March 20, 2014

For Nonprofit Mergers, Cultural Due Diligence Trumps

Nonprofit mergers—and the preparation for them through due diligence—aren’t only about paying attention to finances and other back office functions. They also require what Good Shepherd Services calls "cultural due diligence": spending the time, energy, and money to carefully plan how to incorporate staff from acquired entities into Good Shepherd's culture.

By: Laurie Williams

When Good Shepherd Services announced that it would acquire two struggling, smaller nonprofits serving low-income youth and families in New York City, many asked: How can you take on financially challenged organizations without endangering your own?

Our answer has been simple. Nonprofit mergers—and the preparation for them through due diligence—aren’t only about paying attention to finances and other back office functions. They also require what we call “cultural due diligence,” which we define as spending the time, energy, and money to carefully plan how we will incorporate staff from the acquired entities into the culture of Good Shepherd Services.

Of course, we learned about the importance of cultural due diligence the hard way. The first time Good Shepherd Services, a 66-year-old, $80 million New York City youth and family development agency, merged a smaller organization into ours, we did not pay attention to the critical need to incorporate the merged entity’s middle managers into our culture. The second time was much easier. An agency with a similar youth and family development culture realized “the wolf was at their door” and needed financial rescue. This time we brought their middle managers on board and learned from them as well as gave them greater resources and stability.

Most recently—with the 2012 acquisitions of Groundwork, a network of after-school, college prep, case management, and other youth support programs in Bedford-Stuyvesant, Brooklyn, and the Edwin Gould Academy, a housing residence in East Harlem for homeless youth aging out of foster care and juvenile justice programs—we focused on what we had missed before: the need for cultural due diligence. (For fuller details of this merger, see the case study “Good Shepherd Services: Acquiring Sites and Programs.")

In our many conversations with the leadership of Groundwork, we learned that the agency was struggling financially to the point where staff could not count on regular paychecks, morale was low, and organizational culture was damaged. To get buy-in from middle management, we promised that if Groundwork became part of Good Shepherd Services, there would be no staff losses or any salary or benefit reductions. In other words, we would not bring staff on board only to downsize.

Next, we exposed employees from the two agencies to Good Shepherd Services staff and made it clear that we were going to spend considerable time, energy, and money to incorporate the new staff into our organizational culture. We provided orientation sessions, supervisory trainings, and other opportunities; foundation support enabled the necessary resources.

What is our organizational culture? We call it “strength-based.” We believe Good Shepherd Services has become a leader in its field because of our emphasis on values and working from clients’ strengths. Unlike some nonprofits that work with struggling youth and families, our approach is to see our clients as having talents rather than flaws, and bright futures rather than dark pasts. We have a profound belief in the strength of every individual, and we help each young person we work with to identify and build his or her inherent abilities.

This “strength-based” culture is what new employees, particularly from acquired agencies, must come to know and support to help make Good Shepherd Services stronger. It is a culture that requires staff to keep learning and to commit themselves to our systems, to maintain and build exceptional programs.

Of course, cultural due diligence does not always lead to cultural integration for every member of an acquired organization. We remember one employee from a recently acquired agency who was very talented and skilled. She worked at Good Shepherd Services for several months but realized she preferred a smaller agency, one that was perhaps less systems-oriented and more flexible. (Good Shepherd Services goes through an accreditation process with the Council on Accreditation every four years, which requires considerable staff training, supervision, and coaching—and which we believe keeps professional expectations high and our programs rigorous.) We also are committed to using evidence-informed and evidence-based models, when appropriate.

We have seen staff from acquired agencies suddenly flourish, as they realize there is a lot more support in their work lives. They don’t have to be a one-man or one-woman show anymore. They are in an organization with a strong culture and clear values, where there are internal experts in the areas of finance, human resources, program evaluation, fundraising, etc., to help them. And then they stay at Good Shepherd Services for many years.

So the next time you consider acquiring or merging with an organization, set up a cultural due diligence team that can look at either how acquired staff will come to understand the values of your organization—or how your newly merged organization can create an entirely new culture that can serve as the bedrock of all that you intend to do. Whether you’re one month into evaluating a merger or one year in, don’t complete the deal until you have completed your cultural due diligence.

During her 32-year tenure as executive director of Good Shepherd Services, Sr. Paulette LoMonaco has made a distinctive impact on the lives of countless vulnerable New York City children and youth and on child welfare, education, and family support systems around the country. Under her leadership, Good Shepherd Services has evolved from a small provider of out-of-home care to one of New York City’s largest, most honored multi-service agencies.

Laurie Williams is associate executive director at Good Shepherd Services, where she oversees organizational and leadership development initiatives as well as strategic planning and accreditation processes.

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