It was late in the day on June 23, 2010 when inspiration struck a group of executive directors and board members from three nonprofit housing organizations from Western New York state who were relaxing in a hotel lounge in Newark, New Jersey. The representatives from NeighborWorks Rochester, Arbor Housing and Development, and NeighborWorks Home Resources had come to Newark to attend a leaders forum held by the national nonprofit intermediary, NeighborWorks America. As they sipped their drinks, the conversation turned to organizational collaborations, a popular subject at the forum and throughout the nonprofit community development field.
The directors thought out loud about forming a multi-group collaboration in Western New York, a region of rustbelt cities and hardscrabble rural areas served by a range of small and large nonprofits. There must be a way, they thought, for different organizations to pool resources, expertise, and even programs so that each could grow its business and improve its assistance to people in the region.
That conversation was the first fateful step. Although the road proved far rockier than any of them expected, it ultimately revealed both pitfalls and practical possibilities for bringing community development groups together toward a common endeavor.
After their initial discussion, the leaders of the Western New York groups returned home and widened the conversation to include more of the region’s nonprofit housing organizations. They canvassed their counterparts in other organizations, and several said they were interested in joining a multi-group collaboration. Out of these, two organizations, West Side and Black Rock-Riverside Neighborhood Housing Services (Buffalo)—itself a merger of two organizations—and Niagara Falls Neighborhood Housing Services, signed up for the long haul.
Foundations and nonprofit intermediaries such as NeighborWorks America had been preaching to member organizations that forming partnerships, joining alliances, or even merging, can help nonprofits strengthen their finances, increase their efficiency, and expand the scale and scope of their programs.
The directors of New York’s housing organizations had plenty of motives for collaborating. Funding was, as always, tight, and at the time threatened to become worse. New York state was considering cutting back annual support of housing and community development groups. Small housing agencies in the region often struggled to do enough business, while the larger ones wanted to expand their markets.
In the months that followed, the directors of the Western New York groups held frequent discussions about the pluses and minuses of a multi-group collaboration. In the end, the potential advantages seemed so great they decided they should commit time—a scarce commodity among housing groups—to determine what would be best way to proceed.
A Diverse Group
Although all five of the Western New York groups were nonprofit housing organizations affiliated with NeighborWorks America, they varied dramatically in size, volume of business, types of programs, and service-area geographies.
Because of its size, Arbor Housing and Development stood out. Arbor employed about 100 people, far more than any of the other organizations. The next largest was NeighborWorks Rochester with a staff of just under 20. The smallest of the groups, NeighborWorks Home Resources, had only three employees.
Arbor provided residential services for people with special needs and victims of domestic violence, and also developed and managed low-income housing. The other four groups were traditional “neighborhood housing service” (NHS) groups, founded as part of the first generation of NeighborWorks affiliated organizations that focused on homeownership counseling, lending, and community engagement. Both Arbor and NeighborWorks Home Resources were rural housing organizations that served people living across several counties. NeighborWorks Rochester offered programs throughout Rochester and had recently expanded to an adjacent county. West Side NHS and Niagara Falls NHS did most of their work in districts within their respective cities.
Until late in the process, most, if not all the Western New York staff members and directors, viewed these differences positively. Collaboration, they felt, offered opportunities to reduce their administrative expenses and expand their business lines and service areas. In that light, differences in size, programming, and capacity made it possible for the groups to complement and strengthen each other, and the representatives of the smaller groups accepted that Arbor Housing and NW Rochester and their executive directors would take the lead.
Learning by Doing
To start their collaboration in a practical way, the directors of the Western New York organizations first sought ways to share business activities. At a meeting in August 2011, they optimistically declared that within a month, three of the organizations—Arbor, NeighborWorks Rochester, and NeighborWorks Home Resources—would launch joint ventures.
It made sense. Working together on actual programs could build trust. Up to that point, the Arbor and Rochester directors had discussed the problems their organizations faced, and the head of the Niagara Falls organization had sometimes called the Rochester and Buffalo directors for advice, but staff had not worked together much. The directors of the organizations were all but unknown to staff members, so the hope was that in carrying out joint programs, the directors and staff members would experience working with each other. But those joint ventures proved difficult to pull off.
Throughout the entire time they were building their alliance, the groups only mounted one joint business venture, which took almost a year to develop. NeighborWorks Rochester and NeighborWorks Home Resources were to start a home-rehab lending program together. As a small rural entity, NeighborWorks Home Resources lacked capital to make loans, but served a large territory. NeighborWorks Rochester, a designated community development financial institution (CDFI), had capital to lend and could benefit by expanding its lending business to the rural areas that NeighborWorks Home Resources serviced.
In June 2012, after months of planning, the two organizations completed a memorandum of understanding, a flow chart of the process, and a fee schedule. Both agreed on a source of rehab loan funds, underwriting guidelines and procedures, and interest rates for the loans. NeighborWorks Home Resources would provide prospective borrowers with applications, collect applicant information, and deliver applications to NeighborWorks Rochester, where a part-time underwriter would process the loans.
Unfortunately, NeighborWorks Home Resources found few qualified customers for the loans, and after three years, it would issue only one loan. Those who applied for the loans either could not afford them, or did not meet the underwriting criteria. To find qualified borrowers, Home Resources would have had to target a different group of people than its usual customers. It would have required extensive advertising and marketing of the loans, which Home Resources lacked the staff to do.
The failure was an indication that such joint ventures might be more complex than anticipated. Focused on the prospect of creating an innovative type of collaboration that would lift all boats, the directors of the western New York organizations pressed ahead without pursuing any more joint ventures.
Change, but Keep the Best
To devise the collaboration, in January 2012 a large working group called the Western New York NeighborWorks Organizations Affiliation Task Force, comprised of an executive director, board member, and senior staff person from each of the five organizations, convened.
At first the members of the Western New York task force sought simply to share services, especially back office functions such as accounting and information technology services— either among themselves or through a separate nonprofit company. But they soon ran into a dead end. “It seemed like everywhere we thought we might be able to gain an advantage we couldn’t,” one person observed. Without legally affiliating with one another, the task force members discovered, the organizations would not achieve any significant savings in operating costs.
The task force members then began to consider some sort of restructuring of the organizations, but in so doing they entered territory that potentially threatened each organizations’ status quo—from funding sources to jobs. As they considered the advantages and disadvantages of different models of affiliation, the representatives insisted on preserving as much of their current organization’s business and personnel as possible.
“A guiding principal from the beginning,” a staff member for West Side NHS said, was “to keep everybody on and keep our local programs.” While retaining their current customer pool in their present service areas, the task force members wanted the new arrangement to expand their markets, provide better services at lower cost, and make their administrative functions more efficient. In short, the Western New York practitioners faced a fundamental tension common to all such collaborations: how to preserve the best of what they had while becoming larger and more efficient?
Inventing an Umbrella
After considering alternatives ranging from a complete merger to creating a new organization to provide services, the task force members gravitated toward adopting an innovative “umbrella” type of organization, which they hoped would allow them to grow and change while maintaining the individual identities and programs of their respective groups.
In December 2012, the Western New York organizations hired a law firm to recommend a legal structure and help create it. Three months later, the attorneys unveiled a proposal to create a parent corporation dubbed “UmbrellaCo,” under which the previous housing organizations would serve as subsidiary divisions operating in the groups’ former service areas. To retain the local identities of the participating groups, the current boards of directors would become regional advisory councils, which would promote local programs and convey local needs to the central organization.
The proposed structure seemed to resolve the basic tension between local identity and a new central agency. The existing groups would surrender authority to the “UmbrellaCo” but would also be able to control it. On the one hand, the umbrella organization would have the authority to hire and fire staff and direct programing for the subdivisions. On the other hand, each local subsidiary, regardless of its size, would have an equal number of representatives that would sit on the central organization’s board of directors and direct its policy.
The task force members liked the UmbrellaCo concept. They agreed that it would accomplish their objective of growing larger and more efficient while preserving each groups’ local identities, and the local names and brands would not have to change.
After attorneys explained that the existing groups would retain control of the umbrella company via their votes on the board of directors, a staff member from West Side NHS commented humorously, “UmbrellaCo is us.”
One great advantage was that the Western New York program officers could choose to apply for funding and run programs either locally or regionally. “We can appear as one large organization when needed,” the director of NeighborWorks Rochester remarked, “and as smaller local organizations when that is to our advantage.”
Everyone Must Fully Participate
Even as the new partnership moved forward, problems lurked. As is often the case, a few individuals shouldered a greater share of the burden. The executive directors of the two largest organizations, Arbor and NeighborWorks Rochester, did most of the work to push the collaboration forward. They led the conceptual discussions and coordinated the task force’s crucial governance committee that was responsible for planning the new structure. The director of NeighborWorks Rochester presided over the finance committee, while Arbor’s director managed fundraising for the collaboration effort.
The other directors tended toward a “wait and see” role, hanging back to see how the process played out. They had their reasons. For one, everyone involved acknowledged that the executive directors of Arbor and NeighborWorks Rochester were dynamic leaders with the vision and competence to make things happen. For another, the heads of the two large organizations could rely on their staff members to pick up the slack while they worked on creating the alliance. The directors of the smaller organizations did not necessarily have the ability to add to their staff members’ responsibilities.
For these reasons and more, the reliance on a few individuals meant that not everyone had the same stake in the project and motivation to make it work. If everything went smoothly, this difference in the contributions among participants would not matter. If things went awry, however, it would undercut the overall effort.
Develop a Common Vision
In any collaboration, participants must grapple with their differences in order to develop a truly common vision. Two experts on nonprofit community development, and frequent Shelterforce contributors, Dee Walsh and Robert Zdenek, have found this to be critical to the success of nonprofit collaborations.
Yet throughout 2012, a few task force and committee members from the Neighborhood Housing Services organizations began to worry that the leaders of Arbor Housing did not share their vision. They felt that Arbor’s emphasis on supportive health services and rental housing had generated a different “business culture” than their groups, which specialized in homeownership, rehab, and lending programs.
Although the task force members admired Arbor’s officers for its talent and skills, some were put off by what they considered a different style of organizational deliberation. What Arbor leaders considered simply an efficient way of organizing tasks and agenda, these members saw as attempting to take over.
Beyond the matter of style were actual differences in approach. The Rochester and Buffalo representatives were keen, for example, to maintain programs such as community engagement that did not produce revenue. They were unsure, however, if the business model used at Arbor Housing would support such programs.
Although differences like these are par for the course, the parties never hammered them out to develop a truly common vision. “We did talk about values,” a task force member from the Buffalo organization later recalled, “but we didn’t try to focus on how they were different. We focused in on how they were the same.”
Communicate, Communicate, Communicate
It is an axiom that communication is the sine qua non of collaboration. As Walsh and Zdenek have written, personal communication, as opposed to emails and texts, “is essential to the collaborative since it provides a forum to discuss issues and built trust.” Yet in the task force meetings, some members held back their true opinions and in committees some missed their assignments.
In early 2013, task force members and an attorney brought the proposal back to each organization’s boards of directors and all but one quickly endorsed the plan. The board chair of the smallest organization, NeighborWorks Home Resources, delayed approval, publicly expressing objection to the loss of autonomy and the lack of a detailed cost-benefit analysis. The board of NeighborWorks Home Resources, however, eventually came around.
In the following months, the task force planned the finances and structure of the new umbrella-style central entity. Each step toward the transformation of the Western New York groups, however, seemed to bring more doubts, many of them focused on Arbor’s role.
At a meeting in April 2013, the task force approved an organizational chart, which for practical reasons placed a number of officers from the largest organization, Arbor Housing, in top positions. Several board members, however, objected privately. Although the executive directors had agreed earlier that the directors of Arbor Housing and NW Rochester would serve as chief executive officer and chief operating officer respectively, some task force members feared that the other proposed appointments put too much power in the hands of the largest organization and did not recognize the talents of their own staff. Furthermore, some objected to situating the UmbrellaCo headquarters at Arbor’s office in Corning, New York, a choice that followed logically from the selection of Arbor officers.
In the summer and early fall, the task force leaders pressed ahead to begin implementing the new scheme on an ambitious three-year timetable. A number of participants grew increasingly anxious. Apprehensive that the merger would destroy their organizations’ local identities and ability to carry out core services, they objected to proceeding until they knew more about the new arrangements. A few board members now suggested that board members should have the authority to organize and run the new organization.
Communication, or the lack thereof, had become a serious problem in the collaboration effort. People complained privately to each other far more than they did publicly in meetings or phone calls. The directors and board members of the northern urban groups talked among themselves and built distrust of Arbor Housing and its director. On the other side, Arbor’s director mistook the lack of objection for agreement, and did not realize the extent of the discontent over his organization’s proposals and responses. Furthermore, it did not seem that Arbor would in fact dominate the merged group since the provision that each organization have equal representation on the board of UmbrellaCo meant that “teams” of board members from the smaller groups could out-vote those from Arbor.
Is Fewer Better?
By late 2013, the three-year quest to create an alliance had quietly dissolved into opposing factions, with the three northern urban groups moving away from the two rural organizations. The directors of NW Rochester, West Side NHS, and Niagara Falls NHS had known each other previously, and the NW Rochester director had invited the Buffalo and Niagara Falls directors to join the alliance.
In December, the three directors discussed their qualms and then abruptly announced that they wished to dissolve the task force and proceed no further with Arbor Housing. It was a shock to all, even those who had criticized Arbor. Completing the factional division some months later, the executive director of Home Resources, who was unhappy both with his board and the dissident directors, resigned from Home Resources and took a position with Arbor Housing.
The Best Odds for Success
The outcome of this effort to collaborate might suggest that would-be collaborators should limit the number of groups involved. It is certainly possible to merge several groups successfully, but that usually occurs under duress or as a result of some other compelling factor. Multiple partners create multiple possibilities for misunderstandings. And a large number of participants invite groups with similar outlooks or shared history to form factions, which is what happened in the Western New York case.
When two or three groups collaborate, in contrast, its leaders can readily recognize the areas that need to be negotiated. Similarly, collaboration among a few parties makes it relatively simple to ensure that everyone involved receives—and understands—the same pertinent information. Perhaps it is not coincidental that when the Western New York groups did eventually form a collaborative merger, only three participated.
Where Are They Now?
In the years since the split, Arbor Housing and Development has thrived in its pursuit of nonprofit housing and related services. It has expanded operations to Pennsylvania and Albany, New York. Although its leaders would consider collaboration with another organization in the future, they vow they will never again attempt a merger with so many disparate organizations.
NeighborWorks Home Resources separated not only from the collaborative effort but also from the NeighborWorks network and has returned to doing business under its original name, Rural Revitalization Corporation.
The three dissenting organizations, Rochester, Buffalo, and Niagara Falls, resumed working on a collaborative merger. The groups, similar in historical purpose and type of service area, proved complementary and thus converted the nonprofits into subsidiary components of a new nonprofit organization, NeighborWorks Community Partners, which was recently chartered as a member of the NeighborWorks® America network.
Significantly, however, some of the same problematic issues arose in the creation of their three-way collaborative merger. Of the three groups, NW Rochester was the largest company, and its director became the first head of the new company. Cognizant of the previous controversy about choice of officers, the director made sure to hire staff members from outside NW Rochester (but insisted on making the NW Rochester office the headquarters of the NW Community Partners, citing reasons of convenience and cost).
Once again, some objected to the predominant role of the larger organization and its director in the merger, including the location of the headquarters. And as before, some board members felt that they should have more authority.
With time, and more merger experience, some task force members who had criticized Arbor and its officers reconsidered some of the previous opinions they had formed in the heat of the process. It raises the possibility of whether the ambitious five-way scheme of Western New York housing groups could have worked had it been executed differently.
Perhaps. But this case teaches would-be collaborators that to get to that happy place, they might well begin by trying out joint ventures among themselves first. If they choose to proceed, collaborators should share responsibilities as much as possible, dedicate themselves to communicating honestly and constantly, and confront and work out their differences. Having built trust and a common vision, they can forge ahead to reach their goals.
[Editors note: Under ‘Is Fewer Better?,’ the sentence, “The directors of NW Rochester, West Side NHS, and Niagara Falls NHS had known each other previously, and the NW Rochester director had invited the Buffalo and Niagara Falls directors to ally with her” has been changed to the author’s original wording.]
Excellent and informative article. We are endeavoring to form a local collaboration and this will greatly inform our work. In this industry, nonprofits frequently talk about the need to collaborate, yet very little of it really happens. I think you have laid out many of the reasons in a very nice way. Thank you.
I would just like to clarify a few items in the article as someone who lived this process and as the first CEO of NeighborWorks Community Partners. Under the section, “Is Fewer Better?” it is stated that I asked the other three northern groups to ally with me. That isn’t what happened – they asked me to take over leadership of the initiative because of both the board and staff’s growing discontent with the direction that Arbor appeared to want to take the initiative. Ultimately, the staff made no decisions – the boards of the respective organizations did. Additionally, further down in the article, the first corporate office wasn’t at NeighborWorks Rochester it was in the basement of my home, and that was done to save money (which was very limited because of the cost to merge) and so that I wasn’t physically connected to any one organization; particularly not the organization that I had led for fifteen years. NeighborWorks Rochester was only used as the corporate mailing address. We continue to lose small community development organizations because they are unsustainable. I still believe that the merger of the smaller organizations was the right thing for those organizations and the communities they serve. Really what came between Arbor Development and the other organizations was a significant philosophical difference in how we approached our work. Arbor did not think of itself as place based organization and the others did; it may not seem like a big issue, but when you are making decisions about programs to offer and approach, it was. I think it is important if this merger continues to be discussed as a tool for others to learn from, that the correct information is shared. As with any merger process, there were a lot of things we could have done better, but there were a lot of things that we got right as well. People reading this should be aware that 95% of merger conversations involving two organizations fail. The fact that we were able to move four boards forward to a merger was very unusual and a small miracle that it happened. It was a very difficult and challenging situation. My hope is that in five or ten years when the communities served by those organizations are benefitting from increased capacity, then people will realize that it was worth the effort.
Thank you for your comment, Kim. Please note that the wording under the subtitle, ‘Is Fewer Better?,’ regarding an alliance has been changed back to the author’s original wording.