In considering a strategic restructuring of a nonprofit organization it is critical to understand, and have agreement on, the nature of ownership of a nonprofit.

Ownership is very different in the nonprofit sector than it is in the for-profit sector. The reality in the nonprofit sector is that no one individual or group such as a management team or board can own a nonprofit organization.  There are no stock shares to be owned or traded. Any assets owned by the nonprofit must remain with the nonprofit.  If a merger of a nonprofit takes place, the assets of the nonprofit must remain within the surviving corporation.   (Similarly, if a nonprofit dissolves independent of a strategic restructuring process any assets remaining after resolving all liabilities must be transferred to another nonprofit serving a similar mission.)

Nonprofits hold special tax status in order to accomplish their mission with the resources developed under that tax status. Therefore, in a sense, through this special tax status, the nonprofit is owned by the public – this is why nonprofit corporations are sometimes referred to as “public benefit corporations.”

Board members, staff, clients, and the public have a profound interest in the organization’s future success and its ability to provide needed programs/services.  The board and staff have the responsibility to manage and make decisions for the organization that are in the best interest of the community and the mission served.

When an organization considers a potential strategic restructuring partnership, the leadership must consider this decision from the perspective of what is in the best interest of the mission and the people or issue it serves – first and foremost.  Clearly, the roles of employees and board representation are important factors in the process of considering the most appropriate organizational design.  But ultimately, the nonprofit’s mission and ownership by the public must be the priority in decision making.

I recently read of a much celebrated merger earlier this year that has now been called off. The reason? Donors were opposed. Periodically I hear of these “jump the gun” announcements, which are usually followed by embarrassed back-pedaling. Each time I just shake my head and ask “Why do these nonprofits feel such a rush to announce their mergers –arguably the biggest announcement they could make short of dissolution – before they have a final decision.”

It is not as though Wall Street analysts are watching. And it is certainly not the case that making the announcement speeds up a positive resolution. Instead I think these ill-advised premature announcements usually come from modeling the nonprofit merger on a corporate merger. In the latter the CEOs work out a deal, mostly around finances, the boards quickly approve it, and then the staffs are left to work out the details. The difference of course is that in a nonprofit context subtle political details can kill the deal. Without large sums of money to throw around in an effort to un-ruffle feathers, and with the high degree of loyalty and identification many nonprofit board, staff and donors feel to their institution, there is always risk of a back fire.

In the hundreds of mergers we have advised on at La Piana Consulting we have never to my knowledge had this experience, mostly because we warn our clients not to make premature announcements. It is a pretty simple lesson.