Philanthropy's Greatest Asset

Philanthropy's Greatest Asset

This article originally appears in the Council on Foundation's Foundation News & Commentary. September/October 2006 Vol. 47, No. 4 . Reprinted with permission.

by Kathleen P. Enright

I've seen the commercial a couple of times. Although I don't remember what it is advertising, the message is compelling and memorable. Two executives are touring a production facility and talking about competitive advantage. One executive asks, "What do we have that none of our competitors have?"

The other says, "Our systems are optimized."

The first responds, "Everyone's systems are optimized."

The other says, "Our supply chain is integrated."

The first, sounding irritated, responds, "Everyone's supply chain is integrated."

After a moment of contemplation, they pause and look at the people busily working around them. Finally, they say in unison, "Them." Their people are their competitive advantage.

The nonprofit sector is rapidly learning something that corporate America seems to already know. To echo James Carville's famous reminder about the economy during the 1992 Clinton campaign: It's the people, stupid.

Committed people are at the heart of every innovation and every bit of progress the nonprofit sector makes, yet we consistently and habitually neglect this most valuable asset. Doing so is especially risky for grantmakers, because every grantmaker's success is inextricably tied to that of the nonprofits it supports. In fact, grantmakers are only successful to the extent that nonprofits achieve meaningful results.

Several recent studies—including those conducted by Grantmakers for Effective Organizations (GEO), Bridgespan, and CompassPoint Nonprofit Services in partnership with the Eugene and Agnes E. Meyer Foundation—all underscore the same fundamental realities:

The nonprofit leadership gap is very real and there's every indication that it is widening.
Grantmakers may actually contribute to the problem.
Supporting nonprofit leadership capacity is in grantmakers' best interest.

Leadership is fundamental to organizational performance. If grantmakers are going to realize significant progress on intractable social issues, we must make building the capacity of committed people an explicit priority.

But this work isn't just about making grants for professional development, coaching or sabbaticals. Although supporting leaders directly is important, grantmakers can also make changes in their own work that improve the context in which nonprofit leaders operate. Every grantmaker has a role to play in finding solutions that are based on a sophisticated understanding of the problem.

Mind the Gap

Why is leadership especially important right now? Consider the highlights of two recent studies. One looks at the sector's future leadership needs at a systems level, and the other explores the satisfaction and tenure of current nonprofit executives.

Bridgespan Founder Tom Tierney looked at the anticipated leadership needs over the next decade at U.S. nonprofits with revenues greater than $250,000. He found that:

Supply of qualified leaders is constrained due to the retirement of baby boomers, executive burnout (described in more detail below) and uncompetitive salaries.
Demand is booming. The staggering annual nonprofit growth rate isn't slowing and, at the same time, the need for those with specialized skills (finance, fundraising and/or program development) is increasing.

Tierney concludes that nonprofits will need approximately 78,000 new leaders—meaning organizational leaders and their direct reports—each year beginning in 2016. That's 50 percent of the current number of MBAs graduating every year. Even if the estimate is high, the call to action is clear.

CompassPoint's Daring to Lead 2006, a study conducted in partnership with the Meyer foundation, looks at the tenure, satisfaction and compensation of current nonprofit executives. The results are eye-opening:

Nonprofit executives are dissatisfied. Every year 9 percent leave their jobs, and 75 percent expect to leave in the next five years. Two out of three executives believe they have made a significant financial sacrifice to work at a nonprofit.
Boards and institutional funders contribute to burnout. Executives feel taxed by their relationships with boards and grantmakers, many claiming that board members and grantmakers don't understand the executive's role.

Change What You Can

The first thing that grantmakers can do to help nonprofits achieve results in communities is to focus on what they have the power to change. The recent studies make it clear that grantmakers can contribute inadvertently to the problem of executive burnout at nonprofits.

Nonprofit executives choose their roles because they are passionate about the causes their organizations support, not because they particularly enjoy fundraising. Yet many executives spend most of their time on fundraising. When asked what they enjoyed least about their job in Daring to Lead 2006, fundraising was the top response. So anything that grantmakers can do to streamline or simplify this process would be met with gratitude from nonprofit leaders.

One reason nonprofit organizations under-invest in their people because they lack flexible, sustainable resources with which to invest in them appropriately. Philanthropy's reluctance to support administrative costs and to make multi-year commitments contributes to this chronic under-investment in staff retention and development. Because success hinges on having the right people in leadership roles, nonprofits must think strategically and systematically about leadership development. Philanthropy must provide the resources nonprofits need to invest in their people.

Some grantmakers are reflecting on their practices and finding ways to be more supportive of nonprofits. The California Wellness Foundation provides flexible resources by giving larger, longer-term, general operating support grants. Such support enables nonprofits to plan for and underwrite the environment necessary to attract and retain the best people.

Daring to Lead 2006 respondents said that providing more unrestricted support and providing more multi-year support were the top two things funders could do to better support them as leaders. Recent focus groups conducted by GEO with more than 100 nonprofit executives echo this sentiment. Grantmakers could significantly enhance their performance by providing more flexible and reliable dollars.

Grantmakers can have a positive effect on nonprofit leadership in a variety of ways. In addition to underwriting the resources necessary for nonprofits to prioritize attracting and retaining the right people to achieve meaningful results, more grantmakers are explicitly supporting leadership as a capacity-building strategy.

Invest in Leadership

During the past year, GEO has interviewed more than 40 grantmakers about their support of nonprofit leadership, and engaged in local workshops and dialogues with another 200 grantmakers. Many described an "aha moment" when they recognized that everything they intend to achieve in their grantmaking depends on nonprofit leadership.

Assessing leadership has long been part of the due diligence process. How often does a grant decision hinge on a program officer's confidence (or lack thereof) in the person at the helm? Grantmakers must do everything in their power to support nonprofit leaders and improve the context in which they do their work, because it's the only way that grantmakers succeed.

GEO's most recent member survey found that an increasing number of grantmakers are explicitly supporting leadership development as a means of building organizational performance. Innovative grantmakers are exploring what improves nonprofit leadership. Looking closely at the work of these pioneers, GEO developed a framework for investments in leadership that intend to build organizational strength. These investments are collective, continuous and contextual.

Collective approach. A collective approach sees leadership as the product of groups. Leadership can emerge from many places in an organization or community and may actually shift depending on the context. This approach works best to address complex, long-term problems that defy simple solutions. This form of leadership requires strong facilitation skills and the ability to create a culture that supports shared responsibility for results and innovation at all organizational levels. It also requires grantmakers to approach leadership development differently.

Recognizing the collective nature of nonprofit leadership, foundation investments in leadership must look beyond the executive director to the board and staff. The Jessie Ball duPont Fund made adjustments to its Nonprofit Executive Institute model to make its approach more collective. Two independent process evaluations conducted over several years resulted in the fund inviting three-person teams from each organization to attend the institute, rather than just the executive director. Teams include the CEO, a staff member and a board member, preferably the chair or incoming chair. Early results of the team approach to the duPont Fund's capacitybuilding work indicate that participating nonprofits see the benefits of a team approach. Having a team participate in the learning experience seems to embed new knowledge and new methodologies more deeply into the organizational structure and more often result in systemic change and organizational transformation.

In addition to developing the collective leadership capacities of grantee organizations, grantmakers must look carefully at systemic leadership issues. Some key questions to consider: What infrastructure is needed to support current leaders? How can we effectively create a pipeline of future leaders? The Annie E. Casey Foundation has supported ground-breaking work on executive leadership transitions, recognizing these junctures as critical periods of vulnerability for organizations. The foundation's efforts reach beyond the specific needs of their grantees to understand and address a systemic leadership issue confronting all nonprofits.

Continuous approach. Many grantmakers have noted that one-time workshops hold little value for efforts to bring about and sustain organizational change, unless they are part of an ongoing, multifaceted strategy to build leadership. As a result, grantmakers are increasingly designing leadership development initiatives that look beyond one-time events, with the hopes of having a long-term impact on the organization. This is one reason that executive coaching has gained prominence. Coaching provides ongoing support specific to the challenges and priorities that a particular executive is facing at his or her organization.

The Hartford Foundation for Public Giving couples learning events with a wide-ranging program of other capacity-building support. For example, the foundation's board development program offers two-part trainings for board members and executive directors, followed by a sufficient amount of free consulting to enable participants to implement a small project and begin to apply what they learned.

Contextual approach. Not only do efforts to build nonprofit leadership require ongoing effort and a collective approach, they must also be appropriate to the organization's context. As with all other forms of capacity building, a onesize- fits-all approach to leadership development will not work. A new executive director of an environmental start-up needs different support than does the long-time vice president of programs of a multimillion dollar arts organization. Leadership development cannot be positioned as one more requirement added to an executive's to-do list. If a foundation hopes to make a difference, it must tie its support to activities that help solve the real problems the nonprofit organization is facing.

Context was central when the James Irvine Foundation developed its Fund for Leadership Advancement. The foundation started its work by asking grantees what they needed and what would provide the greatest benefit to them, rather than beginning from the perspective of what the foundation could potentially provide.

What resulted is a fund that offers tailored support to executive directors in the context of their day-to-day jobs, including coaching, board facilitation, focused technical assistance and other expertise. The foundation provides an organizational development consultant to help executive directors construct a leadership development plan specific to their organization. The executive director's plan is then supported with a grant of between $15,000 and $75,000.

Back to Basics

The challenges facing the nonprofit sector are too great to be met without strong, consistent leadership. More and more, grantmakers and nonprofits are recognizing investment in leadership as crucial to strengthening organizational capacity and ultimately achieving broad community results. Those who expect results from nonprofit organizations should be willing to invest in the basics:

Supporting the people who do the work.
Supplying the tools and environment they need to succeed.

This requires grantmakers to take a close look at their own work. No matter where you start—by looking at success stories of individual organizations or of community transformations, all paths lead to the same conclusion: High-performing nonprofit leaders are philanthropy's greatest asset.

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Kathleen P. Enright is the executive director of Grantmakers for Effective Organizations in Washington, DC, a community of more than 600 funders working to maximize philanthropy's impact by advancing the effectiveness of grantmakers and their grantees. She can be reached at enright@geofunders.org.