A recently released McKinsey & Company study highlights few surprises about boards and management of small and medium nonprofits. My opinion: of course! Why should nonprofits be that different than their counterpart for-profit small businesses in their limited ability to build their bench strengths (they don't really have much of a bench after all) or make long-term investments (when they have so little financial resources to invest). But, because this is one of those big self-acclaimed "thought-leaders" it is necessary to determine if there are any kernels that may be helpful while asking the question "why does McKinsey & Company care?" given that the folks they surveyed don't have enough resources to pay the fees these folks charge. But I guess that's a question for a different article.
In his blog, Dr. Fram offers his analysis of McKinsey's findings. I offered a few thoughts along the article.
CAN NONPROFIT BOARDS AFFORD TO UNDERINVEST IN MANAGEMENT LEADERSHIP DEVELOPMENT?
Can Nonprofit Boards Afford To Underinvest In Management Leadership Development?
By: Eugene Fram: Free Digital Image
McKinsey & Company has published a substantial nonprofit study: To better understand the state of (nonprofit) leadership in the US social sector… The findings suggest that chronic underinvestment in (management) leadership development for 337,000 small or midsize nonprofits,..(may risk) the sector’s capabilities to fulfill emerging missions effectively and to adapt to fast-changing demands.
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 themselves with talented teams, (3) collaboration, (4) ability to manage outcomes.” Those responding also want ability to participate in cross-sector networks, time to experiment or take a sabbatical. Uh, sure - innovating is a really big agenda for the smalls and mediums :), uh, after survival and just getting programs out there.
They also suggested … “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. Uh...
Nonprofit board member interviewees were not included in the study.(BUT THEY OFTEN ARE THE KEY PLAYERS ESPECIALLY IN THE SMALLS). 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 the following comments can be classified as focusing on small or mid-sized nonprofits.
• 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 2017 BoardSource data, nonprofit CEOs gave their boards a B- grades for adopting/following a strategic plan and for monitoring performance against a strategic plan. Yes, and wouldn't be great if the Congress and Military had more strategic perspectives?
• 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 impacts can be difficult. Again, didn't even talk to the boards - maybe its the managers who are conservative.
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 for 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. Nonprofit boards, like their for-profit peers, need to develop “alumni groups” for termed-out board members. (https://onlinelibrary.wiley.com/doi/epdf/10.1002/ltl.20305). This is two distinct matters. Yes, tenures do tend to be six years in length if not longer but that's at least one strategic planning period - not really that connected to being more short-term focused but may contribute. What to do about former board members is another subject altogether and yes, they could be utilized but that requires resources.
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 senior 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 the estimated 1%, 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, the pandemic impacts 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 nonprofit missions effectively and to adapt to fast-changing nonprofit demands.” Now THIS is an interesting conclusion. An alternative conclusion: this is generally a story of failure - for the smalls that just don't grow - that's on them given that foundations like to invest in concepts and finding the solutions but not the long-run - they aren't supposed to be the sustainability strategy. Foundations should continue in my opinion play this role of supporting innovation (and now we are back to the beginning of the story) - if the community then sees a solution has been born, individuals or corporations (unlikely) or the government can be the long-term source of support. McKinsey has this backwards.