Funeral for a Friend?

The current political and social climate has called the world of investing into serious question, with issues from moral to economic to pragmatic being actively examined and debated. One of the main dialogues centers around an examination of the creative destruction that occurs when firms merge or are acquired. While generally viewed as a good thing from a business perspective, the current social debate is asking if the jobs lost and lives disrupted may be too high a cost to pay for the increased efficiency that mergers and acquisitions typically create. But hidden in this issue is another key distinction that social entrepreneurs can leverage to bring about the change they seek.


The reasons that business merge are really pretty simple, and the benefits are quite clear. Two organizations can operate more efficiently if they can share the back office costs that are an essential part of any venture. The aggregated talents of the two leadership teams can bring even more expertise to the markets the firm serves, allowing for increased value to be delivered to the customer. Often, the two firms serve complimentary markets or products that can be combined to make a broader or deeper offering, which then attracts a wider range of customers. It can also be a great way for an owner who has put his or life into the business to get the cash they need to retire comfortably. From just about every business angle, it’s a good thing. So good, in fact, that it often is the cause for significant celebration. And some of the folks involved in the transaction make a pretty good paycheck advising in these matters (In fact, one of my best friends, and one of the most honorable people I know, is an attorney working in this space – so I know first-hand that not everyone in M&A is abhorrent). In a commercial context, mergers and acquisitions are a good thing.

As I made the transition from commercial to social entrepreneurship, I was amazed to find that in the social benefit space, the exact opposite is true. Most of the time, when two nonprofits merge, or one is acquired by another, we don’t hold a party – we hold a funeral. There a lot of anxiety and wringing of hands and the general sense is that “we’ve lost another great program”. The same facts that are almost reflexive in business – greater efficiency, broader service base, deeper reach – are rarely mentioned or even though of. And yet, isn’t that exactly what we want for all these mission based ventures that we love so much? How many fundraisers, charity balls, silent auctions or phone –a-thons have you been involved in where the goal of the funding is to enhance the mission’s ability to serve by buying equipment that will make is more efficient? Why are we not considering the possibility that this very same equipment might already be owned and sitting underused in a brother or sister organization with a similar mission? And that this same organization might be struggling to meet budget in part because they’re struggling to pay off the blankety-blank equipment?

So here’s the part that is really frustrating. When a commercial M&A transaction is completed, the economic benefit goes to a few - mostly the owners and investors in the entities involved (which is why folks like the occupiers are so stirred up). When a similar transaction occurs in a social benefit context, the value can be plowed back into the mission – effectively doubling or tripling the increase created by improved operations.

Maybe instead of blaming the tools, we should start to talk about the motives of the carpenters. Just like a hammer can be used to build a house or break a kneecap, the tools and techniques that are common in commercial enterprise can be used to even greater good in a social benefit context. By combining forces, leveraging key resources, forming joint ventures, building strategic alliances and yes – even merging and acquiring synergistic firms, we can redeem the process and restore capitalism to its original honest intent. Who knows, we might even convert some of the great minds working in the commercial sector to our cause. At the very least, we’ll have a much stronger social sector, more celebrations - and a lot less funerals.