Associations with multiple corporate structures are common and often referred to as federations. Federations comprise a national or international entity and affiliated regional, state, and local component associations that are separately incorporated. The components typically work in cooperation with the national association under rules incorporated into their bylaws.

Personal experience over the past 20 years has shown that most professional societies, as well as many trade associations and charities with nationwide scope and component associations, operate in some version of a federated system. But the federated structure, which arose in an era before the internet enabled collaboration and rapid delivery of products and services across geographic boundaries, has become outdated and unsustainable as a business model for many nonprofit organizations.

Unique Challenges

The federated structure presents unique challenges. In federations, the national entity and its local, state, or regional components generally share mission, goals, members, funders, donors, and sponsors, but they usually operate independently. This relationship features a unique mix of cooperation, autonomy, and competition that is not found in for-profit organizations, and this has a material effect on how well the related associations are able to function.

Because the components that make up federations are organized as standalone corporate entities, they often have conflicting motivations.

While federations generally aim to act together, because their components are organized as standalone corporate entities—with separate boards, separate financial resources, and separate staff organizations, each with its own CEO—they often have conflicting motivations. They do not behave as single corporations. This is a costly and important disadvantage in seeking to fulfill a common mission and serve a common membership group. And this disadvantage becomes more acute each year as cost efficiency and technological capability grow more critical to organizational success.

A federation's separate organizational structures have three major impacts:

High senior management costs. Federated associations typically maintain separate executive teams. Payroll is the leading cost for nearly all nonprofits, and duplicating senior management salaries across the country is a major expense.

Separate back-office operations. This comes with two distinct impacts: One is the need to maintain separate accounting operations, IT systems, and support-staff functions. A second is the difficulty of gaining sufficient scale to invest in the major technologies that are critical to support operations, from accounting software to association management systems.

Internal competition. This is an indirect, hard-to-measure cost that is nonetheless significant. National and component entities often compete with one another to raise money and offer revenue-generating programs and services that stakeholders find valuable. They may compete to take credit for shared services such as advocacy, where the various levels need to cooperate to succeed. It is also common for state and regional entities to become ensnared in power struggles as they assert their independence from the national entity.

The federated model arose in a different era. Local services, boards, and control were dominant. The model allowed for partnering across geographic areas with common missions and programs. Coordination processes evolved to enable joint program efforts, information sharing, and other forms of collaboration—all before digital communication networks linking national and global communities enabled user–friendly, centralized systems for delivering products and services.

In most cases, the component organizations of today's federation systems remain individual, independent corporations without practical and functional partnership agreements, shared finances, and common control mechanisms, making it nearly impossible to figure out total revenues or costs for common services or expenses. Simple business processes become difficult or impossible.

Alternative Organizational Models

There are several alternatives to the current federation model.

Independent organizations. It is possible, though not common, for component associations to move to function completely independently. In most cases, boards prefer to continue to work in imperfect federations rather than pursue a complete breakup. Generally, the break-away option is considered only by the strongest, best-funded of component associations within a federated structure.

Partnership model. Mostly found in the private sector, partnerships and joint ventures occur when separate corporations agree in writing to a contract and business model defining shared operations, products, and services. In some ways, the typical federation, with a national organization and separately incorporated chapters, is a form of partnership, but rarely do associations implement the legal and business disciplines seen in the private sector to achieve the potential benefits of a successful partnership model. This is an option to consider for federations that are unwilling or unable to move to a stronger form of collaboration as outlined below.

Franchise model. When I raise this as a possible model in the association world, the most common response is "We are not McDonald's." In fact, I believe it to be a promising alternative for associations. The franchise model rests on a clear, legally binding organizational ecosystem where a parent organization provides a brand, as well as marketing and other services, to franchisee organizations that are separately owned and operated in various locations with common, agreed-upon operational and resource-sharing models. Because in almost every case the national entity is the organization that has the bulk of the resources, intellectual capital, and brand recognition, it is my view that an adaptation of the franchise model for associations is possible, but I am unaware of any examples where this concept has been implemented.

Single corporate organization. Moving from a federation to a single corporate organization is by far the most complicated change to make, but it may yield the greatest benefits. One example is the American Diabetes Association, a nationwide voluntary health organization that also contains a multidisciplinary professional membership society. For decades, ADA consisted of a national organization and 52 independent affiliates. In 1998, after a strategic review and intensive consensus-building process, ADA's affiliates voted to become part of a combined national organization, with one overarching corporate structure, board, staff, and set of financial accounts.

Recently, a number of ADA board members told me that this was the most important change the organization had made in terms of fulfilling its mission over the past nearly 20 years. The change made it possible to optimize program and staff efforts to meet the needs of markets across the country, while gaining major efficiencies in back-office support systems. However, for many federations, the obstacles to this level of change make it politically impossible.

Seeking Alignment

The question of how to better align and integrate national associations with their respective local, state, or regional chapters is likely to continue to be a major challenge in virtually all federated association systems. Over time, competitive realities will increase the pressure on federation leaders and boards to address their shortcomings. The options described here are the major practical alternatives. When association leaders have a clear understanding of the challenges the federated model poses and the possible solutions, they will be well equipped to find the right alternative for their situation when the time for change arrives.