CEBC IN THE NEWS

Mergers and Community: Does 1 + 1 = 2?

Published Monday, January 7, 2002 in the Star Tribune.

By Ron James

Hardly a week passes without a new corporate merger or acquisition grabbing the headlines. Whether the reason is synergy, new market expansion, or reduced costs, the underlying principle is that one plus one will be greater than two. In Minnesota in 2000, there were 332 business mergers or acquisitions valued at $1 million or more -- up from 82 in 1992. Fourteen of Minnesota's top 20 companies have merged, acquired or been acquired in the past three years.

While bold moves capture shareholder imagination, we need to be thoughtful about another important stakeholder -- our communities. This is not to neglect or minimize the importance of other key stakeholders, such as employees, customers or suppliers. However, through the collaboration of community, government and business leaders, Minnesota has created enviable communities and a quality of life that helps attract and retain organizations and individuals. These are important advantages and need to be sustained.

To understand how mergers and acquisitions affect corporate citizenship and philanthropy, the Center for Ethical Business Cultures interviewed 63 business executives, corporate giving officers and nonprofit leaders here and throughout the country in the fall. We found two very important but different perspectives, multiple benchmarks, many lessons learned and key implications for our community.

Make no mistake, business has played an important role in building our communities. In 1990, 16 Minnesota companies gave $1 million or more. By the end of the decade, 33 companies were giving at that level. In 2000, 14 of the state's 25 largest employers were recognized by the Minnesota Keystone Program among the 258 firms that gave 2 to 5 percent of their pre-tax profits to charitable causes. By contrast, the national average for corporate giving is 1.2 percent.

And time and expertise that business leaders have given and the volunteer efforts by their employees to address pressing community challenges are as important as the dollars.

Moreover, companies such as Wells Fargo, Medtronic and the St. Paul Companies have aggressively transferred their commitment to community involvement and philanthropy to every company they have acquired, spreading the "Minnesota Way" across the nation.

Despite these impressive gains, some nonprofits, and even some companies, experience adverse affects from mergers and acquisitions. Nonprofit leaders speak of losing financial resources. One spoke of losing 10 percent of his funding. Sometimes transition funding is generously provided, but sooner or later the loss must be confronted. Equally important is diminished executive leadership talent for boards and civic initiatives. Another leader spoke of losing one-third of his board of directors after mergers.

Filling the void

As for companies, some speak of having to "pick up the slack" when other firms cease giving or change priorities. Some companies that we interviewed also cited concerns including the loss of local control over giving and the difficulty in convincing new merger partners of the value of corporate philanthropy and community involvement.

One plus one clearly is equaling less than two for some organizations. Nonprofits increasingly must seek to reinvent themselves in this new environment. Corporate philanthropy cannot be taken for granted or seen as an entitlement.

It is important to note that in addition to mergers, many other fundamental changes are also underway:

• The robust 1990s economy has come to a screeching halt, reducing profits and funds available for philanthropy.
  
  
• Globalization has brought both expanded market opportunities and calls from distant communities for the attention of our leaders and their philanthropy.
  
  
• We are witnessing the retirement of yet another generation of civic-minded corporate leaders who are being replaced by talented leaders lacking the same community memory.
  
  
• Corporate philanthropy has become more closely aligned with the strategic and marketing interests of the business, more narrowly focused, and more decentralized to serve distant geographic locations.

Guidelines for success

Given that mergers and acquisitions are a fact of business life, we must learn from businesses that successfully navigate these uncharted waters. Here are seven benchmarks from those who have done it well:

• The case for corporate philanthropy is clearly defined and endorsed long before any merger discussions.
  
  
• Giving is positioned as an integral part of the merger decisions.
  
  
• Employees and communities are informed promptly about the future direction of the corporate philanthropy and community relations program.
  
  
• Community needs assessments that engage recipients and community leaders are conducted as a guide to changing or sustaining priorities.
  
  
• When funding is to be terminated, current recipients are provided sufficient transition grace periods (18 to 36 months).
  
  
• The merger is used as an opportunity to re-assess giving strategies and resolve outstanding issues.
  
  
• The company is led by a CEO who understands and actively supports corporate philanthropy and community involvement.

So where do we go from here? Clearly we are witnessing a change in the landscape of business and its impact on our communities. Current data are insufficient. Through research, we need to carefully quantify the impact of this change. Armed with the facts, we then must have a thoughtful dialogue with key stakeholders in business, government and the community to agree on the impact and, more importantly, shape the outcome we would like for the future.

The challenge is likely to be threefold: sustaining the engagement and leadership of top-flight companies, inspiring a new generation of businesses and business leaders to step forward, and inventing new forms of collaborative leadership between business, nonprofits and community.

Change is unavoidable, and often is to be welcomed. However, left unattended, one plus one will equal less than two. The choice is ours.

About the Author

Ron James is CEO of the Center for Ethical Business Cultures, formerly known as the Minnesota Center for Corporate Responsibility, a Minneapolis-based nonprofit that helps companies develop ethical and profitable business cultures. The center is affiliated with the University of St. Thomas College of Business and the University of Minnesota Carlson School of Management. His email is rjames@cebcglobal.org. 

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