A Wake-Up Call for the Nonprofit Sector

Wednesday, August 19, 2015

Third Sector New England’s new report on leadership in the region, Essential Shifts for a Thriving Nonprofit Sector, based on responses from more than 1,200 executive directors, CEO’s and board members in the six New England states, is a wakeup call for our sector. We’ve been asleep at the switch for far too long, accepting as the norm a woefully inadequate leadership support infrastructure. And we’ve been slow to recognize the implications of the generational transition that’s already well underway.

The study’s key findings overall – that many nonprofit leaders are working long hours for very modest compensation, are frustrated with fundraising challenges, have few professional development opportunities and work for organizations that do little or no succession planning  – are noteworthy not just for the snapshot they offer of the state of nonprofit leadership in 2015, but because that picture has changed hardly at all over many years. Earlier studies by CompassPoint[i] and others have produced remarkably similar results. So why are these problems so persistent?

We know there’s a fundamental structural basis for many of these deficits: the nonprofit sector is dramatically undercapitalized compared to the business sector. There is a stark underinvestment in leadership development that undermines nonprofit leaders and the sector.

The reality of the sector’s undercapitalization becomes clear when we see that 49% of New England leaders say their organizations have 3 months or less of cash reserves, and 1 in 5 (21%) have one month or less. Two-thirds (67%) of leaders make $99,000 or less, and 1 in 5 (22%) make less than $50,000.

Fundraising, governance and staff development are core areas of challenge for New England’s nonprofit leaders. Leaders urgently want and need support in each of these areas, especially leaders who plan to leave their positions within two years, who say these supports might make them consider staying in their positions longer.

One consequence of this dearth of capital is that very little money goes into professional development and other supports[ii] for nonprofit leaders. Only half (54%) of leaders said their organizations budget for professional development of staff. But that’s not the whole story. The sector itself – and its primary funders – need to take more responsibility for allowing this situation to persist.

The fact that 88% of the leaders surveyed in our study report that they’re happy or very happy in their jobs despite the problems cited above offers some insight into this issue. They told us they feel appreciated, challenged and fulfilled by their mission-related work. They – and the staff they lead – are the sector’s most valuable assets but because they ask so little for themselves we have fallen into the trap of taking their commitment for granted.

Collectively we know these leaders will work harder for less money and with little support around them so we’ve consciously or unconsciously created a system that depends on their self-sacrifice for its sustainability. But with the impending wholesale generational transition to a leadership cohort centered on millennials, assumptions about leaders’ willingness to sacrifice financially, professionally and personally for the sake of organizational success and mission fulfillment may not hold up much longer. It’s not that millennials lack altruistic motivation – far from it – but rather that they may have different expectations than the boomers they’re starting to replace. We ignore the opportunity that this shift in leadership presents at our peril. If we fail to wake up to it soon, we’re in danger of seeing the pool of emerging; topnotch leadership and even entry-level talent available to nonprofits shrink drastically. Already innovative young people are being drawn in ever-increasing numbers to less restrictive organizational structures like LLC’s, B Corporations and other so-called ‘fourth sector’ entities.

The Leadership New England report should be a call to action. Nonprofit leaders deserve – and should demand – more support than they’ve been getting. The sector as a whole needs to advocate now for robust, long-term investment in leadership development. If we continue to deny the problem or procrastinate on solutions we run the risk of having to deal with a major crisis down the road.

That’s where intentionality, persistence and advocacy come into play, characteristics that are well developed in our sector. In addition to the recommendations in our report, the National Committee on Responsive Philanthropy’s excellent new report, Cultivating Nonprofit Leadership contains several thoughtful recommendations for strategies and actions and NCRP’s Criteria for Philanthropy at its Best includes guidelines that, if adopted widely, would generate substantially more funding for leadership development. I support those criteria and urge others to do so, including the recommendation that foundations pay out at least 6% of their assets annually in grants, replacing the 5% standard which many foundations now treat as a de facto ceiling despite the intention of Congress that it be a floor for payouts.

So let’s harness this opportunity to say good-bye to a system that is becoming unsustainable and give nonprofit leaders the support they deserve!

Leadership New England: Essential Shifts for a Thriving Nonprofit Sector is available online.

Jonathan Spack has over 30 years’ experience leading and consulting to nonprofit organizations. As Chief Executive Officer of Third Sector New England, he has guided the organization through several transitions, including its re-invention in the late 1990’s as a leading regional capacity-builder.

[i] Chiefly, Daring to Lead series of reports by CompassPoint Nonprofit Services (2001, 2006, and 2011) http://www.compasspoint.org
[ii] National Council for Responsive Philanthropy, Cultivating Nonprofit Leadership: A (Missed?) Philanthropic Opportunity, Page 10. “Leadership development funding comprised just 0.9 percent of total dollars granted and 0.8 percent of total grants.” The for-profit sector invests $129 per employee per year for leadership development; the civic/social sector invests $29.”