DRG Executive Search Consultants

 

New Section

M E M O

From: David E. Edell, President

Date: April 24, 2006

 

DRG is a national Executive Recruitment Firm working exclusively within the Nonprofit sector. Learn about DRG's services, resources, recruitment strategies and current search assignments at our website www.drgnyc.com

The Nonprofit Sector's Leadership Deficit.

By Thomas J. Tierney

Reprinted with permission, copyright 200, The Bridgespan Group. www.bridgespan.org,

Those of us close to the sector appreciate all too well the importance of building, nurturing, and retaining strong leadership teams. We understand, as Jim Collins noted in the February issue of Leadership Matters, that having the right people in the right roles in nonprofit organizations is critical to achieving social impact-and to having a well-functioning society.

Most would believe, and financial realities often dictate, that money is the resource in shortest supply; certainly government funding for social programs has decreased. Studies have shown that fund-raising occupies senior leaders more than almost any other activity. I know I need not convince you of this.

Although each of us has our own opinions as to where and how philanthropic dollars should be distributed, the fact is that, in total, contributions to U.S. nonprofits continue to climb. Americans continue to recognize the need to support nonprofit organizations, and we have dug deep to support our religious, cultural, social, and community institutions as well as organizations coping with disasters worldwide. Moreover, during the next decades, $6 trillion or more is likely to flow into the nonprofit sector, as boomers transfer their wealth to their children.

In addition, the sector itself is growing. The total number of nonprofit organizations has tripled over the past two decades. The number of organizations with revenues exceeding $250,000 has increased from 62,800 to 104,700 in the nine years from 1995 to 2004-an annual growth rate close to six percent. Almost 100 new nonprofits are formed each day.

This growth reflects many dynamics, including people's desire to contribute to society and the increasing transfer of responsibility from the government sector to nonprofits serving the public good. At the same time, another essential resource to the nonprofit sector is dwindling.

Last week, at the Grantmakers for Effective Organizations national conference in Atlanta, Georgia, I had the privilege of sharing "The Nonprofit Sector's Leadership Deficit," a Bridgespan Group white paper inspired in part by Bridgestar's work. We found that in 2006, U.S. nonprofits with revenues greater than $250,000* will need to add more than 56,000 new senior managers to their existing ranks. Cumulatively, over the decade from 2007 to 2016, they will need to attract and develop some 640,000 new senior leaders-or the equivalent of 2.4 times the number currently employed. Even if the sector were to experience significant consolidation and lower-than-forecast turnover rates, this number would likely fall only as low as 330,000. On the other hand, given historic trends, the total need could well increase to more than one million new senior leaders! Independent of financial resources, our sector is confronting a serious leadership resource shortfall.

The causes for this imminent crisis are complex. The growth of the sector plays a critical role, to be sure. Demographics are also key: The oldest of the baby boomers are just turning 60 and are preparing to step down from leadership positions in both the private and public sectors. Other studies indicate that in so-called normal times, an estimated 10 to 12 percent of U.S. nonprofits are experiencing leadership transitions. But now the annual retirement rate could climb by 15 percent or more by 2010. Who will step up into these roles?

The story told by demographics isn't exactly encouraging, because a much smaller cohort stands behind the baby boomers. From 2000 to 2020, the number of men and women ages 34 to 54 will grow by only three million. Moreover, very few nonprofits have the resources (or, as one colleague noted, the luxury) to develop leaders internally. Rather, as they have in the past, most will attempt to find solutions through personal networks. Many will be unsuccessful, however, especially as they find that existing networks are hard-pressed to surface candidates with the new skills and perspectives their organizations need. And the new needs are highly likely to occur, as government and donors increasingly call for greater accountability and enhanced results.

The scale of the sector's leadership crisis dwarfs any single organization's ability to respond. There are three difficult but critical imperatives that all of us must help to address:

  • 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." Boards must reinforce the importance of building high-quality management capacity. Philanthropy must deliver the operating support these efforts will require.
  • 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 a leadership deficit
  • Expand recruiting horizons and foster individual career mobility. Nonprofits traditionally tend to hire from a small circle of acquaintances. This 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. Equally important, we must reduce attrition. The sector needs to strengthen and expand its mechanisms for attracting and developing managers and for enabling talent to flow freely throughout the sector. Ensuring career mobility for up and coming leaders is essential to retaining our best performers.

The leadership deficit looms as the greatest challenge facing nonprofits over the next 10 years. As sector leaders we are all responsible, and we must all be part of the solution. We must press the philanthropic community to invest for the future. We must work with our boards, or if we serve as board members we must be fully cognizant of what is at stake and support capacity-building efforts. We have to be accountable for building high-quality leadership capacity, and we can neither settle for under-qualified candidates nor offer qualified candidates substandard compensation packages for the roles we need to fill. We must be certain that we have clear succession plans in place, and that we are developing younger leaders appropriately. Unless we address these issues and prevailing practices, the leadership deficit-with its debilitating consequences-will only widen.

# # #

Thomas J. Tierney is Chairman and Co-founder, The Bridgespan Group

Executive Search for Nonprofit Sector