Non-profit consolidation talk popular, but realistic?
The region's social service needs are great, but the money to support them is tight. Mecklenburg County Manager Harry Jones warned last spring that it's time for charities to change how they operate. "The model that needs to work is out there in the private sector," Jones said in April. "Think about construction companies that have consolidated. Think about real estate companies that have consolidated. What they're saying is that our very survival depends on us collaborating." These days, there's a lot of talk about whether non-profits should consolidate all or at least a portion of their operations. As part of a media collaboration called Charlotte Mission Possible, we asked for public input on how to improve charitable non-profits. Consolidation emerged as a strong theme. Both WFAE and the Charlotte Observer have taken a closer look at this issue with stories in the past week. Morning Edition host Scott Graf talks to WFAE's Julie Rose and Eric Frazier of the Charlotte Observer about what they learned. GRAF: These days there's a lot of talk about whether nonprofits should consolidate all or at least a portion of their operations. As part of a media collaboration called Charlotte Mission Possible, we asked for public input on how to improve charitable nonprofits. Consolidation emerged as a strong theme. In the past week, both WFAE and the Charlotte Observer have taken a closer look at this issue. Joining us now is Eric Frazier with the Observer and WFAE's Julie Rose. Eric, we'll start with you. How much pressure is being put on nonprofits right now to consolidate? FRAZIER: There's a considerable amount of pressure. In a sense, it's no different from the pressure that's on every business these days, given the economy, to reduce costs as much as possible and to be as efficient as possible simply as a matter of survival. ROSE: Scott, this underscores a big difference in the way that Charlotte's a very business oriented community and we've got a lot of business minded folks who view mergers and collaboration as a way to increase their profits and be more efficient. I think one of things we're discovering is that nonprofits don't think in the same way, they don't operate in the same way. They're motivated by fulfilling a mission, it's a higher calling, and a lot of times, there's a lot of relationship and emotion involved in it. To actually have someone who founded one of these organizations to say, 'I will fall on the sword and go away in order for this to be a more efficient way of serving people,' is a lot to ask of a nonprofit executive and a nonprofit that feels like they have a mission that they want to continue to do, no matter what. GRAF: Julie, your story last week examined a free market approach to running nonprofits. But in free market mergers and buyouts, the CEO's get their golden parachutes in order to step out of the way and they're really not losing anything, but nonprofits leaders typically don't have that luxury. How much does this reality get in the way of potential mergers in the nonprofit community? ROSE: I think it's significant. If you're talking about people losing their jobs, executive directors who have poured their heart and soul for decades into founding an organization or making it possible, that is one of the main reasons why I think a lot of these nonprofits don't go away, even when they are limping. Even in the mergers that we have seen, in every case that I can think of, the executive directors of both have stayed on. It's not as if one or the other is losing their job. Mergers in the nonprofit sector do not automatically create efficiencies. FRAZIER: I think that's definitely true. In doing the story that I did this past weekend, I looked at several examples of mergers that have happened in the past: The Family Center, now the Thompson Child and Family Focus; and the Council for Children and Children's Law Center, they're now the Council for Children's rights. In both cases, the merged organization wound up with a bigger budget than the two smaller organizations had combined. A lot of nonprofit directors say this very openly, that you don't necessarily wind up saving money when you merge nonprofits. I think where you see the clearest savings here locally in the past have been in cases where there have been back-office type mergers. The Children and Family Services building for instance uptown, where you have nine charities that have gone into one building and they are all sharing back-office functions, they estimate that they save half a million a year in rent by owning their own building and sharing the cost. Like Julie said, these people are very deeply and emotionally invested in these charities. Their first question is always, 'If this happens, will the work that I was doing still get done?' For a lot of them, their biggest fear is a) they'll lose their jobs and b) what they were doing, the mission that they felt they were meeting, will have less priority or lower prominence in the merged organization. GRAF: Julie, is it good for nonprofits in Charlotte to hear this conversation being had about them, and perhaps that lights a fire under them to find inefficiencies and fix problems, even if this talking that we're doing doesn't lead to a wave of mergers? ROSE: I think you'd be hard-pressed to find a single nonprofit executive director in this community who hasn't had a conversation about mergers and collaboration because of all this pressure. There is a lot of energy and it's not just from the readers and listeners who have submitted through the Charlotte Mission Possible project. There are regular meetings taking place on the county level with lawmakers and so forth, so I think right now what people are trying to decide is to what extent do we want some organization to sort of arrange these marriages with the pressure that Eric's referring to, and to what extent can we set this up in a way so that nonprofits will come to the best solution on their own. There are ways that we could encourage that through the way we set up our finding for nonprofits. And then the big concern as well, the big hanging question out there is, how much advantage do we really get? It's a very delicate balance and there's a lot of energy around it. The question is, who makes the first move and who's willing to take the risk that the move we make might not be the right one initially? GRAF: Eric Frazier with the Charlotte Observer and WFAE's Julie Rose, thank you very much for your time. FRAZIER: Thank You. ROSE: Thanks, Scott.