The negotiation process
There are several principles that are helpful to follow to increase the likelihood of having negotiations that are effective and efficient.
- Know your limits – Seek direction from your board in relation to the limits to your decision-making authority throughout the negotiation process.
- Agree what to share – Agree early on what will and what will not be shared with external stakeholders. Deciding what information you are willing to share (collectively and independently) will reduce the spread of misinformation. Negotiating
- Proceed slowly – Listen carefully to your partner in relation to sensitive issues that arise, and consider seeking trade-offs on difficult negotiation points.
- Negotiate methodically while keeping an eye on the big picture – Consider agenda items point-by-point, but keep the process moving by minimising the amount of time spent negotiating on points that will not have a material impact on the outcome. Considering individual policy or practices (e.g. collective bargaining agreements) reveals the priorities, interests and concerns of each organisation at a granular level. However, negotiations will not progress far if agreement is sought one policy at a time. Rather, group like policies and practices into broader categories (e.g. human resources) so that negotiators can progress discussions at a higher level.
- Allow ‘offline’ gatherings – These types of discussion can ensure that all the perspectives of your and your partner’s stakeholders are reflected in discussions.
- Record and disseminate minutes – Accurately reporting the outcomes to each organisation’s board is vital. These minutes will differ from a typical board meeting and should capture the breadth of ideas discussed.
- Carefully manage personal dynamics – Be careful to manage emotions during what can sometimes be a difficult and lengthy process.
- Celebrate success – Do not forget to celebrate reaching agreement. Both parties should mark final agreement as a significant accomplishments.
Common pitfalls during negotiation
Discussions between organisations considering a merger can surface a range of issues, beyond the financial, legal and other practical impediments to progressing negotiations. Some are raised intentionally, while other issues arise unexpectedly. Either way, these issues have the potential to derail a merger. There are three common issues which can undermine effective merger negotiations:
- Concern for independence and identity – the risk that the outcome of the merger will result in a loss of identity or force one party to compromise on founding principles.
- Fear of the unknown – building trust between merger parties in the context of ‘winners and losers’, and suspicion of hidden agendas.
- Differing assumptions – divergent views on the benefits (to each party respectively) realised through a merger.
These three drivers and possible mitigation strategies are discussed below.
Concern for independence and identity
Many NFP organisations survive and thrive on the effort of a small group of dedicated leaders who are heavily invested in the organisation.
When small organisations merge with large organisations, there is often a fear on the part of the smaller organisation that the culture of the larger counterpart will dominate. Staff in NFPs often have an emotional attachment to, and a personal stake in, the history, but also the future of their organisation. The sector relies on the goodwill of employees and volunteers to work above and beyond the call of duty, and it is important to acknowledge this through periods of great change. Do not underestimate the extent to which uncertainty over future vision and mission can provide a license for otherwise supportive staff to undermine the process. During the first year post merger these concerns are particularly sensitive, but may subside over time. Fears of lost independence can manifest as questions about the motives of the larger organisation and concern for the impact of the merger on their public image and ability to continue to deliver services. Conflict over the merged organisation’s identity is discussed in greater detail in Support your employees through change.
The implications for both organisations are important. Both parties should make efforts to respect the contributions of staff, volunteers, directors and service-users to the history of the organisation. If you are the smaller party to a merger agreement:
- Emphasise what you would like to contribute to the merger
- Understand your strengths and how you would like these to reflected in the merger
- Make clear what elements of your current organisation ought to be preserved in the merged organisation (for example, elements of history, culture, programs, reputation, as well as relationships with patrons and benefactors).
And if you are the larger organisation:
- Make your objectives clear
- Anticipate any sensitivities around questions of identity for your smaller merger partner
- Respect the members of the smaller organisation and encourage them to take leadership roles in the merger process.
Fear of the unknown
Often changes in organisational structure will remove or diminish the roles for some staff members within each organisation. How this issue is handled during the negotiation will often determine whether an employee will support or interfere with the process. In extreme circumstances, a disgruntled employee may seek to hinder the process by leaking information early to staff or media, or by arguing publically against the merger.
To encourage staff from both organisations to contribute productively, you should:
- Identify the legitimate self-interest of members of both organisation so concerns do not get air time away from the negotiation table
- Develop a formal agreement around key staff, such as legal letters of joint commitment for key staff in order to avoid flight risks
- Plan the management of any redundancies as early as possible
- Regularly communicate progress and encourage interaction between staff of both organisations
Prior to any discussion or negotiation, parties to a merger will have formed some view about the organisation they are merging with. Usually these are positive, and are the basis for consideration of initial merger opportunities. However, when these expectations are not based on hard evidence (e.g. via facts established through a due diligence process) they have the potential create fear and mistrust, disrupting the merger process. These false expectations have the potential to undermine a merger negotiation, as each party may have a different view about the potential benefits. To avoid this (and avoid surprising your partner):
- Share with your organisation what you expect to achieve through the merger
- Ask direct questions about what your partner expects to achieve through the merger
- Be transparent about any assumptions underlying information you provide to your partner
Please feel free to leave questions or comments on this part of the merger toolkit.