Possible Solutions For Sustainable Future: Restructuring Through

Mergers and Other Alliances in the Nonprofit Arts and Culture Sector

A Thesis Submitted to the Faculty

of

Drexel University

by

Maggi Lawler Kirk

in partial fulfillment of the

requirements of the degree of

Masters of Science Arts Administration

November 2009

i

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Acknowledgements

This project would not have been possible without the support of many people. Thank you to

my dear, talented husband Jonathan, and to my mother and father for their understanding,

endless love and support throughout the duration of my studies.

Thank you to Jean Butzen, President of Mission Plus Strategy = Social Value, who

graciously exchanged ideas with me. A special thanks to Lois Savage, President of the

Lodestar Foundation, who made herself available for my many questions, and who made my

day when she “unofficially” asked for my suggestions to improve the usability of the

Collaboration Prize database.

My deepest gratitude goes to Professor Cecelia Fitzgibbons, Department Head of the Arts

Administration Program, for our many rides home together after class, for recognizing my

potential and for considering me a colleague. Thank you to Professor Ximena Varela,

Research Director of the Arts Administration Program, for inspiring me to dig deeper and for

her invaluable guidance throughout this long process of discovery.

I am also grateful to my fellow chocolate loving arts administration classmates for their

inspiration, and generosity of spirit and especially to Cory Miller, who early on in our studies

challenged me to step-up-my-game and also, to the intrepid Kim Kindelsperger, who

introduced me to the program. A special thanks to my acupuncturist, Jennifer Baust, for her

pointed understanding of the problem without which my head would have surely imploded.

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Maggi Lawler Kirk

Abstract Possible Solutions For A Sustainable Future: Restructuring Through Mergers And

Other Alliances in the Nonprofit Arts and Culture Sector

by Maggi Lawler Kirk

This study looks at how mergers and other forms of business restructuring processes may

present advantages and challenges for the nonprofit arts sector. For more than a decade the

sector has been impacted by the environmental trends of diminishing funding sources

coupled with longstanding concerns about an over-crowded industry with too many arts

organizations having similar missions, competing for the same limited financial resources.

This is creating a form of mission stasis in the industry provoking concern within

organizations and among foundations and state funding agencies about the health of the

sector.

The current economic downturn has created an even greater urgency for the need to explore

the impacts and outcomes for the nonprofit sector in a climate that demands new models for

collaboration. Drawing on a decade of evolving research of restructuring activities in the

nonprofit sector-at-large, this thesis seeks to present the implications for arts and culture

sector when considering strategic restructuring initiatives as a means to better accomplish

mission delivery and sustainability within the sector.

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Table of Contents

Acknowledgements .................................................................................................................. i Abstract .................................................................................................................................... ii Table of Contents .................................................................................................................... 1 Purpose Statement .................................................................................................................. 3 Procedure ................................................................................................................................. 6 Limitations Of Study .............................................................................................................. 7 Definitions ................................................................................................................................ 8 Literature Review ................................................................................................................. 12

Research Question .............................................................................................................. 12 Motivating factors for nonprofit organizations to consider merger or other forms of restructuring ........................................................................................................................ 25 Advantages of merger ......................................................................................................... 30 Challenges for merger and strategic restructuring process ................................................. 32 What role do the funders play in the process of merger and strategic restructuring? ......... 39 Conclusions and questions .................................................................................................. 42

Thesis - Possible Solutions For A Sustainable Future: Restructuring Through Mergers And Other Alliances In The Nonprofit Arts And Culture Sector .................................... 50

Research .............................................................................................................................. 51 Background and overview of the Lodestar Foundation ...................................................... 52 The Collaboration Prize ...................................................................................................... 62 The Collaboration Prize Database, August 2009 ................................................................ 69

Collaboration Models...................................................................................................... 71 Chart #1 – Types of Collaborations ................................................................................ 72 Chart #2 – Outcomes ...................................................................................................... 75

About Collaborations in the Arts and Cultural Sector ........................................................ 77 Chart # 3 – List of Thirteen arts and cultural collaborations .......................................... 80

Arts and cultural collaboration findings ............................................................................. 81 Chart #4 – List of goals ................................................................................................... 82 Chart # 5 – Challenges .................................................................................................... 87

Examination of the motivations, goals, outcomes and challenges of four arts and cultural collaborations ...................................................................................................................... 90

Collaboration #1 – The Chattanooga Museums Collaboration ....................................... 91 Collaboration #2 – NowPlayingNashville.com .............................................................. 98 Collaboration #3 – ArtServe Michigan and the Michigan Association of Community Art Agencies Merger ........................................................................................................... 106 Collaboration #4 – Grande Masque New Year’s Eve Gala, Orlando, Florida ............. 112

Summary .............................................................................................................................. 116 Conclusions .......................................................................................................................... 117

Motivations ....................................................................................................................... 118 The economic environment ............................................................................................... 120 Positive outcomes ............................................................................................................. 121 Trust as a challenge ........................................................................................................... 123 The multi-faceted role of funders ..................................................................................... 125

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Implications ......................................................................................................................... 126 Increased education for arts and cultural groups .............................................................. 126 How can funders support the education process? ............................................................. 127 How to deal with trust and cultural differences ................................................................ 128

Citations and Bibliography ................................................................................................ 131 Appendices ........................................................................................................................... 138

Endnotes ............................................................................................................................ 143

Maggi Lawler Kirk

Purpose Statement

This study looks at how business-restructuring processes including mergers may present

advantages and challenges for the nonprofit arts and culture sector. It explores the impacts

and outcomes for the over-crowded and under-capitalized nonprofit sector in the current

economic environment.

Hypothesis

In order to better understand the potential of strategic restructuring for the future of the arts

and culture sector we must first understand the history and evolution of mergers and the other

forms of collaboration that has occurred in the nonprofit sector through the body of research

presented here. What are the motivations, advantages and challenges for arts organizations to

undertake restructuring activities such as mergers and what funder influences have affected

and influenced the arts sector to this point in time?

Why is this an important to the field?

Even before the current recession economy, the nonprofit arts sector was being impacted by

the environmental trends of diminishing funding sources coupled with longstanding concerns

about an over-crowded industry with too many arts organizations having similar missions,

competing for the same limited financial resources. As a result many arts organizations are

operating on thin financial margins. Lack of resources are impeding organizational growth,

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restricting technological innovation, limiting creative long-term strategic planning, and

curtailing staff development initiatives. This is creating a form of mission stasis in the

industry and, thus, is provoking concern within organizations and among foundations and

state funding agencies about the health of the sector.

For almost a decade the funding community have been calling for new “alternatives to be

explored to support sustainability for the arts”. (DDOA 37) According to a 2004 report

published by the United Way of Milwaukee states, “Given that 30,000 new nonprofits

emerge each year, many funders have encouraged and supported closer collaboration among

their grantees to increase the likelihood that philanthropic dollars will be spent on higher

impact efforts.” (Wasserman Intro)

Now, the problems with the economy are acute, funders and nonprofit organizations are

considering strategic business restructuring initiatives such as mergers and other forms of

administrative and programmatic consolidation or collaboration as a way to offset the impact

of diminishing funding and to increase mission impact. Experts are touting the potential

benefits of mergers for nonprofit organizations as “improved organizational efficiency and

more effective user services”. (Toepler 2) According to 20% percent of the executive

directors interviewed for the recent Bridgespan Group study, “Nonprofit M&A: More Than a

Tool for Tough Times” (2009) “mergers could play a role in how nonprofits respond to the

economic downturn”. (Cortez, Foster Milway 1)

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The research done on the topic of business restructuring processes for nonprofits has evolved

over the past decade. This study may provide arts administrators, professionals and funders

with a better perspective on the processes essential to restructuring and of current “best

practices” in the area of strategic restructuring. It may help organizational leadership to make

informed decisions when considering restructuring through a merger or other consolidation

initiatives.

Expected Findings

Although, my original intent was to focus primarily on mergers in the nonprofit arts sector,

the literature reflects a wider range of restructuring and collaborative options being

undertaken by nonprofit organizations. Mergers and other forms of strategic consolidation

between arts organizations, which result in economies of scale and efficiencies of service

delivery may be a possible solution to produce long-term sustainability, but restructuring is a

complex and multipart process. Mergers and other forms of alliance require a purposeful

commitment of financial and human resources; and time allotted for planning and

implementation. Trust between the entities is essential. The process necessitates a conscience

effort of goodwill between multiple stakeholders among the collaborating organizations -

leadership, Board and staff, a supportive funding community and the buy-in from the

organizations’ constituencies. I believe that only organizations with strong leadership on the

executive director and board levels with the ability to identify and advocate for mutually

advantageous goals, strong communication skills; and funders who are engaged in the

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process can nonprofits arts and cultural organizations be positioned to manage the

complexities of restructuring.

Procedure

Methodology and sources

This will be a qualitative study utilizing the grounded theory strategy of research. Using the

relevant literature of research in the field to “frame the problem”(Creswell 33), I will

examine the internal and external environmental forces that motivate nonprofit organizations

to consider a merger or other forms of long-term collaboration. This analysis will assess the

potential impacts – benefits/outcomes and challenges - of the restructuring process. In

addition to the literature review, I will collect the personal testimony through one-on-one

interviews using “unstructured and open-ended questions” with those individuals who have

experienced the restructuring process first-hand either as consultants, funders or

organizational leadership. (Creswell 188) A review of case studies contrast the theoretical

benefits as cited in the literature against the tangible experiences of individuals involved in

organizational mergers.

The keywords used to find current literature on the subject of restructuring and mergers in

the nonprofit sector and the arts are: arts and restructuring and nonprofit; nonprofit arts

organization mergers; arts and nonprofit and mergers and boards; arts and nonprofit and

negotiations; arts and nonprofit mergers and artistic independence; arts and mergers and

foundation.

Maggi Lawler Kirk

Limitations Of Study

Boundaries and limitations of the study

With a few exceptions, the relevant literature reviewed reflects a pro-restructuring disposition

by the authors. These authors are primarily nonprofit experts, consultants and funders

working for innovation in the nonprofit business practices. Until, the 2009 Collaboration

Prize, comprehensive statistical research that evaluated the quantity and results of nonprofit

restructuring activities occurring throughout all 50 states across the entire nonprofit sector

was limited. Case study research was sporadic. Additionally, there is a minimum amount of

research specific to restructuring activities within the nonprofit sub-sector of arts and culture.

Keywords

Arts and restructuring and nonprofit; nonprofit arts organization mergers; arts and nonprofit

and mergers and boards; arts and nonprofit and negotiations; arts and nonprofit mergers and

artistic independence; arts and mergers and foundations

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Definitions

Strategic Restructuring — Strategic restructuring occurs when two or more independent

organizations establish an ongoing business relationship to increase the administrative

efficiency and/or further the programmatic mission of one or more of the participating

organizations through shared, transferred, or combined services, resources, or programs.

Strategic restructuring ranges from alliances like jointly managed programs and consolidated

administrative functions to organizational integrations, such as full-scale mergers. (La Piana

Consulting, Inc)

Strategic Alliances — Strategic Alliances usually do not reflect a change in organizational

structure. The two types of alliances identified by La Piana & Associates are joint

programming and administrative consolidation. Both are agreement-driven, meaning that the

organizations commit, usually in writing, to an ongoing partnership involving joint

management of one or more functions. (La Piana, David, Kohm Amelia, “Strategic

Restructuring For Nonprofit Organizations”) In joint programming alliances, one or more

programs are managed cooperatively; with administrative consolidations, one or more

administrative functions are shared. (La Piana, Kohm, “In Search of Strategic Solutions”)

Strategic Alliances as per the Collaboration Prize — Strategic Alliance as defined by the

Collaboration Prize is an arrangement to share or consolidate complimentary programmatic

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services between two or more organizations that are not competitors. This type of strategic

alliance was excluded from the Collaboration Prize nominations. 1

Integrations — Types of partnerships that involve a change in corporate structure. The four

types of integrations in the “Partnership Matrix” as defined by La Piana Consulting, are

management service organization (MSO), joint venture, parent-subsidiary and merger. These

partnerships share the characteristics of alliances, but also involve changes to corporate

control or structure, including the creation or dissolution of one or more organizations.

(La Piana, Kohm, “In Search of Strategic Solutions”)

Merger — A merger is the generic term for a full and final coming together of two

previously separate corporations. Legally, mergers often entail one nonprofit closing (the

dissolving corporation) and leaving its assets and liabilities to another nonprofit (the

surviving corporation). (La Piana, “Beyond Collaboration”) In a merger, previously separate

organizations completely combine programmatic, administrative and governance functions.

(La Piana, Kohn, “In Search of Strategic Solutions”)

Fully-integrated merger — As defined by the Collaboration Prize a fully-integrated merger

is the integration of organizations resulting in one organization with some brand

independence retained by the consolidated organizations (Nonprofit Collaboration Database)

1 Although the prize nominated only collaborations between organizations that had competitive agendas, some of the nominees created complimentary services through their collaborations.

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Maggi Lawler Kirk

Merger — As defined by the Collaboration Prize another form of merger is a corporate

integration resulting in an affiliate or subsidiary arrangement that is done through merging

governance, management, programs and operation but with a separate a corporate structure.

(Nonprofit Collaboration Database)

Management Service Organization — (MSO) is an organization created by two or more

entities to integrate administrative functions with governance shared between the founding

organizations. (Coy & Yoshida)

Collaboration — La Piana uses the term to refer to organizational partnerships that entails

sharing information or coordinating efforts, but do not include shared, transferred or

combined services, governance, resources or programs. (La Piana, Kohm, “Strategic

Restructuring For Nonprofit Organizations”)

Collaboration — For the purposes of the Collaboration Prize, collaboration is defined as

joint programming, administrative consolidations or mergers among two or more

organizations that compete that is provide the same or similar programs or services or

compete for clients, financial resources or staff. (Hager & Curry)

Joint programming — Joint programming is a collaboration of two or more nonprofit

entities is defined as building on an existing program; expanding an existing program or

adding a new program or service; or creating a new organization to present a program,

represented through a contract or an agreement (Nonprofit Collaboration Database)

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Administrative consolidations — Shared functions with shared decision making that

increase administrative efficiencies are represented through a contract or an agreement or the

creation of a new organization. (Coy & Yoshida)

Fiscal sponsorships — Is an arrangement whereby a nonprofit provides oversight and

financial management for a grant or other activities of a nonexempt entity. (La Piana, David,

Kohm Amelia, “In Search of Strategic Solutions”)

Confederation — Is an umbrella organization, that is a single entity made up of constituent

organizations, which provides services, coordination, and other support. Cases differ in terms

of how much control rests with the umbrella organization. In some cases, the umbrella

organization tightly controls resources and information. In other cases, the umbrella

organization clearly answers to its members. (Hager & Curry)

Maggi Lawler Kirk

Literature Review

Research Question

Drawing on the evolving research of the past decade; focusing on the motivations,

advantages and challenges nonprofit organizations have when embarking on a strategic

restructuring initiative such as merger as a means to better accomplish mission delivery and

sustainability within the sector, what conclusions can be made? What role does the funder

play?

The purpose of this literature review is to create a platform for further investigation of the

leading factors that may motivate arts organizations to undertake strategic restructuring

initiatives such as mergers. The literature reflects the expert opinions and findings of

individuals working in the field of strategic restructuring, funders, field researchers and the

commentary of individuals who have experienced mergers or strategic restructuring activities

in the nonprofit sector over the past decade.

Six central questions have emerged from the literature review concerning nonprofit business

restructuring activities. These questions are: 1. Can overlapping terms and definitions be

explained? 2. What is the state of the literature on the subject of mergers and strategic

restructuring? 3. What conditions cause nonprofit organizations to consider merger or any

other form of strategic restructuring? 4. What are the perceived and experienced advantages

of mergers and other forms of restructuring for nonprofit organizations? 5. What are the

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challenges for nonprofit organizations? 6.What role do the funders play in the process of

merger and strategic restructuring?

The review of the literature reveals:

• Explanation of the terms used to describe nonprofit mergers and restructuring

initiatives.

• Report on current state of research – The first important study in 2000, which became a

primary resource for the industry offered a broad spectrum of other forms of

restructuring activities as an alternative to merger. Until recently (2009), there was

limited comprehensive survey data of representative samples specifically reporting on

mergers and the other forms of restructuring.

• For the past decade the economic environment of diminished funding has caused

changes in the nonprofit support system. Pressures of the current recession economy

may be causing an accelerated interest to investigate the multiple types of

restructuring activities including mergers.

• There are advantages to merger or other restructuring activities – The literature offers

both subjective and objective evidence that demonstrates the theoretical and real

advantages and benefits for mergers or strategic restructuring opportunities.

• There are disadvantages to merger or other restructuring activities – There are

significant challenges connected to the complexity of restructuring activities that must

be addressed by nonprofit organizations in order to affect successful outcomes.

• Funding for mergers and other restructuring initiatives – There is concern within the

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funding community and in the nonprofit sector that some foundations and funding

bodies may exert direct and indirect pressure on nonprofit grantees, which could

influence nonprofit organizations’ decision making to choose strategically

restructuring activities. There is a call from experts for foundations to work to better

understand the complexities of the restructuring process and the resulting costs and

potential savings to enable them to be positioned to guide and support these

initiatives.

Explanation of nonprofit restructuring initiatives and mergers

The study of current literature reveals that there are terms and definitions that are sometimes

used interchangeably when referring to strategic restructuring initiatives. That is, some

experts have different definitions for a single activity while some lump all restructuring

activities under the one umbrella of “strategic restructuring” (Kohm, La Piana and Gowdy).

Overall, there are many terms and definitions used to describe strategic restructuring

activities, which may create confusion for those unacquainted with the field and may

contribute to the lack of understanding of what processes are actually available. For

clarification purposes, the following terms related to strategic restructuring are explained:

Strategic restructuring, strategic alliances and collaboration

The advent of the term “strategic restructuring”, is credited to David La Piana in his

biography on the Fieldstone Alliance website. In it “strategic restructuring” refers to

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“the continuum of partnership configurations through which nonprofits attempt to anticipate

or respond to environmental threats and opportunities.” (Fieldstone Alliance) In the study,

“Strategic Restructuring for Nonprofit Organizations: Mergers, Integrations and Alliances”,

“strategic restructuring” (Kohm, La Piana and Gowdy) is used as a generalized term to

describe a broad range of business consolidation processes available to nonprofits that

“involve joint programs or shared administrative functions or full-scale mergers”. (Kohm, La

Piana and Gowdy) In affect nonprofit organizations adopt one or more of these processes to

combine resources designed “to improve organizational effectiveness” (Dewey and Kaye 1).

In the study of 192 strategic restructuring partnerships, Kohm, La Piana and Gowdy defined

six types of partnerships placing them within two categories on a matrix: “Strategic Alliances

and Strategic Integrations”. (Kohm, La Piana and Gowdy 5) “Collaboration” is also included

on the matrix but is not considered a strategic restructuring activity because it does not

incorporate a formalized integration of services, programs or resources. (Kohm, La Piana and

Gowdy)

A “strategic alliance”, is “a commitment to continue, for the foreseeable future to

share/consolidate administrative functions and/or programmatic services, shared or

transferred decision-making power, and a formal agreement, contract, or Memorandum of

Understanding (MOU). Different from a merger, there is no change in the corporate structure

of the organizations involved. Two specific types of strategic alliances include:

administrative consolidation and joint programming.” (La Piana.org)

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According to the requirements for the 2009 Collaboration Prize, which is discussed at length

in the body of this study, the key characteristic of a “strategic alliance” that differentiates it

from the La Piana definition is that it is the partnership of organizations that share

complimentary services.

Collaboration is an all-inclusive term that is used to describe multiple types of partnering

activities in the nonprofit sector. For Kohm, La Piana and Gowdy, collaboration is generally

identified as a programmatic effort rather than a shared administrative function. It is an

informal arrangement, often impermanent, with the partnering organizations retaining

individual decision-making powers.(Kohm, La Piana and Gowdy) The definition differs in

the case of the Collaboration Prize, where collaboration is more broadly understood as two or

more nonprofit organizations that provide the same or similar services, programs but

compete in the areas of funding, audience and staff functions that formally join (with some

type of contract) together on a permanent basis on one or a combination of collaborative

activities. These activities are joint programming initiatives, administrative consolidations

and mergers. (“FAQs”)

In the review of the literature, the terms “strategic integration” (Kohm, La Piana and Gowdy)

and “strategic alliance”(Cerverny, Stevens and Yankey) are terms used in reference to

“strategic restructuring”. (Kohm, La Piana and Gowdy)

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Merger

According the American Heritage Dictionary, the legal definition of merger is the

“absorption of a lesser estate, liability, right, action, or offense into a greater one.”(AHD) In

the truest sense of the definition a merger occurs when two corporations combine where

neither corporation survives legally, and when a new corporate entity emerges re-

incorporated from the union.

Nonprofit mergers are described by Dan McCormick in his 2001 book, “Nonprofit Mergers:

The Power of Successful Partnerships”, as based on multiple issues of “mission, money,

members, management and method.” (McCormick 1) In the nonprofit parlance, the word

merger more accurately characterizes a business transaction where “two or more nonprofit

organizations join to form one legal entity” (Dewey and Kaye 1) or a smaller nonprofit

organization folds its assets and liabilities into a larger organization. Neither arrangement

requires dissolution of both entities. Mergers are also referred to as integrations,

consolidations or acquisitions. (Arsenault)(McCormick) (Kohm, La Piana and Gowdy).

In the for-profit corporate world mergers are engineered as a response to “market-driven

forces” (McCormick 2) and obvious “financial incentives” (Cortez, Foster, Milway 1) such

as to increase stock values and/or to shrink the competitive business environment. While in

the nonprofit sector, mergers are designed to increase market share and to expand resources

in order to generate the positive impact of expanded services to the community.

(McCormick 1)

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According to McCormick, in the nonprofit sector a merger is undertaken primarily for the

advancement of organizational mission not just for financial gain. However, Don Kligerman,

President of the Philadelphia-based nonprofit consulting firm, Fairmount Ventures, Inc.

reports that though promoting or expanding mission reach is an essential goal for merger, the

motivation for a merger is always financial gain. By his account, most of the mergers and

alliances his firm has brokered over the past 17 years where precipitated by a “crisis of

dollars”(Kligerman). He believes that the current economic downturn will hasten the

exploration of collaborative business partnerships including mergers. His firm has seen a 75

percent increase in merger clients since last year.

Report on current state of available research

Much of the literature reviewed is instructional in content written by consultants and experts

in the field (books, articles, reports and merger consultancy’s web sites) and are specifically

dedicated to the advantages and challenges of the merger process. There is limited

comprehensive statistical research available that specifically evaluates the results of nonprofit

mergers occurring nationally across the nonprofit sector and specifically within the arts sub-

sector. According to Dewey and Kaye Consultants and Denise Gammal, the field has

historically relied “primarily on case studies, the experience of consultants and other

qualitative data”. (Gammal 1)

One of the earliest studies on restructuring activities in nonprofits is the 1997 study “Beyond

Collaboration Strategic Restructuring of Nonprofits” Revised Edition, published by the

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National Center for Nonprofit Boards in 1997 was funded by The James Irvine Foundation.

The study conducted by David La Piana, reflected the perspective of 36 nonprofit and

foundations leaders on how funders could “best assist nonprofits”(La Piana, Kohm) that were

either in the investigation stages or actively participating in restructuring activities. The study

was designed as an educational tool for the funding community to help develop a method in

which funders would gain knowledge of nonprofit organizational structures and an

understanding of partnering efforts occurring within the nonprofit sector. The study was

began as “look into the future role of mergers in the nonprofit sector”, (La Piana (Preface)

but, as the research progressed, it evolved to reveal evidence that nonprofits were

investigating a broader spectrum of restructuring initiatives that were not solely focused on

mergers. These activities included joint ventures, back-office consolidations, partnerships,

fiscal sponsorships, management service organizations (MSO) and consolidations.

“Beyond Collaboration”, was circulated throughout the foundation community. As a

response to the report, The David and Lucile Packard Foundation and the William and Flora

Hewlett Foundation joined the James Irvine Foundation to fund the Strategic Solutions

Initiative, which was conducted by David La Piana. Strategic Solutions was a five-year

project, which collected and made available to the public through La Piana & Associates

website, a range of research on strategic restructuring activities in the nonprofit sector that

were being produced at that time.

In 2001, the Strategic Solutions initiative revisited, “Beyond Collaboration” and expanded on

the original research in the white paper, “In Search of Strategic Solutions: A Funders

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Briefing On Nonprofit Restructuring”(La Piana & Kohm). This study reflected the results of

the 1999 paper, entitled, “Strategic Restructuring: Findings from a Study of Integration and

Alliances Among Nonprofit Social Service and Cultural Organizations in the United States”.

(Kohm, La Piana & Gowdy) The study sought to establish the frequency of strategic

restructuring activities nationally in the nonprofit sector. According to the study, this data

was not available at the time because there were inconsistencies in the state and federal

government records relating to the “nonprofit dissolutions and mergers”, which rendered the

information unreliable. La Piana, recognizing that there was a lack of relevant research

pertaining to how prevalent strategic restructuring was in the nonprofit sector, La Piana

undertook to survey a random sample of nonprofit organizations in Cleveland and San

Francisco in order to get a baseline for restructuring activity in the sector.

Identified as the primary survey source material for the industry over the past decade, this

study, became the basis for the 2003 publication, “Strategic Restructuring for Nonprofit

Organizations: Mergers, Integrations and Alliances”, by Kohm, La Piana & Gowdy. In this

book, the authors reported gathering information regarding the “motivations, benefits and

other aspects of restructuring according to a range of nonprofits.” (Kohm, La Piana & Gowdy

127)

The study began with a random sample of 400 organizations. Of this group there were 262

self-selected respondent organizations. Of the 262 organizations that responded, 24% had

experienced some form of restructuring. Of those 62 respondent organizations, 32 were

interviewed. Six case studies are presented. The researchers acknowledge that with a sample

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size this small, it was impossible to complete an overarching statistical analysis of activities

across the sector. However, the research does reveal that 73% of the integrations and

alliances in the study occurred in the social service field and 18% occurred in arts and

cultural.

This research was a starting point and a springboard for La Piana’s work as merger

consultant. It has been the primary source material for many other experts in the field.

(Kohm, La Piana and Gowdy 19) La Piana & Associates has subsequently made significant

contributions to the industry as the preeminent merger consultants and authors in the field of

nonprofit restructuring. This study is recommended by at least one other source in this review

as reference for “important and valuable reading” (McCormack xxii) on the subject of

mergers and alliances. At least three other sources reviewed for this paper recognize the

study in their research. (Gammal, Toepler, Dewey & Kaye)

As one of the first studies regarding the topic of strategic restructuring, it is important to note

that although the study was groundbreaking for its time; the small number of nonprofit

organizations sampled that were involved in a range of multiple types of strategic

restructuring caused at least one researcher to question its usefulness. (Gammal) However, by

building on this study, La Piana and Associates has contributed considerable research and

experience to the field of restructuring and has authored two instructional books on mergers,

“The Nonprofit Mergers Workbooks-Part 1: The Leader’s Guide to Considering, Negotiating

and Executing a Merger”, & “Part II: Unifying the Organization After the Merger”. These

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guides are generally considered in the industry to be the standard handbooks used for

conducting nonprofit mergers. 2

Two studies reviewed here deal specifically with mergers were conducted by researcher

Denise Gammal, “Before You Say I Do; Why Nonprofit Should Be Wary Of Merging”, for

The Stanford Project on the Evolution of Nonprofits (SPEN) published in 2007 and the study

by Dewey and Kaye Consultants in 2007, “Nonprofit Mergers: An Assessment of

Nonprofits’ Experiences With the Merger Process”. The SPEN study examines the

“frequency and outcomes” of mergers in the Bay Area of San Francisco. (Gammal 47) The

Dewey and Kaye study includes research of organizations that are in the initial merger

exploration stage, those that have merged and post-merger organizations in the Allegheny

Valley near Pittsburgh. Both studies, though fairly current, examine data from relatively

small samplings of organizations within the nonprofit sector. (Gammal 2007) (Dewey and

Kaye 2007)

To contextualize her research, Ms. Gammal makes the point that in the process of her

investigation for the SPEN study, she found only a “dozen academic” articles (Gammal 47)

on the subject of nonprofit mergers, with fifty percent focused on restructuring in the

nonprofit healthcare industry. As I found to be the case, Ms. Gammal and Dewy and Kaye

both reported that they could find no study of generalized results or survey of representative

samples that focus specifically of mergers in nonprofits. Gammal sites the Kohm & La

Piana’s 1999 study, “Strategic Restructuring for Nonprofit Organizations”, as being the

2 Jean Butzen, President of Mission + Strategy = Social Value, a nonprofit restructuring consultancy used, “The Nonprofit Mergers Workbooks-Part 1: The Leader’s Guide to Considering, Negotiating and Executing a Merger” by David La Piana, when she orchestrated a merger of social service agencies.

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singular and primary source for data about mergers. However, she criticizes this study’s

limitations because she finds it reflects an “overly broad” spectrum of “strategic integration”

(Gammal 47) initiatives that include “mergers, partnerships and strategic alliances”. (Kohm

& La Piana)(Gammal 47)

Stefan Toepler notes in his 2000 case study of a funder orchestrated merger, “Nonprofit

Mergers in the Arts: A Case Study”, that the healthcare and social service industries appear

to be the primary focus of field researchers analysis of nonprofit mergers. (Toepler) Toepler

attributes the concentration on studies in the nonprofit healthcare industry to be the result of

the competitive marketplace within the healthcare field between nonprofits and their for-

profit counterparts. Toepler observes in his case study, that the Kohm, La Piana & Gowdy

study, “Strategic Restructuring: Findings from a Study of Integration and Alliances Among

Nonprofit Social Service and Cultural Organizations in the United States” (Toepler) was the

exception, as it includes multiple types of nonprofit disciplines – arts & cultural

organizations with human services organizations. Toepler also accurately predicted that with

the increase in competition for funding and market share in the other nonprofit industries,

research would eventually reflect the emergence of new business restructuring strategy

activities. (Toepler)

Recent studies produced in 2009 have added considerable weight to the body of knowledge

compiled over the past decade. These studies are described in the Bridgespan Group paper,

“Nonprofit M & A: More Than a Tool for Tough Times”, and in the initial analyses of the

data derived from the 2009 Collaboration Prize sponsored by the Lodestar Foundation in

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association with the AIM Alliance and in the resulting nonprofit database of the 176

nominations for the Collaboration Prize.

The Bridgespan Group, a business consultancy for the nonprofit sector, recently completed

its study of 3,300 nonprofit organizations that have engaged in mergers or acquisitions (M &

A) in four states over the past 11-years. In the survey report, the authors of the Bridgespan

paper identify “market characteristics favorable to mergers and acquisitions” (Foster, Cortez

and Milway) in the nonprofit sector. This survey does not include joint ventures or strategic

alliances.

This research points to the institutional characteristics of a certain type of nonprofit business

- Child and Family Service (CFS) providers - that appear to be most suited to the merger

process. The study presents data that illustrates the rate of CFS mergers over the last 11-years

is at 7.1 percent while mergers in general in the overall nonprofit sector are at 1.5 percent.

A second significant contribution to the study of nonprofit mergers and other restructuring

activities in the nonprofit sector is the 2009 Collaboration Prize. In 2008 the Lodestar

Foundation established and funded the prize in the amount of $250,000 in collaboration with

the Arizona-Indiana-Michigan Alliance (AIM Alliance). The Prize was created to enlarge the

body of knowledge about restructuring activities by teasing out what types of collaborative

activities are occurring in the sector and to recognize those organizational models of

successful collaboration between two or more nonprofit organizations.

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The Collaboration Prize received 644 nominations reflecting nonprofit restructuring activities

all over the United States. (This was a much larger response than anticipated) Of those 644,

176 were selected as successful collaborations. The nomination profiles of the 176 nominated

organizations collaboration activities form the foundation of a database of organizational

collaboration models, which is available as a resource (Officially launched August 1, 2009)

for funders, nonprofit organizations, researchers and consultants for “effective practices”

(Savage in Chronicle of Philanthropy Live Discussions) in a broad base of collaborative

efforts. The research has resulted in the determination that the successful collaborations

represent models of restructuring that are tailored to the individual needs of the collaboration

employing one or a combination of restructuring activities. These collaboration activities

include long-term joint programming, administrative consolidations, mergers and other joint

activities.

Motivating factors for nonprofit organizations to consider merger or other forms of restructuring

Economic pressures lead to potential for increased financial stability through restructuring

In an economic environment that impacts both nonprofits and their funders, financial need is

recognized as a primary motivation. The cross-section of leaders from the nonprofit sector

and philanthropic community interviewed for, the Kohm, La Piana & Gowdy study (pg 64),

predicted that consolidations will be on the increase because of financial pressures. They

attribute these pressures to the way funders’ expectations of grant recipients have changed

over time and challenge brought on by competition among nonprofits. Challenges for access

to funding in an increasingly competitive market due to the growth of the nonprofit sector are

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cited as a key motivator for mergers for both the funders and nonprofit organizations.

(Dewey and Kaye)(La Piana) Additionally, the current downturn in the economy has

contributed to a weakened funding environment where government and foundation support is

being reduced. As per the transcript of the panel discussion, “Dancing With Different

Partners”, held during the Grantmakers in the Arts 2004 Conference and in David La Piana’s

white paper, “Beyond Collaboration”, increased competition and changes in the economic

environment are seen as the motivation for nonprofits to seriously consider better economies

of scale. (Cerverny, Stevens and Yankey) (La Piana) For a financially challenged nonprofit

organization, a merger or a restructuring alliance may offer a promise of greater financial

stability.

The promise of financial benefits of a merger are a definite consideration; not so much to

build equity, but to conserve capital in order to bolster the merging nonprofit organizations’

common mission. (McCormick 2) Unlike a for-profit merger, where downsizing personnel is

often integral to cost savings, a nonprofit merger historically results in increased staff

capacity, which is seen as an advantage for the better delivery of expanded services.

(McCormick 3)

It should be noted, however, that Dewey and Kaye in their 2004 study state that mission

sustainability and not financial growth, was the key motivating factor for nonprofits when

making the decision to consolidate. (Dewey and Kaye)

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Funders see mergers as an answer to inefficiencies and mission redundancy

According to McCormick mergers represent the “rebirth of an organization rather than the

death of a mission”. (McCormick xv) Funders report that they are seeing multiple nonprofit

organizations with similar missions that are duplicating programming and offering services

to the same constituencies. To counter this trend, funders have recommended mergers as a

method to economize, to streamline service and mission delivery. (Dewey and Kaye)

(Toepler) Research indicates that guidance from funders to their grantees for better

efficiencies and improved mission delivery is a motivation for nonprofit organizations to

consider restructuring through merger. “The concern is for synergistic economies of effort

and marketplace competition”. (Wernet and Jones/McCormick 2)

Organizational life cycle

The life cycle of an organization affects the decision to restructure the business. Many older

nonprofits have grown to fruition, and are no longer as vital or effective within the

community as they were during their early years; making them open to considering a major

change effort such as merger. (La Piana 8) Other non-profits have grown so successful that

they identify restructuring with expansion and as the apparent next phase in their growth.

(Foster, Cortez and Milway)

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Size of organization

According to Cerervny et al, a smaller start-up organization may need administrative

infrastructure support, which they can get from a larger organization. Described as an

“incubator umbrella” (Cerverny, Stevens and Yankey 8) larger management service

organizations (MSO) partner with smaller entities to provide these types of support services.

(Cerverny, Stevens and Yankey) This type of restructuring arrangement is less complex than

full-scale merger.

Researchers present conflicting points of view regarding the scale of the organizations that

are more likely to succeed at restructuring. John Yankey, panel leader at a session for private

and community foundations, reports that there is no relationship between the success of

merger and the size of the organizations. (Cerverny, Stevens and Yankey) On the other hand,

Kohm and La Piana reported that restructuring activities are more likely to occur in midsize

organizations with budgets between $5 and $10 million dollars. (Kohm, La Piana and

Gowdy) According to the Bridgespan study, “Nonprofit M&A: More Than a Tool for Tough

Times”, the rate of mergers in larger nonprofit with budgets greater than 50 million was

much lower than in smaller scale nonprofits.

Ideally, it should follow that larger organizations may find the advantage to merging with

smaller, less financially secure entities because the merger focus is not about which of the

organizations has the most equity but rather, what both organizations bring to the table to

compliment their respective strengths, while balancing out each others weaknesses.

(McCormick 3) This is supported by the Bridgespan report which presents that a larger or

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lead organization experiences “barriers to organic growth” (Foster, Cortez and

Milway),which makes it more practical - both financially and programmatically - to merge or

acquire a smaller organization that provides complimentary services rather than attempt to

grow those services from within.

The leadership void

La Piana points to the overarching problem of the leadership void in the nonprofit sector as

an ongoing concern for the sector. He reports that due to the historical problem of

“discounted wages” as described by John Kreidler in the white paper, “Leverage Lost”,

(Kreidler in La Piana 9) many in leadership have been leaving the sector prematurely. The

Bridgespan report advises that within the next five years there will be a leadership void

across the sector of “ 330,000 senior management roles in nonprofits (excluding hospitals

and institutions of higher learning)”. (Foster, Cortez and Milway 10)

Fewer people in the leadership pool combined with the increase in executive wages across

the sector has put additional financial stress on organizations, thus making cost saving

consolidation initiatives more appealing to Boards and administrators. (La Piana)

Additionally, in merging organizations a leadership void is cited as a benefit and/or catalyst

for some organizations because a leadership vacancy removes the onus of having to choose

between two executive directors as to who will lead a newly consolidated organization. (La

Piana) (Toepler)(Dewey and Kaye)

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Advantages of merger

The literature identifies environmental circumstances, either external or internal, that point to

mergers or other forms of consolidation as a means to better accomplish their missions and

financial sustainability within the sector.

Economic drivers

Researchers site that mergers and other forms of restructuring often lead to additional

opportunities for funding for the larger newly formed organization that may not have been

available to a smaller lone entity. With mergers organizations obtain increased financial

strength when combining assets. (Cerverny, Stevens and Yankey)

The increased size of an organization results in a larger market share. Organizational debt

can be absorbed into the larger budget, which potentially balances out the “ebb and flow of

fund development cycles”. (McCormick 7) As a restructuring consultant in the nonprofit

sector, McCormick reported that he orchestrated forty nonprofit mergers. According to

McCormick (1999), mergers reap immediate results for nonprofits through the economies of

scale seen in the sharing of donor lists, resources, and site usage. These nonprofits realized a

4% net savings by combining resources. (McCormick)

Savings can be gained from shared administrative functions such as blended business

operations and executive management, Human Resources management, IT management and

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finance systems and through economies of scale as a result of such things as consolidating

group health insurance and purchasing office supplies in bulk. (Kohm, La Piana and Gowdy)

Expanded mission reach

Mergers represent the “rebirth of an organization rather than the death of a mission”.

(McCormick xv) A nonprofit organization’s “primary driver” (Dewey and Kaye 4) for a

merger with a complimentary organization is to increase mission reach in the community.

The Dewey and Kaye study presents the results of a survey of 22 nonprofit organizations in

the Pittsburgh area where 50% of the respondents in the Pittsburgh study hoped for increased

program capacity. (Dewey and Kaye) Denise Gammal, in the SPEN survey of 200 nonprofit

organizations in the San Francisco Bay Area reported that nonprofits “want to merge to

advance their missions.”(Gammal 51)

Increased organizational scale, improved efficiencies and services offer a competitive edge and broader public perception

The increase in organizational operations with combined staffing and expanded programs

gains, a more competitive edge for funding, service contracts (cited in health and social

service industries) and the ability to generate additional primary services to clients/audience.

(Cerverny, Stevens and Yankey) (Dewey and Kaye)(La Piana)

When combining complimentary services and diversifying programs, allied organizations

have an opportunity for stronger programmatic impact in the community. The newly

consolidated entity has greater influence with funders, on its constituency, competitors and

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policy makers. (Vergaro) Cerverny et al, see an advantage in mergers because they result in

stronger capacity in staff, in leadership and board and in improved technologies. (Cerverny,

Stevens and Yankey) According to Kohm, La Piana and Gowdy, 72% of the respondents in

their study acknowledged that the strategic restructuring of their organizations proved more

“effective over time”. (Kohm, La Piana and Gowdy 130) Increased efficiency was reported

by 69% as the most important aspect of the restructuring, while 89% of the respondents

described the potential for improved services as most important. (Kohm, La Piana and

Gowdy)

Another benefit researchers report is the immediate increase in visibility and improved image

in community due to the energy surrounding a merger, which creates media interest. If

marketed appropriately this gives the public the impression of effective governance by an

organization’s leadership and Board. (McCormick)

Challenges for merger and strategic restructuring process

In their research, Kohm & La Piana quote a study by Penny G. Foster-Fishman of University

of Chicago, where the author warns that nonprofit organizations are ill-equipped to

successfully consolidate because of “funding disincentives, poor communication,

organizational rivalries and service sector segregation.” (Foster-Fishman in Kohm, La Piana

and Gowdy 19) These themes are repeated throughout the literature.

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Mergers can result in insufficient or lost funding

The literature indicates that there are some funders that take a leading role in promoting and

supporting the merger process among the organizations they fund because of the potential for

consolidating complimentary and competitive organizations that serve the same or similar

constituencies. However, researchers report that once a merger is in place, there is a trend

among funders (government, foundation and private contributors) to reduce grants by half or

more. (Cerverny, Stevens and Yankey) (Gammal) (Dewey and Kaye) (Merger Case Study)

(Foster)

In “Merger Case Study: Cincinnati Museum Center at Union Terminal”, a case study

resource posted on the La Piana Consulting website in 2008, a representative of the

Cincinnati Museum Center (CMC), one of three cultural organizations that undertook a

three-way merger, states that there is a “disincentive” (Merger Case Study 6) to organizations

to merge due to the prevalence of funding cuts. A senior staff member, described CMC as

“chronically under-funded since it opened.” (Merger Case Study 4) The interviewee reported

that their corporate and individual funders were very supportive of the mergers at the start

but as the merger process progressed, the funders saw it as an excuse to cut funding. The

interviewee stated that a nonprofit “knows intuitively” (Merger Case Study ) that they can get

more support as a unique organization then they will being part of a larger entity.

Often an unanticipated disadvantage of integration is that in spite of organizational efforts to

gain economies of scale in the long-term, funding needs for newly merged organizations are

not reduced in the short-term. In the SPEN study the 22 organizations surveyed grew their

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programming which increased their need for income. (Gammal 51) Merged organizations

reported that they required at least 3-years to complete the consolidation process after which

they eventually experienced cost savings. (McCormack)(Dewey & Kaye) Researchers cited

that continued funding at levels consistent with an organization’s pre-merger needs was

identified as being especially necessary, but particularly lacking during the transition period.

(Gammal) (Merger Case Study) (Dewey and Kaye) Additionally, in the case of a foundering

nonprofit organization, funders in their zeal to make good on their long running investment

to support mission and what they deem as necessary services may urge “ill-advised unions”

between organizations, forcing a healthier organization to take on too much debt of the

weaker organization. (Gammal 48)

A proprietary mindset limits leadership decision-making

“The passion of founders overtakes everything”, says Lois Savage President of the Lodestar

Foundation. The attitude that, “This is the way its always been done”, often becomes a

roadblock to an organization’s objectives to fulfill its mission. (Savage interview with

author)

Perceived threats to autonomy or turf for organizational leadership, on the Board and on staff

levels can lead to potential problems. (Toepler) (Gammal) (Kohm, La Piana and Gowdy)

(Kligerman) Executive leadership, especially organization founders, may be a barrier to

merger process because of the fear of losing their positions and their hold on the organization

they created. (Kligerman) Problems also appear surrounding possible job loss, new roles,

inter-office alliances and the new pecking order. (Arsenault)

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Differences in organizational cultures present a challenge

It is a challenge to change a corporate culture with its complex “repertoire of routines”

(Hannan and Freeman in Kohm, La Piana and Gowdy 48). An important characteristic of

culture is “the ways in which decisions are made”. (Kohm, La Piana and Gowdy 47) La

Piana and Kohm establish through their research and experience that cultural differences are

a significant complaint about newly consolidated organizations. (La Piana & Kohm 19-20)

Often not identified as an issue until consolidation is underway, funders and management

may overlook the transition process of cultures when the merging organizations’ missions

and the constituencies they serve are similar. (Gammal) (La Piana & Kohm 20)

Culture clash may lead to morale problems, turnover and disruptions to work functions.

Merging organizations conduct business in different ways and may have different priorities

and expectations of staffing. Researchers Kohm and La Piana report that staff transitions to

new positions caused morale problems – senior and middle management were the most

effected by transition because during the integration period management workloads

increased. 59% of senior staff reported a change in job responsibilities as compared to 32%

of executive directors and 14% of support staff. Job titles were another concern for senior

managers with 57% reported a change in title. Executive directors were at 29 % with support

staff job changes at 14%. (Kohm, La Piana and Gowdy 43)

Decrease in staffing retention rates is cited as a result of organizational restructuring.

(Butzen) The Kohm, La Piana & Gowdy study reports that there were few layoffs reported

resulting from the restructuring initiatives, but that some staff left their jobs due to change of

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leadership, perceived change in their organization and pressures placed on them during the

transition. (Kohm, La Piana and Gowdy 51) Much time and (costly) training must be devoted

for the newly consolidated staff on restating organizational values and assimilating differing

perspectives. (Gammal)

Researchers suggest that it is incumbent upon consolidating organizations to articulate the

value of their identities and their individual cultures to the one another and that these

qualities should be understood in order for the integrating organizations to be on equal

footing. (Cerverny, Stevens and Yankey)

Mergers are more expensive and time consuming than anticipated

The literature does not provide an example of a cost/benefit analysis for a merger. It does

offer an overview of what financial impacts an organization may expect to experience and

the unanticipated problems with the merger process.

Increased costs should be expected with the start-up of a merged organization. These include

administrative salaries, costs for a physical move, marketing and re-branding a new

organization, taking on a partner organization’s debt, organizational changes and legal fees.

However, researchers report and one case study confirms, that additional costs are often not

anticipated by the merging entities or their funders. (Solutions) (Gammal)(Dewy and Kaye)

As previously discussed, a primary problem is the reduction of grant monies after the merger

begins. This problem is then compounded by an increase in administrative staffing costs, due

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to the often-unanticipated amount of time the merger process takes. (Gammal) (Strategic

Restructuring) Other unexpected external or internal financial impacts may come into play

(Gammal) such as changes to employee benefits packages or merging diverse technologies.

The case study, “Merger Case Study: Cincinnati Museum Center at Union Terminal of the

Cincinnati Museum Center” (CMC) presented by La Piana Consulting in Strategic Solutions,

describes the merger of three cultural organizations being relocated into a single landmark

building. A cautionary tale, best read to understand how not to conduct a merger, the overrun

costs of the building’s restoration and maintenance tapped the combined endowments of the

three consolidated organizations. Adding to this, there were unexpected fluctuations in the

external environment due to civic unrest in downtown Cincinnati resulting in a dramatic

decrease in visitorship, which further increased the financial shortfall. The combined internal

environmental factors of construction costs; loss of grants, drop in audience and the lack of a

cohesive marketing plan put the newly merged organization into a deep financial deficit.

(Merger Case Study)

Initial planning stages and the integration period are often not considered

Long-term strategic planning is vital to the process of consolidation and can lead to multiple

problems when it is not in place. (Gammal)(Toepler) According to the Toepler case study of

a merger of two community arts organizations, the lack of pre-planning time – the result of

pressure from the primary funder to commence the merger quickly - contributed to one of the

organizations stakeholders’ fears that their organization would be subsumed by the other.

The organization’s concerns over the loss of its brand identify threatened to derail the merger

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process. Toepler suggests that accelerated impact of the merger, which did not allow for the

original yearlong planning and ongoing evaluation process, contributed to the difficulties the

organization experienced. (Toepler)

The pre-planning and exploratory stage can last up to 8-months, while mergers may take 3-

years to complete. The longer a merger process is drawn out the more potential for

unanticipated costs and negative impact on staff morale. (Dewey and Kaye) (Gammal) An

extreme example of this was the CMC merger. The merger was projected to take no more

than 4-years but due to poor planning in the initial stages, which did not address the

complexities of merging the staff cultures and administrative operations, the consolidation of

the three CMC entities took eight years. (Merger Case Study) The consolidation of the three

organizations was staggered. When the third entity joined the CMC, there still had been no

consolidation of staff functions of the two original entities. Although, they were working

under one roof for more than two years these organizations, for all intents and purposes, were

actively independent of the each other. (Merger Case Study)

An ongoing evaluation plan is strongly recommended by the experts, but this often is seen as

a low priority by merging organizations because of limited manpower, and/or the prohibitive

costs of external consultant fees attached to the evaluation process. (Kligerman)

Lack of transparency

Lack of communication, both internally to staff and externally in the community, is reported

as a crucial factor that can undermine the success of a merger. In the CMC case study, the

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respective Boards of the two original merging museums planned the first merger behind

closed doors while failing to inform their respective executive directors of the plans. The

executive directors received the news of the merger when the Board announced it to the

public. This lack of transparency and communication created a snowball effect causing

confusion within the employee ranks of the organization thus affecting internal and external

communication initiatives making it difficult to present coherent messaging to the public, to

constituents and the other stakeholders of both museums. (Merger Case Study) Additionally, a

year into the merger, even though a new Executive Director was in place, the two original

executive directors were still on staff, which could have added to the internal confusion.

When one organization is bigger than the other

Smaller organizations are at risk of losing their identities when merging with larger

organizations. “When the needy meet the greedy”(Cerverny, Stevens and Yankey) describes

the downside of what happens when a larger organization selects a smaller organization to

merge with, which, as a consequence, gives the appearance of a “takeover” or “acquisition”.

(Cerverny, Stevens and Yankey)

What role do the funders play in the process of merger and strategic restructuring?

A representative of a foundation on the “Dancing With New Partners” panel discussion

presented at the Grantmakers 2004 Conference noted that funders see themselves as

“investors” in nonprofits. (Cerverny, Stevens and Yankey)

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A prevailing point in the literature is that funders recommend mergers to nonprofit

organizations because they see the potential for consolidating complimentary and/or

competitive organizations that are serving the same constituencies. Funders see a merger and

other forms of strategic consolidation as a way to sustain mission for those organizations that

they have supported overtime and as an optimum approach for the introduction of

efficiencies that will eventually use the funders’ dollars more effectively. (La Piana)

(Gammal) (Dewey and Kaye) (Lodestar)

Kathleen Cerverny, a panelist at the “Dancing With New Partners” program, indicated that

funders can be watchdogs for the industry, noting that in her position as a program officer at

The Cleveland Foundation, she has observed “duplication of services” (Cerverny, Stevens

and Yankey) and problems with organizational efficiencies in many of the nonprofits the

foundation supports. However, she feels strongly that funders must be careful not to impose

their ideas about merger on their grantees. Both Lois Savage of the Lodestar Foundation and

Don Kligerman of Fairmount Ventures, Inc. agree, with Mr. Kligerman stating the funders

are “loath to appear” (Kligerman) to be imposing financial pressures on organizations to

merge. However, both agree that funders are likely to be extremely receptive of and

supportive to an organization that comes to them with a merger proposal. Mr. Kligerman was

rather jaundiced when he commented that, “nonprofits will go were the money is”.

(Kligerman)

The literature cites funder restrictions as influencing nonprofits to consider mergers.

According to the Kohm and La Piana study many of the nonprofit organizations they

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surveyed had administrative management structures that were stretched thin, making it

difficult to fulfill administrative and programming goals. At that time, funders did not

generally award grants for administrative capacity building. As a result, these nonprofits

began to look to mergers for the potential benefits that would result from shared

administrative functions to fill the capacity void.

Two serious concerns regarding the funding community’s influence and responsibility in the

promotion of the merger process surfaced in this literature review. Number one is that

funders may impose pressure on healthy organizations to rescue financially challenged

organizations through mergers. Almost half of the respondents in the SPEN sample study

reported that funders “pushed” mergers because “one or both organizations where in

financial distress.” (Gammal 50) Secondly and more significantly, most experts agree with

Ms. Gammal’s SPEN findings that funders “scale back their funding for the newly scaled-up

organizations.” (Gammal 48) (Solutions) (Dewy and Kaye) (La Piana) (Cerverny, Stevens

and Yankey)

A funders’ influence is significant. At least three of the researchers presented here voice

concern about the pressure funders impose on nonprofits to promote the orchestration of

mergers. A number of the researchers made recommendations as to how funders could better

address their own motives and how to present their support surrounding the prospect of

restructuring in an equitable fashion. (La Piana) (Gammal) (Dewey and Kaye)

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Conclusions and questions

There are a number of factors and questions that have surfaced with the review of the

literature:

What makes some types of nonprofit organizations more likely to merge successfully?

The Bridgespan Group singles out Child and Family Service (CFS) industry as the most

likely candidate for success with mergers for a number of reasons (Foster, Cortez and

Milway 3). As Toepler reported in his 2000 case study, there is more competition within the

health and social service fields with the for-profit sector, making the need for constantly

improving services essential. Additionally, primary financial support comes from

“impersonal funding sources” (i.e.; 85% of the social services funding comes from state or

federal government programs). (Foster, Cortez and Milway 3) These government funding

agencies take on the roles of quasi-industry regulators by imposing pressures on service

organizations through contracts to expand the reach of their services through mergers, and, as

a result, smaller service organizations are either being eclipsed or are choosing to

consolidate. (Foster, Cortez and Milway)i

Furthermore, comparative results are easy to measure in the health and service sectors

because there are standardized, industry mandated metrics that gauge the productivity of the

organizations in relation with others in the field. Thus the process of tracking success and

failure rates is methodical and systemized. The Bridgespan study also cites “barriers to

organic growth” (Foster, Cortez and Milway 3) as a characteristic seen in the CFS industry,

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where it is less of a challenge for a larger organization, both financially and

programmatically, to merge or acquire another established organization that provides

complimentary services, i.e. services the larger organization wants, than it is to grow those

services from within.

Limits of research

The selected literature offers a substantive overview of the nonprofit sector from the multiple

perspectives of academic scholars, nonprofit consultants and merger specialists and

foundations representative. The research had some limitations because of the lack of

comprehensive quantitative research including case studies to create a body of knowledge

about mergers and the other forms of strategic restructuring initiatives among nonprofit

organizations and specifically in the nonprofit arts and culture sector.

The survey research presented appears to be methodologically sound, but some of it offers an

overly broad scope of nonprofit restructuring activities making it difficult to identify the

actual impact of mergers on the sector. Additionally, even when the research is specific to the

merger process, it presents small representative samples of respondents within the wide

spectrum of nonprofit businesses combining the healthcare industry, social services with arts

and culture organizations together. (Kohm, La Piana and Gowdy) (Dewey and Kaye 2007)

(Gammal).

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Cultural differences and lack of planning

Differences in organizational culture point to a significant challenge to implementation and

integration. Lack of preplanning and evaluation contribute to the issues that hinder or scuttle

the potential for successful outcomes of the merger process.

Planning for the challenges of consolidation of cultures is stated to be a key to the

implementation of the merger process by a majority of the literature. (Kohm, La Piana and

Gowdy) (Toepler) Gammal) (Cerverny, Stevens and Yankey)

Some researchers recommend that entities considering integration or consolidation activities

engage an independent consultant to help shepherd the organizations through the analysis

process, the planning process, implementation and to keep them on track during integration.

(La Piana)(Dewey and Kaye) It was evident in both the CMC and Toepler case studies, that

pre-planning with an independent arbiter could have provided objectivity to the planning

proceedings, and would have helped to foster good will and better organizational focus while

going through the complex merger process (Merger Case Study) (Toepler) Experts

recommend that merging organizations create an integration planning team (La Piana 5) In

the final analysis, there is serious need for appropriate planning and giving the merger the

time needed to go through all stages of the process with or without professional help when

undertaking a merger or any other form of restructuring.

La Piana and Arsenault advise that all organizations have their own particular cultures; staff

shares a set of values and make an unspoken pact with their organization that sustains them

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in their roles at their organizations. (This is especially true of staff in nonprofit settings who

characteristically thrive on dedication to fulfilling mission in lieu of tangible material

benefits or rewards). Staff anxiety has a major impact on a newly merged organization when

their comfort zone in their respective roles appears to be threatened. (La Piana & Kohm) It is

important that merging organizations be respectful and acknowledge the existence of the

others culture throughout the negotiation process and the integration. Attention to blending

cultures must be part of the planning process beginning at the exploration stage, and must

continue to run beyond implementation. (Cerverny, Stevens and Yankey)

The existence of trust and the ability to communicate are key factors that impact the success

of a merger are cited in the research. Again, the long-term investment of time for relationship

building with regular meetings to discuss and explore organizational motivations for

consolidation is a crucial ingredient for a successful merger. Cultural conflicts should be

anticipated from the start. Activities designed to cultivate communications and internal

compatibility should be incorporated in the planning process.

The funding community should be clear on how it influences nonprofit organizations’ decisions pertaining to restructuring

As “investors” (Cerverny, Stevens and Yankey) the funding community is positioned to be

the first responders when observing organizational efficiency problems, redundancy of

missions, overlapping audiences and improved service delivery in the nonprofit organizations

they support. However, researchers warn of over zealousness on the part of the funding

community in its recommendations of mergers as the sole solution when responding to these

problems. (Merger Case Study) (Gammal) It is possible that funders may overlook inherent

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organizational differences in lieu of economies of scale, matchmaking organizations that

have similar missions and overlapping audiences but are incompatible culturally. (Gammal)

Researchers point to the practice of funder imposed conditions on grant petitioners to partner

on short-term projects even when there is evidence that these grant-driven programs do not

always work. In her 2003 study, “Cultural Collaborations, Building Partnerships for Arts

Participation”, for the Urban Institute, Francie Ostrower, described the “partnership realities”

(Ostrower) of programmatic collaborations where grantees reported creating new

programming that did not directly connect to their missions as a result of the conditions of a

grant. Some funders have identified programmatic collaborations as a strategy to improve

efficiencies with objectives (similar to those stated for mergers); to discourage duplication of

programs, build networks by reducing isolation, and expand organizational capacity. A

funders’ goal in promoting joint programming collaborations may be to increase audience

participation and audience diversity but some findings indicate that these partnerships often

lack the connection between the individual missions of the partnering organizations.

Without mission as the clear objective these add-on programs resulted in an added

administrative burden with extra and hidden costs that fell outside of the scope of the

collaboration grant. Thus, making the everyday running of their organizations more

challenging and less efficient. Ostrower reports that these partnerships were motivated by the

prospect of new funding and they likely would not have been undertaken without grant

support.

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Ostrower makes an interesting point when she suggests that the funders have an

oversimplified “ideological” belief that partnerships are the “way the social sector should

operate” with the missions of the individual organizations secondary to the funder’s vision of

these partnerships. (Ostrower) The worry is that this same “ideological” value system may

inform the funding establishment’s promotion of mergers and consolidations.

Another issue of concern is that funders are being shortsighted about their investment by

pulling back on funding at the critical integration stage. Evidence indicates that some funders

offer grants for merger in three stages. Initially, there is assessment of potential to merge –

Funders support for technical support to help the organization identify if merger is right for

them, help identify the merger partners and then make a plan, which lead to decision and then

negotiation. Then, there is the Implementation stage – where the organizations do separate

and combined due diligence, address legal issues such as the transfer of assets, and property.

Integration is the final stage – This is the blending of cultures (board, staff, management,

volunteers) Blending systems (financial, technology, HR, facilities, and fundraising

processes). The final stage should include a formal evaluation of the entire process. (La

Piana, Harrington)

The process is broken into stages because it builds on itself and may be aborted at anytime

during the first two stages. However, once the transaction is completed, research indicates the

integration stage gets less attention from funders with funders prematurely cutting back on

grants to organizations that they have supported through the first two stages of the process

thereby undermining their own vision for transformation.

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The growth of newly merged organizations requires at least the same amount of grant monies

or even more funding. Some funders fail to see that when organizations merge, the newly

integrated organization may scale down administrative operations but the programs grow

larger and audiences increase. (McCormick) Mergers increase services/programs and often

staff capacity and as a result, budgets increase. It is important that funders and organizations

be aware that expenses increase particularly for human resources. Contrary to the way

employees are downsized in a for-profit merger (this representing an economy to the

company), the standard in the nonprofit sector is to retain staff in order to provide increased

services. According to Cerverny et al, 65% to 85% of nonprofit yearly budgets reflect

personnel costs. In addition, when two organizations merge management usually provides the

better of the two organization’s healthcare and compensation packages to the employees.

(Cerverny, Stevens and Yankey) But, this could also be viewed as an advantage, with more

people who need benefits; the new, larger organization has more leverage and buying power.

William Foster and Alex Cortez of the Bridgespan Group advise that funders should not

appear to bully but should act as “matchmakers” (Foster & Cortez) for nonprofit to assist in

identifying opportunities. They believe that funders should support the costs attached to the

due diligence activities required for informed decision-making as well as, the transaction

costs of the new alliance. (Foster & Cortez 14)

Recent evidence indicates that some funders are more aware of the complexities of the

merger process. However, Don Kligerman, President of Fairmount Ventures, Inc. nonprofit

consulting firm in Philadelphia, points out that is should be the responsibility of the nonprofit

organizations to do their due diligence in order to be knowledgeable of the actual costs and to

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49

be clear with their funders as to what those real costs will entail. Mr. Kligerman noted that in

his experience with nonprofit mergers that nonprofit organizations’ rarely included a formal

evaluation in its plans because it was cost prohibitive. (Kligerman)

Mergers are time consuming and expensive but they are not the only restructuring option

open to nonprofit organizations to achieve economies of scale and mission reach. At least

four of the authors, and, in particular, David La Piana, have called upon foundations that

focus their support on nonprofit mergers, to increase funding for exploration of the other

types of restructuring alternatives. (Gammal) (La Piana) (Dewey and Kaye) (Cerverny,

Stevens and Yankey)

Several questions surfaced out of the literature review

• Will the current financial environment influence the funding community and the

nonprofit sector to investigate and initiate more restructuring activities?

• Is there more evidence regarding the alternatives to merger?

• Are the funders promoting these alternatives?

• Will mergers or other forms of consolidation or collaboration turn out to be a stopgap

measure by funders and nonprofit groups to save foundering nonprofits that should

simply close?

• What are the strategies to address the blending of cultures in the merger process?

• Most of the restructuring research has been in other sectors besides the arts, what

comparisons can be drawn to identify the potential advantages and challenges of

restructuring and mergers specific in the arts sector?

Maggi Lawler Kirk

Thesis - Possible Solutions For A Sustainable Future: Restructuring Through Mergers And Other Alliances In The Nonprofit Arts And Culture Sector

Over the past decade, many nonprofit organizations with some support in the funding

community have investigated the potential promise of mergers or other forms of strategic

restructuring as the means for their organizations to increase efficiencies while expanding

mission reach and service delivery. Field experts have voiced concerns that the funding

community may have undue influence over this process because they hold the purse strings,

knowing that nonprofits will “inevitably follow the money”(Kligerman). Nonprofit

organizations have been known to adapt or modify their mission focus to accommodate the

requirements of a grant. Additionally, the concern is that the existing research in the area of

nonprofit strategic restructuring has been lacking when it comes to presenting the empirical

evidence of just how prevalent restructuring activities are within the nonprofit sector and,

whether these activities can be deemed successful.

A recent spike in field research points to significant evidence of collaborative activity in the

overall nonprofit sector and although still limited, in the arts and cultural sector as well. The

2009 Collaboration Prize, created and sponsored by the Arizona based, Lodestar Foundation

in collaboration with the AIM Alliance represents a new source for research.

This research project explores the evidence of how the funding philosophy of the Lodestar

Foundation and its launch of the 2009 Collaboration Prize database have served to inform the

body of research regarding nonprofit restructuring activities to reveal the levels of activity in

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the nonprofit sector across the country. Additionally, it brings to light evidence of the

motivations, goals and outcomes of a segment of thirteen arts and cultural segment of

nonprofits that have taken part in long-term collaborative activities and in what ways a

funder may successfully influence the process. The results of this study may help to inform

understanding of possible solutions for a sustainable future for the arts and cultural sector

through business restructuring activities.

Research The investigation of the Lodestar Foundation and the Collaboration Prize began with

knowledge drawn from the comprehensive literature review of existing research on the

nonprofit sector and strategic restructuring processes. This research revealed the possible

motivations, advantages and the challenges for nonprofit organizations for restructuring and

the influence of the funding community on the nonprofit sector. The Lodestar Foundation

website was used as the primary background source for the information regarding the

Lodestar Foundation. It offered a historical context for the Collaboration Prize. Additional

data was collected through media accounts of the events leading up to the launch and

announcement of the prize, including in-depth print interviews with Lois Savage, President

of the Lodestar Foundation. Data was supplemented through semi-structured interviews with

Ms. Savage, and other field experts. The Collaboration Prize data analysis documents created

prior to the launch of the Collaboration Prize nonprofit collaboration database by the Arizona

State University Lodestar Center of Philanthropy and Nonprofit Innovation were also

reviewed. The nonprofit collaboration database provides a body of researchable materials of

176 nonprofit organizational collaborations that go deeper and are more revealing of

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restructuring activities in the nonprofit sector than much of the previous research available.3

This study also examines the profiles of the thirteen arts and cultural qualifying nominees for

the Collaboration Prize database, which includes a quantitative analysis of the documentation

as it relates to the collaborative activities of the 176 nonprofit collaborations that make-up the

entire nonprofit collaboration database.

Background and overview of the Lodestar Foundation

“A core mission for the Lodestar Foundation is to create financial and programmatic

efficiencies among nonprofits — making sure [that] philanthropic dollars achieve their

maximum impact," said Lodestar Foundation chairman Jerry Hirsch. (Hirsch in Cahill)ii

The word “Lodestar” is emblematic of the foundation’s mission to have their philanthropic

dollars go farther and achieve greater impact by supporting the potential for nonprofit

organizations to expand mission reach through the improvement of service delivery,

increased efficiencies and elimination of duplicating of efforts. According to maritime lore a

“Lodestar” is the guiding celestial body historically used by sailors to navigate at sea. Today,

a “lodestar” is also defined as a guiding principle or model to be followed. Most

prophetically, the foundation’s name is directly associated to its sense of place and to

positive outcomes because in the vernacular of the Arizona mining community circa 1900, a

3 However, it must be noted there are inconsistencies in the Collaboration Prize documents that cannot be overlooked as the

two research papers and the database material do not agree on the number of collaborations that successfully made the first

cut after the initial review of 644 nominations.3

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“Lodestar” was slang for that moment when a minor’s pick ax struck that first “shining glint

of (iron) ore” (About Us-Our Name) a sign that distinctly augurs a promise of a rich strike.

The 10-year old Arizona based Lodestar Foundation is a funder that that is representative of

innovative practices. The foundation stands out, reporting that it funds technical grants on a

“sliding scale” (The Chronicle of Philanthropy, Live Discussions) to accommodate the

lengthy process of coordination and planning for an alliance because they recognize that the

participants have “day jobs” (The Chronicle of Philanthropy, Live Discussions) that require most

of their time. They fund consultants to help nonprofits considering consolidation to define

“whether or how to move forward”. (The Chronicle of Philanthropy, Live Discussions)

Additionally, Lodestar subsidizes relocation expenses for nonprofit that are forced to move

due to a new alliance. To inspire nonprofit organizations to educate themselves, Lodestar

provides technical assistance grants for nonprofits to investigate opportunities and it funds

gatherings of nonprofit organizations with peers/competitors to promote dialogue and inspire

possible collaboration prospects. (The Chronicle of Philanthropy, Live Discussions)

Established in 1999, the Lodestar Foundation has devoted its philanthropic mission to the

encouragement and promotion of efficient business practices in the nonprofit sector by

funding partnerships among nonprofits that have a goal to improve delivery of services,

increase efficiencies and eliminate the duplication of efforts. Furthermore, the Lodestar

Foundation has sought to develop collaborative relationships within the philanthropic

community in order to extend and leverage the foundation’s funding resources thus

amplifying the financial impact of its grantmaking.

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Since its inception, Lodestar has embraced the “strategy of supporting long-term” (Savage in

Butzen) collaborations that produce a sustainable yield. The recipients of grant monies fall

within a broad spectrum of regional, national and international nonprofit causes: arts and

cultural organizations, Arizona-based social service agencies, advocacy groups, legal aid

organizations, education programs in the Middle East, and local healthcare service

organizations.

With grants falling within the range of $10,000 to $40,000, the Lodestar Foundation has

provided support to more than 205 nonprofit organizations. According to the Lodestar

Foundation 2008 Form 990, the Foundation gave grants in the amount of $7,194,516 to 46

charitable organizations and philanthropic foundations in 2008. As of December 2008, the

Lodestar Foundation has funded 30 collaborations and mergers with an 85% percent success

rate. (Butzen).

The Lodestar Foundation represents an uncommon approach to philanthropy for the

nonprofit organizations it supports because its grant-making initiatives support a platform for

internal organizational change. By helping to cultivate an atmosphere, where competition is

replaced by collaboration, Lodestar Foundation grants acts as a catalyst for the

transformation of the traditional nonprofit business model. What makes the Lodestar

Foundation unique in comparison to other foundations is that its grant making efforts are

open to all types of nonprofit organizations regardless of mission focus.

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Few foundations are as completely focused on funding the “process” (Savage in Butzen) of

building efficiencies through collaboration and eliminating duplication of services in the

nonprofit sector as the Lodestar Foundation. The Lodestar grants are for capacity building;

designed to facilitate collaboration. Collaboration is a complex process and according to Lois

Savage, President of The Lodestar Foundation, their grants do not fund “fishing

expeditions”(Savage interview with author). Support is awarded only to potential grant

recipients that have made an existing commitment to the collaboration process. The involved

parties must know whom they wish to partner with, in most cases, prior to applying for a

grant. To that end, the Lodestar Foundation has provided matching grants or challenge grants

for a wide-range of projects that run the gamut of collaborative efforts from joint

programming initiatives to mergers.

Lodestar Foundation grants falls into three categories: Collaborative Grants, Philanthropy

Grants; and Philanthropy and Collaboration Grants. These grants fund a range of nonprofit

initiatives including capacity building ventures; mergers and collaborations; and for the

development of volunteerism and philanthropic public service. (Grants-

lodestarfoundation.org)

Customized to the specific organization, the Lodestar Foundation grants are generally

matching or challenge grants meant to insure that the grant recipients and their stakeholders

i.e. board members or members or other funders, have, “skin in the game”(Warren Buffet).

Grants are made in incremental funding steps. Some are multi-year grants.

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Lodestar Foundation grants subsidizes organizations in different stages of collaboration or in

one lump sum. Grants fund the investigation stage, where an assessment process of a

nonprofit’s potential for collaborative initiatives occurs, and helps to define what type of

collaboration is most appropriate for the nonprofit entities involved. Technical assistance

may be provided by Lodestar staff or by recommended consultants. (E.G. a grant for a

consultant to ascertain if a nonprofit should merge or go out of business) to Lodestar assists

with identifying third party consultants for organizations to help them with the appropriate

assessment analysis for the potential of collaboration in order to gauge the type of

restructuring initiative the may undertake. Because this field of nonprofit business analysis is

so specialized, Lodestar’s approval of the grantee’s choice of consultant is usually a

requirement of the grant. (E.G. full-scale consolidation of homeless service agencies received

$3,000,000) (Butzen)

Additionally, when collaboration reaches the integration stage, Lodestar funds the costs

related to the assimilation process. These costs may include retooling new technology that is

associated with a newly merged organization, or for the design of a re-branding marketing

campaign after a consolidation.

In keeping with the spirit of the Lodestar Foundation Philosophy, the Foundation has

provided support for the Lodestar Dispute Resolution Program at the Sandra Day O'Connor

School of Law Arizona State University Mediation. This is a clinic that trains ASU Law

Students in mediation skills. The foundation also provided the capital for two social service

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agencies in Phoenix, the Lodestar Day Resource Center and the Lodestar Family

Connections Center.

An original vision of philanthropy, a driving force behind the Lodestar Foundation

Katsura Rangen, of the Harvard Business School Social Enterprise Initiative, believes that

the new breed of entrepreneur is no longer going to take the “spray and pay” (Thompson)

approach to philanthropy. Those who embrace corporate social responsibility are giving with

the expectation that their financial support will generate “social return”(Thompson) on their

investments. Consequently, nonprofit organizations are being asked to clearly document what

organizational performance means and how social value is measured and reported.

The Lodestar Foundation founder, Jerry Hirsch and its President, Lois Savage, are part of this

new breed of social enterprise entrepreneurs seeking to improve the sector by helping to

finance innovative business initiative within the nonprofit community. They attribute the

impetus for starting the Lodestar Foundation as stemming from their observations of the

systemic failures of nonprofit missions due to the “inefficiencies and ineffectiveness”

(Savage in Butzen) iiiresulting from too many nonprofits with closely related missions and

competitive agendas. Through their individual experiences as volunteers both Mr. Hirsch and

Ms Savage have concluded that in order to collaborate successfully organizations with

similar missions serving the same community must get over the huge hurdle of working in

partnership with their competitors. Mission delivery must take precedence over the individual

perception of what a nonprofit organization is doing programmatically.

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Lodestar Foundation, Founder, Jerry Hirsch and, President, Lois Savage, are long-standing

members of Arizona’s philanthropic community. Jerry Hirsch, a Temple University graduate,

is an attorney and real estate developer in Arizona. Mr. Hirsch is renowned for his

commitment to progressive approaches to philanthropy in Arizona. He has been integral to a

wide array of philanthropic cause on the local, national level and internationally. In 2000,

Mr. Hirsch found inspiration in the work of venture philanthropist and computer program

inventor, Paul Brainerd, who launched the first Social Venture Partners in Seattle, a

philanthropic network currently in 24 cities around the U.S. Like Mr. Brainard, Mr. Hirsch

identified the need to cultivate a sustainable infrastructure for philanthropy within the

community of business leaders. He established the Social Venture Partners Arizona (SVPA),

in the same year as the Lodestar Foundation growing the organization from 33 to 130

members within that first year. The SVPA members research and educate themselves on a

variety of civic and social causes within the region then they chose a worthy cause that they

support with leveraged resources through their collaborative funding initiative. Many in the

group have gone on to board leadership positions in the organization that they first funded

through SVPA. (Cabot)

Mr. Hirsch’s approach to philanthropy is fairly simple. Described by an associate as not

being driven by altruism, Mr. Hirsch is considered a pragmatic businessman with a

“spiritual” bent (Savage interview with author) by those who know him. He believes that

philanthropy is a selfish act performed to make one’s self happy. In an interview with the

Jewish Times of Greater Phoenix, Mr. Hirsch explained, "The process of acting, of giving of

yourself, of working with others, is a very meaningful thing," said Hirsch "You are judged by

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what you do, not by what you think or say." (Cabot) Seemingly manifesting the simple

wisdom of Abraham Lincoln, who said, "When I do good, I feel good", (Post) Jerry Hirsch’s

ideas about giving inform the Lodestar Foundation philosophy of the five principles for

happiness.

The Lodestar Foundation Philosophy

1. First, the basic goal of all humans is happiness.

2. Happiness can only be found by identifying and striving to achieve a

meaningful purpose for one's existence.

3. One meaningful purpose is to endeavor to help one’s fellow man.

4. Although there are countless ways to help, ultimately the ability to help is

limited by one’s time, money and other resources.

5. By identifying and adopting a mission that is not focused on any specific field

of interest and focusing instead on leveraging resources (that is, providing the

most help with the most effective and efficient use of resources), those resources

can maximize the impact of helping others and thereby create a greater

opportunity to achieve happiness. (“Our Philosophy”)

Lodestar Foundation President, Lois Savage, is also an attorney. When she came to Arizona

from the east coast in 1970, Ms. Savage quickly became immersed in volunteer projects;

becoming the head researcher on a fact-finding initiative sponsored by then Senator Sandra

Day O’Connor. The research project, a study of 28 agencies serving the region’s homeless

community, was Ms. Savage’s first encounter with organizational inefficiencies due to

overlapping missions and duplicating services. Over time, in her capacity as a volunteer

fundraiser for other organizations including as the vice-president of the Arizona chapter of

the Junior League, Ms. Savage observed many instances where organizations could have

worked together jointly on projects but failed to identify areas of communication and the

possibilities of collaboration for fear that working with the competition would threaten their

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own organization’s autonomy. (Savage interview with author)

Ms. Savage’s views on collaboration

A series of statements gleamed from interviews conducted in the mass media and conducted

by the author offer important insights into Ms. Savage’s views of the requirements and

challenges of collaboration. Ms. Savage identifies concerns about autonomy, self-interest in

leadership and board and conflicts of organizational cultures as reasons why collaboration be

considered or fail. Over the years, she reports witnessing resistance to collaboration, often

from passionately driven founders, where the “safety of the agency (as it stands) surpasses

mission”. (Savage interview with author) As a means to alleviate “pushback” (Savage

interview with author) to the collaboration process, Ms. Savage’s believes that understanding

must begin at the leadership level. She posits that nonprofit board education must be

reconsidered as these training sessions often promote a myopic or inward looking approach

to governance. The best way to accomplish mission must always be the primary motivation

for a board and training “should encourage board members to think externally” to see what

ways mission can be advanced. (Savage interview with author) Equally important, mergers or

collaborations should not be the “strategy of last resort due to financial crisis”. (Savage

interview with author) Ms. Savage also believes that the opportunity for collaboration must

be part of the organizational vision. Nonprofit organizations should consider integrating the

prospect of collaboration in their master planning processes.

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Ms. Savage sees the common challenges to nonprofit restructuring and long-term

collaborations to be the limitations of “time, lack of resources to focus on collaboration,

integration of staff and organizational cultures and fear of diminishing funding.” (The

Chronicle of Philanthropy, Live Discussions) Although the Lodestar Foundation does not

participate in negotiating the fine points of the collaborations it funds, Lois Savage has

identified one of the roadblocks to mergers or other forms of alliance as a lack of trust among

the parties involved. Both Savage and Hirsch learned early on that “in order for collaboration

to be effective”. (Savage interview with author) trust between parties was an integral

component.4

Furthermore, according to Ms Savage, over duplication of services is endemic to the

nonprofit sector. Ms. Savage points out that new nonprofit organizations do not

systematically assess their competition to analyze if the proposed services they wish to

provide are already available to the same constituency through an existing organization.

She suggests that a checklist should be a “requirement” for a start-up nonprofit to evaluate

whether the new organization is actually necessary (The Chronicle of Philanthropy, Live

Discussions)

Ms. Savage’s thoughts on funder involvement and education processes

Ms Savage notes that there should be a distinction made by funders between “program grants

that require collaboration as a condition”(Savage in Tagaki) and grants that facilitate

sustainable collaboration. Ms. Savage recommends that foundations avoid mandating

4 Perhaps this is a good reason to bring in a third-party consultant to the collaboration process as they may act as a mediator for the collaborating entities.

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collaborations because when collaborations are grant driven they “generally fall apart when

the funding stops”. (Savage) Ms. Savage believes successful long-term collaborations

develop from the “ground-up”(Savage in Butzen) not from the top down. She suggests a

funders should enter into a “courtship, not a shotgun wedding” (The Chronicle of

Philanthropy, Live Discussions) in order to inspire nonprofit organizations to educate

themselves about the potential benefits of restructuring. In addition to the Lodestar

Foundation providing technical assistance grants for nonprofits to investigate opportunities, it

funds gatherings of nonprofit organizations with peers/competitors to promote dialogue and

inspire possible collaboration prospects. (The Chronicle of Philanthropy, Live Discussions)

Lois Savage sees the art sector as ready for collaborations although she notes that one of the

impediments to arts and cultural restructuring activities is the lack of knowledge about the

various options for collaboration in the sector and founder/leadership resistance. (Savage

interview with author)

The Collaboration Prize

"The Collaboration Prize [is expected] to uncover the most successful techniques and

business models that will heighten the productivity and effectiveness of the nonprofit world."

That is, "In unifying to advance the fundamental common goal of identifying and celebrating

successful models of enduring collaboration, we hope to advance cooperation rather than

competition in the nonprofit sector."

Jerry Hirsch, Founder of the Lodestar Foundation quoted in the Phoenix Business Journal.

Early in her tenure with the Foundation, Ms. Savage realized that there was no parallel

counterpart in the nonprofit sector to the research done in the business of mergers in the for-

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profit sector. In an interview with Jean Butzen, a Chicago based nonprofit business

consultant, Ms. Savage commented that with the limited, “broad based knowledge of

collaborative activities in the nonprofit sector” (The Chronicle of Philanthropy, Live

Discussions) available to the nonprofit sector it was difficult to gauge what the different

types of collaborations options and the prevalence of these collaborations in the sector. To

this end, The Collaboration Prize was created to help identify and to recognize the “best

practices” (Savage quoted in press release, “First-Ever $250,000 National Nonprofit

Collaboration Prize”) in the collaborations that have recently occurred in the field. Explicitly

the purpose was to distinguish those collaborative initiatives that saw significant results/gains

in improved efficiencies through combining/consolidating resources, thus, generating greater

impact and mission reach. The $250,000 Prize was to be granted to the “collaboration that

best puts cooperation above competition.”(Cahill)

The genesis of the Collaboration Prize

It took the convergence of multiple organizations - all bound by the calling for innovation in

the nonprofit business practices - to bring the Collaboration Prize to fruition. The Lodestar

Foundation worked in collaboration with the AIM Alliance to produce the prize. La Piana

and Associates, acknowledged experts in the nonprofit field acted as consultant advisors

throughout all stages of prize from planning to implementation. The planning process for the

Collaboration Prize took between three to four years. (Savage interview with author)

A W. K. Kellogg Foundation initially funded the AIM Alliance, which is a collaboration in

itself, in 2006 with a “Building Bridges” grant. The AIM Alliance is the partnership of three

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academic institutions that produce comparable and complimentary nonprofit management

education programs with the goals to increase capacity and the diversity of the nonprofit

sector. The AIM Alliance is comprised of the Lodestar Center for Philanthropy and

Nonprofit Innovation at Arizona State Universityiv, the Center for Philanthropy at Indiana

University and the Johnson Center of Philanthropy and Nonprofit Leadership at Michigan’s

Grand Valley University. AIM Alliance faculty members were key collaborators and

contributors to the Lodestar Foundation in the administration and vetting process of the

nominations for the Collaboration Prize. (AIM Alliance)v

Eligibility requirements that determined the nominations for the Collaboration Prize

A request for nominations was issued for June 1, 2008 with the final deadline for

nominations on June 21, 2008. The Collaboration Prize could only be awarded to

collaborations begun no later than a year and a half prior to submission and no earlier than 8-

years (from 2000 to mid-2007). Possibly, the planners were critically aware that the potential

promise of this new funding source could inadvertently or unduly influence the motivation

for collaboration. Thus, the timeline requirement may have been designed to decrease the

chance that organizations might initiate collaborations in order to obtain the prize.

The nominators were asked to submit documentation - a required form in addition to a two-

page narrative - that explained the motivation for the collaboration, its organizational

structure, management of the process, the operational benefits, impact on participants and on

the community, the potential for the collaboration to be transferable model, the challenges

experienced and how these were addressed and a summary of the financial and operating

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efficiencies achieved by the collaboration. (Savage interview) Organizational stakeholders -

people familiar with the collaboration such as funders or board members- were asked to

submit the nomination packages. Staff members of the collaboration nominations were not

permitted to apply. The prize rules restricted the $250,000 award to be used solely for

“charitable purposes” (“Lodestar Foundation Launches Collaboration Prize”) by the winning

collaboration in the furtherance of its mission related services or programs.

The collaborations were to represent a range of restructuring activities including

administrative consolidations, joint programming, mergers, and other joint activities that

were uniquely tailored to accomplish the goals of each of the collaborating organizations.

Per the nomination requirements, the criterion for eligibility for the Collaboration Prize was

for two or more competing 501c3 nonprofit organizations to have joined forces to establish a

long-term collaboration. The collaboration was to have demonstrated “significant impact

through quantifiable means and qualitative evidence”. (FAQs) The collaboration should have

dealt with an organizational challenge “significantly eliminated duplication of efforts”

(FAQs) through one or the full range of collaborative models. The collaboration models must

be enduring, that is, they must be designed to extend past the life of an initial funding

support. A formal agreement such as an MOU, a memorandum of understanding, must be in

place to establish the structure of the collaboration.

Some criteria were unique to the type of collaboration, as in the case of a merger, where the

integration of all programmatic and administrative functions was a condition. Examples of

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efficiencies of scale resulting from combining functional areas of business such as merging

information technology were considered. Another key indicator of achievement that was

rated is if the collaboration resulted in a shared mechanism for decision-making and

governance rather than the institutional power-base staying within one of the entities in the

collaboration.

The Vetting Process

At the outset, the call for 2009 Collaboration Prize nominations resulted in 644 nomination

proposals from around the country (50 states and the District of Columbia).

The initial findings indicated that the types of collaborative activities undertaken by the 644

nominated nominees broke out as follows:

• 50% joint programming

• 10% mergers

• 7% combined joint programming and administrative collaborations

• 7% administration consolidation

• 24% in the “other” category.

(La Piana 3) vi

Restructuring expert and consultant, Jo Dubolt of La Piana Consulting, Inc., screened the

initial nominees using the eligibility protocol as a yardstick to rank the acceptable

nominations. According to Lois Savage, the first stage of the vetting process disqualified

strategic alliances among organizations that coupled complimentary services, (that is, they

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were not competitors) and/or those collaborations that were specifically mandated through an

RFP process by funders. (Savage interview with author)

Of the 644 nominations, 176 collaborations were selected thus becoming the basis for the

Collaboration Prize nonprofit collaboration database. The database is now available for use

as a resource of examples of replicable models for other organizations in the sector.

The collaborative activities reported by the 176 nominations broke out as approximately as

follows:

• 50% Joint programming

• 20% Mergers

• 20% Administration consolidations

• 10% Mixed collaborations (Savage interview with Takagi)

University faculty members of the AIM Alliance and representatives of La Piana Consulting,

Inc. reviewed the 176 nominated collaborations and, from that, 30 semifinalists were

selected. A committee of leaders from both the nonprofit and for-profit sectors headed by

Sterling Speirn, President and CEO of the W.K. Kellogg Foundation, vetted the 30

semifinalists selecting 8 finalists. vii (“Lodestar Foundation Selects Judges”)

In the final stage, representatives of the AIM Alliance and La Piana Consulting, Inc., made

site visits to each of the 8 nominated finalists in order to gain a better understanding of the

collaborations and their impact on the communities and to verify the nomination data

provided in the original nominating letters.

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In the end, two nominations were judged to be equally distinctive by accomplishing

significant community impact and financial efficiencies through truly innovative

partnerships. Selected to share the $250,000 Collaboration Prize the frontrunners were: The

Museum of Natural Science of Dallas, which was a successful three-way merger between

The Dallas Children’s Museum, The Science Place, and Dallas Museum of Natural History

and The YMCA/JCC Integration, the merger of the Jewish Community Center and YMCA of

Greater Toledo. (“First Ever $250,000 National Nonprofit”)

Overview of earliest research derived from the Collaboration Prize data

The convergence of multiple organizations working toward innovation in nonprofit business,

the Lodestar Foundation in association with the Arizona-Indiana-Michigan (AIM) Alliance

and La Piana Consulting, Inc., as consultants, is a testament to the power of collaboration. It

is also important to note that all collaboration, including this one, experience challenges

along the way. In this case, the various collaborators initially did not appear to reach

consensus regarding the collected data. As a result, there are some inconsistencies in the

source materials published by the LSU Lodestar Center of Philanthropy and Nonprofit

Innovation (one of the members of the AIM Alliance) and by La Piana Consulting, Inc., prior

to the “official” release of the Collaboration Prize database.

Specifically, the early research by the Collaboration Prize collaborators reported that there

were three different totals of semi-finalists after the initial vetting process with the database

reflecting yet another number of collaborations. viii In the report, “8 Models for

Collaboration” by Hager and Curry published by the LSU Lodestar Center of Philanthropy

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and Nonprofit Innovation, the number of the semi-finalists is reported to be 44 where the

database recognizes just 30 semifinalists. Additionally, the taxonomy for assigning the

different types of collaboration used in the Hager and Curry report, was eventually revised

and simplified by the Lodestar Foundation for the Collaboration Prize database. The Hager

and Curry collaborations models were deemed overly complex. The closely related

collaboration models identified in this report have been condensed in the database to define

just four collaboration models with limited variation within each category. ix

Ultimately, the discrepancies in the published materials do not amount to any major reporting

errors. For the purposes of this study, the evidence gathered from the Collaboration Prize

Nonprofit Collaboration Database will be utilized as the foundation for reporting on the

collaboration activities of the arts and cultural sector.

The Collaboration Prize Database, August 2009

The 176 nominated organizational collaborations representing a cross-section of disciplines

forming the basis for the database business models. The representative sample of nominees

includes organizations working in anti-poverty and social welfare civil rights and social

justice education and lifelong learning, health and mental health, arts and culture, community

development and housing, environmental and natural resources philanthropic and civic

engagement, children and youth, diversity and human rights families and elders and

technology and communications.

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The database identifies four collaboration models and provides a body of research that goes

deeper and is more revealing of restructuring activities in the nonprofit sector than much of

the previous research available. The database information- nomination letters and forms -

was uploaded to the Collaboration Prize website and made accessible to the public in the

latter part of June 2009.

Initially, the collection of data was difficult because the database was being updated and

revised in real time, and on a daily basis, for close to a month. The Collaboration Prize

website design was also being edited and revised during this time. The Collaboration Prize

data was made officially available in August 2009. The searchable database design makes

information accessible via multiple research categories and sub-categories depending on the

details the researcher requires.

It is important to note that in the initial nomination process the collaboration nominees self-

identified a specific type of collaboration activity they were pursuing. However, upon

review, the nominations were not broken into “discrete categories” (Savage e-mail to

author). This is because many of the collaborations took part in more than one type of

collaborative activity. “Those collaborations involving more than one type were counted in

both fields (e.g. a collaboration that is an administrative consolidation and does joint

programming is listed twice)”. (Savage-email to author) x

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Collaboration Models

The collaboration models found in the nonprofit collaboration database are joint

programming, merger, administrative collaboration and confederation. The following are the

definitions as per the database with the exception of the term confederation.

Joint programming is defined per the database as building on an existing program; expanding

an existing program or adding a new program or service; or creating a new organization to

present a program.

Administrative consolidations. According to the database these arrangements are represented

through a contract or an agreement or the creation of a new organization

Fully-integrated mergers resulting in one integrated organization with some brand

independence retained by the consolidated organizations

Merging resulting in an affiliate or subsidiary arrangement that is done through merging

governance, management, programs and operation but with a separate a corporate structure

Confederation – There is no definition for confederation in the database because it may be

assumed that confederation is self-explanatory. However, for the purposes of this paper a

confederation is a single entity made up of constituent organizations, which provides services,

coordination, and other support. This formal association of independent organizations retains

their distinction with a central governing mechanism. (Hager & Curry)(Business

Dictionary.com)

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Chart #1 – Types of Collaborations

*Only one nominee, an art and cultural collaboration, combined joint programming with

administrative consolidation and a merger.

Similarities and key differences

A review of the nonprofit collaboration database presents similarities in the results of the

overall database of 176 collaborations when compared to the sample of arts and cultural

collaborations (7%) relative to the types of collaborations undertaken, the stated goals, and

the reported outcomes and challenges. (Nonprofit Collaboration Database)

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For the overall database, joint programming initiatives were undertaken by approximately

62% in both the 176 collaborations and the arts and cultural collaboration sample. With a

larger percentage (62%) of administrative consolidations occurring in the arts and cultural

sector than in the overall database (22%). The percentage of mergers in arts and culture

sector are a bit higher. The distinct difference between the overall database and the 13 arts

and cultural organizations is the higher ratio of mixed collaborations within the arts and

cultural sample. Stand alone joint programming in the arts and cultural sector is much less

prevalent while mergers and administrative consolidations are close to being on par with the

overall segment.

Goals Outcomes and Challenges of the Overall Database

For the overall database the goal for collaboration break out as follows: To improve quality

of services and expand the range of services, to maximize financial resources, to serve more

clients and improve program outcomes. (Savage in Takagi) The two highest ranking goals

identified by the overall database of 176 collaborations are, “To maximize financial

resources” and “To serve more and different clients”. 93% of the respondents expressed the

goal, “To maximize financial resources” with 84% of the collaborations reporting increased

financial savings and 61% cited improvement in fund development as a result of

collaboration. Of the 92% who cited, “To serve more and different clients”, 41% of the

respondents reporting positive results in their service to more clients.

By comparison, 100% of the 13 arts and cultural nominations cited “To maximize financial

resources” and “to serve more and different clients”. 77% of the arts and cultural

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collaborations reported achieving financial savings and 75% cited improvement in fund

development with collaboration. Only 15% responded positively that the collaboration

resulted in an increase in clients.

The highest-ranking challenge reported by the 176 collaboration nominations in the overall

database is the difficulty with the “coordination, merging and integrating operations” (22%).

The second most significant challenge was identified as “raising funds and integrating fund

development” (18%) to support the collaboration, and the third was, “creating shared

culture”(28). The challenge of “lack of trust among partners” is ranked 4th on the list by just

14% of the overall database.

For the arts and cultural sector 30% ranked the “lack of trust among partners” as the greatest

challenge to collaboration. The next two challenges were rated equally by 23% of the

respondents; reporting that “achieving shared vision” and the “coordination, merging and

integrating operations” were obstacles to collaboration. The forth ranked challenge was

“raising funds and integrating fund development” was rated by 15% of the collaborations.

(Nonprofit Collaboration Database)

While the ratio of impact of the specific challenges differs, the results indicate that 3 out of 4

significant challenges reported for collaboration are the same for the overall segment as they

are for the sample of arts and cultural collaborations.

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Chart #2 – Outcomes

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About Collaborations in the Arts and Cultural Sector

“We’ve been seeing many more administrative consolidations among arts organizations than

mergers – although one of the winners of The Collaboration Prize was a merger among three

museums”. (Museum of Nature and Science, Dallas, Texas)

Jo DeBolt, Senior Manager, La Piana Consulting, Inc.

For the purposes of this study, the nonprofit collaboration database is used to examine one

type of business discipline - arts and cultural organizations - within the representative sample

of 176 nominees. There are thirteen (13) collaborations within this category. The research

identifies the different types of collaborations undertaken within the category, the

motivations for collaboration, the level of funder involvement, the initial goals in relation to

the actual outcomes and the challenges experienced and what steps were taken to resolve

them.

This following explains why the data was collected and how this data answers the

hypothesis. Though a small representative sample (7% of the database), the 13 arts and

cultural organizational collaborations represent a broad spectrum of nonprofit business

disciplines including community foundations and state arts commissions, museums and

galleries, theaters, orchestras, ballet companies, opera companies, an aquarium, arts and

education centers, service organizations and arts agencies.

The data was analyzed to determine the essential forces that motivated the collaborations and

to ascertain the percentage of commonalities there are in the primary goals, and the outcomes

and the challenges that the collaborations share and what characteristics may be unique to the

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specific partnerships. Charts illustrate and rate the collaboration goals in order of importance;

indicate the goals that were met or not, and classify the challenges affecting the

collaborations for the arts and cultural sector in order of frequency. Comparisons are made

against the overall sample of nonprofit organizations participating in collaborations in the

database.

Additionally, the data reflects the context for funder involvement; how and at what point in

the collaboration process was a funder purposely involved. The different stages of funder

participation in the process of restructuring are defined. These results were compared to the

total overall database to identify if there were any special characteristics that were only

specific to the arts.

Of the four models of collaborations exemplified in the database, arts and cultural

collaborations fall into only three of the collaboration categories. These are: joint

programming, fully integrated mergers and administrative collaborations with some of the

collaborations blending categories.

The thirteen arts and cultural collaborations

The thirteen arts and cultural collaborations occurred in 11 states (two in NY, two in MI).

The geographic scope of impact of nine collaborations was on a city level. Three

organizational mergers were done on the state level and a single collaboration was completed

on a national level. Six (46%) of the collaborative initiatives included three to 4

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organizational partners while 38 (22%) collaborations in the overall database included 3-4

partners.

Arts and cultural nominees represented 25% of the total finalists. One, the Museum of Nature

and Science in Dallas, Texas – a merger of three museums – won the Collaboration Prize.

Another collaboration, the Chattanooga Museums Collaboration – a combination of

administrative consolidation and joint programming – was selected to be in the group of the 8

finalists for the prize.

The highest concentration of the arts and cultural collaborations, six (46%), took place in

2006. This is slightly lower than the findings for the overall segment of 176 organizational

collaborations participating in the study, which recorded 121 (69%) collaborations occurring

between 2004 and 2006, with 59 reported in 2006. Thus, indicating that collaboration

activities across the overall segment were on the increase but slightly less so in the arts and

cultural sector.

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Chart # 3 – List of Thirteen arts and cultural collaborations List of thirteen arts and cultural collaborations

Administrative consolidations and joint programming (6)

• Maine Craft Organization Consortium, Dover-Foxcroft, Maine

• The Dance Collaborative at Dance Place San Diego, San Diego, CA

• The Art of Collaboration, Buffalo, NY

• Now Playing Nashville, Nashville, TN

• Heart of Brooklyn Cultural Institutions, Inc., Brooklyn, NY

Joint programming (2 stand alone)

• Grande Masque New Year’s Gala, Orlando, Florida

• Material Advantage Student Program, Westerville, Warrendale, Oh and PA

• Administrative consolidations (2 stand alone)

• Central Square Theater, Cambridge, MA

• Ticket Philadelphia, Philadelphia, PA

Mergers (4 mergers total)

• Museum of Nature and Science, Dallas, TX – Winner Collaboration Prize

• ArtServe Michigan Association of Community Art Agencies Merger, Wixom, MI

• Talent, Technology and Youth, Grand Rapids, MI

• Maine Craft Organization Consortium, Dover-Foxcroft, Maine

Joint programming, administrative consolidation and merger (collaboration combines three types)

• Maine Craft Organization Consortium, Dover-Foxcroft, Maine

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Arts and cultural collaboration findings

The following reports on the goals and the resulting outcomes, challenges and discussion of

funder involvement for the thirteen arts and cultural organizations.

Goals for arts and cultural collaborations

All thirteen of the arts and cultural collaborations agreed that their five primary goals for

their collaborations were:

1) “To maximize financial resources”

2) “To achieve administrative efficiencies”

3) “To improve quality of services/programs”

4) “To expand reach or range of services or programs”

5) “To serve more and different clients”.

Additionally, the following goals were reported and are listed in order of priority:

7) Twelve (12) collaborations set a goal “to improve programmatic outcomes”

8) Four (4) collaborations expected to “address unmet needs of the

community”

9) Three (3) wished to “develop a stronger more effective voice”.

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Chart #4 – List of goals

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Outcomes for arts and cultural collaborations

Collaboration Outcomes are defined in two categories within the database. They are

“Organizational Efficiencies and Effectiveness” gained from collaboration and the

“Community Impact” resulting from collaboration.

Organizational Efficiencies and Effectiveness

The section describing “Organizational Efficiencies and Effectiveness” is broken out into

multiple subcategories that reflect the outcomes that correspond to most of the respondent’s

goals. The unique goals of maximizing financial resources and achievement of administrative

efficiencies are addressed together as Collaboration Outcomes, thus reflecting that financial

savings may result from the achievement of administrative efficiencies through collaboration.

Under the category of “Organizational Efficiencies and Effectiveness”, the highest numbers

of positive outcomes reported by the arts and cultural segment fall in three areas. They are

financial savings; fund development and improved outreach and marketing.

Out of a selection of nine possible outcomes under the subcategory rating “Financial

Savings”, “consolidation and coordination of programming” held the highest rating among

respondents followed by the “consolidation of staff” and “consolidation of administrative

operations”. Additionally, ten (77%) of the collaborations responded that they experienced

“improved fundraising results” and eight (62%) of the collaborations reported experiencing

“improved marketing and communications” as a result of collaboration.

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Arts and cultural collaborations benefit from financial savings

In the area of financial savings, a total of eleven(11) or 85% of the arts and cultural

respondents reported “financial savings” across the board. This was the highest response to

all the possible outcomes listed. Within the subcategory of “financial savings”, the top reason

reported by seven (7) of the collaborating nominee respondents was due to the “coordination

and consolidation of programming”. Four (4) respondents reporting financial savings through

the “consolidation of staff” and four (4) collaborations recognized savings through the

“consolidation of management and administration”.

Under the category of Fund Development, ten or 77% of the collaborations responded that

they experienced improved fundraising results because of the collaboration. Two or 15% of

the collaborations reporting access to new funding sources with one (just under 8%)

describing a successful capital campaign as an outcome of the collaboration. Eight or 61% of

the arts and cultural collaborations reported improvement in the area of joint marketing and

communications.

Community Impact

In the area of “Community Impact”, five or 38% of the collaborations reported “expanded

reach of services and programs”, with four or 31% of the collaborations seeing an

“improvement in the quality of programming”. Four or 31% also recognized having

“stronger voice in the community”, which was a bonus for one collaboration because it was

not on their original list of goals.

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It should be noted that four collaborations of arts and cultural organizations looked to

“leverage complimentary strengths/assets”, but there is no corresponding outcome listed in

the database instrument for the achievement of leveraged strengths and assets. However,

achievements of efficiencies gained through combining space, staffing or programming were

reported by all thirteen (100%) collaborations.

Another goal sited by all (100%) of the art and cultural collaboration was for the

“improvement of the quality of services and/or programs”. Of the thirteen, less than half or

38% achieved the goal to “expand the reach or range of services or programs” and only 4 or

31% of the collaborations report achieving “improved quality of programs or services”.

All of the collaborations reported that they anticipated that collaboration would allow them to

“serve more and different clients” with only two (15%) of the collaborations attaining that as

an outcome. Twelve (92%) cited improvement in “programmatic outcomes” with only one

collaboration classifying this goal as a positive outcome. Three collaborations or 23% hoped

to “address unmet and escalating community needs” through the collaboration with only one

(8%) seeing success in this area.

Although the thirteen arts and cultural organizations reported a number of goals that were not

entirely met with the corresponding outcomes, the savings achieved through administrative

efficiencies and increases in fund development appears to eclipse the lower results for

Community Impact. That certain outcomes fell short of the stated goals was not addressed in

any depth in the arts and cultural nomination letters.

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Challenges

The highest-ranking challenge for four of the 13 arts and cultural collaboration’s was with

the “lack of trust among partners”; the next two ranked challenges were cited by three

collaborations was “creating shared vision” to support the collaboration and “coordinating,

merging or integrating operations”. Two of the three identifying this last challenge were

mergers. The two top ranked challenges for the overall sector are operational in nature. They

can be addressed through strategic business planning. For the arts and cultural segment

creating a “shared vision” and dealing with “lack of trust among partners” are more pervasive

issues and are likely affect every aspect of collaboration.

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Chart # 5 – Challenges

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Funder influence

The Collaboration Prize nominations illustrate that funders can hold a variety of roles at different

stages of the collaboration that contribute to the restructuring process.

On initial inspection of the section entitled “Circumstances Prompting Collaboration” seventy-five

(43%) of the total database and seven (62%) of the arts and cultural groups indicated that the

collaborations were “funder initiated/mandated”. As the eligibility criteria for the collaboration prize

ruled out funder-mandated collaborations, to clarify this, the author contacted the Lodestar

Foundation. This category was designed to record whether the funder was the originator of the idea

of collaboration but at that point there was no formal arrangement for funder support. (It is hard to

imagine an organization saying no to any recommendation from a funder, as the prospect of new

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Upon review of the nomination letters of the seven arts and cultural collaboration that reported that

their collaborations were “funder initiated/mandated”, in all cases, the idea for collaboration was

attributed to a board member or a loosely formed consortium of individual funders or a formal

funding body. Overall these funders initiated talks about collaboration with the nonprofits after they

had observed, in some cases a duplication of services that lead to great waste, and/or a need to

increase efficiencies or fundraising impact.

The Collaboration Prize criteria also requested that the nominees report on the “nature of funder

involvement” once the collaboration process had been initiated. The nominations profiles of three (3) of

the thirteen organizational collaborations report funder encouragement but do not specifically address

the disposition of the funder toward their particular restructuring initiative. Nonetheless, the ten other

collaborative initiatives breakdown the following as to what extent the collaboration involved a funder.

Four collaborations (30%) indicated that the funder either “suggested or encouraged” the collaboration;

six (46%) of the collaborations reported that they received funding for “initial exploration” of the

collaboration; two (15%) reported being provided funding for implementation; one collaboration

identified a funder as the “lead investor” and one reported that the funder “endorsed the project”.

(Nonprofit Collaboration Prize)

When compared to the response of the overall database to the funder involvement, which reports

between 14% and 17% of the collaborations receiving encouragement prior to or funding during the

initial exploration stage, or receiving funding for the implementation of a merger, long-term joint-

programming or administrative consolidation. The conclusion can be made that the funding

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community for arts and culture appears to be more proactive about the needs for support necessary

for all stages of permanent or sustained collaborations in the arts.

Examination of the motivations, goals, outcomes and challenges of four arts and cultural collaborations

Of the thirteen arts and cultural organization collaboration prize finalists, four are highlighted as

examples of collaboration types. The Chattanooga Museums Collaboration is one of the eight

finalists for the Collaboration Prize. This is an example of an administrative consolidation, which

eventually leads to joint programming among the three unique museums. With Now Playing

Nashville.com a consortium of six nonprofit organizations allied in a joint marketing venture, which

crossed over into the for-profit designed sector, to increase constituency awareness, build attendance

and appeal to cultural tourists for arts and culture in Nashville. ArtServe Michigan Association of

Community Art Agencies Merger, is the consolidation of two different arts agencies to create a

stronger voice for the arts, to improve services and arts advocacy in the state at a time when arts

funding was threatened by the 2005 downturn in Michigan’s economy. Grande Masque New Year’

Eve Gala, was the culmination of the efforts of three performing arts organizations in Orlando,

Florida, uniting in both joint programming and administrative consolidation to form a single and

highly successful fundraising initiative that lasted 7-years until it was discontinued in the fall of

2008 because of the impact of the recession economy.

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Collaboration #1 – The Chattanooga Museums Collaboration

“Successful non-profits must maximize resources,” said Rob Kret, director of the Hunter Museum.

“The Chattanooga Museums Collaboration has not only strengthened our individual organizations,

but it has created a stronger cultural community in Chattanooga.” (Kret quoted in Craven)

In 2002, the Tennessee Aquarium, Creative Discovery Museum, and Hunter Museum of Art

formally embarked on a partnership that eventually lead them to become the keystone institutions in

the Chattanooga Waterfront project, the 120-million dollar riverfront redevelopment project that has

been credited with the revival of downtown Chattanooga.

It was initially designed to improve the financial position of two smaller museums through

outsourcing the collaboration began with the Tennessee Aquarium providing operational and

administrative services for both the Creative Discovery Museum, and the Hunter Museum of Art. At

the start, the Aquarium provided services through a fee-for-services agreement in four administrative

areas: Human resources, finance and accounting, Information technology and Marketing. In 2004,

the Aquarium also took on the Retail Sales operation for all three museums. Subsequently, the three

museums have allied to create a number of joint programming initiatives.

Circumstances prompting collaboration

It became evident shortly after The Creative Discovery Museum, (CDM) opened in 1995, that the

children’s museum had an “unsustainable business model”. (The Chattanooga Museums

Collaboration nomination letter) With lower than anticipated attendance numbers, and an oversized

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staff it quickly fell into a deficit. The Tennessee Aquarium had the staff capacity, organizational

depth and a strong working operations infrastructure. At the time, the CDM’s interim executive

director approached the Aquarium with a proposition to outsource CDM’s business, accounting and

HR administrative activities working to the Aquarium. The Aquarium agreed beginning with an

informal arrangement to provide the services, which eventually lead to the establishment in 2001 of

a formal agreement for the outsourcing of administrative services to both the CDM and the Hunter

Museum of American Art.

The administrative consolidation met several of its goals very quickly, maximizing financial

resources, achieving administrative efficiencies and leveraging complimentary strengths of all three

organizations. Through join programming the collaboration allowed the museums programming to

expand while serving more clients/audiences, expanding the reach and range of programming, and

improving the quality of programming.

A primary collective goal was that by improving museum operations through administrative

consolidation of HR, finance and accounting, information technology and retail services the end

result would lead to an improved visitors experience to Chattanooga.

One or more managers in the following departments, Human Resources, Finance and Retail

operations are employed by the Tennessee Aquarium and report to all three organizations. The

Aquarium’s part in providing the much needed business operations for the two smaller museums

worked to free-up financial resources that were ultimately redirected for programming in the two

smaller institutions. In the beginning, the Hunter saw immediate results because the Aquarium

charged half of the Hunters’ previous expenses for financial services. Eventually, HR and IT

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department were added gaining the Hunter Museum three times the services for half the cost.

According to Charlie Arent, CEO of the Aquarium, "The best thing about this partnership is that

each of the involved institutions gets more time and money to spend on their mission. I believe that

many institutions could benefit from this type of partnership. It really is true that a rising tide lifts all

boats." (Arent in Craven)

Financial benefits were seen by all three museums through the consolidation of management and

administration. By uniting the three organizations, they saw financial savings by combining the

collective insurance policies. The collaboration gave the organizations greater leverage with benefit

service providers because of the amalgamation of the total number of employees, making it possible

to upgrade employee benefits including retirement planning and health insurance.

Working with a single CFO for all three institutions resulted in more consistent financial controls

through coordinated audits for all three institutions. Efficiencies of scale and savings were

experienced by both the CDM and the Hunter Museum when they disbanded their individual HR

Departments to have the Aquarium manage the overall HR related activities for all three museums.

Administrative services had always been on the cost side of the ledger for the Aquarium but due to

the consolidation, the Aquarium is benefiting because it receives a “predictable income”

(Chattanooga Museums Collaboration nomination letter) from the two museums for the

administrative services it provides. Additionally, as a result of consolidating and centralizing the

business operations to a single HR department, the Aquarium was able to attract expert staff at a

more competitive salary and benefits.

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By upgrading and unifying IT technology services under one umbrella (previously, the Hunter

Museum, had no IT infrastructure and was utilizing a dial-up internet provider with a single e-mail

address to be shared by all the staff), the three museums saw savings and greatly improved services

in shared operational functions.

While continuing to maintain their individual identities the collaboration benefits all three museums

as they share common resources, which offset and decreases operating expenses. CDM has

documented a 1.9 million in savings and the Hunter Museum 1.7 million in savings. The Tennessee

Aquarian generated a revenue stream of 1.1 million in revenue since the inception of the

collaboration.

From the start, the three museums took a long-view of their role in the community, incorporating in

each of their organizational missions to work to better the “Chattanooga Experience” and to be a

catalyst to make Chattanooga “a place to live, work and play” (Chattanooga Museums Collaboration

nomination letter). After the collaboration was solidified, the institutions joined forces with City

government as a key player in Chattanooga’s $120 million urban renewal waterfront project.

(Yawn)The three museums launched a collaborative capital campaign – The 21st Century Waterfront

Trust Plan with the mission to improve their institutions and the public areas around the Tennessee

River. The Trust raised $120 million dollars through private and public donations. Just over fifty

million dollars combined was dedicated to the expansion of both the Aquarium and the Hunter

Museum with $3 million in additional monies going to the renovation of exhibition spaces at the

CDM. Over $60 million dollars was used for public parks, recreational facilities in the riverfront

area and to launch a public arts program. Due, in large part, to the success of the three-way museum

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collaboration, new commercial and residential real estate development has commenced on the

Chattanooga’s downtown waterfront.

Though nonprofit institutions are usually wary of combining fundraising initiatives, in this case, the

organizations reported that by joining forces they were able to raise more money then they would

have through separate fundraising activities. Additionally, their donors have also championed their

partnership and “have applauded the way the institutions have worked to achieve cost savings”

(Chattanooga Museums Collaboration nomination letter) while creating stronger programs.

With the first leg of their partnership solidly in place, the three museums have since lead a

collaborative effort to bring in other Tennessee cultural institutions to partner with a local school the

Normal Park Museum Magnet School, which opened in 2002. Out of this relationship, the museums

collaborated on summer camp programs, and joint school and family programming. This program

eventually expanded to provide educational support to the entire Tennessee school district and lead

to the establishment of the Association of Chattanooga Museum Educators. As the collaboration

progressed the museums developed and shared exhibitions together.

Challenges

Although the museums did not identify this as a challenge on the database form, in the nominating

letter the HR Director at the Aquarium mentions that the HR department’s responsibility to “sell the

changes to the staff at all three museums” was a difficult undertaking because “change makes

everyone a little nervous”. (Chattanooga Museums Collaboration nomination letter) The letter does

not mention directly that staff was discharged in order to attain efficiencies of scale in relation to the

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consolidation of three separate administrative operations being scaled down into one but it is likely

that people were let go. Termination on a large scale (or any scale) is unsettling for the staff that is

left behind.

Another challenge for the collaboration, the three museums attempted to develop a combined

marketing department, however, since each organization had continued to maintain their individual

brand identity on the collaboration, the participants reported that a departmental consolidation was a

difficult and an impractical adjustment to make. After a year, the organizations reverted back to their

own marketing programs but continue to maintain a relationship where they can work smarter

together than apart, in areas such as joint media buying because of the obvious economic

advantages.

Postscript

Robert A. Kret, Director of the Hunter Museum of Art, spoke to the challenges of partnership in

recent interview posted on Nonprofit ArtLaw Blog. Mr. Kret said that time and energy must be spent

on the “upkeep of the partnership”(Kret in Takagi). He cites turf battles and conflicting priorities as

inevitable but not insurmountable if the parties practice regular communication, careful judgment

and show “courtesy and respect for one another” (Kret in Takagi). Mr. Kret noted that the three

CEO’s of the three museums had different styles of leadership. He also attributes much of the

success of this collaboration to the leadership cooperation and determined involvement of the

Museum boards in conjunction with the three museum CEO’s.

In 2006 the Chattanooga Museums collaboration was recognized by the American Association of

Museums 2006 award an honorable mention in the Brooking Paper Competition for creativity in

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museums by the AAM. This prize is given to museums that represent innovative position in museum

work in the areas of programs and exhibition s finance and community relations and administrations.

(American Museum Association, “Brooking Paper Winners Announced”)

Maggi Lawler Kirk

Collaboration #1 – The Chattanooga Museums Collaboration The Chattanooga Collaboration

Collaboration #1 - The Chattanooga Museums Collaboration

Goals:

One of 13 collaborations seeking to

• Maximize financial resources

• Expand reach and range of programming,

• Improve quality of services/program;

• Serve more and or different clients/audiences,

• Achieve administrative efficiencies

One of 4 nominees wanting to leverage complimentary strengths

One of 12 with a goal to improve programmatic outcomes

Outcomes: Organizational efficiencies:

One of 10 collaborations achieving improved fundraising results

One of 4 nominees achieving financial savings through consolidation of management and administration

One of 3 achieving efficiencies in Human Resources through shared Access to technical support (HR, Finance,

IT)

One of 2 achieving financial savings through combined coordinated audit

One of 2 reporting predictable revenue

The only nominee achieving financial savings through bundled insurance policies

The only one of 13 reporting a successful capital campaign due to collaboration

Outcomes: Community impact:

One of 5 nominees reporting a greater range of service/programs offered

The only nominee reporting increased collaboration with others outside the original collaboration

Challenge

One of two nominees having difficulty reaching agreement in marketing and branding in the collaboration

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"NowPlayingNashville.com has exceeded our expectations. We brand and market Nashville, Music

City, to the world as a premier entertainment destination for travelers seeking leisure and convention

experiences. The website has been an exceptional tool for selling Nashville, as well as improving the

visitor's experience once they've arrived. The design, functionality and marketing have all been first

class and all the feedback has been outstanding. An asset to all of Middle Tennessee."

Butch Spyridon, President, Nashville Convention and Visitors Bureau. (NowPlayingNashville.com

nomination letter)

The collaboration of six Nashville organizations in 2006 represents another blend of administrative

consolidation with joint programming. In this case, the collaboration was set-up in order to create a

web-based platform for the consolidation of regional arts and culture and entertainment calendars

into a single web site. As of June 2008, the website also began offering discount tickets and

promotions to web site subscribers. The consortium included Community Foundation of Middle

Tennessee, The Center for Nonprofit Management, Nashville, Nashville Convention and Visitors

Bureau, Nashville, Metro Nashville Arts Commission, Nashville Business Committee for the Arts,

Nashville Chamber of Commerce and the Tennessee Performing Arts Center.

The objective was to created a single website calendar portal for collaborative marketing of all the

participating nonprofits’ programming. The goal of this collaboration was to increase visibility of the

arts and culture regionally in order to “build audience and increase earned income”

(NowPlayingNashville.com nomination letter), which, in the long-term would contribute to the

independence and increased self-sufficiency of the organizations. Additionally, by collaborating with

the arts sector, the business community and the tourism industry saw the web site as a mechanism in

which to increase cultural tourism and to attract new business and corporate employees to the region.

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Serving as a “catalyst for community action”(NowPlayingNashville.com nomination letter), the

Community Foundation of Middle Tennessee brought together funders and individual supporters of

the arts to brainstorm ideas as to how to better support the arts in Nashville. Their mission was to

seek innovative solutions to help sustain the strong arts infrastructure and presence in Nashville,

“Musical City, and USA”. (NowPlayingNashville.com nomination letter)

Shortly after this, members of the arts and cultural community held the first ever, Arts Summit in

Nashville. A recurring concern at this event among arts groups was that they did not have enough

public visibility in the region having all experienced continued frustration with the limited press

coverage by the media. At the summit, the arts groups set about pursuing ideas that would make the

arts more visible in the region that would result in the increase audience participation and to develop

more avenues of earned income for the arts sector.

The vision for the website was that it would become a “one-stop” resource for the promotion of all

local activities in the arts and culture, entertainment, recreation and sports that would encourage

local citizens and tourist a like to participate. This approach was inspired, in part by the philosophy

of Bill Ivey, a native of Nashville, and the former head of the NEA, who believed that the “high” arts

should be marketed in conjunction with other forms of entertainment. Individually, the organizations

shared similar goals for creating an arts calendar but were at odds because they were trying to attain

these goals separately. The arts groups realized that by being more inclusive of the activities and

entertainment that fall outside of the realm of “high” art they would attract more interest and expand

their reach into the community at large and to regional tourism. The idea was that a centralized and

universal calendar would make it just as easy to look up an arts activity as it would a movie or sports

listing. Thus making public access to the arts an alternative to other forms of entertainment.

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The Community Foundation encouraged the collaboration, acting as the lead investor and funded the

implementation of the project. Piggy-backing on the status of the Community Foundation, which

was a 501c3, it was not necessary to create a new organization for the operation of the website. The

Community Foundation has a strong staff capacity, and, a mission that was in keeping with the goals

of the website, became the manager of the project with its in-house staff administering the program.

There are currently (2009 website) five lead sponsoring foundations, 300 arts and entertainment

organizations, Vanderbilt University, organizations from the tourism industry, public television and

many individual patrons

Consolidation of arts organization calendars into a single Internet platform actualized organizational

efficiencies through the reduction of the staff time and costs, the elimination the duplication of

expenses and streamlined technology time leading to a better coordination of services. The existing

stand-alone calendars of three of the participating organizations, (MNAC, CVB and CAN), were be

folded into the Now Playing Nashville.com. Because of this, they were able to eliminate costs and

time in publication for printed and electronic materials and expand the reach beyond their individual

mailing lists. The organizations saw a financial savings through the elimination of production costs

and the joint purchasing of services that support the website. The Arts and Business Council of

Greater Nashville cancelled their own plans to create an in-house calendar realizing that “more can

be accomplished by working together”. (NowPlayingNashville.com nomination letter),

After the website was launched in June of 2007, there was little funding left over for marketing it,

however, the organizations were not deterred and instead of spending money they did not have they

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incorporated the promotion of the new website into their existing marketing materials, which quickly

expanded the marketing outreach exponentially.

Another benefit achieved due to the consolidation of information on the single website, is that the

organizations have a much easier time coordinating events that do not overlap or compete with each

other. With access to a now universal calendar, planning around major sporting events and other

entertainment activities is streamlined.

Although the Collaboration Prize database reports that the Now Playing Nashville collaboration lead

to the outcome of “improved fundraising results” (NowPlayingNashville.com nomination letter), for

the participants, there is no specific information detailing exactly how this goal was achieved.

However, it can be tacitly assumed that the individual organizations did not receive the same

substantive financial support from the extensive list of sponsors funding the consolidated calendar

website, to fund their individual organizational calendars. Additionally, a donor solicitation feature,

“Donate Now”, has been included on the site that directly links to the Community Foundation’s

website, Giving Matters.com, that links profiles of the region’s nonprofit organizations and expands

the reach of charitable giving opportunities on-line.

According to the nomination document the website expanded the organizations’ reach into the

community beyond initial expectations reporting that since 2007, they have tracked 170,000 monthly

visitors to site and 8,000 regular subscribers.

Challenges cited on the database

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A lack of trust among partners is cited as a key challenge to this collaboration along with the ability

to accept change and reaching an agreement in marketing/branding.

Initially, some of the participating arts organizations had a difficult time embracing the concept of a

shared platform that included sports and other forms of entertainment such as film listings.

Additionally, for some, relinquishing control of their existing calendars created turf issues. The idea

of thinking beyond the immediate responsibilities and goals of their individual organizations was

difficult. As one arts administrator put it, “It is not in the director’s handbook to share vision”.

(NowPlayingNashville.com nomination letter)

To inspire shared vision and to overcome these obstacles the foundation communicated on a regular

basis with the organizations throughout the process of building the website. When the end product

was delivered and it was deemed superior by the partner organizations the participants where able to

put away their concerns about autonomy and turf. One issue that never resolved was that the

Tennessean, which is the local daily newspaper in Nashville, was invited to become a partner but the

newspaper declined because it identified the website as competition for advertising. However,

partnerships with other media outlets were incorporated into the fold.

By joining forces the organizations saw a much greater margin for success. The collaboration was a

win-win experience because it reduced duplication of services, staffing time, technology costs,

marketing costs and competition for funding. The lead role of the Community Foundation was and

still is integral to the success of this venture. The foundation has been a highly regarded collaborator

in arts community of middle Tennessee for more than 18-years. It has a reputation for fair-

mindedness and inclusiveness, working with a wide range of organizations to increase awareness

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about the arts and growing audience, policy makers, business organizations such as the chamber of

commerce and the Visitors Bureau to help make the region a cultural tourism destination

Postscript

Although the current economy has impacted arts and cultural tourism in Nashville, which may be to

blame for a slight decrease in visitors to the website, Jennifer Schwartzenberg, the Director of

NowPlayingNashville.com at the Foundation reports that the average monthly number of visitors to

the site is now 323,000, which translates to 1.2 million page views. The subscriber database is

holding steady at 7,990. Ms. Schwartzenberg credits Foundation’s strong relationship with many

arts organizations and civic organizations that allows for collaboration of these organizations

through NowPlayingNashville.com. New collaborations have evolved out of the original partnering.

Recently, Now Playing Nashville opened an interactive kiosk for tourists and local travelers to find

out about what’s happening in the city at the Nashville Airport. Additionally, the Nashville Opera,

Nashville Ballet and Tennessee Repertory Theatre have collaborated on a ticket voucher program

called ArtalaCarte, where people who may not be able to purchase full subscription packages can

purchase singe tickets through the Now Playing Nashville website. The website has also developed

strong media alliances on the for-profit side making their reach into the community even deeper.

They have recently mobilized the online events calendar for NewsChannel5.com, which is the go-

too source for news and information in the community because of their relationship with The City

Paper they now have an in with its parent company, Southcomm, which has allowed them to expand

print coverage in three local magazines. (Schwartzenberg e-mail to author)

Collaboration #2 – NowPlayingNashville.com

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Collaboration #2 - NowPlayingNashville.com

Goals:

One of 13 seeking to

• Maximize financial resources

• Expand reach and range of programming

• Improve quality of services/program

• Serve more and or different clients/audiences

• Achieve administrative efficiencies

One of 12 with a goal to improve programmatic outcomes

One of 3 with the goal to Develop stronger more effective voice

One of 4 with a goal to address unmet and/or escalating community need

Efficiencies and effectiveness

One of 10 reporting improved fundraising results

One of 8 achieving improved marketing and communications, public relations and outreach

Only one of 13 achieving financial savings through joint purchasing

Community Impact

One of 3 reporting greater coordination of services (less overlap, duplication, fragmentation)

Only one of 13 to report addressing previously unmet community needs

Challenges

One of 4 nominees identifying lack of trust among partners

Only one of 13 pointing to difficulties with accepting change

One of 2 reporting challenges to reaching agreement in marketing / branding

Maggi Lawler Kirk

Collaboration #3 – ArtServe Michigan and the Michigan Association of Community Art Agencies Merger

Mission�-“ArtServe Michigan is a statewide arts and cultural advocacy organization - our mission is

to cultivate the creative potential of Michigan’s arts and cultural sector to enhance the health and

well-being of Michigan, its people and communities”. (ArtServeMichigan.org)

A fully integrated merger between two statewide arts and cultural advocacy agencies; ArtServe

Michigan originally located in Wixom, Michigan and the Michigan Association of Community Arts

Agencies of Lansing, combining the programming characteristics and assets of both organizations to

create a stand-alone statewide organization that advocates for the arts in Michigan to create a new

organization combining the unique characteristics of both organizations.

Economic conditions due to state of the Michigan economy, due to the slow down of the auto

industry, predated the current recession by 3 - years. In 2005, the economic downturn created

constraints on public funding for arts and cultural.

ArtServeMichigan, which was founded in 1997, was the end product of a merger of four other state

agencies - Arts Foundation of Michigan, Business Volunteers for the Arts, Concerned Citizens for

the Arts in Michigan, and the Michigan Alliance for Arts Education. Historically, ArtServe existed

to provide support and served as an advocacy group for individual artists and art educators in with

support from regional corporations and foundations, individual donations and through the Governors

Awards for the arts and culture.

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The Michigan Associations of Community Arts Agencies (MACAA) provided technical expertise

and professional development to arts and cultural organizations on a more local level. Funding came

from government, foundation grants and memberships dues.

The fact that the organizations held a shared vision for the arts and culture in Michigan while they

“served complimentary segments of the state’s creative constituencies” served to solidify the

intention of the merger to create a “new”, more synergistic organization with the strongest, most

effective voice. When merged, the partnership of the two organizations blended complimentary

services and mutual agreed upon objectives becoming a single advocacy group with a stronger

position to influence arts policy in Michigan.

In the beginning stages, board members and the Executive Directors of both organizations made up a

team, the Joint Merger Negotiations Committee charged with the evaluation process of the merger

benefits and challenges. To build trust and gain consensus between the participants, the team

analyzed each organization’s previous roles and defined the mutual benefits of the merger. During

the pre-merger process a merger integration plan was designed to clarify the actions that would be

required for a healthily integration of the two organization’s administrative operations, information

technology systems and programming. The committee team followed through with the negotiation

stage of the merger agreement.

The organizations used professional consultant services throughout the process to help navigate the

various stages of the merger. La Piana & Associates was brought in at the beginning to help facilitate

the initial pre-mergers meetings for the team. When it was time to appoint a new Executive Director,

the organization engaged an executive search firm to help with the selection process. Post merger,

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the new organization hired WolfBrown Associates, a cultural consultancy, to develop a statewide

need assessment of the ArtServe constituents and to work with the staff and Board to develop a

strategic plan for the new Art Serve. Additionally, with the help of WolfBrown, ArtServe is in the

process of creating a development plan and business model for the new organizations aligning the

projections for revenues and expenses with the goals of the new strategic plan.

Organizational efficiencies

Financial savings were gained when overhead costs in administrations and operations were reduced

by 50% as a result of the consolidation of the two offices into one headquarters. Even with one of the

organization having a pre-merger deficit of 290,000 and with the merger requiring an additional out

lay for merging technologies and databases (the combined data bases 72) at the reporting time the

deficit had been reduced to 93,137. And two major foundations had committed to $450,000 in

capacity building grants.

Challenges

Three primary challenges during the merger process were, who would lead, how the new

organization would develop out of the two cultures, and where the new headquarters would be

located.

The heart of these challenges stemmed from the “cautious amount of trust” between the two

agencies (ArtServe Michigan & the Michigan Association of Community Art Agencies Merger

nomination letter). The solutions to these issues were arrived at through the guidance of the Joint

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Merger Negotiations Committee that consistently reminded the participants about the goals and

positive outcomes that would come from the merger.

The leadership role - With the retirement of ArtServeMichigan’s Executive Director it appeared that

the MACAA’s Executive Director would be the de facto leader of the new organization. However,

with the new organization came a new type of leadership role that at that time, had not been defined.

MACAA’s board had to be convinced that their Executive Director was not the optimum choice for

the leadership role at that juncture. ArtServe’s Executive Director was put in place as the interim

director and the MACAA’s Executive Director was identified as a candidate and was designated the

Chief Operating Officer. Both interim Directors were put in place for no longer than 18months while

the search went on for the new leader.

Organizational culture - Both organizations were protective of their existing cultures and the way

they approached their constituencies. The characteristics of the new organization meant that

MACAA’s status, as a membership organization would have to be dissolved with the merger. Both

organizations were critical of each other’s approach. MACAA’s community action was perceived

too narrow, while Artserve saw their role as expanding the constituency and building a more formal

structure for the new organization. Additionally, since ArtServeMichigan, was the legal surviving

entity, there was concern that the perception would be that this was a takeover. The committee

played a major role in negotiating with the differing factions, bringing them together with a reminder

of the agreed upon common goals and the potential positive outcomes that would be achieved by the

merger. Additionally, the merging organizations were reminded that, in spite of the name, they were

equal parts of an entirely new organization.

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Re-location-The two organizations were originally located in two different cities. The committee

delayed the decision to change locations until they came upon a solution for a centralized location

that both merging parties would consider advantageous. ArtServeMichigan eventually moved into a

building with the Detroit public television station, which opened the possibility of working (i.e.

another collaboration) with the station on the Artserve Governor’s Awards for the Arts and Culture

program.

Postscript

Regarding the impact ArtServe Michigan is having currently; with serious threats to the state arts

budget ArtServeMichigan is being credited with “keeping the arts alive in Michigan.” (Zimmerman)

According to Lynette Zimmerman, Major Gifts Manager Coalition on Temporary Shelter and Vice

President, Board of Directors for Sing Out Detroit, ArtServeMichigan has a good facility for

bipartisan politics and has been instrumental in keeping Michigan’s Department of History, Arts and

Libraries (HAL) open. She says, “The entire state is relying on ArtServeMichigan and all arts

organizations defer to them when issues of state funding comes up.” (Zimmerman e-mail to the

author)

Maggi Lawler Kirk

Collaboration #3 – ArtServe Michigan and the Michigan Association of Community Art Agencies Merger

Collaboration #3 - ArtServe Michigan and the Michigan Association of Community Art Agencies Merger

Goals

One of 13 seeking to

• Maximize financial resources

• Expand reach and range of programming,

• Improve quality of services/program

• Serve more and or different clients/audiences

• Achieve administrative efficiencies

One of 12 seeking to improve programmatic outcomes

One of 4 looking to leverage complimentary strengths and/or assets

One of 3 with a goal to develop a stronger / more effective "voice"

Organizational efficiencies:

One of 4 achieving Financial savings due to the consolidation of staff positions

One of 7 achieving Financial savings due to the coordination/consolidation of programming

One of 5 achieving financial savings due to a more efficient use of physical space one of 5

Community impact

One of 4 achieving stronger / more effective "voice"

Challenges

Only one reporting the challenge of creating a shared culture

One of 3 reporting coordinating/merging/integrating operations (2 were mergers; one was joint programming building on

existing programs)

One of 2 citing challenge of leading and/or managing the collaboration

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Collaboration #4 – Grande Masque New Year’s Eve Gala, Orlando, Florida

In 2001, the collaboration of three performance organizations, the Orlando Ballet, Inc., the Orlando

Orchestra, the Orlando Opera Company gave birth to a joint fundraising initiative.

A single incident prompted the three nonprofit professional performance organizations to work to

together. In April of 2001, each of the organizations produced a major fundraising event over three

consecutive Saturday nights. This crisis in calendar management, which resulted in the near

duplication of charity events with low attendance and disastrous financial outcomes prompted the

organization’s donors/patrons, many of whom supported all three organizations, to question the

alarming lack of communication among the organizations that not only shared funders but also

audience. The consensus in the fundraising community was that the three organizations should get

out of their individual silos to work together on an annual fundraiser. This was the impetus for the

Grande Masque New Year’s Eve Gala; an event that gained branded recognition as the “largest and

grandest of Orlando's charity balls”(Maupin) for the next seven years. The Gala featured world-class

entertainment with performances by each of the three organizations with live and silent auctions, a

dinner dance and an after-party for younger patrons.

Over the 7-years, a continuity of responsibility was perpetuated, with each organization producing a

component of the event based on the organization’s staff availability and its specific organizational

capabilities. A steering committee made up of senior staff of each organization established and

managed the timeline. The steering committee also appointed a director of the event and the

organizations shared equally in the director’s contract costs. The Ballet organized the auctions; the

Opera managed the marketing and publicity along with handling the reservations and customer

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service. The event production, event site coordination, programming and event sponsorships was

handled by the Orchestra. This consistent three-way mode of operation supported institutional

memory, even with staff turnover, and advanced the efficient management of the event.

Until the fall of 2008, the event was deemed cost effective and was dependably financially

successful. All three organizations saw increased fundraising development. The event provided the

opportunity for improved marketing and communications and became the vehicle for extensive

public relations and constituency outreach for all three organizations. The organizations by

combining staff resources saved 15% for staff time and salaries and a combined 25% was saved in

operational expenses. Over a 6-year period event attendance reached 8,000. The organizations each

raised approximately $254,000 for general operating costs.

The Gala opened the door to a number of other collaborations and helped to garner community

support for the construction of a world-class performance space, the Dr. P. Phillips Orlando

Performing Arts Center.

Post Script

Not all collaborations are successful. In the fall of 2008, the Grande Masque New Year’s Eve Gala

was cancelled. The Director and CEO of the Opera cited the high costs of marketing combined with

diminishing interest by the public to purchase tickets. Blaming the faltering economy, the

combination of a record decline in donations to other area charity auctions and lower sponsorship

participation were identified as the motivation to cancel the event. In a statement to the press, Jim

Ireland, the Opera's president and CEO, implied that the Gala was not directly connected to his

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organization’s missions when he said, “We have to go back to what we're here for.” He went on to

say that; “given today's economy our primary focus must be on ticket sales and cultivation of

ongoing contributions for our primary purposes . . . our performances”. (Ireland in Maupin)

In lieu of tickets, patrons and sponsors who normally supported the gala were asked to make

donations, which were to be divided equally among the three organizations to support public

education and scholarship programs.

Although the uncertainties brought on by the weakened economy were credited as the root factor for

the cancellation of the event, Mr. Ireland’s remark that, “We have to go back to what we're here for”,

indicates, in this instance, an underlying element missing from the collaboration. That is, that this

joint fundraising event lacked the mission congruence of the three performing arts organizations,

which is required for sustainable collaboration.

Also affected by the recession, Orlando has put a hold a 1.1 billion dollar development plan for the

city’s civic spaces including the $425 million Dr. P. Phillips Orlando Performing Arts Center. Part of

the large-scale development project that included the Orlando Magic Arena and the renovation of the

Citrus Bowl, the arts center project has been delayed until back-up financing is in place. Of the three

projects, the Orlando Magic Arena is only one projected to open in 2110.

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Collaboration #4 – Grande Masque New Year’s Eve Gala

Collaboration #4 - Grande Masque New Year’s Eve Gala

Goals:

One of 13 seeking to

• Maximize financial resources

• Achieve administrative efficiencies

• Expand reach/range of programming

• Improve quality of services

• Serve more and different audience

One of 12 with a goal to improve programmatic outcomes

Organizational efficiencies:

One of 10 reporting fund development through improved fundraising results

One of 8 achieving improved marketing and communications, public relations and outreach

Challenges:

One of 4 nominees identifying lack of trust among partners

Only one of 13 reporting conflict among partners

Maggi Lawler Kirk

Summary

The Collaboration Prize data reveals the prevalence of three primary types of collaboration

initiatives or models taking place nationwide in the nonprofit business sector. They are mergers,

joint programming, and administrative consolidations. A forth, confederations, appear to occur

infrequently with only one reported in the entire database. Within the sampling of 176 nominated

nonprofit organizations, thirteen or 7% of those collaborations occurred within the arts and cultural

sector. Although, the 13 arts and cultural collaborations do not represent a large enough sample to

create comprehensive statistical analysis to identify a national trend, the models of partnership

presented with results that are in many cases similar to those seen in the entire database and

therefore are valuable for investigation.

Of the arts and cultural collaborations, the majority of the initiatives were seen in the area of joint

programming activities (61%) with approximately 50% cited for the total database; administrative

collaborations at 61% with 20% in the entire database; mergers representing 23% of the

collaborations in the arts and cultural sector with 20% of the entire database taking part in mergers.

Additionally, in the arts and cultural segment more nominees (46%) chose a combination of joint

programming and administrative consolidation. The primary challenge is identified as “lack trust

among partners”. The arts and cultural collaborations appeared to have ample support from their

funders in undertaking the collaborations.

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Conclusions

This section discusses the possible implications of restructuring activities through long-term

collaboration for the arts and cultural sector. What role the funder may play.

There is a synthesis of themes that have emerged from the literature review; the examination of the

philosophy and philanthropic methods of the Lodestar Foundation and the statistical information

mined from the Collaboration Prize database that offer valuable insights for the relevance of

collaborations as a means to accomplish mission and a sustainable future for nonprofit arts and

cultural sector.

The literature review offered a sound foundation for understanding the possible motivations, the

potential advantages and the obvious challenges of strategic restructuring with specific emphasis on

mergers. It brought up questions about what other restructuring activities is the nonprofit community

participating in and whether there is an accurate gauge of the level of activities in the sector? The

review of the practices of the Lodestar Foundation and analysis of the experiences of the 13 arts and

cultural collaborations in the Collaboration Prize database drills deeper into these questions. Trust

between partners and the challenges of mixing cultures surface are presented as issues that must be

addressed for collaboration to be successful. The literature reviewed presented concerns about undue

funder influence over their grant recipients and the fear that ill-advised mergers and other forms of

collaboration may be a consequence of funder-mandated grants. The review of the activities of the

Lodestar Foundation and the Collaboration Prize data illustrates how funders can take on a pro-

active role in collaborative activities with out mandating mergers or other forms of restructuring.

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Each of the arts and cultural collaborations in the nonprofit collaboration database is unique to the

specific organizations involved, nevertheless certain themes resonate throughout: the motivations

and goals for partnership, the choice and blend of restructuring initiatives strategies to expand

mission reach over “business as usual operations”, outcomes, issues surrounding trust, shared vision

and communications, funder involvement and how the environment created by the collaboration

leads to more collaboration.

Motivations

Mission reach

An insight found when looking at the Collaboration Prize is that collaboration depends upon

motivation among the participants to embrace the decision to advance mission. Organizations must

review who is being served and how can they be better served over and above the existing position

of the organization, to get past, the sentiment as Robert Kret of the Hunter Museum of American Art

says, “but we’ve always done it this way” (Kret in Takagi). In the case of the Grande Masque New

Year’s Eve Gala, the lack of thorough investigation and agreement on the overarching purpose of the

joint fundraising event by the three performance organizations relative to each organization’s

mission may have lead to the inability to maintain a long-term partnership. The event did raise

money for general operating costs and increased visibility in the community for all three

organizations. However, when the economy bottomed out, the collaboration interfered with at least

one organization’s stated “primary focus”(Ireland in Maupin), which was identified as ticket sales

and fundraising to support its performances.

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Maximize financial resources

Maximizing financial resources is an integral component of the restructuring process. It is a primary

motivation for collaboration and the essential desired outcome. Some, of the early literature on the

subject of mergers minimized the significance of financial need as it relates to mission. Clearly, a

complex and time intensive undertaking like restructuring would not be attempted if there were not a

perceived financial advantage. The database results indicate that maximizing financial resources is

an unambiguous motivation for organizations to search out collaborative activities because financial

savings and gains are inextricably connected to mission sustainability. In more than one example of

the organizational collaborations seen in the Collaboration Prize database the financial gain or

savings due to the administrative consolidation affected the bottom-line of the collaborating

institutions favorably by either freeing up resources that could be utilized for mission driven

programming or by increasing revenues.

In the case of the NowPlayingNashville.com collaboration, this can be seen in the organizational

savings resulting from the consolidation of multiple events calendars. In the case of the Chattanooga

Museums, where two museums arranged to pay a fee to a third museum for outsourcing

administrative services, the savings derived enabled the two museums to reallocate the monies into

mission driven programming. The third museum that housed the consolidated administrative

departments increased it revenues through the payments made by the two museums. All four of the

case studies discussed in this paper illustrate the impact of consolidated fundraising efforts and how

by joining forces more funds were raised than by any single nonprofit entity. Another desired result

due to shared costs was higher impact branding and increased marketing outreach, which helped

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gain a greater public voice for all of the organizations. (Chattanooga Museums, Grande Masque New

Year’s Eve Gala, NowPlayingNashville.com and ArtServeMichigan)

The economic environment

“Our Collaboration Prize findings could not have come at a better time. We hope that the models and

best practices we identified will help many a nonprofit to weather this storm.” Lois Savage, President,

The Lodestar Foundation (“First-Ever $250,000 National Nonprofit Collaboration Prize”)

The surprising response of 644 collaboration nominations applying to participate in the inaugural

launch of the Collaboration Prize offers a window into the multiple strategies for collaboration in a

segment of the nonprofit sector over the 8-year period from 2000 to 2008. The majority of those 176

nominated collaborations that were judged eligible for inclusion in the Collaboration Prize database

occurred within 2005 and 2006 signaling that the changing economy may be a factor in the decision

to collaborate.

The recession economy is posing a financial challenge for both funders and the nonprofit

organizations they support, the current financial picture may be a cause for both to consider

innovative strategic restructuring activities more seriously. One possible solution for dealing with

the downward spiral of charitable giving and the inevitable lower set-point for funding when the

economy bottoms out, are through partnerships that create financial savings and expand program

impact while they advance mission and secure sustainability.

A recent joint project of the Center for Civic Societies Studies and Johns Hopkins Institute of Policy

Studies is an indicator that the national drop in charitable giving is influencing arts organizations to

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consider innovative partnerships. This survey reports in a nationwide sample of nonprofit

organizations that the field is experiencing a combination of impacts due to the recession that have

contributed to declining revenues (51%), increased administrative costs; waning endowments (80%)

and decreased cash flow. 83% of the respondents reported “fiscal distress” between September of

2008 and March of 2009. 50% of the participating arts organizations (Theatres, Orchestras and

Museums) reported “severe to very severe” financial stress during that time. Many of the cultural

institutions have come up with formal coping strategies to address the ongoing financial challenge.

One of these coping strategies is “creating collaborative relationships with other nonprofits”

(Salamon et al. 27). According to the survey, 47% of arts organizations have formed initiatives or

expanded collaborative relationships with other arts organizations; 29% of arts organizations

reported exploring programmatic integration with partners and 27% of the organizations are now

participating in advocacy coalition groups. (Salamon et al)

Positive outcomes

Increased savings and financial resources through the introduction of administrative efficiencies

whether via a joint programming partnership, an administrative consolidation and/or a merger are the

fundamental outcomes reported in the data of the thirteen arts and cultural organizations.

As seen in the models of arts and cultural collaborations, collaboration can take many forms and as

the evidence bears out, can be very productive. An administrative consolidation may open the door

to a joint programming or visa versa. (E.G. The Chattanooga Museums Collaboration began with

administrative consolidations that eventually lead to multiple joint programming initiatives). As

previously noted six of the collaborations combined both joint programming and administrative

collaboration.

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The Collaboration Prize nominees show that joint programming expands the size of programs

through the additional human resources and the reach of programs into the community. Joining

forces in programming results in more accessible and increased amounts of funding. Additionally,

administrative consolidations offer opportunities for savings that can then be redistributed to mission

related programming as witnessed in the Chattanooga Museums collaboration. Through the long-

term agreement between organizations that take part in shared administrative functions,

organizations can cooperate on multiple efficacy saving activities such as shared media buys or joint

purchasing, resulting in discounted services. Collaborating organizations see savings through shared

IT services, financial services, and cooperative audit activities and in joint fundraising when working

together on a common goal. Merging entities expand community outreach through combined

services, experience savings through consolidation and create a stronger voice in the community by

expanding advocacy programs as observed in the merger between the Michigan based advocacy

organizations.

One consequence of collaboration that was not discussed at any length in the literature reviewed but

was nonetheless revealed, as an outcome of collaboration for many of the arts and culture

collaborations in the collaboration prize database was that initial collaborations often lead to others.

Nashville and Chattanooga and in 16 other collaborations in the overall database additional

collaborations were reported as stemming from the original initiative. The Chattanooga Museum

collaboration, an administrative consolidation and joint programming activities among the three

participants, prompted programmatic collaboration with other area museums and contributed to the

creation of a partnership with the city of Chattanooga in Chattanooga’s waterfront revitalization

project. NowPlayingNashville.com has continued to grow its collaboration as well. In the last two

years, it has partnered with the local airport, a print and media company and a popular television

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station. The creative vision that inspired the original collaboration and the positive outcomes works

to engender more collaboration over time, thereby amplifying the collaboration’s enduring affect in

the community.

Trust as a challenge

According to the literature review, the commentary of experts and the database results, a primary

challenge to restructuring is lack of trust between parties. As witnessed in the models of the arts and

cultural organizations featured in the Collaboration Prize database, this challenge can be

circumvented through ongoing and open communication and via a clear understanding of the mutual

goals for collaboration. The evidence indicates that collaborations are not simple undertakings and

that certain characteristics need to be present for collaborations to work. It is important to note that

any form of collaboration can only work if the people who orchestrate it; that is, the organizational

stakeholders and the organization’s constituency, have faith in the process and one another. Faith

requires trust. A long-term collaboration must begin with shared and agreed upon goals; consistent

communication must take place throughout the process, addressing problems immediately when they

occur.

To keep communication open and goals on track there should be a strong guiding force that

facilitates the process. In many of the models, organizations appointed a special committee made up

of equal members of the partnering organizations. Additionally, they engaged either a paid

consultant or a trusted bi-partisan participant to help mediate the multiple stages of collaboration.

In the case of NowPlayingNashville.com, which reported, “trust among partners” as a challenge, The

Community Foundation of Middle Tennessee was essential to shepherding the progress and the

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ultimate success of the venture. Described as a “catalyst for community”(NowPlayingNashville.com

nomination letter) action, the Foundation took the lead role not only in funding the venture but also

as a mediator bringing diverse groups together in consensus. The foundation worked through process

guiding the relationships among entities involved through open and regular communication.

External consultants can be integral to the collaboration process because they keep the parties

focused, and they act as non-biased intermediaries when there is conflict. Referencing a case study

of a merger in the white paper, “Nonprofit Strategic Alliance Case Studies: The Role of Trust”,

researcher John Yankey notes that an outside facilitator can be the “repository of trust that the

respective parties were not yet ready to place in each other”. (Yankey et al. 42) The positive role

that external consultants can play is also highlighted in the ArtServe Michigan merger, the

consolidation of two statewide arts advocacy into a whole new organization. While these

organizations were similar in mission, challenges came up around who would lead the new

organization, how to create a shared culture and the integration of the operations of the two agencies.

To guide the process, in addition to the team that made up the Joint Merger Negotiations Committee,

the two agencies engaged consulting specialists to support each step in the reorganization of the two

agencies.

It is interesting to note that of the eight semi-finalists for the Collaboration Prize, only two

contracted with consultants to guide them through the process. This decision may have been made

because the collaborating entities felt that they understood the underlying issues and vision better

than an outside consultant could. It also could have been because consulting fees can be an

additional expense.

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The multi-faceted role of funders

In this economic environment, foundation endowments and government dollars have been

dramatically reduced. Funders must be smart investors making sure that their philanthropic dollars

are used to the greatest affect. As a result, nonprofit organizations are expected to produce

measurable outcomes. Philanthropic organizations have a unique perspective that enables them to

observe the actions of the multiple nonprofit initiatives they support. The funder is in the tenuous

position of being both caretaker and watchdog. Funders observe where and when duplicated

services, inefficiencies in administration operations and mission overlap occur but they cannot or

should not unduly influence the decision making of the organizations they fund by mandating

collaboration through grants.

The Collaboration Prize nominees illustrate that funders can play a variety of supportive and pro-

active roles that contribute to the restructuring process without imposing conditions. In these models

funder involvement is a common occurrence and is represented in a number of beneficial ways. The

reported examples of funder involvement were: offering initial encouragement; funding exploration,

leading the funding effort, using leverage to develop more funding opportunities; funding technical

support for a newly consolidated program such as IT integrations or financing the re-branding of a

newly consolidated organization or program.

Examples of productive funder involvement that goes beyond just fulfilling a grant can be seen in

the cases of NowPlayingNashville.com and the Grand Masque Ball. For the

NowPlayingNashville.com collaboration, the Community Foundation of Middle Tennessee played

an instrumental role in bringing the idea of collaboration to the nonprofit community and to its

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supporters. Then the foundation took the role of lead investor, mediator, and cheerleader in the

development of the consolidated web calendar. As a trusted and unbiased leader in the Nashville

metro area and the extended region, the community foundation brought together what to some

appeared to be divergent groups, the business community, tourism, sports and entertainment with the

arts sector, to define and produce a product that benefited every organization involved while

benefiting the public interest as well.

In the situation that lead to the establishment of the Grande Masque Ball, the funder took a lead role

in identifying a clear case of silo-itis when it observed disastrous results due the duplication of three

fundraising events over three consecutive weekends by three performance organizations that had

overlapping audiences. Practically speaking, as a supporter of all three-performance organizations, it

was within the funder’s purview to advice the organizations that they should work together to

maximize their fundraising impact.

Implications

Increased education for arts and cultural groups

Arts administrators and leaders are often experts in the field they present but they are less familiar

with innovative business management techniques. It is essential that the options for "best practices"

(Hirsch in Craven) in collaborations be understood and considered by the arts sector in order for it to

develop its own hybrid business models for sustainability. The Collaboration Prize nonprofit

searchable database is an accessible resource for the nonprofit arts and cultural sector. The current

database presents 176 examples of successful collaborations including a small sample of

collaborative activities in the arts and cultural arts segments that are good models of how to gain

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much needed financial stability while continuing to advance mission. The Lodestar Foundation and

its partners have created the Collaboration Prize to be an ongoing yearly awards competition and

therefore, the body of knowledge vis-a-vis collaborations in the nonprofit sector will continue to

grow.

How can funders support the education process?

Stemming from years of experience in the philanthropic community, Lois Savage’s point that

successful mergers and other forms of strategic restructuring happen organically from the “bottom –

up” (Chronicle of Philanthropy, Live Discussions), that is, they are more likely to have a favorable

outcome when they are initiated by staff not a grantmaker, is well observed. The 176 models

represented in the Collaboration Prize database bare this out with 60% of the collaboration nominees

reporting that senior staff, executive directors and board members initiated the collaboration. (Re:

the Collaboration Prize: The criteria for eligibility for the initial 644 nominations eliminated most

funder mandated collaborations, therefore, it is impossible to gauge through comparison if the funder

mandated collaborations were more or less successful than those initiated by staff and stakeholders).

In order to expand the nonprofit organizations’ knowledge base and familiarize nonprofits with

collaboration, Ms. Savage recommends that funders work to create an environment that encourages

the people that run nonprofits to become more familiar with each other and with the many

restructuring options that are available. She suggests that funders expand their support by:

• Funding and promoting networking activities among nonprofits with similar

missions and goals

• Providing technical assistance grants for the exploration of collaborative

opportunities

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• Sponsoring workshops that offer tools for collaboration

• Creating a forum for the funders, government agencies and nonprofit

organizations to advance common activities that serve their community focus

(The Chronicle for Philanthropy Live Discussions)(Butzen)

How to deal with trust and cultural differences

Funders and organizations have consistently identified trust between partners and cultural

differences as impediments to the process of collaboration. The research tells us that trust between

committed partnering organizations is usually addressed and then developed on a micro level when

the core group of organizational stakeholders-the CEO's and boards-begin the initial planning stages

for collaboration. That is when consensus of mutual goals is set and a tentative trust is brokered. For

those collaborations that come to fruition, trust is nurtured on a leadership level throughout the

negotiation process to the final integration. However, on the macro-level, the employees of the

collaborating organizations are usually uniformed until the leadership approves a restructuring

initiative. Lack of communication about the process is neglected most likely because of the

proprietary aspects of the business deal. The cultural differences of collaborating or consolidating

organizations are often left till last.

Chicago based nonprofit consultant, Jean Butzen of Mission Strategy, Ms. Butzen suggests that the

industry needs to design a system that would test the potential of merging cultures and help define

what steps should to be taken in order to facilitate a more comfortable and productive transition

particularly when dealing with blending corporate cultures. It would behoove foundations and field

experts to develop programs that directly address this issue.

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Of course, arts and cultural leadership would have to get behind the idea. Michael Kaiser, CEO of

the Kennedy Center in Washington, D.C. and a vocal spokesperson for the arts and cultural sector is

clearly apposed to mergers but he does not rule out other forms of collaboration that may result in

cost savings. In a recent blog posting by Andrew Taylor on The Artful Manager blogsite (May 7,

2009), Kaiser is quoted as saying, “At arts organizations, in particular, we celebrate our individual

artistic visions, and that's manifest in many, many organizations. I think working together, thinking

about the platform differently, pulling out all the unnecessary expense from your platform...those are

the things to be looking for, those expense savings, not necessarily the mash-up of two very strong

artistic personalities.” (Kaiser in Taylor) Mr. Kaiser goes on to say that he sees “joint venturing and

sharing certain costs” (ibid) as viable collaborative activities for the arts sector rather than “merging

corporate entities”.

The supposition that long-term collaborations get in the way of creative integrity is not satisfactory

in this challenging economy. Arts and cultural organizations cannot survive in silos in this

environment of diminishing audiences, ever increasing costs and reduced funding. Arts

organizations cannot save their way into prosperity by cutting back on their bottom lines any further.

As witnessed in the models presented in the Collaboration Prize database, arts and cultural

organizations can, however, accomplish savings and see financial gain by partnering through

administrative consolidations and joint fundraising initiatives. Arts and cultural organizations can

reach more audiences through joint marketing programs and combined educational programming.

There are aspects that are unique to the disciplines within the arts and cultural sector that make it

distinctly different from those of the social services and health sectors, where the predominant

amount of collaboration takes place. Creativity is generally at the core of mission for the arts and

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cultural sector. The distinctive creative energies that differentiate arts organizations give founders

and arts administrators the excuse to hold onto a “proprietary mind set” (The Chronicle for

Philanthropy Live Discussions) making them disinclined to collaborate with their so-called rivals.

Additionally, arts administrators are often hampered by the restrictions of zero-sum yearly budgets,

which, in turn, inhibit the ability for managers to step back to take the long-view to do the

comprehensive strategic planning that is necessary.

Additionally, arts and cultural organization leaders have a difficult time thinking beyond their home

turf with all the immediate responsibilities of their organizations. As one arts administrator admitted,

“It is not in the Director’s handbook to share vision”. (Now Playing Nashville nomination letter)

However, in this challenging economic environment, these leaders need to make the link that cost

savings generated through enhanced administrative efficiencies or joint programming collaborations

and/or merger will in the end promote advancement of the creative mission.

It is essential that leadership of arts organizations become more flexible regarding the sanctity of

their organizations’ unique creative energies to recognize how pointless competition within their

artistic métier is and how vying for the top market share within such a relatively small field can be

an obstacle to better mission fulfillment. In our economic reality, where organizations have made the

painful discovery that the old way of business-as-usual is no longer viable because the funding is just

not forthcoming, organizations, guided by their missions, should look for new opportunities to insure

long-term survival. Collaboration, in all its forms, is one solution to accomplish a sustainable future.

Maggi Lawler Kirk

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Vergara-Lobo, Masaoka Alfredo, and Sabrina L. Jan & Smith. The M Word: A Board Member’s Guide to Mergers, How, Why & Why Not to Merge Nonprofit Organizations. San Francisco, CA: CompassPoint Nonprofit Services, 2005.<www.compasspoint.org> Waserman, Lanie, “Nonprofit Collaboration & Mergers: Finding the Right Fit, A Resource Guide for Nonprofits”, The Collaboration Learning Project & United Way of Greater Milwaukee, 2004 <http://epic.cuir.uwm.edu/NONPROFIT/collaboration.pdf> Yankey, John A., Willen, Carol K., Jacobus, Barbara Wester, McClellan, Amy. “Nonprofit Strategic Alliance, Case Studies: The Role of Trust Mandel Center for Nonprofit Organizations”, 2008 July. Case Western Reserve University. 2005. Mandel Center for Nonprofit Organizations. June 2009 <http://www.case.edu/mandelcenter/publications/casestudies/TheRoleOfTrust.pdf > Yawn, David McDonald. “Chattanooga Builds Around River”. Chattanooga Area Chamber of Commerce. 26 June 2005. May 2009. <http://www.chattanoogachamber.org/newsandvideo/commercial_appeal_06_26_05.asp> Zimmerman, Lynnette, Facebook, 8 Sept 09

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Appendices

Research Questions for Lois Savage, President of the Lodestar Foundation

About my study: Drawing on a decade of evolving research of restructuring activities in the

nonprofit sector-at-large, my thesis seeks to present the implications for arts and culture sector when

considering strategic restructuring initiatives as a means to better accomplish mission delivery and

sustainability within the sector.

According to my research many in the funding community have been interested in the prospect of

nonprofit mergers in order to increase efficiencies, mission reach and service delivery. But, no other

organization is as uniquely focused on the process of creating capacity building collaborations as the

Lodestar Foundation.

_____________________________________________________________

Questions about the genesis of the Lodestar Foundation and the Collaboration Prize

1. How did the Lodestar Foundation arrive at the five-point philosophy? From my research, I have

the impression that Mr. Hirsch is a “spiritual” man with a genuine commitment to doing good. The

idea behind the “Lodestar Dispute Resolution Program”, to create a more civil atmosphere in the

practice of law through mediation bears that out. Is the five-point philosophy inspired by Mr.

Hirsch’s spiritual journey?

In your interview with Jean Butzen, you note that both you and Jerry Hirsch had experienced a lack

of efficiencies and ineffectiveness in your dealings with the nonprofit sector. Your experiences

obviously inspired the vision for the Lodestar Foundation.

2. I know that you are an attorney. From what perspective did you experience these chronic

problems in the nonprofit sector? As a leader of an organization, as a legal advisor to a nonprofit on

the Board level or as a philanthropist? Basically, what did you do before Lodestar Foundation that

got you here?

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3. Could you put into historical context of the Lodestar Foundation and the Lodestar Center for

Philanthropy? Both organizations began in 1999. How did the two entities evolve out of your vision;

and out of Mr. Hirsch's, vision?

4. I found in my research that until the Collaboration Prize data and the recent Bridgespan study,

there was a lack of comprehensive surveys/studies of representative samples of organizational

mergers/capacity building collaborations. Except for a few case studies, I found no thorough analysis

specific to mergers in the arts.

It seems like a “Perfect Storm”, the convergence of multiple organizations working toward

innovation in nonprofit business that make up the Arizona-Indiana-Michigan (AIM) Alliance and the

Lodestar Foundation to create and fund the prize. It is a testament to the concept of collaboration.

5.Were the Prize and the resulting data part of your vision for the foundation from the beginning?

6. How long did it take to bring all the parties together?

7. What obstacles did you face?

8. When grantees come to Lodestar with a plan for collaboration/merger, what processes do you

provide to organizational leadership for self-assessment in order for them to judge whether merger or

other restructuring initiatives is right for them?

9. What do you observe to be the roadblocks to mergers or other alliances?

• Autonomy concerns?

• Lack of trust of the parties involved?

• Self interest in leadership and board?

• Organizational culture?

10. In your experience with nonprofits considering merger, what are the fears you see?

11. In my research, ego and self-interest on the leadership and Board levels have been identified as

the key reasons for failed strategies that can scuttle the process before it starts.

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12. Does the foundation get involved in the process of finding solutions to these problems?

13. According to the data on the Collaboration Prize, the essential reasons cited by the participants to

consider collaboration is to maximize financial resources and to improve quality of services. But,

much of the research I’ve done indicates that funder pressure is a driver for organizations to

collaborate and merge, which is creating concern. What are your thoughts about this?

14. Does Lodestar work as the “matchmaker” in finding suitable partners? Or, does the grantee

always come to you with a plan in place?

15. You talk about leveraging grants through matching gifts or a commitment from participating

organization’s Board members. Does Lodestar assist organizations in shopping for additional

funding?

From what I have discovered, funders may fund the merger process in three stages:

Assessment of potential to merge – Funders will pay for technical support to help the organization

identify if merger is right for them, help identify the merger partners and then make a plan

Implementation – Due diligence, legal fees, transfer of assets, property, etc.

Integration – Blending cultures (board, staff, management, volunteers) Blending systems (financial,

technology, HR, facilities, and fundraising processes). Evaluation.

However, I have the impression that Integration, especially when it comes to blending cultures, gets

short shrift from the funding community. Research indicates that culture clash is a big problem for

organizations involved in collaborations of all kinds. It seems that it is the last issue on the table for

many involved in the process of merging.

16.Does the foundation get involved directly to address the issues around culture clash?

17.Does the Lodestar Foundation take a special interest in organizational communication planning in

both the internal areas (for staff) and external outreach (for the public)?

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18. Does the foundation provide its grantees with tools to do external assessment and the assessment

of their potential partners?

19. Does the Lodestar Foundation orchestrate the evaluation processes to gauge the outcomes or

deliverables for collaborations you fund? Is the evaluation on-going throughout the process or only

at the end? How is this done?

20. How does a foundation gauge the costs of the merger process?

21. How involved is the Lodestar Foundation in the preplanning, orchestration and post evaluation?

��

Additional questions:

22. In this economy, where monies are becoming scarce, do you see a trend where donors are more

likely to fund mergers or alliances than any other projects?

23. Are you seeing an increase in grant applications for collaboration/merger funds?

24. How many mergers has Lodestar funded? What other types of restructuring alliances besides

mergers have been funded?

25. There are approximately 205 organizations listed on your web site that the foundation has

funded. How many grants do you give per year?

In my research, Merger Consultants have often been identified as integral to the collaboration

process because they keep the parties on track; act as intermediaries and monitor the process. This is

reiterated in the Collaboration Prize case, “Big Orbit, CEPA and Just Buffalo”, where the team of

experts from Canisius College is credited as being instrumental to the success of the venture. (I will

not quote this in the thesis)

26. Does the Foundation advise grantees to bring in experts?

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27. In your view of the participants in the Collaboration Prize did having expert consultants improve

the success rate of the collaborations?

Mergers increase services/programs and often staff capacity and as a result often increase budgets.

There is concern in the field that funders are cutting back on grants prematurely to newly enlarged

organizations.

28. Have you observed other funders pull or cut funding after the merger transaction is completed?

29. How would you suggest this issue be remedied?

About the arts

The research tells me that health and social service organizations are the best candidates for mergers.

According to the Bridgespan study, this is due, in part, to the competitive nature of the businesses

where government funders mandate improved efficiencies.

30. Has Lodestar funded mergers many between many arts groups?

According to Jo Dubolt of La Piana, the initial research gathered from the Collaboration Prize

indicates “more administrative consolidations among arts organizations than mergers – although one

of the winners of The Collaboration Prize was a merger among three museums (Museum of Nature

and Science in Dallas)”. In the “Collaboration Prize Descriptive Analysis of Qualifying

Nominations”, merging arts organizations are a 5%, with joint programming at 5% and

collaborations are at 7%.

31.Why do you think the arts sector is on the lower end of the scale?

32. What are the unique issues you see that make arts/cultural organization mergers more

problematic? Is it because individual creativity is part of the mission, which creates a roadblock to

partnerships?

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Endnotes

i The research tells us that health and social service organizations are the best candidates for mergers.

According to the Bridgespan study, this is due, in part, to the competitive nature of the businesses

where government funders mandate improved efficiencies. Lois disagrees with the Bridgespan

assessment because government funders are no longer playing such a large role in supporting social

service organizations. (Savage interview with author)

ii The Lodestar Foundation Mission: “The Lodestar Foundation seeks to maximize the growth and

impact of philanthropy through the pursuit of two strategies: (1) to encourage philanthropy, public

service and volunteerism; and (2) to encourage and support collaborations, consolidations, mergers

and other long-term cooperative activities among nonprofits working in the same area, and to

encourage other business practices, in order to increase efficiency and eliminate duplication of

efforts.” (About Us.lodestarfoundation.org)

iii Early in his philanthropic career, Jerry Hirsch while on the board of a homeless shelter attempted

to create a consortium of the agencies in order to improve service delivery, communication and to

deter inefficiencies of mission overlap. His effort failed but inspired him to pursue the mission to

educate nonprofits about business. (Savage interview with author)

iv About Lodestar Center for Philanthropy: In the Lodestar Foundation’s inaugural year, Lodestar

made a substantial grant to The Arizona State University (ASU) Center for Nonprofit Leadership

and Management, which, subsequently was renamed the Lodestar Center for Philanthropy and

Nonprofit Innovation at ASU. (“Representative Philanthropy & Collaboration Grants”)

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In 1998,when it was still the Arizona State University (ASU) The Center for Nonprofit Leadership

and Management it was one of a number of nonprofit management education programs across the

country that was funded by the W.K. Kellogg Foundation's Building Bridges. Building Bridges was

an initiative designed to foster the development of potential nonprofit leaders and expand higher

education for nonprofit sector practitioners mixing real-life experience with scholarly applications.

(Building Bridges Overview)The center is housed on the campus of Arizona State University (ASU).

It operates under the aegis of the College for Public Programs at ASU where it has an undergraduate

and graduate program in the School of Community Resources and Development. With its “mission

to help build the capacity of the social sector by enhancing the effectiveness of those who lead,

manage and support nonprofit organizations”, (ASU Center for Philanthropy and Nonprofit

Innovation mission) the program extends education services through its Nonprofit Management

Institute offering guidance to nonprofit professionals and their boards throughout the state through

conferences, educational programs and shared research. (“Representative Philanthropy &

Collaboration Grants).

v About AIM Alliance: The AIM Alliance mission is to share scholarly knowledge about the

nonprofit sector, facilitate improved collaboration within the sector and to design standardized

protocols in research. Organizationally, the AIM Alliance embraces a “shared/rotating”(Johnson

center) leadership model where each institution takes the helm in their specialized area of expertise.

It uses its cumulative knowledge base to work in local communities and nonprofit organizations.

AIM Alliance faculty members ultimately became key collaborators and contributors to the Lodestar

Foundation in the administration and vetting process of the nominations for the Collaboration Prize.

(“Arizona-Indiana-Michigan (AIM) Alliance Initiative”)

vi “Initial Review of Nomination Data”, September 5, 2008, by La Piana and Associates

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In the “Initial Review of Nomination Data”, completed shortly after all of the original 644

Collaboration Prize nominations were received, La Piana and Associates reported the following

findings regarding the types of collaborations they observed. The collaborative activities of the total

644 nominations broke out as follows:

• 50% joint programming

• 10% mergers

• 7% combined joint programming and administrative consolidations

• 7% administration consolidations

• 24% in the “other” category.

(La Piana Consulting, Inc. 3)

vii Names of Collaboration panel

The Collaboration Prize’s Final Selection Panel is composed of the following nonprofit leaders and

business visionaries:

Chairman Sterling Speirn, president and CEO of the W.K. Kellogg Foundation led selection Panel.

Additional members included Howard W. Buffett, chair and founder of The Clark and Hinman

Foundation, Peggy Dulany, founder and chair of The Synergos Institute, Pamela Flaherty, president

and CEO of the Citi Foundation and chair of the Board of Trustees of Johns Hopkins University,

Jerry Hirsch, founder and chairman of The Lodestar Foundation, Michael A. McRobbie, president of

Indiana University, Craig Newmark, customer service rep and founder, Craigslist, George F. Russell,

Jr., chairman emeritus of Russell Investments and founder and chairman of The Russell Family

Foundation, Craig E. Weatherup, former chairman and CEO of Pepsi-Cola Company and chairman

of the Board of Arizona State University Foundation. (“Lodestar Foundation Announces Final

Selection Panel Members for The Collaboration Prize”)

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viii

“The Collaboration Prize - Descriptive Analysis of Qualifying Nominations”, October 2008,

Published by the ASU Lodestar Center of Philanthropy and Nonprofit Innovation

The “Collaboration Prize Descriptive Analysis” presents findings based on 173 qualifying

nominations as defined by the criteria of the selection process (the Collaboration Prize database

includes 176 nominations) reflects the following analysis. The representative sample of nominations

includes anti-poverty and social welfare civil rights and social justice education and lifelong

learning, health and mental health (25%), arts and culture (7%), community development and

housing, environmental and natural resources philanthropic and civic engagement, children and

youth, diversity and human rights families and elders and technology and communications.

Of the 173 nominations joint programming represented the highest number of activities at 35%; 25%

of the nominees reported participating in mergers; 7% saw a combination of joint programming and

administrative collaborations with 8% reporting administration consolidation. 23% reported

collaboration in the “other” category. (ASU Lodestar Center for Philanthropy & Nonprofit

Innovation)

Of the total qualifying nominations involved in joint programming activities the highest percentage

(33%) of these collaborations took place within the health & mental health industry with the arts and

cultural category accounting for 5% of the joint programming collaborations in the pool of

qualifying nominations. (ASU Lodestar Center for Philanthropy & Nonprofit Innovation)

Of the total 173 collaborations the health and mental health industry saw 23% mergers within the

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participating sample with the arts and culture mergers at 5%. (ASU Lodestar Center for Philanthropy

& Nonprofit Innovation)

ix “Models of Collaboration: Nonprofit Organizations Working Together”

By Mark Hager and Tyler Curry, 2009, published by LSU Lodestar Center of Philanthropy

and Nonprofit Innovation

In the Prize’s inaugural year Lodestar received 644 nominations. Of the 644, 177 organizations were

selected as contenders for the prize. (The Collaboration Prize database includes 176 nominations) Of

177, 44 organizations received top nominations as organizations that pursued successful

collaborations that achieved creative excellence, programming impact and the elimination of the

duplication of services/programs. (Hager & Curry) (The Collaboration Prize database reports 30 top

nominations). The 44 organizations are presented in the preliminary draft paper, “Models of

Collaboration: Nonprofit Organizations Working Together”, by Mark Hager and Tyler Curry

published by published by LSU Lodestar Center of Philanthropy and Nonprofit Innovation. The

researchers sought commonalities in the collaborative efforts of 44 finalists. 8 models surfaced from

the research suggesting a broader range of collaborations going beyond joint programming and/or

merger. (The Collaboration Prize database presents 4 models of collaboration with variation within

the models). “The collaborations that advanced demonstrated through quantifiable evidence that they

achieved exceptional impact and substantially eliminated the duplication of efforts through

programmatic collaborations, administrative consolidation, or other joint activities.”(Collaboration

Models final draft) The researchers determined that the successful collaborations represent a diverse

array of hybrid models of restructuring that do not fit into “simple categories of merger or joint

programming”. (Hager & Curry 1) These initiatives included fully-integrated mergers, partially

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integrated mergers, joint program office, and joint partnership with affiliated programming, joint

partnership for issue advocacy, joint partnership with the birth of a new formal organization, joint

administrative office and back-office operations and confederation.

(Hager& Curry)

x “The original figures were approximate so I assume your figures are more accurate. Please note,

however, that in the database, we ended up apportioning collaborations by characteristics of each

type of collaboration they engaged in so that those collaborations involving more than one type were

counted in both fields (e.g. a collaboration that is an administrative consolidation and does joint

programming is listed twice). The original count was based on each nomination’s selection of the

type of collaboration; we wanted to account for all types that the collaboration had engaged in and

wanted people to be able to access what is relevant for them. The bottom line is that we discarded

the dividing of 176 into discrete categories, so I cannot confirm your number.” Lois Savage e-mail to

author, Sept 28 2009