Groups can boost voices by speaking as one, but internal politics usually favor status quo
July 13, 2018
Updated July 16, 2018
By William Ehart
Four high-profile associations have merged or announced merger discussions so far this year, putting the spotlight on groups that decide to strengthen their voice and value by combining forces. Experts say many more mergers have been talked about over the years but haven’t happened: Bringing two nonprofit organizations together is difficult.
In the corporate world, there are financial incentives for shareholders, board members and executives to reach deals, said Rick Goldstein, president of Kensington Consulting Group based in Annapolis, Md., and a veteran of corporate and association mergers.
Among nonprofits, such incentives do not exist.
“It’s not about money, it’s about politics,” he said. “It’s about persuading others that we’d be better off together.”
“If (the decisions) were rational and strategic only, there would be a lot more mergers,” Goldstein said. “There are many examples where it makes good sense for associations to merge but the parties decide not to.”
The mergers announced this year are substantial: the $21 million-revenue Financial Services Roundtable with $21 million-revenue The Clearing House Association and the $20 million-revenue American Insurance Association with the $43 million-revenue Property Casualty Insurers Association of America.
One observer, who asked not to be named because he represents association clients, said the insurance merger “has been in prospect for some time.”
“It never made any sense to have two separate trade associations representing property-and-casualty insurance companies,” the expert said in an email. “As for financial services associations, there have been far too many for a long time, too.”
AIA and PCIA announced merger discussions in June. (UPDATE: FSR and the Clearing House launched their new, combined organization—the Bank Policy Institute—on July 15.)
Too many associations?
Eileen Johnson, partner at law firm Whiteford, Taylor and Preston in Falls Church, Va., said her firm has seen an increase in merger interest in the past several years.
“There was a proliferation of very niche associations in the 1990s and the beginning of this century,” she said. “Now they are finding it unsustainable over the long term. You’re fighting for volunteers and members and sponsorship dollars.”
Shirley Bloomfield, CEO of the $15 million-revenue NTCA—The Rural Broadband Association, said too many industry voices can cause lawmakers and regulators to throw up their hands, and sometimes a little too eagerly.
Bloomfield led NTCA through a merger with Organization for the Promotion and Advancement of Small Telecommunications Companies in 2013 at a time when national broadband policy was being reshaped.
“There’s nothing policymakers love more than the ability to say, ‘I can’t act on that because this other group is saying X and you’re saying Y,’ even if the difference is just nuance,” she said. “Policymakers were holding that against the organizations during a very critical, future-setting time. The ability to eliminate that excuse was really important.”
The CEO’s role
Boards often drive merger initiatives, but CEOs can be major proponents of—or obstacles to—the idea. Senior staff can throw a wrench in the process, too.
Mergers are most likely when the CEO of one organization is preparing to retire or depart for other reasons, experts say. Former FSR CEO Tim Pawlenty announced his departure in February. (He now is running for governor in Minnesota.) The next month, the merger agreement with the Clearing House was announced. Greg Baer, head of the Clearing House, will run the new organization.
But part of the fiduciary responsibility of an association CEO is to consider if a merger would benefit the group’s members.
“If staff leaders don’t think about it, the board leaders at some point will be having that conversation,” said David Kushner, a strategic consultant with The Kushner Cos. Kushner often acts as an independent facilitator helping organizations in merger talks, as he did during the NTCA merger.
“The CEO, in a strategic thinking session with the board, should be putting on the table, ‘Is there any group we should be thinking about connecting with, merging with, absorbing or offering a home to?’”
Even small-group leaders should consider taking the initiative. That may give the groups more leverage in discussions with larger associations.
Kushner recalled one small-group client that made an overture to a larger association and was able to win guaranteed board seats in the post-merger organization.
Easier said than done
There are many more merger discussions than there are mergers, experts say, with internal politics and cultural factors common stumbling blocks.
Associations considering a combination should go through a lengthy process of getting to know each other.
“They should date before they marry,” quips Johnson, the attorney. She often provides legal representation to one of the parties in merger talks.
Johnson said about half of association courtships ultimately result in mergers, with discussions often taking years.
“When there’s a successful merger, the organizations have worked together, maybe doing some joint programming or a joint conference. They could combine their efforts on Capitol Hill and test the waters, and then they might move to a little more formal memorandum of understanding. Then they might form an exploratory merger committee,” she said.
Johnson and Bloomfield said an outside consultant like Kushner or Goldstein often is needed to bridge differences between groups.
“A tactic that I have found to be successful is for both organizations to hire someone to lead the merger discussions, like a facilitator,” Johnson said. “That person will work with both boards to try to smooth out a lot of the politics.”
Kushner said animosities can build up when association representatives engage in direct negotiations. Some groups still may be setting their bargaining positions, or CEOs may be thinking through their options, and can best do so in conversation with a facilitator.
“I say to CEOs ‘What do you really want?’ It’s off the record, there’s nobody else in the room. It’s not in front of the other board. ‘Are you interested in retiring? If you want to find another job, how much time do you need? Would you be content to be the COO of the merged association?’
“In every relationship there’s a power imbalance. It’s how well you orchestrate that and how people feel when they come out of it. Did they get the short end of the stick? Because that’s going to lead to problems.”