Strategic board involvement: Steps for effective not-for-profit board governance during a merger or acquisition

This is the fourth article in our NFP collaboration series.

As not-for-profits (NFPs) continue to respond to operational and economic challenges with innovation solutions and collaboration with other organizations, board members play a critical role in the merger and acquisition (M&A) evolution. Balancing a focus on the mission with fiscal responsibility and growth is particularly challenging during stable times. With resource constraints, advancements in technology, decreased funding and fundraising and other internal and external factors impacting the NFP landscape, boards play a vital role in communication, collaboration and change management. In this article, we share guidance for NFP board members exploring an innovative collaboration or combination  to keep their organization strategically and financially focused. Reflecting on engagements and conversations with hundreds of board members, we share key steps for effective board governance during a merger or acquisition.

Triggers for collaboration

As board members have a fiduciary responsibility for the organization, the following indicators may suggest that an organization risks sustainability:

1. Financial stability: Indicators of financial troubles could be depleted cash reserves, declining key giving metrics and recurring annual losses. Even large capital expenditures could be a concern if there aren’t sufficient reserves or positive annual income to cover such an expense
2. Leadership succession: Aging and retiring leadership is a growing trend for organizations and boards to face, especially with founder-led organizations
3. Contribution, grant and revenue shortages: Long-time donors and grant funders may have decreased or stopped their giving and federal funding has greatly reduced since post-pandemic programs have ceased
4. Workforce challenges: Not-for-profit organizations continue to encounter challenges hiring and retaining qualified employees due to pay pressures and the shrinking workforce. Specialized training or knowledge may also be needed depending on the organization, and turnover or lack of proper education can impede effectiveness and efficiency in delivering services

Strategies for NFP board governance success

Board members should consider the following key steps while navigating organizational changes.

• Encourage the process: Supporting organizational leadership in exploring an innovative collaboration is instrumental. Embarking on effective solutions may lead to drastic changes. Board member advocacy of all possible solutions, however difficult, can be in the best interest of the organization and its future sustainability.
• Understand the metrics and financial trends: Staying informed on emerging financial trends and frequently analyzing metrics and financials allows boards to better recognize the challenges, adapt to change, and assist with opportunities
• Communicate regularly: Remaining connected with leadership and fellow board members to discuss the impact of collaborating, including merging, or acquiring another organization, keeps the organization nimble and proactive in making change. Proactive and effective communication helps address any rising concerns about a collaboration’s impact on the organization and create champions for change. Some organizations have established a sub-committee of board members to offer open lines of communication without having to involve the entire board.
• Support the decision: Upon making a major decision, like a merger or acquisition, the board’s tone and support helps not only leadership, but donors and funders, the workforce and the impacted external community the organization serves feel more comfortable and cooperative with the transition.

Baker Tilly can help

The NFP environment can be challenging and competitive, and it’s a critical time for organizations to consider innovative collaborations. Board members play an essential role in leading their organization forward to keep their strategic goals and mission aligned with their organizational objectives and financial sustainability. Baker Tilly is here for you. We have a dedicated not-for-profit practice committed to working with thousands of mission-based organizations, some of whom are asking these same questions.

Connect with a Baker Tilly Value Architect™ to explore ways we can guide you on your NFP collaboration journey.