It came from the public sector

February 6, 2009 6:55 AM

Why would two non-profit organizations merge?

I was doing a bit of research on a particular non-profit organization that is a national concern in the United States. In the course of this I discovered that the NPO was originally formed decades ago and that for the first twenty years or so of its existence it provided its community services only to a single region within a single state. But then about ten years ago it started expanding its operations: first it became state-wide, then it became nation-wide and changed its name to a generic non-regional one.

Then it started gobbling up other NPOs in its sector! It has merged with something like twenty or thirty other NPOs all across the country, to the point that it's now the top or 2nd largest provider of its type of service in the nation.

This seems strangely aggressive and commercial to me, almost... metastatic, as though something has gone wrong in this organization or its entire non-profit sector. In the absence of the profit motive is there anything that could explain this sort of behavior, or might this be indicative that something nefarious is going on?

Checking into its Form 990's, it of course has shown a drastic increase in its revenue as it has grown. Its executives make between $200k and $500k, which from the reading I've done does not appear to be exceptional for a large NPO. The one thing which is a bit odd is that there's also a PR consulting firm that's always one of the top two or three contractors every year, which appears to be owned by a guy who was the press contact back in the 1900s when it was still a small local outfit. The compensation to the PR firm is usually in the $400k vicinity, if I recall correctly, but one year it spiked up to almost $800k.

The name of the NPO is Money Management International.

posted by XMLicious to society & culture (9 comments total)

I guess I ought to clarify because the header question wasn't quite clear there: I can imagine a bunch of reasons why a single merger between two NPO's might happen, it's the large-scale merging amongst many, many NPO's which I'm wondering about: whether it's explicable and whether it's common.
posted by XMLicious at 6:58 AM on February 6

Judging from the various scandals that are on that Wikipedia page, it does sound like this NPO is very atypical and profit hungry.

Two NPOs may merge, however, if they can get some sort of leverage (political, financial, etc.) by doing so.
posted by David Fleming at 7:07 AM on February 6

You guys know that credit counseling services aren't really non-profit organizations, right? That's part of their shtick for convincing people to use the services.

It's a shell game. They can call themselves "non-profit" because they're organized so that shareholders don't receive any income as owners. Then the owners hire themselves as managers and consultants (throwing in productivity-based bonuses if they can get away with it). They're only humanitarians on the tax paperwork.

(That's how it was explained to me when I tried to be a webmaster for one. Quit that job real quick.)

In other words, they're probably exactly the scam you think they are.
posted by faster than a speeding bulette at 7:18 AM on February 6

Are you asking why any two non-profits would merge? That's easy, to serve a wider audience and make more efficient use of donations.
posted by electroboy at 7:55 AM on February 6

There are two issues here. The first is that faster than...etc's comment is correct in spirit: though credit counseling agencies are 501(c)3s, they are not charitable nonprofits - they are really an organized arm of credit-issuing for-profit companies. Unfortunately, that's life. A lot of similar industry lobbies are similarly nonprofit because they don't generate income...directly.

But as for other nonprofits - of course they can merge and it happens often enough. In my opinion it should happen more often, for the sake of the efficiencies to be gained. In your question are some implicit assumptions about nonprofits - that they don't have much in common with businesses. You ask : In the absence of the profit motive is there anything that could explain this sort of behavior?" Well, of course. The "profit motive" in nonprofits is to survive, grow ever stronger and more stable, and deliver the mission. The mission is the product, and many nonprofits would like to grow in ways that help them reach and serve more people. Non-profits are business organizations and are not business-averse. They do most of the functions that for-profit businesses do: hire, fire, purchase, plan, expand, market, evaluate, develop products, deliver services. Thinking of nationwide charitable nonprofits, it's easy to see how Boys & Girls Club, for instance, might end up taking over the functions of local youth organizations that just aren't making it, fundraising and marketing-wise. Museums sometimes merge (I wish they'd do it more often).

So I just wanted to say that the absence of shareholder profit potential doesn't mean that nonprofits can't find smart, honest business reasons to merge. They might be able to do a better job. And sometimes, merging can save the assets of an organization about to become defunct.
posted by Miko at 7:55 AM on February 6 [2 favorites]

Agreed on credit counseling being a special case.

Relationships between nonprofit entities can get complicated, depending on their various activities and financing arrangements. Many organizations have a variety of affiliates which are technically separate organizations, but are aligned through board membership and general affinity, and sometimes those affiliates will merge back into the original organization if conditions change. I've seen the situation Miko refers to wherein a group that is struggling financially is essentially taken over by a more stable organization to preserve components of their programming. And it happens in the other direction, too - a new group will often start out under the fiscal sponsorship of an existing entity and will operate independently from their sponsor even before they incorporate and are legally their own entity.
posted by yarrow at 8:18 AM on February 6

I have known many people who established, ran and grew nonprofits only to employ themselves at the highest possible salary. They'd get a new grant from somewhere, and immediately go on a four week vacation "retreat" somewhere with it.

As others say, "nonprofit" does not equal "charitable" or even necessarily any kind of "public good"... as your example company seems to prove.
posted by rokusan at 8:22 AM on February 6

Agree with everything above. "Non profit" really doesn't mean much. Hell, most years, many "for profit" businesses end up not showing a profit. If it's incorporated, the board of directors runs the show, and their motivations rule.

So generally, why would a non profit act all like they are in it for the money? Two reasons:

1- The individuals working there ARE in it for the money, regardless of their dedication to the mission. They'd like to be paid well for their work. If an opportunity presents itself to expand the org and make more money (and power, fwiw), they will go for it. And like so many people, these employees are no less apt to try and game the system for their own benefit.

2- More money for the mission. At least up to the point of diminishing returns, a larger organization can have less overhead thus dedicating a larger percentage of revenue to the mission which hopefully increases donations.

If you look at the wikipedia entry for the 503c type of organization, there is a LOT that can be done to further the goals of the people who fund the org, while not seeming to be "charitable" from the outside looking in.

Are they "scams"? Not necessarily. If they do what the charter says they should do and are within the law, then the people who donate get what they "paid" for. I do agree that the debt management orgs seem to be on the razor's edge of the spirit of the law. I mean, in broad terms, creditors want their money. They could write off the losses, or they could spend money suing the individual debtors, or they could sell the debt to for-profit debt collectors. Either way, not very cost effective. Or they could spend the same money "donating" to an organization that just happens to figure out ways for them to get their debts back. They get the double benefit of being able to write off the donations while also getting their debts back.
posted by gjc at 8:37 AM on February 6

Oh, just a note - there's obviously a common use of 'charitable' that's different, but in the IRS classification scheme of things, this Money Management organization is charitable, in the sense that charitable=501(c)3=able to receive tax-deductible contributions. Other non-profits fall into different classifications (ie associations like the NRA, which is a 501(c)4) and have different tax treatment; they may still be exempt from paying taxes themselves but their donors cannot deduct contributions as charitable.
posted by yarrow at 9:34 AM on February 6 [1 favorite]