The Nonprofit Leadership Deficit

The Nonprofit Leadership Deficit: The Case for Nonprofit Training and Retaining

The following is an excerpt from a sobering report from The Bridgespan Group on the coming nonprofit leadership deficit over the next decade.  The bottom line projection is that nearly 80,000 new senior managers will be needed in the nonprofit sector by 2016. 

If raising funds for programs in these tough economic times is not challenge enough, the task of re-educating donors, boards and fundraising professionals on the need to invest more in attracting, retaining and training current and future leadership (a.ka. overhead) is one of the underlying conclusions of this report.

“The leadership deficit looms as the

greatest challenge facing nonprofits

over the next ten years.”

                                              Thomas J. Tierney

Except from the Executive Summary Report “The Bridgespan Group recently carried out an extensive study of the leadership requirements of nonprofits with revenues greater than $250,000 (excluding hospitals and institutions of higher education). We found that:

·         Over the next decade, these organizations will need to attract and develop some 640,000 new senior managers—the equivalent of 2.4 times the number currently employed.

·         If the sector were to experience significant consolidation and lower-than forecast turnover rates, this number might fall as low as 330,000. On the other hand, given historic trends, the total need could well increase to more than one million.

·         By 2016, these organizations will need almost 80,000 new senior managers per year.”

“The projected leadership deficit results from both constrained supply and increasing demand. The key factors include the growing number of nonprofit organizations, the retirement of managers from the vast baby-boomer generation, movement of existing nonprofit managers into different roles within or outside the sector, and the growth in the size of nonprofits.”

“Addressing the leadership deficit requires, first and foremost, that all participants in the nonprofit sector—from boards and current managers to foundations and individual and corporate donors—recognize the enormity of the problem and make it a top priority. Three difficult but critical imperatives will need to be addressed:

• Invest in leadership capacity. Skilled management is the single most important determinant of organizational success. Nonprofits must invest in building skilled management teams—even if that means directing a greater proportion of funding to overhead. Philanthropy must deliver the operating support required, and boards must reinforce the importance of building management capacity and quality.

• Refine management rewards to retain and attract top talent. To recruit more and better leaders, organizations will have to structure more competitive management packages, particularly in light of the push to hold managers to higher performance standards. The greatest rewards of nonprofit careers will always be intangible, but more attractive compensation is critical in times of labor shortages.

• Expand recruiting horizons and foster individual career mobility.

Nonprofits traditionally tend to hire from a small circle of acquaintances. That practice is no longer sustainable. Recruitment efforts will need to expand to new pools of potential leadership talent, including baby-boomers who wish to continue working, mid-life career changers seeking greater social impact, and the young. At the same time, the sector will need to strengthen and expand its mechanisms for attracting and developing managers and enabling talent to flow freely throughout the sector.

The leadership deficit looms as the greatest challenge facing nonprofits over the next ten years. We can use our unprecedented wealth to strengthen the sector’s capacity to meet society’s escalating demands; or we can allow its leadership deficit—with its debilitating consequences—to widen. We are at a crossroads. The choice is ours.”

Commentary from Geoffrey Canada, President and CEO of Harlem Children’s Zone, Inc.

A number of successful nonprofit leaders responded to this wake-up call including Geoffrey Canada, President and CEO of Harlem Children’s Zone, Inc.  Mr. Canada understands what it takes to plan for the future and make difficult decisions to ensure you get there. 

Concerning the leadership deficit he says, “We will have to go out of our way to provide (young talented program people) with opportunities and experiences that they would not organically get in their present positions. We need to expose them to areas such as development, budgeting and working with trustees; and to provide workshops where they can begin to stretch their skill set.”

View the entire report, The Nonprofit Sector's Leadership Deficit, and all commentaries.

Posted by Kathy Sullivan, CFRE, ESCH Consultant

Administrative Costs Can Be the Worst Way to Judge a Charity

Administrative Costs can be the worst way to judge a charity

Though low administrative costs could indicate prudence and sound judgment at a charity, it could just as easily indicate inadequate staffing, insufficient salaries or, shall we say, fudging.

Donating to charity is a worthy action. But which charity? Would it surprise you to know that the criterion that is most often used to decide that question is also the most unreliable? Would it surprise you more to know that many charities are aware of how flawed the criterion is and play it like a violin?

A few months ago a friend of mine who runs an international relief agency phoned me complaining about another charity.

"Do you know what they're doing?" he fumed. "They're buying medicine in Canada for 10 cents a pill and booking the American retail cost of the medicine as an in-kind contribution. Do you know the retail value? Seven bucks a pill. They're padding their in-kind contributions by millions of dollars."

I hung up a little perplexed at first. It wasn't like the organization was buying pills for a dime and selling them for $7; it was were giving them away. Outside of inflating their donations for bragging rights, I couldn't see the harm. Then it hit me.

I went to the organization's website and there it was, one click off the home page: Nearly 90% of its donations in 2011 went directly to the group's programs. Its administrative costs? Just 5% of the budget. But if the agency was inflating in-kind contributions, it could hike the value of its donations to make its administrative costs seem smaller.

Why would it do that? Because low administrative costs are the holy grail in judging how well a nonprofit does its work. It's not the only thing responsible raters look at, but it's the shorthand. The best of the best in one Top 20 list last year, for example, was a charity that spent nothing, nada — 0.0%, as the list put it — on administration. Too bad that, as a measure of value, low administrative costs are unscientific and meaningless.

Don't get me wrong. Low administrative costs could indicate prudence and sound judgment at a charity, but they could just as easily indicate inadequate staffing, insufficient salaries or, shall we say, fudging. Moreover, administrative costs aren't the primary measurement of for-profit excellence. Are McDonald's admin costs lower than Wendy's? Apple's lower than Microsoft's?

Why then do we continue to buy such a boneheaded yardstick to measure nonprofit organizations?

Daniel Kahneman, the Nobel Prize-winning economist, in his brilliant new book "Thinking Fast and Slow," calls it substitution. Each of us, Kahneman writes, has in effect two systems of thinking — an intuitive system that we rely on for quick answers, hunches and gut reactions, and a rational, statistics-driven intellectual system. As superior as the rational system may seem, it has a flaw: It's lazy, and it will defer to the intuitive system whenever it can, especially if the intuitive answer comes cloaked in seemingly scientific justification.

On top of that, our intuitive thinking system also hates hard work, Kahneman says, and if figuring out the answer to a problem is too difficult or complex, we often simply substitute a different, easier answer for the hard work, and we may not even be aware we are doing so.

It is really hard to judge the merits of most nonprofit organizations programmatically. Are people smarter, healthier, do they drive better, get fewer divorces or smoke less as a direct result of a nonprofit organization's intervention? These are the questions we should be asking, and there are many who are trying to do just that every day, internally in nonprofits and in universities and research centers across the country.

But our intuitive thinking system wants an answer now, and because we are intuitively inclined to believe that the nonprofit sector is filled with soft, amateurish executives, we latch on to the pseudo-science of administrative costs as a measure of excellence. It's hogwash; there is absolutely no way of telling that an organization with 5% administrative costs is superior to one with 20% costs based on that criterion alone. In fact, the exact opposite may be true.

Using administrative overhead as a mark of excellence will be a hard habit to break, however. According to the National Center for Charitable Statistics: "For better or worse, the percentage of total expenses going to program costs is the most common measure of nonprofit organizational efficiency. Focus group research has found that donors expect worthy organizations to have low fundraising and administrative costs. Consequently, nonprofits frequently tout their low overhead ratios in their mailings to the donors." Or on their websites.

There are a lot of great reasons to donate to a charity — competent staff, involved and committed board and volunteers, a well-defined and engaged constituency, and a track record of past success. When you find the right nonprofit, honor it with your time and treasure. But let's bury the substitute easy answer of administrative costs. That's no way to choose a charity.

Jack Shakely, President emeritus of the California Community Foundation 

April 30,2012