In April, the Centre for Interdisciplinary Studies in Environment and Development (CISED) announced that it was going to merge itself with another environmental research organisation in Bangalore, the Ashoka Trust for Research in Ecology and the Environment (Atree) from June.
What made this announcement newsworthy was that while mergers are not new in the business world, mergers between two non-profit organisations (NPOs) are rare in India. So is this something to be welcomed? The answer is yes. Mergers can be a very effective way of dealing with chronic funding problems as well as being a proactive strategy to meet social goals in a better way.
India has around 1.5 million NPOs. But most of them are one-man shows with small budgets that find it difficult to survive after the initial spurt. Even well-established players find it difficult to survive because of the intense competition for funds. The sector is fragmented by geography and types of services offered and many of the existing groups espouse overlapping causes. There is, thus, a high degree of competitive pressure and a tussle for funding, staff and media coverage.
It is mostly financial constraints that have led to NPO mergers even in America. One example is the merger of the 92-year-old Irvington Institute for Immunological Research with the Cancer Research Institute, another fellowship-granting group based in New York. With donations down and overheads too high, the Irvington Institute had been worried for some time about staying afloat. In 2006, after considering several alternatives, it decided to merge with another NPO. After several meetings with potential partners, it decided to merge with the Cancer Research Institute that had better funding. The latter took ownership of Irvington’s assets as well as its liabilities and agreed to continue with the fellowship programme of the Irvington Institute. The CISED merger with Atree is due to similar reasons.
Mergers are also helpful when there is a succession vacuum. Rather than let the organisation go into a tailspin with second-grade leadership, it is sometimes best to look for a merger with a peer organisation that will continue the organisation’s work without facing the problems in managing encountered by the first organisation.
Mergers help in generating new funding as the newly-formed group or the organisation that has absorbed the old organisation is often judged to be more stable and better-managed, and therefore more attractive to funders.
Though many Indian NPOs face difficult situations on both the funding and the human resource front, few take the bold step that CISED did. Many organisations that had once been prominent are today languishing, both because of tired old leadership and a lack of revenue even though they frequently have huge assets in land and buildings. But their trustees and members are unwilling to let go of the control over the assets.
Had the sector been subject to market forces, unviable organisations would have been wiped out or been forced to merge with bigger entities. But NPOs, however ineffective they may be, keep going at very low levels of productivity and efficiency while waiting for the next fix of funds or a more dynamic leadership to take over. There is, thus, no weeding out of inefficient or unproductive organisations to make room for more dynamic ones. This entails a cost to society.
The Indian non-profit law allows for mergers if organisations become unviable or moribund by allowing them to transfer their assets to an organisation of their choice and closest in objectives to them. But few have availed of such an option with many become non-performing liabilities.
Mergers are not a panacea for all difficult situations. If mergers are to become more widely and effectively utilised by NPOs, the strongest, highest-impact organisations must start looking at mergers as a possible way to fulfil their strategies. Small may still be beautiful, but not in all cases. Sometimes it is necessary to think efficient and, therefore, think big.
Pushpa Sundar is an expert on the voluntary sector. The views expressed by the author are personal.