Board members of nonprofit corporations are faced with special challenges when considering a merger or an affiliation with another entity. Regardless of the arrangement, there are certain questions that all directors must ask, and thus should receive most of the attention. These questions focus around the following:

  • What are the terms?
  • What are my duties?
  • What are the conflicts?

However, two key areas that directors often overlook, but are in the best interests of the organization, are:

  • Integration
  • Culture of the organizations  

The board’s role in integration

Directors need to begin spending time actively analyzing the “how” of a merger or affiliation, and not just the “why.”

The board has a duty to oversee the integration of the combined entities, and ensure that the acquirer has a plan for integration immediately after the transaction closes. To ensure the best chance of success for the newly combined entity, companies (and the board) need to consider such integration plans even before the transaction is approved.

This plan should be reviewed by the board to see how the benefits of the transaction (i.e., the synergies of the two organizations) will be fully utilized post closing. Failure to do so could result in a deal failing to accomplish its objectives, and could expose the board to questions and liability.

In assessing any integration plan, the board needs to appoint leaders of the integration and define their roles and responsibilities after closing, and include benchmarks to be achieved or monitored in a set period of time. Depending on the size of the merger or affiliation, the plan should include the creation of an integration committee to oversee the process.

Directors should ask to review the integration plan and determine who is accountable for its implementation. If a plan has not yet been developed, this request will help the deal makers focus on the “how” of the deal. If a plan has been developed, it will likely cover a list of actions necessary after the close of the transaction, including a communication plan with members, clients, employees and those supported by the mission of the organization.

As with any transaction, the board will need to carefully consider how the acquisition will help reduce costs and benefit those supported by the organization. It should come as no surprise that mergers often fail when time is not spent trying to understand the other organization, or when there is a clash of cultures.

To protect itself and help maximize the benefits of the new entity, the board needs to look beyond the “why” and analyze the integration plan and work with a process that preserves the business judgment rule. This includes the use of special committees, reliance upon detailed strategic plans, and spending a considerable amount of time to thoroughly deliberate the merger or affiliation.

One element the board will face is assessing “how” the cultures of the two organizations will mesh. Simply put, the board should consider how the culture of the other organization may differ from that of its own culture, including what must be done to ensure a successful combination of the two organizations. This analysis helps illustrate potential risks and identifies what will need to be monitored during the integration process to ensure the long-term viability of the combined entity.

A company’s culture influences its long-term viability and success. Given its direct impact on an organization’s operations, the board should consider oversight of culture as part of its duties.

In assessing the cultures of the two organizations, the board will need to determine whether there is a proper fit. While differing cultures do not necessarily mean the two organizations will not succeed together, it does create a greater risk of failure. This assessment by the board will help build on the differences that led to the other organization’s success and understand the risk associated with combining the two cultures so a plan can be developed to promote success. Without fully knowing and understanding the cultures of the target company and the acquirer, the combined entity may start off on the wrong foot and never get back on track.

The board needs to focus the vision of the transaction

It is important to remember that in any transaction, the board sets the tone and focus on what information it will need to make a decision. This requires having the vision to address up front not only “why” a merger or affiliation makes sense, but also “how” the merger or affiliation will succeed. Specifically, boards should pay close attention to the cultural fit of the two organizations, the impact of the two entities going forward, consideration of what it will take for the combined entities to survive and how to measure the integration early on so necessary adjustments may be made.