Thomas Tierney: The leadership deficit

As nonprofits grow in number and size, they are challenged to find leaders and managers who have both skills and passion for the work. A new survey shows the gap between demand and supply for nonprofit leaders persists in spite of the economic downturn.

Even in the current economic climate, there is a growing need for senior leaders in the nonprofit sector, according to a new survey by The Bridgespan Group and commissioned by the American Express Foundation. The survey predicts that factors such as baby boomer retirement, coupled with the increasing complexity of managing nonprofit organizations, will lead to 24,000 vacancies in senior nonprofit leadership in 2009. The survey follows up on The Bridgespan Group’s 2006 study of nonprofit leadership, which predicted a “leadership deficit” in nonprofit organizations.

Thomas J. Tierney, chairman and co-founder of The Bridgespan Group, spoke to Faith & Leadership in April 2009 about the survey and the challenges for nonprofit organizations as they grow in number and in size.

Tierney stepped down as chief executive of global business consulting firm Bain & Company in 2000 to concentrate on The Bridgespan Group, an independent, nonprofit organization designed to provide general management consulting services to foundations and other nonprofits. More recently, Tierney led the development of Bridgestar, a nonprofit Bridgespan initiative dedicated to enhancing and increasing leadership talent for the nonprofit sector.

Q: What is the “leadership deficit?”

The original work on the leadership deficit was meant to answer the question: To what extent are new leaders required in senior positions at America's nonprofit organizations? In The Nonprofit Sector's Leadership Deficit we looked at all kinds of nonprofit organizations in the country, and it was focused on senior leaders, which meant the executive director and his or her direct reports. The conclusion [in 2006] was that about 640,000 new senior leaders were going to be needed.

And the supply is shrinking quite dramatically over the next few years. The supplied talent -- the number of people in those current leadership jobs -- is shrinking, primarily because of retirement of the baby boom generation. We can't predict year to year, but you can say it's going to shrink.

The thing that's driving the demand side is the growth of the nonprofit sector. There are three times more nonprofits now in America than there were 20 years ago. And it's not just the number of organizations, but the size. More nonprofits are “going to scale,” if you will. That is driving a dramatic increase in demand.

Q: You’ve recently updated your original study. What does the new data show?

We commissioned a third party to conduct a survey, called Finding Leaders for America’s Nonprofits, and the headline is: We actually underestimated the number of leaders required.

We discovered some interesting insights as well. The fundamental need is still here, there's more mobility both in and out of the social sector than we thought and the need seems to be pervasive. It's not in any one job category, or any one subsector.

Q: How has the economic downturn affected the leadership deficit?

This survey was completed in December/January, so while it wasn't in the depths of this downturn, it was past the first phase of the downturn.

We don't know post-January exactly how the nonprofit sector has been affected. It has to be true that hiring has gone down in the short term. That said, there is no evidence to believe that it will not revert to the norm, and that is the need for more leaders.

And what is happening in the social sector, interestingly, is there are starting to be more consolidations, or at least discussion of consolidations. And that's interesting because from a manager perspective if you take two small- to medium-sized nonprofit organizations and you combine them into one larger nonprofit organization, the need for management actually can increase.

Q: What does it mean to be over-led and under-managed?

One of my partners, Jeffrey L. Bradach, did some research on how nonprofits are over-led and under-managed. And I think this is often true of faith-based organizations. You’re inspired by calling. You're inspired by service. But your organization is woefully undermanaged, whether it's the back office accounting functions or the human resource functions or the real estate or whatever it happens to be.

It is a simple but kind of obvious insight that has implications. If I want to grow, I better be well-managed. If I want to have more impact, do more with every dollar I have, I better be better managed.

And that's why the deficit, even though we call it a leadership deficit, is much more accurately described as a management deficit.

Q: Perhaps less inspiringly described that way, though.

Far less inspiringly! In fact, I suppose had we called it the “management deficit” people would've not read the next paragraph, because they see themselves as leaders. And they are. Some of the best leaders I ever met have been in the nonprofit sector.

And yet, OK, you have that inspiration, that ability to rally people around a mission, but how's the budget doing?

Q: How do these organizations build that capacity or find that capacity?

The key is confronting the question: To what extent do we need to build managerial capacity? And if that question is not being confronted by the executive director, the board, the leadership of the organization, nothing else will happen.

The investment needed is more frequently, at least in my opinion, an investment of time than of money. We've all gone to these training programs where you have the nice binders, and you get home and it's Friday night and you're thrilled and you're talking to your husband or wife and saying, “I learned all this stuff and it's great,” and you set the binder down, and a week later you still remember some of the things that were in the binder. Two months later you forgot where you put the binder.

It’s not that the training is inappropriate, it's that far more important is what happens day in and day out on the job. This on-the-job training is all about an investment of time.

Q: What do you mean by that?

One example is recruiting. A recruiting process in a top-tier business will have multiple stages, there'll be a resume screening, there'll be criteria, there'll be all kinds of vetting. And at a nonprofit organization far too often, it's, “You know, my wife knows this guy really well and says he's great.” It's the hire-a-friend program.

The executive director needs to say, “I've got this job to fill. I'm going to invest a lot of my time to make sure this happens. I get the wrong person in the job, I live with the problem.”

The other thing that tends to happen is that all of the pressures -- internal and external -- are to under-invest in management development. The internal pressure is: I'd rather serve the needy. I don't want to do it. I'm not very good at it.

But the external pressures are profound as well, because donors see this kind of thing as overhead. And there is a tendency to lump in good overhead and bad overhead. Bad overhead might be paying three times more dollars per square foot than I need to for space. That's just wasted money.

Good overhead is hiring a chief operating officer for a burned-out executive director who needs more leverage. Good overhead is investing in this year's laptop, not last decade's laptop. Good overhead is spending more time on recruiting. That's all good overhead.

Yet oftentimes donors don't distinguish between good and bad overhead. It's not about the cost; it's about what you get for the cost.

Q: Is that because people expect nonprofit organizations to be lean?

My mom worked for 40 years as a volunteer, primarily at a nonprofit that served delinquent young women, 40 hours a week. Now in that era she could do that. Today, there aren't people like that. You don't have the moms at home that can do that stuff. Even if they did, the organization’s five times as large and actually needs a chief operating officer and not a mom to show up.

We've carried over this volunteer mindset, the sacrificial mindset that we're supposed to be able to do more with less. And up to a point we can do more with less. But at some point, if you're a large church you actually need somebody who knows how to do the books.

Q: You’ve suggested that measuring success can increase burnout. How do you measure success without creating pressure that drives people away?

The trend toward more measureable impact has on the one hand been a blessing and on the other hand been a curse. The blessing is to focus organizations on results, which is useful. The curse has been to cause organizations to over-invest in measuring things that can't be measured.

My recommendations on this are pretty simple: First, educate the donors. They need to understand what is and isn't realistic, because otherwise you create nonsense numbers.

The second is to create different kinds of measures. Oftentimes nonprofits can apply judgment as to how well they're doing. A nonprofit ought to be able to develop a point of view and explain whether they're getting an A or a B or a C. So how do you know if I'm getting A or B or C? That's a judgment. It’s like a restaurant guide where they measure the ambiance. I'm not sure I know what ambiance is, but some restaurants have high levels and others, low.

So be comfortable applying judgment and relying on indicators rather than, “I got 87 out of 100.” Measurement is an art and if you try to make it too scientific, you’ll fail and burn yourself out in the process.

Q: How is your faith life related to your work with nonprofits and philanthropy?

My faith life is partly why I'm doing this work. It was not a natural act for me to leave Bain & Company and start a nonprofit organization with what were then three people. I was in this corner office and had a great job, was doing it pretty well at the time, making tons of money and all this in my early 40s.

And I felt then and feel now that this was a calling that I could not deny. My wife felt the same way. And I prayed about it for years, actually, because I wanted to make sure I wasn't pursuing this avenue for the wrong reasons. I wanted to make sure it wasn't about me. And once I became convinced it was not about me, I could not not do it.

Q: What is your faith background?

I was raised Catholic. But the experience in my life that was the most profound as a young person was Young Life. When I was in junior high and then high school I became very, very active in Young Life. That opened my eyes to a broader Christian viewpoint and helped me think about Christ in a multi-denominational way.

I have business people ask me, pretty frequently, why I did this and how I think about it. And there's a fellow named Bob Buford who wrote a book called “Halftime.” The idea behind Halftime -- and he captures it beautifully -- is moving from success to significance.

Business people say, “What do you mean, significant? Because I'm running X, Y, Z business, and I'm worth a gazillion dollars and I'm significant.”

Significance for me means having an impact in a way that I'm confident I'm serving my calling without feeling like I have to be keeping score. It's God keeping score.