Mergers - CASA for Childrennc.casaforchildren.org/.../conference/HO2012/A-N-Mergers.pdf ·...
Transcript of Mergers - CASA for Childrennc.casaforchildren.org/.../conference/HO2012/A-N-Mergers.pdf ·...
Mergers Leveraging Resources for Sustainability, Growth and Better Outcomes for Kids
CASA and Legal Advocates for Abused and Neglected Children
To understand what’s involved in the process of exploring, planning and executing a merger through the experience of
two executive directors of independent CASA programs
Workshop Objective
Background on Agencies What Research Tells Us Our Process
Timing, Desired Impact and Timeline Pre-Exploratory Committee Exploratory Committee Due Diligence Integration Planning Leading Change Closing and Early Integration Summary of Lessons Learned
Session Outline
The St. Louis Metropolitan Area
St. Louis City and County
6.5 miles apart
In 1980, the National Council of Jewish Women pilots a CASA program in St. Louis County CASA of St. Louis County is incorporated as 501(c)3 in 1995
In 1984, the Women’s Crusade Against Crime (WCAC)
establishes a Volunteer GAL program of the St. Louis city family court St. Louis City CASA is incorporated as a 501(c)3 in 1998
when the WCAC ends Name changed to Voices for Children in 2005 due to
confusion and competition with CASA as well as other local nonprofits
Agency History
What Research Tells Us
LaPiana Consulting 2011
Greater mission impact A growth strategy
Increase clients served Expand programs and services offered Develop continuum of services
Improved outcomes Increased policy or systemic influence
Financial crisis Departure of an executive director To reduce competition or duplication of services
Why Nonprofits Consider Merger
A higher public profile Greater specialization for staff – develop expertise or
functional focus Challenges recruiting or retaining staff or board talent Encouragement by funders for consolidation in the field Leverage economies of scale Challenges in building adequate infrastructure –
information systems, human resource management, financial management, resource development
Diving into merger discussions without board approval Beginning negotiations without understanding what you want to
get out of the process Assuming a superior attitude toward your potential partner Withholding potentially embarrassing info from your partner Breaking the confidentiality of the process Adding negotiators after the process has begun Allowing the process to drag on too long Not keeping your staff adequately informed of developments Not communicating with the board throughout the negotiations
process Not getting competent nonprofit legal counsel
Typical Mistakes
Fears Change in general Identity loss Losing jobs, board membership New boss Decline in program quality Losing all we have worked for “They” will tell us what to do
Philosophical/cultural differences Egos Compensation philosophy - salaries and benefits Lack of transparency and communications
Barriers to Merger Success
Merger Costs
TASK ONE-TIME COST
Merger exploration & negotiation
• Consultant fees • Staff time
Legal enactment • Attorney fees, including specialists in nonprofit incorporation, human resources/labor, copyrights and so forth
• Audit of one corporation at closing
Launch • New identity materials, new marketing materials; website and social media consolidation
• Public awareness of the merger: announcement mailings, celebration event(s), advertising
• Merger fundraising
Staff and Board Integration
• Consultant fees • Change management training • Cultural integration and teambuilding - assessments,
retreats, social events
Adpated from The M Word: A Board Member’s Guide to Mergers, CompassPoint, 2005
TASK COSTS
Organizational integration: Personnel
• Consultant and attorney fees (e.g. employment law specialists)
• Severance pay • Increases in personnel costs to align salaries and
benefits (ongoing cost) Organizational integration: Technology
• Consultant fees • Hardware & software purchases • Cross-site network • Staff training
Organizational integration: Facilities
• Professional movers, space planners, and new furniture and equipment
• Lease buy-out • Telephone costs
Organizational integration: Program
• Consultant and attorney fees (e.g. copyright specialists)
• Research with clients and funders
Organizational integration: Board of Directors
• Attorney fees (e.g. new bylaws,) • Consultant fees for board development
Our Process
Working well together Challenging economy which will last a long time
undermines effectiveness by causing gaps, could threaten stability
There are things that each agency has that the other needs Now is a unique time where there is little overlap in staff,
putting the fewest jobs at risk Both agencies are in the midst of fairly significant change –
may be less need to change things/positions that have been in place for a long time
Competition and confusion for donors and prospective volunteers
Timing
Mission is the same Neither agency in crisis Good relationship History of working together Both EDs committed to best answer, not their job Funders regularly query – why two agencies?
Factors for Expected Success
Stronger voice for kids Stronger one-on-one advocacy Proactively focus on policy advocacy and systemic change
Eliminate confusion and competition for funding and volunteers Improved fund development Increased public awareness
Stronger HR infrastructure More powerful board, more reach Improve return on investment, reduce cost per child/improve
cost effectiveness Improve financial stability, sustainability, leverage economies of
scale Eliminate duplication Leverage admin and fixed costs – more resources directed at mission
Desired Impact - Organization
• Improvements in specific outcomes for kids
• Permanency
• Education/development (school changes, special ed services in secondary and post-secondary ed, better results from discipline hearings, academic progress, post-secondary education)
• Health (general dental and health screenings, physicals and check-ups, specialized needs like adolescent med)
• Mental health (use of psychotropic meds, accurate diagnoses, access to specialized treatment – RAD therapy)
• Appropriate placement and placement stability
• Family and kinship connections
• Opportunities of childhood
Desired Impact - Kids
• Increased number of volunteers
• Improved volunteer skills and effectiveness
• Improved satisfaction
• Reduced attrition
• Improved utilization of volunteers (second cases, multiple cases where skills and time make it desirable)
Desired Impact - Volunteers
Jul-08 Collaboration training and
volunteer recruitment
began
Feb-10 Raise the idea of a merger
Mar-10 Presidents
and executive directors
vet the idea of a merger
Jun to Sep-10 Exploratory committee evaluates range of
collaboration opportunities
and challenges
May-10 Both boards
approve formation of exploratory committee
Sep-10 Both boards
approve moving forward
Letter of intent is signed
Oct-10 to Nov-11
Due diligence and merger integration planning
conducted
Jul-11 Both boards approve the
merger
Nov-11 Merger
Agreement Signed
Closed on
merger
Jun-12 6 months into
integration
Collaboration Exploratory Committee
Planning & Due Diligence Integration
Pre-Exploratory Committee
Mission over agency and people Success needs to be understood as coming up with
the right answer about restructuring (not the resulting merger) Not merging is not a failure if it is not the right
answer If merging is not the right answer, we should still continue
to collaborate and explore a deeper partnership
Agencies are equals – no one in crisis, no one is “taking over”
Framework for Exploration
Exchange and Discussion of Background Info Summary financials last 2 fiscal years and current budget Top 5 institutional funders for ongoing operations Top 2-3 fundraising events – when and gross revenue Org charts Board lists Operating statistics last 2 years and current year to date – CASA
volunteers and children served Brainstorming the Possibilities
Benefits Structures
Greatest Challenges to Resolve Synchronizing Communications
Project United – First Meeting
Complementary strengths and gaps in administrative and development staffing
Blend Voices’ strength in volunteer retention and screening with CASA’s strengths in volunteer recruiting.
Show efficiency and resource stewardship to donor community. Reduce confusion in donor community.
Marry Voices’ expertise with outcomes measurement with upcoming new CASA system/technology to become a national leader
Opportunity to have both CASA programs to benefit from each other’s expertise
Longer-term opportunity to take the best of both program models (attorney supervision and social work supervision) to each jurisdiction longer term
Achieve shared goals faster (e.g. growth, policy advocacy, take advantage of new earned income opportunities)
Open the doors to innovation and cut down on “turf” struggles
Potential to better leverage administrative staff – economies of scale spreading fixed costs over larger program
Perceived Advantages
Program Models
Is it ok to leave the two models separate, at lest for the short-term? Is a merger worthwhile if the programs don’t ultimately integrate? Will one model lead to better outcomes or greater efficiencies? We are not in total control of our destiny since the programs reside in two different jurisdictions.
Judicial and CASA Approval
Will the administrative judges approve of this move? How will National and MO CASA react?
Blending Cultures
The two organizations have somewhat different cultures, perhaps stemming from their different staff profiles (attorneys vs social workers). Having 2 offices and 1 executive director will present a challenge when it come to providing adequate guidance, supervision and team-building.
Biggest Challenges
Name Each name has advantages. Voices offers greater flexibility. CASA links to our national brand.
Professional Leadership
Both executives are prepared to do what is best for an integrated organization. After a transition period, would it be best to keep both EDs in the organization (in some capacity) or for one to leave? If one leaves, how can the morale of the rest of the team be preserved? How should the leadership question be resolved?
Funding Sources
Would the combined agency be United Way? What about major funding tied to specific jurisdictions; National and Missouri CASA funding?
Boards What is the best way to handle the merger of board members and board norms/cultures?
We knew we couldn’t keep this secret and wanted to control the rumor mill. The plan:
Schedule special board meetings to approve exploring formally Immediately after meetings each organization will notify their respective
staffs, and then their judges and court administrators, Children’s Division, National CASA and MO CASA, volunteers, and major institutional funders.
Key talking points: We are exploring a range of collaborative opportunities that include a
merger. We are doing this because we believe there is a compelling opportunity
to advance the missions of both organizations. Our primary motivation is not to cut costs or cut staff, though various
forms of alignment could include economic advantages.
Communications
Exploratory Committee
Constituent Discussions Judges and Court Administrators NCASA and MOCASA Staff Volunteers Major Funders – UW, etc.
Discussion of Top Challenges Program Structure & Implementation Blending Cultures – common highest value – kids Organizational Name – don’t want this decision to signify
inequality in the merger
EC Activities & Discussions
Executive Leadership – Conceptual Org Chart Budget Impact Programmatic Impact and Opportunities Communications Throughout Exploratory Process
Merger of equals, not acquisition Regular, synched communication with staff and volunteers –
email and in person
From EDs Collaboration Update Why Now Exploratory Process What Do You Think What is Your Experience with Mergers Have You Supported Mergers
From a Peer
Mergers Don’t Save Money Integrating Two Organizations Will Take Additional
Investments 1 + 1 cannot = 1
First Funders Meeting
The underlying motivation for exploring a merger advancing our mission - better outcomes for our children.
A merger affords several opportunities not available through lesser forms of collaboration:
Augmenting the expertise we bring to each child’s case by sharing best practices and the different expertise of program staff.
Uniting efforts to recruit, screen, train, supervise and retain volunteers.
Increasing our ability to add specialization to impact outcomes in education, mental health, health, permanency, older youth, etc.
Carrying a greater voice in policy advocacy and systemic change.
Improving our ability to serve children better and by incrementally increasing the number of CASA volunteers appointed to children over time.
Continue to explore ways to more efficiently and effectively serve children by creating tighter working relationships between GALs and CASA volunteers.
EC Recommends Merger
By merging, resources that would have been earmarked for administrative purposes can be leveraged to better advance the mission.
We would eliminate any real or perceived competition over volunteers and/or donors.
A larger agency structure allows greater opportunity for advancement for staff (giving us a better chance to retain high quality personnel).
Greater organizational capacity gives employees the ability to wear fewer hats, giving employees the space and time needed to do their jobs well and think more strategically.
We could have greater impact on regional and statewide programming using train-the-trainer models, thereby improving outcomes on a larger scale.
Both programs provide valuable services to the court systems in St. Louis City and County. CASA and Voices will remain focused on continuing to receive support from both jurisdictions.
A merged organization would establish offices based on needs, available resources and practicality.
The merged entity must have one chief executive. Our chances of success are greatly enhanced by retaining BOTH EDs.
Staff, donors, board members, volunteers, community stakeholders should perceive this a merger of equals. Both Eds are open to different roles.
Integrating the boards will create a larger board in the short-term and this has certain benefits. Over time, the board would return to a more traditional size.
The name of the merged entity must reflect the fact CASA and Voices are equals while preserving, as best as possible, the brand equity of each organization.
Major donors of each organization (including National CASA and MOCASA) must support the merger.
EC Conclusions
Due Diligence & Integration Planning
Financial Documents Last three years’ audited financial statements
Accountant’s management letter Most current financial statements Operating and capital budgets for the current year The names and addresses of the organization’s financial institutions
An listing of all liabilities and assets An aging of all receivables and payables Copies of any loans or liens against any assets A listing of all grants and contracts A description of the terms, restrictions and agreements for all restricted funds, including any endowment
Development plan and budget Copies of any guarantees of obligations with other organizations or parties related to funding
Due Diligence
Organizational Documents Articles of Incorporation Bylaws Organizational Chart Copies of any affiliation agreements, partnership agreements, or joint venture agreements
A list of all current officers and directors
Conflict of interest statement (copies of a couple of examples) Copies of board minutes from the last year – September 2009 through September 2010
Strategic plan
Tax Documents IRS exemption letter
State tax exemption letter
Last three years’ 990 submissions
Copy of most recent state tax filing
Unemployment account status
Insurance Documents A description and copies of all insurance policies/coverages
Public liability, including autos Directors and officers Fire and extended coverage property Workers compensation
Professional practice Volunteers coverage Other
Personnel Documents A listing of all current employees and their annual pay levels Copies of personnel policies A description of all employee benefit programs A list and copies of qualified pension plans and arrangements A list of consultants currently engaged or used by the organization, copies of consulting agreements
Capital/Real Estate Documents
Deeds, cost/market value and special circumstances related to real estate owned A list and depreciation schedule of significant equipment and vehicles
Other Documents Copies of operating licenses, accreditations, etc. List of agreements which would terminate, default or give rise to cancellation rights as a result of a merger Any other documents or info which in your judgment, are significant with respect to any portion of the organization or its programs which should be considered and reviewed by the other party in connection with the merger negotiation.
Integration Planning Template GOALS (WITHIN THIS FUNCTIONAL AREA):
•
ASSUMPTIONS:
•
ACTIVITIES:
BY WHEN? WHO?
Dependencies?
1.
2.
EXPECTED INVESTMENT REQUIRED (big ticket items/staff additions)
Description FY11 FY12 FY13 FY14
Leadership Mission & Values
Executive Leadership
Organizational Structure
Board Transition
Brand/Name
Compensation Philosophy
Merger Agreement
Program Program Structure
Integration Planning Groups
Infrastructure HR
Technology
Facilities
Development Fundraising
Fundraising Communications
Budget Sensitivity Analysis
Proforma P&L
The new name and tagline should…
Criteria for Name and Tagline
Best possible name for NEW org
Define our core mission
Represent services provided and goals
Not be narrow/something we can grow into
State what sets us apart
Not easily confused w/ others
Say something
Be memorable
Be easy to understand
Be emotional
Be succinct
Sound professional
Things will calm down Planning can adequately prepare us for change We can control change
Leading Change Myths
Motivator
Mindset This is an opportunity Everything is negotiable, except the mission We exist to serve our clients and communities What you see is what you get
Make a strong case Send a clear and consistent message Secure the buy-in of the people who will carry out the change
Cycle of Change
Incremental Change Needed Ongoing quality improvements Moving to larger fundraising goals Lowering staff turnover Learning to work across old organizational lines Community externally as one entity rather than two Implementing new software or mgmt info systems Building a unified staff and board
Radical Change Needed Health or safety is in question Ethical or legal issues are in question Financial collapse is imminent Moving slowly only prolongs the pain
The Speed of Change
Provide a clear vision
Share info face-to-face
Act quickly and decisively
Be sensitive to needs and concerns
Provide support and encouragement
Re-recruit staff
Acknowledge and address the bumps
Don’t drag it out
Merger Change Management Take care of people who are
leaving the org
Give people a sense of involvement and control
Create cross-org and cross-functional work teams
Listen and check the pulse frequently
Make adjustments as needed
Celebrate
Lack of clearly defined project leader Failure to follow the plan Declaring victory on the 20 yard line Skimping on investing in the integration effort Presuming that all people are at the same place with the
changes Failure to design a comprehensive communication plan
Common Integration Project Management Mistakes
Strive for long term outcomes
Don’t expect change overnight
Mergers are just one option for strategic restructuring
Culture, relationships and communications require significant investment of time of leaders and staff
Will make or break the partnership
Have Realistic Expectations
LaPiana Consulting http://www.lapiana.org/
Jan K Huneke Chief Executive Officer, Voices for Children
Phone: (314) 552-2278 Email: [email protected]
Allie Chang Ray Past Executive Director, CASA of St. Louis County
Principal & Independent Consultant, Mutare Network LLC Phone: (314) 494-8078
Mobile/txt: (314) 282-5523 Email: [email protected]
Additional Background
What is the mission of the new organization
What is our vision for the future (how will things be better)
Who will be on the merged board
How many board members will there be
Who will be the officers in the first year
What committees will we have
How will we legally structure the merger
What will be the role of our advisory board
What will be the effective date of the merger
Questions to Answer: Governance
What do we do the same and what do we do differently in each program What can we fully integrate and what will we have to continue doing separately What will happen to the program model/strategies in each program and for the agency as a whole How will this be perceived by our volunteers, how will it directly impact them How will volunteers choose/be assigned to a program? Can volunteers work in both programs Will there be any immediate changes to service levels
How will decisions be made about the allocation of resources and changes in service levels in each program in the future How will we measure success – what outputs and what outcomes
How can we share expertise and build collective capacity
Questions to Answer: Programming
What will the merger cost What will be the impact on expenses be – economies of scale, additional needs due to a larger org How much overlap in donors is there and what will donors think What will the proformas (P&L, BS) look like Which accounting system will we use What will the capitalization of the merged agency be – assets and liabilities Will we need as many finance office staff How will the audit be handled in the first year, who will do the audit and 990 How will law suits be handled if applicable What are the business insurance needs of the merged entity What will the impact be on contracts and endowments, etc.
Questions to Answer: Finances
Who will be the executive director What will roles will other senior staff play Will anyone lose a job as a result of the merger; how will we handle severance What will be the impact to pay and benefits What personnel policies will we use How will we maintain staff morale throughout the process How can we support the two staffs working together well as one team For purposes of retirement vesting, PTO, seniority, etc. will time worked in the other organization count What will the performance management system look like How do we work with staff to manage the change How do we fully integrate staff, develop a common culture and build one team
Questions to Answer: HR
Do we need additional space or changes to space; where will we put everyone Where will the headquarters/admin offices be
What is the status of all properties occupied or controlled by each group Will we need new software or hardware
How will our IT needs be met
Will we be able to reduce equipment, can we get out of leases if so How will we address deferred maintenance needs
Questions to Answer: Infrastructure
What will be the name and brand of the merged organization What should we tell our board members, employees, volunteers and donors during the process, how and when When should we issue a press release to inform the public
What opportunities for marketing will the merger create
If we don’t merge, how will we end the discussions without a PR disaster If we don’t merge, how do we know you won’t use info against us
Questions to Answer: Marketing & Communications
Accounting systems – subsystems, hardware, software Budgeting process – who is involved, timing of process, format of
presentation Payroll system – frequency of payment, direct deposit options, which
checks to use Human resource management systems – performance reviews,
personnel policy development and review, pay scales, bonus and incentive programs, employee benefit programs, employee recognition programs
Information systems – general mailing lists/contacts database, donor data, services utilization data, management reports
Purchasing processes – authorization processes, any group purchasing agreements
Inventory and control systems – storage, transportation, quality assurance
Systems Requiring Integration
Building and major equipment maintenance schedules – planned replacement schedules, deferred maintenance issues, relations with major contractors
Risk management policies and processes – insurance coverage, self-insurance arrangements, insurance risk pools, workplace safety plans, emergency response plans
Annual calendar and donor events, solicitations, and other fundraising – major and small donor campaigns, annual dinners, recognition programs, all stewardship activities
Strategic planning and monitoring processes – all aspects of strategic and operational planning
Outcome measurement systems – the development of measures, staff training in their use, and reporting requirements both internally and externally