Mergers Leveraging Resources for Sustainability, Growth and Better Outcomes for Kids

CASA and Legal Advocates for Abused and Neglected Children

To understand what’s involved in the process of exploring, planning and executing a merger through the experience of

two executive directors of independent CASA programs

Workshop Objective

Background on Agencies What Research Tells Us Our Process

Timing, Desired Impact and Timeline Pre-Exploratory Committee Exploratory Committee Due Diligence Integration Planning Leading Change Closing and Early Integration Summary of Lessons Learned

Session Outline

The St. Louis Metropolitan Area

St. Louis City and County

6.5 miles apart

In 1980, the National Council of Jewish Women pilots a CASA program in St. Louis County CASA of St. Louis County is incorporated as 501(c)3 in 1995

In 1984, the Women’s Crusade Against Crime (WCAC)

establishes a Volunteer GAL program of the St. Louis city family court St. Louis City CASA is incorporated as a 501(c)3 in 1998

when the WCAC ends Name changed to Voices for Children in 2005 due to

confusion and competition with CASA as well as other local nonprofits

Agency History

What Research Tells Us

LaPiana Consulting 2011

Greater mission impact A growth strategy

Increase clients served Expand programs and services offered Develop continuum of services

Improved outcomes Increased policy or systemic influence

Financial crisis Departure of an executive director To reduce competition or duplication of services

Why Nonprofits Consider Merger

A higher public profile Greater specialization for staff – develop expertise or

functional focus Challenges recruiting or retaining staff or board talent Encouragement by funders for consolidation in the field Leverage economies of scale Challenges in building adequate infrastructure –

information systems, human resource management, financial management, resource development

Diving into merger discussions without board approval Beginning negotiations without understanding what you want to

get out of the process Assuming a superior attitude toward your potential partner Withholding potentially embarrassing info from your partner Breaking the confidentiality of the process Adding negotiators after the process has begun Allowing the process to drag on too long Not keeping your staff adequately informed of developments Not communicating with the board throughout the negotiations

process Not getting competent nonprofit legal counsel

Typical Mistakes

Fears Change in general Identity loss Losing jobs, board membership New boss Decline in program quality Losing all we have worked for “They” will tell us what to do

Philosophical/cultural differences Egos Compensation philosophy - salaries and benefits Lack of transparency and communications

Barriers to Merger Success

Merger Costs

TASK ONE-TIME COST

Merger exploration & negotiation

• Consultant fees • Staff time

Legal enactment • Attorney fees, including specialists in nonprofit incorporation, human resources/labor, copyrights and so forth

• Audit of one corporation at closing

Launch • New identity materials, new marketing materials; website and social media consolidation

• Public awareness of the merger: announcement mailings, celebration event(s), advertising

• Merger fundraising

Staff and Board Integration

• Consultant fees • Change management training • Cultural integration and teambuilding - assessments,

retreats, social events

Adpated from The M Word: A Board Member’s Guide to Mergers, CompassPoint, 2005

TASK COSTS

Organizational integration: Personnel

• Consultant and attorney fees (e.g. employment law specialists)

• Severance pay • Increases in personnel costs to align salaries and

benefits (ongoing cost) Organizational integration: Technology

• Consultant fees • Hardware & software purchases • Cross-site network • Staff training

Organizational integration: Facilities

• Professional movers, space planners, and new furniture and equipment

• Lease buy-out • Telephone costs

Organizational integration: Program

• Consultant and attorney fees (e.g. copyright specialists)

• Research with clients and funders

Organizational integration: Board of Directors

• Attorney fees (e.g. new bylaws,) • Consultant fees for board development

Our Process

Working well together Challenging economy which will last a long time

undermines effectiveness by causing gaps, could threaten stability

There are things that each agency has that the other needs Now is a unique time where there is little overlap in staff,

putting the fewest jobs at risk Both agencies are in the midst of fairly significant change –

may be less need to change things/positions that have been in place for a long time

Competition and confusion for donors and prospective volunteers

Timing

Mission is the same Neither agency in crisis Good relationship History of working together Both EDs committed to best answer, not their job Funders regularly query – why two agencies?

Factors for Expected Success

Stronger voice for kids Stronger one-on-one advocacy Proactively focus on policy advocacy and systemic change

Eliminate confusion and competition for funding and volunteers Improved fund development Increased public awareness

Stronger HR infrastructure More powerful board, more reach Improve return on investment, reduce cost per child/improve

cost effectiveness Improve financial stability, sustainability, leverage economies of

scale Eliminate duplication Leverage admin and fixed costs – more resources directed at mission

Desired Impact - Organization

• Improvements in specific outcomes for kids

• Permanency

• Education/development (school changes, special ed services in secondary and post-secondary ed, better results from discipline hearings, academic progress, post-secondary education)

• Health (general dental and health screenings, physicals and check-ups, specialized needs like adolescent med)

• Mental health (use of psychotropic meds, accurate diagnoses, access to specialized treatment – RAD therapy)

• Appropriate placement and placement stability

• Family and kinship connections

• Opportunities of childhood

Desired Impact - Kids

• Increased number of volunteers

• Improved volunteer skills and effectiveness

• Improved satisfaction

• Reduced attrition

• Improved utilization of volunteers (second cases, multiple cases where skills and time make it desirable)

Desired Impact - Volunteers

Jul-08 Collaboration training and

volunteer recruitment

began

Feb-10 Raise the idea of a merger

Mar-10 Presidents

and executive directors

vet the idea of a merger

Jun to Sep-10 Exploratory committee evaluates range of

collaboration opportunities

and challenges

May-10 Both boards

approve formation of exploratory committee

Sep-10 Both boards

approve moving forward

Letter of intent is signed

Oct-10 to Nov-11

Due diligence and merger integration planning

conducted

Jul-11 Both boards approve the

merger

Nov-11 Merger

Agreement Signed

Closed on

merger

Jun-12 6 months into

integration

Collaboration Exploratory Committee

Planning & Due Diligence Integration

Pre-Exploratory Committee

Mission over agency and people Success needs to be understood as coming up with

the right answer about restructuring (not the resulting merger) Not merging is not a failure if it is not the right

answer If merging is not the right answer, we should still continue

to collaborate and explore a deeper partnership

Agencies are equals – no one in crisis, no one is “taking over”

Framework for Exploration

Exchange and Discussion of Background Info Summary financials last 2 fiscal years and current budget Top 5 institutional funders for ongoing operations Top 2-3 fundraising events – when and gross revenue Org charts Board lists Operating statistics last 2 years and current year to date – CASA

volunteers and children served Brainstorming the Possibilities

Benefits Structures

Greatest Challenges to Resolve Synchronizing Communications

Project United – First Meeting

Complementary strengths and gaps in administrative and development staffing

Blend Voices’ strength in volunteer retention and screening with CASA’s strengths in volunteer recruiting.

Show efficiency and resource stewardship to donor community. Reduce confusion in donor community.

Marry Voices’ expertise with outcomes measurement with upcoming new CASA system/technology to become a national leader

Opportunity to have both CASA programs to benefit from each other’s expertise

Longer-term opportunity to take the best of both program models (attorney supervision and social work supervision) to each jurisdiction longer term

Achieve shared goals faster (e.g. growth, policy advocacy, take advantage of new earned income opportunities)

Open the doors to innovation and cut down on “turf” struggles

Potential to better leverage administrative staff – economies of scale spreading fixed costs over larger program

Perceived Advantages

Program Models

Is it ok to leave the two models separate, at lest for the short-term? Is a merger worthwhile if the programs don’t ultimately integrate? Will one model lead to better outcomes or greater efficiencies? We are not in total control of our destiny since the programs reside in two different jurisdictions.

Judicial and CASA Approval

Will the administrative judges approve of this move? How will National and MO CASA react?

Blending Cultures

The two organizations have somewhat different cultures, perhaps stemming from their different staff profiles (attorneys vs social workers). Having 2 offices and 1 executive director will present a challenge when it come to providing adequate guidance, supervision and team-building.

Biggest Challenges

Name Each name has advantages. Voices offers greater flexibility. CASA links to our national brand.

Professional Leadership

Both executives are prepared to do what is best for an integrated organization. After a transition period, would it be best to keep both EDs in the organization (in some capacity) or for one to leave? If one leaves, how can the morale of the rest of the team be preserved? How should the leadership question be resolved?

Funding Sources

Would the combined agency be United Way? What about major funding tied to specific jurisdictions; National and Missouri CASA funding?

Boards What is the best way to handle the merger of board members and board norms/cultures?

We knew we couldn’t keep this secret and wanted to control the rumor mill. The plan:

Schedule special board meetings to approve exploring formally Immediately after meetings each organization will notify their respective

staffs, and then their judges and court administrators, Children’s Division, National CASA and MO CASA, volunteers, and major institutional funders.

Key talking points: We are exploring a range of collaborative opportunities that include a

merger. We are doing this because we believe there is a compelling opportunity

to advance the missions of both organizations. Our primary motivation is not to cut costs or cut staff, though various

forms of alignment could include economic advantages.

Communications

Exploratory Committee

Constituent Discussions Judges and Court Administrators NCASA and MOCASA Staff Volunteers Major Funders – UW, etc.

Discussion of Top Challenges Program Structure & Implementation Blending Cultures – common highest value – kids Organizational Name – don’t want this decision to signify

inequality in the merger

EC Activities & Discussions

Executive Leadership – Conceptual Org Chart Budget Impact Programmatic Impact and Opportunities Communications Throughout Exploratory Process

Merger of equals, not acquisition Regular, synched communication with staff and volunteers –

email and in person

From EDs Collaboration Update Why Now Exploratory Process What Do You Think What is Your Experience with Mergers Have You Supported Mergers

From a Peer

Mergers Don’t Save Money Integrating Two Organizations Will Take Additional

Investments 1 + 1 cannot = 1

First Funders Meeting

The underlying motivation for exploring a merger advancing our mission - better outcomes for our children.

A merger affords several opportunities not available through lesser forms of collaboration:

Augmenting the expertise we bring to each child’s case by sharing best practices and the different expertise of program staff.

Uniting efforts to recruit, screen, train, supervise and retain volunteers.

Increasing our ability to add specialization to impact outcomes in education, mental health, health, permanency, older youth, etc.

Carrying a greater voice in policy advocacy and systemic change.

Improving our ability to serve children better and by incrementally increasing the number of CASA volunteers appointed to children over time.

Continue to explore ways to more efficiently and effectively serve children by creating tighter working relationships between GALs and CASA volunteers.

EC Recommends Merger

By merging, resources that would have been earmarked for administrative purposes can be leveraged to better advance the mission.

We would eliminate any real or perceived competition over volunteers and/or donors.

A larger agency structure allows greater opportunity for advancement for staff (giving us a better chance to retain high quality personnel).

Greater organizational capacity gives employees the ability to wear fewer hats, giving employees the space and time needed to do their jobs well and think more strategically.

We could have greater impact on regional and statewide programming using train-the-trainer models, thereby improving outcomes on a larger scale.

Both programs provide valuable services to the court systems in St. Louis City and County. CASA and Voices will remain focused on continuing to receive support from both jurisdictions.

A merged organization would establish offices based on needs, available resources and practicality.

The merged entity must have one chief executive. Our chances of success are greatly enhanced by retaining BOTH EDs.

Staff, donors, board members, volunteers, community stakeholders should perceive this a merger of equals. Both Eds are open to different roles.

Integrating the boards will create a larger board in the short-term and this has certain benefits. Over time, the board would return to a more traditional size.

The name of the merged entity must reflect the fact CASA and Voices are equals while preserving, as best as possible, the brand equity of each organization.

Major donors of each organization (including National CASA and MOCASA) must support the merger.

EC Conclusions

Due Diligence & Integration Planning

Financial Documents Last three years’ audited financial statements

Accountant’s management letter Most current financial statements Operating and capital budgets for the current year The names and addresses of the organization’s financial institutions

An listing of all liabilities and assets An aging of all receivables and payables Copies of any loans or liens against any assets A listing of all grants and contracts A description of the terms, restrictions and agreements for all restricted funds, including any endowment

Development plan and budget Copies of any guarantees of obligations with other organizations or parties related to funding

Due Diligence

Organizational Documents Articles of Incorporation Bylaws Organizational Chart Copies of any affiliation agreements, partnership agreements, or joint venture agreements

A list of all current officers and directors

Conflict of interest statement (copies of a couple of examples) Copies of board minutes from the last year – September 2009 through September 2010

Strategic plan

Tax Documents IRS exemption letter

State tax exemption letter

Last three years’ 990 submissions

Copy of most recent state tax filing

Unemployment account status

Insurance Documents A description and copies of all insurance policies/coverages

Public liability, including autos Directors and officers Fire and extended coverage property Workers compensation

Professional practice Volunteers coverage Other

Personnel Documents A listing of all current employees and their annual pay levels Copies of personnel policies A description of all employee benefit programs A list and copies of qualified pension plans and arrangements A list of consultants currently engaged or used by the organization, copies of consulting agreements

Capital/Real Estate Documents

Deeds, cost/market value and special circumstances related to real estate owned A list and depreciation schedule of significant equipment and vehicles

Other Documents Copies of operating licenses, accreditations, etc. List of agreements which would terminate, default or give rise to cancellation rights as a result of a merger Any other documents or info which in your judgment, are significant with respect to any portion of the organization or its programs which should be considered and reviewed by the other party in connection with the merger negotiation.

Integration Planning Template GOALS (WITHIN THIS FUNCTIONAL AREA):

•

ASSUMPTIONS:

•

ACTIVITIES:

BY WHEN? WHO?

Dependencies?

1.

2.

EXPECTED INVESTMENT REQUIRED (big ticket items/staff additions)

Description FY11 FY12 FY13 FY14

Leadership Mission & Values

Executive Leadership

Organizational Structure

Board Transition

Brand/Name

Compensation Philosophy

Merger Agreement

Program Program Structure

Integration Planning Groups

Infrastructure HR

Technology

Facilities

Development Fundraising

Fundraising Communications

Budget Sensitivity Analysis

Proforma P&L

The new name and tagline should…

Criteria for Name and Tagline

Best possible name for NEW org

Define our core mission

Represent services provided and goals

Not be narrow/something we can grow into

State what sets us apart

Not easily confused w/ others

Say something

Be memorable

Be easy to understand

Be emotional

Be succinct

Sound professional

Things will calm down Planning can adequately prepare us for change We can control change

Leading Change Myths

Motivator

Mindset This is an opportunity Everything is negotiable, except the mission We exist to serve our clients and communities What you see is what you get

Make a strong case Send a clear and consistent message Secure the buy-in of the people who will carry out the change

Cycle of Change

Incremental Change Needed Ongoing quality improvements Moving to larger fundraising goals Lowering staff turnover Learning to work across old organizational lines Community externally as one entity rather than two Implementing new software or mgmt info systems Building a unified staff and board

Radical Change Needed Health or safety is in question Ethical or legal issues are in question Financial collapse is imminent Moving slowly only prolongs the pain

The Speed of Change

Provide a clear vision

Share info face-to-face

Act quickly and decisively

Be sensitive to needs and concerns

Provide support and encouragement

Re-recruit staff

Acknowledge and address the bumps

Don’t drag it out

Merger Change Management Take care of people who are

leaving the org

Give people a sense of involvement and control

Create cross-org and cross-functional work teams

Listen and check the pulse frequently

Make adjustments as needed

Celebrate

Lack of clearly defined project leader Failure to follow the plan Declaring victory on the 20 yard line Skimping on investing in the integration effort Presuming that all people are at the same place with the

changes Failure to design a comprehensive communication plan

Common Integration Project Management Mistakes

Strive for long term outcomes

Don’t expect change overnight

Mergers are just one option for strategic restructuring

Culture, relationships and communications require significant investment of time of leaders and staff

Will make or break the partnership

Have Realistic Expectations

LaPiana Consulting http://www.lapiana.org/

Jan K Huneke Chief Executive Officer, Voices for Children

Phone: (314) 552-2278 Email: jkhuneke@voices-stl.org

Allie Chang Ray Past Executive Director, CASA of St. Louis County

Principal & Independent Consultant, Mutare Network LLC Phone: (314) 494-8078

Mobile/txt: (314) 282-5523 Email: aray@mutarenetwork.com

Additional Background

What is the mission of the new organization

What is our vision for the future (how will things be better)

Who will be on the merged board

How many board members will there be

Who will be the officers in the first year

What committees will we have

How will we legally structure the merger

What will be the role of our advisory board

What will be the effective date of the merger

Questions to Answer: Governance

What do we do the same and what do we do differently in each program What can we fully integrate and what will we have to continue doing separately What will happen to the program model/strategies in each program and for the agency as a whole How will this be perceived by our volunteers, how will it directly impact them How will volunteers choose/be assigned to a program? Can volunteers work in both programs Will there be any immediate changes to service levels

How will decisions be made about the allocation of resources and changes in service levels in each program in the future How will we measure success – what outputs and what outcomes

How can we share expertise and build collective capacity

Questions to Answer: Programming

What will the merger cost What will be the impact on expenses be – economies of scale, additional needs due to a larger org How much overlap in donors is there and what will donors think What will the proformas (P&L, BS) look like Which accounting system will we use What will the capitalization of the merged agency be – assets and liabilities Will we need as many finance office staff How will the audit be handled in the first year, who will do the audit and 990 How will law suits be handled if applicable What are the business insurance needs of the merged entity What will the impact be on contracts and endowments, etc.

Questions to Answer: Finances

Who will be the executive director What will roles will other senior staff play Will anyone lose a job as a result of the merger; how will we handle severance What will be the impact to pay and benefits What personnel policies will we use How will we maintain staff morale throughout the process How can we support the two staffs working together well as one team For purposes of retirement vesting, PTO, seniority, etc. will time worked in the other organization count What will the performance management system look like How do we work with staff to manage the change How do we fully integrate staff, develop a common culture and build one team

Questions to Answer: HR

Do we need additional space or changes to space; where will we put everyone Where will the headquarters/admin offices be

What is the status of all properties occupied or controlled by each group Will we need new software or hardware

How will our IT needs be met

Will we be able to reduce equipment, can we get out of leases if so How will we address deferred maintenance needs

Questions to Answer: Infrastructure

What will be the name and brand of the merged organization What should we tell our board members, employees, volunteers and donors during the process, how and when When should we issue a press release to inform the public

What opportunities for marketing will the merger create

If we don’t merge, how will we end the discussions without a PR disaster If we don’t merge, how do we know you won’t use info against us

Questions to Answer: Marketing & Communications

Accounting systems – subsystems, hardware, software Budgeting process – who is involved, timing of process, format of

presentation Payroll system – frequency of payment, direct deposit options, which

checks to use Human resource management systems – performance reviews,

personnel policy development and review, pay scales, bonus and incentive programs, employee benefit programs, employee recognition programs

Information systems – general mailing lists/contacts database, donor data, services utilization data, management reports

Purchasing processes – authorization processes, any group purchasing agreements

Inventory and control systems – storage, transportation, quality assurance

Systems Requiring Integration

Building and major equipment maintenance schedules – planned replacement schedules, deferred maintenance issues, relations with major contractors

Risk management policies and processes – insurance coverage, self-insurance arrangements, insurance risk pools, workplace safety plans, emergency response plans

Annual calendar and donor events, solicitations, and other fundraising – major and small donor campaigns, annual dinners, recognition programs, all stewardship activities

Strategic planning and monitoring processes – all aspects of strategic and operational planning

Outcome measurement systems – the development of measures, staff training in their use, and reporting requirements both internally and externally