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Associations are not immune to the trend toward consolidation occurring in today's corporate circles. Nonprofit organizations, too, are joining forces both to gain economies of scale and to serve members better. This article explores how 6 associations have approached merging, why one proposed merger did not work, and how mergers in association memberships prompted associations to find new ways of doing business.

With merger mania on the rise in industries nationally and globally, associations are feeling the pinch. For trade associations, having fewer member companies translates into less dues income and less member involvement. For professional societies, pressure abounds to stay competitive and relevant. These factors have spurred an increasing number of trade and professional association mergers.

What's the magnitude of`merger activity? The Labor Research Association, New York (City, reports that 60,000 corporate mergers involving U.S. companies took place in the past three years. In 1997, $917.6 billion in mergers-a figure representing the value of assets of merging companies-occurred, representing 11,099 deals by U.S. companies. The value of these mergers increased 50 percent from 1996, itself a record year. On a global scale, in 1997, more than 40 percent of the $1.6 trillion in worldwide mergers and acquisitions occurred outside the United States.

Associations are not immune to the trend toward consolidation occurring in today's corporate circles. Nonprofit organizations, too, are joining forces both to gain economies of scale and to serve members better. This article explores how six associations have approached merging, why one proposed merger didn't work, and how mergers in association memberships prompted associations to find new ways of doing business.

Exploring similarities

Competing at every level, nationally and locally, the International Association for Financial Planning, Atlanta, and the Institute of Certified Financal Planners, Denver, didn't consider themselves merger material. In fact, says Janet G. McCallen, CAE, executive director, IAFP, not being like ICFP helped define what IAFP was-open and broad-based. With 17,000 members, McCallen's association welcomed financial planners, tax accountants, charitable-giving specialists, and all other professionals who supported the financial-planning process. The 15,000-member ICFP, in contrast, was in essence a closed organization. Membership was limited to those who had attained or were studying for the certified financial planner designation. An overlap of 4,000 members existed between the two organizations. It wasn't until 1997 that the associations began to view their competition in a new light, recognizing that their missions were compatible and that some kind of relationship might help both associations. That year the executive committees of IAFP and ICFP met to learn more about each other, with no expectations of any kind.

From competitors to collaborators

"The chemistry was right between the two groups," notes David H. Brand, executive director, ICFP, commenting on the meeting of the executive committees. "And as the discussions continued, both boards began to realize that their organizations were more alike than not."

The business reasons for a merger were sound. A merged organization would provide one focused and stronger voice for the financial planning profession in both government affairs and public education. By merging, ICFP's brand image of competent and trustworthy financial planning services would be linked with IAFP's broader membership base. Certain economies of scale might also be achieved through joining, but that was not the goal of the discussions.

An 18-month courtship ensued, resulting in a merger that will become effective on January 1, 2000. The two associations are dissolving, and the new Financial Planning Association will be formed.

According to Brand, communicating the merger discussions to members was a key component. "We decided early on that the voting of the members for or against the merger recommendation was less important than the process employed [during the merger discussions]." The goal was to ensure that the members had a chance to be heard before any decisions were made by the board, and that they were kept in the loop while the board crafted its position.

"ICFP used surveys to probe members' expectations about their professional organization, possible fears about a merger, and the value to members of a possible merger," explains Brand. "As the board developed broad concepts [of what the new organization might look like], these were tested through direct communication with members, using direct mail, chapter visits, e-mail, and broadcast faxes. Members were encouraged to respond by e-mail, letter, and a special toll-free number."

While IAFP did not need a membership vote to effect the merger, ICFP's bylaws required that 10 percent of its membership vote on the issue. To pass, two thirds of those voting had to approve the merger.

Brand and ICFP's volunteer president spent April and May of this year mounting a comprehensive campaign to inform the membership. "We took a personal-touch approach, offering to visit all 76 local societies," says Brand. "About 50 societies took us up on the offer. We also held town hall meetings and conference calls with various society boards and members. IAFP leaders visited several dozen chapters."

The campaign resulted in 64 percent of ICFP members voting, with an 81 percent approval rate. The merger agreement initially provides for the consolidation of the two boards (which have a total of 30 members) in 2000. By mid-2000, the board will address the nomination process with the goal of selecting an 18-member board for 2001. Using a transitional board will allow the association to harvest the talents of both boards to help the new organization get started.

Keeping options open Many issues remain under discussion as the effective date of the merger nears, but three key decisions have intentionally been resolved in a manner that provides maximum flexibility.

Where will home be? The new association will have offices in both Atlanta and Denver, until the board decides otherwise. The headquarters decision could change if the board determines that the cost of maintaining two locations is an unreasonable premium to pay for retaining an experienced staff for the new association.

Who'll run the show? Brand and McCallen, who both enthusiastically support the merger, will continue as co-executive directors of the new association for an unspecified time after everything is completed. McCallen sees four possible staff scenarios: "He stays, I go; I stay, he goes; we both go and are replaced by another executive; or we both stay. At the beginning of this process I wouldn't have even considered co-leadership, but as I began to understand David's strengths as a leader and how they complement mine, this option began to look very attractive."

McCallen and Brand realized early in the process that the merger had to happen for the good of the financial planning community. So rather than feeling threatened professionally, notes McCallen, "we've developed a beautiful working partnership that has supported and nurtured the process."

What about chapters? The chapter situation is still fluid. Local chapters of both IAFP and ICFP are separately incorporated and require the parent association's approval to exist. Under the new Financial Planning Association, every local entity will have to draft a new set of bylaws connecting it to the new parent. According to Brand, "FPA has absolute authority to create or disband chapters, whether they are merged or separate chapters. Although the intent is to eventually merge all local chapters, we will be very patient to allow the merging to unfold."

Under the guiding principles adopted by the two parents, chapters will be required to adopt a consistent name format. However, issues of geographic scope and service will be arrived at by consensus at the local level.

A charitable rescue

Goodwill Industries of Chicago faced tough financial times in the mid 1990s. With the help of Executive Director Monroe Roth, who was brought in at that time to effect a turnaround, the organization was in the black by 1996. Despite this progress, prospects for future growth and expanded services were dim. Limited resources made it impossible to upgrade basic systems such as telephones and computers. Complicating matters was Roth's plan to retire in December 1998.

Faced with these realities, in early 1998, the board formed a future-focused strategic options committee. The committee's task was to assess the organization's strengths and weaknesses, investigate potential partners or allies, and determine what steps to take to achieve the ambitious goals that the board had for the organization.

Though merging was not on the agenda early in the discussions, the committee contacted neighboring Goodwill organizations in Milwaukee and Indianapolis to discuss possible ways to collaborate. Both organizations were financially sound and offered expertise that would be of value to Chicago's operations.

When the collaboration proposals came in, Goodwill of Chicago rejected Indianapolis's proposal on the grounds that it focused too heavily on retail operations. Milwaukee's initial proposal, involving a parent-subsidiary relationship, was rejected for not being sufficiently comprehensive. Chicago countered, however, with a proposal for a full merger.

Talking it through

Intrigued by the idea of merging, both organizations established committees to look at the issue. From August 1998 to January 1999, the groups developed proposals and counterproposals, volleying back and forth on how a merger might come about. It appeared that merging would provide benefits to both groups, says John Miller, president and chief executive officer, Goodwill Industries of Southeastern Wisconsin, Milwaukee.

"Chicago had a large market, welldeveloped services, a well-functioning board, a deeply committed staff, and a CEO ready to retire," explains Miller. "Wisconsin had a fully developed information system, financial resources, a full array of administrative services (human resources, finance, purchasing, marketing), and a CEO not ready to retire."

Because all Goodwill organizations are involved in the same three lines of work-retail operations, businessskills training programs, and human services-the missions of the two groups were clearly in alignment.

The result, after eight months of meetings, discussions, and planning: the joining of the $4.8 million Chicago Goodwill with the $105 million Wisconsin Goodwill on April 1, 1999. The new organization is called Goodwill Industries of Southeastern Wisconsin and Metropolitan Chicago, Inc. Miller is its new CEO.

Both organizations filed articles of merger with their respective state governments. Both boards also passed a resolution in conformity with the new articles and bylaws. Milwaukee's legal documents became the legal documents of the new entity, enabling it to operate with a single set of administrative systems.

Mission comes first

"Throughout the process, we kept clearly focused on Goodwill's mission," says Susan Kelsey, who became president of the Chicago Goodwill on January 1, 1999, while merger discussions were still going on. She now serves as the executive director of the merged organization's Chicago region. She candidly admits, however, that she was initially wary of a merger.

"My first reaction was to protect Chicago's turf, but I soon realized this wasn't about Susan Kelsey or territory or the board or staff. It was about reaching a solution that would enable Goodwill to serve more people in the Chicago area. Milwaukee's Goodwill operation is world-class, and we wanted that for Chicago, too."

Reflecting on giving up her status as president of the Chicago Goodwill, Kelsey says: "I look at it this way: I used to be number one at a $4.8 million operation. Now I'm part of the executive management team of a $113 million operation. I feel wonderful. The opportunities open to the Chicago Goodwill are now endless."

Although some Chicago board members were initially reluctant to give up autonomy by merging with Milwaukee, they were faced with the reality of "having only one crisis's worth of money in the bank," says Kelsey. "The farther along the discussions progressed, the more board members supported the merger."

Even as late as the day before the board vote, one board member was still opposed. After Kelsey called him and he learned he was the lone dissenter, he offered his support to achieve board unanimity.

Behaving beautifully

"It took a great deal of maturity and vision for the Chicago board [members] to agree to the merger," Kelsey comments, "because it required all 30 of them to resign their board positions, and only 7 went on to serve on the consolidated board."

Miller notes that Goodwill boards are typically made up of business and community leaders who keep their eye on the core mission, so it should have come as no surprise that the Chicago board did what was best for the organization. Even so, he was impressed with the Chicago board, characterizing it as "good people behaving beautifully."

Kelsey is now focusing on how to involve as many former board members, as well as others, in the Chicago Goodwill operation.

The first tangible step after the merger was the installation of a new telephone system and local area network with upgraded computers in Chicago. "Technology is incredibly expensive," notes Miller, "and you have to achieve a certain size to have the resources to make these kinds of investments. The merger of the two Goodwill organizations allows us to do that and will have a beneficial impact on our ability to serve program participants."

As to when the integration of the two organizations will be complete, Miller responds, "Never. We are in a continuous learning mode. [A couple of] months into our detailed transition plan, we are already making changes as we learn more about how the two branches of the organization operate."

Investigating opportunities Changes in the engineering profession have triggered the merger discussions that are just getting under way for the 65,000-member Society of Manufacturing Engineers (SME), Dearborn, Michigan, and the 125,000member American Society of Mechanical Engineers, New York City. "The engineering profession is more integrated than ever," says David Belden, ASME executive director, "and that is one of the drivers in this process. Both mechanical and manufacturing engineers are united in the same university departments, and they work in a team atmosphere in the workplace. No longer does the mechanical engineer design a product in a vacuum and hand it off to the manufacturing engineer to produce."

Another factor in the current talks is the complementary strengths of the two organizations. ASME is known worldwide for its standard-setting operation, while SME produces many highly regarded trade shows. Both societies, Belden stresses, are highly successful, with a strong net worth. The goal of joining the two would not be to alleviate any weaknesses, but to improve the portfolio of membership benefits by combining operations.

Exploratory discussions began in Summer 1998 with informal talks between the elected presidents and chief staff executives of both associations. These talks were positive enough that both teams of leaders approached their boards for direction on whether to continue the discussion. Both got the green light.

That September, the executive directors, presidents, and presidentselect met to "bounce around ideas and to discover how open each group would be to creating something new," says Belden. They then formed a larger discussion group, a "blue ribbon task force" composed of the executive director, the president, the president-elect, and three members from each association.

Importance of tradition, culture, and communication

In for-profit organizations, financial and legal issues tend to make or break a merger. In contrast, in nonprofit organizations, tradition and cultural issues (e.g., board roles, perception of how leaders behave, procedural operations) tend to play notably important roles. As such, the first task of SME and ASME leaders was to create a nominating and governance plan that would be accepted by both associations. The theory was that an unresolved governance plan would stymie any merger discussions.

Both boards reviewed this plan last March and accepted it in principle. Belden and Philip Trimble, SME's executive director, decided to brief their staffs on the merger talks on the same day at the same time and then jointly issue press releases. Talks had been confidential up to that point, but once the issue was out in the open, both executives wanted to encourage open discussion among staff and members.

Trimble, like Belden, has focused carefully on providing communication consistently and in a variety of formats to members and staff. Monthly issues of SME News profile progress to date. The SME Web site has a banner on the home page that links directly to news updates on merger progress. Queries from individual members receive quick responses, and staff is kept up to speed via weekly e-mails and monthly staff meetings.

"Of course staff have concerns," says Trimble. "That's only natural. But we try to keep people in the loop as much as possible."

Establishing task forces to examine issues

The next step in the process was the creation of four task forces, each with three volunteers and one staff member from each society, to look at four major areas:

Educational activities-mix, fit, and budget.

Membership issues-criteria for various membership grades, grandfathering, and other transition issues.

Geographical issues-chapters, sections, regions, and U.S. and international activities and relationships.

Organizational structure-whether and how ASME's 37 special-interest technical divisions might be blended with SME's 12 special-interest associations, including dues structures and financial issues.

The task forces completed their interim reports in late June, with final reports to the board delivered last month. Trimble foresees several possible outcomes from these task forces. "It would be too much to presume that they will solve all problems," he notes. "They may identify other problems that may require investigating. And some task forces may be extended or new ones may be formed" to deal with outstanding issues, including selecting a new name for the organization and determining the legal form the merged organization might take.

"Even if the merger does not occur," notes Belden, "the process of discussion and discovery has revealed areas where we can cooperate in the future. SME's printing operation is outstanding, and we plan to work with them on a contractual basis in that area. At the same time, ASME has a very advanced and sophisticated order-fulfillment capability, and we hope to collaborate in that area as well. If merger discussions don't pan out, the only drawback would be the volunteer and staff time invested in the process."

History dooms a mergerfor now

The Washington, D.C.-based National Education Association (NEA) and American Federation of Teachers (AFT) have long been rival unions representing teachers at the local, state, and national levels. At the local level, the two unions historically have vied, through representation elections, to be the bargaining agent for members.

NEA's Executive Director Don Cameron characterizes these biennial contests as "often bitterly contested and acrimonious." This history has led to animosity between the two groups in many of the local affiliates. In recent years, though, some locals have decided to stop fighting and merge, thus accelerating their national counterparts' consideration of merging.

According to Cameron, "In the past 15 years, NEA and AFT have become closer in their philosophies, focusing more on achieving excellence in teaching and learning." At the same time, the relationship between both of these organizations and school boards has become increasingly less adversarial and more collaborative.

What not to do

Merger talks between AFT and NEA began in 1993. After five years of negotiations, leaders at the national level hammered out a set of guiding principles for a merger. Following advice from many state and local leaders, the guiding principles were general, rather than detailed. This strategy unexpectedly backfired when numerous state and local leaders led a strong opposition to adopting the guiding principles at NEA's June 1998 Representational Assembly. Often raising questions about how the principles would be implemented, only 48 percent of the delegates approved the principles, far short of the two-thirds approval required.

"We were totally surprised," says Cameron. "Throughout the process we thought we had firm support from a vast majority of state and local leaders." (AFT members approved the guiding principles one month later.) Ironically, in a later survey of the 9,500 NEA delegates to the 1998 assembly, 80 percent of the 70 percent responding endorsed the concept of a merger.

What can hindsight teach about this failed attempt? Cameron thinks it was a mistake to rely on a top-down approach to informing delegates about the merger issues, especially given the long history and culture of animosity at the state and local levels. In the future, NEA leaders will work toward a national merger by involving the affiliates and members in deeper two-way communication.

"In my opinion, it's just a matter of time until the relationships at the state and local levels improve," states Cameron. "It has become clearer that the two organizations are not enemies. The probability of a merger down the road is high."

Assessing merger fallout

How are associations responding to mergers, acquisitions, and consolidations among their members? What happens when dues income drops because of industry happenings?

The National Lumber and Building Material Dealers Association (NLBMDA), Washington, D.C., has experienced both growth and decline in its two membership categories. President Gary W. Donnelly, CAE, says lumber dealer members have dropped from 8,500 to 8,000, mainly because of mergers and acquisitions, but the number of associate members-manufacturer and service companies-has grown from 7 in 1990 to 40 today through aggressive membership recruiting.

Donnelly foresees more mergers among NLBMDA's 22 federated regions. "Already they are combining their trade shows and experimenting with shared services. Two California associations recently merged into one. Other states are redefining who their members are as the member base shrinks, welcoming hardware stores as well as lumber dealers."

To compensate for the merger mania striking its members, in 1998, NLBMDA increased its dues from $50 to $75 for lumber dealers, and implemented an aggressive nondues revenue effort that has dropped the association's reliance on dues from 47 percent in 1990 to 38 percent today. New nondues programs include video and training manuals for forklift operators-necessitated by revised OSHA regulations. Also new are a streamlined convention, focusing on professional development and networking, and a legislative conference. NLBMDA also created an endorsement agreement with a supplier of rack-supported buildings and, along with its federated members, traded out free magazine advertising, exhibit space, and mailings. NLBMDA then eliminated a staff position formerly devoted to supporting the program, thus increasing revenue.

Donnelly sees other opportunities to replace shrinking dues income. On the horizon are an affinity credit card, ecommerce applications, a new technology conference planned in conjunction with the annual meeting, and new publications and benchmarking surveys.

Staying in front of the curve

David E. Poisson, CAE, executive vice president of the Reston, Virginiabased Tire Association of North America (TANA), which has a staff of eight and a $2.5 million budget, also tries to stay in front of the curve on mergers and acquisitions. In 1997, his association changed its bylaws to become a vertical organization, providing tire manufacturers, suppliers, and wholesale distributors full membership privileges equal to those of retailer members.

In addition to mergers among manufacturer members, Poisson sees roll-up buying occurring in his industry. Larger retail companies are starting to buy smaller, one- or two-location operations.

These trends have squeezed TANA's trade show in two ways. With fewer tire manufacturers, there are fewer exhibitors. And distributors with 400-600 locations no longer need a trade show, because the manufacturers come directly to the distributors.

TANA has responded by turning to new ventures, including functioning as an outsourced training broker for industry companies, developing a joint venture with an automotive industry magazine to reduce costs and expand circulation of the magazine, and launching 115 training courses on the Internet this fall. TANA has also relied on aggressive telemarketing to expand membership from 3,800 members in 1996 to 5,700 today.

Coming full circle

Mergers aren't the only recourse for associations looking for greater efficiencies and new opportunities, but for some, mergers are the right answer. What's clear from the stories presented here is that there's more than one way to create a merged organization, and that process involves much more than just legal and structural issues. Traditions, values, strengths and weaknesses, and egos all play a role. As does the ability of the prospective partners to stay focused on the shared mission. As organizations strive to stay competitive in a shifting economic landscape, your ability to take a fresh look at how your association achieves its goals remains critical.