succession planning

THOUSANDS OF NON-PROFIT EXECS READY TO RETIRE!!! (maybe…someday)

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For about 7 years now I have been paying attention to the basic concept of leadership transition in non-profits. At first there the conversation was about the lack of transition planning with dual concerns about “older executives” not trusting emerging leaders to take the reins and the perceived lack of work/life balance in the executive position.

About 4 years ago, the conversation didn’t focus as much about the old folks getting out of the way, (even though most of those who said they planned to retire hadn’t). There was still concerns about lack of both succession planning and opportunity for work-life balance.

Even more recently, it has been noted that the expected mass exodus of non-profit executives still hasn’t happened. There was still a concern about succession planning, though the need for boards to pursue good governance started to come into focus.

Last week Non-Profit Quarterly (NPQ) drew attention to a study of non-profits conducted by Third Sector New England that examined the issue of executive transition.  The study findings reflect further development of the trends seen in past studies.

Actually, the one finding that hasn’t changed is that “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.”

The report notes that number has been consistent for at least a decade and the expected exodus hasn’t occurred yet.

The way things are going, discussion about leadership dying off is going to eclipse comments about audiences dying off.

But per NPQ, there really isn’t a great push for current executives to move aside to allow new blood to take over. Partially because there isn’t a lot of new blood interested in taking over.

…the troubles in leadership transitions may be on the “demand” rather than the “supply side.” In other words, the challenge may not lie in the supply of competent emerging leaders, as has been heralded in the past, but with the attractiveness of the job of executive.

Whether  a result of a realization of this fact or a recognition of the larger issues at hand, the focus has shifted from a need for a succession plan to replace a single person to the need for a plan to sustain the organization as a whole. (my emphasis)

“SHIFT the framework for succession planning to deep sustainability.

“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 the core activities needed to support the success of the organization’s mission and its leaders over time.”

As part of the recognition that the success of the organization doesn’t revolve around identifying and hiring a single talented leader, the report also extends the concept of the importance of focusing on board governance.


SHIFT the vision for governance.

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. This shift will not only require a shared understanding of what is effective and impactful governance, it calls for a higher level of engagement and learning together between leaders and boards – changing what may be a transactional partnership into a generative and transformative one…

This will likely be an important step in making the role of executive director an attractive undertaking again. Per NPQ:

“Among the notable findings of this report is that approximately 23 percent of respondents reported being recruited into what was essentially a turnaround situation—slightly more than reported taking over a stable organization.”

Given only 22% reported taking over stable organizations, the other 78% were in iffy to dire circumstances. That takes a toll on the existing leadership and makes for unattractive prospects for potential leaders. The biggest concerns respondents had were focused on work-life balance and personal health factors.

There are other interesting findings and suggestions contained in the study. One significant area of recommendation is abandoning overhead ratio as a measure of effectiveness. Momentum seems to continue to grow around that issue.

Those Daring Leaders Of Non Profits

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A nod to our friends at the Non-Profit Law blog for noting that CompassPoint Non Profit Services and the Myer Foundation who teamed up three years ago to bring us the report I blogged on, Ready to Lead, studying trends in emerging leadership of non-profits, has come out with a new Daring To Lead, studying the status of non-profit executive directors.

The last time they studied this topic was 6 years ago, before the recession. Their new findings are worrisome in terms of the lack of succession planning but encouraging in respect to the amount of enthusiasm and lack of burn out the majority of executive directors feel in the face of the recession. Their three main findings deal with those topics: succession, the recession and executive director morale.

Finding 1
“Though slowed by the recession, projected rates of executive turnover remain high and many boards of directors are under-prepared to select and support new leaders.”

Due to the recession impacting their retirement plans, fewer executive directors left their positions than planned. A small percentage (9%) of respondents cited the lack of an appropriate successor as a reason for remaining. So while there hasn’t been as large an exodus as was once feared, little has been done to prepare for that eventuality.

“Executives and boards are still reluctant to talk proactively about succession and just 17% of organizations have a documented succession plan. Even more problematic is the extent to which many boards are unfamiliar with the dimensions of their executives’ roles and responsibilities. Just 33% of executives were very confident that their boards will hire the right successor when they leave. Performance management is a critical means of being in dialogue with an executive about success and its metrics, yet 45% of executives did not have a performance evaluation last year…Without consistent, meaningful engagement in what the job requires, many boards are under-prepared for their critical role in executive transition.”

The report also cites some numbers which indicate a series of mishires by boards and unclear expectations by boards and executives. One of the biggest challenges executive directors face is establishing an effective partnership with boards and getting the support they need in the early years of assuming the new role.

“It appears 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.”

Finding 2
The recession has amplified the chronic financial instability of many organizations, causing heightened anxiety and increased frustration with unsustainable financial models.

Hardly a surprise that many non-profit leaders are worried about whether their organization will continue to exist in these difficult economic times. Many executive directors reported having less than 3 months of cash reserves. According to the report, the common guideline is to have between 3 and 6 months. Many first year leaders are faced with the most daunting of situations.

“Thirty-two percent (32%) of executives in their first year on the job have less than one month of operating reserves; in other words, those on the steepest part of the learning curve often have the smallest margin for error.”

It it any wonder than that a listening tour by Building Movement in 2004 found a lot of prospective leaders in the next generation, while chomping for greater responsibility in their organizations, were reluctant to assume the executive position. (My post on their report here)

Finding 3
Despite the profound challenges of the role, nonprofit executives remain energized and resolved.

The very encouraging news in the face of all this.

“Forty-five percent (45%) reported being very happy in their jobs, and another 46% reported that they have more good days than bad in the role. Levels of burnout, especially given the economic climate, were low; 67% of leaders reported little or no burnout at all. In fact, leaders distinguished between burnout, which they associated with disengagement and ultimately leaving the job, and the realities of fatigue and elusive boundaries between their work and personal lives that go with the job. Forty-seven percent (47%) of executives reported having the work-life balance that’s right for them, while a significant minority (39%) said they did not.”

One of the biggest challenges executive directors reported they faced was human resource management. Attracting people, retaining them once they were trained and had skills to find better work and motivating those that stick around toward a unified organizational goal comprise a tough task for these leaders. There seemed to be a loose process of delegation and sharing of responsibility that didn’t approach formal mentoring.

“And a large majority (81%) reported having someone on staff that they trusted to make important organizational decisions without consulting them. Explicit executive mentoring of other staff was a relatively infrequent practice, with 31% of executives reporting being in an explicit mentoring relationship.”

The leaders themselves eke out a rough system of acquiring leadership training/mentoring/coaching/peer networking to improve their own skills.

Few executive leaders spend significant time interacting with boards of directors. 55% responded as spending less than 10 hours a month on board related activities which is at best 6% of their time. According to the report, other studies have found that executive directors who spend 20% of their time on board related activities are most satisfied. Most of those responding to the Daring to Lead survey were dissatisfied with their board relations.

As succession planning has been one of my favorite topics, you know I am going to suggest people should read the results. It is only 20 pages long. They make suggestions at the end about how to improve the overall situation. The general thrust of their advice is clear before you reach it–basically boards need to do a better job of succession planning and find ways to support and engage with the executive director more frequently and effectively.

One area that isn’t really covered in the body of the report but that is mentioned in the calls to action at the end is for funders to recognize the role they play in perpetuating the current situation and how their initiatives can move things in a more constructive direction.

What’s My Cue To Exit?

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David Dombrowsky, Executive Director of Center for Arts Management and Technology, retweeted an article from Inc magazine about exit strategies for non-profit entrepreneurs asking, “Can you think of arts examples?” Since the Inc piece is about entrepreneurs using their exits strategically to help their organizations grow/transition, my assumption is that Dombrowsky is asking if anyone can think of a person who has done so in the arts. I can’t.

I have covered the topic of succession planning or the lack thereof a number of times on this blog. Most arts organizations haven’t addressed the absence of a succession plan much less examined if that plan considers how to leverage the departure of the founder/executive director to their benefit. I will be honest and say that outside of signs of mental instability it never occurred to me that the departure of the founder could be cause of increased confidence. At best, a well executed transition could maintain existing confidence that might grow as a successor proved their mettle. At worst, a poorly handled transition (or complete absence of a plan) could be cause for alarm and unease.

Says Susi Soza in the Inc piece,

This leads up to the second reason why exits are so important: They signal to the market that an organization has reached a certain level of financial sustainability and scale. Exits are, by definition, big, and for a company founder to achieve an exit—whether by acquisition, a mezzanine round, or an IPO—that means it has achieved significant milestones in terms of revenue, profit, and market validation.

[…]

In the non-profit social entrepreneurship space the word exit appears like a misnomer. How can you have an exit for an organization with no owners?….

Non-profit social entrepreneurs would benefit from exits just as much as their for-profit peers. I believe more non-profit exits would actually attract additional capital to the non-profit space as it does in the for-profit space. Donors are persistently frustrated by fragmentation and duplication in the non-profit market, and I believe exits – whether by acquisition, merger, or even just closing down shop – would bring some welcome consolidation and efficiency that would provoke additional philanthropic investment.

Exits are also important for organizational realignment and revitalization. In the for-profit world, exits are often accompanied by changes in leadership team and business strategy. Unless businesses build exits into their lifecycles, non-profits rarely have catalytic events to spur these types of transitions. Furthermore, succession planning and transition beyond the founding social entrepreneur are often neglected because there are no unambiguous end points in sight. What if non-profit social entrepreneurs could aim toward an exit that came with a $50,000 bonus to do with what they wished?

While her observations are mainly directed at the social rather than arts sector, there is still a lot that is applicable. The comments about donors being frustrated by duplication of effort especially resonated with me. Partially because I am meeting this weekend to discuss governance of our booking consortium after we absorb our sister organization. But also because the idea that there are too many non-profit arts organizations conducting similar operations in the same geographic area is more frequently discussed these days.

I recognized her point that there are not too many widely recognized milestones against which non-profits and their supporters can measure organizational growth. With that in mind, a clear plan for recognizing transitional moments can be valuable. I also like the idea of working toward a $50,000 bonus. Something like putting $5,000 away annually for 10 years, but not adding to it if the leader stays past the agreed period might provide an incentive to move along.

Of course, that only works if everyone has been working toward grooming a successor. If they haven’t it becomes too easy to fall into the trap of deciding the current leader is the only one qualified to direct the course of the organization and extending their tenure and bonus.

But briefly back to Dombrowsky’s question. Are there any arts leaders who have done this? Even if it is only a handful, their example provides a template.