May 2006

Few factors affect the success of an organization—whether nonprofit or for-profit—more than its leadership. In this column, David E. Edell draws on his experience as co-founder and president of DRG Inc., an executive search firm working solely with charitable organizations, to examine the challenges the nonprofit sector faces in its search for strong leaders.

Unprepared for CEO Transitions: Where Will We Find the Next Generation of Nonprofit Executives?

Recent studies by CompassPoint with the Meyer Foundation and the Annie E. Casey Foundation looked carefully at the challenges of nonprofit executive leadership and CEO turnover. Both found that more that half of the CEOs who responded to their studies planned to leave their jobs within five years. DRG’s 2006 CEO survey found that 40 percent of nonprofit CEOs planned to leave their position within two years. If you add those who will have an “unplanned” departure for reasons of health or performance, the number of potential transitions in the sector is significant.

However, in DRG’s survey, 58 percent responded that neither their board nor executive team had discussed executive transition plans in the past two years. We hope the findings of these studies will change that. Our field needs to engage in considerable conversation and planning about transition and executive development in organizations and professional associations.

Equally disturbing were the findings about executive development. 84 percent of the CEOs responded that they consider themselves to be actively involved with internal staff development. Yet only 34 percent reported that their organization had any formal training programs for senior-level staff.

As search consultants who work exclusively with nonprofit boards on executive recruitment, we constantly hear their concern that the sector has not adequately prepared a next generation of nonprofit executive leaders. They fear that the organizations that they have helped to build have leadership challenges beyond the capabilities of “MSWs and social workers.” As they consider alternatives, boards ask recruiters to find prospective candidates among business executives, government officials, and other “celebrities” who might be interested in a change in workplace and compensation. The board’s expectations of the CEO focus on the ability to raise funds, attract influentials to the organization’s leadership, public relations savvy, and management skills. They seek executives with knowledge of their field and management experience coupled with “polished presentation and style”—often called charisma. Yet in the DRG survey, most CEOs believe that their organization will ultimately prefer to hire executives from nonprofits in the same field, other nonprofit organizations, or internal candidates. That confirms our experience that boards are interested in looking outside the field but hire from within.

In short, we have learned that that there will be considerable turnover at the executive level, that plans for executive transition are not discussed in most organizations, that nonprofit board members are concerned about where the next generation of executives will come from and that most organizations do not have executive training programs to prepare a next generation of leaders.

In my writings, I have encouraged nonprofit organizations to pay attention to the issues of recruiting and retaining executive talent. The best near-term solution for the imminent flurry of executive turnover is for organizations to begin to build a corps of talent within their organization and to provide opportunities for them have training and responsibilities that prepare them for executive leadership. Organizations can serve themselves and their fields well by “growing their own” future leadership.

In this area, nonprofit organizations can learn from the private sector. Retention activities are not focused solely on compensation, titles, and recognition. Rather they describe programs that identify small groups of talented executives with the potential for executive leadership. That group is publicly recognized and executive development programs for the group and its members are developed and tracked. The training may include courses, graduate education and coaching. More important, it must also give them assignments with responsibility in areas unique to executive management. That means work with board and board committees on program and policy development and strategic plans. It also means assignments related to finance and fundraising with major donors and foundations. We know that the ability to build trust with board members and to raise adequate funds are the two major measures that define nonprofit executives’ success or failure in the eyes of their board. Executive development programs must provide skill training, coaching, and work experience in these areas to ensure a trained pool of prospective leaders to fill the upcoming executive openings. We also know that talented executives will stay with organizations that recognize their abilities, invest in their growth, and show them career paths.

The message is clear. Unless boards and CEOs begin addressing leadership transition right away, they will find themselves scrambling and competing to recruit talented senior executives and to deal with the disruptions that these transitions can cause. With the growth of nonprofit management education, there are many resources available to enhance these programs and even funders interested in supporting executive development. These studies have identified the problem and waved the warning flag. There is concern about the issue. Now is a critical time for organizations to act in ways that enhance the pool of talent to lead the nonprofit sector in coming decades.

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