Tips and Answers to Your Questions
Funding the Strategic Restructuring Process

Best Practices for Funders: Providing practical support to nonprofits pursuing strategic restructuring

Because the topic of mergers is potentially a threatening one, funders must tread a delicate line between providing information and support, and tipping the balance of power, making nonprofits feel that they must embark on a given course of action because funding is dependent on it.

Above all, knowledge and understanding of strategic restructuring — the potential outcomes, success factors, challenges, costs, and tools and resources available to support it — will help funders determine when and how to discuss it, and the type of support to provide to grantees.

Of importance, as well, is the role a funder elects to adopt in providing information and practical support in the area of mergers. Each foundation’s approach will be dependent upon the foundation’s general relationship with its grantees. For example, some foundations do not have a high level of interaction with grantees, reviewing proposals and making grants with minimal face-to-face interaction. On the other hand, there are community foundations that go beyond grant making, and provide direct management assistance services to the nonprofits in their communities. The level to which you engage with grantees regarding strategic restructuring should, naturally, fit the culture and current practices of your foundation.

Here are some tips for best practices:

Educate yourself — understand the basics of strategic restructuring, its challenges and its costs — and then keep quiet!

Your challenge as a funder is to understand the strategy of strategic restructuring and have resources available for interested nonprofit leaders in your area, yet avoid overt suggestion of merger with your grantees. As funders have all experienced, questions of inquiry can be misinterpreted as a directives. So, it is very tricky to provide information without implying that you are mandating merger.

The best strategy is to include strategic restructuring in the list of activities you fund in the general area of organizational effectiveness or capacity building. Include references to strategic restructuring with information or discussions about, for example, strategic planning, marketing/communications development, or fund development plans.

Be very aware of the potential pitfalls in overtly suggesting strategic restructuring specifically to a grantee. At best, you will put up an obstacle to open communication. At worst, you may cause an organization to enter into a process that is inappropriate. Merger negotiations that aren’t entered into voluntarily produce strained relationships and resentment, and may ultimately result in poor outcomes for all involved.

On the other hand, you do want to maintain openness to discussing the issue if the grantee raises it with you. If you are in a position to have honest dialogue with nonprofits you fund about the challenges in today’s environment, be prepared for the issue of strategic restructuring to come up. Have information and resources available for further exploration of the issues.

Clarify the foundation’s internal values and ensure staff understands how to talk about strategic restructuring

Be clear about the foundation’s own values regarding strategic restructuring, and hold internal discussions to ensure that all staff are aware of these values and how to put them into practice. It is important to develop a clear internal policy regarding strategic restructuring that is consistent throughout the foundation; it can be helpful to provide training to staff regarding how to implement policies.

Additionally, be clear in your published information and other informational forums about the types of organizational effectiveness work you will support — name strategic restructuring specifically, and give examples of grants you have made that have supported this work.

Be clear about what you will fund and how you will make your funding decisions – communicate that clearly to your grantees

Things to think about in the development of your grantmaking program include:

• Will you fund the negotiations process? Implementation costs? Both?
• How should organizations make requests: For negotiations only? For negotiations, with a request for implementation contingent upon a decision to merge?

Don’t seek to fund a pre-determined outcome

The merger negotiations process is designed to lead the parties to make a decision as to whether or not to merge. They need funding to get to that decision, and the decision may be “no.” You need to feel comfortable that a thoughtful, comprehensive process of negotiations is the activity that warrants your funding support – if the process is thorough and appropriate, the organizations will come to the right decision, yes or no.

In sum, don’t require an articulated outcome in the proposal, and above all, never make funding contingent upon a “yes” decision to merge!

Avoid judging the appropriateness of partners

Believe that the organizations know themselves, and their potential partners, best. You can be most helpful in understanding the partner assessment process, and providing grantees with access to resources about the process.

In summary, here are key guidelines for best practices in strategic restructuring for funders:

• Above all, seek to educate, but do not mandate.
• Understand the process and the challenges of negotiations and integration.
• Demonstrate openness to discussing issues.
• Gauge grantee’s seriousness and ability by helping them to think through their needs and being a sounding board.
• Avoid overt suggestion of merger; talk about the full range of partnerships and options.
• Know about available educational resources and when to suggest them (e.g., training, materials, and information).
• Know local consulting resources, and help nonprofits know how to select a consultant.