Mergers and other forms of partnerships between nonprofits have been on the rise for the past decade, particularly in the last five years. The reasons for this trend are numerous and include cuts in foundation and corporate funding, as well as in individual donations; a desire on the part of nonprofits to have a greater impact, which is often easier to do by joining together; and the retirement of many executive directors and the difficulty of finding replacements, which leads to organizations merging with others that have strong EDs and/or boards.
While these factors impact the nonprofit sector in general, sub-sectors have been affected to varying degrees and differ in their proclivity to enter into partnerships. As a result, mergers, in particular, have been more prevalent in some sub-sectors than in others. Until recently, most mergers were in the health and human services sub-sectors, which for many years have been severely challenged by competition from for-profit entities and by a decline in government funding. The arts and culture sub-sector, on the other hand, has been slower to embrace mergers. However, in the past few years, we have seen an increase in mergers among arts organizations.
What are some of the factors underlying this trend, as well as the unique challenges faced by arts organizations seeking to establish such partnerships? What are the factors for success, and which factors can potentially derail a partnership? This article looks at the trends and challenges of mergers, and provides examples of negotiations that resulted in a successful merger and of situations where a merger was determined not to be the right option.
Factors underlying the trend
The reasons for the increased interest in these partnerships are multiple and include:
Similarly, a decline in corporate funding due to mergers and acquisitions in the business sector, as well as tighter profit margins for small businesses; typically, local businesses have provided significant support to artistic and cultural programs in their local communities.
Natural disasters, such as the tsunami and Hurricane Katrina, which have drawn funding from individual donors and foundations that might have otherwise gone to the arts.
Economic challenges in general, which have led to a shift in giving and funding priorities to basic health and social services.
The increased pressure on the educational system to raise academic standards and test scores, leading to reduced emphasis on arts and other “non-academic” programs.
Aging of the population that forms the core audience for traditional arts programming (ballet, symphony, musical theatre, etc.), coupled with a decline in the development of younger audiences for this programming—which leads to less demand and, in turn, less earned income.
Other forms of entertainment have proliferated, and the quality of this programming has increased dramatically due to technological advances, as well as affordability and accessibility.
In general, the public has less leisure time and more options for how this time is spent.
These trends are converging to create a crisis of sorts in the arts and culture sub-sector—and to push the sector to consider creative approaches to addressing these challenges in order to remain sustainable. However, these approaches are sometimes difficult to embrace, regardless of the necessity to do so.
Stumbling blocks include:
One of the greatest challenges is in aligning and/or defining “arts and culture.” There are many definitions, and organizations feel very strongly about their particular emphasis.
Related to this is “artistic direction”: An arts organization is defined by its artistic direction and may feel that it will lose its identity and unique branding in a merger. It’s not an absolute, but arts organizations that have the most difficult time in negotiating a merger are often those that are involved in “direct” provision of art (e.g., performing arts, visual arts, etc.), as opposed to those that are advocacy and/or educational in nature.
The “culture” of merger, in particular, is alien to many arts organizations. While they are used to collaborating, they may view a merger as a competitive strategy in the sense that it excludes others.
Unlike health and human services, where government funding is the major form of support, arts organizations rely heavily on individual donors and foundations. A fear exists that when two organizations become one, these funds will be reduced. To alleviate this fear, organizations need to cultivate and communicate with donors and funders to help them understand that the motivation for the partnership is not to have to do more with less.
Mergers typically do not involve a significant reduction in staff positions, other than needing only one ED. However, positions may also be consolidated in arts organizations that provide direct services where each has an artistic director. It can be difficult to overcome resistance to this.
When a merger was not the best option
A merger is not always the optimal partnership option. This is often revealed through the process of considering a merger. So, while the decision may be to not proceed, the process is beneficial and avoids the cost of moving forward—only to discover problems after the fact. In addition, these discussions often lead to forming other types of partnerships, such as administrative consolidation, which can result in significant cost savings, without incurring the cost, bad feelings and negative publicity of trying to force a merger that wasn’t meant to be.
The well-publicized merger of the Jewish Museum San Francisco and the Magnus Museum is a case in point. Despite the significant potential benefits of a merger, the organizations were unable to implement their decision to merge due to a lack of compatibility in artistic direction and significant cultural differences between the organizations. Unfortunately, these problems did not emerge as barriers until the merger was implemented.
Another example is the potential merger of the New York Philharmonic and Carnegie Hall. Among the factors leading to the decision not to merge were the perceived loss of the Philharmonic’s identity and the potential decrease in donations from supporters of both groups.
Falling short of a merger, the recently publicized consolidation of the back-shop and box office operations of the San Jose Repertory Theatre and the American Musical Theatre is viewed as a possible first step towards a closer working relationship between these financially-challenged organizations. At a minimum, this partnership should help stabilize their operations.
Successful arts mergers
Despite the obstacles, arts organizations are increasingly finding the benefits of a merger to be greater than the challenges. Some of the most successful arts mergers that we have observed are those between advocacy organizations. In general, the objectives of these organizations are to increase visibility and funding for the arts and help the arts to have a greater impact on society in general. Recently, the Michigan Association of Community Arts Agencies and ArtServe Michigan merged. Although they had some differences in their areas of emphasis, these nonprofits realized that their missions were basically compatible and that a merged organization would have greater visibility and impact—and, therefore, better outcomes for art, artists and the public at large.
The desire to grow and make a greater impact is a prime motivation for many nonprofits to merge. In general, organizations that have similar missions and that serve similar stakeholders, but that operate in different geographic areas, find a merger to be a cost-effective way to achieve this outcome. This was the case for Young Audiences of San Jose & Silicon Valley and Young Audiences of the Bay Area, which merged in mid-2004 to form Young Audiences of Northern California. In part, this merger reflects a general trend in the sector for chapters/affiliates of national nonprofits in contiguous service areas to merge.
Although arts and culture nonprofits have lagged behind other types of nonprofits in embracing mergers and other formal partnerships, trends in the sector in general and those specific to this sub-sector are putting these options in a more positive light. When the partners are well suited for each other, these partnerships can have significant benefits both to the individual organizations and to society as a whole.
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