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Mergers, Collaborations, and Strategic Alliances

Strategic Alliances: What are the risks?

As nonprofits consider strategies for the future, it is not unusual for a board or staff to explore the possibility of collaborating or entering into strategic alliances with another nonprofit(s) or even a for-profit entity. Your nonprofit may actively seek out a collaboration, consider restructuring, or even consider a merger. Before plunging into a strategic alliance, it is helpful to be familiar with common pitfalls and challenges. The National Council of Nonprofits has assembled some helpful resources to share lessons learned.

Nonprofits that enter into collaborations or strategic alliances (sometimes referred to as "partnerships" although that is a phrase that has a legal definition, so we are avoiding it here) frequently will draft a written agreement. It’s not only prudent to have all the expectations and responsibilities of the parties in writing, but it makes practical sense to memorialize the details of “who’s responsible for what” in the event that the nonprofit employees (or parties on the other side) who negotiated the collaboration move on to other responsibilities. Whether the written document is called a “Memorandum of Understanding” (MOU), or a "letter agreement," or something else, it could be legally enforceable, so it is wise to have the agreement reviewed by legal counsel. Also -- whenever there are multiple parties involved, the question of legal responsibility for risk can arise. Whose insurance will cover a bad outcome? Note for nonprofits engaging in collaborations/strategic alliances with for-profit entities: Have you evaluated the risk of potential for prohibited "private benefit?" - One objective of any collaboration should always be to protect the charitable nonprofit’s tax-exempt status and avoid “private benefit” transactions.

On the other hand, built the right way, strategic alliances with for-profit corporations can be extremely effective. The Hitachi Foundation shares case studies of how to do it right: A Pocket Guide Nonprofit Leaders: Building Strong Partnerships with Businesses.

Mergers

  • Merging wisely (Stanford Social Innovation Review) points out that while there is great pressure for nonprofits to merge, especially when financial resources are constricting, mergers actually require new money, as well as significant resources of volunteer time for board members and staff time to conduct due diligence.
  • The Foundation Center’s Nonprofit Collaboration Resources webpage offers several informative videos on collaboration and merger topics from national experts.
  • Nonprofit Mergers and Acquisitions: More Than a Tool for Tough Times suggests a proactive strategy when thinking of mergers and acquisitions (Bridgespan).
  • The Networked Nonprofit (Stanford Social Innovation Review) discusses the benefits and practicalities of collaborating with like-minded groups and of networking among small nonprofits.

Resources on collaborations

For more resources please visit the Collaboration and Partnerships section in the Council of Nonprofits' online bookstore.