due Diligence
• Coordination with attorneys
• Other meetings
• Debriefs and/or preparation for integration

Funding in the implementation/integration phase

We suggest that funders be open to supporting implementation of a negotiated partnership agreement if the parties have a solid rationale and plan. There must be a solid “value proposition,” and the organizations must agree that the strategic restructuring will be beneficial and will advance their shared mission.

Generally, integration funding is for a consultant to assist with the integration process. However, there are also many costs associated with integrating two or more organizations, or creating a new partnership.

The types of functions that consultants can perform include:

• Facilitate retreats and/or critical meetings regarding issues of communications and culture
• Act as coach to the CEO/Project Manager and Board to help guide the process
• Design and help implement an integration team and plan
• Act as project manager for the process

There are also one-time costs associated with the implementation of a strategic restructuring partnership or integration organizations that are merging. Those costs might include:

• Severance for the ED/CEO and/or other departing staff
• Human resources costs – building a new team; integrating the board, management staff and culture
• Integration of programs and systems
• Communication and marketing
• Design and printing
• Moving costs

A word on feasibility studies

While feasibility studies are terrific for capital or endowment campaigns, they are not an effective means of exploring the potential of a merger. First, studies of this nature focus largely on financial issues, and sidestep those issues that, for nonprofit merger negotiations, are the key places to start: mission and values.

Additionally, the primary challenge with using a feasibility study to test the possibility of a merger is that the approach tends to stir up anxiety. Typically, a consultant conducts a series of one-on-one interviews with board and staff, and the myriad questions and anxieties that naturally arise have no outlet. Our experience has been that almost all feasibility studies for merger result in a “no” recommendation!

We view the merger negotiations process itself as the process through which the feasibility of the potential restructuring is explored, so we recommend against other preliminary studies focused on finance issues alone.

We strongly recommend that funders understand the drawbacks of feasibility studies for mergers, educate grantees about this concern, and focus funding support on negotiations processes in which exploration of ALL important issues can be accomplished.