Can Nonprofit Boards Afford To Underinvest In Management Leadership Development?

Can Nonprofit Boards Afford To Underinvest In Management Leadership Development?

By: Eugene Fram:

McKinsey & Company has just issued the results of a substantial study: To better understand the state of (nonprofit) leadership in the US social sector… The findings suggest that chronic underinvestment in (management) leadership development…(may risk) the sector’s capabilities to fulfill emerging missions effectively and to adapt to fast-changing demands.
(http://www.mckinsey.com/insights/social_sector/what_social_sector_leaders_need_to_succeed)
Results from the study show that nonprofit managers need to improve their own and their peers’ strengths in “(1) ability to innovate, (2) ability to surround selves with talented teams, (3) collaboration, (4) ability to manage outcomes.” For themselves, they want ability to participate in cross-sector networks, time to experiment or take a sabbatical.

They also want. … “more support, structure and supervision for emerging managers under their direction to take on significant challenges and more opportunities for mentorship of younger executives.” Management leadership development, as opposed to training, involves the potential for mission enhancement and organizational effectiveness, among other desirable outcomes and/or impacts.

Nonprofit board member interviewees were not included in the study. Obviously boards would need to approve the budgets to achieve these objectives. But boards have some major cultural restraints. Based on my experiences, the boards represented by my comments can be classified as small or mid-sized. *

Boards Need More Strategic Perspectives: The McKinsey study estimates “…that more systematic focus on, and investment in (management) leadership in the social sector could pay off (long-term) in more effective delivery of social interventions.”

According to the latest available 2014 data, nonprofit CEOs gave their boards a B- grade in developing strategy. In quantitative terms, in 2012, 40% of the CEOs gave their boards grades C, D & F grades for their strategy efforts. (https://www.boardsource.org/eweb/dynamicpage.aspx?webcode=LeadingwithIntent)

Nonprofit Boards Are Conservative In Many Ways: When it comes to investment in assets, programs or leadership boards often look to the bylaws for guidance. They determine that they are often required to maintain the organization’s assets. Investment in management leadership development does not provide an immediate return to meet this standard. ROI may even be hard to judge after substantial investment and time because judging qualitative behavioral outcomes can be difficult.

Examples Of Conservative Boards
A faith-based nonprofit wanted to hire a program development director but didn’t want to risk one year’s salary in the event the person didn’t perform well. The board applied for a grant from another faith-charity to hire her. She performed extremely well from the outset!

I recently encountered a very able CEO, managing an operating budget in excess of $10 million, who wanted support to attend some conferences to keep his skills current. All the board would allocate was about $700 to attend some local university lectures.

Board Rotations Won’t Help The Management Leadership Cause: Normally nonprofit board members have tenures ranging from two to six years. Many may be dedicated to the organization but are not long-term oriented. Without a continuing meaningful involvement in the nonprofit after meeting their board obligations, their interests move elsewhere.

Addressing The Management Leadership Deficit

CEOs, in my opinion, have an obligation to develop relationships with their board members, to make certain that board members view their board experiences as meaningful ones. Perhaps over time, some CEOs can develop an informal management leadership advisory group composed of current and former board members. This new group can help him/h or successors to keep the management leadership development issue in front of the board and prospective donors. It will also be useful to generate funds and to develop networking partnership opportunities, for both incumbent seniors executives and emerging managers.

Foundation support is critical. Large foundations, like Ford and Gates, have been supportive of management leadership development, at about a $50 million level annually for about 20 years. ** But a consortium of foundations needs to be established with the mission of moving annual total US foundation investment in nonprofit management leadership development beyond 1%, the current level. This can’t happen overnight.

Implications:

The McKinsey report has highlighted a significant problem for 337,000 small and mid-sized public charity organizations in terms of management leadership development for current and future nonprofit executives. It seems current management leadership can do little for itself, given the financial pressures it faces and the short-term orientations of the boards with which it must interact. Without additional support by a consortium of large foundations to alleviate the gap involved, about one-third of all public charities will not have the capabilities to fulfill emerging missions effectively and to adapt to fast-changing demands.”

* As shown in the McKinsey report, in 2013 there were about 1 million public charities, including registered congregations in the United States. About one-third were non-reporting, with less than $25,000 in gross receipts. Another 372,000 reported their total assets for 2012. Ninety percent of the organizations in this group (337,000) has assets of less than $5 million. This substantial proportion can be estimated to be small to mid-sized nonprofits, about one-third of the one million public, (501(C)(3), charities. (http://nccsdataweb.urban.org/)

** About $150 annually for each of the 337,000 needing management leadership development.

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