Moving Beyond Business as Usual

Antony Bugg-Levine
by Antony Bugg-Levine
May 10th, 2012
 

When Nonprofit Finance Fund’s fourth annual State of the Sector Survey of nonprofit financial health came out a few weeks ago, I tried to convince a journalist about the urgency of covering the results. My pitch didn’t work.

“So you’re saying that nonprofits are facing a financial crisis. Well, that’s not news. They’re always complaining about not having enough money. What’s new?”

To be fair to the skeptical journalist, the results do seem to show that nonprofits in the US have returned to a pre-crisis level of crisis. Half report they felt financially stable in 2011. And while disappointing, perhaps it is not news that three-quarters of government-funding recipients report that their funding does not fully cover their costs. Or that payments are coming later and later while the bills keep piling up. We’ve come to expect nonprofits to find ways to keep their doors open despite seemingly-permanent financial stress.

So why our concern? After all, our society has become accustomed to expecting nonprofit organizations to survive rather than thrive. But put some of these survey findings alongside an understanding of likely economic and political trends in the next few years and it becomes clear that something quite different, and alarming, is happening.

We are seeing a structural shift in the burden being placed on nonprofit organizations. For the fourth year in a row, our survey reported rising demand for most organizations, with nine out of 10 “lifeline” services organizations reporting increased demand and as many anticipating even further increases in 2012.

Unfortunately most organizations are ill-prepared to handle this increased burden. Funding is not keeping up with increased demand. Federal stimulus money flowing through states in 2011 helped mask social service spending cuts that are going to bite in 2012 and likely get worse in ensuing years. Fewer than half the organizations surveyed report having more than three months of cash on hand to cover costs.

As funding gets cut and delayed, nonprofits are finding all sorts of ways to cope with continued economic pressure. They are making tough choices—to cut services, dip into cash reserves, delay payments to vendors. And they are acting in inspiring ways— drawing more on volunteers, working longer hours for the same pay, etc.

But these stopgap measures are as unsustainable as they are inspiring. They are not an adequate response to the bigger forces at play: decreasing government support and the unwillingness of many private foundations to evolve funding practices. If we want to ensure that critical services are delivered while we work toward securing a just and vibrant future for more people, we must rethink the way we fund solutions to our most pressing social problems.

Private funders are not going to be able to fill the entire gap left behind by retreating government commitments. But they could play a core role in strengthening many crucial organizations by offering the right type of flexible funding in a timely way. Following three simple principles could transform the contribution private funders make:

  1. Put the “profit” in nonprofit: Assuming that nonprofits should make do with breakeven operations earned on the backs of overworked staff is a miserly strategy in the best of times and a dangerous one in a period of long-term cut-backs. Funders need to encourage nonprofits to run structural surpluses to create cash reserves against future risks, rather than treating the presence of profit as evidence of mission drift. Nonprofits can only create surpluses if they get to run budgets that more than cover their costs. Funders should reward nonprofits that execute projects efficiently by letting them keep their profits to create operating reserves.
  2. Overcome the overhead ratio: Funders need to know how effectively an organization converts funding into outputs (and ultimately outcomes). But focusing on overhead ratios as the only proxy for efficiency has validated behavior that is making the sector more frail than it needs to be. Spending on people, infrastructure, systems, and information is not necessarily wasteful “overhead” but investment without which any organization will ultimately fail.
  3. Know yourself: Are you a “build” funder looking to help grantees build healthy organizations or a “buy” funder looking just to procure project outputs at the cheapest price? If you are a build funder then provide the type of flexible capital an organization needs to build a sustainable business model. At NFF we call this “philanthropic equity” or “change capital”—it’s not general operating support (that pays off structural deficits) but money an organization can invest in people, systems, or innovation that will ultimately allow it to cover its costs sustainably.

Yet funders are only part of the equation. Our Survey revealed that only one in five nonprofits feels comfortable discussing with their funders their basic financial conditions, such as operating reserves or facility finance plans. Contrast that with the 54% percent who feel comfortable talking about expanding programs.

This discomfort discussing basic financial health likely arises from two problems:

  1. too few nonprofits managers and foundation program officers have the skills and tools to understand and communicate an organization’s financial condition; and
  2. even when financial needs are clear, the power dynamics in the funder/grantee relationship prevent honest discussions about crucial financial needs.

In April, NFF partnered with GuideStar to tackle the first problem with the launch of Financial SCAN. This online platform allows anyone to quickly generate a report on the financial health of more than 240,000 US nonprofits, including charts of financial trends with descriptions of financial metrics that matter and a guide to interpreting them (all in layman’s English!). Financial SCAN gives funders and nonprofits a common language to discuss finances beyond project budgets.

User-friendly tools are a start. But funders have a particular obligation to lead discussions with grantees about their financial health, as power dynamics make it difficult for grantees to initiate these open discussions themselves. These conversations may force all of us out of our comfort zones, but falling back on business-as-usual assumptions and practices is only going to lead to the even more uncomfortable realities of what will happen as we stretch the social sector beyond the breaking point.

(Still skeptical like my journalist friend? Well, check it out for yourself. This year we built a user-friendly web interface to share our Survey results. You can easily filter the 4,607 responses by sub-sector, geography, or annual expense size by visiting NFF’s Survey Analyzer.)

Antony Bugg-Levine is CEO of Nonprofit Finance Fund. You can find him on Twitter @ABLImpact.

 

Posted inFunder/Grantee Relationships, Guest Author
Tags, , ,
Comments1 comment, most recent by Jean Butzen on May 16:
The "State of the Sector" surveys that NFF has done for the past 4 years are so important. I am also pleased to see that you are surveying nonprofits on their use of, and anticipated use of mergers or collaborations as a strategy for combating their...

Where Did All the Women Go? Leadership at the Big Foundations

Phil Buchanan
by Phil Buchanan
May 8th, 2012
 

At the Council on Foundations (COF) conference in Los Angeles last week, I received a number of comments about my blog post on the career trajectory of those who become CEOs at the 100 largest foundations. Many were struck by the tendency of foundation boards to go outside the foundation world to find leaders.

Several people asked me about the gender breakdown of the leaders of the largest 100. The question seemed to come from a perception that there’s still a glass ceiling at the big foundations, and a worry that the net was being cast in such a way that strong women candidates were being missed.

So we decided to take a look. (Note: I was also asked about racial diversity, but that’s a tougher one for us to investigate just based on public data because it’s not always self-evident on websites and in bios.)

At first glance, the data looks a little sobering, but not awful. My CEP colleague An-Li Herring and I count 33 women among the CEOs of 94 of the largest 100 foundations for which we could identify the CEO – or 35 percent.

But, when we look closer, the picture gets starker. The bigger the foundations, the less likely we are to find women running them.

  • Among the 48 of the top 50 foundations by asset size where we could identify the CEO, we see just 12 women CEOs – or 25 percent.
  • Among the 24 of the top 25 where we could identify the CEO, only four of the CEOs are women – or 16 percent.

Why the decline in the proportion of women leaders as the foundations get larger?

I don’t have the answer, of course. It’s puzzling, especially given that the overwhelming majority of foundation staff are women, according to COF.

COF’s data also shows, as our look at the largest 100 did, that the proportion of women CEOs declines as the foundations get larger. (The same trend of fewer women CEOs at larger organizations exists at operating nonprofits, according to a Guidestar survey. That survey found that just 16 percent of nonprofit organizations with operating budgets of $50 million or more have female CEOs.)

How can boards of the largest foundations change this dynamic? Two ideas:

First, do a better job of cultivating leaders and internal successors within foundations. There are many benefits of doing so. As I wrote in my last post:

I’d … argue that foundation board members that have reason – and data – to believe their foundation is operating effectively should make the cultivation of potential internal successors a high priority. If your foundation has clear goals, coherent strategies, is implementing those strategies well (and operating smoothly), and possesses data that suggests its strategies are working, then boards should look carefully internally.

Second, look more at candidates currently running other, smaller foundations. Today very few CEOs come from other foundations – we identified just seven at the largest 100 who came from a role at another foundation. Yet this data (as well as COF’s data) suggests that there are a lot of women leaders at foundations once you get past the top 50.

If boards take these steps, I would hope this picture would look quite different a decade from now.

Phil Buchanan is President of CEP.

 

Posted inAdministration, Data Point
Tags, , ,
Comments2 comments, most recent by Kathleen Enright on May 14:
Phil, I just wanted to say thank you for doing this data-based analysis and for your productive suggestions for foundation boards. I completely agree with and applaud your recommendations. I think all foundation boards would be well-served to give...

Effectiveness from Everywhere in the Org Chart

Stephen Sullivan
by Stephen Sullivan
May 3rd, 2012
 

It’s hard to leave the Emerging Practitioners in Philanthropy (EPIP) National Conference not feeling energized. Both because of demographics and because of demeanor, attendees always bring an enthusiasm and excitement to EPIP that is often missing at other philanthropy events. Young people new to the field are thrust, often for the first time, into a setting with no immediate support from a manager and asked to represent their organizations, either through a presentation or just in conversation. It is an opportunity to explore our own professional personalities, reflect on the prospects and challenges we face at this stage in our career, and, hopefully, spark new ideas to take back to our respective jobs. As a member of the steering committee for the Boston Chapter of EPIP, I was pleased to see all of that on offer again this year.

One of the special pleasures of an EPIP conference is the opportunity for emerging practitioners to interact with some of the more seasoned leaders in our sector. Those in attendance as speakers this year shared an obvious appreciation for the energy in the room. Over the course of our three days in Los Angeles, we heard repeatedly about both their amazement and pleasure at how Generation Y has pushed them to reimagine the rules and roles of philanthropy. While not abandoning the collective wisdom of their own experience, the foundation leaders we heard from expressed an eagerness to include fresh perspectives and consider new approaches in order to increase the impact of the field.

“Leadership does not come from an org chart,” said Dr. Robert Ross, President & CEO of The California Endowment.

As an organization focused on that intergenerational exchange of ideas, EPIP is in a unique position to help push the philanthropic sector forward. The organization is committed to recruiting and retaining top-tier talent, as well as aiding the growth of those already in the field through a series of professional development programs. That monitoring and supporting of talent throughout the social sector speaks to both young and old practitioners about promoting internal proficiency. In espousing effectiveness as one of their key tenets, EPIP hopes to raise the level of expertise of all practitioners.

As Phil Buchanan explored in a recent blog post, there is no standard route to navigate a long-term career to the top of philanthropy; those who spend decades in the sector are the exception, not the rule. But striving to become a traditional foundation CEO is beside the point. Junior staff would do well to heed the advice of Dr. John Jackson, President and CEO of The Schott Foundation for Public Education: “People aren’t called to positions; they are called to passions.”

Emerging practitioners who commit themselves to cultivating their passion through a professional approach to their work in philanthropy will be on their way to demonstrating leadership. That in turn will help redefine what those foundation leadership roles look like in the future. Knowing that EPIP is out there supporting this work is a blessing for all of us who care about effectiveness in philanthropy. It’s an honor to be a part of such a network.

Stephen Sullivan is Senior Coordinator of Communications and Programming at the Center for Effective Philanthropy.

Posted inProgramming and Communications
Tags, , , , ,
CommentsShare your comments

Data Point: Publicly Communicating Foundation Strategy

Ellie Buteau, PhD
by Ellie Buteau, PhD
May 1st, 2012
 

Although our research shows that foundation CEOs and program officers overwhelmingly believe that strategy is important for achieving impact, and most possess something they call a “strategy,” we have also learned that many are not using strategy as we define it. In our research, we classify foundation leaders as “more strategic” and “less strategic” based upon the extent to which they embody two defining elements: 1) an external orientation to their decision-making and 2) a hypothesized causal connection between the use of foundation resources and goal achievement.

When we conducted our Essentials of Foundation Strategy study, we sought to identify characteristics that differentiate the more strategic leaders from those who are less strategic. We gathered data from 102 CEOs and 89 program staff at private foundations with $100 million or more in assets. One of the differences we uncovered between more strategic and less strategic leaders was their practice in publicly communicating their strategy.

 

Of more strategic leaders, 81 percent report publishing their strategies on the foundation’s website, compared to 53 percent of less strategic leaders. Furthermore, almost 40 percent of the less strategic leaders reported not publicly communicating their “strategies” at all.

For those who are less strategic, this may not bode well for the perceptions of their grantees. In our analyses of tens of thousands of nonprofit grantees of foundations, we find that clear communication of foundation goals and strategies is a key element of funders being able to form strong relationships with their grantees.

* * * * * * * *

What separates more strategic foundation leaders from less strategic ones? To read CEP research that explores the state of strategy at private foundations and identifies behaviors and practices common to more strategic leaders, see the report Essentials of Foundation Strategy.

Ellie Buteau is Vice President – Research at the Center for Effective Philanthropy.

Posted inData Point, Programming and Communications
Tags, , ,
CommentsShare your comments

The Winding Path to Being a Foundation CEO

Phil Buchanan
by Phil Buchanan
April 25th, 2012
 

The annual Council on Foundations (COF) conference, which will kick off this weekend in Los Angeles, features an interesting new track for “aspiring” foundation CEOs. The sessions are designed, according to the COF website, for “those with more than five years of senior management experience who expect to be foundation CEOs in the next three to five years.”

I think it’s terrific that COF is seeking to cultivate future leaders in philanthropy – and taking on the issue so directly. I can think of few things more potentially significant for organized philanthropy than ensuring that the crop of future foundation CEOs is as strong as possible. Independent Sector has brought the issue of “next generation” leadership into the spotlight in recent years with its NGen Fellowship and related programming, while other organizations, such as GEO, have also focused on the issue. This spotlight on future leadership talent is welcome to anyone who cares about effectiveness.

But I wondered: Will anyone sign up, knowing that doing so signals to their colleagues their ambition to run the place? And, another question: Is cultivating the dreams of foundation staff to move to the corner office realistic or cruel – given that foundation boards often look outside their walls, and outside philanthropy, to fill the top job?

On my first question, we’ll see whether conference attendees show up for the “aspiring CEO” sessions (note: I learned yesterday that, in fact, a number have signed up) and whether, if they do, they sneak in through the side door to avoid being spotted by their colleagues. On the second question, I thought it was worth exploring the career trajectories of the current crop of CEOs of the 100 largest foundations – the very juiciest of the plum philanthropy jobs.

So I asked a CEP research analyst, An-Li Herring, to check it out. She reviewed the websites of the 100 largest foundations in the US, as listed by Foundation Center, and reviewed the biographies of CEOs for every foundation that provides one. She categorized CEOs on the basis of their immediate past position and here’s what she found:

  • The majority – 60 of the 100 CEOs – came from outside foundations.
  • Twenty-one were promoted internally – that is, their previous position was as an executive at the same foundation where they now work as CEO.
  • Seven came from another foundation – although, of those, four were CEOs of the foundations they came from (and three of those four had come to their first foundation CEO gig from outside philanthropy).
  • Four had past experience that could only be categorized as “other” from the available data.
  • Eight were unable to be categorized at all due to insufficient biographic information or lack of clarity regarding who serves as CEO.

So where did the 60 CEOs from outside the foundation world come from?

  • Twenty-seven had experience in the nonprofit sector broadly defined:
  1. Those who ran operating nonprofits (not including institutions of higher education) number 14.
  2. Those whose experience was in higher education, typically as a college president or dean, number 13.
  • Seventeen came directly from a role in business.
  • The remaining 16 CEOs who came from outside the world of organized philanthropy had positions in government, law, or other domains.

What does this all mean? I think it’s possible to draw a few conclusions from the data.

First, internal promotion to the CEO job at foundations is not that common … but it does happen. More programming like the COF sessions is a positive step, in that it can help those who might be thinking they aspire to the top job figure out how to develop in ways that will make them stronger candidates. But the data suggests that attendees at the COF sessions should keep their ambitions grounded in the reality that making it to the corner office is a long shot.

Second, foundation boards don’t much value experience at other foundations. Again, perhaps a focus on leadership development within philanthropy will change that, but moving from being a Vice President at Foundation A to CEO of Foundation B happens only very rarely (at least at the largest 100).

Third, experience as a grantee, if you exclude colleges and universities (which I’d argue are a different animal) isn’t much valued by most foundation boards when they’re searching for a CEO. It’s striking that there are more foundation CEOs who came to the position from a job in the corporate world than a job running a nonprofit (again, excluding colleges and universities).

The decision of who to hire is arguably the most important one a foundation board makes. For any given foundation, the right person might bring any of a wide range of relevant backgrounds to the role. Moreover, it probably serves foundations and the nonprofit sector to have CEOs of the largest foundations represent a diversity of experience. Just as some have raised alarms about too many foundation CEOs who are college presidents, or business types, I doubt anyone would want all the CEOs of the big foundations to be internal promotions – or even to come from the nonprofit sector.

All that said, I’d still argue that boards might want to prize operating nonprofit experience more highly than they apparently do. Leaders who have experienced the pressure to meet payroll with no endowment to fall back on, and have felt what it’s like to be on the other side of the table from foundations, bring something important. They come to the role with a hard-earned understanding of the challenges of doing the on-the-ground work foundations fund – and of what nonprofits really need from their funders.

I’d also argue that foundation board members that have reason – and data – to believe their foundation is operating effectively should make the cultivation of potential internal successors a high priority. If your foundation has clear goals, coherent strategies, is implementing those strategies well (and operating smoothly), and possesses data that suggests its strategies are working, then boards should look carefully internally.

Current CEOs can help, by making it their focus, too. After all, if they believe in the effectiveness of what they’re doing, and that belief is informed by hard data, then cultivating a successor to carry on the work is the right thing to do from an impact perspective.

A first step might be encouraging their eligible staff to attend the COF track for “aspiring CEOs” – or even paying for disguises so they can go incognito.

 

Phil Buchanan is President of CEP. Thanks to An-Li Herring for the research highlighted in this post.

 

Posted inAdministration, Data Point
Tags, , ,
Comments3 comments, most recent by Brenda Parkerson on Apr 29:
Hello Phil and Jason! What an interesting post and follow up comment. As some one who works in corporate development for non profits, they really highlight some fundamental differences between family and corporate foundations: family foundation boards...
« Older Entries