With 160,000 Canadian not-for-profits and charities dealing with significant financial and resource challenges, many are considering how to best serve their missions more effectively by looking at potential partnerships with like-minded organizations. Certain winning conditions must exist for a successful alliance (e.g. merger, amalgamation or consolidation). Getting the process right is the most important part of coming together.
The Charities Directorate of the Canada Revenue Agency (CRA) defines ‘amalgamation’, ‘merger’ and ‘consolidation’ as two or more registered charities which join together as one body in response to changing circumstances or changed objectives. Although alliances formed through amalgamation, merger or consolidation are sometimes used interchangeably, there are important distinctions among them:
- Amalgamation: When charities amalgamate, they bring their memberships, assets and liabilities into the entity which emerges. The original charities do not cease to exist or dissolve. Although they no longer have separate identities, they continue to exist within a single amalgamated entity.
- Merger: In a merger, one or more entities wind up their affairs and transfer their assets to another registered charity.
- Consolidation: All original bodies dissolve and transfer their assets to a new entity.
How do you know if a prospective alliance partner is right for your organization?
Researchers found nine factors which should be in place when choosing a partner. Each factor plays a critical role in determining the success of the process. (The Definitive Guide to Successful Alliances and Partnership Workbook, 2002):
- Individual Excellence: Both partners offer something of value.
- Importance: The alliance fits the strategic goals of each partner.
- Interdependence: The partners need each other and their complementary skills.
- Investment: There is a tangible commitment of resources by all involved.
- Internationalization: Reach of partners is extended through alignment.
- Information: Open communication exists regarding goals, conflicts, problems, and changes.
- Integration: There are many connections between partners at several levels, as both teachers and learners.
- Institutionalization: The alliance has a formal status in both organizations and cannot be abandoned on a whim.
- Integrity: No partner is undermining the alliance.
How do you begin the alliance process?
I have been involved in three separate alliances as a CEO and consultant. I have come to learn that successful alliances start with the drafting of an agreement in principle which articulates milestones, strikes a joint transition committee, and defines staff leadership roles. This Memorandum of Understanding also describes:
- Timeframe and deadlines;
- Intent: the type of agreed-upon alliance, as defined by the CRA;
- Purpose: the process and the targeted completion date;
- Expiration: a specific end date must be established so the process does not drag on indefinitely;
- Information Exchange: listing items each entity is prepared to share;
- Conditions of Conduct:
- how due diligence will be conducted;
- how the process will be communicated internally and externally;
- a confidentiality clause;
- a non-compete clause (and agreement to not investigate other similar opportunities during this process);
- a clause to ensure no significant changes to any of the organizations without prior discussion and consent;
- Responsibility: defines which parties in each entity will lead the process; and
- Governing Law: a statement about the legal jurisdiction governing the agreements and the regulations to be followed for non-share capital corporations.
The joint transition committee is tasked with defining the Board structure, bylaws, staff leadership, dealing with assets and restricted donations, and head office location. It is also vital to decide whether the alliance proceeds with one lawyer or one lawyer for each entity.
Once all legal agreements are finalized, communicating with stakeholders is critical for transparency and engagement. As the final agreement is developed, a comprehensive communications plan which includes key messaging and specific outreach tactics to clients, stakeholders, donors, and opinion leaders must be developed and implemented.
Change management plays a critical role in alliances. Bringing together two or more cultures can make or break the new entity. Be sure to focus on and invest in organizational development to ensure the most important part, the people issues, are addressed continuously throughout the process.
Alliances are complicated and unpredictable but can be rewarding and worthwhile if handled correctly. They involve people and organizations giving up control and compromising, which can be tough for some. It is always best to engage a third-party facilitator without vested interest to manage the process.
- Canada Revenue Agency, Registered Charities Newsletter No. 21, January 2005, Charities Directorate News, https://www.canada.ca/content/dam/cra-arc/formspubs/pub/charitiesnews-21/charitiesnews-21-e.pdf
- Government of Canada; Amalgamation, merger and consolidation, https://www.canada.ca/en/revenue-agency/services/charities-giving/charities/operating-a-registered-charity/making-changes/amalgamations-mergers-consolidations.html
- Chartered Professional Accountants Canada, 20 Questions Directors of Non-Profit Organizations Should Ask About Mergers, Mark Blumberg and Andrea Cohen Barrack, https://www.cpacanada.ca/~/media/site/business-and-accounting-resources/docs/01102-rg-20-questions-nfp-directors-should-ask-about-mergers-august-2016.pdf