Monthly Archives: July 2011

Are unsustainable financial models impeding nonprofit recovery?

Last week we described a new study exploring the impact of the recession on the predicted wave of nonprofit executive turnovers.  According to Daring to Lead, many nonprofit leaders held on to jobs they’d planned to leave before the financial crisis, but projected turnover remains high and few organizations are prepared to manage a leadership transition.

The problem is bigger than the position, says Daring to Lead. The authors warn that in addition to the looming leadership gap, we should be concerned with the endemic problem of unsustainable nonprofit financial models. The recession, they say, has shed light on an old problem: nonprofits hold up our country’s social safety net without adequate financing.

The study, which is focused on leadership and the experience of nonprofit executives, suggest there is a direct link between ED success and happiness and the financial state of their organizations. And given that the vast majority of nonprofits suffered major funding cuts in the recession, it’s no secret that anxiety and burnout are through the roof.

Sector leaders have long been calling attention to the problem, and Daring to Lead makes a point to connect its financial and leadership dimensions. With half of nonprofit leaders reporting less than three months of cash in reserve, how can we expect even the most talented among them to create impact and lead strategic growth? Chronic financial instability frustrates leaders and leaves organizations without the resources to “take risks, underwrite growth, or invest in their own capacity beyond what they can get existing funding streams to pay for.”

Unfortunately, Daring to Lead doesn’t explore alternatives to the unsustainable models the authors blame for burnout. But elsewhere in the sector, efforts are underway to demonstrate how “philanthropic equity” is needed to run sound businesses, grow to meet changing community demands, and invest in new programs and services.

The problem, say many in the field, is that under the current model, nonprofits are expected to operate without growth capital, making sound financial practices nearly impossible. The current system makes nonprofits supplicants to their funders, surviving year after year with minimal cash reserves and no capital to diversify and build their operations.

The Nonprofit Finance Fund (NFF) has long been at the helm of trying to shift perceptions about effective financial models.  Working with the Edna McConnell Clark and other foundations and partners, NFF is now piloting philanthropic equity projects that support nonprofits in running equity campaigns and creating more sustainable revenue models. To help support the equity model, NFF developed a new accounting methodology that tracks growth capital separately and doesn’t count it toward general revenue. As capital is used, the funds shift back into the revenue line, allowing money going to build the organization’s platform to be separately accounted for.

You can read about the model and NFF nonprofit equity projects in the NFF Capital Partners 2010 Performance Report, or learn more about how nonprofit leaders are coping with financial strain in Daring to Lead.

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Recession succession

Although the recent recession created a drag effect on the long-predicted wave of Executive Director turnovers, 67 percent of EDs say they anticipate leaving their jobs within five years and seven percent have already given notice.

Loss in retirement savings, a shrinking job market, organizational instability, and perceived lack of a successor are some of the key reasons EDs have held on to jobs they’d planned to leave before the financial crisis, according to a new study.

More than 3,000 executive directors participated in Daring to Lead 2011, a recently published study on nonprofit executive leadership produced by CompassPoint and the Meyer Foundation. The study focuses on the role and experience of EDs in the last few tumultuous years, and the implications of the generational handoff for the nonprofit sector.

Despite slowing with the recession, projected executive turnover rates remain high. According to the findings, most Boards of Directors are under-prepared to select and support new leaders.  Only 17 percent of organizations have a succession plan, a sign that leaders are reluctant to talk proactively and honestly about the future.

Even more problematically, say the authors, most Boards have little understanding of the complex roles and responsibilities of their EDs. They also don’t embrace performance measurement as a way of engagement.  Forty-five percent of EDs did not even have a performance review in the preceding year, and of those that did only a third describe it as very useful.

One-third of current EDs followed a leader who was fired, which the authors suggest demonstrates “the frequency of mishires and unclear expectations between boards and executives across the sector.” They also report that Boards fail to provide support after new EDs are hired. According to the surveys, newer EDs describe very low job satisfaction after an initial honeymoon period of about a year. “It appears,” say the authors, “that many boards see executive transition as ending with the hire, when in fact leaders—nearly all of whom are in the role for the first time—need intentional support and development as they build efficacy in the executive role.”

Ongoing Board involvement and support for new executives beyond the hire is one of the chief ways that Boards can help their organizations, especially when a new ED is brought into a financially unstable situation. What else does the sector need to effectively manage transitions?

  • Transition plans and emergency succession plans
  • Recognition by and financial support from funders for leadership transition
  • Increased Board commitment to fundraising, advocacy, and other means of increasing financial stability during a transition

We’ll bring you more findings on and recommendations for addressing chronic financial instability and unsustainable financial models from Daring to Lead in our next post. In the meantime, check out the site for briefs, data, and discussion forums.

LinkedIn for nonprofits

Many nonprofit professionals have joined LinkedIn for the usual reasons–we heard it was good for introductions, job searching, and researching colleagues.

But most of us don’t do more than fill out a brief profile and forget about it, until the next alert, the next request for an incoming “connection.”

A recent Best Practices Guide to LinkedIn for nonprofits describes services and features of interest and how it can be used as much more than a place to post our resumes.

For starters, did you know you can create a company page at no cost? More than 101,000 organizations have a LinkedIn page that they use to attract followers and communicate important and timely information about their work.

Once set up in the network, nonprofits can link to or start common interest groups. With the Groups feature, users host content, share resources, start discussions, and alert others to services, programs, and events. For example, the Nonprofit Technology Enterprise Network (NTEN) uses their Group to host content and agenda discussions related to its annual conference for presenters and attendees. When you start or join a LinkedIn Group, you can find news and discussions by topic, play an active role in discussions by commenting on content, and follow influential people and their group activity.

Another LinkedIn feature—the Skills page—can help nonprofits find and share information on professional expertise. For instance, nonprofits use the Skills page to find consultants or contractors with specific experience and knowledge. By searching for a skill, you can identify members with additional related skills, as well as Groups and discussion focused on those areas of expertise.

Active LinkedIn users are likely to use the Status feature to share information. With Status you can post articles, make announcements, recruit survey participants, market new programs, ask questions, etc. This is networking in the nonprofit sense–positioning your organization, building leadership in your network, engaging users in issues and causes.

The Best Practices Guide also describes numerous ways that nonprofits conduct hiring activities using the LinkedIn Jobs and Recruiter features. Jobs lets users post and circulate opportunities, and Recruiter enables users to put in parameters and run searches to find their own candidate lists. Many national organizations like Habitat for Humanity and the Sick Kids Foundation use the feature to recruit candidates, manage the application process, and coordinate internal hiring activities. Recruiter is also a handy tool for conducting Board searches.

The Career Page, a sub-feature of the Company Page, is another LinkedIn tool that many companies use for recruiting staff and volunteers. Members use the feature to develop targeted pages that can help candidates better understand the organization, its culture, recent direction, and career opportunities.

Check out the Best Practices Guide here. It’ll remind you  to revisit your own outdated or incomplete profile and inspire you to LinkIn your nonprofit.