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Jun 17, 2015 | Insights

Three Essential Shifts for the Nonprofit Sector

TSNE’s newly released report Leadership New England: Essential Shifts for a Thriving Nonprofit Sector, based on responses from more than 1,200 executive directors and board members from the six New England states, issues a wakeup call for the sector—and for funders. Based on the methodology developed by CompassPoint in the Daring to Lead surveys over the past decade, the study assesses the unique challenges nonprofits in the region are facing.

Over the past decade, we’ve read the literature about the nonprofit sector that is filled with alarming predictions about key trends that would negatively affect the sector’s effectiveness and resiliency. When the Great Recession hit, many of these predictions—the imminent departure of baby boomers, nonprofits closing or merging, and the sector crumbling—did not pan out. But the structural and systemic problems that these keys trends point to, have not gone away—and as baby boomers now begin to leave their organizations and a new generation of leaders steps up, we need to ask ourselves, are our organizations ready for the coming generational change?

As our report Leadership New England: Essential Shifts for a Thriving Nonprofit Sector shows, the sector’s success and impact continue to rely on unsustainable trends, including: overworked, underpaid leaders and staff; a never-ending fight to balance budgets and build stable organizations; a lack of investment in professional and leadership development and organizational infrastructure; and a continuing struggle to work out the optimal role for nonprofit boards.

These are not new challenges. Nonprofit leaders, foundations, and others talk and write about them regularly, and there are numerous examples of pioneering initiatives aimed squarely at helping nonprofits overcome these challenges. But solutions have been too few and far between and the sector’s resiliency is at its outer limit.

We recommend three fundamental shifts in thinking that, when scaled up across the sector, can impact organizations and their sustainability for the long haul.

#1 Shift the framework for succession planning to deep sustainability.

Nearly two-thirds of responding leaders said they will be leaving their jobs within five years, and 30% are planning to depart in the next two years. These statistics on New England leaders, which mirror national numbers published in CompassPoint’s Daring to Lead 2011 report, underscore the importance of supporting organizations to prepare for and manage leadership transitions more effectively. Calls for better succession planning across the sector have been issued again and again in countless reports, blogs, and other forums. Yet about six in ten New England leaders and board members say their organizations do not have succession plans.

It is time to change how the sector thinks about and approaches succession planning. Succession planning is not just about preparing for an individual leader transition; nor should it be viewed as a technical fix or a transactional exercise. Rather, it is about ensuring organizational sustainability by identifying and addressing key vulnerabilities so that the organization is not dependent on any one leader, funder, strategy, or way of thinking. Succession planning touches on everything from framing choices for the future (including asking whether the organization should exist), developing sustainable business models, to strengthening staff and board leadership—in essence, all of the core activities needed to support the success of the organization’s mission and its leaders over time.

#2 Shift the vision for governance.

Fundraising creates a cycle of frustration for nonprofit leaders—and it is a challenge that undermines the relationship between leaders and their boards. Respondents to the survey identified fundraising as a recurring pain point for their organizations. A majority of board members (54%) ranked fund development as the most challenging issue facing their organization’s leader. Similarly, 51% of leaders identified fund development as their most challenging issue. Only a slight majority of nonprofit leaders (56%) said they are satisfied or very satisfied with their board’s general performance and nearly a quarter of leaders are dissatisfied or very dissatisfied with their boards.

The expectations and responsibilities of boards need to shift in favor of governance over fundraising, and that means developing a shared vision for the organization, along with strategies to implement that vision, achieving operational excellence, and, yes, finding the resources to support the work. A short-term focus on fundraising undermines long-term sustainability and leads to continued dissatisfaction between leaders and their boards. 

#3 Shift the structural paradigm to robust investment in 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. Only half (54%) of leaders said their organizations budget for professional development of staff. In addition, only one-third of leaders and board members said their organizations have enough people who are ready to step into leadership roles when needed.

Nonprofits can run great programs, but in order for organizations to be healthy and sustainable in the long-term, leaders and funders alike need to face up to the realities of what it takes to lead and manage organizations—financial capital, leadership development, learning and innovation, and a well-compensated staff. Nonprofit overhead has long been the elephant in the room. The expectations placed on nonprofits and their leaders remain high, yet the core needs of nonprofits are often discounted with the outdated rationale and culture of thinking that low overhead = efficient and effective management. It is time for funders, nonprofits, and communities to support these high expectations by investing resources and, equally important, developing a culture that affirms the support of infrastructure and investments in leadership so that organizations can effectively fulfill their missions.

The sector is at a key moment in time as we are just beginning to experience the biggest generational shift in this country as boomers leave their leadership roles. The scale of this transition and change provides an opportunity for a reexamination of the structures and systems that are not sustainable and a possible major shift in mindset as we enter into a new time. Do we continue to rely on “here and there” solutions that benefit a handful of organizations and a system that chronically undercapitalizes the sector? Or do we once and for all embrace the need for fundamental change in how we support nonprofits and their people to build resilient and successful organizations for decades to come?

Hez G. Norton is the Director of Partnerships and Leadership Initiatives at TSNE in Boston, Massachusetts, and co-author of Leadership New England: Essential Shifts for a Thriving Nonprofit Sector. Prior to joining TSNE, Hez served as the executive director of Resource Generation and the North Carolina Lambda Youth Network. A Rockefeller Foundation Next Generation Leadership Fellow, Hez currently sits on the board of Funders for Gay and Lesbian Issues and is a co-creator and contributing editor to the book Classified: How to Stop Hiding Your Privilege and Use It for Social Change.