By Mark Oppenheim
Succession Planning & Management is the process of reducing risk to organizations during leadership transitions. Part 1 of this series describes and draws some contrasts between succession planning for business and nonprofit entities. This article is about certain practical steps that nonprofit leaders can take as they plan leadership transitions.
____
Staff and board transitions can advance or threaten a nonprofit’s public benefit mission and financial strength. The central challenge of replacing a chief executive or senior team member is budgeting transition costs. Such costs can be substantial.
Time Costs of Transitioning Key Staff
The time required to replace a nonprofit leader is deceptively high.
In an ideal scenario, time required for a leadership transition can be minimized by having an already identified insider successor who is unanimously embraced by a nonprofit’s board, constituents, funders and staff. This kind of situation is exceedingly rare because most nonprofits don’t have the required management depth on the board or staff, and accomplished outsiders who have served other organizations can bring significant advantages to nonprofits. That said, such insider succession does happen and we regularly support organizations through such change by helping boards to recruit insiders to new positions and then back-filling vacated roles.
A more typical succession approach is to run a search for successor executives with skillsets specifically aligned to the strategies and operating objectives of a nonprofit. A well executed search brings to the table a number of great candidates, each with their claimed accomplishments researched and verified. The time cost of such an effort includes: selection of a search firm, development of materials for the search and source lists, outreach to identify and gather intelligence on candidates, interviews leading to selection, initial onboarding and introduction of the new leader to diverse constituents, and then months of adjustment across the organization to the new leader, their style and strategies.
Transition to full productivity after a new leader is hired requires about a year when executed efficiently. Parenthetically, one reason that a poor search is so harmful to nonprofits is that the nonprofit takes a double transition hit. But even when a search is well executed, roughly a third of leadership transitions take longer in ways that escape notice, but can significantly affect the financial health of the nonprofit.
An antidote to this is vigilance on the part of the governing board, along with positive, proactive engagement by board members to ensure that the organization’s funding and operating efficiency are minimally impacted during a leadership transition. A transition sub-committee of the board is recommended, and sometimes outside transition support (a consultant with a light touch) can be useful.
Financial Costs of Transitioning Key Staff
Like the time cost of succession, the financial cost is also quite high and should be well planned.
Contrasted with business succession, where financial costs can be funded by past or anticipated profits, nonprofits must fund succession in one of four ways: from annual operating revenue (earned or contributed), through a previously budgeted set-aside, a donor’s generosity, or by drawing on an endowment.
Financial costs include:
- A frontend process of exiting a leader, and backend costs like severance;
- An executive search or other form of recruiting, with costs that include selection of the recruiting firm or other mechanism, and process management through to completion;
- The financial costs of onboarding a new leader; and
- Adjustments to the nonprofit’s board and staff leadership, culture and workflows as the new leadership takes hold.
It is important to remember that people hours are part of financial costs, and that leadership transitions tend to divert effort away from normal business operations. There can be lost opportunities to serve, less focus on earned and contributed revenue, and other small and financially costly drains on the organization.
On the other hand, leadership transitions come with opportunities to reexamine strategy, workflows and embedded assumptions. With some pre-planning, the benefits of a transition can be maximized and the cost in time and treasure can be managed.
Board Transitions
A nonprofit Governance Board advances the organization’s public benefit mission while preserving its financial stability.
Best practice is to select Governance Board members based on the ability of each member to contribute in at least one of three ways: 1) by contributing expertise that might not be on a nonprofit’s staff (accounting, legal, tech and other knowledge and services); 2) helping the organization drive revenue (usually by increasing contributed revenue, but earned and grant revenue can also be driven by board members); and 3) by representing the organization to the community or the community to the organization. The board as a whole then provides oversight as the organization’s fiduciary, and hires and fires the chief executive.
Sometimes boards will select members for political reasons, due to personal friendships, or for some other reason that is not connected to operating and financial strength of the nonprofit. Over time such practices are unhealthy.
Board that do follow best practices, can still make three easily rectified errors as they evolve and plan for succession.
Certain boards don’t map attributes that the board needs to optimally advance the mission, and so are ill-prepared for changes that inevitably occur. Some boards become insiderish in ways that disconnect the board from communities served, the organization’s mission and operating oversight considerations. And sometimes boards don’t assure full community representation. For example, since most boards require that members contribute time or treasure, many boards follow practices that unconsciously exclude those with lower incomes from their membership. Organizations that serve people living with disabilities, or those who have suffered injustice and various forms of trauma, might not have board representation from those served by the organization. This can tilt nonprofit governance away from the interests of important members of the community. Achieving balanced governance of nonprofits can be quite challenging.
When board members are conscious of, and are willing to act upon, such factors, there can be significant improvements to nonprofit governance. The important thing is to openly and candidly discuss these matters periodically, act where possible, and to not make the perfect the enemy of trying to do better. m/Oppenheim often volunteers to facilitate discussion on such matters (in other words, we generally don’t charge for the service) because continuous improvements of boards is so important to the health of nonprofits.
Conclusion
Succession planning has benefits for nonprofits, but is often misunderstood as being the same as succession planning for business organizations. Succession planning is not complicated to do, but it requires specific steps, attention to detail, conscious budgeting of time and financial costs, and some flexibility as successors are selected who will fulfill the future needs of organizations.
____
mOp-Ed pieces reflect diverse opinions about the nonprofit world and we welcome yours. If you would like to be a guest writer for mOppenheim.Org, please contact us for more information.