Nonprofit University Blog

This is a public health announcement: there is two-pronged epidemic of poor judgment—severe to extreme–affecting the nonprofit sector and it must act quickly to immunize itself.

Yes, I am sounding the alarm because nonprofit boards are risking the health, well-being, and in tough times we could even say survival, of the organizations they are shepherding by keeping their heads in the sand. No longer is the crisis of executive leadership turnover looming; it is already upon us.

And what are boards doing to address this? Most are not doing very much. According to the 2006-7 salary survey by The Nonprofit Times, only 27% of the boards of the nonprofits they surveyed have a succession plan. (Some say they are working on as part of their strategic plan.) As bad as that is, it is an improvement: in 2006, 82% of the respondents said they did not have a succession plan down to 72% in 2008. (And both percentages are far better than the 90% The Nonprofit Center found in its 2006 survey of executive directors. Which is to say that boards in the Delaware Valley are further behind the curve than the rest of the country and must have their heads buried deeper in the sand than most.) So, why aren’t most boards engaging in succession planning?

The data is out there: planned departures are going to happen and unexpected ones—for a variety of reasons—happen every day. Failure to plan means leaving the organization’s future to chance. Are there members of the board or staff who know all of the access codes and what the EIN number is? Who know when the grant reports are due and who the funding contacts are? Who know who the payroll service and insurance broker is? And all of the rest of the big and small things that all too frequently reside in the head of the executive director but are, each in its own way, equally central to the well-being of the organization? Headless organizations are, generally speaking, neither performing well for their clients and donors nor great places to work for the staff and volunteers. And yet, apparently the vast majority of boards are willing to take that risk with their organization. To not have a succession plan is, simply put, neither smart nor good stewardship. Epidemic number one.The second epidemic is how boards respond to first problem – the departure of the leader when there was no plan in place. After all too frequently burying their head in the sand, when the inevitable happens (and it is inevitable), the board scrambles instead of thinking strategically.

Thus, more often than not, it does one of two things, which brings us to epidemic number two: the board appoints an acting executive director either from within staff or from the board. And, if I may be blunt, that is pure stupidity! To do either is a board looking for the quick fix—and the least amount of work for themselves—rather than what is best for the organization. Not having given the appointment thought—what does the organization need during this transition period, what will it need going forward, what will the interim do when the permanent is hired (as the internal interim is unlikely to be the best permanent hire), the board looks for the lowest hanging fruit which is, more often than not, not the best candidate.The person in the role of executive director – whether there for a few months or years – is likely the most important hire for an organization. And as the board’s only hire, it should be sure and do it right.

Absolutely, a board should appoint an interim director while it takes the time to engage properly in the search for the permanent executive director. But the interim should be someone from outside the organization who is not eligible to apply for the permanent position. It should be someone who is uninvolved with the emotions of losing, for whatever reasons, the leader, and who has the experience with and understanding of what an organization is dealing with in times of change and transition. It should be someone who can clean house, if needed, say the tough things, if needed, be the cheerleader, if needed, and run the business, all while helping the organization move through the transition instead of stall in the transition.

It would be nice if complex problems had easy solutions, if we could always take the path of least resistance. But when it comes to replacing an executive director, that is rarely going to work out well. As a board member of a nonprofit, this could be the most important action you will ever take. So do it wisely and well.

Why is it that Americans always associate growth with good? (Except, of course, when it comes to personal weight growth, which most people generally perceive as bad.) The bigger the better, the more the merrier, etc. And the bigger something gets, the “more better” it is.

Well, I beg to differ. In recent years, the rate of growth in the nonprofit sector has outpaced that in the for profit sector. And people hail that as a great sign. Of what, I ask? Does this growth mean that nonprofits are providing better service? Does this mean that needs are being met in innovative ways? Does this mean that there are sufficient resources available to meet demand? Unfortunately, the answer is no.

In actuality, what this means is that individuals wishing to start a nonprofit are, by the very act of starting that nonprofit, not recognizing the first rule of building a sustainable nonprofit. They are not managing their wants like a business. They want to start a nonprofit. They are passionate about something—from abused children to the infirm, from education to the arts—and they want to act on that passion. They want to be the leaders of their invention. But the nonprofit sector is not about “me” but about others. And more often than not, the needs of others are going to be best served not by spawning another nonprofit but by taking the energy, passion, creativity, and time of that would-be-founder and applying it within an organization that already has the board, the infrastructure, the reputation, the access to funders, etc. But, in that there may be less glory—for the individual.

In some arenas, there probably is truth to the saying “divide and conquer.” But not in the nonprofit sector. It is far easier to start a nonprofit than it is to sustain one. In the end, it is a zero sum game when it comes to dollars, board members and other volunteers, staff, clients, supporters, etc. The more nonprofits there are, obviously, the less each of us might get. As history reveals, the weak are sustained longer than they should be, while the strong struggle with unnecessarily limited resources longer than they should. And while we dilute the resources, we risk diluting the impact on the very people we sought to help in the first place. If we want to maximize the good that those in the nonprofit sector say they want to achieve, if we want to maximize our strength to have that impact, then the sector should be shrinking, not growing.

 One of the joys of blogging is that there doesn’t have to be continuity post to post.  I, however, have to continue this theme from my last posting. 

This question of the extent to which nonprofits should be socially responsible not just through the charitable work that our organizations do but in how we execute that work continue to pound away at me. What I am about to report is no new disparity—and that is what makes it worse:  we’ve known about it forever, or so it seems.  Yet we are not taking corrective action, or at least not corrective action that is significant enough to be noticeable.  I’m talking about the differential in the pay between male and female executive directors, development directors and other senior staff, if not throughout the organization.  As an old (and yes, go ahead, read into that all you want and you will be right) feminist, I had hoped we were beyond that. 

But we are so clearly not.   The Nonprofit Center’s 2005 Wage and Benefit survey of the greater Philadelphia region revealed that, on average, male executive directors earned 42% more than their female counterparts.  To a certain extent, this may be due to the fact that females disproportionately lead smaller organizations.  But if this isn’t the pink collar effect, I don’t know is!  So, pointing to the size of the organization being led as the explanation of the difference in salary is simply reinforcing the problem. 

Will a 2008 survey reveal the same disparity?  The 2008 Nonprofit Times Salary Survey found that on average male executive directors earned just under $30,000 more than their female counterparts.  Recent research found parallel levels of disparity between male and female development directors, even when controlling for education and years of experience in the field.  This is what we who enjoy statistics would start seeing as not a random, chance occurrence, but some patterned effect producing this disparity. The answer to this situation is not that female current and aspiring executive directors or development directors should move to western Pennsylvania, or wherever the smallest differential exists.  Because even there, their contributions won’t be valued (to the extent that the size of our salary is a reflection of how we are valued by our organization) as they should be. 

The answer lies with boards being as socially responsible vis-à-vis their employees as they are vis-à-vis their clients.  The answer lies with boards taking control of this situation in a proactive and aggressive way that says loudly and clearly, “This isn’t responsible and we won’t allow it any more.” 

As a nonprofit, do we get to pick and choose when we will be socially conscious and when we won’t?  I never thought that being socially conscious was one of those concepts that was situational.  Isn’t it like being pregnant:  either you are or you aren’t?  But, a recent conversation made me wonder if others see as I do.  Is there a continuum of social responsibility that says we are more or less, depending upon the question being asked?

The recent conversation was about investment policies for those nonprofits savvy—and lucky–enough to have funds needing investing.  (As you can gather, my assumption is that, of course, any nonprofit with funds invested anywhere—a CD, the stock market, mutual funds, etc.–has codified investment policies.  Right?)  I asked this individual who has managed portfolios for foundations, among other nonprofits, how did socially responsibility influence his investment decisions?  To my surprise, he told me it didn’t.  His interest, he said, wasn’t in being socially responsible with his investments but ensuring that there was as much money as possible to distribute through the foundation’s funding process to charitable organizations.  If the average return from organizations on the Domini Index  of socially responsible companies is 12% versus 14% for those funds that don’t make the grade, isn’t it better to get the 2% greater return so the foundations have more to donate? 

But should we who work in the nonprofit sector, trying to make life better for everyone—from veterans and artists to the homeless and infirm—pay for our work with money made from companies whose products we don’t endorse? From companies who treat their personnel as we would never expect our clients or staff to be treated?  Do we have an obligation to say we will make up the 2% difference by working more effectively and efficiently rather than make the money from companies who conflict with our mission and core values?  Don’t we have a moral obligation to be as socially responsible with how we make our dollars as we are with how we spend them?

I know that there are many other scenarios I could raise where we as nonprofits face the question of just how socially responsible we will be.  Will we recycle?  Will we employ the ex-con or recovering drug addict?  But I’m not going there right now.  Right now I’m focused on this all important issue of social responsibility and the impact on our revenue. 

I am not a financial expert nor am I a Chicken Little, but if I pay attention to the financial chatter there is good reason to believe that we are on the verge of, if not in the beginning throes of, a recession. So, perhaps the sky is beginning to chip—or fall—depending upon who you are and what you’ve done since the last time we were at this precipice.

This isn’t the first recession we in the nonprofit sector will face, nor will it be the last. So, have we learned from the past?
Have we better prepared and insulated ourselves for this economic downturn? Have we diversified our revenue streams, and diversified within those streams? According to 2003 numbers from Bridgespan,  60% of the annual income produced by the nonprofit sector was earned dollars—the actual exchange of payment for services provided by a nonprofit. While I would love to assume that percentage has increased in the ensuing four years, I’ll settle for that 60-40 ratio. But do nonprofits have diversity within their earned revenue streams, so that if the recession means the backing off from some things, you can continue to count on income generated from others?

Have boards gotten the message that they need to be active players in the fundraising efforts of their organizations? And not equating fundraising solely with the writing of grants and going after corporate sponsorships dollars—all things that boards perceive as best done by staff, if they are lucky enough to have that development staff? Or, have boards been resting on the assumption that the government has always funded us or Foundation X has always funded us? Have we been cultivating an individual donor following?

Have we remembered that we always need to protect and nurture our core competencies, even as we chase dollars? Because when the times get tough, as we know they always will, the mantra that gets chanted is, “Remember your mission! Play to your strengths!” In other words, don’t ever betray your core competencies as you always, need them.

Have we done a good job of developing, nurturing and rewarding the dedicated and hard working staff members who will, when times get tough, be the ones on whom we will need to depend to stay loyal—to our organization, our customers and our donors—so that we can deliver on our mission promise? After all, it is during tough times that many of the nonprofit sector’s services are needed more than ever. So, we are, as we all know, working harder with less for more clients. We don’t need to be trying to recruit, hire and train new staff when we are working on delivering our mission at warp speed. We need to have our skilled and accomplished, loyal and well rewarded staff committed to staying on.

So, have we learned and are we ready to face this impending period of tough times with the capacity to survive and come out the other end ready to flourish?