A Publication of WTVP

Today, organizations are more willing to think about affiliation as a strategy for growth, rather than a rescue.

Senior living organizations considering a strategic relationship must determine whether joining together will sustain, strengthen and potentially expand their missions. Deciding whether another organization is compatible in mission and purpose is a process that requires careful thought and planning.

The first step is to define the objectives and articulate the circumstances or characteristics to avoid. Once the objectives are clear, the organization can consider a range of models and relationships to meet the overarching goal of sustaining its mission—and possibly expanding it.

Crisis Combinations
For-profit companies typically evaluate potential relationships with other companies in terms of ownership. Nonprofit senior living entities, however, are not technically owned by anyone; therefore, they evaluate potential relationships by considering how control, membership, program integration and leadership will accomplish their purposes.

Senior living organizations might consider an “affiliation” for many reasons, including having enhanced access to capital, strengthening “intellectual capital” (i.e., people resources), creating a safety net, improving or diversifying a market position, and prompting or accelerating growth. Over the past decade, the primary driver has been access to capital or solving financial difficulties.

Strategic Growth Without Taking the Leap
Several common tools that allow an organization to grow include collaborations, alliances and joint ventures. Generally, nonprofit senior living organizations retain significant control of their core operations in these situations.

Affiliation and Models for Transition
For organizations that find the affiliation route driven by need rather than opportunity, the reasons are usually financial, organizational or market-related. Financial reasons include the need for cash or credit to refurbish a physical plant, meet financial covenants, or address the changing demands of current or future residents. Strategic affiliations could help resolve organizational needs prompted by a CEO transition or board fatigue. Market-related issues could also be resolved through affiliations that specifically address mounting operating and financial pressures caused by weakening occupancy, thinning margins, inability to attract and retain qualified staff, or inadequate reserves.

While the organizational and legal details vary dramatically depending on each situation, there are essentially three legal structures (models) by which a nonprofit senior living organization can affiliate with another nonprofit:

An affiliation agreement knits the federal model together. Each participant subscribes to core values and practices, and agrees to extensive sharing of information within the federation. The sponsor provides services to all affiliates for a fee, and there is typically little or no board overlap among the sponsor and the affiliates.

In the past, the consideration of affiliation and sponsor transitions rarely occurred without a financial crisis. Today, collaboration and affiliation can be viewed as components of strategy. With multiple options available and innovative approaches being considered each day, nonprofit senior living organizations are wise to first define the objectives to be met by an affiliation, then consider the affiliating organization’s ability to meet those objectives. When there is an alignment of both values and objectives, the likelihood of a successful courting process and alliance are increased exponentially. iBi

Scott Townsley and Melissa Yoder are principals at CliftonLarsonAllen LLP. Connect with them at [email protected] or (610) 805-6303, or [email protected] or (309) 671-4500.