Nonprofits exist for the benefit of society, not shareholders. Their work is from the heart, not for the bottom line. They are a mission, not a business. Right? Well…
Nonprofits are businesses. In fact, they are big business. “The nonprofit sector in Westchester County is the largest employer in the county,” says Joanna Straub, executive director of Nonprofit Westchester. A 2014 study done by Johns Hopkins found that Westchester nonprofits employed 54,000 people as of Q1 in 2013. The study also found that as of 2011, Westchester nonprofits generated $6.9 billion in revenues, of which $6.6 billion was spent on the services they provide. “These are professionally run businesses that happen to focus on the double bottom line of revenue and impact,” Straub adds.
They have to be, or they won’t survive, especially in today’s tight economy. So, just like in the for-profit world, nonprofits are looking to partnerships and mergers to lower costs and increase efficiencies.
“To some in the nonprofit field, the idea of mergers is scandalous and distasteful,” writes nonprofit industry consultant Thomas A. McLaughlin in his 2010 book, Nonprofit Mergers and Alliances. But a 2016 study by Northwestern University’s Kellogg School of Management found that in 88 percent of the cases studied, “both the acquired and the acquiring nonprofits reported that their organization was better off after the merger, with ‘better’ being defined in terms of achieving organizational goals and increasing collective impact.
“Nonprofit organizations can and should consider using mergers as an effective tool to achieve their goals, advance their mission and increase their impact,” the study states.
That’s just what two regional family services organizations did recently. In August, Edwin Gould Services for Children and Families became a subsidiary of Rising Ground (formerly Leake & Watts), a 187-year-old organization that operates in Westchester, the Bronx, Manhattan, and Brooklyn. Operating under one set of policies, practices, and mission, the two organizations, with a combined workforce of 1,800, will provide a broad portfolio of health, mental health, developmental disability services, family empowerment, and supportive services to about 25,000 children, adults, and families throughout Westchester and New York City.
Some kind of strategic corporate marriage had been on the minds of the leaders of Yonkers-based Rising Ground for about six years, says CEO Alan Mucatel. “We were thinking about how to grow,” he explains. A couple of potential mergers fell through, but about two years ago, he and the CEO of Edwin Gould began to kick around the idea. “He and I were supporting each other as colleagues, and the topic came up organically,” Mucatel says. It took all that time to get the two boards onboard, to merge the two staffs and to finalize the paperwork.
Eighty years ago, organizations like these were, for the most part, created and supported by wealthy, deep-pocketed philanthropists, not taxpayers and donors. “The government’s role was basically nonexistent,” Mucatel says. That world is gone, of course. “Edwin Gould had been struggling financially for a number of years, and they determined that they could not make it on their own.To continue their legacy, they decided they would be better off in partnership with another organization.”
So did Rising Ground. “You can build things yourself, or you can grow by acquiring them,” Mucatel says. “We were not looking to grow for the sake of growing, but to be smarter.”
As the number of New York City children in foster care has shrunk from about 55,000 in the 1980s to about 9,000 today, he says, “We wanted to double down. We thought a merger would strengthen our numbers in that work.” The merger also afforded them a geographical opportunity in Brooklyn, where Edwin Gould had a much larger presence and the ability to expand services, such as in domestic violence. It also saved valuable payroll dollars — “We don’t need two CFOs, two CEOs, two HR directors,” Mucatel says — which could go into the infrastructure needed to run a company with an operating budget of around $100 million.
These concepts are part of the DNA of for-profits, but those who are involved with nonprofits still find the subject tricky. “If a nonprofit is founded to help kids get into college or help immigrants assimilate, you feel passionate about that mission. You don’t necessarily see larger as better. You are not cognizant of how scale can help the mission,” says Richard Nightingale, president and CEO of Westhab, located in Yonkers.
“Some smaller organizations have very focused missions and can function effectively as small entities,” he adds. “Other organizations would benefit from scale and should explore partnership or merger opportunities.” Westhab falls in the latter: In 2014, it aligned with the Washingtonville Housing Alliance to enhance Washingtonville’s housing portfolio, pave the way for new affordable housing development opportunities, and increase social services in Mamaroneck. And Westhab and The Sharing Community, also based in Yonkers, have recently begun a merger process. The two organizations share a mission of housing and services to the homeless and formerly homeless, and, Nightingale says, “will be able to make a deeper impact together.”
Nightingale feels that the nonprofit sector is “notably under-merged. Unlike for-profits, where it’s all business, there are unique and important sensitivities with nonprofits. They have volunteer boards who pour their hearts into the mission. Every nonprofit has to have a gala,” he says, because there are many organizations competing for the same limited resources. “In my view, that limits the ability to reach certain efficiencies.”
For example, there is pressure on nonprofits to put every dollar to the services rendered and keep administrative costs as low as possible — sometimes too low. “A strong back office and healthy organization allows for the mission to be achieved at a higher level,” he says. “The reason for efficiencies is to pump more money into the front lines.”
Other mergers among local nonprofits in recent years include the marriage of Family Service Society of Yonkers and JCY-Westchester Community Partners, in 2013, and the 2015 union of The Food Bank for Westchester and the Westchester Coalition for the Hungry and Homeless, engendering what is now called Feeding Westchester. As with for-profit mergers, nonprofits feel pain when they come together. People lose their jobs. Cultures don’t always mesh. “I spoke with the head of a large national bank who led a merger, and he told me everything I was experiencing was exactly the same as he experienced,” Mucatel says. Still, as with for-profits, the trend is likely to continue. “If boards are thoughtful about all that needs to happen, they are likely considering partnerships, and among the array of options are mergers,” Mucatel says.
But the driving force behind such partnerships, Nightingale says, must be the nonprofit’s reason for existing in the first place. “It should not be the corporate goal of the big organization to gobble everything up. It really is about how to increase impact through efficiencies and economies,” he says. “The mission has to drive this.”
Freelance writer David Levine is a frequent contributor to 914INC.