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Five Perennial Nonprofit Management Issues

Excerpted from the Stanford Social Innovation Review

The challenges that every nonprofit organization faces, we believe, involve the need for improved execution in five areas of fundamental concern: mission focus, fundraising and development, board governance, succession planning, and performance measurement. When we have seen well-performing nonprofits lose their way, usually one (or more) of these five perennial issues lies at the root of the problem.

Mission Matters Most.

Leaders of a for-profit corporation can assert with ease that their mission is to maximize shareholder value. But nonprofit leaders lack such an inherent clarity of purpose. Mission creep, therefore, remains the greatest threat to nonprofit organizations. Countless external and internal stakeholders can lead a nonprofit astray. Many funders, for example, exert subtle but fierce pressure on nonprofits to broaden their mission to accommodate a particular grantmaking interest.

Among Kravis Prize recipients [the Henry R. Kravis Prize in Leadership identifies extraordinary leaders in the nonprofit sector, celebrates their accomplishments, and shares their best practices with others], there is general agreement on the need to say "No, thank you," to funders whose grants might cause mission creep. "Once, when I tried to protect us from mission creep, I lost a multi-million-dollar funding opportunity," says Sakena Yacoobi, founder and CEO of the Afghan Institute of Learning. "That was significant for us, because our total budget is only $3 million. I said to the funder, 'I'm not going to do what you are telling me to do, since it is outside the scope of our mission. I am doing what our beneficiaries need me to do.' And I lost that funding." The price of saying no can be perilously high. But smart nonprofit leaders understand the cost of saying yes. Mission creep can stretch the resources of an organization so thin that it loses the ability to pursue its core goals.

Fundraising Is Fundamental (If Not Always Fun).

For any nonprofit, the effort to achieve greater scale requires money. And that means investing in development. A standard rule of thumb: Every dollar spent on development will raise four dollars in funding for an organization. It's a lesson that's not lost on Kravis Prize winners. Consider Johann Koss, founder and CEO of Right to Play, who grew the budget of his organization from $2 million in 2001 to $42 million in 2013. "In 2002, we were very fortunate to raise an additional $5 million, but we resisted pressure to spend it all on programs," Koss explains. "Instead, we reinvested 40 percent of it in development." He and his team used that money to hire a director of development and several major gift officers. Right to Play exemplifies another cardinal rule of fundraising: Start with your board. "Expectations of board members regarding development are very explicit: Every board member is expected to make Right to Play one of their top three priorities for charitable giving, and also is expected to help us raise money from others," Koss says. "Every year, the board chair and I have a conversation with each board member about what they've given, what they've raised from others, and plans for next year."

A Better Board Will Make You Better.

Members of a nonprofit board must engage directly and deeply in the work of their organization. Otherwise, board meetings will degenerate into rubber-stamp exercises that deprive nonprofit leaders of much-needed strategic guidance; board members, for their part, will feel that their time has not been well spent. Leaders at Mothers2mothers, a Kravis Prize organization, take that lesson to heart. Its board members "talk and argue to such an extent that meetings can be exhausting!" says Andrew Stern, founding board chair. "They come to our two-day-long meetings to guide the organization's strategy and to make critical decisions. They are not attending in order to listen to updates, nod, and then go home."

An equally important matter is board composition. "Our board has a diverse composition of professional backgrounds, with representatives from the private sector and from various segments of the global public health landscape," Stern notes. "The board also has notable diversity in terms of appetite for risk. Roughly half of our members are conservative; the others have a 'go-getter' perspective. Our diversity creates rich and ultimately very helpful discussions and balances our decision making."

Nothing Succeeds Like Succession.

Intentional succession planning is important for any organization. For a social sector organization led by a dynamic and visionary founder, it's an absolute imperative. Founder transitions are fraught with potential challenges—challenges that pivot around primal, life-and-death issues much more than institutional and organizational ones. The same personality traits that drive many founders (an urge to push past apparent constraints, for example) make it hard for them to see their mortality as something that they must plan for.

Which is why it's never too early to begin succession planning. Leaders at one Kravis Prize organization, Landesa, are standard bearers of that best practice. They identified Tim Hanstad as the future replacement for founder and chief executive Roy Prosterman in 1992—13 years before he took the reins as president and CEO. During the intervening period, Hanstad served as executive director. "We had done so much succession planning for so long that by the time Tim took over, the transition was incredibly smooth," Prosterman says. (After Prosterman stepped down, he took a seat on the Landesa board. Crucially, however, he had the wisdom to declare that he would never become the board chair.)

Clear Measurement Counts.

In conducting due diligence for the Kravis Prize selection process, we have observed how rare it is for organizations to obtain substantive data on whether their intervention actually works. More than 75  percent of the 800-plus nonprofits that we have researched over the past nine years do not have impact data that one could deem reliable. In our view, too many nonprofits fail to appreciate the benefits of rigorous performance measurement.

The gold standard of evaluation methods is the randomized controlled trial (RCT). Many nonprofits are reluctant to embrace RCTs: Not only are RCTs expensive to conduct, but they also risk turning a spotlight on organizational failure. Yet some Kravis Prize recipients are using RCTs to transform their organizations in positive ways. Pratham, for example, has completed 11 RCTs over the past 12 years. "RCTs have been tremendously helpful in letting us zoom in on a strategy that works," says founder and CEO Madhav Chavan. "The data give us impetus to act. Yes, the RCT process is expensive, but the value is enormous. The RCT process builds internal capacity. After we started doing RCTs, we acquired a better understanding of how to think of impact with a mindset that constantly tries to maximize it."

These five issues are matters of eternal vigilance for all social sector organizations—prizewinners and non-prizewinners alike. They are conceptually simple but very difficult in practice, because they hinge on perennially challenging trade-offs: Should we accept a generous grant, or should we decline it in order to protect our core mission? Should we spend money on programs, or should we invest in fundraising capacity? The ability to manage such trade-offs, rather than a knack for embracing the latest fads, is what spells success or failure for most nonprofits.

Kim Jonker and William F Meehan III
© 2014, Stanford Social Innovation Review. Excerpted from "Fundamentals, Not Fads" in the spring 2014 issue. Excerpted with permission.

Kim Jonker is director of the Henry R. Kravis Prize in Leadership. She consults with foundations and nonprofit organizations and is a visiting practitioner at the Stanford Center on Philanthropy and Civil Society.

William F. Meehan III is Lafayette Partners Lecturer at the Stanford Graduate School of Business and director emeritus of McKinsey and Company. He also sits on the board of the Stanford Center on Philanthropy and Civil Society.

Topics: Nonprofit Leadership and Practice