Spinning off – effective transitions
Howard Lake | 28 December 2002 | News
Warren Tranquada and John Pepin explain the lessons that should be applied when an organisation creates a new nonprofit or for-profit spinoff.
Pepin and Tranquada of Pepin, Tranquada & Associates have conducted a preliminary study of successful and non-successful spinoffs from the corporate and voluntary sector to identify some general lessons that can improve the likelihood of a spinoff obtaining funding and becoming a successful organisation.
In an article on Canada’s CharityVillage.com, they set out the key indicators of likely success. The abstract of their paper lists them:
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“1) Clean Break – It is desirable in the long term to strive for a clean-break and completely separate the child and parent organisations. The new structure should be transparent and focused.
2) Share Resources Formally – During the transition phase, it is legitimate and healthy for the organisations to share some resources, however, clear and written contracts should be established to clarify roles, expectations, costs, payment and ownership.
3) Legal and Managerial Independence – The parent should be a significant but minority partner. A controlled subsidiary can scare away new partners and minimise the benefits of the spin-off.
4) Market Relationship – When purchasing services between the entities, market mechanisms should be used to set price. Transactions should be arms length and the child should have the option to purchase from someone other than the parent.
5) Avoid Conflicts of Interest – Simplify the structure and strive for arms length relationships. In the interim, use a trusted objective outsider to act as an overseer of major decisions.
6) Sharing Management – In the short term, sharing of management may be vital to the success of the spinoff. However, in the long term it can lead to misunderstandings with the board and stakeholder groups. Establish a transition plan early on to replace shared management with an independent team.
7) Transition Plan – Ultimately, management and staff should decide what organisation they will work for. In a reasonable manner, staff of the parent should begin to concentrate their efforts on one organisation or the other, ultimately transferring to the organisation where most of their effort is being directed.
8) Completing the Transition – Investment from an external partner and/or corporate profitability will trigger implementing the final phase of the transition plan.”
You can read the full paper at CharityVillage.com.
About Howard Lake
Howard Lake is consultant editor of UK Fundraising. He founded the site in 1994 and successfully sold it in 2022. As director of Giving X Ltd he is exploring growing giving on a massive scale.
He is the founder of Fundraising Camp and co-founder of GoodJobs.