Come Together? Right Now? A Discussion of Strategic Alliances and Partnerships

On Monday, I had the opportunity to attend a highly informative and engaging forum which brought together government and nonprofit representatives to discuss the topic of strategic alliances and partnerships among nonprofit organizations. While the discussion focused on New York State’s nonprofit sector, the challenges, considerations, and ideas discussed are applicable to organizations nationwide. In the absence of a video or audio recording of the session, I wanted to share this detailed recap and my impressions of the session.

The event was sponsored by the Community Foundation for the Greater Capital Region and the New York Council of Nonprofits (NYCON) and held at the headquarters of New York State United Teachers (very nice digs, by the way) in Latham, New York, a few miles northeast of Albany.
“Most in government recognize the importance of the nonprofit sector.”
Karen Bilowith, President and CEO of the Community Foundation for the Greater Capital Region, presided over the session. The approximately 75 attendees included representatives of various nonprofits, including arts, cultural, health, and human services organizations, as well as a number of funders and consultants (including yours truly). Following Ms. Bilowith’s welcoming comments, New York Secretary of State Lorraine Cortés-Vázquez provided brief opening remarks. Ms. Cortés-Vázquez assured the attendees that “most in government” recognize the importance of the nonprofit sector and rules and regulations pertaining to the sector should not be so onerous as to provide disincentives for staff, board members, and volunteers to participate.

I’m from the government, and…

Ms. Cortés-Vázquez then introduced the session’s keynote speaker, New York State Comptroller Thomas P. DiNapoli. The Office of the State Comptroller has responsibility for the review, approval, and payment of the state’s contracts with nonprofit organizations. Mr. DiNapoli noted the importance of the nonprofit sector to the state and its economy, citing 2006 statistics that the state’s approximately 24,000 nonprofits reported revenue of $133 billion and employed nearly 1.2 million people, or 17% of the state’s workforce. He quantified the state’s contractual bonds with the sector as consisting of nearly 31,000 active contracts totaling $14.6 billion, as of June 2009.
“The current crisis offers the opportunity to change ways of doing business.”
Mr. DiNapoli indicated that the day’s session was one of several he’d participated in recently, including convenings of nonprofit representatives from Long Island, New York City, Westchester County, and Rochester. His remarks in part highlighted findings from his office’s recently released report on the state’s nonprofit sector. The Comptroller invoked the metaphor of the “perfect storm” to describe the combination of increased demand, flat or diminished government funding, and decreased charitable giving facing the state’s nonprofits, and acknowledged the state’s concurrent fiscal difficulties, including the current lack of an approved budget. However, he also suggested that the current crisis offered both the government and the sector the opportunity to look at and potentially change ways of doing business.

Mr. DiNapoli acknowledged the “unacceptable lateness” of the state’s current contracting practices. He indicated that in 2008, 87% of the state’s contracts, representing $2.7 billion, were not approved by the start date. On average, these contracts were approved 184 days late, with significant impact on the operations of the nonprofit entities awaiting approval and payment.

Mr. DiNapoli called on nonprofit leaders to look at successful models within the nonprofit sector, but also in other sectors, including government, including shared services, strategic alliances, and mergers. He suggested that both government and nonprofits could benefit from streamline and consolidating back office operations, including information technology, human resources, payroll, and other functions. He indicated that among the state’s local government entities, approximately $760 million could be saved annually, and that nonprofit organizations might also benefit from similar models. Mr. DiNapoli did acknowledge that the feasibility and success of this range of actions were dependent on organizations’ assets, cultures, and leadership, and that they should be considered on a case-by-case basis. He suggested that these considerations should include cost-benefit analyses, and that members of his office, including Angela Dixon, Deputy Comptroller for Human Resources and Administration, were available to provide assistance and advice in this regard.

The balance of Mr. DiNapoli’s remarks focused on ways to potentially streamline and increase the effectiveness of the nonprofit sector as well as the government’s relationship with it:

• Mr. DiNapoli introduced John Moriarty, Assistant Comptroller and head of the office’s contracts unit, and indicated that Mr. Moriarty was available to investigate and expedite specific contract issues.
• He indicated his desire to centralize and streamline contract monitoring among the nine state agencies with oversight of the majority of nonprofit contracts.
• The Comptroller cited the importance of performance-based contract measures, indicating that such measures should be established in collaboration between government agencies and providers.

Following his prepared remarks, Mr. DiNapoli fielded a number of comments and suggestions from the audience. Ms. Bilowith capped off the Comptroller’s remarks by noting that two of Mr. DiNapoli’s points, regarding performance-based measures and externally imposed barriers to actions such as mergers and strategic alliances, were also important ones for private funders to consider.

I felt that Mr. DiNapoli offered a fair and reasoned view of the state of the sector and approaches to improving its effectiveness. He struck me as earnest in seeking to improve the state’s contracting procedures, and was characterized by at least one participant as a “champion” for nonprofit organizations.

Why? How?

The balance of the session was devoted to presentations and discussion by a panel consisting of:

• Doug Sauer, who has served as Chief Executive Officer of New York Council of Nonprofits (NYCON) since 1980. NYCON’s membership represents approximately 1,600 charitable nonprofit organizations across New York State.
• Cristine Cioffi, who is a partner in the law firm of Cioffi • Slezak • Wildgrube P.C., but spoke primarily in her role as Chair of the Board of Trustees of Ellis Medicine, an organization which resulted from the recent merger of three nonprofit hospitals in Schenectady County.
• David W. Palmquist, who as Manager of the New York State Museum’s Chartering Program, oversees the chartering of museums, historical societies, and similar cultural organizations with educational purposes across the state.

The panelists responded to questions posed by Ms. Bilowith, as well as several questions from audience members.

Doug Sauer

While all three of the panelists presented interesting perspectives on the potential of various collaborative models for nonprofit organizations, I was particularly impressed by Mr. Sauer’s insight and candor on a number of fronts. Early in his presentation, he discussed the recent proliferation of nonprofits, describing the creation of thousands of new organizations each year, many of which are not active, and the resultant saturated environment. (I was reminded of a recent article in the Chronicle of Philanthropy, which noted that the number of nonprofit organizations nationwide has increased by 90% to 1.2 million since 1996).
“Identity and egos can get in the way.”
Mr. Sauer also emphatically reminded the audience that organizations are merely vehicles — mission is most important and should come first in their thinking. He indicated (quite correctly, in my opinion) that organizational identity and egos sometimes get in way of making organizational decisions and changes that are in the best interest of mission achievement.

Are mergers and alliances a way to save money? According to Mr. Sauer, the answer for most small to mid-sized nonprofit organizations is no. He pointed out that for such organizations, there is not much money to save in the first place, and that any potential savings will be lost to increasing salaries, seeking new funding sources, combining systems, and other costs related to organizational changes.

I was pleasantly surprised by Mr. Sauer’s final comment in the session, which was to suggest that organizational restructuring can and sometimes is used as a way of “cleaning house on the board”. He noted the potential for organizations to “get rid of dead weight”, improve the performance of fiduciary responsibilities, and expand opportunities for the organization.

Mr. Sauer also:

• Suggested that if your organization is already operating in survival mode, it may be too late for effective collaboration. Being in a situation where assets are low, your liabilities high, and you can’t make payroll does not make you an attractive partner for alliance.
• Characterized the New York State Attorney General’s process for vetting nonprofit mergers, dissolutions, and the like as highly problematic. The process lacks rhyme or reason, and reviews can take one to two years. In December, the Attorney Generals’ Office pledged to review potential mergers within three months, but that hasn’t happened. Mr. Sauer contrasted New York’s “onerous” process and documentation requirements with that in Mississippi, where proposed mergers require the completion of “a four page form”.
• Cited the need for public and private funders to provide monetary incentives to grantees to collaborate, and to provide funding for the development of organizational capacity and sustainability.

David Palmquist

Mr. Palmquist spoke to different forms of nonprofit collaboration and alliances from the perspective of museums and other cultural and historical institutions, for which his office has oversight. I found it interesting to learn that New York is the only state in which such organizations are chartered as educational corporations charged with protecting the public trust, rather than general nonprofit corporations. According to Mr. Palmquist, this fact has placed his office “in the driver seat” with regard to controlling and rationalizing the creation of new organizations. He noted that the state’s unique treatment of educational corporations made organizational changes easier than for other nonprofit corporations.

Other interesting facts offered by Mr. Palmquist were that performing and fine arts organizations may be eligible for and could potentially benefit from state chartering as educational corporations, and that recent regulatory changes meant that a “museum” no longer necessarily referred to a physical facility, but to an institution, opening up the possibility of “museums without walls” (citing the example of the National Soccer Hall of Fame).

Mr. Palmquist also detailed actual examples of several types of organizational changes among organizations within his office’s purview, including mergers, consolidations, reorganizations, alliances, partnerships, startups, and dissolutions.

Cristine Cioffi

Ms. Cioffi brought yet another perspective to the conversation. In framing her comments, she first spoke of her previous experience in county government and her efforts to bring together municipalities in the interest of collaboration and efficiency. “Nothing happened until there was a crisis,” she said.

Ms. Cioffi then spoke extensively of the formation and success of Ellis Medicine. The nonprofit entity resulted from the merger of two acute care hospitals and one maternity hospital in Schenectady County, prompted by a recommendation of the state’s Commission on Health Care Facilities in the 21st Century. She echoed Mr. Sauer’s sentiment that issues of organizational identity and ego were challenging, but highlighted ways in which they were overcome and the organization’s success in integrating the three facilities and in the process improving the health care services provided to the community. Ms. Cioffi identified the following as among the keys to the success of the organizations’ merger:

• A process for identifying the best practices in patient care protocols from each of the three component institutions, and consistently implementing across the merged organization.
• Reconfiguration and streamlining of services where possible, including the consolidation of three separate laboratories into one central lab, under the direction of a leader who was selected by the laboratory employees themselves.
• The provision of leadership training to all employees, starting with middle management, in order to ensure consistent messaging throughout the merged organization.
• While the merged organization could not offer jobs to all administrative staff, positions were offered to staff in all other functions. Further, in each function, compensation and benefits were brought up to the highest level which existed among the three component organizations.

Ms. Cioffi went on to describe several aspects of Ellis Medicine’s efforts to enhance collaboration and consolidation of services, particularly for the community’s indigent residents, and how their efforts were enhanced through collaboration with other community organizations.
“Form follows function.”
To close, Ms. Cioffi provided the audience with a few general observations regarding nonprofit mergers and alliances. First, she emphasized that merger or alliance should not be seen as failure, but instead as holding the potential for growth and opportunity — for “more mission”. Secondly, she suggested that in this area, “form follows function”. That is, alliances that bring together organizations with complementary geographies, services, and funding (rather than duplicative funding), may be the most successful. Finally, she pointed out that there are many models of alliance available to organizations, and that leaders should be open to a variety of possibilities.

■ ■ ■

As the proceedings ended, I heard murmurs including “good meeting” and “I wish more people from my organization would come and hear this” from among the attendees. I, too, found the session to be quite worthwhile, and felt that the dialog and the ideas shared held promise for the sector, with value and applicability to organizations within and beyond New York State.

I strongly feel that collaboration, mergers, strategic alliances, and similar approaches should be among the options that organizations consider as they determine how to best achieve their mission, while also recognizing the myriad challenges and considerations involved. I look forward to continuing to monitor and participate in these important conversations — and to supporting nonprofit organizations — as they adapt and strive to best meet society’s needs.

photo credit: Horia Varlan