Should Nonprofits Run More Like a Business?

OVERVIEW
We all hear this statement all too often - "Nonprofits need to run more like a business." On its face, this statement is flawed but does reveal an underlying issue that presents nonprofits with an opportunity.

CONTEXT
The "like a business" (LIB) sentiment is born out of mounting expectations by individual donors, foundations and corporations that wish to see better outcomes and improved stewardship of gifts. And, while this notion is born out of real concerns, it does not mean organizations should run "as a business."

The thought leaders in our space share a common message: organizations can never let the bottom-line take precedence over the mission. However, it today's climate, the organizations that will survive, thrive and/or prosper will not be those that are run more LIB, but rather, those that focus on a high-level of organizational effectiveness.

This area is where nonprofits can take a page from the business book. And, while this in not a comprehensive list, following are some of the effective habits that can be developed:
- Succession planning for key leaders
- Clearly defined outcomes (tied to mission) that evidence effectiveness
- Sophisticated financial management
- Increased rigor around human capital including better hiring practices and nearer-term severance decisions for poor performers. This notion also includes putting the interests of the constituents served ahead of certain staff needs
- Enhanced executive acumen and organizational development

ACTION ITEM
While few organizations possess the internal resources to advance the above capabilities, that can be achieved through board development - specifically, properly staffed committees. With diligence and resolve, organizational effectiveness can be improved and an agency can meet the ultimate challenge - to "operate like a highly effective organization"!

The Mid-sized Nonprofit CFO

It's no coincidence that our firm has experienced a steady increase in CFO engagements with mid-sized nonprofits as of late.

In our view, it seems that three primary drivers are behind this trend:
1. Increasing complexity of the growing nonprofit organizations
2. Pressure from funders to properly manage finances
3. The realization what a 'true' CFO an do for an organization

INCREASING COMPLEXITY
Organizations that have experienced growth or increasing complexity will recognize that the individual leading finance may actually be an effective accounting manage and not a CFO caliber leader. This accounting manager skill set will often meet the needs of a static organization but these same skills are usually exposed as inadequate in the face of organizational evolution. In our view, while the distinctions between a finance/accounting manager and a CFO are many, the most important include the idea that the CFO will introduce:
- forecasting
- interpretation
- advisory
- proactive organizational work with the CEO and board rather than reactive finance work

PRESSURE FROM FUNDERS
Without question, one of the top complaints I hear from funding CEO's is that nonprofits do an inadequate job of managing organizational finances. This reality can harm the nonprofit in a number of ways including lost grants, poor foundation relations, donor concerns, etc.

REALIZATION OF CFO CAPABILITIES
Organizations have lived without sophisticated finance leadership for so long that they lack clear understanding of the benefits of having a true CFO. This misconception perpetuates the very behavior that can harm the organization.

SUMMARY
Growing organizations cannot reach true sustainability without proper internal finance leadership and those organizations that meet this challenge will best deliver on mission and serve their communities.

When Recruiting an Externally Focused Role - Remember the Constituencies

For many nonprofits, externally focused roles can be the most critical and typically include the CEO/Executive Director and also Development.

Too often, we see organizations make hiring mistakes in these areas because they fail to address a fundamental issue that seems obvious: has the leader demonstrated success with the specific external constituencies that are critical to your organization?

For example, we recently consulted with a board leader who was chagrined that her board had to terminate the organization's Executive Director after only 18 months. And, although the issue is certainly more complex than the following, we did quickly uncover that in the ED's prior post, his primary external constituents were foundations and corporations. He had a sterling reputation for being outcome-focused and highly professional. His references were impeccable and the interviews all went quite well.

So, what happened? Well, the board leader's organization also worked with foundations and corporations but its primary stakeholder base was the donor community. As it turns out, the ED struggled in this context because he lacked the cultivating skills required to promote true stewardship. To the donors, he came across as transactional and not capable of building deep and meaningful relationships.

I'm sure this ED will land squarely on his feet and once again succeed so long as his next organization is not specifically donor-centric. As for the board leader, she'll be debriefing her search committee on the concept that the next ED ought to demonstrate terrific donor relations capabilities.

Geoffrey Canada Speaks About Our Nation's Crisis

I've just returned from seeing Geoffrey Canada, President & CEO of Harlem Children's Zone give an impassioned talk to a riveted audience. If you ever have the occasion to see this great orator speak, don't miss out! I'm happy to share his thoughts as follows.

Canada began by stating that we have a crisis in our communities that we have never faced before...a crisis engulfing our youth. Canada fears our society is constructing a "pipeline" from the cradle to the prisons. One of many staggering statistics: approximately 580,000 African-American males are in our nation's state and federal prison compared with approximately 40,000 African-American males who receive bachelor's degrees each year.

Canada challenged us to do better and to be vigilant against the injustices in our systems and policies. He told of one such injustice that occurred in Rhode Island which, when facing a budget crisis, leveraged our youth in an attempt to balance the books. The state found that it cost approximately $39,000 per year to incarcerate an adult as compared to $98,000 per year to lock up a teen. So, in order to balance the state's budget, leadership chose to simply lower the age at which an offender can be tried as an adult from 18 to 17. Canada suggested we can do better for our youth than use them to balance our books!

Canada posed an interesting question in response to those who tell him that investing necessary dollars in our youth isn't scalable. For example, his program costs $3,500 per year per child to care for that child 10 hours a day for 11 months per year. He is regularly told that those costs aren't scalable and that he needs to lower his investment goals. Canada asks - how is it that society isn't willing to support a $3,500 per year investment but these same critics don't hesitate to question the scalability of $40,000 per year investment for those individuals who face incarceration. He asks - why is prevention not scalable but punishment is?? Canada also wonders why the U.S. incarcerates more people per ca pita than any nation on earth?

He urged us to consider longer school days and longer school years for our disadvantaged youth. He recognizes that if a poor kid is years behind - that child can never catch up in an eduction system that offers the same hours and months as the suburban schools.

Canada offered his 6 pillars of his philosophy for saving our youth:

1. Begin early - he starts by teaching parents at the moment of conception.
2. Continue programs that run through college
3. Engage parents as partners
4. Challenge school leadership
5. Communities have to become a support mechanism for kids
6. Educators and agencies have to be evaluated and accountable

In closing, Canada suggested that only we...only we, can save our kids - no one else is going to do it for us. In fact, when he has met with presidential administrations - they ask him 'what should we do'...incredulously, Canada pleas that these are the people leading the country and they don't know what they are doing with respect to our poor kids.

Canada left us with a stirring rendition of his poem "Take a Stand" - transcribed for you as follows:

TAKE A STAND
by Geoffrey Canada


Maybe before we didn't know,
That Corey is afraid to go
To school, the store, to rollerskate.
He cries a lot for a boy of eight.
But now we know each day it's true
That other girls and boys cry too.
They cry for us to lend a hand.
Time for us to take a stand.

And little Maria's window screens
Keeps out flies and other things.
But she knows to duck her head,
When she prays each night 'fore bed.
Because in the window comes some things
That shatter little children-dreams.
For some, the hourglass is out of sand.
Time for us to take a stand.

And Charlie's deepest, secret wishes,
Is someone to smother him with kisses
And squeeze and hug him tight, so tight,
While he pretends to put up a fight.
Or at least someone to be at home,
Who misses him, he's so alone.
Who allowed this child-forsaken land?
Look in the mirror, take a stand.

And on the Sabbath, when we pray,
To our God we often say,"
Oh Jesus, Mohammed, Abraham,
I come to better understand,
How to learn to love and give,
And live the life you taught to live.
In faith we must join hand in hand,
Suffer the children? Take a stand!

And tonight, some child will go to bed,
No food, no place to lay their head.
No hand to hold, no lap to sit,
To give slobbery kisses, from slobbery lips.
So you and I we must succeed
In this crusade, this holy deed,
To say to the children of this land:
Have hope. We're here. We Take A Stand

When Replacing a Long-Standing Executive Director - Don't Forget About the Exit Plan!

When a board succession plans for a departing, long-time Executive Director - most of the attention is focused on the recruitment and onboarding of the new leader...and rightly so. With that said, a critical (and almost always overlooked) component is the exit-plan of the outgoing leader. Following are two essential tips for you to consider:

1. Capture Institutional Knowledge
When any leader exits an organization - untold amounts of institutional wisdom and knowledge leaves as well. And while fresh leadership is often a positive - it can usually be optimized when key institutional knowledge can be retained. This information can include processes, professional networks & relationships, expertise, etc. If the exit is framed by advanced notice (such as a retirement), a multi-week plan to capture this wisdom can be advisable.

2. Set Terms of Exiting Leader's Continuing Involvement - or Lack Thereof
While most organizations make a clean separation with limited-to-no ongoing involvement - it can be advisable for the board to set clear expectations in advance. We occasionally see a retired leader continuing to participate despite the fact that it is a significant distraction and impediment to the new leader's onboarding. Even if a formality, it is a best practice to lay out the mutual expectations for the retiring leader.

A Nonprofit Leadership Edge - Install a President's Advisory Council

The President's Advisory Council (PAC) is a highly effective but rarely utilized tool that can accelerate development and enhance impact of the nonprofit leader.

What is a PAC and how is it different from a Board?
A PAC is an informal circle of mentors, advisers and friends that provide coaching, counsel and guidance to the nonprofit Executive Director. There is a significant distinction between the Board and a PAC. Boards are formalized, meet together and delivery governance for the organization. PACs are information, often meet as individuals and deliver personal & professional guidance to the Executive Director.

Do PACs conflict or compete with the Board?
PACs are not part of the nonprofit's organizational structure and work in harmony with board governance by providing guidance and counsel.

I have a few mentors, does that mean I have a PAC?
It depends - like a board possesses the necessary skills that can optimize an organization; a PAC must be composed of individuals who possess the particular talents that must be continually fostered in that particular nonprofit leader. For example, is one of your mentors able to coach you from a finance & accounting perspective?

How can a PAC make an impact?
The ways a PAC can optimize a nonprofit leader's performance and too numerous to identify here. One critical benefit provided by a PAC is the opportunity for the nonprofit leader to sound-board ideas and concepts before taking them to individual board members, to committee or to the board itself.

What are the steps to organizing a PAC?
1. Identify the talents you need to lead your organization
2. Take inventory of the assets possessed by your peers, mentors, former managers, etc.
3. Tap into individuals that will both mitigate your weaknesses but, arguably more importantly, leverage your strengths. If you identify a gap, network your way to an individual who might help.
4. Invite each individual to be part of your President's Advisory Council. Explain why you are forming the PAC, who else is participating and what that individual's role will be.

CEO Search Committee Debate - Who's on the Roster?

When a nonprofit organization faces a leadership change, it will typically form a search committee charged with optimizing the recruitment and transition process. Committee formation, however, is rarely without incident and must occur around the central question - Who Should Be on the Search Committee?

BOARD PARTICIPATION
The committee must be anchored by a strong chairperson - ideally a well respected board leader who is prepared to facilitate a process filled with challenge and debate from all spectrums of the organization.

In addition to chairperson, the search committee should also include:

• Current Board Chair
• Current Board Vice-Chair or whomever is anticipated to succeed the Board Chair
• Member(s) of the executive committee

STAFF PARTICIPATION?
In almost all cases, we do not advise including staff on the search committee with the exception of a trusted, senior staff person who will not interfere with the board's efforts. We are often surprised at how often organizations will include staff on a search committee - at a minimum resulting in frustration and too often resulting in regret.

WHO ELSE?
In instances where an organization has a long-standing partnership relationship with a funder, inclusion of that funder on the search committee can optimize the search process in several ways. Perhaps most significantly, funder participation furthers the relationship and enables the committee to evaluate the candidates from the all-too-critical funders' perspective.

WHAT ABOUT THE OUTGOING CEO/EXECUTIVE DIRECTOR?
Generally, we advise against the inclusion of the outgoing executive with certain exceptions wherein it is beneficial to involve the outgoing leader. However, it is often advisable for the outgoing leader to participate in certain elements of the process such as assisting with the needs assessment and position profile development.

TAKEAWAY
It's difficult for a search to succeed if the search committee isn't properly formed. Be certain to include members that will optimize the committee's ability to evaluate candidates along with expanding the networking reach of the committee.