Small organization mergers in arts and humanities

CASE STUDIES

Small Organization Mergersin Arts and HumanitiesStefan Toepler, Cara Seitchek,

Theresa CameronThis chapter discusses a case study of the merger between tworelatively small organizations: a local nonprofit arts council anda public county-level humanities commission. As this case devi-ates from other merger analyses that tend to focus on largerhealth and social service agencies, the chapter examines howwell key findings of the nonprofit merger literature apply tomergers of organizations of smaller size and in other fields.Generally, we find that the merger literature so far provides suf-ficient guidance for nonprofit managers in fields such as the arts,where merger pressures have only now begun to mount.

THE ISSUE OF MERGING NONPROFITS dates back to the 1980s(Singer and Yankey, 1991) and is thus not a completely newphenomenon. However, the frequency with which this issue

is coming to the forefront significantly increased in the 1990s, as haveattempts to analyze nonprofit mergers in the research literature and toprovide practical guidance. Beyond the considerable body of infor-mation and analysis available on conversions and for-profit and non-profit mergers and acquisitions in the health care industry, much ofthe analytical attention has focused on the health and social servicefields (Golensky and DeRuiter, 1999, 2002; Kamrad-Marrone, Stabile,and Smeltzer, 1999; Singer and Yankey, 1991; Taylor, Austin, andCaputo, 1992; Wernet and Jones, 1992). A recent survey of nonprofitorganizations engaging in some form of consolidation covered mostlyhuman service, but also a number of cultural and other types of

NONPROFIT MANAGEMENT & LEADERSHIP, vol. 15, no. 1, Fall 2004 © Wiley Periodicals, Inc. 95

Note: All three authors participated in the merger discussed in this chapter invarious capacities. We are deeply grateful for the many comments of executivecommittee members who have reviewed earlier drafts. The views and opinionsexpressed here, however, are solely those of the authors and do not reflectthe opinion of the organization, its board, or other stakeholders involved in theprocess. The chapter also greatly benefited from Roger Lohmann’s care andguidance and many good points made by the three anonymous reviewers.

organizations (Kohm, La Piana, and Gowdy, 2000). To a degree, thisis perhaps not too surprising, since health and social services areamong the fields of nonprofit activity that are most clearly markedby a growing reliance on fee and earned income and for-profit com-petition (Frumkin and Andre-Clark, 1999; Grønbjerg, 2001; Smith,2002; Gray and Schlesinger, 2002). In a more market-based envi-ronment with growing competition, nonprofits may arguably be moreprone to adopt corporate consolidation strategies (Golensky andDeRuiter, 1999).

While earlier writings on this issue tended to cover both merg-ers and acquisitions (Singer and Yankey, 1993; Wernet and Jones,1992), the more recent literature is primarily concerned with merg-ers per se, although more practice-oriented treatises cover mergersin the context of other forms of strategic alliances, such as jointventures, partnerships, or management companies (Arsenault, 1998;McLaughlin, 1998). The nonprofit merger still appears to be a some-what slippery concept. Golensky and DeRuiter (1999, 2002, p. 170)define a merger in the nonprofit context “as the result of a decisionby two or more organizations to combine their operations in a per-manent relationship.” Wernet and Jones (1992) differentiate betweendifferent types: horizontal mergers between organizations providingessentially similar services (for example, two nursing homes); verti-cal mergers between organizations operating in different parts of aservice delivery system (for example, hospital and HMO); and con-glomerate mergers between organizations in different fields (home-less shelter and drug treatment program). Arsenault (1998) addsconcentric mergers as a variation of vertical mergers.

Similar to Golensky and DeRuiter’s (1999, 2002) approach,Singer and Yankey’s (1991, p. 358) definition also focuses on the for-mation of “permanent relationships . . . that involve the combiningof boards, staff, and physical facilities.” They differentiate, however,between mergers as “the complete absorption of one organiza-tion . . . by another,” and consolidations as involving the disso-lution of all merging organizations and the formation of a new singleentity (1991, p. 358). This distinction is useful, since not all non-profit mergers are created equal. However, it contrasts with the morerecent usage of terms in the corporate literature, in which theterm merger typically refers to mergers of equal-sized partners,whereas mergers between unequal firms (that is, larger and smaller)are technically considered acquisitions (Houghton, Anand, andNeck, 2003). Acquisitions do take place in the nonprofit contextwhen nonprofits are bought out by for-profit firms, as is currentlythe case in the hospital and health insurance fields (Goddeeris andWeisbrod, 1999). Between nonprofits though, acquisition is some-what of a misnomer, because there are typically no buy-outs withfinancial compensations.

Accordingly, it may be more appropriate to distinguish betweenmergers (of equal partners) and takeovers in the nonprofit context(see McLaughlin, 1998). In a takeover, the larger, dominant agency

96 TO E P L E R, SE I T C H E K, CA M E R O N

Beyond theconsiderable

body ofinformationand analysisavailable on

conversions andfor-profit

and nonprofitmergers and

acquisitions inthe health careindustry, much

of the analyticalattention hasfocused on the

health and socialservice fields

retains control of the process and essentially absorbs and assimi-lates the smaller agency into its own structure. In a more equally bal-anced merger, control remains shared between the partners, but themerger requires greater management and structural adjustments.Although control issues and restructuring needs differ, both mergersand takeovers require the formation of permanent relationships andresource combinations, and both can be horizontal, vertical, or con-glomarative in nature.

In this chapter, we present a case study of what was ostensibly a(conglomerate) merger between a local government (county) com-mission and a private nonprofit agency. While the commissiondistributed funds to local scholars, writers, and humanities organi-zations, the key task of the nonprofit agency was to re-grant countyarts appropriations to artists and arts organizations. Both organiza-tions were small in terms of staff: the commission had no staff at alland the arts council had one full-time and two part-time employeesat the time of the merger. As such, both organizations are not typical“suspects” for nonprofit mergers, and the case therefore differs fromprior merger analyses in several respects. As noted above, nonprofitmergers that have been discussed in the literature so far primarilyconcentrated on mergers between private nonprofit organizationsthat are direct service providers predominantly in the fields of healthand social services. Mergers in these fields are typically driven by con-tracting pressures or the impact of managed care arrangements onservice providers (Golensky and DeRuiter, 1999; 2002). Since suchpressures and institutional changes in the funding environments arelargely absent in fields such as arts and culture, can we safely assumethat merger dynamics are nevertheless the same?

The literature on nonprofit mergers, as the phenomenon itself,is still fairly young (with the exception of an early 1990s cluster ofarticles, most writings date from the late 1990s and early 2000s) andnot yet very extensive (in essence, only a handful of scholarsand consultants have devoted considerable time and effort to thistopic thus far). Nevertheless, it provides a comprehensive wealth ofanalyses and experiences and appears to be robust and matureenough to begin the process of testing, and exploring areas for fur-ther refinements of, the work to date. As our case falls outside themold of typical nonprofit mergers, it affords the opportunity toexplore how well the insights of the current body of nonprofit mergerresearch transfer to different circumstances. Specifically, it may helpto begin illuminating two sets of questions: First, is our currentunderstanding of the nonprofit merger phenomenon universal orgeneric enough to provide useful guidance for nonprofit managerswho run different types of agencies (for example, funding interme-diaries or advocacy organizations) in different fields (the arts or theenvironment)? Second, since much of the merger literature concen-trates on relatively large, professionally staffed organizations, aremerger processes and dynamics fundamentally similar in their natureor salience when smaller board-driven organizations merge?

SM A L L OR G A N I Z AT I O N ME R G E R S I N ART S A N D HU M A N I T I E S 97

Is our currentunderstandingof the nonprofit

mergerphenomenonuniversal or

generic enoughto provide useful

guidance fornonprofit

managers whorun different

types ofagencies . . . ?

Whether the executive of a small arts group or the leaders of alocal environmental organization can turn to the literature on largersocial service agency or complex hospital mergers for useful guidanceis a question of no small practical relevance, particularly since themerger phenomenon has recently begun to spread beyond the humanservices and a much more varied group of nonprofits will face thisissue in the future.

For the purposes of this chapter, we do not aim at providinga comprehensive review of the relevant literature and the emergingconceptual frameworks of nonprofit mergers at large. Rather we focuson aspects of the growing theory that seem particularly suited toelucidate merger dynamics in our case. As prospects for a successfulresolution of various issues seemed at times dubious to many of thoseinvolved in the process, we were particularly interested in evaluat-ing typical merger success factors. In the following, we will firstdescribe the case and the merger process. We will then draw on theliterature to analyze motivations, incentives or the “strategic fit,” andpertinent issues of the “organizational fit,” such as the role of trustand organizational culture. The chapter concludes with a number ofbroader observations.

Case DescriptionAs background for the analysis, this section gives a brief sketch ofthe two merger partners, describes the conditions and events that ledup to the merger, and the merger process as well.

Merger PartnersThe Arts Council was incorporated in the mid-1970s after theCounty Council approved legislation authorizing the county gov-ernment to assist in establishing a “county-based, nonprofit organi-zation to develop, promote, and coordinate a county-wide effort forthe support, encouragement and performance of the arts” (personalcorrespondence). Although its creation was inspired by the local gov-ernment, the Arts Council was constituted as a private, self-governingnonprofit institution charged with regranting the county’s annual artssubsidies to local organizations and artists. Rather than structuringthe relationship between the Arts Council and the county throughrenewable contracts for services, the county appointed the ArtsCouncil through permanent legislation as its officially designatedarts funding agency. Over the more than twenty years of its existence,the Arts Council grew from one part-time employee originally to afull-time professional arts administrator and two support staff witha budget of more than $600 thousand by 1998. Its key programsincluded grant making, advocacy, communications, and membership.By 1999, the year the merger issue emerged, the Arts Council wasunder new leadership and in process of evolving from a small, grant-making organization to a larger advocacy organization with an


increasingly proactive focus and a growing visibility in the county.Perhaps the most significant manifestation of this was the launch ofa community cultural planning effort that year that provided a blue-print for the future development of the arts and humanities in thecounty, based on a year-long consultative process guided by a teamof national consultants.

The County Council established the Humanities Commission bylaw in 1984 to encourage, promote, and provide humanities pro-grams to county residents, such as local history programs, scholarlylectures, literary reviews, and poetry readings. The commission ful-filled its mission by cosponsoring and funding humanities programs.Specifically, the commission made grants to organizations andindividuals and sponsored an annual lecture and a scholarship fund.Partially supported by administrative staff of the public librarysystem, the organization of the commission’s activities as wellas funding decisions were handled by the Humanities Commission-ers themselves. On balance, the commission tended to make smallgrants to a variety of humanities organizations and activities. Placedunder the aegis of the public libraries and without the attention ofits own staff, total grants of the Humanities Commission amountedto $30 thousand in the year before the merger.

Premerger StageIn the mid-1990s, the county decided to streamline its administra-tive structures, particularly in view of reducing or outsourcingvarious county-hosted commissions that had proliferated in the pastbut were peripheral to the core functions of government. Accordingly,the County Council approached the Humanities Commissionwith the suggestion to explore a relocation outside of the governmentso that the county would not be directly supporting its activities any-more. The commission did not address the request until 1998, whenit began to discuss potential nongovernmental partners, particularlythe local community college and the Arts Council, which wasdeemed the best fit. After reviewing the options, the HumanitiesCommission approached the Arts Council in the summer of 1998with a proposal of merging the two organizations. The commissionwas interested in the Arts Council because both offered programs andservices similar in nature and focus. Working with the Arts Councilwas considered beneficial in ensuring a long-term ability to providehumanities and arts opportunities for county residents, while alsorepresenting the best opportunity to protect the commission’shumanities programming.

Approached by the commission, the Arts Council decided toproceed cautiously. Both organizations began to discuss the possibil-ity of a “trial affiliation.” The Arts Council’s board recommended thatthe two entities create a task force that would study the merger andhow it would be accomplished. The task force was to comprise rep-resentatives from both organizations, and elicit the assistance of a


consultant in order to assess the overall feasibility of the merger butalso to explore other options that might offer a better solution. Thetask force was also to consider staffing, programming, and adminis-trative needs. If a merger was found to be acceptable, the task forcewould then outline a process for a merger to occur. It was expectedthat the evaluation process and “trial affiliation” would last for abouta year before a recommendation would be made.

However, in the Arts Council budget deliberations with therelevant County Council Committee in the spring of 1999, the com-mittee decided that it would fund neither the commission for anotheryear nor a year-long evaluation phase, but requested that the twoorganizations present a proposal for the merger by early May 1999and complete the merger by the spring of 2000. The two organiza-tions thus agreed to merge without the benefit of the year-longevaluation and trial and to hasten the process to meet the county-imposed deadlines. The merger process began in July 1999 with anorientation session for the Humanities Commissioners to familiarizethem with the Arts Council and its programs. Joint board meetingswere used as educational opportunities to create one board outof two.

The MergerThe Arts Council formed a transition committee to facilitate themerger comprising members of the Arts Council’s board, HumanitiesCommissioners as well as representatives of organizations withhumanities programming, and members of the public. The transitioncommittee began work on revising the policies and procedures of thetwo organizations to make them one. The first priority was to developnew guidelines for providing humanities funding to the county. Thetwo organizations had used different processes to solicit and reviewproposals and grant funding to eligible cultural organizations andindividual artists and scholars. These differences were incorporatedinto one format by using the former Arts Council’s guidelines as thetemplate. In essence, the principle of outside panel review of pro-posals was adopted in accordance with the Arts Council’s prior fund-ing practices, and the Humanities Commission’s practice of reviewand deliberation of each individual proposal by the Commissionerswas abandoned.

Although the initial plan for the evaluation phase had foreseenthe hiring of an outside consultant to facilitate the decision-makingprocess, the haste of the merger due to the county government’surging required the transition council to proceed initially withoutindependent advice. Only after the merger process was well on itsway in November 1999 did the Arts Council learn about an in-kindgrant opportunity offered by the state nonprofit association for tech-nical assistance on topics such as board development, grant writing,governance, and legal issues. The Arts Council applied and receivedthe in-kind grant, and the state nonprofit association consultants


began to assist in the merger process. For the two organizations, thisprovided a neutral, third-party view of the problems and issuescreated by the merger and proved instrumental in organizing theprocess. The consultants began to lead the two boards throughthe process of creating the policies needed for the merger. Theprocess included interviews with former commissioners, both one-on-one and with representative groups from both boards. All legaldocuments were reviewed, and a board retreat was organized. Sev-eral legal and technical issues needed to be addressed for the mergerto occur. As one of the first steps, the transition committee with theassistance of the consultants reviewed the legislation mergingthe organizations. Explicit legislative authorization by the CountyCouncil was necessary because the Humanities Commission was agovernment entity and the Arts Council was the County govern-ment’s legally designated arts funding agency. Committee memberssubmitted comments, which were then used to revise the legislation.The final legislation was approved in November 1999, with theproviso that the bylaws as well as other organizational policies bereviewed and updated.

Bylaw revision turned out to be one of the most important issuesin terms of technical complexity, as well as the galvanization oftensions. The current bylaws of the Arts Council were used asthe template. Many old and outdated processes no longer followedwere eliminated and new language created. Due to the organization’sstatus as the legally designated funding agency of the county, theCounty Council attorney required the new organization to conformto certain legal requirements, such as the county’s ethics laws thatotherwise apply only to public officials and employees. This meantthe board had to file financial disclosure forms relating to their artsand humanities interests in the county. Another new requirement wasto ensure that all meetings were held in accordance with the openmeetings laws for the state. Accordingly, a specific code of ethics,compliant with county laws, was inserted into the bylaws as well.

The size and composition of the board was also evaluated. Withthe two boards combined, the current board was considered toolarge and unwieldy to be efficient (twenty-five Art Council boardmembers and ten Humanities Commissioners). A method for paringdown the board through the introduction of term limits was created.The committee structure of the Arts Council board was discussedand incorporated into the bylaws. Several discussions took placeregarding how to make the board reflect the community it serves. Inorder to address this issue, new nomination and recruiting proce-dures were created. These changes were reflected in the board orien-tation, which was created from these changes, as well as the provisionfor future board development.

During a retreat, the consultants led the board through activitiesto review and analyze the purpose for the existence of both organi-zations and helped in creating a new mission statement reflecting the


Bylaw revisionturned out to beone of the most

important issuesin terms

of technicalcomplexity,

as well as thegalvanization

of tensions

missions of both prior organizations. The intent of the mission state-ment was to drive future plans and goals of the council. The ArtsCouncil board had been evolving into a policy setting board with lessof a hands-on approach to the council’s activities. The commissionhad not reached this point in its development, but after merging, thenew organization decided to continue this trend. Another subject ofgreat debate was the name of the merged entity. At a board retreat,several potential names were discussed; the final result was “The Artsand Humanities Council.” The new name had considerable symbolicimportance and was meant to signal that both aspects of the neworganization’s work (arts and humanities) would continue to berepresented.

After the retreat, the executive committee reviewed the infor-mation from the retreat and finalized the mission statement. Thebylaws were reviewed and decisions made on the organization andstructure of the board. Next, the County Council and the CountyExecutive reviewed the proposed bylaw changes and finally approvedthem with some minor changes. In the spring of 2000, the formalmerger was completed, meeting the deadline set by the countygovernment.

The initial outcomes were promising. After the merger, the neworganization received increased funding from the county govern-ment to provide more grants to the cultural organizations housedin the county. In addition, funding was provided to increase thestaff of the Arts and Humanities Council in order to serve the pub-lic better and more efficiently. On balance, the change was alsobeing welcomed by the former Humanities Commission’s grantees.In addition to greater resources and an organizationally stable homefor their funding programs, the former commission’s grantees alsobenefited from changes in the funding procedures. The formerHumanities Commission, as a government body, was only able toreimburse expenses after they were incurred—a cumbersomeprocess bound to cause financing and cash flow problems. The newArts and Humanities Council, as a nonprofit, by contrast, was notbound to such rules. For all intents and purposes, the merger was asuccess.

AnalysisBroadly speaking, the goodness of the strategic and the organizationalfit between organizations will determine the success of a merger.Strategic fit relates to efficiency or effectiveness gains to be realizedthrough the merger; organizational fit relates to procedural issuesduring the merger (Wernet and Jones, 1992). In this section, we willdraw on the literature to discuss motivations and strategic and orga-nizational fit to analyze where the main complications in this casearose and which factors are best suited to explain its success.


Merger Motivations and Strategic FitOrganizational mergers are rarely among the first strategic optionsthat nonprofit organizations consider when faced with environmen-tal uncertainties. Mergers are rather the last resort after other strate-gic choices are exhausted (Singer and Yankey, 1991). Generally, theliterature has identified two types of external pressures that mightforce nonprofit organizations to consider mergers:

• Increased turbulence in the institutional funding environments—due to changing contracting regimes or reimbursement schemes—and increased competition between nonprofits and nonprofit andfor-profits in a given market (Golensky and DeRuiter, 1999, 2002)

• Pressures exerted by a dominant funding source, typically aiming ateconomizing and streamlining service delivery and preventingstruggles for available funds (Schmid, 1995)

Although environmental turbulence and pressures force organi-zations to consider a merger strategy, the choice of a merger overother options is typically understood to be based on a set of strate-gic considerations, such as improvements in organizational efficiency,more effective client services, improved funding base and less com-petition for resources, greater organizational stability through align-ing weaker with stronger organizations, increased market potential,and enhanced community image (Golensky and DeRuiter, 1999;Singer and Yankey, 1991; Kohm, La Piana, and Gowdy, 2000). Takentogether these considerations, or merger incentives, determine howmuch of a strategic fit there is between organizations. The ability torealize such incentives after the merger contributes to the perceptionof its successfulness.

As the Arts Council and the Humanities Commission were bothfunding bodies, they were not subject to the kinds of competitiveeconomic pressures that service providers are facing. The drivingforce behind the merger was, rather, the county government as thedominant funding source. The Humanities Commission operatingunder the county’s auspices was exclusively financed by the county,and county appropriations accounted for two-thirds of the ArtsCouncil’s revenues in FY 1998. Neither organization was in a posi-tion to devise counterstrategies that organizations can normallyemploy to ward off funder pressures and protect managerial auton-omy (Pfeffer and Salancik, 1978). With both organizations highlyresource dependent, the county government’s insistence on a mergerproved persuasive.

Although in this case the merger was not initiated by the orga-nizations on their own accord, a number of benefits and incentiveswere still present for both the Humanities Commission and the ArtsCouncil. The Humanities Commission was intent on preserving pro-grams and the services it offered to its clients but needed the support


of the Arts Council to privatize its organization by affiliation with asimilar, but stronger organization (Golensky and DeRuiter, 1999),thus ensuring both organizational and program stability. In addition,the Arts Council had a good reputation and positive visibility in thecounty and with the county government, which would contributeto an enhanced community image for humanities programs, as wellas an improved funding base.

For the Arts Council the merger benefits and incentives weresomewhat less pronounced but still existent. Board and staff reasonedthat the Arts Council would be able to broaden the services itprovided to the county and that the merger would allow the ArtsCouncil to grow in responsibility and become more inclusive in serv-ing the community. More effective client services, greater “market”potential (or more appropriate in this context, a greater client baseand better outreach into the larger cultural community beyond thearts), and the concomitant potential for further enhancing the coun-cil’s community image and visibility were thus among the potentialbenefits of a merger that the Arts Council recognized early on. Inaddition, both organizations could pursue new funding opportuni-ties with a broader set of services and increase their financial stability.Arguably, there was enough of a strategic fit in terms of the comple-mentarity and augmentation of the organizations’ overall strategy(Wernet and Jones, 1992) to justify the further pursuit of this option.In other words, from a strategic perspective, merger conditionsseemed generally favorable.

At its core though, the Arts Council’s decision to consider themerger was strategic in a different way. An accommodation ofthe county by helping to privatize the Humanities Commissionpromised the Arts Council a stronger position vis-à-vis the govern-ment in addition to potentially higher levels of county support forthe organization. Accordingly, it could be argued that the strategic fitand the perceived broader benefits were at best incidental as a moti-vation for this merger and had little bearing on its ultimate success.Without the intervention of the dominant funding source, neitherorganization would have been likely to seek closer collaboration,much less an outright merger.

Organizational FitAlthough the strategic fit between the organizations proved to benearly inconsequential in the end, issues relating to the organizationalfit are key to understanding this case and the significant problems thatarose in the process. Wernet and Jones (1992) describe organizationalfit as comprising two elements: “The first element is the stakeholders,that is, the people who negotiate the merger or acquisition. . . . Thesecond element of organizational fit is the negotiation process itself”(p. 369). The four most significant problems that respondents in thestudy by Kohm, La Piana, and Gowdy (2000) of restructuring efforts


It could be arguedthat the strategic

fit and theperceived broaderbenefits were at

best incidental asa motivation for

this mergerand had littlebearing on its

ultimate success

identified are in fact related to the stakeholders in the merger process:autonomy concerns, staff adjustment to new roles or positions;building of trust; and conflicting cultures.

StakeholdersTypically, the staff of the organizations involved are considered themost crucial stakeholder group in merger negotiations. Apart fromdifficult power negotiations over which of the executive leadership ofthe old organizations will lead the new one, mergers frequently leadto anxieties over job loss, career opportunities, supervisory andauthority relationships, and so on among executive and nonexecutivestaff (Taylor, Austin, and Caputo, 1992). The results of these uncer-tainties often include high turnover, low morale, and other disruptionsof the work routines (Singer and Yankey, 1991). Abrupt departuresand prolonged disagreements among the executives involved are aready source for crises during the merger process (Golensky andDeRuiter, 2002). Other organizational stakeholders, such as fundersor clients, are rarely a source of significant problems (Kohm, La Piana,and Gowdy, 2000).

Since the Humanities Commission did not have any staff in thefirst place and the Arts Council’s executive director’s position wasuncontested, one of the major stumbling blocks of mergers was irrel-evant in this case. Unfortunately, this did not mean that stakeholderissues were not present at all. In fact, a whole set of related issues justmoved to another group of stakeholders—the board at large. This inturn put, for a transition period, significant strains on the organiza-tion, which—with one full-time and two part-time employees—depended on the board to get much of the work done. Given thecentrality of sorting out executive leadership problems and combin-ing staff and systems without disrupting service delivery during themerger process, the issue of board dynamics rarely figures veryprominently in merger analyses.

Nevertheless, the literature provides important markers in thisrespect. McLaughlin (1998), for example, describes three typical con-cerns of boards engaging in a merger: concern for the mission, lossof identity, and loss of services. To an extent, all of these concernswere present in our case, although not always clearly differentiable.It was important, moreover, that these concerns were not universalbut mainly affected a few out of the ten former Humanities Com-missioners who stayed on the board of the newly merged organiza-tion. Although the source of the discomfort of these board memberswas not fully clear to other members, it did result in significant ten-sions during and after the merger. Specifically, there were two keyunderlying issues in this context that were not fully recognized andaddressed early in the merger process and kept festering while theprocess gained “escalating momentum” (Jemison and Sitkin, 1986):the issues of trust and organizational culture.


Apart fromdifficult powernegotiationsover which ofthe executive

leadershipof the old

organizationswill lead the new

one, mergersfrequently lead

to anxieties overjob loss, careeropportunities,supervisory

and authorityrelationships,

and so on

TrustAlthough initial measures were taken to familiarize both groups witheach other, such as joint board meetings, there was not enoughtime to build trust—a key element in all kinds of partnerships. Fromthe humanities standpoint, there were, however, a number of legiti-mate concerns in the face of the considerable uncertainty the com-missioners were facing vis-à-vis the Arts Council. Although theoverall visibility of the arts in the county, both in terms of numberand size of organizations, was not very high, the arts had a consid-erably larger presence than the humanities. Moreover, the county’scommitment to arts was both longer-standing and significantly higherthan to the humanities, as evidenced by the substantial differentialin the prior appropriations to the council and the commission.Merging the commission’s humanities programs into the older andconsiderably larger Arts Council constituted the potential threat thathumanities activities were gradually losing their identity and wouldrank low on the priorities list of the new arts-dominated organiza-tion, which in turn could lead to a loss of humanities services in thecounty over the long run. In a special section on the humanities,the consultants for a community cultural planning effort that wasunder way in the county during, but independent of, the mergerbrought these concerns to a point in their draft recommendations,noting

The former members of the Humanities Commission areextremely sensitive to the way their agency’s terminationmight be perceived. They do not want it merely to be sub-sumed under the former Arts Council. Nor do some of themore thoughtful former Commissioners want its programsto become mere adjuncts to artistic exhibitions and theatricalperformances, even though, admittedly, some of the Human-ities Commission’s most widely attended programs haveoften had that specific objective. . . . Concerns about raisingthe profile of the humanities, which were repeatedly expressedin terms of protecting the humanities as the larger ArtsCouncil begins to embrace the functions of the HumanitiesCommission, were universal. (personal communication)

Although the overall stakes were lower for the Arts Council, theboard decided at the beginning to invite all Humanities Commis-sioners willing to continue to serve to join its board as a welcominggesture. In light of the great disparity of resources that both organi-zations brought to the merger, this approach was not necessarily agiven; cases of nonprofit mergers in which board positions weredetermined by the economic position of the merging organizationshave been known in the past (Wernet and Jones, 1992). Moreover,during the process, emphasis was put on both symbolic gestures


The boarddecided at

the beginningto invite allHumanities

Commissionerswilling to

continue to serveto join its boardas a welcominggesture. In light

of the greatdisparity

of resourcesthat both

organizationsbrought to themerger, this

approach wasnot necessarily

a given

(for example, avoidance of using “the arts” as a shorthand duringboard discussion and the deliberate use of “arts and humanities”instead) as well as structural arrangements (for example, the appoint-ment of former Humanities Commissioners to key board committeesbeyond the transition committee).

However, although the Arts Council board members attemptedto address the concerns, these measures did not completely alleviatedeep-running concerns of some former Humanities Commissioners.For some of them, the suspicion that the former Arts Council boardmembers or even newly appointed members would not be sufficientlycommitted to, or even knowledgeable enough about, the humanitiesremained. To be sure, building trust takes time and the originallyenvisioned one-year evaluation and trial phase could conceivablyhave contributed to the alleviation of some of these concerns. Asthings were, however, even the best and most sincere efforts and ges-tures were not sufficient to bridge the gap completely at the time.

CultureBeyond the fear that the humanities would be pushed to the sidelinesin the new arts-dominated organization, Humanities Commissionershad also to adapt to a new organizational culture that was funda-mentally different from that of the former Humanities Commission.With no employees of their own and a small budget, the formercommissioners were much more directly involved with the grant-making process, not only by making final grant decisions but alsodoubling as the staff to review proposals. The culture was accord-ingly deliberative, and decisions were immediately transparent andmade by the whole group. In the former Arts Council, as a muchlarger and more complex organization, the board had evolved into apolicymaking organ that had delegated the day-to-day managementto dedicated staff and the preparation of grant-making decisions to apeer review process with outside panels. The board was also consid-erably larger, and much of the key work was performed in commit-tees. Not accustomed to working with effective staff and thedifferences in governance requirements resulting from this, it wasdifficult for the former commissioners to understand and appreciatehow and why their own performance of staff or committee functionswas not considered beneficial anymore in the context of the newlyforming organization.

Another fundamental difference in the culture of the two orga-nizations resulted from differences in the traditional constituencies.Although the Arts Council maintained a small-grants “OrganizationEnhancement” program for small organizations, the majority of itssupport was earmarked for a limited set of large arts organizations inthe county. The Humanities Commission, by contrast, did not focuson institutions with the capability to deliver highest-quality human-ities programming. Most commissioners interviewed in the contextof the cultural planning effort rather “preferred to continue a small


grants program, disbursing funds to as wide a set of organizations aspossible. They reasoned that the most appealing programs . . . wouldemerge from grass-roots organizations and those most closely attunedto specific communities” (personal communication).

During the merger process, it was essentially a given—for thetransition team, the leadership, and the consultants—that the newlymerged organization’s governance structure and culture would mirrorthat of the former Arts Council, although this was never consciouslyelaborated. Even from a purely technical perspective, conducting thenew council’s much more extensive operations in the former com-mission’s fashion would not have been feasible without overtaxingthe board. Although some of the former Humanities Commissionersadapted quickly to the new culture, others did not and tried accord-ingly to get involved in the day-to-day operations of the council, suchas editing documents or demanding a full board review of all grantapplications. Unfamiliarity with the governance demands of larger,formal organizations in turn emphasized the feeling that the cultureand procedures that had worked for the Humanities Commissionwere disregarded in favor of the culture and procedures of the formerArts Council. What was in essence a small-versus-large organizationissue thus turned partially into an “us versus them” issue, furtherfanning frustrations on the board and to some degree taxing theexisting goodwill.

Negotiation ProcessWith these unresolved cultural differences further undermining thedevelopment of mutual trust, the negotiation process—the secondaspect of the organizational fit of Wernet and Jones (1992)—was alsoaffected. More specifically, the deliberations concerning board com-position emerged as the single most contentious issue during thenegotiation phase. The combined board had already become toounwieldy with twenty-five former Arts Council members and tenHumanities Commissioners. In addition, the terms of some ArtsCouncil board members were to expire by the end of 1999. Due toits status as the designated arts funding agency of the county, the ArtsCouncil was required to seek a board composition largely reflectiveof the county’s communities and had used notices in local papers asa way of recruiting board members who represented the county. Fol-lowing past practices, the council set the usual nominating processinto motion in the fall with one former commissioner and an outsidehumanities representative added to the nominating committee.

The nominating committee considered new nominations result-ing from the publicized call for nominations as well as all Human-ities Commissioners serving on the board for renomination, andbrought forward recommendations for a number of new membersbut only two of the former Humanities Commissioners. This set offa considerable protest, as it had been the understanding of the com-missioners that they all would automatically be renominated,


What was inessence a small-

versus-largeorganization

issue thus turnedpartially into an“us versus them”

issue, furtherfanning

frustrations onthe board andto some degree

taxing theexisting goodwill

whereas the understanding of the rest of the board had been thatthe commissioners had only been invited to the board in the sum-mer of 1999 until the nomination process in the fall. To avoid astand-off and further frustrations, the board reversed the commit-tee’s recommendations and all commissioners were reappointed tothe board.

Nevertheless, the appointment of new members also went for-ward and, although there had been some resignations, the total num-ber of board members increased, rather than decreased, to thirty-six.Typically, situations like this leave two standard options: placing acap on the current size and achieving a reduction of board membersthrough attrition, or introducing staggered terms (McLaughlin,1998). Attrition was ruled out early, because otherwise it would havebeen years until new community representatives could have beenappointed to the board. Also, waiting for the board to slim downthrough attrition might have further encouraged a “continuation ofany Us vs. Them feelings” (McLaughlin, 1998, p. 127) and postponedthe gradual replacement of the old arts and humanities members witha new generation of board members joining an arts and humanitiescouncil.

To deal with this problem, the outside consultants developed analternative, staggered-terms proposal in which the longest-servingmembers of both former organizations would be allowed to stay onfor one more year and the remaining terms of the other memberswere determined by the length of prior service until the new maxi-mum cap of twenty-five board members—instituted in the newlyrevised by-laws—would be reached. After that cap was reached, theusual board terms of two years with a possible reappointment foranother two years—the prior practice of the Arts Council—wouldkick in again. The advantages of staggered terms include a fasterturnover than attrition and “[s]tretching the transition period overa longer time may [also] ease the stresses associated with a changein control” (McLaughlin, 1998, pp. 127–128). With some of the for-mer commissioners concerned that both knowledge about, as well asconcern for, the humanities on the board would begin to wane if theywere to leave, the change-of-control issue appeared indeed at theheart of the matter.

Unfortunately though, the introduction of staggered terms in thiscase did not ease these stresses. Like Arts Council board members,Humanities Commissioners had traditionally also served two- tothree-year terms and these terms were part of the proposal developedby the consultants. However, since the Humanities Commissionhad known since the mid-1990s that it would have to “sunset” ormerge, commission membership had not been renewed in a whileand the commission was accordingly heavy on longer-term members.As a practical effect, many more former commissioners were thus tobe rotated off the board than members of the former Arts Council’sboard.


Although this was proposed by the independent consultants andwas the obvious “textbook” solution to the problem, it neverthelessreinforced the perception of a few former commissioners that theprocess was principally designed to move humanities representativesoff the board rather than finding a more “equitable” solution thatwould have allowed former commissioners to share in the control ofthe organization for a longer period. This resulted in outright protestsfrom a vocal group of former commissioners and complaints that thenew procedures were not in line with what had been explained tothem during the premerger period. The growing dissent—while theboard as a whole was struggling to deal with the legal and technicalissues and move the process ahead—began to strain the atmosphereat board meetings. After a heated and contested debate, the boardapproved the staggered terms proposal in the end. Most former com-missioners supported the solution; four of them objected.

In sum, the board composition and the terms of the transitionalboard turned out to be major issues. Perhaps due to the haste of themerger initiation, the issues had not been sufficiently discussed earlyon. Various factions of the board apparently proceeded with differentunderstandings about it through most of the merger process, and this inturn led to significant complications and upheaval during the nomi-nating process. Combined with the lack of trust on the part of a few for-mer commissioners in the willingness and capabilities of the neworganization to properly accommodate and appreciate the humanitiesand the incompatibility of the organizational cultures of the two orga-nizations, board dynamics remained tenuous in the immediate post-merger period and led to a reinforced rather than mitigated polarizationof board factions—a situation that affected board management andmorale for a while. However, within a year, the former HumanitiesCommissioners who had the greatest difficulties with the merger hadeither rotated off the board or resigned, as did some of the former ArtsCouncil board members. But a significant number of former commis-sioners did stay on and helped the new organizations to chart its newcourse. After a year of at times contentious meetings, the new organi-zation and its board were finally able to settle into its new routines andprocedures.

Discussion and ConclusionAt the outset, we posed the questions whether the current state ofnonprofit merger research is generic enough to transfer easily to fieldsother than those from which much of the analyses have been drawnin the past (for example, health and social services), and whethermerger dynamics appear to be similar when smaller groups withoutmuch staff merge. Overall, we find the parameters and crucial junc-tions of our particular merger case well covered within the literatureto date, suggesting that the current knowledge and analyses areindeed universal rather than field-specific and sufficiently suited tohelp smaller groups and agencies in other industries understand what


issues and obstacles they are likely to face. Nevertheless, thereappeared to be a number of differences in nuance and emphasis thatmay require further exploration and elaboration.

As far as mergers among board rather than staff-driven organi-zations are concerned, we are not sure that a perusal of most of theliterature would have given this board sufficient warning as to whatto expect in terms of the board’s own role and tribulations in theprocess. This is not to suggest that the literature tends to overlookboard issues, but rather that board issues are more central and of adifferent quality when there is no staff to carry the process or gener-ate obstacles to a successful conclusion of the merger. Although itmay indeed be sufficient to educate the board about strategic posi-tions and seek its involvement in choosing between different con-solidation options in large organization mergers (Arsenault, 1998,p. 15), we would argue that this is likely to be the mere beginning ofthe board’s involvement in the merger in small organizations.

If our case is any guide, the whole board will be closely drawninto negotiating and managing the process, even if a transition com-mittee is appointed. Thus having a large number of directors fromboth organizations, rather than a small working group of mergerchampions, intimately involved increases the likelihood of proce-dural mistakes and an escalation of tensions. With the direct respon-sibility for the merger negotiation resting with the board itself ratherthan the staff, many typical merger issues, particularly those relat-ing to executive leadership, staff reorganization and conflicts, andthe restructuring of administrative systems, had little salience. How-ever, autonomy concerns, trust, and culture became paramountproblems at the board level. Other problems that rank low on thepriority list of staff-driven mergers, such as legal arrangements andbylaw revisions (Kohm, La Piana, and Gowdy, 2000), tended todominate the merger process and catalyzed conflicts among boardmembers. On a purely practical level, the involvement of outsideconsultants proved crucial both in terms of injecting technicalexpertise and suggesting ways to help the board maneuver itself outof tight corners.

Otherwise, the literature proved to be right on target in our case.Resource-dependency issues in the form of pressure from a dominantfunding source as primary cause for the merger were covered; typi-cal incentives and benefit considerations were mirrored in the pre-merger stage; and problems of the organizational fit proved crucialas the merger unfolded. Among these though, discussions of mergerincentives and motivations seem to have had the least real conse-quence. Lists of potential benefits are easily divined by staff or willingboard members and used to justify decisions that have to be madefor other reasons. Whether this may be generally so in small organi-zation mergers or is a function of the funder’s intervention requireswill further case examinations. Generally though, the further devel-opment of more analytic models may prove useful in clarifying thereasons and motivations for the decision to merge.


Having a largenumber ofdirectorsfrom both

organizations,rather than asmall working

group of mergerchampions,intimatelyinvolved

increases thelikelihood

of proceduralmistakes andan escalationof tensions

Lists of potentialbenefits are easily

divined by staffor willing board

members andused to justifydecisions that

have to be madefor other reasons

Golensky and DeRuiter’s (2002) recent model of merger motiva-tions points in a fruitful direction. The model posits that merger moti-vations depend on the decision-making style of organizationalleadership (anticipatory or reactive) and the extent of organiza-tional resources (sufficient or limited). If organizational leadersanticipate changes in their environments, they may seek a merger topursue their mission more effectively if resources are sufficient orto seek stability if not. Leaders merely reacting to environmental changewill consider mergers for practical or efficiency reasons if resources aresufficient or for fear of organizational decline and closure if not.

Having not acted for several years on the county’s first sugges-tion for reorganization, the Humanities Commission’s decision-making style was clearly reactive. Also being resource-poor, thecommission’s motivation was fear, or rather the certain prospect, ofclosure. The Arts Council was better resourced, both financially andin terms of executive leadership, and more attuned to growth oppor-tunities, but it still reacted to outside impetus as far as the mergerwas concerned. Practicality is therefore an appropriate description ofthe Arts Council’s motivation, although it derived from the practicalneed to deal with external-resource dependencies as well as internal-efficiency considerations.

Although Golensky and DeRuiter’s hypotheses require furtherrefinement in this context, the model seems particularly useful if usedto juxtapose key organizational and motivational differences betweenmerging organizations. Doing so brings into focus the underlyingdifficulties in establishing trust and cultural rapport. The faction offormer Humanities Commissioners that continued to resist theprocess was, in the end, only interested in seeing the old commissionand its way of doing business survive. Other commissioners and themore actively engaged Arts Council board members, by contrast,focused on creating a more efficient, transformed organization. Hadthis motivational mismatch been recognized earlier, the inevitableculture clash could conceivably have been averted, either by pursuinga different form of consolidation, such as keeping the commissionas a semi-independent subsidiary under the auspices of the ArtsCouncil, or by pursuing the merger in a more corporate fashion byforgoing efforts to organize the process based on considerations ofinclusiveness and equality. Such a merger though would have takenon a very different flavor—one that would not have meshed well withthe values of a board of community volunteers.

This in turn leads to one final observation based on the experi-ence of this case. That trust and cultural acclimatization are majorfactors in post-merger integration success are of course somewhatpedestrian insights that have long been staples of the merger litera-ture. In fact, the former Arts Council’s board intuitively grasped theimportance of this, when it originally decided to postpone a finaldecision on the merger until after a year-long trial period. With thetrial option removed by the funder though, the merger proceeded andincidentally succeeded despite the lack of cultural integration and a


resolution of trust issues. Are trust and culture therefore at bestincidental to the success of a merger? The answer probably dependson the kind of merger. As McLaughlin (1998, p. 133) has pointed outwhether two nonprofits are equals is not necessarily a question ofbudget sizes and numbers of employees alone. Indeed, despite thevery significant differences of size, scope, age, and community visi-bility, the Arts Council board was from the beginning committed totreating the humanities and the Humanities Commission as an equalpartner in the merger. The approach was intentionally as inclusive aspossible: all commissioners willing to do so were invited to join theArts Council board at the outset; board members made efforts to learnabout the humanities; the cultural planning effort included a specialsection on the humanities; and a high value was placed on symbol-ism by constantly emphasizing “arts and humanities” and “artists andscholars” during board discussions and in all documents.

However, as the need to complete the merger by the set deadlineforced the process ahead and the measures to ensure inclusivenessand equality failed to convince some former commissioners, whatstarted out as a merger of self-perceived equals began to take on moreof the characteristics of a friendly take-over. Arts Council policiesand procedures were overhauled, updated, and re-invented but stillprovided the templates for the new organization and the integrationof humanities funding. Arguably, the lingering trust and culture issuesdid not derail the consolidation of the two organizations or threatenits successful conclusion, but they contributed to weakening themerger aspects while aiding the takeover aspects of the process. Alter-natively, the perception on the part of some former commissionersthat the merger proved really to be a take-over—although neverexplicitly stated—may have rendered the acculturation efforts of theArts Council board fruitless, and heightened rather than mitigatedthe kinds of problems the board as a whole faced throughout themerger. Either way, although the distinction between merger andtake-over may not have much practical significance in the morecorporate climates of highly professionalized hospitals or social ser-vice providers, it does make a difference when board volunteers ofsmall community-driven organizations explore consolidations.

STEFAN TOEPLER is assistant professor of nonprofit studies in the Depart-ment of Public and International Affairs, George Mason University,Virginia. He is a Fellow in Museum Practice at the Smithsonian Institu-tion in Washington, DC.

CARA SEITCHEK works at the Woodrow Wilson International Centerfor Scholars in Washington, DC, and is a freelance writer and editor forseveral museums and nonprofits.

THERESA CAMERON is the executive director of the Arts and HumanitiesCouncil in Maryland.


Although thedistinction

between mergerand take-overmay not have

much practicalsignificance in

the morecorporate

climates of highlyprofessionalized

hospitals orsocial serviceproviders, itdoes make a

difference whenboard volunteers

of smallcommunity-driven

organizationsexplore

consolidations

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