Nonprofits make the best out of necessity

Published in the February 20, 2009 edition of Columbus Business First

As layoffs mount and well-known corporations fail, many are asking how could this happen to such well-regarded institutions. 

Thoughtful policymakers are also questioning the effectiveness of CEOs and boards of directors in overseeing the financial risks and sustainability of their companies. 

These concerns reminded me of a 1989 Harvard Business Review article by management guru Peter Drucker in which he highlighted three areas in which successful nonprofits “are practicing what American businesses only preach.”  They are:

• Planning based on mission.
• Effective use of boards of directors.
• Motivation and productivity of knowledge workers.

Much of what he said is still relevant today.  Nonprofits should endeavor to exploit their potential advantage in these areas and for-profits would do well to consider how these approaches could improve their practices. 

While this suggestion may seem ironic to those who think nonprofits can’t manage well, Drucker has the opposite sentiment:  “The best nonprofits learned long ago that business in not a dirty word.  In fact, because they lack the straightforward discipline of the for-profit bottom line, nonprofits know that they need good management even more than for-profit businesses do.  [Nonprofits’] good intentions cannot substitute for accountability, performance, and results, which begins with good management.” 

Planning based on mission

For-profit management is complex, but it also is straightforward because of its necessary focus on financial results, a focus which nonprofits replace with the more difficult focus on mission. 

Drucker says:  “Starting with mission and its requirements focuses the organization on action and designing specific strategies needed to attain mission-critical goals.  It can prevent the most degenerative disease of organizations, especially large ones:  Splintering their always limited resources on things that look profitable rather than concentrating them on a very small number of productive efforts.”

Successful nonprofits have learned to define clearly what impacts on the community constitute results and to focus on them. 

A well-defined mission provides the discipline to measure a nonprofit’s success in terms of its value in satisfying the community’s needs rather than in terms of self-satisfaction based on the goodness of its cause. 

Effective use of the board

Drucker believes that the most successful nonprofits find the root of their success in the boardroom. 

He notes:  “Many nonprofits have what is still the exception in business – a functioning board.  They also have something even rarer:  a CEO who is clearly accountable to the board and whose performance is reviewed annually by a board committee.  The top managements of large companies have been whittling away at the directors’ role, power, and independence for more than half a century.  In every single business failure of a large company in the last few decades, the board was the last to realize that things were going wrong.

“While this began historically in the form of working nonprofit boards, the advent of professional nonprofit management has not rendered the nonprofit board impotent as many for-profit boards can become.  Few directors in publicly held boards are substantial shareholders, whereas directors on nonprofit boards very often contribute large sums themselves, and have a personal commitment to the organization’s cause.  Precisely because the nonprofit board is so committed and active, this has forced an increasing number of nonprofits to realize that neither board nor CEO is the boss but rather colleagues working for the same goal but each having a different task.” 

Motivation and productivity

All nonprofits have their roots in unpaid volunteers.  The need to attract, retain, and motivate volunteers has led the best-performing nonprofits to emphasize volunteer and staff having satisfaction from accomplishments and a sense of personal contribution.  

Drucker explains why:  “What do volunteers and staff demand?  Their first and foremost demand is that the nonprofit have a clear mission, one that drives everything the organization does.  The second thing they demand is training.  And, in turn, the most effective way to motivate and hold veterans is to recognize their expertise and use them to train newcomers.  Then these knowledge workers demand responsibility.  They expect to be consulted and to participate in making decisions that affect their work and the work of the organization.  And they expect opportunities for advancement.  That is why a good many nonprofits have developed career ladders, for the volunteers as well as their staff.”

Drucker summarizes the lessons for-profits can take from nonprofit best practices:  “Managing the knowledge worker for productivity is the challenge ahead.  The nonprofits are showing us how to do that.  It requires a clear mission, careful placement and continuous learning and teaching, management by objectives and self-control, high demands but corresponding responsibility, and accountability for performance and results.” 

The best nonprofits have made a virtue out of necessity.  They have forged tools that produce focused action-oriented strategies, maximize board contributions, and inspire the knowledge workers of tomorrow. 

Allen J. Proctor was formerly chief financial officer of Harvard University and is the author of Linking Mission to Money® Finance for Nonprofit Board Members. Subscribe to his free newsletter at www.proctorconsulting.org.

Copyright 2009. Reprinted with permission, Business First of Columbus Inc.