structure

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MANAGING NONPROFIT ORGANIZATIONS

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Register at www.josseybass.com/email for more information on our publications, authors, and to receive special offers.

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Managing Nonprofit Organizations is accompanied by an Instructor’s Guide, which is available free online. If you would like to download and print a copy of the guide, please visit: www.wiley.com/college/tschirhart

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Essential Texts for Nonprofi t and Public Leadership and Management

The Handbook of Nonprofi t Governance, by BoardSource

Strategic Planning for Public and Nonprofi t Organizations, 4th Edition, by John M. Bryson

The Effective Public Manager, 4th Edition, by Steven Cohen et al.

Handbook of Human Resources Management in Government, 3rd Edition, by Stephen E. Condrey (Ed.)

The Responsible Administrator, 6th Edition, by Terry L. Cooper

The Jossey-Bass Handbook of Nonprofi t Leadership and Management, 3rd Edition, by David O. Renz, Robert D. Herman & Associates (Eds.)

Benchmarking in the Public and Nonprofi t Sectors, 2nd Edition, by Patricia Keehley et al.

Museum Marketing and Strategy, 2nd Edition, by Neil Kotler et al.

The Ethics Challenge in Public Service, 3rd Edition, by Carol W. Lewis et al.

Measuring Performance in Public and Nonprofi t Organizations, by Theodore H. Poister

Human Resources Management for Public and Nonprofi t Organizations: A Strategic Approach, 3rd Edition, by Joan E. Pynes

Understanding and Managing Public Organizations, 4th Edition, by Hal G. Rainey

Fundraising Principles and Practice, by Adrian Sargeant, Jen Shang, and Associates

Making Critical Decisions, by Roberta M. Snow et al.

Achieving Excellence in Fundraising, 3rd Edition, by Eugene R. Tempel, Timothy L. Seiler, and Eva E. Aldrich (Eds.)

Handbook of Practical Program Evaluation, 3rd Edition, by Joseph S. Wholey et al. (Eds.)

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MANAGING NONPROFIT ORGANIZATIONS

Mary Tschirhart and Wolfgang Bielefeld

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Copyright © 2012 by John Wiley & Sons, Inc. All rights reserved.

Published by Jossey-Bass A Wiley Imprint One Montgomery Street, Suite 1200, San Francisco, CA 94104-4594 www.josseybass.com

Cover image by Getty. Copyright © by Ashim Mittler, Frankfurt am Main.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, 978-750-8400, fax 978-646-8600, or on the Web at www.copyright.com. Requests to the publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, 201-748-6011, fax 201-748-6008, or online at www.wiley.com/go/permissions.

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Library of Congress Cataloging-in-Publication Data

Tschirhart, Mary. Managing nonprofi t organizations / Mary Tschirhart, Wolfgang Bielefeld. —1st ed. p. cm. Includes bibliographical references and index. ISBN: 978-0-470-40299-3 (hardback); ISBN: 978-1-118-25864-4 (ebk); ISBN: 978-1-118-23388-7 (ebk); ISBN: 978-1-118-22017-7 (ebk) 1. Nonprofi t organizations—Management. I. Bielefeld, Wolfgang. II. Title. HD62.6.T785 2012 658'.048—dc23 2012015525

Printed in the United States of America FIRST EDITION HB Printing 10 9 8 7 6 5 4 3 2 1

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vii

CONTENTS

Acknowledgments ix

The Authors xiii

PART ONE: UNDERSTANDING, ENVISIONING, AND CREATING 1

1 Understanding Nonprofi t Organizations 3

2 Effective and Ethical Organizations 11

3 Founding Nonprofi ts and the Business Case 33

4 Organizational Structure 60

PART TWO: STRATEGIZING, RESOURCING, AND ALIGNING 83

5 Formulation of Strategy 85

6 Resource Acquisition 111

7 Financial Stewardship and Management 140

8 Marketing 168

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viii Contents

PART THREE: LEADING, MANAGING, AND DELIVERING 199

9 Boards and Governance 201

10 Executive Directors and Leadership 228

11 Strategic Human Resource Management 255

12 Motivation and Performance 280

PART FOUR: EVALUATING, CONNECTING, AND ADAPTING 299

13 Program Evaluation 301

14 Public and Government Relations 327

15 Partnerships, Alliances, and Affi liations 356

16 Organizational Change and Innovation 384

17 The Future of Nonprofi t Leadership and Management 418

Appendix: Mapping of Chapter Content to NACC Guidelines for Study in Nonprofi t Leadership, the Nonprofi t Sector, and Philanthropy 425

Notes 429

Index 469

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ix

ACKNOWLEDGMENTS

We would like to thank the Jossey-Bass/Wiley team for their support and encouragement. This book would not have been possible without the patience and gentle guidance of Allison Brunner, Nathinee Chen, Alison Hankey, Rebecca Heider, Nina Kreiden, Elspeth MacHattie, and Dani Scoville.

Our sincere gratitude extends to Charles Coe and Lynda S. Clair. Charlie expertly drafted the fi nancial management chapter and was a cheerleader during our efforts to fi nish the book manuscript. Lynda was instrumental in helping us distill complex fi nancial and human resource management topics into material suitable for our audiences.

This book has benefi ted greatly from the thoughtful comments of review- ers. Their suggestions on content and presentation have helped to improve the chapters and the supplementary teaching materials. We sincerely thank them for joining us on this journey as we worked to meld our individual writing styles and perspectives. We list the reviewers here, along with their institutional affi liations at the time of the review process.

Alan Abramson, director, Center for Nonprofi t Management, Philanthropy, and Policy, George Mason University

Rikki Abzug, associate professor, Anisfi eld School of Business, Ramapo College of New Jersey

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x Acknowledgments

Richard Brewster, executive director, National Center on Nonprofi t Enterprise

William A. Brown, associate professor, Bush School of Government and Public Service, Texas A&M University

Jeffrey L. Brudney, Albert A. Levin Chair of Urban Studies and Public Service, Cleveland State University

David Campbell, associate professor, Department of Public Administration, Binghamton University, State University of New York

Russell A. Cargo, senior fellow, Midwest Center for Nonprofi t Leadership, University of Missouri-Kansas City; principal, Third Sector Services, LLC

Celine Chew, senior lecturer, Cardiff Business School, Cardiff University

Monica Dignam, chief of research, ASAE: The Center for Association Leadership

Mark Hager, associate professor, School of Community Resources and Development, Arizona State University

Margaret E. Harris, emeritus professor, Voluntary Sector Organisation, Aston University, England

Margaret Henderson, director, Public Intersection Project, School of Government, University of North Carolina

Thomas Jeavons, executive director, Association for Research on Nonprofi t Organizations and Voluntary Action (ARNOVA)

Kevin P. Kearns, professor, Graduate School of Public and International Affairs, University of Pittsburgh

Jane S. Kornblut, principal, Third Sector Services, LLC

Jack Krauskopf, distinguished lecturer and director, Center for Nonprofi t Strategy and Management, School of Public Affairs, Baruch College, City University of New York

Roger A. Lohmann, emeritus professor, Division of Social Work, West Virginia University

Roseanne Mirabella, professor, Department of Political Science and Public Affairs, Seton Hall University

Vic Murray, adjunct professor, School of Public Administration, University of Victoria

Michael O’Neill, professor, School of Management, University of San Francisco

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Acknowledgments xi

John Palmer Smith, former director, Helen Bader Institute for Nonprofi t Management, University of Wisconsin-Milwaukee

Stefan Toepler, assistant professor, Department of Public and International Affairs, George Mason University

Dennis R. Young, Bernard B. and Eugenia A. Ramsey Chair of Private Enterprise, Andrew Young School of Policy Studies, Georgia State University

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xiii

THE AUTHORS

Mary Tschirhart is a professor in the School of Public and International Affairs at North Carolina State University, and she also directs the university’s Institute for Nonprofi t Research, Education and Engagement. She formerly taught non- profi t management as a faculty member at Indiana and Syracuse Universities. She is the president of Pi Alpha Alpha, the national honor society for students of pub- lic administration. She has served as a vice president on the boards of ARNOVA (Association for Research on Nonprofi t Organizations and Voluntary Action) and IRSPM (International Research Society for Public Management), and as Nonprofi t Management Section chair for the National Association of Schools of Public Affairs and Administration and chair of the Public and Nonprofi t Division of the Academy of Management. She is on the editorial boards of the Nonprofi t and Voluntary Sector Quarterly, Public Administration Review, Public Management Review, and Journal of Public and Nonprofi t Sector Marketing. She has also served on the boards of nonprofi t organizations and a community library. Her experience includes being the executive director of a statewide nonprofi t arts organization and con- sulting to nonprofi t organizations in the United States and other countries. She holds a PhD degree in organizational behavior and human resource management from the University of Michigan, an MBA degree in arts administration, and a BA degree in philosophy.

Wolfgang Bielefeld is professor emeritus at the School of Public and Environmental Affairs and the Center on Philanthropy at Indiana University- Purdue University Indianapolis. He has taught at the University of Texas at Dallas, the University of Minnesota, and Stanford University. He is a former coeditor

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xiv The Authors

of the Nonprofi t and Voluntary Sector Quarterly (from 2005 to 2010) and has served on the editorial board of VOLUNTAS: International Journal of Voluntary and Nonprofi t Organizations. He has served on the board of ARNOVA and was the program chair for an annual conference of that organization. His profes- sional experiences include serving on the board of Lutheran Child and Family Services of Indiana/Kentucky and consulting for a variety of nonprofi t orga- nizations. Bielefeld earned his PhD degree in sociology from the University of Minnesota. He also holds an MA degree in marketing, an MA degree in sociology, and a BS degree in engineering. He has authored numerous articles and coauthored a number of books, including Nonprofi t Organizations in an Age of Uncertainty: A Study of Organizational Change, which won the 2001 ARNOVA Best Book Award, the 1999 Independent Sector Virginia A. Hodgkinson Research Prize, and the 1999 Academy of Management, Public and Nonprofi t Division, Book of the Year Award.

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PART ONE

UNDERSTANDING, ENVISIONING, AND CREATING

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3

CHAPTER ONE

UNDERSTANDING NONPROFIT ORGANIZATIONS

It all starts with the mission. Nonprofi t organizations have a distinct mandate to be good stewards of the resources they receive toward the pursuit of their mis- sion, whether those resources come in as philanthropic dollars, government con- tracts and grants, membership dues, or earned income through revenue-generating activities. In this book we focus primarily on how nonprofi ts pursue their missions in the general social, cultural, legal, historical, and economic context of American life. We offer some examples from other countries and believe much of what we offer is applicable to international contexts. Still, this is a book about leadership and management and thus needs to be embedded in a particular place and time.

The importance of context becomes clear when we look at the competencies proposed in November 2011 for nonprofi t managers and leaders by the Non- Profi t Management Education Section of NASPAA (National Association of Schools of Public Affairs and Administration). Members of this NASPAA sec- tion suggest that students pursuing nonprofi t careers should be able to apply knowledge and understanding of

1. The history, values, ethics, and philosophies of nonprofi t organizations, and the need for transparency in nonprofi t management practices to maintain the public trust

2. The current legal frameworks for operating a nonprofi t organization, and the process of forming an incorporated nonprofi t organization

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4 Managing Nonprofi t Organizations

3. The fundamental principles and concepts of fi scal management, revenue generation, and fundraising, and the ethical imperative to be a good steward of the fi nancial resources of the nonprofi t sector

4. The leadership challenges of the sector as they relate to the strategic manage- ment of nonprofi t organizations, which requires integrating the roles, respon- sibilities, and relationships of the board of directors, the executive director, the employees, the volunteers, and all stakeholders in meeting the mission of the organization

5. The human resource and volunteer management principles necessary to manage a nonprofi t organization’s core services and functions

6. The standards for accountability, performance measurement, and program evaluation, and the appropriate techniques for using both quantitative and qualitative methods to measure the performance of nonprofi t organizations

The contents of this book can serve as a foundation for these six competency areas. We go beyond building knowledge and understanding in each area and add additional topics to enhance leadership and management capacity. To orient readers and provide a roadmap of what is to come, we offer a quick overview of each part and chapter.

A Roadmap Through the Chapters

Our comprehensive approach to excelling at managing and leading nonprofi ts is built around competency and curriculum guidelines developed by NASPAA and by NACC (Nonprofi t Academic Centers Council). A summary of the NACC guidelines appears in the Appendix, where they are mapped to the chapters in this book. The six NASPAA competency guidelines have been given earlier in this chapter. Both NASPAA and NACC recognize the importance of understanding the historical development of the nonprofi t sector and its values base. These issues are touchstones for our chapters. We discuss how ideas about specifi c manage- ment and leadership topics evolved over time and whether or not they are backed up by theory and empirical evidence. We repeatedly return to the ways in which values infl uence management and leadership decisions as well as the behaviors of board members, donors, staff, volunteers, and others, and how all this affects the effectiveness of a nonprofi t.

As a social psychologist and a sociologist, we are steeped in our respective disciplinary traditions. However, we draw from additional disciplines as well to introduce readers to source documents and thought leaders for the ideas in

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Understanding Nonprofi t Organizations 5

the book. All our topics and recommendations for practice are grounded in the academic literature. In choosing our main examples we made sure that readers would have enough background information and in some cases even videos for a further exploration of these cases. We also provide additional learning tools in the form of questions for discussion and exercises at the end of each of the main content chapters.

In Part One, we discuss understanding, envisioning, and creating nonprofi t organizations. In Chapter One, after this introduction to the book, we give a general overview of the nonprofi t sector. In Chapter Two we explore ways to consider the effectiveness of nonprofi ts and encourage ethical behavior among those working within them. We look at multiple dimensions of organizational effectiveness: goal achievement, resource acquisition, health and effi ciency of internal processes, stakeholder satisfaction, and ability to learn and adapt. In Chapter Three we examine topics important to those interested in establishing a nonprofi t organization and laying an effective groundwork for future action. We show the many different origins of nonprofi ts. Drawing on the entrepreneurship literature, we consider how people, capital, and opportunity come together in nonprofi ts to deliver social value. We also discuss how to make the case for a new nonprofi t, including writing the business plan. Chapter Four covers options for organizational structure. We look at formalization, complexity, and other struc- tural elements that infl uence information processing, and we consider possible structural defi ciencies.

In Part Two we turn to strategizing, resourcing, and aligning, because throughout their existence nonprofi ts should have a mission and a vision and should acquire and manage resources to pursue them. Chapter Five covers the formulation of strategy. Topics include the general strategic orientations that non- profi ts adopt and the strategic planning process. We also consider the emergence of strategies in nonprofi ts. Chapter Six covers resource acquisition. In this chap- ter we examine the variety of revenue sources employed by nonprofi ts, includ- ing grants, gifts, and earned income. We discuss philanthropy, addressing types of gifts and donors, as well as fund development and grant proposal writing. Chapter Seven reviews fi nancial stewardship and management. We outline best practices for policies, accounting, budgeting, banking, borrowing, fi nancial risk management, auditing, and fi nancial analysis. Chapter Eight provides knowledge and tools for effective marketing. We cover the philosophy of and orientations to marketing, marketing planning, and branding. In addition we explore options for the pricing, promotion, and distribution of goods and services.

In Part Three we focus on human resources and discuss leading, managing, and delivering the mission. Chapter Nine covers boards and the broader topic of governance. We discuss the responsibilities of boards, roles of executive directors in

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6 Managing Nonprofi t Organizations

relation to boards, determinants of board effectiveness, options for board confi gu- rations and composition, and tools for facilitating governance and managing con- fl ict. Chapter Ten adds leadership and executive directors to the mix. We explore the basis of leadership and the responsibilities of executive directors. We also con- sider nonprofi t founders, leadership transition, and leadership development. In Chapter Eleven we turn our attention to strategic human resource management. We look at ways to measure and build human resource capacity. We then look at human resource management through the stages of initial involvement, develop- ment, maintenance, and separation. As a follow-up to Chapter Eleven, in Chapter Twelve we explore performance as determined by ability and motivation. We offer tools to increase ability and to enhance motivation to perform.

Our fi nal section, Part Four, covers evaluating, connecting, and adapting the nonprofi t. We begin with program evaluation in Chapter Thirteen. We see an effective program evaluation process as key to accountability management. We review how to prepare for evaluation, choose an evaluation approach, apply theories of change and logic models, clarify program goals, and collect data, all with an eye to meeting the practical challenges to effective evaluation. Chapter Fourteen covers public and government relations. In this chapter we look at image and reputation, strategic communication, and the public relations process. We also cover risk assessment and crisis management. Focusing on government rela- tions, we discuss lobbying and advocacy. Chapter Fifteen covers partnerships, alliances, and affi liations. We examine reasons for collaboration, types of relation- ships, the collaboration process, and ways to promote successful collaborations. Chapter Sixteen introduces readers to models of organizational change and inno- vation in nonprofi ts, external and internal drivers of change, and resistance to change. We lay out strategies for managing change and innovation processes and include ideas on how to generate innovations. In Chapter Seventeen, our fi nal chapter, we consider the future of nonprofi t management. We share both our own and others’ thoughts on trends in the nonprofi t sector and how they may change nonprofi t management practices. Our goal is to leave readers with ideas on how they may develop their leadership skills for an ever-changing world.

The Nature of Nonprofi t Organizations

This book is not about management and leadership in general; it is about manage- ment and leadership in the nonprofi t sector. Yet it may not be clear what we mean by nonprofi t, given the many different types of nonprofi ts in the United States and the alternative terms used to describe the sector. Although none of these terms describe the nonprofi t sector completely, each emphasizes an important aspect

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Understanding Nonprofi t Organizations 7

of it. The term voluntary sector emphasizes that the sector benefi ts greatly from the work of volunteers. The sector has always been rooted in voluntarism and although the degree of voluntary participation in service delivery and manage- ment varies across the organizational types in the sector, all have boards of direc- tors and most do not offer any form of monetary compensation or reimbursement for expenses to board members. Independent sector, or third sector, emphasizes that the sector is part of neither government nor the business sector, although it may have close relations with both. Not-for-profi t sector emphasizes the distinction from profi t-focused enterprises. Charitable sector underscores the sector’s role in providing direct relief to those in need. Philanthropic sector highlights the fact that many orga- nizations in the sector receive charitable donations. Civil society sector emphasizes that many organizations in the sector are the embodiment of an engaged group of citizens with a shared interest in improving their communities. Tax-exempt sector points out that these organizations are eligible for exemptions from most taxes. These exemptions are granted to promote activities benefi ting the public. Social sector captures the role of the sector in enhancing the social fabric. Other countries use yet other terms to describe the organizations that people in the United States call nonprofi ts. Popular names include nongovernmental organizations (NGOs) and civil society organizations.

Throughout this book, we use the term most commonly used in the United States, the nonprofi t sector. It does not mean that the organizations in the sector can- not make a profi t. Organizational growth may rely on obtaining more resources than are needed to cover current expenses. What the term nonprofi t stresses here is that these organizations do not exist to make a profi t to enrich private owners, as businesses do. In fact, nonprofi ts do not have owners or stockholders who are legally entitled to a share of the organization’s profi ts. Any profi ts made should be allocated toward the accomplishment of the organization’s mission.

Diversity in the Nonprofi t Sector

In the United States the common feature of all nonprofi t organizations is that they qualify for tax-exempt status under the U.S. Internal Revenue Code.1 Of the close to 1.6 million registered nonprofi ts in the United States, the majority are public charities, about 1 million. This group, exempt under Section 501(c)(3) of the tax code, includes but is not limited to churches, hospitals, clinics, schools, day-care centers, all manner of human service organizations, museums and theaters, and a variety of neighborhood organizations. Members of this group have broad public support, rather than funding from a single source, and are considered public-serving organizations. In Chapter Three we go into more detail on the qualifi cations an

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8 Managing Nonprofi t Organizations

organization must meet to be classifi ed as a public charity. Public charities employ over 7 percent of the country’s paid workforce.

The U.S. tax code recognizes twenty-fi ve types of nonprofi ts, including public charities, the most common type. About 100,000 nonprofi ts are classifi ed as private foundations. These nonprofi ts make grants to support worthy causes and may oper- ate their own programs using funding from a single source or a small number of sources. Over 500,000 tax-exempt organizations are classified as other types of nonprofi ts, such as chambers of commerce, fraternal organizations, social and recreational clubs, and business leagues. These nonprofi ts provide valued ser- vices and attract resources as mutual benefi t (member-serving) organizations. Overall in 2009, registered nonprofi ts in all Internal Revenue Service (IRS) categories accounted for 9 percent of the wages and salaries paid in the United States.

There is no precise, accurate count of the number of organizations making up the U.S. nonprofi t sector. The U.S. government does not require churches and other religious places of worship to register as nonprofi ts, so it is diffi cult to get a handle on how many exist. One estimate is that there are close to 280,000 reli- gious congregations in the country, all eligible for the benefi ts given to 501(c)(3) nonprofi ts.2 There are also many grassroots organizations that are not legally incor- porated and thus left uncounted. These may be local, volunteer organizations that have a political change agenda or that rely on volunteer workers to care for and help others using little fi nancial capital or physical infrastructure. David Horton Smith suggests that the nonprofi t sector also contains what he refers to as deviant nonprofi ts, such as gangs, cults, covens, and quasi-underground organizations such as the Ku Klux Klan. These organizations operate outside normal conventions and are not legally recognized or tax exempt, but they are like nonprofi ts in not being organized to make a profi t.3

A variety of factors account for the existence of this diverse set of organiza- tions.4 In the early history of the United States, voluntary action was the primary way things got done in communities. Lacking an extensive government and with limited private wealth, citizens voluntarily banded together to deal with social prob- lems. Some nonprofi ts were established to provide services that neither govern- ment nor businesses would or could effectively provide. Nonprofi ts often function in areas where markets are lacking, such as the provision of food and shelter to those without money to pay for them. In addition, nonprofi ts provide services that government, with its reliance on voter mandates, cannot. For example, nonprofi ts provide public health services and education that government is unable to fund with public dollars.

Nonprofi ts serve a number of other functions. They are an important fea- ture of the U.S. political landscape, providing vehicles for combining people’s individual voices and pushing their desires for action. Advocacy nonprofi ts can

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Understanding Nonprofi t Organizations 9

be found on all sides of political issues. In this way they contribute to pluralism in the U.S. political system. Nonprofi ts may also provide people with places to meet and to relate to others who share their interests and values. This gives individuals ways to have fun and to enjoy activities such as sports competitions or cultural fes- tivals. In this way nonprofi ts contribute to the establishment of social capital and the solidarity of American society, helping individuals to form bonds of trust and reciprocity with others. These bonds make it easier for community members to jointly address matters of common concern. When community members trust each other and can rely on each other to help when needed, joint actions such as community watch programs are more effective. Nonprofi ts also help with personal development needs. They allow individuals to express their spirituality, creativity, and altruistic impulses and to develop social and leadership skills. At their core, nonprofi ts nurture and sustain the values and identities of their participants.

Between September of 2009 and September of 2010, 26.3 percent of Americans over sixteen years of age volunteered through or for a nonprofi t. In 2010, nonprofi t organizations received $290.9 billion in charitable contributions (of which $211.8 billion came from individuals). These fi gures attest to the impor- tance of nonprofi ts to the social fabric of American life. Couple this with the fi nancial scope of the nonprofi t sector and nonprofi ts’ importance increases. In 2009, the nonprofi t sector’s share of the gross domestic product (GDP) was 5.4 percent. In that year, public charities reported over $1.41 trillion in revenues. They also held $2.56 trillion in total assets.

Leading and Managing in the Nonprofi t Sector

Leaders and managers of nonprofi ts face a variety of challenges. One of the most important is to keep the mission in mind in all decision making. Nonprofi ts must operate to fulfi ll their mission and are limited in their engagement in activities far afi eld from it. In addition they must keep in mind that the real owner of a nonprofi t is the public.5 It is the public to whom they are ultimately accountable. There are no designated shareholders or owners to please. Nonprofi ts are subject to the claims, and possible control, of many stakeholders, including donors, cli- ents, board members, staff, volunteers, government at all levels, and community members. The expectations of these stakeholders can vary widely and leaders must balance competing demands.

Lester Salamon and others describe a number of additional challenges.6 Many nonprofi ts face fi scal diffi culties, some starting with government cutbacks in the 1980s in areas where nonprofi ts were active. Government assistance has became more targeted and tied to stricter requirements. Not all nonprofits

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10 Managing Nonprofi t Organizations

experiencing losses in government funding have been able to offset those losses with growth in private giving or earned income. There is growing competition as more for-profi ts move into areas traditionally served by nonprofi ts, such as health care, higher education, and employment training. The rise of B corporations, which are required to make decisions good for society, not just their sharehold- ers, adds to the continuing erosion of sector boundaries.7 In addition nonprofi ts are under pressure from funders who are demanding more evidence that the nonprofi ts they fund are making a measurable positive impact, with some funders seeing themselves as investors with rights to infl uence strategic decisions.

The legitimacy of the nonprofi t sector has been challenged on a number of fronts. One challenge is presented by those who feel this sector is part of an expanding government welfare state and is serving as an instrument of govern- ment. Another comes from those who feel it is too professionalized and out of touch with those it serves. These criticisms, coupled with a number of high-profi le scandals, have raised public concerns about the nonprofi t sector. This confronts nonprofi ts with a distinctiveness imperative.8 Nonprofi ts need to reinforce their iden- tity and their worthiness for the benefi ts and discretion afforded them.

As this short summary of challenges illustrates, today’s nonprofi t leaders must navigate turbulent waters in the pursuit of their organization’s mission. As part of a larger network of actors, some with contradictory views and approaches to pressing social problems, nonprofi ts are shaping our current reality and our future. Innovations that emerge and are tested in nonprofi ts will contribute to fundamental debates about what is possible and how to achieve it or avoid it.

We wrote this book with the sincere hope that it will not only provide infor- mation and tools to enhance the capacity of nonprofi t managers and leaders but also inspire individuals to consider careers in the nonprofi t sector. Whether serv- ing in a paid position, as a board member, or as a volunteer, individuals working in the nonprofi t sector have the opportunity to act on their values and promote their vision for a better world.

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11

CHAPTER TWO

EFFECTIVE AND ETHICAL ORGANIZATIONS

T he Chicago Association of Neighborhood Development Organizations (CANDO) closed its doors in 2002 after suffering disagreement about its mission, diffi culty gaining fi nancial support, and disengagement by its members.1 Even its leaders questioned the need for CANDO by the end of its last strategic planning process. What happened to this organization after almost twenty-three years of serving neighborhood development agencies and advancing policy benefi ting them? On some dimensions the organization was effective. It membership had grown from 20 agencies to over 220. However, this growth may partially explain its downfall as it tried to serve more and more diverse interests. Also, individual member agencies were becoming more power- ful, partly due to the successful efforts of CANDO to get them legitimacy and resources. As they became more self-reliant, they had less need for CANDO. Many CANDO members pursued contracts from the City of Chicago, making them reluctant to support CANDO’s efforts to aggres- sively lobby the city for resources and changes. Over time a new generation of leaders, with less fi re in their bellies for advocacy and community organizing, took charge of CANDO. Expectations for quantifi able results grew, both for CANDO and its member agencies. In the end, CANDO’s lack of focus and expansive, noncontroversial programming left it with apathetic board members, staff, and external stakeholders who lacked the desire to fi ght for its survival.

The Baptist Foundation of Arizona (BFA) closed after over fi fty years in existence, but not due to the apathy of those associated with it. In this case, fraudulent behavior led to fi nes and jail sentences for top leaders. When it fi led for bankruptcy in 1999, BFA had $530 million in liabilities despite its claims of $70 million in assets. The BFA had been founded as a fi nancial institution that promised market returns to participants entrusting their assets to the nonprofi t to manage. The idea was that BFA would help worthy ministries with resources and expertise

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12 Managing Nonprofi t Organizations

while investing participants’ funds. However, to maintain an attractive facade for participants, it hid its bad loans and debts; misrepresented its certifi cates of deposit, thus harming the fi nancial status of elderly clients purchasing the CDs; used a Ponzi scheme, which allowed early investors to make a profi t but required a continual infl ux of new investors to pay earlier ones; sold only the right to occupy property to elderly clients who thought they were buying the property itself; and inappropriately infl ated the value of properties. At least one inappropriate transaction person- ally benefi ted specifi c BFA leaders engaged in the activity. Leaders’ unethical efforts to keep the nonprofi t afl oat resulted in losses for many BFA investors.2

� � �

This chapter addresses the question of what makes a good nonprofi t. Our open- ing cases illustrate the diffi culty of ensuring that nonprofi t organizations are effec- tive and ethical. Multiple stakeholders can pull a nonprofi t in different directions and lead to compromises that keep it from excelling. Questions can arise con- cerning which stakeholders’ interests should have the greatest priority and how to handle confl icts of interest. A nonprofi t can experience mission drift. In this chapter we explore how to evaluate nonprofi ts and avoid these diffi culties.

Nonprofi t organizations directly or indirectly infl uence many aspects of our lives, including our education, health, spirituality, recreation, security, news and infor- mation, safety, consumer behavior, and housing. Nonprofi ts make signifi cant con- tributions to the economic well-being of neighborhoods through employment and other activities. The tax and other government benefi ts they may receive are drawn from public resources. Many nonprofi ts attract philanthropic dollars from individuals and institutions. Some compete with for-profi t businesses for contracts and clients.

Because of the central role of nonprofi ts in people’s lives and communities, as well as the government and philanthropic funds they receive, nonprofi ts have a heightened responsibility to operate in an effective and ethical manner. Nonprofi ts that are seen by stakeholders as acting inappropriately or ineffectively are unlikely to be able to attract support. Scandals can raise concerns about the nonprofi t sector as a whole, not just the individual nonprofi ts involved in them.

Given the importance of effective and ethical behavior for nonprofi t organiza- tions, we use this chapter to set some foundational ideas for later chapters of the book. First, we examine the multiple dimensions of organizational effectiveness, and then we look at the context for ethical decision making at the personal, profes- sional, organizational, and societal levels. These overarching views lead to impli- cations for leaders who wish to ensure that their nonprofi t is perceived as being good as well as doing good. In later chapters we elaborate on the basic concepts presented here. For example, in Chapter Thirteen we go into detail on the techni- cal process for evaluating programs and in Chapter Seven we offer guidance for fi nancial management to avoid fraud and other unethical behaviors.

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Effective and Ethical Organizations 13

Multiple Dimensions for Evaluating Effectiveness

In the simplest terms, effective organizations are the ones that accomplish their missions. However, there are numerous reasons why this calculation is often not feasible in evaluating the effectiveness of nonprofi ts. It may be hard to quan- tify the achievement of a mission, especially if the nonprofi t’s purpose relates to intangible quality issues or addresses complex social problems. It is diffi cult to judge the effectiveness of some nonprofi ts in the short term. Are nonprofi ts that are attempting to alleviate poverty or fi nd a cure for cancer ineffective because poverty and cancer have not been eradicated? Can we determine if a nonprofi t whose mission is to develop youths for productive roles in society is effective before these youths become adults? We may even disagree on what it means to be a pro- ductive member of society. Assessment of nonprofi t organizational effectiveness requires multifaceted approaches that acknowledge the challenges of achieving complex, diffi cult, long-term missions. We also need to recognize that effective- ness assessments may come from multiple stakeholders with different perspectives and potentially competing interests. What looks like an effective nonprofi t to one stakeholder may not look nearly as effective to another stakeholder.

We draw from the academic literature to focus on fi ve general and com- plementary approaches to judging effectiveness that can help nonprofi t leaders identify their organization’s strengths and weaknesses.3 The fi rst, the goal accom- plishment approach, examines organizational outputs. The second, the resource acquisition approach (sometimes called the system resource approach) focuses on inputs needed by the organization. The third, the internal processes approach, assesses the health and effi ciency of internal dynamics as inputs are transformed into outputs. The fourth, the stakeholder approach, looks at the satisfaction of stakeholders inside and outside the organization. The fi fth approach examines how well the organization adapts over time.

Goal Accomplishment

One approach to evaluating a nonprofi t is to consider how well it meets or exceeds its goals. Goals may be set to encourage a certain level of outputs, such as number of clients served, programs delivered, or service sites added. Unlike the business sector, which can comfortably use profi t as a metric for success, the nonprofi t sector should be careful to treat the amount of revenue generated or donations received as an input, not a goal.4

In the case of CANDO, the nonprofi t was a victim of its own success in reaching its early goals to bring more resources for neighborhood development activities to

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14 Managing Nonprofi t Organizations

its member organizations and to increase its number of members. As the mem- bers became more diverse and less dependent on CANDO, their motivation to support the nonprofi t diminished. CANDO struggled to set new goals and fi nd ways to measure its success in reaching them. Members disagreed on CANDO advocacy goals, given their desire to avoid offending the City of Chicago in order to preserve the city’s goodwill toward their own organizations. In the end CANDO was unable to demonstrate that it should be kept alive.

Achievement of goals may not indicate achievement of mission. If goals are set and rewards tied to them, staff may change their behavior to achieve the goals and even compete against one another, ignoring the more fundamental mission, and ultimately resulting in the folly of achieving one outcome while hop- ing for another.5 For example, a nursing home’s goals to build a new facility and expand its number of beds may be met, but the emphasis placed on expansion may undermine the home’s mission of providing high-quality care to its current patients. Teachers’ desire to meet goals set for student satisfaction ratings may result in teachers who are popular but students who are not well educated.

A nonprofi t should set goals that are highly likely to align with its mission. Chapter Thirteen offers a logic model approach that can be helpful in linking goal-related outputs to mission-related outcomes. We recommend that goals be

• Measurable. There should be clear evidence available to show whether or not a goal has been met. A goal to provide households with educational materi- als on nutritious diets is easily measureable, but a goal to change eating behav- iors of members of those households is not measureable without extensive research.

• Time bounded. It should be clear how long the nonprofi t has to achieve the goal. For example, a goal to reduce obesity among young adults cannot be accomplished in a day or even a week. The timeline should be realistic.

• Accepted. Goals need to be clearly understood and accepted by those held accountable for their achievement as well as by those who will be using goal achievement to judge a nonprofi t’s effectiveness. Consensus on goals can be achieved through strategic planning and performance review processes, as dis- cussed in Chapters Five and Thirteen.

• Challenging but feasible. When goals are too easy or impossible, they are unlikely to be taken seriously by stakeholders. A classic goal statement is President John F. Kennedy’s address to Congress announcing the goal of sending a man to the moon and back before the end of the decade. Another example of the power of challenging but feasible goals is found in the achieve- ments of the March of Dimes, an organization that started with a mission to

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Effective and Ethical Organizations 15

eradicate polio and that then, when that goal was reached, set a less concrete but more ambitious goal of preventing birth defects.

• Prioritized. Setting parameters on how to pursue multiple goals helps to make clear the policies and codes of conduct that are not to be violated and the resources that will be available for the pursuit of certain goals versus others. For example, a foundation may set a goal to build the capacity of youth-serving nonprofi ts through its grantmaking but may also limit its reach to a specifi c geographical area or to what can be funded after other program priorities are addressed.

Resource Acquisition

In addition to looking at goal-related outputs, a nonprofi t can evaluate effective- ness in terms of the extent to which it has acquired the inputs needed to accom- plish its mission. Following are examples of types of inputs that nonprofi t leaders may wish to use as partial indicators of effectiveness:

• Human resources: number and quality of staff, volunteers, and board members

• Financial resources: number and size of donations, grants, contracts, and sponsorships

• Capital resources: facilities, equipment, and materials

• Knowledge resources: expertise, information from needs assessments and evaluations, and consulting services

• Program resources: participants, waiting lists, referrals, collaborators, part- ners, technology, programs, and products

• Community-based resources: positive media attention, endorsements, and public goodwill toward nonprofi t

Counts of resources attracted say little about how those resources are used once they are obtained or what it cost to attract them. Therefore this type of evaluation is best used when the level of a resource brought into an organization can be linked to its actual results. For example, the effectiveness of a health clinic may be judged by its ability to attract top doctors. The quality of the doctors is an indicator of the quality of care received by the patients. A federated funder like the United Way may be evaluated on the amount of gifts it attracts from private donors, because the input of donations directly translates into how much fi nancial support the United Way can provide to other nonprofi t agencies.

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16 Managing Nonprofi t Organizations

We can see from the case of the Baptist Foundation of Arizona that a non- profi t’s ability to attract inputs is insuffi cient evidence to demonstrate that it is an effective organization. In the pursuit of inputs, BFA violated sound banking and investment practices. Its inputs were insuffi cient to cover its outputs, as shown by its liabilities exceeding its assets. It gave out loans that were not repaid or were repaid below the level BFA needed to stay afl oat. In the interest of attracting more investments and deposits, this nonprofi t misrepresented its products, putting the buyers in fi nancial jeopardy.

It is often easy and expected for a nonprofi t to count and report inputs. The inputs may serve as an indicator that those providing the inputs see the nonprofi t as legitimate and that the nonprofi t has suffi cient means to perform well. Annual reports may include number of volunteer hours, amount of donations, length of client waiting lists, and other input measures to show effectiveness. Some nonprofi ts offer comparative data, reporting how their inputs stack up against those of similar organizations or benchmark standards. Tracking inputs can reveal trends that leaders may want to investigate further. For example, a decline in donations may be examined to see if it is due to fewer new donors than in the past, smaller donations than in the past, or the dissatisfaction of donors with how past gifts were used, or is due to other reasons. Therefore we conclude that inputs provide a useful but limited perspective that can be complemented with other approaches to evaluating effectiveness.

Internal Processes

In addition to evaluations of outputs and inputs, nonprofi ts may be judged on the effi ciency, harmony, and ethics of their internal operations. Does the nonprofi t have any bottlenecks that interfere with its delivery of services or production of goods? Are there dysfunctional confl icts? Is there a high undesired turnover of workers due to frustration with assignments, poor morale, or concerns about ethics? Criteria related to this aspect of effectiveness deal with how well the organi- zational systems are working. Evaluation using internal process criteria may be especially useful when a nonprofi t relies heavily on teamwork or has complicated technology. In these cases, disruptions to the fl ow of work can have especially large negative effects on the pursuit of the organization’s mission.

The case of BFA shows the importance of having checks in organizational systems to catch ineffective and unethical policies and practices. A few BFA board and staff members were able to engage in bad asset management activities for many years without being stopped. Not all BFA leaders agreed with the strategies being used to hide the nonprofi t’s fi nancial status, but they were unable or unwill- ing to push for changes. Even Arthur Andersen, the accounting fi rm auditing BFA,

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Effective and Ethical Organizations 17

did nothing to reveal or stop the practices and ended up offering $217 million to investors hurt by BFA, to spare itself from further court proceedings.6 The internal processes of BFA led to its eventual bankruptcy.

A close look at the internal operations of a nonprofi t can uncover areas for improvement as well as opportunities for praise. Audits are one means to get a picture of fi nancial operations but, as in the case of BFA, they may be insuffi cient. Organizational development consultants can provide more comprehensive diag- nostics for examining the internal functioning of nonprofi ts. For nonprofi ts that cannot justify using external reviewers, toolkits for self-assessment are available online and in print. In addition to revealing ethical concerns, internal reviews can reveal opportunities for improving effi ciency—in other words, reducing the inputs needed to generate outputs. However, it is important to see effi ciency not as an end in itself but rather as something that should be pursued to carefully steward resources to better achieve the nonprofi t’s mission. For example, a hospital may be effi cient in performing surgeries in that it uses operating rooms and physicians at low cost, but at some point, too much of this effi ciency can undermine patients’ recovery, which is the outcome of more interest in judging effectiveness.

Nonprofi t leaders who wish to demonstrate their nonprofi t’s effectiveness on this dimension should focus on highlighting good internal management practices. Some nonprofi ts, such as hospitals and universities, may be eligible to go through certifi cation or accreditation reviews to show that their organization, program, or product meets industry standards or codes. Nonprofi ts can also compete for awards such as the Malcolm Baldrige National Quality Award, given to U.S. organizations for performance excellence. Evaluation scores, such as cleanliness ratings for restaurants, or formal recognitions, such as a declaration that a non- profi t is a role model for best practices, may also be available to show effectiveness in internal operations. Nonprofi ts may also offer tours or demonstrations to show off how well they function.

Stakeholder Satisfaction

Numerous parties, such as client groups, employees, volunteers, board members, unions, government regulators, the press, suppliers, customers, donors, contractors, collaboration partners, and competitors may infl uence or be infl uenced by a non- profi t organization. These stakeholders have varying degrees of legitimate claims and power to infl uence the organization’s behavior. The relative level of satisfac- tion of these stakeholders is an additional gauge of an organization’s effectiveness.

When we look at CANDO and BFA we see problems with important stake- holders. Without members willing to invest in the nonprofi t, CANDO was unable to survive. BFA got into trouble with the government and its investors, who lost an

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18 Managing Nonprofi t Organizations

estimated $570 million. Both these nonprofi ts were able to satisfy key stakeholders in their early years. For example, CANDO helped to improve the economic con- dition of residents of Chicago neighborhoods, and BFA helped Baptist ministries with funds and expertise. But in the end, the appreciation of what they did for these stakeholders was inadequate for their continued existence.

Some nonprofi ts’ primary function is to provide an outlet for participants’ ideas and beliefs. The nonprofi t allows volunteers, staff, and donors to express their values, commitments, or faith through their involvement in the nonprofi t. For these nonprofi ts, having high internal effi ciency may undermine this part of their purpose. It is less important for a Habitat for Humanity volunteer to use only the number of nails required than for the volunteer to be hammering and thus serving others. Far fewer nails would be used if only experienced construction crews were used on house-building projects. Similarly, community theaters may fi nd a job for all who wish to participate, even if the quality of a production suffers. Advocacy and religious organizations may ask all to join in song at events, even those who sing out of key. The benefi t is in the act of joining a community and sharing a common purpose. For these types of nonprofi ts, stakeholders’ satisfaction with their involvement in the nonprofi t can be a highly relevant effectiveness criterion.

Using a stakeholder satisfaction approach for evaluating effectiveness becomes more complex as the number and diversity of stakeholders that need to be considered grows. Stakeholders can have confl icting interests and make com- peting demands on an organization. For example, employees may want higher wages and a nicer work environment, whereas donors may want more of the budget to go to direct program services rather than to administrative overhead and labor and facilities costs.

Stakeholder mapping is a technique nonprofi t leaders can use to identify and strategize about stakeholders.7 Each stakeholder can be profi led to summarize the nature and strength of its interests or stake in a nonprofi t, the legal and ethical claims it can make on the nonprofi t, and its relative power. In addition a map can help in exploring what the nonprofi t needs from a particular stakeholder that it can or cannot get from other stakeholders. The map also can be used to show relationships among stakeholders in order to better develop strategies for managing groups that share interests and perspectives. Figure 2.1 is a simple stakeholder map with examples of possible priorities for communicating with different stakeholder groups.

Growth, Learning, and Adaptation

As a complement to the other approaches, evaluation can also focus on a non- profi t’s ability to respond to internal and external changes as well as its ability to

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Effective and Ethical Organizations 19

grow and continuously improve. Survival is a crude measure of effectiveness, as is growth in size of staff, budget, and services. Certainly a nonprofi t’s failure to remain relevant to stakeholders, as in the case of CANDO, may result in closure, but there may be other reasons. For example, a family foundation may decide to spend down its assets rather than use smaller payouts that would prolong its exis- tence. If a nonprofi t successfully completes its mission, as the March of Dimes did in its fi ght against polio, its leaders may choose to change the nonprofi t’s mission or perhaps, just as appropriately, choose to close.

The ability to adapt in order to capture new opportunities and reduce vulner- abilities and ineffi ciencies is a better indicator of effectiveness than mere survival but is more challenging to measure. It may be diffi cult to evaluate whether a change resulted in better outcomes than maintaining the status quo would have produced. With this approach, criteria for effectiveness include having a readiness

FIGURE 2.1. EXAMPLE OF A SIMPLE STAKEHOLDER MAP

Source: KnowHow NonProfi t, “Example Stakeholder Map,” http://www.knowhownonprofi t.org/ campaigns/communications/effective-communications-1/stakeholdermap.jpg/view. Reprinted by permission of KnowHow NonProfi t.

St ak

eh o

ld er

I n

fl u

en ce

o n

N o

n p

ro fi

t’ s

P o

lic y

an d

R es

o u

rc es

Stakeholder Interest in Nonprofit

Key Players Service users Major funders Local authority

Local MP [Member of Parliament] Trustees

Local media Staff

Keep Satisfied Housing minister National media

Partner organizations

Keep Informed Other funders

Local community

Monitor Wider general public

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20 Managing Nonprofi t Organizations

for change and an ability to learn, making continuous improvements in quality and effi ciency, and taking advantage of opportunities for innovations. This sug- gests that a decrease in assets should not by itself be taken as a sign of failure, just as an increase in assets should not be assumed to mean that the assets are being used effectively. A decrease in assets might occur because there is less need for funds due to the nonprofi t’s success in achieving its mission or because innova- tions resulted in greater effi ciency in services and thus decreased resource needs.

Taking a Balanced Approach

Balanced scorecards and other assessment tools speak to the need to keep multiple aspects of an organization in mind when judging effectiveness and looking for areas to improve. One simple model that can help leaders see the need to make changes in their nonprofi t without overemphasizing any one dimension of effec- tiveness is a triangle that identifi es three components of an organization: mission and mandates, internal capacity, and external support (Figure 2.2).8 Focusing too much on any one point of the triangle puts a nonprofi t out of balance. For example, if an organization focuses too much on gaining external support, it may experience mission drift, chasing money or other forms of external support like public accolades rather than pursuing its true purpose. If it emphasizes its mission and mandates without having the needed internal capacity, it may overpromise what it can deliver. If it focuses on building internal capacity beyond what the community needs, it is wasting resources. Preceding its closure, CANDO was weak on all three corners of the triangle, but its mission was arguably its weak- est point. It failed to fi nd a purpose that had adequate meaning for its members, resulting in their withdrawal of support and reducing the organization’s capacity.

There are many tools to help nonprofi ts keep the triangle in balance. For example, perhaps a careful needs assessment would have helped CANDO better

Mission and Mandates

Internal Capacity External Support

FIGURE 2.2. TRIANGLE OF ORGANIZATIONAL FOCI FOR BALANCING

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Effective and Ethical Organizations 21

align its mission with the interests of potential supporters. The BFA struggled to gain the external support and internal capacity to handle the demands of its asset management services, but if it had had better internal fi nancial controls, and a more feasible strategic approach to growth, perhaps it could have avoided its fi nancial losses.

� � �

Nonprofi t leaders need to manage inputs, processes, outputs, and stakeholders’ satisfaction as the organization grows, learns, and adapts to changing internal and external conditions. Use of the various approaches to judging effectiveness helps nonprofi t leaders to uncover aspects of a nonprofi t that need improvement, such as internal capacity, mission focus, and external support. Choices related to methods of understanding, pursuing, evaluating, and advertising effectiveness may involve ethical dilemmas. Therefore we turn our attention next to ethics for the nonprofi t sector.

Ethics for Nonprofi ts

The news media are full of stories of unethical behavior in nonprofi t organiza- tions. The public hears about embezzlement, infl uence buying, exploitation of vulnerable clients, and other abuses. Rates of misconduct by nonprofi t staff were reported to be higher in 2007 than in the previous six years, approaching but not quite matching the frequency reported for the government and for-profi t sectors.9 A 2008 study suggested that nonprofi t employees engage in lying more than their counterparts in for-profi t businesses do. The study author suggested that the higher prevalence of lying in nonprofi ts might be due to less bureau- cracy combined with more discretionary authority, the pressure to accumulate fi nancial resources for the organization, and the limited career mobility found in nonprofi ts.10

Unethical behavior is not always premeditated or understood to be wrong by everyone involved. Nonprofi t leaders may fail to see that their or their orga- nization’s actions are inconsistent with others’ values and norms or even the law. Ethical dilemmas abound: Is growth for growth’s sake OK when the inputs needed for growth could go to other nonprofi ts? Should nonprofi ts take donations from institutions that do not express the same values or are working at counter- purposes? How much transparency is appropriate in revealing client or donor information? How should confl icts of interests of board members and staff be handled? What is appropriate compensation for work performed? When is it OK to fi re a volunteer or end a program? Should a nonprofi t accept funding for a

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22 Managing Nonprofi t Organizations

program that is in danger of closing or that is less effi cient or effective than one offered by another provider? These are just some of the ethical judgments that nonprofi t leaders may face.

Ethical minefi elds within the nonprofi t sector have led to calls for greater accountability, government regulation, protection of whistle-blowers, and codes of conduct, all in the interest of ensuring that nonprofi ts act appropriately and according to established standards or accepted values. What, then, are the duties and obligations of nonprofi ts? What, from an ethical standpoint, should take precedence as a guide for organizational action? To begin to address these ques- tions, we look at four levels of ethics: personal, professional, organizational, and societal. At each level there are actors that serve as standard setters, moral guides, and watchdogs. As we proceed through the chapters, we will present resources available to keep nonprofi ts on an ethical path and to identify ethical dilemmas.

Personal Ethics

Everyone has a personal sense of right and wrong that he or she brings to the workplace. Individuals’ values and beliefs about appropriate and desired behaviors are developed through interactions with caregivers, teachers, entertainers, media, family, religious institutions, peers, and others.11 Ethical behavior tends to be linked to an individual’s demographic and personality characteristics.12 Youths tend to have less well-developed personal morality systems than adults do and tend to be more infl uenced by their peers. Researchers have long examined how personality affects ethical decision making. For example, they have found that individuals with an internal locus of control are more likely than those with an external locus of control to consciously make ethical decisions and to resist societal and authority pressures to harm another person. Locus of control refers to how much control and responsibility individuals believe they have over what happens to them. Those with a stronger internal locus of control believe they personally have more control and take greater personal responsibility for the consequences of their actions. Individuals with Machiavellian character traits believe that the ends justify the means and are more likely to do whatever it takes to achieve desired results, even if it involves deception and manipulation of others for personal gain. A lesson from the research on what predicts personal morality is that leaders should not assume that because someone is involved with a nonprofi t he or she is trustworthy and will know and follow what the nonprofi t leader accepts as ethical guidelines. The moral codes of the organization should be made clear to all to whom they apply, and organizational systems should be put in place to prevent and catch unethical behavior.

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Effective and Ethical Organizations 23

In some cases, moral codes may be controversial. For example, the Boy Scouts of America makes all Scouts memorize the organization’s oath and repeat this oath at Scout events:

On my honor I will do my best

To do my duty to God and my country

and to obey the Scout law;

To help other people at all times;

To keep myself physically strong,

Mentally awake, and morally straight.

The Boy Scouts of America has come under fire for its statements requiring belief in God and its position against homosexuality and its policy of expelling Scouts and troop leaders for lack of conformance. In Boy Scouts of America et al. v. Dale, the U.S. Supreme Court, pointing to the right of freedom of association, held that the organization could exclude homosexuals as adult leaders, a reversal of a lower court decision. The nonprofi t’s decision to interpret its code to allow exclusion of some individuals, despite public and legal protests, highlights how nonprofi ts may exercise their right to adhere to moral codes within the limits of the law, even if this means excluding individuals who are unwilling to accept the established interpretations of the organization’s code.

The work context can affect individual ethical conduct, so it is important for nonprofi t leaders to explain and reinforce what is and is not acceptable behavior. Even when individuals are exposed to the organizational leaders’ value systems, their greatest allegiance tends to be to their personal values. For example, even if everyone else in a workplace is getting benefi ts from being dishonest, an indi- vidual’s personal belief that dishonesty is wrong can be enough to override any temptation to lie.13 Given the likely variation in personal morality among individ- uals in an organization, nonprofi t leaders should evaluate the work setting to see if unethical behavior is being encouraged by overly high demands on workers that lead them to take inappropriate shortcuts, poor role models for ethical decision making, or compensation systems that make them feel it is OK to take resources from the organization because the pay is too low or because others do so without being sanctioned. The likelihood that employees will behave unethically increases when they perceive that the reward system is unfair, they are under excessive pres- sure to meet performance objectives, they are part of a group that is benefi ting from acting unethically, or they think their leaders do not have a commitment to ethical standards.14 When some individuals are seen to suffer no consequences from acting unethically, it may also infl uence others to be unethical, particularly if they do not have a strong internal value system.

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24 Managing Nonprofi t Organizations

Some nonprofi ts provide tools and training to shape ethical thinking and provide guidance for ethical dilemmas. Reminding workers and board members of profes- sional, organizational, and societal standards and codes can help keep unethical behaviors in check. Though individuals have predispositions to evaluate the ethics of a situation in a certain way, they are open to being infl uenced by company guide- lines, value statements, and codes of conduct.15 The goals of training should be to

• Build moral awareness. Help workers recognize situations involving ethi- cal issues.

• Frame moral decision making. Give workers tools to use in making deci- sions about whether or not actions are ethically sound.

• Clarify moral intent. Promote the values that should take priority in mak- ing decisions.

• Encourage moral action. Explain the consequences of compliance and noncompliance with ethical codes.16

Kenneth Blanchard and Norman Vincent Peale offer a simple way to encour- age ethical behavior.17 Adapting their ideas, nonprofi t workers should ask them- selves three general questions about a proposed action:

1. Is it legal? (Am I violating any laws or organizational policies?)

2. Is it balanced and fair to all concerned? (Will my action create a win-win situation?)

3. How will it make me feel about myself ? (Will I be proud of what I have done and willing to tell others what I did?)

If an employee can give positive answers to these questions, the action has passed a very basic ethics test. Nonprofi ts can further help workers judge whether an action will be acceptable by providing them with more detail on what issues to look at and how to look at them. For example, the World Wildlife Fund (WWF) guides workers’ ethical conduct in relation to its various stakeholders by elaborating on its code of conduct for employees in order to address behaviors toward other employ- ees, the public at large, governments and organizations, the media and opinion infl u- encers, corporate partners, suppliers and consultants, and the WWF institution.18 Focusing on specifi c behaviors—similar to the ones discussed in this book—the WWF code makes it clear that it is wrong to accept bribes, favor personal connec- tions in awarding contracts, be dishonest in working with corporations, fail to share credit with partners, discriminate against or prejudge others, or be disrespectful.

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Effective and Ethical Organizations 25

Professional Ethics

Some nonprofi t employees and volunteers are professionals, with a set of norms and rules that obligate them to act in certain ways as members of their specifi c professions. In the case of certifi ed professionals, breaking professional codes may cause them to lose their credentials and ability to legitimately practice their pro- fessions. In the United States, for example, doctors, lawyers, and certifi ed public accountants must adhere to codes for professional practice or risk losing their licenses. Membership in some professional associations is voluntary, and nonprofi t workers who join these groups may have a choice of whether or not to be certi- fi ed by them. For example, not all members of the Association of Fundraising Professionals have earned a CFRE designation (certifi ed fundraising executive). Members with that designation agree to follow the Donor Bill of Rights (see Exhibit 2.1) and the CFRE program accountability standards. This means that they agree to resign from any organization that attempts to force them to violate codes of conduct for the fundraising profession.

As more certifi ed professionals trained in ethical conduct for their professions enter the nonprofi t sector, we may see professional norms and standards spilling over to other job functions. Nonprofi t leaders can benefi t from identifying the sets of professional ethics that are applicable to their nonprofi t’s operations. By integrating professional standards for ethical conduct into their organization’s behavioral codes, they can avoid confl icts across standards and deepen the guid- ance they provide to workers.

Organizational Ethics

Nonprofi t leaders can foster organizational cultures that reinforce ethical behavior. One of the most infl uential methods may be to use values-based leadership. Top leaders can be role models for ethical behaviors and ensure that key values are infused into organizational policies and practices. Thomas Jeavons suggests that there are fi ve core attributes of ethical nonprofi t managers: integrity, openness, accountability, service, and charity.19 By personally demonstrating these attributes, leaders set the tone for the rest of the organization.

• Integrity: honesty writ large; full and accurate representation in all matters; adherence to professed principles

• Openness: transparency about rationales, approaches, actions, and outcomes

• Accountability: readiness to explain choices and answer for behaviors

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26 Managing Nonprofi t Organizations

EXHIBIT 2.1. THE DONOR BILL OF RIGHTS

Philanthropy is based on voluntary action for the common good. It is a tradition of giving and sharing that is primary to the quality of life. To ensure that philanthropy merits the respect and trust of the general public, and that donors and prospective donors can have full confi dence in the nonprofi t organizations and causes they are asked to support, we declare that all donors have these rights:

I. To be informed of the organization’s mission, of the way the organization intends to use donated resources, and of its capacity to use donations effectively for their intended purposes.

II. To be informed of the identity of those serving on the organization’s governing board, and to expect the board to exercise prudent judgment in its stewardship responsibilities.

III. To have access to the organization’s most recent fi nancial statements. IV. To be assured their gifts will be used for the purposes for which they were given. V. To receive appropriate acknowledgement and recognition. VI. To be assured that information about their donation is handled with respect and

with confi dentiality to the extent provided by law. VII. To expect that all relationships with individuals representing organizations of

interest to the donor will be professional in nature. VIII. To be informed whether those seeking donations are volunteers, employees of

the organization or hired solicitors. IX. To have the opportunity for their names to be deleted from mailing lists that an

organization may intend to share. X. To feel free to ask questions when making a donation and to receive prompt,

truthful and forthright answers.

Source: Association of Fundraising Professionals, “Donor Bill of Rights” (n.d.), www.afpnet.org/ ethics. Copyright © 2011, Association of Fundraising Professionals (AFP), all rights reserved. Reprinted with permission from the Association of Fundraising Professionals.

• Service: commitment to serve the public good and to the fulfi llment of the organizational mission over personal interests

• Charity: actualized concern for the welfare of others; treatment of others with love and respect

If leaders refl ect these values, and encourage others in their organizations to do the same, they can build and maintain trust in their nonprofi ts and dem- onstrate a strong commitment to ethics. Consider the example of the Detroit Zoo. When the zoo director was found to have lied about having a doctoral

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Effective and Ethical Organizations 27

degree in zoology, the zoo’s board decided to let him keep his job if he apolo- gized on the zoo’s Web site and accepted the board’s decision to dock him for a month’s pay of a little over $16,000. The zoo director wrote, “I accept the board’s sanctions with the seriousness with which they were given, and hope that my performance going forward will justify that they made the right deci- sion.”20 What message about values and ethical expectations did this send to the rest of the organization?

A variety of organizational structures and systems can be used to encourage ethical behavior and signal accountability. Large nonprofi ts may benefi t from hav- ing an ethics committee or ethics ombudsperson to serve as the point of contact and to open an avenue for refl ection and debate on possible ethical dilemmas or violations. Job application materials can be screened to weed out candidates with tendencies toward misrepresentation and fraud. Formal policies to support and protect whistle-blowers may help workers feel comfortable with raising concerns and challenging what they view as unethical policies or practices. Reward and punishment systems that are aligned with desired ethical behaviors may help to constrain bad behaviors and motivate good ones. Training programs and ori- entation manuals along with ethical codes can give guidance on how to handle situations and decisions with ethical implications. Paid employees, volunteers, and board members can be asked to sign confl ict-of-interest statements, reveal- ing those areas where their personal interests may confl ict with organizational interests. Internal controls can be used to check for compliance with ethical codes: for example, supervisors can occasionally review how and to whom services are provided to make sure that all those who are eligible and able to be served receive appropriate attention from workers.

Societal Ethics

Nonprofi ts, especially public charities, bear heavy expectations for ethical behav- ior. These organizations exist because the public and the government expect them to contribute to the public good. Self-serving behavior is antithetical to their roots as counterbalances to for-profi t corporations. Societal pressures encourage non- profi ts, and those working within them, to go beyond the letter of the law in the ethical level of their governance and operations.

Watchdog groups set standards for the nonprofi t sector and monitor behav- ior. By posting reports on how well nonprofi ts are meeting these standards, the watchdogs can encourage practices they believe to be good behavior. These groups exist with a focus on particular fi elds as well as on the sector as a whole. The National Charities Information Bureau, Charity Navigator, the American Institute of Philanthropy, insideGOOD, and the Better Business Bureau Wise

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28 Managing Nonprofi t Organizations

Giving Alliance are just a few of the organizations that try to keep nonprofi ts in check by informing potential donors, volunteers, employees, and others about nonprofi ts’ inputs, processes, and outcomes.

The legal environment for nonprofi ts also serves as a check on unethical behavior. Nonprofi ts are subject to many of the same laws that restrict for-profi t businesses and have additional rules that address their charitable, tax-related, and lobbying activities. At the federal level, the government attempts to control nonprofi ts through a range of mechanisms including disclosure and reporting requirements, registration of lobbyists, employment-related laws, tax struc- tures, and federal funding and contracting rules. States may also use tax structures, registration and reporting requirements, contracting rules, employment and lobbying laws, as well as insurance requirements, licensing, fundraising laws, and accounting and audit rules. At the local level, nonprofi ts may need to be in compliance by obtaining permits, such as parade or gaming permits, and honor- ing zoning and other codes. They may be subject to local probate court rulings regarding charitable bequests, cy pres petitions to change the giving mandates of a grantmaking foundation, and other matters. Lack of compliance with laws and court rulings at the federal, state, and local levels can result in fi nes and revoca- tion of benefi ts.

There is continued debate about the need for more regulation to encour- age nonprofi t accountability. Demonstrating this concern, in 2004 the Finance Committee of the U.S. Senate began holding hearings and asked for proposals for stricter regulation. In 2005, the Panel on the Nonprofi t Sector presented a report to Congress promoting the idea of enhanced self-regulation by the sector over increased government regulation and oversight, and in 2007, the panel produced a report with principles for good nonprofi t governance and ethical conduct.21 The topics covered in the report fi t four main categories: legal compliance and public disclosure, effective governance, strong fi nancial oversight, and responsible fundraising.

The enthusiasm and capacity for self-regulation by members of the non- profi t sector is mixed. Principles of practice developed by organizations serving as a voice for the sector, such as the INDEPENDENT SECTOR, have not been widely adopted. State-level efforts have seen more success. For example, the Standards for Excellence: An Ethics and Accountability Code for the Nonprofi t Sector, established by the Maryland Association of Nonprofi t Organizations, has many adherents.22 It has served as a model for other states’ efforts to promote ethical practices and accountability. Some trade associations offer accreditation and certifi ca- tion programs for nonprofi ts.23 Although they may produce codes of conduct and ask their nonprofi t members to adhere to them, monitoring and enforcement mechanisms are usually weak. Though nonprofi ts may prefer to be responsible

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Effective and Ethical Organizations 29

for keeping their houses clean, studies showing erosion of public confi dence in the nonprofi t sector24 may be the forbearer of increased government scrutiny and legislation.

Countries vary in the extensiveness of their regulatory landscape for non- profi ts. The scope and composition of the nonprofi t sector in each country varies widely, as do the rules under which that country’s government asks nonprofi ts to operate. In some countries, nonprofi ts are under a heavy government hand, as in Egypt where government employees are often assigned to work at nonprofi ts.25 The requirements for establishment and operations tend to be more rigorous in developed countries and countries where nonprofi ts get more advantages from government. Some countries, such as the Netherlands, have taken on the task of accrediting nonprofi ts and encouraging donors to give only to the accredited ones. Their hope is that nonprofi t accountability will be improved when there is a threat of lost donations from lack of compliance with accreditation standards.26 In some regions the nonprofi t sector is being reborn, and with it the legal struc- tures that encourage and constrain it. Eastern Europe, for example, is seeing a revival of interest in nonprofi ts, as organizations once discouraged in the com- munist regime acquire renewed legitimacy. The country setting does not affect just the legal environment for nonprofi ts, it also infl uences values, norms, and expectations. For example, gift exchange among business partners is considered good manners in Asia but may be interpreted as a bribe in the American con- text.27 Nonprofi t leaders operating in diverse cultural contexts are likely to fi nd a variety of interpretations of the ethics of situations and should be sensitive to cross-cultural differences.

Concluding Thoughts

This chapter has reviewed effectiveness and ethics for nonprofi t organizations. We have argued for a multidimensional approach to judging nonprofi ts. By looking at nonprofi t effectiveness from multiple angles, we gain complementary insights to guide practice and policies. Also, by identifying multiple levels of infl uence on ethics, we can see how ethical decision making may be shaped by nonprofi t lead- ers. Personal, professional, organizational, and societal values and norms should all be considered in establishing codes of conduct and compliance systems within a nonprofi t.

The next chapter explores the founding of nonprofi ts and the business case. Effective and ethical behaviors are shaped from the fi rst day that a nonprofi t is envisioned, and as the organization operates, value systems may become more and more ingrained. Understanding the complexity of judgments of effectiveness

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30 Managing Nonprofi t Organizations

and ethics can help nonprofi t founders and their successors to identify and address organizational weaknesses and to celebrate achievements.

Questions for Consideration

1. Nonprofi ts are increasingly being called on to be accountable for the resources and discretion they receive in order to operate. Given the multiple dimen- sions of effectiveness and the long-term, hard-to-quantify missions of many nonprofi ts, when should we feel confi dent that a nonprofi t is doing enough good to justify the resources and discretion given it?

2. What basic ethical standards do you think employees should uphold? Are these standards different for people who are working in a nonprofi t compared with people in a for-profi t organization? Why or why not?

3. What types of information do you think nonprofi ts should provide to the public in annual reports? What information should watchdog agencies pro- vide on the nonprofi ts they are monitoring? Can any of this information be misleading in judging a nonprofi t’s effectiveness?

Exercises

Exercise 2.1: Rough Stakeholder Map

One approach to evaluating effectiveness is to look at the satisfaction of stake- holders. To get a sense of how a particular nonprofi t is likely to be viewed by its stakeholders

1. Pick a nonprofi t organization and review its mission. List fi ve stakeholders (individuals, organizations, or institutions) that are likely to infl uence or be infl uenced by the nonprofi t. Be sure to include at least one internal and one external stakeholder.

2. Create a table with the columns shown in Table 2.1 and as many rows as you need, and fi ll it out for each stakeholder on your list of stakeholders.

3. Now, place each stakeholder into a simple stakeholder map like the one shown in Figure 2.1, showing your designation for that stakeholder (keep satisfi ed, monitor, keep informed, or key player).

4. Discuss the weaknesses of your analysis and the potential value of a more comprehensive stakeholder audit for a nonprofi t.

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Effective and Ethical Organizations 31

TABLE 2.1. STAKEHOLDER’S VIEW OF THE NONPROFIT

Stakeholder What Might This Stakeholder Want from the Nonprofi t?

What Does the Nonprofi t Want from This Stakeholder?

Type and Degree of Infl uence This Stakeholder Has over the Nonprofi t?

What Effectiveness Criteria Is This Stakeholder Likely to Use to Evaluate the Nonprofi t?

Exercise 2.2: Annual Report Analysis

Find an annual report of a nonprofi t.

1. What dimensions of effectiveness are covered in the report?

2. What measures are used to demonstrate effectiveness on each of these dimensions?

3. Are these good measures?

4. Does the annual report convince you that the nonprofi t is effective? Why or why not?

Exercise 2.3: Situations for Ethical Analysis

Thomas Jeavons argues that nonprofi t leaders should demonstrate integrity, open- ness, accountability, service, and charity. For each of the following situations, consider which of these fi ve values, if any, might be an issue, and describe how the potential issue should be addressed.

1. A nonprofi t signs a business contract with the fi rm owned by one of its board members. The contract was given without competitive bidding, and it is unclear whether the nonprofi t could have received the same services with the same quality at a better price from another fi rm. It is not illegal in the state where this nonprofi t is incorporated for board members to have self-dealings (for example, to make a contract with a board member’s fi rm).

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32 Managing Nonprofi t Organizations

2. Volunteers for a nonprofi t have access to personal information on donors and are sharing this with individuals outside the organization. They have revealed that a major donor listed as anonymous in the annual report is actually a well-known philanthropist in the area.

3. The annual report for a nonprofi t includes photos of individuals who have no association with the organization, but the placement of these photos makes it appear that these individuals were served by the nonprofi t.

Exercise 2.4: Multilevel Ethical Infl uences

Find an article about a nonprofi t scandal or controversy, or interview a nonprofi t leader about an ethical issue the leader faced. How did the ethical standards and values of each of the levels discussed in this chapter—personal, professional, organizational, and societal—come into play in the situation?

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33

CHAPTER THREE

FOUNDING NONPROFITS AND THE BUSINESS CASE

F eatured as one of twelve high-impact nonprofi ts in a best-selling business book,1 Teach For America is a poster child for a successful nonprofi t. What may be surprising is that the idea for the organization was developed in 1989 by a student at Princeton University for her under- graduate thesis. Founder Wendy Kopp didn’t treat her thesis just as an academic exercise. She raised $2.5 million in start-up funding, filled out the paperwork to legally establish the nonprofi t, and in 1990, began the organization’s work with a small staff. Today, Teach For America reaches more than 400,000 students across the country. Kopp’s idea that top college students would choose to teach in public schools if they thought they could make a real difference had resonance with a wide range of supporters and with the college students she succeeded in recruiting and developing into leaders for education reform. Kopp put in long hours to grow the organization, wondering at times if it would survive and adapting it to meet a series of challenges. It is now the largest source of teachers for low-income communities. She has written two books that help tell the story of Teach For America and its founding impulse to eliminate educational inequity in the United States.2 As a well-known social entrepreneur, Wendy Kopp has been a speaker at numerous seminars where she has encouraged others to pursue their ideas for new nonprofi ts. In a YouTube video she gives advice to entrepreneurs including “embrace your inexperience” and “search for allies.” 3

� � �

Many nonprofits are started every year, a small percentage of them by col- lege students who, like Wendy Kopp, develop their ideas in courses or through

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34 Managing Nonprofi t Organizations

service-learning experiences. In the United States the nonprofi t sector is growing faster than the government or business sector.4 Data from other countries also indicate the popularity of the nonprofi t form of organization.5

How do nonprofi t organizations get started? What is the business case for them? What factors support or hinder social entrepreneurs? What steps need to be taken to successfully launch a new nonprofi t organization? This chapter will address these and related questions. More details on the entrepreneur- ial process and social entrepreneurship in relationship to program and process innovations are covered in Chapter Sixteen, on organizational change and inno- vation. Here we focus on the entrepreneurial move to create a new nonprofi t organization.

Organizational Founding

Nonprofi ts, unlike biological entities, do not always have a clear birth date. An organization may receive legal recognition years after it began to serve the public. Legal recognition might also come before a nonprofi t has carried out any mission- related activities, held its fi rst board retreat, or opened a bank account. In this chapter we explore organizational founding, that is, birth, as one of the key stages of a nonprofi t’s existence.6

What happens when an organization is fi rst established can shape its nature for its entire existence. A founder may imprint norms and values that are hard to change, even after that founder leaves.7 Founders may determine how and to what extent the original mission can be altered. The governing board, initially chosen by the founder, may be more committed to the founder than to the organization and unwilling to challenge the founder’s wishes. The identity of the organization may become tied to the founder, making it diffi cult for a successor to be accepted or to change the ways in which the founder managed or led the nonprofi t. Over time the founder may actually harm the long-term health of the organization because of his or her central role and inability to give up control, a problem sometimes called founder’s syndrome.

Also, new nonprofi ts shape the collaborative and competitive environment around them. Other organizations may need to adapt in response to this new entrant in their fi eld of activity. The entrant may be an innovator organization, introducing new ideas to the fi eld, or a reproducer, replicating what others are already doing.8 Teach For America was an innovator, changing the way col- lege students got involved in teaching, and pushing a school reform agenda. As a consequence of its presence as a source of teachers, schools changed

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Founding Nonprofi ts and the Business Case 35

their practices in order to capture and leverage this new resource. Reproducers are new nonprofi ts that follow an established model, such as new additions to the Habitat for Humanity chapter network, private schools that are part of a national chain, and nonprofi ts that are similar in missions and approaches to other nonprofi ts that already exist in their communities.

Organizations can be founded in a number of ways. For example, organi- zations may be created by an individual entrepreneur with a new idea acting outside any existing organization, as in the case of Teach For America. They may be established through legislative action, as in the case of the American Red Cross, which was founded in 1881 by Clara Barton and a circle of her acquaintances and modeled after the International Red Cross. One of the old- est nonprofi ts in the United States, Harvard University, was established in 1636 by a vote of the Great and General Court of the Massachusetts Bay Colony. Nonprofi ts may be spun off from a larger, parent nonprofi t, as in the case of churches that spring from a parent congregation, or federated associations that set up chapters or affi liates. The American Cancer Society, for example, estab- lished local chapters and then, years later, transformed these local chapters into regional organizations.9

Some organizational transformations are so profound and radical that it can appear that one organization died and a fundamentally new one was born, though the original name and legal status may be retained. For example, Anthony Filipovitch describes the transformation of a volunteer-run commu- nity crisis care center into a community medical clinic.10 The organization moved from crisis care to chronic care, volunteers to paid staff, paper records to an integrated management information system, and per-visit medical care to an integrated case management system. Very little of the old organization was retained.

A number of environmental and individual factors are necessary for organi- zational founding and initial survival.11 Supportive environments offer resources, technology, rules, norms, and beliefs that allow a nonprofi t’s establishment.12 Research that examines the founding process through an entrepreneurship lens highlights helpful personal dispositions, traits, or attributes of entrepreneurs (founders) as well as what makes a nurturing context for the entrepreneurial pro- cess.13 In general this research reveals that founders are most successful in creating and keeping their organizations alive in infancy when they can access needed resources, operate under supportive government policies, and employ the discre- tion that comes with having a purpose and approach perceived by the public as legitimate. It is also helpful if they recognize and adopt strategies appropriate for the nonprofi t’s environmental conditions.14

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36 Managing Nonprofi t Organizations

Entrepreneurship for Social Benefi t

Although the term entrepreneurship was fi rst defi ned in the 1700s, to date there is no single widely accepted defi nition of the term. The economist Richard Cantillon (circa 1730) defi ned entrepreneurship as self-employment. Following this orientation, Jean Baptiste Say, in 1816, defi ned the entrepreneur as one who uses all means of production to create profi t through the value of the products thereby produced. The focus of these and related defi nitions is on the savvy businessperson seeking to exploit an opportunity to make a profi t.

An alternative orientation to entrepreneurship was put forth by Joseph Schumpeter in the 1930s. Schumpeter’s focus was on the entrepreneur as an innova- tor, on the creative drive itself, and on the impacts of entrepreneurship on industry and the economy, particularly on the “creative destruction” of industries and their replacement by new ones. This macro interpretation is especially important in that the goal of many social entrepreneurs is to address and correct major social prob- lems by means of innovations that have large-scale, transformative social impacts.

In 1986, Dennis Young helped turn attention to entrepreneurship in the nonprofi t sector. He distinguished nonprofi t entrepreneurs from other nonprofi t managers by the entrepreneurs’ engagement in breaking new ground and going beyond customary managerial practices or ordinary decision making.15 Thus, entrepreneurs are those innovators who found an organization, develop or expand programs and services, create new methods, or redirect the mission of a nonprofi t. Consistent with Young’s conceptual treatment, entrepreneurship can occur within organizations (sometimes referred to as intrapreneurship), through the creation of partnerships among existing organizations, or through the founding of a new organization. Our focus in this chapter is on organizational creation. More specifi - cally, we are interested in nonprofi ts emerging through social entrepreneurship.

Social Entrepreneurship

The term social entrepreneurship became popular in the 1980s. It refers to the creation of products, organizations, and practices that yield and sustain social benefi ts, and it captures the simultaneous pursuit of social and fi nancial returns on investment. Social entrepreneurs are change agents who pursue social objectives with innovative methods. In 2006, Paul Light noted the limitations of defi nitions that focused nar- rowly on social entrepreneurs as individuals and social entrepreneurship as a reliance on business methods in a nonprofi t context. As Light explains, a social entrepreneur can be any individual, group, network, organization, or alliance of organizations that seeks large-scale change through pattern-breaking ideas about the ways in which governments, nonprofi ts, and businesses can address signifi cant social processes.16

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Founding Nonprofi ts and the Business Case 37

Social trends and developments in the nonprofi t sector during the 1980s and 1990s provided the impetus for a growing interest in social entrepreneurship. Attention was spurred by

• Concerns that traditional approaches to basic social needs were ineffective

• An interest in innovative solutions bringing sustainable improvements

• An openness to market-based and businesslike approaches to social problems

• The privatization of public services and government contracting

• Outcomes-based rather than needs-based approaches to grantmaking and contracting

• Engaged, strategic approaches to corporate involvement in social and com- munity issues17

Social entrepreneurs can learn from their purely profi t-seeking business coun- terparts (commercial entrepreneurs)18 by adapting Sahlman’s PCDO model19 showing the importance of integrating people, context, deal, and opportunity in entrepreneurial ventures. Drawing from the PCDO model, Austin, Stevenson, and Wei-Skillern offer a social entrepreneurship framework (Figure 3.1) that shows the overlap of people and capital with opportunity to create a social value proposition in an environmen- tal context of tax, regulatory, sociocultural, demographic, political, and macroeco- nomic infl uences.

People and Capital The social entrepreneurship model emphasizes the people who actively partici- pate in the venture. The motivations of the people involved in commercial entrepreneurship on the one hand and in social entrepreneurship on the other are likely to be signifi cantly different. Economic self-interest is likely to play less of a role in social entrepreneurship than in commercial entrepreneurship. For exam- ple, Wendy Kopp was not motivated to create Teach For America to increase her personal wealth nor was personal gain a motive for her original investors. The people component is critical to Teach For America’s unique approach to a social problem. This nonprofi t selects “promising future leaders” from a range of edu- cational backgrounds, rather than experienced and certifi ed teachers. This choice of whom to involve refl ects a long-term social reform agenda that is as important, if not more important, than a short-term focus on classroom effectiveness. Also, as mentioned in this chapter’s opening scenario, Kopp sees the work of fi nding allies as critical to the success of a venture.

One of Kopp’s greatest challenges was fi nding the fi nancial resources to per- severe. Early in her efforts to build the organization she wondered if she would be able to pay the monthly payroll. Capital is a critical component of entrepreneurial

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38 Managing Nonprofi t Organizations

ventures. One of the newest options for capital for some social entrepreneurs is social impact bonds. Started in the United Kingdom and now gaining interest in the United States, this fi nancing mechanism is built on the idea of paying for performance. The government makes payments to private and philanthropic investors for projects that demonstrate measurable success. The goal is to save the taxpayers money and attract new fi nancing to address social problems.20

Context Contextual elements outside the control of the entrepreneur infl uence success or failure. Commercial and social entrepreneurship ventures may be subject to different regulatory, fi nancing, tax, sociopolitical, and other infl uences. The non- profi t Teach For America, for example, has to rely on its alumni base to accom- plish its school reform agenda. It also has to rely on schools to accept its teachers and allow them to be effective. Unlike for-profi t fi rms, it can accept donations

Social Value

Proposition

Opportunity

CapitalPeople

Regulatory

Socio-C ultural

Ta x

Political M

ac ro

ec on

om yD

em ographics

FIGURE 3.1. SOCIAL ENTREPRENEURSHIP FRAMEWORK

Source: From James Austin, Howard Stevenson, and Jane Wei-Skillern, “Social and Commercial Entrepreneurship: Same, Different, or Both?” in Entrepreneurship Theory & Practice, vol. 30, issue 1, 1–22. Copyright © 2006 John Wiley & Sons, Inc. Reprinted with permission.

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Founding Nonprofi ts and the Business Case 39

that qualify the givers for tax deductions. Once Teach For America teachers get to the classroom, and especially once their term of service ends, there is little the nonprofi t can do to manage their activities. As the Teach For America Web site states: “Armed with the experience, conviction, and insight that come from lead- ing children to fulfi ll their potential, our alumni are working from all sectors to shape our schools, policies, and investments in low-income communities.”21 The alumni and philanthropic contexts, among others, are critical to the achievement of the Teach For America mission. Other nonprofi ts as well have unique contex- tual factors that affect their ability to achieve their mission.

Social Value Proposition A project’s or organization’s social value proposition addresses the reasons why individuals will choose to be involved in a particular effort over other alternatives. For Teach For America, it explains why college students are willing to forgo larger salaries to devote time to teaching in schools serving low-income neighborhoods when teaching is not their long-term career objective, why schools will accept Teach For America teachers over more experienced and certifi ed instructors, and why donors are willing to share their resources in exchange for a promise that the nonprofi t will work to close students’ achievement gap. The social value proposition typically speaks to fundamental values that the people involved in an enterprise’s transactions hold dear, such as the importance of social equity, justice, spiritual well-being, honesty, self-respect, freedom, and integrity.

Opportunity For a social entrepreneurship enterprise to be successful, enough individuals need to believe that it has a chance to achieve a desired future state. This creates the opportunity for the enterprise to have the needed market for the venture. Social entrepreneurs identify something they can do that others are not doing because it is not viable within existing commercial markets. Teach For America, for example, took advantage of the opportunity to put people with its agenda into low-resourced schools needing teachers. By doing so, it could encourage greater passion for school reform and create future leaders to drive change. It also could help schools that otherwise might not be able to afford to increase capacity to improve students’ educational experiences. A defi cit of teachers combined with individuals’ latent interest in short-term teaching experiences created the oppor- tunity for an organization such as Teach For America.

� � �

If any of the major elements in Austin, Stevenson, and Wei-Skillern’s model are not adequately aligned, the entrepreneurial venture is likely to fail. For example,

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40 Managing Nonprofi t Organizations

if a new law were to be passed requiring that all high school teachers have an edu- cation degree (context), the types of individuals selected by Teach For America would need to change (people), requiring more fi nancial resources for hiring (capital), eventually affecting the nonprofi t’s chance to nurture future leaders for education reform through fi rsthand classroom experience in low-income schools (opportunity), and ultimately making it more challenging to close the achievement gap (social value proposition).

Consideration of the differences between social entrepreneurship and com- mercial entrepreneurship involves a number of implications for practice. Social entrepreneurs, more than commercial entrepreneurs, need to pay attention to

• Centrality of social value. This must be the first and foremost consideration.

• Organizational and environmental alignment. Alignment with the social interests of external supporters may be needed to deliver social value. For example, social entrepreneurs operating under nonprofi t status cannot tap into the same capital markets as commercial entrepreneurs, given that they cannot distribute surpluses to investors.

• Organizational boundaries. Boundaries may need to be more fl exible. For example, Ashoka Fellows pursue their social entrepreneurship visions while receiving support both fi nancially and professionally from Ashoka. They may even join together to leverage the impact of their individual organizations. Their entrepreneurial efforts cross organizational boundaries.

• Cooperation. Social value may be enhanced by cooperation instead of com- petition. Decisions may be made to allow another organization to have more commercial profi t in order to maximize the overall social benefi t. Social entre- preneurs may recognize that they can have a greater social impact if they work as part of a coalition rather than as independent actors.

Entrepreneurial Process

The entrepreneurial process involves all the functions, activities, and actions that are associated with perceiving and pursuing opportunities. It has the following components:22

• Formation of an idea that is recognized as an opportunity

• Decision to start a new organization to pursue the opportunity

• Development of plans

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Founding Nonprofi ts and the Business Case 41

• Determination of resource needs and acquisition of initial capital

• Development and implementation of strategies for market entry

• Acquisition of resources for growth and development of growth strategies

• Launch and growth

• Harvest (that is, achievement of benefi ts)

Entrepreneurial success is influenced by a combination of individual, social, organizational, and environmental factors.23 Personal attributes interact with environmental opportunities and role models to infl uence the innovation (idea creation) stage. These and other personal factors, such as job dissatisfac- tion or commitment, social factors, such as networks and family, and environ- mental factors, such as resources and competition, may infl uence the decision to launch the venture. Market, resource, and other environmental factors; per- sonal managerial talent; and organizational capabilities will likely infl uence the planning, initial implementation, growth, and end stages. Recent research has concluded that there is no set of psychological or behavioral attributes that can defi nitively differentiate entrepreneurs from other individuals.24 Although not conclusive, studies have, however, found high levels of locus of control and risk taking and a need for independence and achievement to be related to entrepreneurship.25

Recognition of an Entrepreneurship Opportunity

Where do ideas for entrepreneurship come from? Arthur Brooks suggests that changes in technology, public policy, public opinion, tastes, or society and demo- graphics can inspire entrepreneurial activity.26 Peter Drucker lists seven spurs for innovative idea creation:27

• The unexpected in an organization, including success, failure, or some other event

• An incongruity between reality as it actually is and reality as it is assumed to be or as it “ought to be”

• The changing needs of internal organizational processes

• Surprising changes in industry or market structure

• Demographic changes

• Changes in perception, mood, or meaning

• New knowledge (both scientifi c and nonscientifi c)

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42 Managing Nonprofi t Organizations

Each nonprofit’s founding story is unique. For example, the founders of Alcoholics Anonymous rejected the prevalent idea that alcoholism was a personal moral failing and wanted to create an organization that would help alcoholics fi nd a greater power to overcome their problem. One of the founders had a spiritual awakening that led him to work the rest of his life to bring freedom and peace to other alcoholics.

The World Wildlife Fund was created by sixteen of the world’s leading con- servationists out of a shared understanding that the expertise to protect the world environment existed but fi nancial resources were inadequate to support the con- servation movement on a worldwide scale. They determined that a new orga- nization was needed to fundraise internationally and collaborate with existing organizations.

The March of Dimes was created by President Franklin Roosevelt, who struggled with polio during a time when that disease was on the rise. He wanted to use the organization to raise money to fi ght polio and deliver aid to those suf- fering from it.

Share Our Strength began in response to the 1984 to 1985 famine in Ethiopia, with the idea that everyone can contribute to the global fi ght against hunger and poverty and that sustainable solutions lie in sharing everyone’s strengths. The founders were correct in thinking that they could create an organization to mobi- lize industries and individuals to use community wealth for lasting change.

Jerry Kitzi offers some advice for those wishing to identify new opportuni- ties.28 He suggests looking at a service or product through a different lens to see what value could be added. For example, do users view and experience a service differently from the way volunteers or staff do? He also suggests challenging old assumptions. For example, do new technologies change what can be offered and how? And he recommends brainstorming with current colleagues, competitors, and customers to develop new ideas. Rather than operating under the adage “If it isn’t broken, don’t fi x it,” an entrepreneur searching for an opportunity may wish to pursue the question “How can we make it better?”

Making a Business Case for a New Nonprofi t

New ideas for providing social benefits or making social improvements need to be evaluated before these ideas are judged to be opportunities. Once they are so judged, the entrepreneurship process moves into the organization-creating stage. Jerry Kitzi presents an opportunity assessment framework for social entrepre- neurship.29 The idea for a new organization can be assessed on three dimensions:

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Founding Nonprofi ts and the Business Case 43

• Social value potential. Does it have strategic alignment, achievable out- comes, partnership or alliance potential, and organizational benefi t?

• Market potential. Does it tap user needs and desires, generate funder inter- est, and have the ability to capture market share?

• Sustainability potential. Can the idea be developed and implemented to have more benefi ts than costs, as well as adequate income potential, organiza- tional capacity, and funder interest?

Figuring out the social value, market, and sustainability potential of a new nonprofi t is critical to the development of a written business plan. A business plan can help the idea originator and potential supporters evaluate the feasibility and needs of a new nonprofi t. The plan includes an assessment of the environ- ment and lays out the business concept, helping to justify investments in the orga- nization’s development. The business plan should include fi nancial projections, program objectives, and operational goals, along with a timeline to help leaders defi ne and measure progress.

The business plan differs from the strategic plan in its purpose and content. The strategic plan explains how an organization will achieve its objectives over a specifi ed period of time. It provides an internal roadmap for obtaining and using resources to achieve the mission. Typical elements of the strategic plan are a vision statement, mission statement, goals, objectives, action plans, risk analysis and contingency plans, competitive analysis, and fi nancial outline.30 Strategic plans change over time in order to give timely guidance for running the organization so as to pursue agreed-upon goals. The use and development of strategic plans will be discussed in more detail in Chapter Five, on formula- tion of strategy.

In contrast the business plan is written for an external audience, rather than as guidance for internal workers (employees, volunteers, and board members). It explains to outsiders the fundamentals of the nonprofi t organization, showing why those involved think that it is viable and serves a useful purpose. The business plan positions the nonprofi t in the larger environment. It may be shared with an outsider to raise money, fi nd a partner, get a loan, attract new leaders, and check assumptions about the viability and value of the nonprofi t.

The following is a generic outline of the topic headings for a business plan:

• Title page. Gives the title of the document, the name of the organization, the names of the board members and the executive director, and contact information.

• Table of contents. Lists the topics covered in the plan.

• Executive summary. Summarizes the content of the plan.

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44 Managing Nonprofi t Organizations

• Mission and organizational description. Gives an overview of the organi- zation, answering basic questions about its purpose, history, form, size, accom- plishments if any, and capacity.

• Market analysis and environmental assessment. Shows the reader that there is suffi cient demand and willingness to cover costs for the product or service, and describes the competitive and collaborative environment.

• Services or products to be offered. Explains what will be offered and why; goes into depth on the mission and vision of the organization and on its objectives.

• Operations. Describes how the service or product will be produced and delivered.

• Marketing plan. Explains how the product or service will be positioned in the market and promoted to attract clients and consumers.

• Board of trustees. Explains who has governing authority in the organiza- tion and describes the board structure and bylaws; may include résumés.

• Membership. Explains qualifi cations for membership (if the organization has members) and any dues structure; describes benefi ts and rights given to members based on their membership classifi cation.

• Management and personnel. Describes the executive team and the other personnel who will be running the day-to-day operations of the organization; includes a discussion of the volunteer program, if applicable; includes résumés of key staff members.

• Funds required and their expected use. Explains what is needed for the organization to be set up and to thrive; shows donors and investors how their contributions fi t into the organization and how contributions will be solicited and stewarded.

• Financial statements and projections. Gives detailed fi nancial state- ments, budgets, cost estimates, and revenue projections.

• Appendices and exhibits. Provides supporting documents and supplemen- tary information.

Business plans do not need to be long, elaborate documents. They should concisely and clearly state what business the nonprofi t is in and the social value proposition. It should be clear who is being served and how, avoiding jargon specifi c to the industry. The reader should be able to clearly ascertain what the organization is providing to the target market and why the market would fi nd

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Founding Nonprofi ts and the Business Case 45

this product or service desirable. The fi nancial statements should be realistic and consistent with other sections of the business plan. Sample business plans can be found on the Internet as well as in some texts on nonprofi t entrepreneurship.31

Exhibit 3.1 displays the table of contents and executive summary for NPower Basic’s business plan submitted in 2005 to the Yale School of Management, Goldman Sachs Foundation, and Partnership on Nonprofit Ventures.32 NP-Basic is a workforce development program involving disen- franchised youth from underserved communities who have received training in delivering computers and technical support to resource-strapped nonprofi ts. The business plan lays out how every dollar invested in NP-Basic returns six- teen dollars to the community in the form of jobs and nonprofi ts that are more productive after receiving computing equipment and technical assistance.

Nonprofi t Vision and Mission Statements

Perhaps the most important elements of the business plan are the vision and mission statements. The vision statement expresses a nonprofi t’s ultimate goal, and the mission statement guides the actions of the organization and inspires employees and investors. The mission statement should convey the nonprofi t’s essential purpose, approach, and values, distinguishing it from other organiza- tions. Its words are often the ones most repeated to explain why the nonprofi t exists. It should be concise and jargon-free so that it is easy to understand for those who are not familiar with the nonprofi t and easy to use as a touchstone for those most connected to the nonprofi t. Following are a few one-sentence mission statements that address purpose, approach, and values:

United Way improves lives by mobilizing the caring power of communities around the world to advance the common good.

St. Vincent Hospital is a medical institution dedicated to providing quality patient care with unrelenting attention to clinical excellence, patient safety, and an unparalleled passion and commitment to assure the very best healthcare for those we serve.

The National Trust for Historic Preservation provides leadership, educa- tion, and advocacy to save America’s diverse historic places and revitalize our communities.

The mission of the Urban League movement is to enable African Americans to secure economic self-reliance, parity, power and civil rights.

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46 Managing Nonprofi t Organizations

EXHIBIT 3.1. NPOWER BASIC BUSINESS PLAN, APRIL 2005

Table of Contents

1. Executive Summary 1 2. Description of Social Business Venture 3

2.1 Rationale 3 2.2 Mission 4 2.3 Target Market 4 2.4 Business Model 4 2.5 Value Proposition 6 2.6 Social Return on Investment 7 2.7 Business Objectives 9 2.8 Track Record 9 2.9 Leadership Team 10

2.10 Critical Success Factors 10

3. Industry and Market Analysis 11

3.1 The Target Market for NP-BASIC 11

3.2 Segment Analysis 12

3.3 Market Acceptance 13

3.4 Competitive Analysis 14

3.5 Summary of Major Competitors 15

3.6 Competitive Advantages 16

3.7 Summary of Competitive Advantages 17

4. Marketing Plan 17

4.1 Marketing Objectives 17

4.2 Product 18

4.3 Placement and Distribution 19

4.4 Pricing 20

4.5 Promotions Plan 22

4.6 Performance Milestones 22

5. Management Plan 22

5.1 NP-BASIC Team (Year One) 23

5.2 Commitment and Coordination with Parent Nonprofi t (NPower NY) 24

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Founding Nonprofi ts and the Business Case 47

6. Operations Plan 25

6.1 Staffi ng 25

6.2 Implementation 25

6.3 Ongoing Services 26

6.4 Internal Operations and Continuous Improvement 27

6.5 Sales Management and Oversight 27

7. Financial Plan 28

7.1 Pro Forma Statement of Activities 28

7.2 Pro Forma Statement of Financial Position 30

7.3 Pro Forma Statement of Cash Flows 31

8. Risk Assessment, Sensitivity Scenarios, and Contingency Plan 31

9. Appendices 36

Executive Summary

NPower Basic (“NP-Basic”) combines a successful workforce development program for disenfranchised youth with an all-in-one technology service that uses a “hub and spoke” model to meet the basic technology needs of nonprofi ts. Staffed in part with graduates of NPower’s workforce development program, the service offers a network of preconfi gured and software-loaded desktop computers and provides installation, monitoring, maintenance, remote support, a help desk, and onsite technical assis- tance visits. NP-Basic offers critical products and state-of-the-art support at low prices by achieving economies of scale and receiving direct donations of expensive software and hardware from Microsoft and Cisco.

The service’s social value is reinforced by its commitment to hire staff from New York City’s underserved communities. NP-Basic recruits entry-level staff from a workforce development program known as the Technology Service Corps (TSC), which is run by its parent organization NPower NY. TSC is a twelve-week intensive training program that teaches urban young adults aged eighteen to twenty-four a unique combination of technical and professional skills, and provides mentoring by NPower NY’s senior consult- ing staff and hands-on service to the nonprofi t community. Since 2002, TSC has gradu- ated and found jobs for nearly one hundred out-of-school youth who were previously in low-wage, dead-end jobs or who were unemployed, incarcerated, or even homeless. TSC has been the ticket to a meaningful future for these individuals and a path to a lifelong career. Typically wages rise approximately 133 percent to over $26,000 post- program and on an hourly basis, post-TSC wages ($12.75/hour) are 113 percent higher than minimum wage ($6/hour) in New York City.

NP-Basic’s social return on investment is 16. This means that for every dollar invested in NP-Basic, more than $16 is returned to the community in the form of more productive nonprofi ts and more jobs for previously disenfranchised youth.

(continued)

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48 Managing Nonprofi t Organizations

Earned income for this venture is generated by charging low setup and mainte- nance fees for each installation. NP-Basic’s target customers are the decision makers at the nearly 3,500 small New York City nonprofi ts that have fewer than ten staff and operating budgets of less than $1 million. Organizations ranging from small community-based social service organizations to local performing arts groups will be the initial target audience for NP-Basic.

Key Objectives

• To help resource-strapped nonprofi ts obtain the technology support they need while saving money that can be applied to further their organizational missions.

• To gain a 3 percent market penetration of the initial target market for NP-Basic by Year Three (approximately one hundred New York City nonprofi ts). The total spending power of these one hundred nonprofi ts is $50 million to $100 million, and together they employ three hundred to fi ve hundred people.

• To provide a supportive work environment for graduates of NPower NY’s workforce development program, TSC. NPower Basic will provide 221 six-month rotations through its help desk for TSC graduates.

By leveraging potential underwriting, corporate affi liations, and TSC, NP-Basic delivers a critical high-quality service at an affordable cost with important community benefi ts.

Potential competitors include Dell, value-added resellers (VARs), other man- agement service providers, consultants, small organizations offering information technology (IT) services ancillary to their primary missions, and savvy internal staff who by default, or in rare cases by design, have taken on an IT management responsibility.

NP-Basic enjoys key competitive advantages over these alternatives including: (1) access to broader resources available through NPower NY such as software and product donations, foundation support for technology capacity building, and a steady labor pool of entry-level technicians from its TSC program; (2) proven experience and strong relationships with small nonprofi ts through NPower NY’s four years of success- ful and well-regarded service to these customers; (3) the lowest pricing available to this segment; (4) a comprehensive service offering that includes hardware, software, and services; (5) technologically advanced information protection through state-of- the-art server backups; (6) a strong history of customer service that focuses exclusively on nonprofi t organizations; and (7) a compelling social value through its incorpora- tion of TSC and provision of affordable technology services to nonprofi t organizations.

The marketing plan for NP-Basic is designed to acquire new customers through a combination of print and electronic media, including advertising, sponsorship of technol- ogy events, and promotion through its Web site. NP-Basic also will target the NPower NY client base, its foundation supporters, additional foundations that support small non- profi ts, umbrella nonprofi ts, and nonprofi t incubator groups to market the service.

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Founding Nonprofi ts and the Business Case 49

NP-Basic is run by the Director of Services and Strategy who has more than thirteen years of managerial, service, and operational experience. In addition, the Senior Manager of Service Delivery has nineteen years of technical and business expertise, having worked at prominent private sector technology companies includ- ing Microsoft, EDS, and Razorfi sh. NP-Basic also benefi ts from a strong commitment from NPower NY’s board of directors and senior management, who bring a successful fundraising track record, sales expertise, workforce development skills, and technical leadership, as well as critical shared resources for marketing, fi nance, and human resources that keep operating costs at a minimum.

NP-Basic operations take place in three places: shared space at NPower NY head- quarters, its client sites, and most signifi cantly, cyberspace. Typically the process is as follows: nonprofi ts place orders with an NP-Basic salesperson, an on-site assessment is done, computers and other hardware are ordered and confi gured with software, the system is installed at the client site, and services start immediately with constant monitoring, maintenance, and customer support through a help desk and via remote support. From start to fi nish this process can take as little as seven days, although the processing of the donations may lengthen it somewhat. The team meets on a weekly basis to review key metrics and goals.

NP-Basic projects a three-year Pro Forma Statement of Activities indicating earned revenue growth of 61 percent in its second year and 103 percent in Year Three reaching revenues of $500 thousand in Year Three. Major risks include not being able to reach sales targets, higher-than-anticipated costs, being unable to sustain the service at a price that small nonprofi ts can afford, providing inconsistent quality of service, and being unable to retain a high-performing management team. Careful growth, management, and cost control will mitigate each of these risks and allow the venture to remain sustainable and successful even while managing multiple and, oftentimes, unpredictable risks.

Source: Adapted from NPower Basic Business Plan April 2005, http://faculty.maxwell.syr.edu/ acbrooks/pages/Courses/Documents/Soc%20Ent/NPowerNY.pdf. Reprinted with permission.

Establishment Process

Entrepreneurs have a range of options for proceeding with their idea of creating a new nonprofi t. This section outlines the choices and steps that move this idea into reality in the legal environment of the United States. In other countries with other laws and regulations, options for form and process may vary.

There are many reasons to formally establish a nonprofi t. Once formalized, it takes on an identity beyond that of its founders. This is helpful in limiting the liability of individuals associated with the nonprofi t and helping to ensure that the organization continues after the founders leave. Once it has gained legal

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50 Managing Nonprofi t Organizations

recognition, the nonprofi t has the ability to take out loans, make contracts, and keep property and other assets in the organization’s name. It also acquires added credibility, making it more likely to be able to attract donations and other sup- port. In addition, the nonprofi t can get benefi ts that are specifi c to its chosen legal form.

One of the fi rst options is whether to set up the nonprofi t as an unincorporated association, charitable trust, or nonprofi t corporation. Unincorporated associations are the simplest legal form; they can have a bank account in their name and contributions to them are tax deductible. They have few other benefi ts but also minimal record- keeping requirements. The charitable trust is a common legal form in many other countries but has relatively limited use in the United States. In the United States, this form tends to be used by organizations whose purpose is to make grants. The most common type of legally recognized nonprofi t in the United States is the nonprofi t corporation.

Nonprofi t corporations may be either public benefi t organizations or mutual ben- efi t organizations. Public benefi t organizations are primarily public serving. They fi t into the IRS (Internal Revenue Service) classifi cation system as 501(c)(3) and some of the 501(c)(4) organizations. Mutual benefi t organizations are primarily member serving and consist of some of the 501(c)(4) organizations and the other nonprofi t tax classifi cations, except for the (c)(3)s. See Exhibit 3.2 for a listing of all the IRS classifi cations used for organizations that may qualify for tax exemptions.

When we think of nonprofi ts, most individuals think of 501(c)(3) organiza- tions. These nonprofi ts are defi ned by the IRS as “religious, educational, char- itable, scientifi c, literary, testing for public safety, to foster certain national or international amateur sports competition, or prevention of cruelty to children or animals organizations.” The appeal of becoming a 501(c)(3) organization is that the nonprofi t gains increased receptivity to appeals for support, tax deduct- ibility for donors, eligibility for low-cost mailing permits, exemption from some taxes, ability to apply for gambling permits in some states, eligibility for government and foundation contracts and grants, and discounts from some busi- nesses. However, once established as a 501(c)(3) organization, the nonprofi t is not allowed to engage in political campaigning, is subject to limits on lobbying and unrelated business activity, must ensure that social activities for participants are insubstantial if they are unrelated to its mission, and must also ensure that no excess benefi ts or inurements go to staff or board members or to their relations. More information on restrictions is provided in Chapter Fourteen, on public and government relations.

The (c)(3) classifi cation is not available to all nonprofi ts. Some entrepreneurs who wish their organizations to engage heavily in advocacy choose to pursue a 501(c)(4) rather than a 501(c)(3) classifi cation. As a (c)(4) the nonprofi t can do more lobbying. Other classifi cation choices are well suited to associations that

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Founding Nonprofi ts and the Business Case 51

EXHIBIT 3.2. ORGANIZATIONS THAT MAY QUALIFY FOR TAX EXEMPTIONS UNDER IRA RULES

501(c)(1) Corporations Organized Under Act of Congress (including Federal Credit Unions)

501(c)(2) Title Holding Corporation for Exempt Organization 501(c)(3) Religious, Educational, Charitable, Scientifi c, Literary, Testing for Public

Safety, to Foster National or International Amateur Sports Competition, or Prevention of Cruelty to Children or Animals Organizations

501(c)(4) Civic Leagues, Social Welfare Organizations, and Local Associations of Employees

501(c)(5) Labor, Agricultural, and Horticultural Organizations 501(c)(6) Business Leagues, Chambers of Commerce, Real Estate Boards, etc. 501(c)(7) Social and Recreational Clubs 501(c)(8) Fraternal Benefi ciary Societies and Associations 501(c)(9) Voluntary Employee Benefi ciary Associations 501(c)(10) Domestic Fraternal Societies and Associations 501(c)(11) Teachers’ Retirement Fund Associations 501(c)(12) Benevolent Life Insurance Associations, Mutual Ditch or Irrigation

Companies, Mutual or Cooperative Telephone Companies, etc. 501(c)(13) Cemetery Companies 501(c)(14) State-Chartered Credit Unions, Mutual Reserve Funds 501(c)(15) Mutual Insurance Companies or Associations 501(c)(16) Cooperative Organizations to Finance Crop Operations 501(c)(17) Supplemental Unemployment Benefi t Trusts 501(c)(18) Employee Funded Pension Trust (created before June 25, 1959) 501(c)(19) Post or Organization of Past or Present Members of the Armed Forces 501(c)(21) Black Lung Benefi t Trusts 501(c)(22) Withdrawal Liability Payment Fund 501(c)(23) Veterans Organization (created before 1880) 501(c)(25) Title Holding Corporations or Trusts with Multiple Parents 501(c)(26) State-Sponsored Organization Providing Health Coverage for High-Risk

Individuals 501(c)(27) State-Sponsored Workers’ Compensation Reinsurance Organization 501(c)(28) National Railroad Retirement Investment Trust 501(d) Religious and Apostolic Associations 501(e) Cooperative Hospital Service Organizations 501(f) Cooperative Service Organizations of Operating Educational Organizations

Note: Other organizations that may qualify for exemption, such as 501(c)(24)s and farmers’ cooperative associations that fall under section 521, are not included in this IRS organization reference chart. Source: Derived from Internal Revenue Service, Tax-Exempt Status for Your Organization, IRS Publication 557 (October 2010).

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52 Managing Nonprofi t Organizations

primarily work to serve their members, such as labor unions(c)(5), recreational clubs (c)(7), and industry and trade groups(c)(6).

In establishing a 501(c)(3) it is necessary to determine whether the organiza- tion is a private foundation or a public charity. The organization will be deemed a private foundation unless it fi ts one of the exception areas or can meet the tests to be a public charity under Section 509(a) of the Internal Revenue Code. There are two types of private foundations: operating and nonoperating. Nonoperating foundations do not administer substantial programs or services other than their grantmaking operations. Private foundations must not self-deal (contract with staff or board members’ businesses) and must meet minimal requirements for distributing their assets, abstain from excess business holdings, and refrain from certain expenditures. Public charities get more tax exemptions, less burdensome reporting requirements, and additional fundraising opportunities.

A nonprofi t is considered a public charity if it is any of the following:

• A church, or convention or association of churches

• A school

• A hospital, cooperative hospital service organization, or medical research orga- nization operated in conjunction with a hospital

• A government unit as described in section 170(c)(1) of the Internal Revenue Code

• An organization operated solely for the benefi t of a government-owned college or university

• A recipient of substantial support in the form of contributions from a publi- cally supported organization, a government unit, or the general public

• An organization that normally receives not more than a third of its support from gross investment income and more than a third from contributions, mem- bership fees, and gross receipts from activities related to its exempt functions (subject to exceptions)

Once the founder decides what legal form to pursue, an application can be made to the federal government for a defi nitive ruling, based on support the organi- zation has received to date, or an advance ruling, based on support the organization will receive during its fi rst fi ve tax years.

However, instead of pursuing an IRS designation for a new nonprofit, a founder may pursue fi scal sponsorship for his or her product or service, estab- lishing it as a program under an existing nonprofi t, or the founder may have the new venture’s fi nances and donations administered through a donor-advised fund of a community foundation, thus negating the need for a more advanced form

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Founding Nonprofi ts and the Business Case 53

of legal recognition as an unincorporated corporation, independent charitable trust, or nonprofi t corporation.

A founder may take other steps to formalize a nonprofi t besides applying for recognition of tax exemption from the IRS and obtaining a definitive or advance ruling. One of the fi rst steps is to obtain an employee identifi cation number. This number is particularly important if the nonprofi t will be hiring employees. Some nonprofi ts, such as hospitals and universities, may need to obtain con- sents to operate from state and local authorities. Consents may be required if a government is trying to restrict the number of nonprofi ts of a certain type in a geographical area.

At the state level it is necessary to prepare and submit articles of incorpo- ration. The articles of incorporation tend to be a very simple document that describes basic facts about the organization—the founders, contact information, and basic purpose. Bylaws that describe the rules under which the board of the nonprofi t will function are also needed and should be fi led with the state. Bylaws are described in greater depth in Chapter Nine, on boards and governance. In some states it is necessary to register to fund raise and lobby, and to apply for exemption from state income and property taxes.

After their nonprofi t’s formal incorporation, founders need to have the mind- set that the nonprofi t is no longer their organization. It exists to serve a public pur- pose. The founder cannot deduct business-related expenses on his or her personal taxes. It is also important that the founder set up a system of checks and balances so that no one person can gain too much power and control in the organization. For this reason a founder should not serve as both the executive director and a member of the board of directors. Board members should be chosen for their ability to gov- ern the organization and should show loyalty to the organization, not the founder.

Starting a Nonprofi t from an Existing Organization

As mentioned at the beginning of this chapter, in addition to being started from scratch, new nonprofi ts can arise from existing organizations. We briefl y describe some of the possibilities in the following sections.

Spin-Offs

The term spin-off refers to the creation of a new organization from an exist- ing organization. A nonprofit may spin off another nonprofit or a for-profit operation. Depending on the motivations behind them, we can distinguish between restructuring-driven, entrepreneurial, and mission-driven spin-offs.33

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54 Managing Nonprofi t Organizations

Restructuring-driven spin-offs are initiated by the parent company for strategic or operational motives, often arising from a restructuring or refocusing of the par- ent. These motives may involve fi nancial issues (equity and debt considerations), regulatory relief (the requirement of a government agency), or the fi t and focus of various internal business activities or units.34 The less strategically important and connected to core operations an activity is, the more likely it is to be spun off by a parent.35

The diversity of motivations for spin-offs is suggested by these examples. The Ludwig Institute for Cancer Research (LICR) is a nonprofi t that conducts laboratory and clinical research to improve the control of cancer. It has spun off commercial enterprises so that these enterprises can hold the licenses for technol- ogies developed by LICR and potentially turn them into diagnostic or therapeutic applications. LICR does not have the capability to turn its discoveries into com- mercially viable products, and it can retain its research focus by turning market development activities over to these spin-off companies. The Nature Conservancy spun off NatureServe, which collects and manages data on species and ecosys- tems. After more than twenty years of providing professional staff, databases, and scientifi c and technical support to a network of partners for this work, the Nature Conservancy decided it was best to have an independent nonprofi t serve as a membership organization for the network, rather than for the conservancy to continue to host it as a tangential activity. Leaders Thru Literacy is another example of a nonprofi t that emerged from an existing nonprofi t. Board members of the parent nonprofi t, the Quaqua Society, did not want to dilute the society’s focus and thus felt a spin-off was appropriate.36

Entrepreneurial corporate spin-offs are driven by one or more individuals in exist- ing organizations who are frustrated when their ideas are not endorsed by top management or who want to exploit an unused potential related to their experi- ence and knowledge built within the parent company.37 Entrepreneurial spin-offs are bottom-up processes, where the entrepreneur is both the originator of the spin-off decision and the driver of the process. In the case of nonprofi ts, this spin- off could also involve a dissenting faction of a nonprofi t, such as a sect of a cult or church. One study found that people who were very satisfi ed with their jobs were 75 percent less likely to become entrepreneurs than those who were unsatisfi ed and that the propensity to leave and start a new organization decreased the more the employee was paid.38

There are numerous examples of nonprofi ts that were started by those who developed their ideas while affi liated with an existing nonprofi t. Yale University, originally called the Collegiate School, was started by a group of religious conservatives who were unhappy with Harvard University’s break from the infl u- ence of the church.39 Millard Fuller started the Fuller Center for Housing in 2005 after being ousted by the board from Habitat for Humanity International,

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Founding Nonprofi ts and the Business Case 55

the nonprofi t he cofounded in 1976. A former Church of Scientology member started FACTNet and was eventually stopped from illegally sharing unpublished and copyrighted documents taken from the church.40

Mission-driven spin-offs are created as means to help fulfi ll the core purpose of a nonprofi t. For example, the parent nonprofi t’s mission may be to create new enterprises for economic development, job training, empowerment of a disadvan- taged group, increased diffusion of green technologies, or facilitation of sustain- able demonstration projects.

One instance of this type is Smart Roofs. This limited liability for-profi t com- pany was created by a nonprofi t group, Sustainable South Bronx, that teaches job skills—in this case, how to install and maintain vegetative gardens on roof- tops. Another nonprofi t, Women’s Action to Gain Economic Security, helps low- income women create housecleaning cooperatives that use environmentally safe cleaning products.41 The Vera Institute of Justice has spun off more than sixteen nonprofi t organizations that started as demonstration projects, such as the Police Assessment Resource Center, Center for Alternative Sentencing and Employment Services, Legal Action Center, Esperanza, Job Path, and New York City Criminal Justice Agency. The institute now offers a toolkit for spin-offs.42

Companion Organizations

Nonprofi ts sometimes facilitate the creation of new companion organizations, with which they plan to closely associate. For example, a group of organizations might create a trade association that allows them to work together to obtain bulk dis- counts and support their shared lobbying interests. An independent 501(c)(3) organization might set up a foundation to fund raise for a museum or school. Given that tax deductibility of donations is not a benefi t for all categories of nonprofi ts, it might make sense for a nonprofi t lacking this benefi t to create a separate nonprofi t that will be attractive to donors seeking tax deductions. The NAACP, one of the country’s oldest civil rights organizations, has made use of a variety of companion organizations, including a for-profi t organization that pro- duces its magazine; branch chapters that are 501(c)(4) organizations; its national headquarters, which is a 501(c)(3); and a special contributions fund organization that is also a 501(c)(3).

Subsidiaries

As found in the case of the NAACP, there are situations where one organiza- tion (the parent) can exercise operational control over another (the subsidiary). This relationship is generally established by the parent so that it can receive ben- efi ts from the subsidiary. A subsidiary of a nonprofi t is a corporation owned or

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56 Managing Nonprofi t Organizations

controlled in whole or in part by the nonprofi t.43 The subsidiary may be a non- profi t or a for-profi t. Other terms for a subsidiary include affi liate, support corporation, and title holding company. Each of these terms refers to a specifi c type of subsidiary. Subsidiaries can be formed for a variety of reasons, including protecting the par- ent’s tax-exempt status; protecting the parent from debts and liabilities from cer- tain activities; attracting grants, contributions, or equity and debt fi nancing; or helping the parent overcome organizational capacity defi ciencies, enhance com- munity image, offer incentive compensation, or transfer ownership of activities to employees or other parties.44

Parent nonprofi ts exercise control over subsidiaries via a subsidiary’s articles of incorporation, bylaws, and board of directors. For example:

• The parent may prepare the articles of incorporation and bylaws. The articles may provide that the parent has the right to approve any amendments. The bylaws may provide that the parent has the right to appoint the board of directors and to remove directors without cause and the right to approve any amendments.

• The governing document of the subsidiary may require it to be bound by the decisions of the parent.

• Representatives of the parent may be board members, offi cers, or executive staff of the subsidiary and may have voting power to cause or prevent action by the subsidiary.

• The subsidiary may be a membership organization, with the parent as the only member.

Although the subsidiary can be controlled by its parent, it is important to note that the subsidiary needs to be established and recognized by the parent, and also recognized by third parties, as an independently incorporated organization managed by a board of directors. The parent should not manage the day-to-day affairs of the subsidiary. Even though the boards of the parent and subsidiary may overlap, it is recommended that the subsidiary board also include outside directors. The parent and the subsidiary should maintain separate books and records, bank accounts, meetings and minutes, stationery, and tax returns, and each should sign documents in its own corporate name.

Franchise Relationships

According to Sharon Oster, “The franchise relationship is a kind of halfway house between the freestanding entrepreneurial enterprise and the branch offi ce.”45

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Founding Nonprofi ts and the Business Case 57

It is characterized by four traits, which are established by contractual agreement (as opposed to ownership control):

• The franchiser gives the franchisee the right to use the franchiser’s trademark or sell its products.

• The franchisee pays the franchiser for this right.

• The franchiser gives some assistance and maintains some control over the way the business is operated.

• Any residual profi ts or losses go to the franchisee.

Franchises are restricted to certain industries in the corporate world (for exam- ple, fast-food outlets and automobile dealers); however, franchises are relatively prevalent in the nonprofi t world. They include well-known organizations such as Goodwill, the United Way, the Red Cross, the Boy Scouts of America, and the American Cancer Society. When a nonprofi t sets up a franchise, its franchisees may be either for-profi ts or nonprofi ts. For example, the National Football League is a 501(c)(6) unincorporated nonprofi t association. The Green Bay Packers team is a nonprofi t corporation and part of the NFL system. In contrast, the Detroit Lions team is a for-profi t NFL franchise owned by William Clay Ford Sr. In 1990, over half of the top one hundred charitable nonprofi ts were franchise organizations.46

Should a nonprofi t establish a subsidiary or a franchise? Oster compares the advantages and disadvantages of having a branch offi ce (wholly owned satellite) and having a franchise. She concludes that a satellite is good whereas a franchise is only fair at protecting the nonprofi t’s reputation or brand and at coordinating fundraising efforts. A franchise is good whereas the satellite is poor at improv- ing access to capital, reducing managerial shirking, and encouraging volunteer efforts.47 We can extend these conclusions by considering where subsidiaries would fall in Oster’s framework. In situations where a parent exercises a great deal of control over a subsidiary, the subsidiary would have the same benefi ts and draw- backs as the branch offi ce. Subsidiaries characterized by lesser control would fall somewhere in between the branch offi ce and the franchise in terms of their pros and cons.

Relationships with affi liate organizations may not always proceed smoothly. The affi liate may resist control by its parent or act in ways that harm the larger network due to confl icts of interest. For example, the San Antonio chapter sued Habitat for Humanity International after HFHI asked its chapters to sign a new membership agreement. The San Antonio chapter wanted to continue to use the Habitat name without signing the agreement.48 The national Girl Scout orga- nization, Girl Scouts of the USA, wanted to consolidate, effectively eliminating

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58 Managing Nonprofi t Organizations

local councils including the Manitou Girl Scout Council, which went to court. The councils are organized as separate legal entities, though the national organi- zation charters them to sell cookies and other merchandise under the Girl Scout trademark. A Wisconsin circuit judge ruled that the national organization could not eliminate the council as part of a reorganization.49 It is important for non- profi t leaders considering affi liate agreements to consider which levels and types of control will be held by the affi liate and which by the parent.

Concluding Thoughts

The entrepreneurial impulse helped to shape the nonprofit sector as we experience it today. Due to the efforts of social entrepreneurs, innovative approaches are continually being tested to address social problems that can- not viably be addressed by commercial markets. With the support of well- conceived missions and well-thought-out business plans, founders who have identifi ed an opportunity and the people and capital to pursue it may create a nonprofi t that can thrive. Whether a nonprofi t emerges as a spin-off, sub- sidiary, or franchise or is established outside of an existing organization, its social value proposition will likely frame its fundamental approach and the types of supporters it can attract.

In the next chapter we elaborate on structure and design choices for nonprofi t organizations. These choices may change in the different stages of a nonprofi t’s existence. Still, what a founder establishes as operating principles and values may limit what choices are considered. Knowing the founding story of a nonprofi t may help to explain how it appears years later.

Questions for Consideration

1. What ideas do you have for a new nonprofi t? How would you go about fi nd- ing out if your idea is worth pursuing? Are there sources of support for social entrepreneurship ventures in your community that might be helpful in exploring your idea?

2. What factors do you think explain the growth of the nonprofi t sector in the United States over the past decade? Do you expect more or less growth in the next ten years? Why or why not?

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Founding Nonprofi ts and the Business Case 59

Exercises

Exercise 3.1: Social Entrepreneurship Model

Analyze a nonprofi t business plan, and apply the social entrepreneurship model to it. Who are the key people, and what are the capital, opportunity, social value proposition, and context outlined in the plan? You may use the online NPower business plan that is the source for Exhibit 3.1 or another nonprofi t’s business plan.

Exercise 3.2: The Founder’s Story

Select three nonprofi t organizations, and read the organizational history provided on each one’s Web site. The history is often provided in an “About Us” section of the site. What importance is given to the founder in each history? Compare and contrast the three histories. In what ways are they similar, and in what ways are they dissimilar?

Exercise 3.3: Mission Analysis

Find a nonprofi t’s mission statement. Identify the words in the statement that indicate the nonprofi t’s purpose, approach, or values. What are the strengths and weaknesses of the mission statement? What recommendations do you have for improving it?

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60

CHAPTER FOUR

ORGANIZATIONAL STRUCTURE

S outhend Community Services (SCS) was founded in 1974 to serve the residents of one of the most disadvantaged neighborhoods in Hartford, Connecticut, and developed a strong track record as a provider of quality programs for clients of all ages.1 In 2000, the city obtained a multimillion dollar, fi ve-year Youth Opportunities grant from the U.S. Department of Labor and chose SCS as the key contractor to provide services. The program was designed to keep in-school youth on track, lead out-of-school youth back to school or alternative ways to earn a diploma, and help older youth make transitions to college or full-time employment.2 The contract allowed SCS to expand its work with at-risk youth, and by 2004, the organization was running mul- tiple programs for young children, youth, and the elderly throughout the city. In 2005, however, it faced the expiration of the Youth Opportunities money, with no possibility of renewal. This would eliminate 40 percent of the organization’s budget. After an analysis of community needs and the organization’s internal strengths, it was determined that the organization would be most effective if it focused only on youth job training programs and eliminated services to young children and the elderly. Services for youth were reorganized into fi ve separate tracks, created to meet the circumstances and needs of discrete participant groups, and the organization was renamed Our Piece of the Pie. It was also determined that more and better performance data were needed to expand reach and results, and consequently a new information technology system was acquired. Three of the programs not focused on youth were moved to other organizations or spun off. A fourth program, child care, was refocused to support the youth job program. After the reorga- nization, an extensive public information and education campaign was launched to secure new funding, and by 2008, the organization had replaced the lost contract dollars as well as the money previously brought in by its other three programs.3 Figure 4.1 shows the reorganization of the programs.

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Organizational Structure 61

Southend Community Services

Youth services Elder services

Grow preschool care capabilities to meet youth participant childcare needs

• Senior Center

• Elderly Support Services

Case management

Training/employment

• Our Piece of the Pie®

• Youth Chore • Hartford AmeriCorps

Educational services

• Former YO! services

Support services

•

Childcare

• Preschool Childcare

• After-School Childcare

SCS decided to adapt one of its non-youth programs to support the new mission and to exit the remaining three.

Exit

FIGURE 4.1. REORGANIZATION OF SOUTHEND COMMUNITY SERVICES

Source: “Our Piece of the Pie (formerly Southend Community Services): Making the Biggest Difference in Hartford,” April 2006. Reprinted by permission of The Bridgespan Group.

As the experience of Southend Community Services and Our Piece of the Pie shows, nonprofi t organizations need to fi gure out how best to deliver their pro- grams and services. These decisions will have effects on the arrangement and operations of the various units and other elements that make up the organization. A nonprofi t’s structure is designed and created during the founding of the orga- nization and then evolves, or is reorganized, continuously from that point on. At times, in fact, reorganization may be critical for a nonprofi t’s success or survival. As a result, nonprofi t managers must understand the structure of their organiza- tions, the consequences of this structure for their organizations, and the structural alternatives available should the need for reorganization arise.

In this chapter we examine an important aspect of nonprofi ts, the confi guration and design of their structures. Many nonprofi t organizations have an organizational

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62 Managing Nonprofi t Organizations

chart, such as the one shown for Southend Community Services in Figure 4.1. These charts show the various units or departments that make up the organization and indicate how they are related to each other. We can think of this as a simple visual representation of the organization’s structure that helps to answer the question, How should we organize ourselves to get our work done? This is far from a simple question, and organizational structure goes far beyond the organizational chart. This chapter reviews the many dimensions of structure that affect how a nonprofi t’s work gets done. We take the position that nonprofi t organizations operate in many different contexts and engage in an almost endless array of activities. Therefore we would expect that they will take on a wide variety of organizational structures, with no one structure being “typically” nonprofi t.

What Is Organizational Structure?

In the most general sense, structure provides a way for organizations to meet two confl icting needs—the need to differentiate and the need to integrate. As Henry Mintzberg states: “The structure of an organization can be defi ned simply as the sum total of the ways in which it divides its labor into distinct tasks and then achieves coordination among them.”4 In any but the smallest organizations with the simplest output, the operation and work of an organization needs to be bro- ken up into separate tasks and functions. This is the organization’s division of labor. Once separated, however, these diverse and disparate tasks and functions need to be coordinated and integrated for an organization to achieve effi ciency and effectiveness. The greater the division of labor, the more need there may be for mechanisms for integration.

Organizational structure designates formal reporting relationships, including the number of levels in the hierarchy and the span of control of managers and supervisors.5 It also identifi es the grouping together of individuals into depart- ments, and departments into the total organization. Finally, it includes the design of systems to ensure effective communication, coordination, and integration of effort across departments. By doing so, the organizational structure supports the production of outputs and achievement of organizational goals, minimizes or at least regulates the infl uence of individual variation on the organization, and provides the setting within which power is exercised and decisions are made.6

Nonprofi t structure does not exist in a vacuum of course, and it is important to understand its relationship to other aspects of the organization. Most of the writ- ing about organizations, by both practitioners and academics, is organized around the essential elements of all organizations, including structure. As Figure 4.2 shows, structure (formal and informal) connects to goals and strategy, work and

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Organizational Structure 63

technology, and people. Each element has reciprocal infl uences on the others and on the structural design, and the environment infl uences all of the elements, demonstrating the complexity of the management and analysis of nonprofit organizations.

These elements can be described as follows:7

• Environment. This encompasses all the significant elements outside the organization that infl uence its ability to survive and achieve its ends. These include physical, technological, cultural, fi nancial, and social factors.

• Strategy. This term describes the choices an organization makes about which markets or clients it intends to serve. It includes the specifi c tactics the organi- zation employs and the output goals it sets for itself.

• Work and technology. Work involves the tasks the organization needs to accomplish given the goals it has set for itself. Technology is the way in which work is accomplished and the techniques and process used to transform inputs into outputs.

• Formal organization. This is the more or less explicit codifi cation of how the work of the organization is done and how its parts relate to each other. It includes elements such as human resource practices, the design of jobs, and the overall organizational structure.

• Informal organization. This describes the emergent characteristics of the organization that affect how it operates. It includes culture, norms and values,

Environment

Strategy and Goals

Work and Technology

Informal Organization

Formal OrganizationPeople

FIGURE 4.2. ELEMENTS OF ORGANIZATIONS

Source: Adapted from W. Richard Scott and Gerald Davis, Organizations and Organizing: Rational, Natural, and Open System Perspectives (Upper Saddle River, NJ: Pearson Prentice Hall, 2007).

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64 Managing Nonprofi t Organizations

social networks inside and outside the organization, power and politics, and the actions of leaders.

• People. These are the organizational participants who make contributions to the organization in exchange for inducements, using their knowledge and skills to match their preferences to the needs of the organization.

Dimensions of Structure

There are seven core dimensions of structure: formalization, complexity, central- ization, specialization, standardization, professionalism, and hierarchy of author- ity.8 Nonprofi t leaders need to consider how much of each dimension is needed for an effective and ethical organization.

• Formalization is the amount of written documentation in an organization. This could include job descriptions, procedures, regulations, codes of conduct, employment contracts, board bylaws, and policies. The more formalized a nonprofi t, the less workers need to invent new procedures to get work done and the less uncertainty they have in their daily tasks. The price is that they also have less fl exibility.

• Complexity is determined by the number of different activities or subsystems in an organization. Vertical complexity refers to the number of hierarchical levels of the organization. The Wikimedia Foundation organizational chart displayed in Exhibit 4.1 shows four levels, differentiated by the intensity of the shad- ing of the boxes. Horizontal complexity refers to the number of units at similar levels. Wikimedia has fi ve units at the chief offi cer level. Geographical complexity describes the spatial distribution of the organization. For example, Amnesty International in the Unites States is divided into fi ve regions, each with its own staff: Southern, Mid-Atlantic, Northeast, Midwestern, and Western. Some nonprofi ts have complex parallel structures with two executive directors. For example, arts organizations sometimes have an artistic director and an admin- istrative director, with distinct structures beneath each of them.

• Centralization is determined by the hierarchical level that has the authority to make decisions. In centralized organizations decisions are made primarily at the top level of the organization. Organizations are decentralized when deci- sions affecting the whole organization are also made at lower levels of the orga- nization. In nonprofi ts, centralization issues can come into play in deciding what decision-making discretion to give the board versus the staff, and staff versus volunteers. Nonprofi t membership associations often give legal rights to make certain decisions to their members, helping to decentralize the organization.

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Organizational Structure 65

• Specialization is the degree to which organizational tasks are subdivided into separate jobs. If specialization is extensive, each employee performs only a narrow range of tasks. If specialization is low, employees perform a wide range of tasks in their jobs. Specialization is sometimes referred to as the division of labor. In organizing a nonprofi t the designer needs to ask whether the work- force should be made up of specialists, generalists, or a combination of both.

• Standardization is the extent to which similar work activities are performed in a uniform manner. In highly standardized organizations, such as prisons, work content is described in detail, and similar work is performed the same way at all locations. Some standardization may be needed to comply with government regulations and contracts.

• Professionalism relates to the level of formal education and training of employees. Professionalism is considered high when employees require long or specialized periods of training to hold jobs in the organization or need certifi cation or accreditation. Having professional workers—for example, cer- tifi ed social workers—is often a requirement to obtain government funding. Volunteer-based organizations or those that use mutual support models often consider sharing similar experiences with clients to be more important than professional training. The use of professionals in a nonprofi t can be threaten- ing or off-putting to those who have been working in nonprofi ts in similar roles without the professional training.

• Hierarchy of authority describes who reports to whom and the span of control for each manager, as covered previously in our discussion of organi- zational charts.

Types of Structure: Two Ideal Types

In the development of thinking about organizational structure, several ideas and formulations have been particularly important and useful. One of the most infl u- ential formulations about organizational structure was Max Weber’s description of bureaucracy.9 A bureaucratic organization has features such as a hierarchy of authority, limited authority, a relatively high level of specialization and division of labor, technically qualifi ed personnel, positions separated from position hold- ers, procedures for work, rules for incumbents, and differential rewards. These features were seen by Weber as enhancing organizational rationality and effi ciency, especially as compared with organizations run on the basis of favoritism or fam- ily or political connections. Weber’s description was presented as an ideal type, meaning that actual organizations would be found to be more or less bureaucratic. Bureaucratic features tend to increase with organizational size and age. As orga- nizations grow they may fi nd that the bureaucratic features that once enhanced

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66 Managing Nonprofi t Organizations

their effi ciency now impede it. At that point they may seek to reduce the level of bureaucracy in the organization. Some examples of organizations with bureau- cratic characteristics are credit unions with their specialized personnel for different client needs, hospitals with their numerous departmental divisions, and nonprofi t social service providers with their documentation requirements and strict proce- dures for dealing with a vulnerable clientele.

Exhibit 4.1 shows the hierarchical organizational chart for a nonprofi t, the Wikimedia Foundation, Inc., which is “a nonprofi t charitable organization dedi- cated to encouraging the growth, development, and distribution of free, multi- lingual content, and to providing the full content of these wiki-based projects to the public free of charge.”10 The chart shows the reporting relationships and the divisions of the foundation. The chief fi nancial and operating offi cer reports to the deputy director, as does the chief technical offi cer. Two individuals report to the chief fi nancial and operating offi cer and each of them has one person directly reporting to him or her. Contrast this with the chief technical offi cer who has a much larger span of control, with fourteen direct reports. There are many possible reasons why there is such a difference in span of control in this organiza- tion. It may be that the chief technical offi cer can give his or her direct reports great discretion over their job tasks, reducing the supervisory control needed. Alternatively, there may be technologies that help to control and integrate the work of the technical division so that it can effectively accommodate more sub- groups with only one division head to oversee them. The complexity of the work of direct reports may be such that it is relatively easy for their supervisors to monitor it and funnel it to other divisions. The structure may also have simply evolved without strategic attention to what the most effective structure would be to accomplish the mission of the organization.

Looking at their organization’s chart, nonprofit leaders should ask these questions:

• Does the organizational chart accurately depict the formal reporting rela- tionships? If not, should the chart or the reporting relationships be changed? Ultimately, they should be aligned.

• Are the spans of control reasonable? In other words, does anyone have too many or too few people to manage given the needs of those being managed? Supervisors should have the time, skills, and systems needed to perform the human relations and work coordination functions related to each person reporting to them.

• Are the individuals operating at the same hierarchical level of the organization rel- atively equivalent in terms of their discretion, authority, and responsibility within the nonprofi t? If not, they should be depicted above or below their current peers.

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6 7

Head of Communications

Communications Officer

Head of Business Development

General Counsel

Human Resources Manager

Accounting Manager and Financial Analyst

Accounting Specialist

Head of Office Administration

Office IT Manager

Executive Director

Deputy Director

Executive Assistant

Chief Technical Officer

Lead Front-End Developer - UX

Software Developer - UX

Software Developer - Multimedia Usability

Product Manager - Multimedia Usability

Researcher - UX

Head of Community Giving

Stewardship Associate

Head of Major Gifts

Head of Public Outreach

Education Programs Manager

Outreach Officer

Project Manager- Bookshelf

Head of Reader Relations

Volunteer Coordinator

Development Associate

Head of Partnerships and Foundation Relations

Senior Product ManagerIT Manager

Software Developer

Networking Coordinator

Code Maintenance Engineer

System Administrator

Software Developer and Office IT Support

Engineering Program Manager

Software Developer- Fundraising

Software Developer- Mobile

Data Analyst

Chief Community Officer Chief Global Development

Officer Chief Human Resources

Officer - OPEN Chief Financial and Operating Officer

EXHIBIT 4.1. ORGANIZATIONAL CHART FOR THE WIKIMEDIA FOUNDATION

Source: Wikimedia Foundation, Organizational Chart (July 2010), http://en.wikipedia.org/wiki/File:Wikimedia_Foundation_organization_chart.png.

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68 Managing Nonprofi t Organizations

A second major infl uential formulation was the description of the distinctions between mechanistic and organic structures developed by Tom Burns and G. M. Stalker.11 In a study of industrial fi rms in England, they identifi ed two types of internal management structures. In stable environments they found fi rms that were more formalized and centralized, with most decision making occurring at top levels of the organization. These fi rms were quite similar to Weber’s bureau- cracies. Burns and Stalker characterized these structures as mechanistic. However, in rapidly changing environments they found a structure that was less rigid and more fl exible, with fewer rules and more reliance on informal adaptation. Decisions were made at lower levels of the organization and authority was more widely dispersed. They termed these structures organic. Table 4.1 summarizes the differences between these two structures.

Many nonprofi ts exemplify the organic structure type because it appeals to values regarding the desirability of shared power, permeable organizational boundaries to facilitate collaboration, easy movement of members into and out of the organization, and an ability to be innovative and to mobilize quickly to address needs. Joyce Rothschild-Whitt describes an ideal type of a collectivist- democratic nonprofi t organization whose features are the polar opposite of the bureaucratic organization.12 Authority resides in the collectivity as a whole and compliance follows the consensus of the collective. Rules are minimal. Social controls are based primarily on personal or moral appeals. Employment is based on friendships, sociopolitical values, personality attributes, and informally assessed knowledge and skills. The concept of career advancement is not meaningful, and there is no hierarchy of positions. There is a minimal division of labor, and jobs

TABLE 4.1. CHARACTERISTICS OF MECHANISTIC AND ORGANIC STRUCTURES

Mechanistic Structure Organic Structure

Tasks are broken down into specialized, separate parts.

Tasks are shared by employees.

Tasks are rigidly defi ned. Tasks are adjusted and redefi ned through teamwork.

Authority and control are hierarchical. Less hierarchy of authority and control.

Many rules. Few rules.

Knowledge and control of tasks are centralized.

Knowledge and control of tasks can be located anywhere in the organization.

Communication is vertical. Communication is horizontal.

Source: Adapted from Richard Daft, Organization Theory and Design, 9th ed. (Mason, OH: Thomson South-Western, 2007).

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Organizational Structure 69

and functions are general and fl exible. Finally, the primary incentives for par- ticipating in the organization are intrinsic (doing something that fi ts one’s values and preferred social benefi ts), and extrinsic incentives (material benefi ts such as fi nancial compensation) are secondary.

These features are characteristic of community and grassroots organizations.13 Such organizations are composed mostly or completely of volunteers or members. Grassroots organizations are often locally oriented, focused on what is happening in participants’ neighborhoods. They may be associated with social movements or engaged in advocacy. Some examples are legal collectives, alternative media col- lectives, food cooperatives, neighborhood beautifi cation or watch groups, self-help groups dealing with diseases, citizen action committees, and recreational clubs. Exhibit 4.2 shows the organizational chart for the Oregon Organic Coalition, a nonprofi t trade association with an organic structure that operates with rotating and fl uid roles. It was founded to advance the development and growth of the organic industry and community in Oregon. For example, it advocates for using food from local farms in Oregon schools and for federal funding for research on organic crops. The work of the organization is conducted by volunteers, who par- ticipate in the leadership council, advisory committees, and task forces. There are no formal members in the legal sense or paid staff. The numerous opportunities participants have to give input and shape the activities of the organization make sense given that it exists to support those participants’ interests.

Common Organizational Confi gurations

Besides these ideal types, we can identify a number of common types of struc- tures. The overall confi guration of structural elements indicates how work activi- ties are divided, what the reporting relationships are, and how distinct units or departments are grouped relative to each other. Grouping is used to bring people and units together to facilitate work accomplishment. The confi guration estab- lishes the general principles for dividing work, breaking tasks into subtasks, and coordinating activities.14 It specifi es the overall units that are the basis for making decisions and communicating within the organization. The content and direction of information fl ows within the organization depend in part on the organization’s confi guration. A number of different bases can be used for nonprofi t departmen- tal grouping. It is also likely that changing conditions will lead to new confi gura- tions within a nonprofi t. The common departmental grouping options discussed in the following paragraphs include functional, divisional, matrix, geographical, horizontal, and virtual network structures.

In a functional structure activities are grouped together into units or depart- ments by types of work skills and tasks—common functions such as fundraising,

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7 0 EXHIBIT 4.2. EXAMPLE OF AN ORGANIC STRUCTURE: OREGON ORGANIC

COALITION ORGANIZATIONAL CHART

Source: Oregon Organic Coalition, Procedures Manual (2006), http://www.oregonorganiccoalition.org/pdf/orgchart.pdf. Reprinted by permis- sion of Oregon Organic Coalition.

Executive Committee Handles the administration of

the organization 1) Conducts business on behalf of OOC 2) Provides direction for “Facilitated Electronic Consensus Building” 3) Creates additional subgroups of the OOC should the structure of the organization need to be modified 4) Serves as the officers of the nonprofit corporation

Task Force Groups

Structure

Function 1) Convened by the Executive Committee or an Advisory Committee, with approval of Leadership Council 2) Work on specific projects of limited duration.

Ad hoc groups vary in number

Communications Coordinator Structure

Function

Supports decision-making process through “Facilitated Electronic Consensus Building” system

• Manages the process of e-mail communications • Receives and incorporates comments on each issue

Resource Associates Structure

• Participate in discussions without decision-making authority • Provide information, advice, resources, and contacts

Function

Representatives of agencies and organizations working to support the organic industry, but who are not direct stakeholders

Advisory Committees

11 Advisory Committees represent the participating stakeholder groups.

1) Develop ideas for projects and activities for submission to the Leadership Council for approval for OOC endorsement; 2) Foster communications about issues relevant to their sector and suggest action items for consideration by the Leadership Council; 3) Form and oversee Task Force Groups to work on specific projects for specific periods, as approved by the Leadership Council; and 4) Select the committee’s representative to the Leadership Council.

Function

Structure

Function

Leadership Council

Act as a focal point for development of proactive plans for advancing and developing organic agriculture in Oregon;

Prioritize and decide on actions and activities to be undertaken by the OOC, particularly those originating from the Advisory Committees;

Form, maintain, and support Advisory Committees for communication among participants in their designated sectors;

Facilitate development of projects and activities through collaboration and networking with other related regional and national advocacy groups;

Raise funds to support the OOC;

Develop a strategic plan for the organization and its projects; and

Serve as the Board of Directors of the nonprofit corporation.

Structure 16 Stakeholder Members (Voting)

• 3 Farmers (crops/horticulture, livestock) • 1 Farmworker • 1 Processer • 1 Wholesaler • 1 Retailer • 2 Consumers

• 1 Organic policy analyst • 1 Scientist • 1 Environment and health • 1 Organic certifier • 3 At-large representatives

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Organizational Structure 71

marketing, and service provision. This structure can facilitate economies of scale because the organization needs only one unit for each function. Also, grouping all the knowledge and skills for one function together can promote the development of functional expertise. The Wikimedia Foundation is an example of a functional structure, with groupings around technology, community, global development, human resources, and fi nances. This structure functions best when little horizon- tal coordination is needed, as horizontal communication or coordination between functional departments will be diffi cult. Communication between two departments will need to go through a higher organizational level so that decision making can be centralized, with upper-level units deciding on matters that cut across functions in addition to matters that affect the organization as a whole. This communication and coordination pattern can create burdens for the top levels of the organization, resulting in slow response time in changing environments, poor horizontal coordi- nation, and reduced innovation. This structure is therefore best for organizations with relatively few products and working in relatively stable environments.

In a divisional structure in contrast, unit grouping is based not on functions but on organizational outputs or products. Each division is organized by the product it produces. Also, the functional departments needed to produce each division’s output are contained in that division. This allows for decentralized decision mak- ing at the divisional level, freeing the top level of the organization to concentrate on overall decision making and on decisions on issues spanning divisions. For example, top leadership can play the role of organizational banker, deciding the level of resources allocated to divisions. Southend Community Services is an example of a divisional structure, with youth services, child-care, and elderly services divisions. Decentralized decision making and coordination of func- tions within divisions allows the organization to react quickly to environmental changes, including shifts in customer desires or market conditions. This structure is appropriate for larger organizations with multiple products or services. The major weakness of this structure is that economies of scale within functions are not possible. For example, each division might have a fundraising or marketing department. In addition, coordination across divisions (product lines) may be dif- fi cult and would have to be done by higher-level units.

The principle in a geographical structure is to organize in terms of the location of the organization’s users or customers. With this grouping the organization can address and respond to customer wants and needs that may vary by location (dif- ferent regions of one country or different countries). For example, large nonprofi ts such as the Girl Scouts or Boy Scouts, United Way, and Goodwill use semiau- tonomous local units and a national headquarters. This structure can be extended globally, with nonprofi ts such as Heifer International having operations in vari- ous nations around the globe. A number of options are possible.15 Multinational

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72 Managing Nonprofi t Organizations

organizations have their operations in each country acting as divisions in a decen- tralized structure. Global organizations, in contrast, centralize knowledge in their headquarters and implement actions through national units, similar to a func- tional structure. International organizations have hybrid frameworks, with some activities centralized and some decentralized. Finally, transnational organizations are complex structures, with assets and capabilities dispersed, interdependent, and specialized. National units are integrated into a worldwide system.

A number of structures have been designed for situations calling for extraor- dinary fl exibility. A matrix structure simultaneously uses aspects of both the func- tional and divisional structures. This is a complex structure, because it features two types of management and three types of units. Functional managers have responsibility for employees with various skills and expertise, whereas product managers have responsibility for producing outputs. Employees are under the authority of both types of managers. They are assigned by functional managers to various product units, where they are supervised by product managers. For example, a nonprofi t providing housing assistance may have

• Functional units organized around expertise in (a) construction, (b) client coun- seling, (c) fi nancing, or (d) law and policy.

• Product units that may include (a) new house construction, (b) existing housing rehabilitation, (c) fi nancial assistance to home owners, or (d) advocacy.

• Projects that may involve community development in different areas of a city. Some areas may need new housing, others may need rehabilitation, and still others may need action by the city. For each project the best mix of personnel from the functional and product units is chosen for the project team. The team is disbanded after the project is completed.

The matrix structure is appropriate under a variety of conditions, including those where pressure exists to share scarce resources across product lines, environ- mental pressure exists for two or more critical outputs (such as in-depth technical knowledge and frequent new products), or the environment is both complex and uncertain.16 Under these circumstances, vertical (functional) and horizontal (team) authority are both given recognition. The advantage of the matrix structure is that it is fl exible in terms of both human resources and products. This makes it particularly useful in rapidly changing environments. It is best suited to medium- sized organizations with multiple products. The structure, however, has a number of weaknesses. Employees are responsible to two managers, which violates the principle of the unity of authority. This can cause frustration for employees and managers and requires individuals with good interpersonal skills and a willingness to work in a shifting and ambiguous work setting. Disputes over authority relations

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Organizational Structure 73

are more likely to arise here than in other structures, and time and effort must be expended in resolving them.

Finally, an emerging form termed the virtual network structure extends the concept of horizontal coordination and collaboration beyond the boundaries of the traditional organization. This structure is characterized by the outsourcing, or contracting, of some of an organization’s functions or activities. With the advent and growth of increasingly extensive and sophisticated electronic com- munication systems, a network of outside specialists can be located anywhere and coordinated by the core, or central, organization. This allows the core orga- nization to take advantage of the specialized expertise of any number of part- ner organizations. The organization decides which functions it will outsource and how much control it will maintain or allocate to the partner organizations. This structure gives an organization worldwide access to talent, resources, and capabilities without the need to invest in its own facilities or employees. This reduces overhead and makes the organization highly fl exible and responsive to changing environments. For example, the housing nonprofi t in the previous example may decide to expand its impact nationally. It has the capacity to use a matrix structure to complete a wide variety of projects locally. Outside of this, however, it may be able to provide only Web-based client education for a national constituency. In order to provide its other services, it could establish partnerships with other nonprofi ts. In each locale the partners could be linked into a network and coordinated via electronic media. The primary weakness of this structure is the increased diffi culty of maintaining control over far-fl ung partners, including the need to make contracts with these partners and monitor contract compliance. The organization is also dependent on partner perfor- mance and potentially vulnerable to partner failure.

Major Infl uences on Organizational Structure

Many factors have a role in infl uencing the structure of a nonprofi t, including information processing needs and political, cultural, and institutional infl uences.

Structure and Information Processing

One of the primary activities in an organization is to provide information when and where it is needed in order for the organization to accomplish its tasks. Information needs are contingent on a number of factors, including the technology used to accomplish tasks, the organization’s environment, and the organization’s strategy. Technology here is broadly defi ned, referring not only to the machines and

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74 Managing Nonprofi t Organizations

hardware used to perform work but also to the skills and knowledge of work- ers. John Galbraith has provided a formulation that holds that information needs are a function of three dimensions of technology: complexity, uncertainty, and interdependence.17 Information needs increase as the complexity, uncertainty, and interdependency involved in accomplishing tasks increase. Moreover, their infl uence is multiplicative in that the effect of any one dimension is much greater when another is also present.

• Complexity is a function of the number of different items or elements that must be dealt with simultaneously in task accomplishment. It can be measured by the variety of inputs or the degree of customization of outputs. For exam- ple, a fundraising event has greater complexity when it involves donors with diverse interests and giving potential. More information needs to be considered and communicated to coordinate an event suited to a wide range of donors.

• Uncertainty refers to the variability of the items or elements on which work is performed. This can be measured by the number of exceptions encountered during the production of outputs. A fundraising event scheduled to be held outdoors has uncertainty related to weather conditions. Contingency plans need to be developed in case of bad weather.

• Interdependency is the extent to which items or elements on which work is performed or the work processes themselves are interrelated, requiring infor- mation sharing. James Thompson relates information use to types of interde- pendence.18 The fundraising event, for instance, may have pooled interdependence because the program and development staff need to work together as a team to create a report to donors on the organization’s achievements. It may have sequential interdependence in that someone must fi rst secure the venue before the food and entertainment can be arranged. Task accomplishment of one per- son or unit is dependent on the output of another. It may also have reciprocal interdependence, with units posing critical contingencies for each other that have to be resolved before action can be taken. For example, tickets cannot be sold until prices are determined, which may depend on estimated costs and revenue goals and an assessment of the market base and opportunities for sponsorships.

In addition, organizational information needs have been linked to organi- zational environments and strategy.19 In addition to increasing for technological reasons, information needs increase with increasing environmental uncertainty, complexity, and change. Strategy affects the way an organization is run, which affects organizational structure and decision making. This in turn can affect the degree of information processing needed. As the example of Southend Community

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Organizational Structure 75

Services/Our Piece of the Pie shows, a change of strategy can lead to an increase in the amount of information the organization needs to gather and process.

When information fl ow in a nonprofi t is inadequate, a number of problems can arise. The people who need information may not get it. Or they may get too little information, too much information, or information of the wrong type. In all these cases, job performance will be negatively affected. A nonprofi t’s structure is key to proper information fl ow. The design challenge is to create structures that match the demands for information processing. Information needs to fl ow hori- zontally as well as vertically through an organization in order to link employees, work units, and organizational levels. As information processing needs increase, an organization can respond by increasing the information handling capacity of its structure. This can be done by increasing the capacity of vertical and hori- zontal linkages.

Vertical Linkages Vertical linkages can be used to coordinate activities between the various levels of a nonprofi t and are primarily used for control. They ensure that lower levels of the nonprofi t are aligned with goals set at higher levels and higher levels are informed of the activities of lower levels. A variety of structural mechanisms can be used to support a nonprofi t’s vertical linkage requirements. They are ranked here in order of increasing information handling capability:

• Rules, schedules, and plans can be used when problems, issues, or decisions between levels are routine or repetitious. This alleviates the need for direct communication for coordination.

• Hierarchical referral is used when members of a unit (or several units) at one level can’t resolve a problem or make a decision. The matter is referred to, or passed to, decision makers at the next higher level in the hierarchy.

• Vertical information systems include periodic reports, written information, and computer-based communications distributed between levels of the hierarchy.

Horizontal Linkages Horizontal linkages can be used to ensure coordination between units at the same level of a nonprofi t, such as divisions or departments within a division (fundrais- ing, marketing, production, and the like). Without horizontal linkages, information sent from one unit to another would have to fl ow up vertically to a higher unit that oversees both of the lower-level units and then be routed down to the recipi- ent unit. A number of structural alternatives are available to support horizontal information fl ow. These are ranked here in order of increasing information fl ow.

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76 Managing Nonprofi t Organizations

However, that ranking is inversely related to the cost of the time and human resources needed to establish and maintain each linkage.

• Horizontal information systems can be used to exchange information between units (workgroups, departments, divisions, and so on). Routinized and comput- erized information systems can provide periodic information about activities and information about problems, opportunities, and needed decisions.

• Direct contact can be established between managers or employees affected by a problem, opportunity, process, or decision. For example, a liaison role may be played by a person in one unit who is given the responsibility of commu- nicating with another unit in order to enhance coordination and cooperation.

• Task forces are useful when linkage is needed between more than two depart- ments. A task force is a temporary group composed of representatives of the units needing to be linked. Each member represents the interests of his or her unit and can carry information about the task force’s activities back to that unit. Task forces are typically disbanded after the tasks they were formed to address have been accomplished.

• A full-time integrator differs from a liaison in several respects. This is a position created to link several units. Also, the integrator’s position is outside the units being linked. The integrator has the responsibility to coordinate the units. His or her title may be product or program manager when a product’s or pro- gram’s accomplishment requires several units to coordinate.

• A project team is the strongest horizontal linkage, more signifi cant than a task force. Project teams are used when activities among units require extensive and relatively long-lasting coordination, such as when organizations have a large-scale project or are exploring a major innovation or new product line.

Political, Cultural, and Institutional Infl uences on Structure

Organizations, including nonprofi ts, seek to be rational and to design their struc- tures for effi ciency and effectiveness. Organizational design, however, is a far from simple process with predictable outcomes. According to Hall and Tolbert, “Organizational design does affect structure, but not in the simple, overly rational manner suggested by the authors of prescriptive solutions for organizations.”20 Organizational structure is also affected by the politics of strategy formation and cultural and institutional factors. Although these topics will be covered in detail in other chapters, it is useful here to mention their relationship to organizational structure.

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Organizational Structure 77

The strategic choices organizations make are infl uenced by bounded rational- ity and the politics of the decision-making process.21 Organizational choices are made by dominant coalitions. Various interest groups within organizations each have preferences for organizational goals. No one interest group is normally power- ful enough to impose its preferences on the organization. Consequently it needs to form a coalition with other interest groups who can agree to cooperate (each giving up some part of its preferences in order to form the coalition). The power of a coalition comes from combining the power held by the various parties in the coalition. The power of a dominant coalition is greater than that of other coalitions in the organization. This coalition will form the power center of the organization. Decision makers in the dominant coalition engage in a political process to select those parts of the environment with which the organization will be concerned, strategies to deal with the environment, technologies, and roles and relationships (structure) to control the technologies and implement strategy. In nonprofi t organizations such political struggles over strategic choices may be especially pervasive, given the wide variety of stakeholders who might claim to be legitimate members of coalitions.

National culture will also infl uence organizational structure. Organizations are located in national cultural contexts, and organizational cultures will be a refl ec- tion of the larger culture.22 National culture can be refl ected in how organizations structure authority relations; decision-making responsibility; control and commu- nication systems; and employee training, recruitment, evaluation, and promotion. This is important for understanding nonprofi ts, as they may be structured and operated very differently in different national culture settings. Similarly, the opera- tions of nonprofi ts with global scope or working in international settings such as development may be structured differently across national cultures.

Organizational culture is the set of key values, beliefs, understandings, and norms shared by organizational participants. It underlies the behavior of the organiza- tion as a whole and of the participants. It affects ethical behavior, management commitment to employees, employee commitment to the organization, and the relative importance placed on effi ciency or customer service. An organization’s culture is unwritten but can be observed in organizational stories, slogans, cer- emonies, dress, and offi ce layout. Such cultures are relatively stable and long lasting and are a context within which structures are formed. Culture can affect preferences, such as those for centralization or decentralization, and it interacts with other contextual factors. Nonprofi ts can have distinct cultures that affect all aspects of their structures and operations. These cultures can be based on mission, a service or client orientation, management preferences, or workplace arrangements. They may also be ideologically based, such as with a focus on feminism, holistic medicine, or environmentalism.

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78 Managing Nonprofi t Organizations

Finally, DiMaggio and Powell note that organizations exist in fi elds composed of other organizations providing the same societal function.23 Within these fi elds, social pressures exist for organizations to become homogeneous. This process is termed institutional isomorphism and is the result of three possible forces. Coercive iso- morphism occurs when less powerful organizations conform to the wishes of other, more powerful organizations. For example, funders and regulators can compel nonprofi ts to adopt particular structures, such as evaluation units. Mimetic isomor- phism is the result of organizations in uncertain environments copying the struc- tures of organizations perceived to be more successful. For example, a nonprofi t may establish a marketing research department if it feels that this has contributed to the success of other similar nonprofi ts. Finally, normative isomorphism is due to the spread and adoption of ideas about appropriate structures that is fostered by professional management schools and consultants. For example, consultants may advise nonprofi ts to establish accepted models of good governance that specify a particular board structure and way of operation. In each of these cases, nonprof- its adopt the structures and processes of other nonprofi ts in their fi eld.

Structural Defi ciency

Nonprofi ts use valued time, effort, and money designing and redesigning their structures in an effort to enhance their effectiveness and keep abreast of changes inside and outside the organization. The previous discussion reveals that this is far from a simple task and that trade-offs often need to be considered. The conse- quences of inattention to structural needs or inappropriate structural design can, however, be quite serious. A number of symptoms of structural defi ciency have been identifi ed. They manifest themselves when organizational structures are out of alignment with organizational needs.24 When they occur, nonprofi t managers must move quickly to diagnose and correct any underlying structural problems.

• Decision making is delayed or lacking in quality. When this occurs decision makers may be overloaded because the hierarchy funnels too many prob- lems and decisions to them. Delegation to lower levels may be insuffi cient. Information may not reach the right people because horizontal or vertical information linkages may not be adequate.

• The organization does not respond innovatively to a changing environment. In this situation departments may not be coordinating horizontally. The organizational structure also has to specify departmental responsibilities that include environmental scanning and innovation.

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Organizational Structure 79

• Employee performance declines and goals are not being met. Employee perfor- mance may decline because the structure doesn’t provide clear goals, respon- sibilities, and mechanisms for coordination. The structure should refl ect the complexity of the environment and be straightforward enough for employees to work effectively within it.

• Too much confl ict is evident. In this case the structure may need to allow con- fl icting departmental goals to combine into a single set of goals for the entire organization. When departments act at cross-purposes or are under pressure to achieve departmental goals at the expense of organizational goals, the struc- ture is often at fault. Horizontal linkage mechanisms are not adequate.

Concluding Thoughts

Nonprofi t organizational structure is both a consequence and a cause. It is a consequence of the nonprofi t’s external context as well as its work processes and strategy. In turn structure infl uences many of the internal features of the nonprofi t, such as information fl ow, authority relations, and hierarchy. In addition it has both deterministic elements and fl exibility. On the one hand a nonprofi t organization cannot survive if its structure is too far out of line with important external or internal contingencies. On the other hand non- profi t organizations usually have a range of design options for accomplishing their tasks.

Given the nature of organizational structure and the diversity of the environ- ments that nonprofi ts operate in, their missions and strategies, and their internal and external stakeholders, it is not surprising that nonprofi t structures take many different forms. For instance, nonprofi ts may provide public or private goods, get funds from sales or donations, and use employees or volunteers. Each option has several structural implications. Depending on these and other factors, nonprofi ts may look structurally much like business fi rms or public agencies, or they may take on hybrid or unique forms. They may also be located in rapidly changing and unpredictable environments, which will have other structural ramifi cations. All these factors make the structural design tasks for nonprofi t organizations con- tinuously challenging.

In the next chapter we consider strategy formation. It is important to remem- ber that this process, as well as the others to follow in subsequent chapters, is inti- mately interrelated with structure. On one hand the organizational actions required by a strategy that is out of line with existing structure will not be possible. On the other hand a nonprofi t may change its structure to facilitate the accomplishment

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80 Managing Nonprofi t Organizations

of a new strategic direction. In these ways structure will both infl uence and be infl uenced by strategy in a dynamic manner.

Questions for Consideration

1. Nonprofi ts are sometimes said to have “too much” structure or “too little” structure. Explain what each condition means, how it may come about, and what it might lead to.

2. How might a nonprofi t’s structural design be infl uenced by factors outside the organization? How might the design be infl uenced by factors inside the organization? How might a nonprofi t balance these two infl uences on its structure?

Exercises

Exercise 4.1: Dimensions of Structure

Think of a large nonprofi t hospital on the one hand and a small garden club that meets monthly at a member’s house for discussions on the other. Describe how these nonprofi ts are likely to differ in terms of

1. Formalization

2. Complexity

3. Centralization

Why might you expect them to differ on these dimensions?

Exercise 4.2: Structural Design

Organizational structure needs to be aligned with the organization’s technology, environment, and strategy. Assume you want to organize one of the following types of nonprofi t. After you pick one, answer the questions that follow.

• An agency providing food and clothing to the poor

• A year-round camp for young people

• An art museum and gallery

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Organizational Structure 81

1. What might your organization’s mission statement be?

2. What tasks need to be done to provide its services?

3. Using your answers to the previous questions and information in this chap- ter, draw an organizational chart illustrating a functional structure for this organization.

4. Draw another organizational chart showing how this organization would look with a divisional structure.

5. What are the pros and cons of these alternative structural confi gurations?

6. Under what circumstances might it be useful for your organization to have a matrix structure?

7. Under what circumstances might your organization employ a virtual network structure?

Exercise 4.3: Structure and Information

Looking further at the nonprofi t you described in Exercise 4.2, discuss its probable information processing needs, and describe the horizontal and vertical informa- tion linkages that might meet these needs.

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PART TWO

STRATEGIZING, RESOURCING, AND ALIGNING

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85

CHAPTER FIVE

FORMULATION OF STRATEGY

I n 1981, the Flinn Foundation in Arizona was focusing its grants on advancing medical edu-cation, biomedical research, and a few community health projects.1 Several years later, sparked by a doubling of bequests, the foundation expanded to support programs in education and the arts. By 2001, it was funding 100 to 150 grants per year for matters as diverse as pregnant teenagers, cross-border issues with Mexico, art exhibitions, scholarships, and endowed chairs. Several factors led the foundation to reevaluate and change this scattered approach, including new board members who questioned it, outside criticism of some of the projects the foundation was supporting, and an economic downturn in Arizona. In response the foundation’s leaders began a strategic planning process. They reexamined the foundation’s mission and the donors’ intent and came to the conclu- sion that the foundation’s money should be spent for the benefi t of future generations and long- term systemic changes and not for short-term charitable goals. The board identifi ed three broad areas of focus: health policy, community health, and bioscience research. The board then asked staff and consultants to develop scenarios in each of these areas that would lead to action plans. After a review of these scenarios and a vigorous debate, the board decided to focus on biosciences. A consulting fi rm was hired to assess the state of biomedical research in Arizona and develop a plan and goals to make Arizona more competitive in biotechnology within ten years. As a result of this strategic planning, Flinn was able to focus its grantmaking on several key strategies—in particular, building the research infrastructure and a thriving bioscience industry. It made fewer but larger grants and now averages about fi ve grants a year. In addition, the foundation acts as a champion for the biosciences and as a coalition builder in this area. Arizona has since seen dramatic increases in jobs, research funding, businesses, and wages in the bioscience sector, and the Flinn Foundation is credited by state leaders with having been instrumental in changing the state’s bioscience landscape.

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86 Managing Nonprofi t Organizations

The story of the Flinn Foundation illustrates the key role that strategic planning plays in directing and focusing the activities of nonprofi t organi- zations as they seek to meet their missions and enhance their impact. What is a strategy? How should nonprofi ts formulate strategies? What factors can make strategic planning more successful? In this chapter we examine the nature of strategy. We present common strategy-related tools and outline a strategic planning process. We also discuss a number of options for thinking about and formulating strategy.

Business Strategy: A Starting Point for Nonprofi t Strategy

Strategy is often defi ned as a plan designed to achieve a particular long-term aim or goal. The word derives from the Greek strategia, or “generalship.” Sun Tzu’s The Art of War, written around 500 B.C., is generally acknowledged to be the earliest existing systematic and extensive discussion of military strategy and is still cited as useful reading for managers.2

We begin by taking a brief look at the extensive literature on business strategy in order to place nonprofi t strategy in perspective. Nonprofi t scholars and prac- titioners have drawn from the frameworks developed for businesses. They have in addition created their own tools for strategic planning, as we will see later in this chapter.

A Brief History of Business Strategy

Strategic planning in American business can be traced to the adoption of a scien- tifi c approach to management in the early decades of the 1900s. Scientifi c manage- ment’s central tenets were rational planning and organizational design based on corporate objectives established by top leaders.3 Strategy got a big boost in the post-World War II period, when American industry underwent a major expan- sion, and long-term planning and control became key priorities of large fi rms wishing to develop new markets.4 In this business environment, strategy and stra- tegic planning began to take center stage in business thinking. Along with this, prominent academic writers in the 1960s, such as Alfred Chandler and H. Igor Ansoff, insisted that all companies needed an overall corporate strategy.5

Alfred Chandler, writing in 1962, is credited with the fi rst use of the term strategy in the business context. He provided the classic definition of strategic management as “the determination of the basic long-term goals and objectives of an

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Formulation of Strategy 87

enterprise and the adoption of courses of action and the allocation of resources necessary for carrying out these goals.”6 These and other foundational statements promulgated a view that strategy is about top organizational leaders developing long-range objectives and plans based on the company’s desired position in the market.7 Henry Mintzberg characterizes the thinking in this early period as fol- lows: “When strategic planning arrived on the scene in the mid 1960s, corporate leaders embraced it as ‘the one best way’ to devise and implement strategies that would enhance the competitiveness of each business unit. . . . Planning systems were expected to produce the best strategies as well as step-by-step instructions for carrying out those strategies so that the doers, the managers of business, could not get them wrong.”8

The highly rational and analytical models and practices of strategy formation began to be challenged in the mid-1970s.9 In academia, theorists were developing a variety of less rational or nonrational models of organizations. These mod- els painted a picture of organizational decision making infl uenced by environ- mental and social factors. The implications of this for strategy formation were fi rst highlighted in the early 1970s, when research by Henry Mintzberg found that managers were less likely to use analytical planning tools than previously assumed.10 It was also in the 1970s that the fi rst oil crisis revealed the strate- gic plans of American businesses to be fl awed in that they did not address the possibility of such a crisis in their corporate visions of the future. Around the same time, Japanese companies were experiencing dramatic success despite putting less effort into strategic planning than U.S. companies did. These challenges to formal strategic planning led to a barrage of alternative defi nitions, models, and practices.

Contemporary Business Strategy

The shifts in thinking that have occurred throughout the history of business strategy have led to a diverse range of theories and models. A 1998 review by Henry Mintzberg, Bruce Ahlstrand, and Joseph Lampel concluded that a vari- ety of general defi nitions of strategy could be identifi ed in the literature.11 The dominant view was to see strategy as a plan—a guide or course of action into the future or a path to get from here to there. In addition, however, strategy was described in other ways: for example, as a pattern of consistent behavior over time, as the position of particular products in particular markets, as an organization’s perspective or fundamental way of doing things, or even as just a ploy or specifi c maneuver intended to outwit an opponent or competitor. These defi nitions of and approaches to strategy are not confl icting, and they emphasize the different roles that strategy can play in an organization. They also usefully distinguish

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88 Managing Nonprofi t Organizations

between strategies and plans. As these defi nitions suggest, nonprofi ts may have a strategy with no plan to achieve it or have plans that are not part of any overall strategy. In addition, Mintzberg and his colleagues identify a number of models of strategy formation.12 The models usually found in textbooks and the practi- tioner literature explain how to develop a strategic plan by completing a series of prescribed steps and using particular tools. We discuss these steps in detail later in the chapter. These models are based on rational planning in which clear and unique strategies are formulated through a deliberate process of matching inter- nal and external organizational situations. A rigorous set of steps is used. The organization is placed in the context of its industry, and an analysis examines how the organization can improve its strategic positioning in that industry.

An alternative model that is receiving increasing attention is based on orga- nizational learning and holds that strategy formation is an emergent process. In this model, management pays close attention to what does and does not work and incorporates lessons learned into an overall plan of action. Moreover, because the world is too complex for strategies to be developed all at once, they must emerge in small steps as an organization adapts or learns. A vigorous (and at times vitriolic) debate developed in the 1990s between advocates of the more rationally oriented planning models and the emergence model. The result has been an acknowledgment that strategy can result from planning or can emerge without planning and that the increasingly complex world dictates that classical planning approaches need to be adapted to practical circumstances.

Nonprofi ts and Strategic Planning

Against the backdrop of strategy in business, we next look at strategic planning in the nonprofi t context. Formal strategic planning began to appear in the nonprofi t sector in the mid- to late 1970s. A number of commentators have noted the differ- ences between nonprofi ts and for-profi ts that might infl uence strategic planning.13 For nonprofi ts:

• Service is intangible and hard to measure, and a nonprofi t may have multiple service objectives.

• Customer infl uence may be weak.

• Employees may be strongly committed to a profession or to a cause.

• Resource contributors may intrude into internal management.

• There may be constraints on the use of rewards or punishments.

• A charismatic leader or the mystique of the enterprise may be the means of resolving confl ict.

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Formulation of Strategy 89

• The existence of multiple stakeholders means that leaders need people skills in addition to or instead of planning skills.

• A nonprofi t’s ability to change may be limited.

These differences have led some researchers to conclude that nonprofi t orga- nizations exist in environments that differ sharply from the environments of for- profi t fi rms and that nonprofi ts have more values-based goals and missions.14 This is certainly true for some nonprofi ts, such as advocacy groups and many environmental and civic organizations, and it limits the usefulness of for-profi t rational planning models for these organizations. However, other nonprofi t orga- nizations, such as hospitals, day-care organizations, and nursing homes, operate in environments more similar to for-profi t environments. For these organizations, adapting business sector strategic planning models can be useful. The benefi ts of strategic planning for nonprofi ts include identifi cation of important internal and external infl uences, the generation of viable options, and understanding of potential effects of strategies on stakeholders.15 To understand strategic planning in nonprofi ts, we will fi rst consider a number of general strategic orientations that nonprofi ts could adopt.

General Strategic Orientations

In this section we look at orientations to organizational strategy. We begin by focusing on strategic positioning.

Strategic Positioning

A nonprofi t organization may have a generic overarching strategy, termed its strategic position, under which more specifi c strategies fi t. Much work in the cor- porate and nonprofi t strategy fi eld has been devoted to identifying such generic strategies.16 One of the best-known formulations of strategic positions is Michael Porter’s view that there are three generic strategies: cost leadership, differentia- tion, and focus.17 In a cost leadership strategy, an organization focuses on using effi ciency, standardization, and high volume to reduce costs through economies of scale. The organization thrives by selling at a low price to a large customer base. For example, Goodwill Industries is a leader in the secondhand clothing industry with its extensive network of retail stores. A differentiation strategy, in con- trast, involves positioning the organization to offer unique products for select buyers in a broad market. Specialization can be based on a number of factors, including but not limited to product design, technology, features, dealers, and customer service. These features allow the company to charge a premium price,

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90 Managing Nonprofi t Organizations

which buyers (or donors) are willing to pay as long as they perceive added value in the product. Brand loyalty is a critical factor for continued success. Harvard University offers a good example in the nonprofi t sector of adopting a differen- tiation strategy. Finally, an organization with a focus strategy relies on a narrow market focus as opposed to the broad market scope of the previous strategies. The organization positions itself to succeed by developing a high level of knowl- edge and competence in its limited market segment. Competitive advantage can be obtained through innovation and marketing. Among nonprofi ts, holistic or alternative health clinics may exemplify this strategy.

Raymond Miles and Charles Snow offer another popular framework, in which they differentiate four generic strategy types: defender, prospector, analyzer, and reactor.18 The most appropriate choice among these strategies depends on an organization’s environment, technology, and structure.

Defenders are mature organizations in mature and stable industries. They seek stability and to protect their market position through effi cient production, strong control mechanisms, continuity, and reliability. For example, a long-established nonprofi t hospital may emphasize doing well what it already does and keeping out new competitors, rather than seeking new entrepreneurial opportunities.

Almost the opposite of defenders, prospectors seek to exploit new opportunities in products, services, or markets. A prospector’s strength is in innovation and fl exibility. This strategy is most appropriate in dynamic and turbulent environments. When Habitat for Humanity began, it was a classic prospector. Its mission of helping low- income individuals build their own homes gave it a unique place in the marketplace.

Analyzers are organizations that seek to minimize risk while maximizing profi t through innovation. They typically concentrate on a limited range of products and try to outperform others. This is most appropriate in a changing but not turbulent environment. Some nonprofi t schools that delved heavily into distance learning may be seen as analyzers. They fi gured out how to use their existing strengths profi tably to deliver online courses in ways that did not undermine their existing programs delivered in a traditional format.

Finally, reactors are organizations that exert little control over their environ- ment. They do not adapt to competition and do not have a systematic strategy, design, or structure for responding to changes in the environment. For example, nonprofi ts that fi nd their mission is no longer relevant to existing conditions may become reactors. Rather than redefi ne themselves, they may wait to see if and when conditions might change back in their favor. If conditions do not shift, they risk losing resources and being forced to close their doors. Lack of capacity to monitor the environment or initiate changes in the organization may also lead to a reactionary stance. A small grassroots nonprofi t that has lost most of its members may fi nd itself in this situation.

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Formulation of Strategy 91

MacMillan’s Framework

Porter’s and Miles’s and Snow’s frameworks were developed for for-profi ts. Ian MacMillan has developed a portfolio approach to identifying generic strategic alternatives for nonprofi t organizations.19 MacMillan’s framework is based on the assumptions that nonprofi t organizations must compete for scarce community resources, that duplication of services should be avoided except when a safety net is needed, and that communities are best served by a high-quality service provider. One implication of these assumptions is that some nonprofi t providers or programs should be terminated if they do not provide optimal benefi ts for the community, opening the way for more effective providers or programs. That is, community benefi t should be the primary consideration in choosing whether a nonprofi t should collaborate, compete, or end a program.

MacMillan’s framework has three dimensions. Each program that a nonprofi t offers can be evaluated on these dimensions. Program attractiveness is the degree to which the nonprofi t sees a program as congruent with a number of positive factors including mission, goals, resources, benefi ts to clients, and potential to generate revenues or other benefi ts for the nonprofi t. Program attractiveness is classifi ed as high or low. Competitive position has to do with how well the nonprofi t serves its clients with a program compared to other nonprofi ts serving those clients with a similar program. Competitive position is classifi ed as strong or weak and may be a function of a nonprofi t’s resources, skills, locational advantage, or other advantages. Finally, alternative coverage is an important dimension because it allows a nonprofi t’s strategy to take community needs and resources into account by considering whether there are many or only a few alternatives that clients could use to obtain the benefi ts provided by the nonprofi t’s program. If few alternatives to a particular service are available and clients and the community need it, a nonprofi t might consider providing that service even though it may not be the most attractive option for the nonprofi t. Conversely, when there are many alternative providers, community resources may not be put to best use by supporting the nonprofi t’s provision of that service, especially if the nonprofi t is not in a strong competitive position.

MacMillan’s framework leads to eight possible types of strategies that a nonprofi t could consider in determining an approach to a particular program.20 Table 5.1 displays these strategy types. The numbered specifi c actions in the table correspond to the numbered strategies in the following list.

1. Aggressive competition. The nonprofi t is among the best at this program and the program is highly attractive to it. Many others are also providing this service, indicating that community resources may be dispersed too widely. Consequently, the nonprofi t should compete in order to weed out the weaker providers.

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92 Managing Nonprofi t Organizations

TABLE 5.1. A MODEL FOR IDENTIFYING AN APPROPRIATE STRATEGIC ORIENTATION: BASED ON MACMILLAN’S COMPETITIVE

STRATEGIES FOR NONPROFITS

High Program Attractiveness to Nonprofi t’s Stakeholders

Low Program Attractiveness to Nonprofi t’s Stakeholders

High Alternative Coverage

Low Alternative Coverage

High Alternative Coverage

Low Alternative Coverage

Nonprofi t Has Strong Competitive Position

1. Aggressively compete with other providers.

2. Aggressively grow provision.

5. Collaborate to provide or build up best competitor in order to eventually stop providing.

6. Keep if needed as safety net, strengthen other providers so nonprofi t can stop providing if others can be effective providers, fi nd support for pro- vision; or limit scope of provision to make it more attractive for the nonprofi t.

Nonprofi t Has Weak Competitive Position

3. Stop providing.

4. Decide with other providers who should provide. If cho- sen to continue, strengthen provision.

7. Stop providing.

8. Consider collabo- rating to improve offering, encourage other providers, and stop providing when no longer needed.

Source: Adapted from Ian MacMillan, “Competitive Strategies for Not-for-Profi t Agencies,” in Advances in Strategic Management, vol. 1, ed. Robert Lamb (Greenwich, CT: JAI Press, 1983), 69–72.

2. Aggressive growth. The nonprofi t is among the best at this program and the program is attractive to it. The presence of few alternatives is an indica- tion that growth is possible in this area, and the nonprofi t should pursue it.

3. Aggressive divestment. The nonprofi t is in a weak competitive position, and there are many alternative program providers. Even though the program is attractive, there is no good organizational or community reason to keep providing the service.

4. Build strength or sell out. Again, the program is attractive, but the non- profi t is in a weak competitive position. In this case, however, few alternative providers are available. It might therefore benefi t the community if the non- profi t sought to become a better provider. Alternatively, the nonprofi t should step aside and let others, who are better at it, provide the service.

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Formulation of Strategy 93

5. Build up best competitor. The nonprofi t is among the best at this service, but it is not an attractive program for the organization. Given that there are a multitude of other providers for this service, the nonprofi t should consider helping the next best organization to take over or share the service.

6. Soul of the agency. The nonprofi t is among the best at this service. It fi nds the program unattractive, but there are few alternative providers and the com- munity could suffer if the nonprofi t stops providing the service. It is impor- tant to understand what makes the program unattractive. If it is a matter of fi nances, then the nonprofi t should seek other ways to fi nance the program. If it is not a good fi t with the mission, then more serious consideration should be given to program termination or the risk of mission drift will increase.

7. Orderly divestment. This is not an attractive program, the nonprofi t is not good at it, and many alternative providers exist. There are no reasons to keep the program.

8. Joint venture. This is not an attractive program, and the nonprofi t is not good at it. In this case, however, few alternative providers exist and the com- munity could suffer with the loss of a provider. The nonprofi t could consider joining with one of the other providers to benefi t the community.

The Strategic Planning Process

In this section we will outline the strategic planning process and present a number of tools that nonprofi ts have found to be useful. In the general strategic planning model, the strategic plan is the critical link between abstract aspirations and con- crete operations, as shown in Figure 5.1.

Formal strategic planning generally involves a series of steps that include getting ready to plan, assessing the situation facing the nonprofi t, linking relevant internal and external factors, identifying strategic issues, and forming strategies designed to address those issues. In this section, we describe how a nonprofi t organization takes these steps. We provide examples of what might transpire at

Mission and Vision Strategic Planning

and Strategy to Advance the Mission

Operational Plans to Accomplish the Strategy

FIGURE 5.1. GENERAL STRATEGIC PLANNING MODEL

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94 Managing Nonprofi t Organizations

each step by walking through a hypothetical strategic planning process for the American Red Cross.

Preparing to Plan

To prepare for strategic planning, nonprofi ts should answer these questions:21

• What is the purpose of the planning effort?

• What will the planning process be?

• What reports will be produced, and when?

• Who will be involved, and what are their roles?

• What are the resources available?

The board and CEO will play a major role in answering these questions. As shown in the example of the Flinn Foundation at the beginning of this chapter, the decision to initiate the planning process is likely to come from these top decision makers. Similarly, in a Red Cross chapter, the board, after a review of performance, may decide that current strategy should be reevaluated. A key question then is whether consultants will be used to guide part or all of this process. Consultants will be useful when specific technical or environmental knowledge is needed. In addition, they may have expertise in the strategic planning process that is lacking in the nonprofi t. They may also provide impartial input to the process. Another key question concerns the desired degree of involvement of staff from the opera- tions or service delivery portions of the nonprofi t. Although staff will have detailed operational knowledge, they may also feel that they have a stake in the status quo or in an alternative. In general it is important to consider who needs to buy into any strategies developed, including stakeholders from outside the nonprofi t. For example, a neighborhood organization would benefi t from the input of neighbor- hood residents. This may dictate who should be involved in the planning process.

Early in the process, limitations and boundaries to planning should be clari- fi ed. Mandates and restrictions may put signifi cant bounds on the process or its outcome. For example, changing service locations or collaborating with specifi c organizations may be off the table. Existing grant-related commitments to deliver specifi c services may need to be honored. As well, funds and personnel time may be limited or otherwise committed. For example, a Red Cross chapter may need to continue to provide local emergency response services, as this has been the mandate of the American Red Cross since its founding in 1881.22

Another key part of the planning process is to review the nonprofi t’s mission and values. These should be referred to throughout the planning process, and

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Formulation of Strategy 95

indeed, one of the results of the process may be to refi ne or revise them. On the one hand a review of the mission and values can help planners to reach agreement on the general direction of the nonprofi t and the principles that guide its activities. This in turn can limit possible changes and help planners in giving consistent justifi ca- tions for new strategies. For example, after reviewing the Flinn Foundation’s original mission, the board recognized that the mission had drifted, and it decided to refocus its efforts on creating long-term systemic change, rather than delivering short-term charity. On the other hand a review may show that the mission is appropriate. For example, the Red Cross’s mission states that “the American Red Cross, a humani- tarian organization led by volunteers and guided by its Congressional Charter and the Fundamental Principles of the International Red Cross Movement, will provide relief to victims of disasters and help people prevent, prepare for and respond to emergencies.”23 This is unlikely to be seen as needing revision.

Situation Analysis: Assessment of External and Internal Environments

The typical next step in strategic planning is a situation analysis, which identifi es potentially relevant internal and external factors. At this stage the goal is to provide a complete list of the factors, not to prioritize them. If a factor is not identifi ed at this point, it may not be included in subsequent steps and conse- quently not be addressed in strategic or operating plans.

A number of tools and techniques can be used for situational analysis. The most common general tool is a SWOT analysis, in which internal factors are identi- fi ed and determined to be strengths (S) or weaknesses (W) of the nonprofi t, and external environmental factors are identifi ed and determined to be opportunities (O) or threats (T) for the nonprofi t. Exhibits 5.1 and 5.2 outline the factors that a chapter of the American Red Cross might see as its strengths, weaknesses, oppor- tunities, and threats. A variety of specifi c techniques are available to identify the external and internal factors to include in the SWOT analysis.

External Environmental Analysis The external environment of a nonprofi t includes many objective factors as well as the opinions, needs, and attitudes of important external stakeholders, including clients, funders, policymakers, regulators, partners, and community leaders. Many techniques have been developed to help nonprofi t organizations describe, explore, and analyze their environments24 (see the example in Exhibit 5.1).

A common technique for analyzing the external environment is described by the acronym PEST. When using PEST, a nonprofi t looks closely at political, eco- nomic, social, and technological aspects of the environment that might affect it in a positive or negative way currently and in the future. Within these categories, factors

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96 Managing Nonprofi t Organizations

EXHIBIT 5.1. EXTERNAL OPPORTUNITIES AND THREATS AT A RED CROSS CHAPTER

An environmental analysis identifi es external opportunities and threats to be consid- ered in a SWOT analysis.

Type of Environmental Factor Opportunity Threat

Industry factors A large decline will occur in the oil and gas extraction component of the state’s economy.

Economic factors State and local government will lose about 6,000 work- ers (3.1%).

Financial factors Financial distress should increase this year due to problems in real estate.

Government factors The Red Cross is well supported by government.

Government and public agencies will become less involved in health issues.

Competition factors Competition exists for fi rst aid, organ donations, safety education, and disaster aid.

Social factors In times of disaster, the Red Cross gets signifi cant support from the public.

Demographic factors Donations to the chapter are higher than the state chapter average.

Future state trends It is expected that the state’s economy will bottom out this year.

Source: Adapted from R. Henry Migliore, Robert E. Stevens, David L. Loudon, and Stan Williamson, “Sample Strategic Plans,” in Strategic Planning for Nonprofi t Organizations (New York: Haworth Press, 1995), 161–195.

can range from the specifi c, such as particular regulations or funding streams, to the general, such as demographics or overall economic conditions. For example, for the Red Cross chapter, one of the most important external factors might be the economic resources of the local government that could be mobilized to provide emergency relief. If government resources are lacking, the Red Cross role may

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Formulation of Strategy 97

need to become more extensive. In addition, the average age of the population and the socioeconomic breakdown of the community may determine the need for Red Cross services. It is not possible to stipulate in advance which specifi c or general factors will be relevant for any given nonprofi t and herein lies the challenge. The technique is only as good as the information available. Also, as the list of factors to examine increases so does the diffi culty of the task. Simple environments may be adequately assessed by staff and board members along with knowledgeable outsid- ers. In more elaborate, complex, or turbulent environments, experts may be needed to provide information to planners. For example, the Flinn Foundation brought in consultants to provide industry data that staff and board members could not have easily obtained on their own.

An industry analysis can be used to look at how a nonprofi t is operating in one or more industries.25 The industry analysis is one way in which nonprofi ts can adopt and adapt a model from the for-profi t world. An initial challenge is determining what industry to examine. The Flinn Foundation, for example, could belong to the industry of grantmaking organizations, of community health advo- cates, of bioscience research supporters, or a number of other industries and subindustries. Likewise, besides providing emergency relief, the Red Cross is also involved in support for military members and their families; community services that help the needy; the collection, processing, and distribution of blood and blood products; and educational programs that promote health and safety.26 Each of these can be considered a separate industry.

Once an industry of interest is identifi ed, Sharon Oster offers a useful tool that nonprofi ts can use to identify vulnerabilities and key success factors.27 Her nonprofi t model expands on Porter’s for-profi t model28 by including funders and volunteers. It looks at

• Relations among the existing organizations in the industry

• The threat of new entrants

• The threat of new substitutes (competition from alternative services)

• The number and power of user groups

• The power of funding groups

• The power of supplier industries (especially for staff and volunteers)

Several other techniques may prove useful. Environmental scanning can be used to examine how imminent or distant the positive or negative impact of an envi- ronmental factor is likely to be as well as the magnitude of the impact. For exam- ple, a scan might reveal that a reduction in city social service budgets may occur in the next fi scal year. This could signifi cantly affect a nonprofi t’s city funding

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98 Managing Nonprofi t Organizations

for its day-care program. Scenario analysis is a technique for developing scenarios describing possible future situations (Exhibit 5.1 illustrates some scenarios). Each scenario is evaluated on the likelihood of occurrence and likely positive or nega- tive impact on the nonprofi t. For example, one scenario resulting from reductions in city funding would be for the nonprofi t to offset the reduction by imposing fees for its day-care clients. These two techniques can be combined in an issue impact analysis grid whose cells range from taking priority actions (for cases of high impact plus high likelihood) to merely tracking (for cases of low impact plus low likelihood). In the example we are considering, if the scenario of reduced funding is seen as likely, the nonprofi t might make preparing for this contingency a prior- ity. This preparation might involve appointing a task force to evaluate options. Finally, a force fi eld analysis can be used to consider factors in the environment that may promote or inhibit change. In our example, it may not be possible to charge low-income clients fees for services due to their inability to pay. This may make a sliding fee scale the best option.

Internal Factors Analysis We turn now to the assessment of internal factors, those things inside an orga- nization that may infl uence strategy. Although all aspects of internal structure and operations may be considered, a nonprofi t must be sure to assess its capabili- ties and resources (see the example in Exhibit 5.2). An analysis of resources can help planners understand current capabilities, potential to meet new needs, and resource gaps. Another key factor is the nonprofi t’s ability to use its resources to successfully run its programs and meet its mission. The role of resources in help- ing fi rms attain competitive advantage has been explicitly considered.29 Resources can be tangible or intangible. Tangible resources are physical assets and include physical resources (such as buildings, machinery, materials, and productive capac- ity), fi nancial resources (such as cash balances, debtors, and creditors), and human resources (such as the numbers and types of personnel and their productivity). Intangible resources include knowledge and intellectual resources as well as an organization’s reputation and culture. Intellectual resources include patents and copyrights. Knowledge resources include employee knowledge and specialized skills as well as tacit knowledge in the organizational culture.

Although resources are important, it is their configuration that provides organizational competencies. Core competencies provide competitive advan- tage. They provide access to markets and are perceived by customers to provide benefi ts. They are diffi cult to imitate and provide an organization with distinc- tive capabilities. The Red Cross possesses many of these competencies. It has a strong brand image and reputation for service. It provides extensive training to employees and volunteers and has a strong culture of community service. It has

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Formulation of Strategy 99

EXHIBIT 5.2. INTERNAL STRENGTHS AND WEAKNESSES AT A RED CROSS CHAPTER

Continuing the example in Exhibit 5.1, an assessment of internal factors identifi es internal strengths and weaknesses to be considered in a SWOT analysis.

Type of Internal Factor Strength Weakness

Administrative and human resource factors

Volunteers and staff take great pride in their work. The organization has a cul- ture of service. Staff have extensive training and expertise in providing services.

Youth are not adequately recruited or utilized.

Financial factors The fi nancial position is excellent and the fi nancial trend is good.

Income funds are generally dependent on the success of the United Way fund drive.

Equipment and facili- ties factors

The organization has superb, modern facilities. Specialized equipment is available for emergency services.

The organization is absorb- ing expansion areas of the new facility at a faster rate than planned for.

Line-of-service factors Disaster services are easily mobilized during times of need.

Compared to other area blood services, the Red Cross carries a high overhead and has a wider area for collec- tion and distribution.

Source: Adapted from R. Henry Migliore, Robert E. Stevens, David L. Loudon, and Stan Williamson, “Sample Strategic Plans,” in Strategic Planning for Nonprofi t Organizations (New York: Haworth Press, 1995), 161–195.

specialized facilities for emergency response (such as buildings, communication equipment, and specialized vans). These factors make the Red Cross the primary emergency response organization in most communities.

Internal analysis can use information from a variety of internal sources, includ- ing periodic program or organizational evaluations as well as information gathered specifi cally for the strategic planning process by consultants or staff. A number of techniques are available for the identifi cation of relevant internal factors.

A major way that internal information is gathered is through evaluations. Evaluation of programs and organizational effectiveness are covered in separate chapters. At this point we stress that periodic evaluations should be linked to

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100 Managing Nonprofi t Organizations

strategic planning. These evaluations should assess progress toward achieving per- formance objectives and point to internal factors enhancing or retarding progress. In addition, organizational assessment tools, codes of practice, and standards are available for use by nonprofi ts.

Identifi cation of Strategic Issues

Identifi cation of the strategic issues facing the nonprofi t is a key step in planning. Strategic issues are the small number of very important issues that emerge from evaluation of internal and external factors that currently are affecting or are likely to affect an organization. Once the strategic issues are identifi ed, specifi c strate- gies can be formulated to address them. If an important issue is not identifi ed at this stage, strategies may not be formulated to address it.

Strategic issues involve fundamental questions for a nonprofi t. For example, a question facing the Flinn Foundation was how to have a longer-term impact on the State of Arizona given the general economic downturn and the founda- tion’s dissatisfaction with its current scattershot approach. Strategic issues might focus on opportunities or challenges. A key point is that there are likely to be consequences at some point if the organization does not deal with them. There may be issues that require no organizational action at present except monitor- ing, issues that are on the horizon and will require some action at some point, and issues that require an immediate response. For the Flinn Foundation the issues were identifi ed as having moved from the monitoring and horizon stages to requiring immediate action.

Given the diversity of stakeholders and views and values within nonprofi ts, the process of issue identifi cation will likely require extensive discussion and may entail confl ict. For example, in a Red Cross chapter, there may be disagreement on the relative priorities that should be placed on assistance to military families versus youth education. A systematic process will help planners with this stage. John Bryson has identifi ed a variety of procedures that can be used to identify strategic issues.30 A number of these are quite straightforward and relatively easy to use, especially in smaller nonprofi ts. In a direct approach a discussion of man- dates, mission, vision, and SWOT analysis fi ndings leads to the identifi cation of strategic issues, as described in the following section. All potential strategic issues are then evaluated. A simplifi ed indirect approach begins with brainstorming to gen- erate a set of options for action that might be entailed in stakeholder expectations, SWOT elements, or other relevant material. These options are then evaluated in more detail. A method that can be employed when there is consensus on organi- zational goals is a goals approach. This technique identifi es and evaluates the issues that need to be addressed to reach the goals. Finally, a vision of success approach starts

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Formulation of Strategy 101

with an idea of what success would look like and identifi es issues that need to be addressed to reach it.

Using SWOT to Establish Strategic Issues

As noted earlier the SWOT analysis can serve as the basis for establishing strategic issues. Although the use of SWOT in identifying strategic issues appears quite straightforward, Kevin Kearns points to the diffi culty of moving from discon- nected lists of strengths, weaknesses, opportunities, and threats to a succinct list of prioritized strategic issues, as is required in approaches that rely on SWOT, such as the direct and indirect approaches just outlined. To address this problem, Kearns offers a simple process for extending a SWOT analysis to classify strategic issues.31 His framework systematically links the internal and external elements of a SWOT analysis. Each internal factor (a strength or weakness) is linked to an external factor (an opportunity or threat), and each external factor is linked to an internal factor.

In this way internal and external elements can be mapped into a four-cell matrix of strategic issue types, as shown in Exhibit 5.3. When opportunities in the external environment are aligned with organizational strengths (cell 1), the generic strategic issue is, How can the nonprofi t leverage its strengths to achieve or enhance its comparative advantage, thereby capitalizing on a perceived opportunity? When external opportunities are aligned with internal weaknesses (cell 3), the generic issue is, Should the nonprofi t invest its scarce resources in weak programs to become more competitive in relation to a perceived opportunity? When the environment presents a threat but the nonprofi t has strengths connected to that threat (cell 2), the generic issue is, How can the nonprofi t mobilize its strengths to avert a perceived threat or even transform it into an opportunity? Finally, when threats and weaknesses are aligned and the nonprofi t lacks internal capacity or capability to address perceived external threats (cell 4), then the generic strategy is, In light of its vulnerable position, how can the nonprofi t con- trol or at least minimize the damage that may be infl icted by impending threats? Exhibit 5.3 returns to the example of the Red Cross chapter to see what strategic issues sur- face in its SWOT analysis.

In the planning process, board and staff members are likely to identify numerous strategic issues. The fi nal step in this identifi cation process is to rank, or prioritize, these issues to indicate the level of concern they should be given during strategy development. They should be ranked on centrality, urgency, cost implications, public visibility, mission impact, connection to core values, research needed, and feasibility of being effectively addressed. For the Red Cross chapter, the strategic option of using government support to start a new service (cell 1) would rank high on centrality, visibility, and mission impact, whereas the strategic

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102 Managing Nonprofi t Organizations

EXHIBIT 5.3. USING SWOT ANALYSIS FOR STRATEGIC ISSUE IDENTIFICATION AT A LOCAL RED CROSS CHAPTER

For the Red Cross chapter in our example, a linking of internal strengths and weak- nesses and external opportunities and threats could result in the following matrix. This classifi cation could be followed by discussion of critical choices related to each cell.

Opportunities Threats

Strengths 1. Organization has a

high level of government support.

2. Public agencies will become less involved in health issues.

Weaknesses 3. Youths are not

adequately recruited or utilized.

4. Chapter has high overhead costs.

In cell 1 the general issue is how a nonprofi t can leverage its strengths to take advantage of an environmental opportunity. For example, the support the Red Cross gets from government (an internal strength) could be used to start or expand services (an opportunity in the environment). A specific strategic issue could be framed this way: Should we use government support to start a new service?

In cell 2 the general issue is how can a nonprofi t use its strengths to mitigate an environmental threat? The Red Cross, for example, may have strong programs in health that could in fact benefi t from reduced health services from government.

In cell 3 the general issue is whether a nonprofi t should invest resources to better address an environmental opportunity. For example, should the Red Cross invest in better recruiting from a growing youth market, an area where its recruiting is cur- rently weak?

Finally, in cell 4 the general issue is how a nonprofi t can control or minimize the damage from an environmental threat in an area where the nonprofi t is weak. A stra- tegic issue for the Red Cross chapter in this area could be stated this way: Given our high overhead costs, how can we effectively compete with other organizations who can afford to charge less than we do due to their lower overhead costs?

To add to the value of the matrix as a planning tool, each of its cells can be subdi- vided further. Environmental factors can be subdivided based on their certainty. In this example, it may be uncertain whether government will in fact reduce its involvement in health issues, suggesting that the Red Cross may wish to be cautious about devel- oping new services in affected areas. Strengths and weaknesses can be subdivided based on whether they are actual or potential factors. The chapter may currently have high overhead costs, but it might be that these are likely to come down in the future, turning a current weakness into a potential strength.

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Formulation of Strategy 103

option of dealing with high overhead costs (cell 4) is likely to rank high on urgency, cost implications, and research needed.

From Strategic Issues to Strategies

The next planning step links statements of strategic issues to more concrete choices and actions. Bryson outlines a fi ve-step process for formulating specifi c strategies once the strategic issues to be addressed have been identifi ed:32

1. Identifi cation of alternatives, dreams, or visions for resolving the strategic issues

2. Enumeration of barriers to realizing those alternatives, dreams, or visions

3. Development of proposals for achieving the alternatives, dreams, or visions

4. Identifi cation of actions that need to be taken over the next two to three years to implement each proposal

5. Development of a detailed workplan spanning the next six months to a year to implement the actions

Although the fi nal two steps concern strategy implementation, Bryson makes the point that it is useful to consider them during the planning stage, as strategy development should not be divorced from implementation, and planning should always be done with implementation in mind.

The resulting strategies should meet several important criteria, including technical workability, political acceptability, alignment with important organiza- tional philosophies and core values, and ethical acceptability.

Adopting and Implementing a Strategic Plan

Although the focus of this chapter is on strategy formulation, we should briefl y consider the steps to be followed after strategic planning.33 Once a strategic plan has been formulated by the planning team, it should be adopted offi cially by the board of directors and endorsed by the staff, especially the CEO. Then the challenge becomes carrying out the strategies. Without proper attention to imple- mentation, intended strategies may never be realized. Successful implementation involves marshalling people and resources in a timely manner. An implementa- tion plan should include the following:34

• Implementation roles and responsibilities of oversight bodies, organizational teams or task forces, and individuals

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104 Managing Nonprofi t Organizations

• Expected results and specifi c objectives and milestones

• Specifi c action steps and relevant details

• Schedules

• Resource requirements and sources

• Review, monitoring, and midcourse correction procedures

• Accountability procedures

Periodic Review and Reassessment of Strategic Plans

Well-formed strategic plans require the nonprofi t to take actions designed to pro- duce specifi c results over a specifi ed period of time. Strategic plans are usually formulated to span two to fi ve years. Program evaluations will normally address whether the strategies guiding each program have been successful. In addition, the nonprofi t should periodically review whether each of its strategies has been successful in creating the intended results. These assessments will provide a basis for maintaining successful strategies and modifying or eliminating unsuccessful ones. They may point to weaknesses in the strategic planning process itself, which may have led to the adoption of poor strategies. Any weaknesses can be taken into consideration during the next strategic planning process. In Chapter Thirteen we will examine more closely how programs are evaluated and assessed and how the evaluation process and strategic planning process are joined.

Challenges to Planning: Emergent Strategy

The purpose of the strategic planning approach we have discussed so far is to develop a systematic, rational, and analytical approach to strategy formation. This approach is designed to allow nonprofi t leaders to appraise the nonprofi t and its environment objectively, formulate a strategy that they feel maximizes the chances of success, and implement that strategy through operational plans. As outlined in our earlier overview of the fi eld, however, an alternative view of strategy is that it emerges without planning. In fact, research has shown that orga- nizational success is sometimes not due to rational strategic planning.

Although planning is important, an overemphasis on detailed, formal, long- range planning can lead to an underemphasis on continuous learning and fl ex- ibility. In his review of the strategy fi eld, Stephen Cummings concludes that it is recognized that in complex and turbulent environments, “A top-down planning and positioning approach tends to make a fi rm slow, rigid and unresponsive to

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Formulation of Strategy 105

unforeseen opportunities and threats. It also disengages ‘lower level’ employees who may have much to add.”35 Mintzberg, Ahlstrand, and Lampel critique plan- ning and positioning approaches by noting that they are double-edged—for every advantage there can be a corresponding drawback.36 Strategic planning can set the organization’s direction, but it can also blind leaders to potential dangers. It may be better to move slowly and focus on the near term so needed adjustments will be easier to make. In addition, although strategic planning can promote consistency and coordinated action, it can also lead to less consideration of alter- natives, less creativity, groupthink, or stereotyping. Mintzberg also argues that traditional planning models have three particular diffi culties.37 In the fi rst place, prediction is a problematic process. Mintzberg points out that even though certain repetitive patterns may be predictable, the forecasting of discontinuities, such as technological innovation or a price increase is virtually impossible. For example, a mental health nonprofi t may not be able to predict how local government funding for community services might change after an upcoming election. A second poten- tial problem is detachment. This can occur when strategy (thinking) is distanced from operations (doing). Planners may be divorced from the operational details that good strategy relies on. For example, when a nonprofi t board engages in stra- tegic planning, it is very important that the board obtains input from operating units. Finally, formalization itself may be a problem. Formal systems may be able to handle more data than informal ones, but sometimes these data are not inter- nalized, comprehended, or synthesized, making learning diffi cult if not impossible. Formal systems cannot forecast discontinuities, inform detached managers, or cre- ate novel strategies. For example, a board strategic planning process that relies on raw data or unanalyzed or unsynthesized reports from a variety of sources in the organization is unlikely to develop an adequate view of operations or alternatives.

Mintzberg has developed the notion of strategy as an emergent process and is the foremost advocate of the learning approach to strategy. The roots of this approach can be found in Charles Lindblom’s notion of muddling through, which portrays policymaking in government as a messy process in which policymakers struggle with situations too complicated for neat, orderly, rational processes.38 James Quinn’s 1980 book, Strategies for Change: Logical Incrementalism, is seen as the takeoff point for the learning approach.39 In charging organizations to focus more on less rational approaches, Mintzberg distinguishes between intended, realized, and emergent strategies (see Figure 5.2).40

Intended strategy is planned strategy as conceived and directed by the top man- agement team. Realized strategy is the strategy that the organization actually pur- sues through a pattern of actions. Intended strategies may never be realized, and realized strategies may never have been intended. Unintended realized strate- gies are termed emergent strategies. Emergent strategies are the result of strategic

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106 Managing Nonprofi t Organizations

learning through experimentation and discovery. Learning can take place at the individual, team, top executive, and governance levels. It may be driven by con- scious desires to seek improvements or by external forces and internal pressures.

This leads Mintzberg to propose a grassroots model of strategy formation.41 The main tenets of this model are that strategies may grow initially like weeds in a garden rather than like tomatoes in a hothouse; that they can take root in all kinds of places, virtually anywhere people have the capacity to learn and the resources to support that capacity; and that they become organizational when they become collective, that is, when the patterns proliferate to pervade the behavior of the organization at large. An important point is that the process of proliferation may be conscious but need not be and, likewise, strategies may be managed but need not be. Moreover, new strategies, which may emerge continually, tend to pervade the organization during the periods of change that punctuate the periods of more integrated continuity. For leaders, managing this process means not preconceiving strategies but recognizing their emergence and intervening when appropriate.

Although learning is an important and necessary process, Mintzberg, Ahlstrand, and Lampel acknowledge that this approach to strategy formation has limitations and weaknesses if carried too far.42 Actions can spin off in all directions. In a multiservice nonprofi t, for example, each department or division could develop services or programs that were unrelated to each other or to any overall organizational plan for growth or development. In addition, in a crisis, the learning approach cannot be relied upon, and a clear strategy may be the key to success. A nonprofi t that unexpectedly loses a major source of funding is best off relying on contingency plans prepared expressly for this emergency. Even in stable situations some organizations need strong strategic visions and the coherence that comes from centralized sources rather than decentralized learning. For example, a health services nonprofi t contracting with county government needs to provide consistent and reliable services over the term of the contract. For such organi- zations an overemphasis on learning can undermine a coherent and perfectly viable strategy, and initiatives may be promoted simply because they are new or

FIGURE 5.2. INTENDED, REALIZED, AND EMERGENT STRATEGIES

Strategy as Action

Intended strategy may become realized strategy

When action is unintended it becomes emergent strategy

Strategy as Plan

Intended strategy

?

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Formulation of Strategy 107

interesting.43 The health services nonprofi t providing county services should not adopt new or experimental therapies until they have been well tested.

Combining Perspectives

In the previous sections we have considered strategy as planning and strategy as response (emergent). Commenting on the contemporary strategy landscape, Courtney concludes: “With the availability of different approaches to strategy it is diffi cult for those with responsibility for the management and development of their organizations to make decisions about which approach is best.”44 Similarly, Robert Grant observes that “although the debate between the two schools [planned strat- egies and emergent strategies] continues, it is increasingly apparent that the cen- tral issue is not ‘Which school is right?’ but, ‘How can the two views complement one another to give us a richer understanding of strategy making?’ ”45

Nonprofit organizations need both stability and flexibility, meaning that strategy making should combine elements of control (planned strategy) and of learning (emergent strategy). This combining can take a number of forms. The board and the CEO have important roles in strategy emergence as well as plan- ning strategy. To combine planning and emergence, they could establish broad guidelines, or umbrella strategies, and leave the specifi cs of strategy to those lower down in the organization.

Nonprofi ts may pursue a given strategic orientation until they get out of alignment with their environments and a signifi cant strategic reorientation is needed. It is at this point that formally planned and emergent strategies come into contact. For example, mental health services used to be provided largely in institutions until the deinstitutionalization movement dictated that services be provided in community settings. At that point mental health nonprofi ts that had been providing institutional services needed to learn about and develop new mod- els for service provision.

Much of the time, change is minor and does not need to be addressed strate- gically. However, managers need to be able to recognize and detect new patterns that may develop into emergent strategies, and deal with them appropriately. This may involve stopping the pattern of developing behavior or watching it to see if it has useful effects on the nonprofi t and should therefore be promoted. CEOs often pursue opportunities they perceive that are not in the strategic plan. For example, clients’ growing lack of understanding of the increasingly complex housing mar- ket may lead a nonprofi t housing provider (such as Habitat for Humanity) to start providing educational material to clients on an ad hoc basis. If the amount of effort devoted to this activity increases, the nonprofi t should decide if supplying

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108 Managing Nonprofi t Organizations

this material detracts from the organizational strategy or if it can usefully benefi t the clients. If it detracts it should be dropped, and if it is a benefi t then it may be developed into a new strategic focus.

Finally, emergence and learning tend to become relatively more prominent and important as environments become more volatile, complex, and unpredict- able. Nonprofi ts that cannot accurately predict what their environments will be like in the future can only establish general strategic directions and react strate- gically as events unfold. Nonprofi ts dealing with illegal immigrants, on the one hand, face such environments and must remain fl exible. Nonprofi t museums, on the other hand, face far more predictable environments and can develop more specifi c strategic plans.

Within a nonprofi t, strategic approaches may also differ across functions and units. Courtney notes, for example, that fund development efforts, given the high degree of competition for funds, may require traditional strategic planning approaches.46 The human service delivery component of some nonprofi ts, in con- trast, may operate in a less competitive environment where cooperative and mutu- ally supportive interorganizational relations are benefi cial. In this environment, strategies focusing on collaboration, learning, negotiation, and capacity building may be most productive.

Writing on the future of thinking about strategy, Cummings maintains that a new, more open, and fl exible mind-set should shape future perspectives on what strategy is or could be.47 He outlines a new pragmatic approach that blends traditional planning with fl exible “strategic improvising” approaches and that has these key characteristics:48

• Wide participation of staff, trustees, volunteers, and other stakeholders, rather than a top-down approach

• Ongoing support and encouragement of creativity, innovation, experimenta- tion, and learning

• Recognition of the need to negotiate between the various sources of power, inside and outside the organization

• A focus on key strategic issues, or challenges

• Use of a range of scenarios to defi ne potential external situations

• Creation of a strong motivating vision, that is, a strategic intent, which enables an organization and its people to “live deeply in the future while gaining the courage to act boldly in the present”

• Creation of a clear value base for the ethical management of the organization

• Engagement in strategic thinking as a continual process, not just an annual cycle

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Formulation of Strategy 109

• Strategic processes that produce commonsense frameworks that will help man- agers make decisions

Concluding Thoughts

In this chapter we have presented strategy formation as a process that fi ts, or adapts, the nonprofi t organization to its environment. Strategy will help a non- profi t to provide the goods or services the community needs and wants, and as a consequence, to obtain the resources the nonprofi t needs to survive. It is the critical link between the general aspirations expressed in vision and mission state- ments and the more specifi c goals that direct day-to-day operations. It is impor- tant that planning processes not be static and that they not be considered “done” once a strategic plan has been drafted and implemented. Nonprofi ts need to be adaptable because their environments will inevitably change. They live with a basic tension between their need for both organizational stability and change. We have shown how strategy can provide planned direction and stability on one hand and help the nonprofit learn from unanticipated changes on the other. The challenge is to design processes that foster the type of strategy formation that the nonprofi t needs.

In the next chapter we take up the topic of resource acquisition. This is one of the major concerns that strategy will be used to address.

Questions for Consideration

1. At what point(s) in the strategic planning process is it particularly important to get input from top management? From external stakeholders? From service delivery staff ?

2. Under what conditions might start-up nonprofi ts fi nd traditional strategic planning more useful than an emergent strategy approach? When might the opposite be the case?

Exercises

Exercise 5.1: Strategic Orientation

Briefl y describe a nonprofi t organization with which you are familiar. This could be a club, a church, or a recreational, cultural, or service organization. If need be,

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110 Managing Nonprofi t Organizations

you may speculate about a hypothetical nonprofi t. Is this nonprofi t a defender, a prospector, an analyzer, or a reactor? Explain the reasons for your answer.

Exercise 5.2: Strategic Planning

Continuing to focus on the nonprofi t you selected for Exercise 5.1, answer these questions:

1. Using PEST, identify the important aspects of this nonprofi t’s environment.

2. Identify this nonprofi t’s strengths, weaknesses, opportunities, and threats.

3. Identify several strategic issues for this nonprofi t.

4. Which approach to strategic issue identifi cation did you use in answering the previous question?

Exercise 5.3: Strategy Emergence

How could strategy emerge from the base of this nonprofi t (its staff, benefi ciaries, or others outside the board and the executive leadership)?

1. What techniques or procedures could the organization’s leaders use to encourage emergent strategy?

2. How could these techniques or procedures be integrated with a strategic planning approach?

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111

CHAPTER SIX

RESOURCE ACQUISITION

T he Oakes Children’s Center was founded in San Francisco in 1963 to provide educa-tion and therapeutic treatment for severely emotionally disturbed children.1 Though it was initially funded by grants from private foundations and fees from parents of the children being treated, it became heavily dependent on state government contracts. In 1992, 97 percent of its revenues came from government, with the remaining portion from ad hoc fundraising and other sources. This was not surprising given that the passage of Public Law 94-142 had guaranteed government funding for education for the children that the center served and had outlawed tuition fees to parents. The result was a steady stream of government funds that brought complacency and little interest in fundraising. The center infrequently mailed solicitation appeals or invited community members to special events. There was no comprehensive strategy for seeking corporate, foundation, and individual donations.

In 1992, the center’s leaders saw that shifting political priorities could result in the shrink- ing of what was still generous government funding. As they began a planning process, the board and staff sensed an urgency to reduce the nonprofi t’s dependence on government funds but were skeptical that they could make a case to the public for philanthropic support. That year, Robert Tyminski, the executive director, began work on a strategic fund development plan for the center. Tyminski identifi ed numerous challenges that would face the organization as it attempted to change its funding portfolio and increase philanthropic support. The organization had lost its grassroots base of support and full board commitment to fundraising had to be developed. The fundraising message was not clear. The board wondered why individuals and corporations would want to donate to the organization. Working with a marketing consultant, the center’s leaders developed a campaign to build visibility, gain strategic partners, and educate the public—all with the hope that donations would follow. They collected and shared their success stories.

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112 Managing Nonprofi t Organizations

Over time, more individuals learned how the center’s services saved tax dollars and improved the community, and ultimately many of them contributed fi nancial support. Today the center has a more diversifi ed revenue portfolio, continues to seek donations, and works to build an even broader base of philanthropic support. Its Web site now unabashedly links the center and its work to the community. The Mission and Vision section informs site visitors of these aims:

• We operate Oakes for the benefi t of the community and strive to remain fl exible and responsive to emerging needs.

• We are committed to responsible management of the resources entrusted to us by the community.2

The center persuasively communicates its main message that the children it helps are fellow members of the local community and deserve community members’ interest and gifts.

� � �

Just as there are numerous types of nonprofi ts, there are numerous types of rev- enue to support their missions, each with its own challenges. Revenue may come from sales of services and products, licensing agreements, advertising fees, grants, reimbursements, contracts, investment income, membership fees, insurance, spon- sorships, and donations. A nonprofi t following the model of having all or a large majority of its support coming from one source runs the risk of having to shut down if the funding source goes away.

As the experience of the Oakes Children’s Center shows, nonprofi ts can reduce their fi nancial vulnerability by developing a diversifi ed funding base. The leaders of the center helped ensure its survival by building a fund development program that could supplement shrinking government contracts. The center was then well positioned when it needed to rely on philanthropic support to maintain and grow its services. In order to accomplish this diversifi cation of the funding portfolio, the nonprofi t staff and board worked to understand the center’s story and constituents, improve its communication strategies, develop strategies for soliciting and stewarding gifts, and convey a persuasive case to motivate individu- als and organizations to give to the center. The example of the Oakes Children’s Center demonstrates that a fund development plan can be created even in a non- profi t that has existed for many years without signifi cant philanthropic support. The pressure to create and follow such a plan is often dependent on the perceived level and stability of existing revenue sources.

Complacency is a common problem in nonprofi ts that believe their funding is secure. Taking a hard look at where a nonprofi t is currently getting its fund- ing and exploring options for changing this pattern requires time, effort, and a recognition of the concerns associated with potential and existing revenue

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Resource Acquisition 113

streams. We encourage nonprofit leaders to examine the vulnerabilities in their revenue portfolio. To that end this chapter reviews revenue sources and presents challenges associated with pursuing and being dependent on them. We then focus on philanthropic support and review types of philanthropic gifts and donors, the fund development process, and fundraising principles.

Revenue Sources and Concerns

Our understanding of the revenue sources of nonprofi ts in the United States comes primarily from their tax returns. Nonprofi ts classifi ed as public charities (most of the 501(c)(3) nonprofi ts) reported over $1.41 trillion in total revenues in 2009, according to the National Center for Charitable Statistics (NCCS).3 NCCS breaks this total down, fi nding that it comes mostly from program service rev- enues, including government fees and contracts (76 percent). An additional 22 percent comes from contributions, gifts, and government grants, and 11 percent comes from other sources such as dues, rental income, special event income, and goods sold. Another revenue breakdown by NCCS is shown in Figure 6.1; it pro- vides more information by using 2008 tax returns from public charities.

The NCCS breakdowns of revenue for public charities ignore nonprofi ts with less than $5,000 in annual revenue and religious congregations, due to lack

Fees for services and goods from private sources

50.0%

Investment income 5.4%

Other income 2.9%

Private contributions

12.3%

Government grants 9.0%

Fees for services and goods from government

20.4%

FIGURE 6.1. SOURCES OF REVENUE FOR REPORTING PUBLIC CHARITIES, 2008

Source: Kennard T. Wing, Katie L. Roeger, and Thomas H. Pollack, The Nonprofit Sector in Brief: Public Charities, Giving and Volunteering, 2010 (Washington, DC: Urban Institute, 2010). Copyright © 2008, Urban Institute, National Center for Charitable Statistics.

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114 Managing Nonprofi t Organizations

of data on many of these organizations in the IRS tax records. The breakdowns also refl ect the presence of nonprofi ts with very large budgets, which tend to be health care facilities and higher education institutions. Hospitals and primary care facilities account for the lion’s share of total revenue, 47.7 percent, and higher education nonprofi ts make up 11.7 percent of the total revenue. Only about a fourth of public charities reported more than $500,000 in annual expenses, while about 45 percent of the registered public charities fi ling a tax return in 2008 had expenses under $100,000.4 Figure 6.2 is a chart from the Urban Institute showing the economic dominance of a relatively small number of public charities. It gives the percentages of public charities by reported expenditures and their proportion in the population of reporting public charities.

Of course revenue portfolios vary depending on the type of nonprofit. Churches, for example, tend to rely heavily on donations. Hospitals and universi- ties tend to rely heavily on earned income. Membership-based nonprofi ts, such as trade and professional associations, rely heavily on earned income from mem- bership fees and sales of goods and services, and many use no philanthropic dol- lars for their operations. Private foundations set up by families and individuals

3.7%

2.6%

$10 million or more

1000

Percentage

82.7%

Public charities

Expenses

$5 million to $9.9 million

5.5%

$1 million to $4.99 million

7.5% 11.4%

$500,000 to $999,999

1.8% 8.5%

$100,000 to $499,999

2.0% 29.2%

Under $100,000

0.6% 44.6%

80604020

FIGURE 6.2. NUMBER AND EXPENSES OF REPORTING PUBLIC CHARITIES, 2008

Source: Kennard T. Wing, Katie L. Roeger, and Thomas H. Pollack, The Nonprofit Sector in Brief: Public Charities, Giving and Volunteering, 2010 (Washington, DC: Urban Institute, 2010). Copyright © 2008, Urban Institute, National Center for Charitable Statistics.

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to make grants or operate programs, such as The William and Flora Hewlett Foundation, Ford Foundation, and The Lilly Endowment, rely on philanthropic gifts from the individuals who established the foundation and income from invest- ment of assets. Grantmaking foundations set up by corporations, such as The Walmart Foundation and the Eli Lilly and Company Foundation, rely on invest- ment income and gifts from their parent corporation. The aggregate numbers for the nonprofi t sector fail to indicate the great variation among nonprofi ts in their revenue sources. Following are closer looks at the most common sources of revenue in the nonprofi t sector.

Government Contracts, Grants, and Vouchers

Government is a source of revenue for nonprofi ts primarily through contracts, grants, and vouchers. Contracts are business transaction agreements. They outline what the government is procuring or purchasing from the nonprofi t. A nonprofi t may be the prime contractor, and thus do most of the work to secure the agree- ment, or the subcontractor, hired by the prime contractor to fulfi ll specifi c aspects of the contract. Grants are awards of fi nancial assistance to an eligible grantee with no expectation that the funds will be paid back. They involve payments to a recipient nonprofi t organization either as part of an allocation formula or for the direct provision of services or products. In the United States, the U.S. Department of Health and Human Services and the U.S. Department of Education are the largest government grantmakers to nonprofi ts.5 Government contracts and grants are typically awarded through a competitive process. Government vouchers are coupons issued to individuals who use them to access a service by a qualifi ed provider, which may or may not be a nonprofi t. Medicare and Medicaid reim- bursements and school tuition and other government vouchers may be important income streams for a nonprofi t.

All types of funding have advantages and disadvantages. Government fund- ing typically involves some loss of management control, uncertainty due to unpredictable political processes, heavy reporting requirements, and delays in reimbursements and contract payments.6 Government contracts demand fi scal and programmatic accountability and transparency.7 A 2010 study reports that human service nonprofi ts perceive “serious and widespread problems” with con- tracts and grants from government agencies. The nonprofi ts in the study reported that government agencies were often late with reimbursements, with state govern- ment checks most likely to be at least ninety days overdue. This left the nonprofi ts with the challenge of fi nding other fi nancial resources to pay bills. Many of the nonprofi ts also complained that their government contracts did not cover the full cost of contracted services. A majority, 57 percent, reported that the government

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116 Managing Nonprofi t Organizations

changed the terms of contracts, reduced promised payments, and even cancelled contracts, which forced the nonprofi ts to fi gure out whether and how to honor its commitments given the lost government funding.8

Still, like the Oakes Children’s Center, many nonprofi ts eagerly seek govern- ment contracts and grants as a way to fulfi ll their missions. In 2009, three out of fi ve of human service nonprofi ts indicated that the government was their largest source of funding.9 In countries in which the nonprofi t and government sectors are closely intertwined, all funding may come through the government, whereas in other countries no government funding may be available. The Center for Civil Society Studies offers a report indicating how government fi nancial support of the nonprofi t sector varies across countries, with data compiled from multiple years (1995 to 2000). For example, on average, over 50 percent of the support of nonprofi t organizations in Belgium, Ireland, and Israel is reported to come from government, versus under 30 percent in the United States and under 7 percent in the Philippines, Kenya, and Pakistan.10

Not all nonprofi ts in the United States are eligible to apply for government funding and some do not choose to apply even when they are eligible. In addition to all the reporting demands, in order to receive government funds nonprofi ts may be required to use professional and even licensed staff, follow government- mandated approaches to service delivery, cover a government-specifi ed geograph- ical area or demographic client base, engage in collaborative activities with other service providers, and otherwise lose some control over how they carry out their missions. Faith-based nonprofi ts also need to be concerned about not using gov- ernment funds for overtly religious activities. This may explain why, despite federal initiatives under President Bush’s administration to encourage faith-based non- profi ts to apply for government funding for social service activities, there was not a huge jump in applications for government funding from these organizations.11

Some nonprofi ts choose not to pursue government funding due to values and principles. Nonprofi t leaders may believe that their primary role is to advocate against existing government positions and therefore do not want to have a confl ict of interest due to dependency on government funds. For example, the National Association to Protect Children, which fi ghts child abuse and neglect, has a bylaws provision that it will not accept government funds, in order to safeguard its inde- pendence and maintain a strong voice in its advocacy efforts.12 Some nonprofi ts see even more fundamental concerns with accepting government support, as in the case of the Crazy Horse Memorial, an ongoing project to create a mountain sculpture in South Dakota to honor the Lakota Indian tribal leader and be a beacon for the values of education and humanitarianism. Chief Crazy Horse tried to preserve his tribe from U.S. government interference and persecution. The memorial Web site explains that no government funds have been accepted

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because the founder believed in individual initiative and private enterprise, and that if members of the public accept the goals of the memorial they will support it fi nancially.13

For nonprofi ts that do seek government funding, here are some recommenda- tions drawn from a report by a San Francisco task force composed of government and nonprofi t representatives:14

• Encourage government contract sources to coordinate requests for proposals, for example through a shared proposal form for basic information, and to develop systems to facilitate timely payments, for example by reducing govern- ment ineffi ciencies in reimbursement processes. These kinds of activities can reduce the administrative costs of seeking and managing government funds.

• Encourage less duplication of reporting requirements to increase nonprofi ts’ efficiency in demonstrating compliance with contract rules. For example, rather than having to submit evaluation reports and verifi cations of compliance for the same program to more than one government agency, nonprofi ts and agencies would benefi t from a system in which multiple agencies could access the same paperwork so that the nonprofi t does not have to fi ll out multiple forms with the same information.

• Consider sharing back-offi ce functions with other nonprofi ts and using man- agement service organizations to assist with government contract manage- ment. When more sophisticated accounting expertise is needed to deal with government funding, the nonprofi ts could share the same accountant. They could also outsource or share human resource management services for con- tract employees whose employment will end with the completion of grants. Nonprofi ts may also benefi t from sharing the use and cost of facilities and equipment for contract-funded programs.

• Have at least 15 percent of funding provided by a nongovernment source. This broader base of support can add stability if government funds are decreased or withdrawn.

• Keep two months of operating revenue in reserve to help with cash fl ow man- agement if government funds are delayed. The reserve fund serves as an alter- native to borrowing money to honor commitments.

Earned Income

Earning income through sales of merchandise or services has its own set of chal- lenges. It may require a nonprofi t to invest in business systems that are not appli- cable to its mission pursuit and may result in mission drift if priorities begin to be

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118 Managing Nonprofi t Organizations

set based on income potential rather than importance to mission.15 If sales come through government vouchers, a nonprofi t may have to agree to government rules and pricing structures to be an approved provider. Entrepreneurial efforts to earn income can suffer many of the same risks encountered by new for-profi t businesses. Survival rates for entrepreneurial ventures vary by industry but aver- age about 50 percent after fi ve years.16

In nonprofi ts, profi t maximization is rarely the rationale for setting fees for services. Other considerations for pricing are who will be able to take advantage of the service and how the fee will infl uence perception of the service.17 A fee for one service may be set higher than the actual cost of the service in order to supplement another service where the cost is too high to be fully covered by the fee charged for that service. Price discrimination can also be used to encourage more sales. Quantity discounts and specially priced bundles of services and prod- ucts may be offered to increase sales volume and breadth.

Some nonprofi ts set up sliding-scale or scholarship payment arrangements for services and then use clients or customers and donors who can afford higher fees to subsidize those who require lower fees. However, nonprofi ts should be sensi- tive to possibilities for arbitrage, where a good received for a price lower than its actual cost is resold by the receiver rather than used as intended. For example, can free food or event tickets be sold? Can subsidized housing be subleased or sold to others and so no longer serve the mission of being available for lower-income residents? Nonprofi ts may wish to set up legal and other barriers to the reselling of the goods and services they provide.

Prices can be set to send a signal about the quality of a product or service, with higher amounts often encouraging perceptions that the item is better than that of competitors who charge less. Charging for a product or service can also help to ensure that the client or customer will take advantage of it. When a ser- vice or product is free, clients or customers are more likely to fail to show up for appointments or to use a product judiciously.

Many nonprofits are successfully earning income and aligning business activities with their missions. For example, some Habitat for Humanity affi liates offer a ReStore, where customers can buy new or gently used materials at prices below what they would cost from for-profi t retailers. Habit for Humanity of Kent County in Michigan describes its ReStore as a win-win venture: sales provide funds for building new homes, donors get tax deductions, materials are kept out of landfi lls, the store creates opportunities for volunteers to work together, and homeowners and landlords needing low-cost materials get useful products to improve neighborhoods, property values, and community pride.18 Classic exam- ples of how smaller nonprofi ts attempt to earn income are bake sales, carnivals, raffl es, book sales, and car washes. These activities can be aligned with mission

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objectives; for example, by running an entrepreneurial activity, teens in a youth development program can learn how to manage projects, take calculated risks, motivate others, track budgets, and celebrate successes.

Some nonprofi ts’ fi nancial and mission models rely on employing or buying from individuals needing income. They may train those who have been recently released from prison, are in recovery from drug addictions, are living in countries with little economic opportunity, or are housed in shelters seeking protection from abusers. The nonprofi ts then recover the training costs by hiring those they have trained for work that takes advantage of the newly developed skills or by pur- chasing products the trainees have created that can be sold for a profi t to others. According to Inc. magazine the earned income model works best when a non- profi t has a valuable product or expertise, the user has some ability to pay, and the nonprofi t’s mission is job training or skill building.19 There is a long tradition of using nonprofi ts to provide job training. Jane Addams, who founded the Hull House Association in 1889, argued that one should work in the community one is trying to serve and that if people are allowed to develop their skills and have an opportunity to earn income through legitimate means then they will not only make a better life for themselves but also contribute to the community as a whole.

Over time, earned income efforts can remain local, low-dollar events, or they can evolve into massive enterprises. The Girl Scouts of the USA now generates more than $700 million in revenue from its cookie sales, an effort that started in 1917 with one troop in Oklahoma. Ten Thousand Villages, a nonprofi t program of the Mennonite Central Committee, does not actively seek donations, earn- ing almost all of its operating income through sales of fair trade products at its numerous stores and festivals.20

An important consideration when engaging in earned income ventures is to consider the tax implications. If the earned income activity is a regular activity and not substantially related to the exempt purpose of the nonprofi t, a UBIT (unrelated business income tax) payment may be required. IRS revenue rulings provide some guidance on whether an earned income activity is likely to be seen as substantially related to the nonprofi t’s exempt mission. Even when taxes on the income-generating activity are required, the return on the effort may be worthwhile.

For a nonprofi t with lists of clients, members, and donors, a key decision is whether to sell its lists to marketers, including other nonprofi ts. Some nonprofi ts get more revenue from selling their donor lists than from the actual donations. This is one justifi cation for using premiums to attract donors who give small gifts. Though the cost of the premium (for example, a T-shirt, tote bag, poster, or sta- tionery) may exceed the gift given, the new contact name can be sold. Some non- profi ts note on their solicitation materials that they do not share or sell their lists.

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120 Managing Nonprofi t Organizations

When a 2004 Charity Navigator survey suggested that sharing of donor lists is pervasive, that organization’s executive director commented, “Benevolent individ- uals who choose to give should not have their generosity punished with unwanted telephone appeals and inundated mailboxes.” In defense of the practice, Rebecca Haag, the executive director of the AIDS Action Committee of Massachusetts, said that her organization swaps names with list brokers and other like-minded charities such as the American Red Cross and Planned Parenthood, noting that “this is pretty common practice. It is how you identify new donors.”21

Before a nonprofi t undertakes any earned income strategy, social entrepre- neurship scholars Beth Anderson, J. Gregory Dees, and Jed Emerson suggest that it should review a set of feasibility criteria.22 In summary, they found that an earned income strategy is more likely to be viable when it is aligned with the nonprofi t’s

• Culture and values

• Core competencies

• Management capacity and time

• Financial stability

• Willingness to take risks

• Access to necessary business skills

• Length of commitment

• Existing or potential markets (customers and clients)

• Competitor relationships

• Capital requirements

• Community perceptions

Membership Fees

Many nonprofi ts such as unions, trade groups, professional associations, fraterni- ties, and recreational and social clubs are dependent on membership fees for a signifi cant part of their earned income. In 2003, the average 501(c)(3) nonprofi t organization in the United States earned less than 1 percent of its revenues from member dues. In contrast, about 60 percent of the revenues of social and recre- ational clubs (classifi ed as 501(c)(7) nonprofi ts) came from dues.23

In some organizations, revenues called membership fees or dues may actually be donations. For example, individuals who contribute to a pledge drive for public broadcasting may be called members of the radio or television station, but they have no voting rights and the broadcasting they receive for their contribution is

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a collective good that non-dues-paying individuals can also access. In the United States the value of any acknowledgment “gift” received for a “dues” contribution, such as a book, or any discount, such as half-price admission to a museum, must be deducted from the contribution amount in order to establish the amount the member or donor can claim as a tax deduction.

In a more clear arrangement where donors are differentiated from true members, the nonprofi t membership association, rather than selling goods and services individually, sells them as a package to its members for a membership fee. Through affi nity agreements the members may also be eligible to receive discounts on products and services offered by other organizations. In addition they may receive discounts on the nonprofi t’s conferences, merchandise, training programs, and exhibitor charges.

Membership associations may struggle with the issue of who is eligible to become a member. Although an open-door policy may bring more members, each paying a fee, the more exclusive the club, the easier it may be to charge a higher price for membership. The more stringent the qualifi cations to be a mem- ber, the more likely members may be to adhere to the membership requirements and fi nd meaning and identifi cation as members, resulting in greater loyalty and retention.24 However, as membership fees rise, members may have higher expec- tations for a return on their investment. Decisions about membership are rarely infl uenced only by income generation concerns. Exhibit 6.1 provides an excerpt from the Clean Air Partners Membership Strategy for 2008 that illustrates the perceived value of members. As this strategy excerpt shows, there are multiple reasons besides revenue generation for a nonprofi t to offer a membership pro- gram. Nonprofi ts that pursue this path should be clear on how much they expect the membership revenue to contribute to the budget and what they are promising members in exchange for their dues.

Partnerships with Business

Nonprofi ts can earn revenue by partnering with a business. For example, Sesame Workshop, the nonprofi t that produces the television show Sesame Street, has made money for many years from licensing agreements with for-profi t corporations. According to its Web site, licensing partners include but are not limited to Crest, Pampers, Apple & Eve, Random House, Earth’s Best, Hasbro, Fisher-Price, Gund, Cardinal Games, Spin Master, and Reader’s Digest.25

Partnerships with for-profit corporations on joint ventures and licensing agreements can come with concerns about weakening the nonprofit’s brand because the nonprofi t’s logo is associated with the corporation’s logo.26 There may also be concerns about what the affi liation is implying about the corporation

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122 Managing Nonprofi t Organizations

EXHIBIT 6.1. EXCERPT FROM THE CLEAN AIR PARTNERS MEMBERSHIP STRATEGY

As we put together a strategy to drive membership it is important to frame our expec- tations. With Clean Air Partner’s current membership structure, it is unrealistic to rely on membership revenue as a main or even signifi cant source of funding. However, membership can play a very strategic and signifi cant role in helping Clean Air Partners meet its objectives. Clean Air Partners can look at membership as an opportunity to:

• Act as an introduction and relationship-building tool with organizations • Experience the organization prior to elevating their relationship (such as

sponsorships) • Network and generate leads to other organizations and potential members/

sponsors • Reclaim the hard costs for the materials that go out to each member through

membership • Increase awareness and impact for initiatives such as the Air Quality Forecast, there-

by generating larger and more meaningful impacts • Increase the number of Clean Air Partners advocates • Give testimony to the signifi cant number of individuals and organizations who

support the mission of Clean Air Partners • Give testimony to the diverse constituency that endorses and supports the work

of Clean Air Partners • Provide training ground for new organization leadership

Source: “Clean Air Partners Membership Strategy for FY 08,” prepared for AQAD Meeting, February 1, 2007, http://www.mwcog.org/uploads/committee-documents/oFdfWF820070223083702.pdf. Reprinted with permission of PRR.

and its products. For example, the American Medical Association (AMA) came under fi re for allowing its name to be used on Sunbeam Corporation’s home medical products. Doctors who were members of the AMA were upset that the association appeared to be endorsing the products. In the end the AMA pulled out of the arrangement and agreed to pay Sunbeam millions of dollars to settle the resulting lawsuit.27

Some nonprofi ts have found that their interests in these agreements may be overshadowed by their partner corporation’s interests. As nonprofi ts become more sophisticated in negotiating agreements with corporations, however, the balance of benefi ts to each party becomes more even. As in the case of The Nature Conservancy, discussed in Chapter Fourteen, the public perception of how the nonprofi t is working with corporations needs to be taken into account in

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Resource Acquisition 123

deciding on any business relationship. Having set policies on what types of part- nerships are allowable and enforcing mechanisms to ensure that the nonprofi t’s interests are protected can help the nonprofi t avoid criticism that it is the puppet of business corporations.

In addition to understanding the branding and legal implications of partner- ing with a business to generate revenue, it is important for a nonprofi t to under- stand why a particular business is interested in the partnership and what it can bring to the table. This knowledge may help the nonprofi t increase its bargaining effectiveness and strategize about whether and how to evolve the partnership over time. Relationships with businesses may evolve from simple gifts or sponsor- ships to highly collaborative joint ventures, as described in Chapter Fifteen, on partnerships, alliances, and affi liations. For example, a nonprofi t theater may sell advertising in its playbill to a corporation that wants to build awareness of its products among the theater patrons. As the corporation sees more value in con- necting its brand to the theater, it may wish to become a major sponsor of a series of performances. Eventually, the corporation may be an investor in a theater production, giving upfront funds needed to stage the play and then sharing in the proceeds from ticket sales.

Partnerships with businesses may open up concerns about a nonprofi t’s tax exemption and whether unrelated business income tax (UBIT) should be paid. It was a precedent-setting 1980 court case, Plumstead Theatre Society v. Commissioner, involving a nonprofi t theater partnering with private investors to produce a play that opened the door for a myriad of joint ventures between nonprofi ts and busi- nesses.28 In the Plumstead case the theater’s status as a tax-exempt nonprofi t was unsuccessfully challenged; although it was working with private investors, the eventual fi nding was that this partnership arrangement had been entered into at “arm’s length” and that the tax-exempt mission had been preserved. In a more recent 2004–2005 revenue ruling, the IRS looked at a limited liability company set up by a tax-exempt university and a for-profi t company for the purpose of offering off-campus training. The IRS found that the joint venture’s activities were an insubstantial part of the total activities of the exempt participant and thus there were no adverse tax exemption implications.29

Nonprofi ts should choose their business partners carefully, looking for part- ners whom they can trust, who have a similar level of commitment to sustaining the partnership, who share the same vision, whose values and norms are compat- ible with the nonprofi t’s, and who can devote the needed time, resources, exper- tise, and effort. They also should be careful to avoid relationships with businesses owned by individuals who are disqualifi ed from working with the nonprofi t due to prohibitions on private inurement, such as founders, board members, major donors, high-level employees, and any of these individuals’ family members.

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124 Managing Nonprofi t Organizations

Nonprofi ts may choose to partner with a for-profi t business in creating a separate legal entity to produce revenue that is then diverted to the nonprofi t. Unincorporated nonprofi t associations may end up inadvertently creating a sepa- rate legal entity if their members divide profi ts from an income-producing activ- ity. There are a variety of forms of partnership and rules governing them, so legal assistance is recommended for nonprofi ts considering joint business ventures.

Investment Income

Some nonprofits build investment funds in order to use the returns in future years to subsidize their operations. For example, the Yale University endowment contributed $843 million, 37 percent, of Yale’s revenue in 2008.30 A useful posi- tion paper for understanding nonprofi t endowment investing strategy and risks is offered by The Vanguard Group.31

Spending requirements for foundation assets and endowment assets differ. Foundations are regulated with a requirement that they annually spend 5 percent or more of the average of their asset value for the year, though the IRS allows accounting carryforwards and carrybacks to avoid penalties arising from under- spending. Endowments in the United States do not face mandated spending requirements, but there have been proposals to set endowment spending min- imums for public charities. For example, U.S. Representative Peter Welch, of Vermont, has proposed that universities be required over a given period of time to spend at least 5 percent of their endowments, in an effort to make college more affordable.32 Peter Conti-Brown has argued that this proposal and other efforts to force endowment spending were unsuccessful largely because of the effect of the 2007 to 2009 fi nancial meltdown on the value of endowments.33

Endowment campaigns are built on the principle that less funding will be needed in the future by building a signifi cant pot of money now; the principal can be invested and preserved and only the earnings spent. Peter Frumkin notes the high price required for the stability of endowment funding, stating that it often requires more than twenty times the amount to be spent on an annual basis.34 One 2010 poll showed that most nonprofi ts with endowments have poli- cies requiring them to spend only 4 to 5 percent of the value of the endowment each year. This requires donors to have a high level of trust in the nonprofi t’s ability to invest the endowment gift well. It also requires careful thinking about the time horizon for the nonprofi t’s mission. Frumkin asks donors to consider opportunity costs and decide whether their money could be put to better use now in programs to directly achieve the mission rather than being used in a longer-term more incremental strategy that involves placing their gift in an endowment fund.

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The question of when to invest and when to spend available funds can become a public relations issue. Some nonprofi ts have been criticized for building endowments perceived as too large. Boys Town was one of the fi rst nonprof- its to face accusations of having an infl ated endowment and more interest in building reserve funds than in improving mission effectiveness. The Omaha Sun’s 1972 Pulitzer prize–winning investigative report on Boys Town showed that the nonprofi t continually solicited donations with the claim that it was in dire straits when actually it was taking in millions of dollars more each year than its annual operating expenses and quietly investing the unneeded funds. It had a net worth larger than Omaha’s largest bank and an endowment of $209 million, more than all but a few universities.35

Current economic conditions have led some nonprofits to suffer from “underwater endowments,” in which the value of the fund is no longer able to support the promised level of withdrawals without reducing the original prin- cipal. This is clearly the case for many universities with endowments, with one report fi nding that 38 percent of university endowment funds were underwater at the end of 2008.36 Many universities rely on endowments for faculty and student support, with the fi rst evidence for this practice appearing in Athens in A.D. 176, when Roman emperor Marcus Aurelius set up endowed faculty chairs there. Before the recent fi scal crisis, Harvard University was drawing about one-third of its total revenue from its investments.37 When investment value falls, nonprofi ts need to determine whether restrictions set by the original donors allow any changes in spending policies and whether changes are neces- sary and warranted.

The following recommendations are for nonprofi ts that use investment funds to support their operations:

• Set a policy on what percentage of the endowment should be withdrawn annu- ally to support the organization’s mission.

• Determine restrictions on the types of investments that can be made, based on organizational values (for example, some nonprofi ts serving youth do not invest in companies that sell tobacco products).

• Set investment policies based on how much liquidity is needed and how much risk is tolerable (sample investment policies and guidelines are available).38

• Understand and follow the laws regarding investment portfolios and payout requirements (government regulations call for prudent management of invest- ments and specify minimum spending requirements for foundations).

• Set up procedures and accountable parties to oversee the investment manager.

• Schedule regular portfolio reviews.

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126 Managing Nonprofi t Organizations

Donations

Even the pursuit of philanthropic gifts comes with administrative and strategic challenges. There are numerous issues to consider related to honoring donors’ intentions in regard to their gifts, and to powerful donors’ attempting to con- trol the nonprofi t’s agenda. Individuals and organizations giving large gifts may expect the recipient nonprofi t to give them special treatment and may withdraw support if their interests are not protected. For example, Comcast Corporation pulled $18,000 in funding from Reel Grrls, a nonprofi t that teaches girls about media production, after the nonprofi t posted a tweet critical of the company. Comcast later apologized and reoffered the money, but the nonprofi t refused the gift and went public with the incident.39

Struggles with donors may even lead to court cases, as donors attempt to retrieve their gifts, interested parties try to get nonprofi ts to honor deceased own- ers’ intents, or the nonprofi t seeks to make donors honor their pledges. In one case, the Montana Supreme Court dissolved the nonprofi t board of the Charles M. Bair Family Museum for breaching its duty to use Alberta M. Bair’s family fortune bequest as her will stated it should be used. The board had closed the museum to visitors for periods from 2002 to 2005 in response to low attendance and the declin- ing value of the museum assets. The court said the board had not spent enough money to give a good start to the museum and ordered U.S. Bank, which controlled four of the fi ve board seats, to create a new board to oversee the museum.40 The new board was more aggressive in its efforts to use available funds to increase the num- ber of visitors. An April 4, 2011, press release announced the opening of a new state-of-the-art museum on the grounds of the Bair family home.41

Ethical codes of conduct for professional fundraisers make clear the impor- tance of honoring donors’ intentions for their gifts. See Chapter Two for the Donor Bill of Rights compiled by the Association of Fundraising Professionals (AFP). The AFP provides resources to train fundraisers on best practices and offers a certifi cation program to support the professionalization of fundraising.

Revenue Portfolios

Now that we have outlined various sources of revenue, we turn to possible trade-offs among them. Researchers have tried to uncover whether a nonprofi t’s receipt of government funding or use of earned income strategies reduces indi- viduals’ likelihood of making donations or the size of their donations. A core question reviewed by Eleanor Brown and Al Slivinski is whether government grants “crowd out” donations.42 The argument that seems to have the greatest

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preponderance of evidence is that as unrestricted grants increase, nonprofi ts have less interest in seeking donations because they have less need for them, and a reduced effort to fund raise brings fewer gifts.43 However, government seed grants may spark the creation of new nonprofi ts and new programs that attract donors’ attention and inspire more donations.

Commercial activity also has the potential to crowd out donations and grants. Researchers have found that this effect may vary by subsector. There is some evidence that there is no crowding out from commercialization for educational and medical nonprofi ts. However, this effect has been found for other types of nonprofi ts, in particular arts and culture nonprofi ts.44

Nonprofi t leaders, like those at the Oakes Children’s Center, are wise to review their organization’s revenue portfolio to look for vulnerabilities and opportunities. It may reveal that some sources of revenue are crowding out others and whether this is problematic. At the Oakes Children’s Center the lack of fundraising was troubling to some of the center’s leaders, and they began a concerted effort to generate interest in increasing the nonprofi t’s capacity in this area.

Nonprofi t leaders also should examine whether their nonprofi t is sending inconsistent messages about its mission and needs through its different revenue- generating activities. As Howard Tuckman and Cyril Chang discuss, avoidance of mission drift is challenging, given growing commercialization in the nonprofi t sector.45 Nonprofi ts may fi nd that as they seek earned income, they lose sight of their true purpose and how much revenue is needed to achieve it. If a nonprofi t’s budget does not clearly refl ect a focus on its core purpose, foundation and govern- ment funders may not wish to support it. Individual donors may also question why a nonprofi t is seeking philanthropic gifts if it appears to be profi ting from unrelated business activities. Some individuals may even have trouble distinguish- ing between for-profi t, government, and nonprofi t enterprises, given that they all may exist in the same industry. When the revenue-generating activities of orga- nizations in different sectors look very similar, the organizations’ sector identities may be unclear to outsiders.

The Philanthropic Impulse

The word philanthropy comes from ancient Greek and means “love of man- kind.” Today we use the word to capture efforts to enhance the well-being of others through fi nancial support or volunteer activity. To quote Robert Payton, philanthropy is “private action for the public good.”46 Philanthropists are those who give their assets to others, whether those assets are their wealth or their talents. Charity, not in the legal sense but in the origins of the word, is a subset

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128 Managing Nonprofi t Organizations

of philanthropy and focuses on giving to the poor and needy.47 Eleemosynary activities pertain to acts of charity or almsgiving.

There is a long tradition of philanthropy in the United States and other countries. In the United States many schools, churches, libraries, and colleges were started through private gifts. The earliest recorded instances of fundraising are found in religious texts, and many religions emphasize an obligation to help others through acts of charity. Nonprofi ts often serve as a vehicle for philan- thropic impulses that are nurtured through cultural norms and family traditions as well as religious training and texts.

Not all gifts to nonprofits are given for purely philanthropic reasons. Individual donors’ motivations for giving have been studied in depth, confi rming that donors give to nonprofi ts for a variety of reasons.48 Rarely are gifts purely altruistic. According to social exchange theory, gifts are two-way exchanges that satisfy rational and self-interested motives on the part of both the receiver and giver.49 Some individuals choose to give out of their own vanity and desire to gain respect and esteem. Others hope to shape outcomes they see as desirable, such as fi nding a cure for a disease, building a more educated workforce, being able to enjoy artistic performances, and so forth. Giving a gift can help donors infl uence the success of nonprofi ts pursuing missions that fi t with their interests. They may give in order to “pay forward” gifts or kindnesses they have received. Some donors feel that helping others can help make amends for past misdeeds and atone for sins. Donors may also give as a type of insurance policy, to make sure services are available if they or their loved ones ever need them. They may also give in order to have access to other donors and to enjoy professional or social interactions that come with their giving.

Andrew Carnegie, one of the originators of modern-day foundations, wrote that those with great wealth have a moral obligation to administer their wealth during their lifetime.50 His sense that philanthropy is a moral duty and a pro- fessional endeavor helped to shape giving practices focused on effi cient and effective stewardship of one’s wealth. Nonprofi ts were envisioned as account- able for applying donations from wealthy individuals to good effect. According to Carnegie, nonprofi ts should work to prevent social problems not merely alle- viate them.

Types of Philanthropic Gifts

Donations to nonprofi ts come in a variety of forms. They may be monetary or in kind. An in-kind gift is one in which a product or service is donated rather than financial currency. Donations may also come in the form of stocks, bonds, real estate properties, insurance policies, retirement accounts,

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and other investment vehicles. A gift may be designated for a specifi c pro- gram or for general operating support. It may be a gift to an endowment in which the principal is protected and the nonprofi t draws out income generated by the investment of the funds. It may be a percentage of a purchase, in which the donor receives something in exchange for the transaction, but the value of what is obtained is less than the purchase price. A gift may be pledged for the future or immediately given. It may be unsolicited or a response to an appeal, though one of the most common responses to the question of why a donor gave is that someone asked. A gift may be anonymous or come with formal recognition and a title. For example, a gift at a certain level may qualify the donor to be part of a Leader’s Circle, to be designated a Platinum giver, or to receive some other status. Gifts may be arranged so that donors receive fi nancial returns from them, as in the case of annuities, in which a nonprofi t promises to pay the annuitant a regular income beginning at a future date in exchange for a gift of cash, stock, or property now.

Types of Donors

The Giving USA annual reports track trends in giving patterns in the United States. The proportion of giving by various types of donors has remained rela- tively stable over the last ten years. In 2010, over $290 billion was donated to nonprofi t organizations, according to the Giving USA report. Figure 6.3 shows the breakdown by type of giver.

FIGURE 6.3. BREAKDOWN OF SOURCES OF 2010 CONTRIBUTIONS OF $290.89 BILLION

Source: Adapted from Center on Philanthropy at Indiana University, Giving USA 2011: The Annual Report on Philanthropy for the Year 2010 (Chicago: Giving USA Foundation, 2011).

Foundations $41.00 14%

Bequests $22.83

8%

Corporations $15.29

5%

Individuals $211.77

73%

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130 Managing Nonprofi t Organizations

Individuals Individuals may give gifts during their lifetimes or in the form of bequests. For those who give while living, Adrian Sargeant and other scholars suggest that non- profi ts consider their lifetime value as donors.51 Rather than seeing each request to an individual as discrete, Sargeant suggests that nonprofi ts think less about the outcome of a particular appeal to an individual and more about the long-term relationship they are establishing with that individual. Over the course of his or her involvement with a nonprofi t, an individual may give cash donations, volun- teer, refer others to the organization, sell event tickets, buy merchandise, and oth- erwise support the nonprofi t. The idea of lifetime value comes from the consumer marketing tradition in which someone who purchases a good is understood to have an estimated potential of making a series of such purchases over his or her life- time. By building donor loyalty and understanding how needs and interests may shift over time, a nonprofi t may better manage long-term relationships. Sargeant and others adopt a business orientation and suggest that the greater the expected lifetime value of the relationship with a donor, the greater the expenditure of the nonprofi t’s time and effort that is warranted to support the relationship.

Much has been written about how to manage relationships with individuals who have given or have the potential to give gifts.52 Recommendations include customizing appeals to match donors’ values and interests, providing tax and legal advice related to gifts, allowing for more and different types of involvement in the nonprofi t over time, leveraging positive word of mouth from current support- ers, asking for feedback on the nonprofi t’s performance, and properly stewarding donations to honor each donor’s intentions.

Researchers have compiled an impressive amount of work on who gives in the United States, looking at a variety of demographic factors. Havens, O’Herlihy, and Schervish summarize these studies, concluding that higher levels of giving are associated with higher levels of income, wealth, religious participation, volunteer- ism, age, and educational attainment and with being married, having U.S. citi- zenship, having a higher proportion of earned wealth than inherited wealth, and having a greater level of financial security. The effects of gender, ethnicity, and religion have more complex patterns; for example, the type of nonprofi t makes a difference in who gives more.53 Researchers have also found regional and country-level effects. For example, in the United States, individuals in the Midwest tend to be more generous than those in the Sunbelt,54 and residents of Utah have been found to be the most generous.55 Individuals in the Northeast give more money to secular causes than to religious causes, in contrast to all other regions in the country.56 The Foundation Center, Chronicle of Philanthropy, and Giving USA are several of the organizations that frequently provide reports on giving trends and regional and demographic differences.

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Fundraising programs in the United States are typically built on the principle that most of the money in a fundraising campaign comes from a small proportion of the donors. This notion of proportionate giving has resulted in the idea of a gift pyramid and the construction of gift range charts for annual giving, major gifts, planned giving (for example, bequests), and capital campaigns. The largest group of donors is at the base of the pyramid and together they give the fewest number of dollars, while the most money comes from the smallest group of givers at the top of the pyramid. Figure 6.4 shows a gift pyramid developed by Barbara Ciconte and Jeanne Jacob that indicates which types of fundraising appeals are likely to be used at each level.

Appeals to the wealthiest donors, who have the greatest giving capacity, may be best coming from their peers. Bill and Melinda Gates and Warren Buffett are among the most vocal in calling for the wealthy to give more.57 In 2009, they asked the nation’s billionaires to pledge to give at least half their net wealth to charity.58 Sixty-nine billionaires were listed on the pledge Web site as of August 2011.59

Giving Groups A growing trend among donors is to want both to be more engaged in learning about nonprofi ts and to pool their gifts to make a greater impact and potentially have more infl uence on a nonprofi t’s decision making.60 One vehicle for doing so

Identify

Inspire

Invest

Involve

Interest

Inform

Planned Giving

Major Giving

Annual Giving

Special Events, Memberships, Direct Mail, Annual Campaign

Bequests, Planned Gifts

Capital, Endowment, Special Campaigns, Individuals, Corporations, Foundations

FIGURE 6.4. PYRAMID OF GIVING

Source: Barbara L. Ciconte and Jeanne G. Jacob, Fundraising Basics: A Complete Guide, 3rd ed. (Boston: Jones & Bartlett, 2009). Copyright © 2009. Reprinted with permission.

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132 Managing Nonprofi t Organizations

is the giving circle, in which individuals come together to make collective gifts to nonprofi ts. The circles may be formed around a particular donor identity such as gender or race, a shared interest such as environmental or youth-serving causes, or a shared affi liation such as place of employment or residence location.

Giving circles vary in their size, formality, and longevity and in how they raise funds for their gifts. The Beehive Collective, for example, was started in 2008, and in 2011 was composed of forty-three young women in Raleigh, North Carolina. The members, called bees, each give individually to the collective fund and hold fundraising events to add more dollars to their giving pool. In some respects they are similar to Junior Leagues, Lions Clubs and other membership associations that raise money for causes, but for the giving circles the collective pooling of funds and determination of where to give their money is their core and often sole mission.

One of the largest and most formalized giving circles is Social Ventures Partners, which is itself established as a nonprofi t. In 2011, it had twenty-six affiliate organizations with two thousand members across the United States. In the case of Social Ventures Partners and some other giving circles, recipient nonprofi ts must be prepared to have the donors actively participate and infl uence their operations. The circles may give advice and volunteer assistance along with funding. They also tend to require extensive information from nonprofi ts before making giving decisions.

Another source of group-based funding for some nonprofi ts, particularly for schools, is class or alumni gifts. Donations are solicited and pooled by members of the group and then given to a specifi c nonprofi t. Sometimes the gifts are given to pay for a specific object chosen by the group, such as a bench or artwork. In these forms of giving, peers are instrumental in encouraging gifts to the group fund. They differ from giving circles in that the recipient of the gift is predeter- mined—it is a nonprofi t that has directly helped all members of the giving group.

Foundations There are three main types of foundations that provide grants to nonprofi ts: private individual or family foundations, company-sponsored foundations, and community foundations. Briefl y, private foundations are set up by one or more individuals. The most typical example is a family foundation, such as the John D. and Catherine T. MacArthur Foundation, established with the personal wealth of family members. A private foundation may be purely a grantmaking organization or may be clas- sifi ed as an operating foundation, which allows it to fund its own programs, not just give out grants to others. A company-sponsored foundation gives out grants using funds generated by a business fi rm or corporation and not from individuals. For example, the GM Foundation uses funds from General Motors Corporation.

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Resource Acquisition 133

A community foundation creates a fund using contributions from many indi- viduals. Special interest funds are earmarked by a community foundation for designated purposes whereas donor-advised funds are used to allow the donors to infl uence on an ongoing basis what grants will be given. Donor-advised and des- ignated funds serve as an alternative to private foundations, offering individuals the opportunity to use the infrastructure of the community foundation to man- age their gift giving rather than setting up their own independent organization. The Cleveland Foundation was the first community foundation to be estab- lished in the United States;61 in 2009, it reported over $2 billion in assets. Since the establishment of the Cleveland Foundation, community foundations have appeared in every state.

Foundations typically provide support based on assessment of grant propos- als. Though foundations vary in what they request in submitted proposals, a good generic proposal outline is offered by the Foundation Center:62

• Executive summary: no more than one page. Summarizes the entire proposal.

• Statement of need: no more than two pages. Explains why the proposed project is necessary.

• Project description: no more than three pages. Outlines how the program will be implemented and evaluated.

• Budget: no more than one page. Lays out the fi nances of the project with explanatory notes.

• Organization information: no more than one page. Describes the non- profi t’s history, structure, primary activities, audiences, and services.

• Conclusion: no more than two paragraphs. Summarizes the proposal’s main points.

To increase their chances of being funded, nonprofi ts should show that their request fi ts the funding interests of the foundation and that they have followed submission instructions. Foundations vary widely on how they manage their grantmaking; however, proposals for foundations tend to be much less detailed than applications for government grants or contracts. Foundations also tend to have fewer instructions and are not as strict about rejecting proposals that don’t follow every instruction. Both government and foundation funders may provide information on their funding criteria and eligibility requirements, though govern- ment agencies are more likely to do so. Many small foundations may not even advertise that they give out grants and may say that they will review proposals only from nonprofi ts that have been invited to submit them.

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134 Managing Nonprofi t Organizations

Federated Funders Federated funders, such the United Way and the Combined Federal Campaign, solicit donations through workplaces and then distribute the funds to the donors’ designated nonprofi t recipients or, in the case of undesignated contributions, to nonprofi ts fi tting established priorities. Nonprofi ts agree to participate in the campaign, following rules concerning fundraising during the workplace cam- paign period. To receive undesignated funds, nonprofi ts may need to apply for support from the federated funder and later provide evaluations of how the fund- ing was used.

Businesses For-profi t businesses may provide funding to nonprofi ts through their advertising, marketing, public relations, or philanthropic budgets. They may offer a match- ing program in which an employee’s gift to a nonprofi t will be matched by the company. They may also provide sponsorships of events and tie fi nancial gifts to employee volunteer activities. In general, businesses tend to support noncontro- versial causes that have wide public appeal or that serve a target market similar to their own. Local causes may be appealing as a way to improve the welfare of employees and their families and provide a high quality of life. In addition to pro- viding fi nancial support, corporations may provide services, goods, and facilities free of charge.

Fund Development

In this section we describe both the process and the principles of fund development.

The Fund Development Process

The fund development process has multiple steps, and each can be critical in attracting and retaining donors. The steps are briefl y summarized in the follow- ing sections.

Identify Your Nonprofi t’s Case for Support Why does the nonprofi t exist? What fundamental needs does it address? How are people better off because of what it offers? How do donors and grantmakers benefi t from giving to the nonprofi t? How does the nonprofi t’s mission align with potential supporters’ values and norms?

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Resource Acquisition 135

In the case of the Oakes Children’s Center, its leaders developed the case that the well-being of the community depended on helping the children in the com- munity deal with mental illness and, as the mission expanded, developmental dis- abilities. With the help of the center the children it serves can become productive members of the community and reduce their need for services when they are adults.

Defi ne What Mission the Fundraising Goal Would Accomplish How many individuals can be served by the nonprofi t? What outcomes can be achieved? What costs need to be covered to accomplish the mission objectives? Do the board and staff agree on what needs to happen now and in the future to fulfi ll specifi c objectives related to the mission?

At the Oakes Children’s Center the board and staff needed to be con- vinced that philanthropic support was necessary to move the mission forward and ensure the organization’s fi nancial stability, despite the fact that the majority of the center’s funding was at that time coming from the State of California. Through the planning process, they laid out what could be accomplished with funds raised.

Assess the Environment for Gift Giving and Determine Markets Do others outside the nonprofi t agree that its mission is valid and its objectives are reasonable? Is there capacity to give at the level required? Who are the most likely supporters? Are they aware of the needs the nonprofi t is addressing and the role that the nonprofi t can play if adequately funded?

The Oakes Children’s Center’s grassroots base of support had been neglected. Its board recognized that they needed to make a concerted effort to reinvigorate community interest in the center. In the past, fundraising efforts had been infrequent but still had resulted in gifts, which suggested that, if asked, com- munity members would give.

Assess the Nonprofi t’s Capacity for Fundraising Are the staff and board prepared to state the case for support? Are volunteers ready and able to ask for donations? Can gifts be properly stewarded? What bud- get is available for the fund development process?

The Oakes Children’s Center board and staff found that they needed to pre- pare materials to tell their center’s story. Although they had reporting data used for their state grants, it was not in a format that would appeal to individual gift prospects. They also needed to develop mechanisms and procedures to request gifts, acknowledge donations, and use funds according to donors’ intentions. All of this required an investment in infrastructure to support the fund develop- ment process.

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136 Managing Nonprofi t Organizations

Research and Select Fundraising Vehicles, Prospects, and Approaches Who will be approached for a gift and how? What is the ability to give and the interest in giving among individuals, corporations, associations, government agencies, local businesses, places of worship, service organizations, foundations, and other groups? How should potential funders be reached? Are they likely to be willing to be approached? Are there any linkages that can be used to connect to them, for example, a board member who works for them? What should the request to them be?

The board and staff of the Oakes Children’s Center knew the center would continue to seek government grants. They also knew that the center was restricted from charging the clients’ parents for services. The leaders believed that philan- thropic gifts would help to diversify their revenue portfolio. With the help of a con- sultant they were able to identify markets and design materials for their solicitation efforts. The best prospects for the center were those who had an interest in giving, who had the ability to give, and who were accessible through a personal contact.

Prepare the Plan and the Organization Who will do what? What information, resources, and training do board members, staff, and volunteers need to be effective? How will the fund development plan be integrated into other aspects of the nonprofi t’s strategic plan? How will the plan be evaluated and modifi ed?

All nonprofi ts seeking donations, including the Oakes Children’s Center, can benefi t from having a comprehensive fund development plan that includes strategies, task assignments, and evaluation methods. It is the responsibility of the whole orga- nization to be a worthy steward of gifts. Fundraising staff and volunteers need a vali- dated case for support and research on prospects indicating the gift to be requested and how that gift contributes to the fundraising objectives and goals for the nonprofi t.

Solicit Gifts, Thank Donors, Steward Gifts, and Prepare to Renew Gifts If Appropriate Was the request made? Was it successful? Why or why not? When will it be appro- priate to ask for another gift? How can the donor become more involved with the nonprofi t? Is more research needed? Does the case for support need to be strengthened before additional solicitations are made?

Eventually someone needs to ask the donor for money. The more personal the approach and the greater the connection of the individual to the nonprofit, the greater is the likelihood of success. With each gift a nonprofi t has the oppor- tunity to forge a deeper bond with the giver and further explain how the donor’s support is making a positive difference.

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Resource Acquisition 137

Fund Development Principles

There are a few basic principles that can guide fund development. One of the most repeated is that “people give to people to help people.”63 It is humans that make giving decisions, no matter whether they are making decisions about the disposition of their personal or another’s wealth or are acting in the interest of a foundation, corporation, or other organization. Fundraising is built on relation- ships. A gift solicitation is more likely to be successful when there is a basis of trust. Success is also more likely when the person asked for the gift believes that people will genuinely be helped by the gift. Seeing pictures and hearing personal stories from those the nonprofi t has reached can be more persuasive than dry statistics in convincing a prospective donor that his or her gift will make a mean- ingful difference. It can also be helpful to have a volunteer who is a peer of the prospect join a staff member in requests for large gifts. The peer relationship may be a basis for trust. Using a respected celebrity to endorse the nonprofi t may also help in building trust.

Another principle is that signifi cant gifts come in all sizes. By offering a wide range of giving opportunities, individuals with different means can give what to them is a generous gift. They may also judge what an appropriate gift is based on what others have given. This is the underpinning of gift pyramids, through which rather than seeking a certain number of donations of the same size, the nonprofi t seeks many small and a few large gifts to reach its fundraising goal. For capital campaigns a common rule is to expect 90 percent of the funds to come from 10 percent of the donors. Modest givers should be as welcome as major donors. These modest givers may give more in the future as they become more closely connected to the nonprofi t. It is those closest to the nonprofi t who are expected to set the pace for a fundraising campaign. If they are able but unwilling to give leadership gifts, it suggests to others that the nonprofi t may not be as worthwhile as it seems.

A third principle is to understand the role of the fundraiser as someone who offers a means for donors to fulfi ll their aspirations. The means may be through contributions to an annual campaign, endowment campaign, capital or special project campaign, or estate or planned giving. Annual giving programs tend to bring in many fi rst-time donors who identify with the cause, know a little about the nonprofi t, and give gifts that do not stretch their giving capacity. They are often reached through less personal vehicles, such as direct-mail letters, telethons, and Web site appeals. Over time, as these donors learn more about the organi- zation and the organization learns more about them, they may be approached with personal visits, more personalized letters, and other approaches. Professional fundraisers cultivate relationships with donors, understanding how their needs

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138 Managing Nonprofi t Organizations

can match those of the nonprofi t. As the donors’ interests change, a good fund- raiser will adapt to better support those interests.

Concluding Thoughts

This chapter has reviewed resource acquisition for nonprofi ts. Choices abound for possible revenue sources and strategies for pursuing them. Each nonprofi t has unique contingencies that may affect how its funding has evolved since its estab- lishment. Nonprofi t leaders have the responsibility to understand the positives and negatives of their resource acquisition options. They also need to be accountable to their funding sources.

The need to steward a nonprofi t’s resources brings us to the next chapter on fi nancial management. Building from the understanding of resource acquisition, we turn to how to manage fi nancial resources appropriately.

Questions for Consideration

1. What infl uences your own giving to nonprofi ts? What motivates you to give or to stop giving? What does your experience say about how nonprofi ts should engage with potential and current donors?

2. Should nonprofi ts and their funders be concerned about growing commercial- ization in the nonprofi t sector? Why or why not?

Exercises

Exercise 6.1: Analysis of Revenue Portfolio

Look at the revenue portfolio of a nonprofi t. Is it diversifi ed? What vulnerabilities, if any, do you see related to dependencies on particular funding sources?

Exercise 6.2: Evaluation of Fundraising Solicitation Letter

Analyze a letter from a nonprofit asking for financial support. What case for support does the letter make? How strong is the case? What values is the letter appealing to in asking for a gift? Do you fi nd the letter to be compelling? Why or why not?

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Resource Acquisition 139

Exercise 6.3: Understanding Donor Motivations and Acknowledgment of Gifts

Interview someone you know who gives donations to one or more nonprofi ts. Ask this person to explain why he or she gives. What motivations for giving did he or she share with you? Focus on one gift the person has recently made. Track the person’s engagement with the nonprofi t back from the time of the interview to the time he or she decided to make the gift. What types of communications did the person receive from the nonprofi t over this timeline? Did the person get thanked for his or her gift? If so, when and how? Do you think the acknowledg- ment of the gift was suffi cient? Why or why not?

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140

CHAPTER SEVEN

FINANCIAL STEWARDSHIP AND MANAGEMENT

With Charles K. Coe, Professor, School of Public and International Affairs, North Carolina State University

T he mission of hopeFound is to prevent and end homelessness in the greater Boston area by focusing on helping individuals overcome addiction and fi nd employment, housing, and hope. Its experience helps to show how a nonprofi t can turn around its fi nancial management before its mission is put at risk.1 The board and newly hired executive director of hopeFound identifi ed weaknesses and implemented new strategies and practices with the help of a consulting fi rm, Nonprofi t Finance Fund. Over fi ve years, starting in 2005, hopeFound weathered a recession while revamping its fi nancial approach from perpetual crisis mode to planning. A 2005 fi nancial analysis revealed that it had dangerously low levels of cash and liquid net assets but growing needs to cover amounts owed and purchase property and equipment. It had a short-term debt of $300,000 and continually used all of its line of credit. Its funding portfolio consisted primarily of government cost reimbursements, which did not fully cover program or administrative expenses. It also lacked a director for fundraising. The consulting fi rm helped hopeFound think holistically about how mission, capacity, and capital affect each other and recommended that the nonprofi t develop a strategy for managing liquidity and credit, investigate creating a fi nancial reserve, and consider opportunities for acquisitions.

As a result, hopeFound did a SWOT analysis, examined the cost of doing business, and explored options. Actions derived from goals led the organization to secure pro bono services, develop a comprehensive fundraising campaign, aggressively seek housing vouchers, renegotiate contracts from cost reimbursement to a fee-for-service structure, subcontract the management of its residential units, and reallocate savings to invest in human resources and pay off the line

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Financial Stewardship and Management 141

of credit. By 2008, hopeFound had more than three months of cash on hand for operations. Its 2010 balance sheet was triple and its operating budget more than double what they had been in 2005, and it was able to purchase needed property and equipment. Most important, it was helping more people to get homes and jobs and to overcome addictions. Nonprofi t Finance Fund asserts that the transformation from fi nancial distress to fi nancial empowerment was due to three factors: data, discipline, and dialogue. Specifi cally, hopeFound created and used a dashboard of fi nancial indicators. It began regular board fi nance committee meetings that identifi ed potential problems and solutions. It also openly discussed how progress would be tracked and gave manage- ment and the board equal voices in decision making.

The Harnett County Partnership for Children (HCPC) is a 501(c)(3) nonprofi t that provides education and developmental services to children and their families in Harnett County, North Carolina. HCPC contracted with Community Education and Programs, Inc (CEAP), another 501(c)(3) nonprofi t, to provide educational services. In 2009, a whistle-blower called the State Auditor’s Hotline to allege that CEAP was misusing state funds. CEAP’s executive director refused to provide the nonprofi t’s fi nancial records to the Offi ce of the State Auditor, which then served a subpoena for the records. Examining two contracts totaling $375,000, the state auditor found numerous instances of fraud: HCPC had reimbursed CEAP using state funds, but CEAP had never paid for day-care supplies, employee health insurance, or retiree contributions. Moreover CEAP had fraudulently obtained reimbursements for payroll taxes, payroll expenses, employee bonuses, and supplies. Finally, CEAP had not purchased a fi delity bond suffi cient to cover the embezzlement losses. CEAP’s bond covered only $10,000, but the nonprofi t received nearly $375,000 in contracts. The state auditor made recommendations to HCPC for improving its inadequate fi nancial and contracting practices and referred the audit fi ndings to the Federal Bureau of Investigation and the Internal Revenue Service.2

� � �

This chapter is about nonprofi t fi nancial stewardship and management. As our introductory scenarios suggest, proper fi nancial management can help a nonprofi t be more successful with its mission, avoid allegations of improprieties, and reduce the risk of unethical and illegal behavior. Through fi nancial analyses and regu- lar monitoring of fi nancial indicators, hopeFound was able to fi nd the resources to expand its programming and develop greater fi nancial security. The Harnett County Partnership for Children was forced to devote resources to changing its fi nancial management systems in response to external scrutiny of its practices. In an extreme case the United Way of America lost fi nancial resources as well as credibility in the eyes of many donors when it was discovered that the organiza- tion’s fi nancial systems were inadequate and had failed to prevent improprieties by its then CEO, who was eventually sentenced to prison for fi nancial mismanagement

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142 Managing Nonprofi t Organizations

and criminal activity. In a more recent case the nonprofi t Mosdut Shuva Israel received a $48,000 judgment against it simply for failing to obtain workers’ com- pensation insurance. Other nonprofi ts, such as Oral Roberts University and the Harlem School for the Arts, have incurred signifi cant debt and faced accusations of fi nancial mismanagement that have threatened their operations.

Nonprofi t organizations have a moral obligation to steward resources well, as discussed in Chapter Two. Part of the fallout from the fraud at Enron and other scandals in the for-profi t sector was the enactment of the Sarbanes-Oxley Act. Though only two of its provisions apply specifi cally to nonprofi ts, the Act has provided guidance to many nonprofi ts wishing to establish sound fi nancial policies and practices.3 Financial management systems are critical for demon- strating adherence to the law and accountability to law enforcement agencies, donors, clients, the public, and any members. Toward that end, in this chapter we discuss seven elements of an effective fi nancial management system: fi nancial policies, accounting, budgeting, banking relations, borrowing, risk management, and auditing and fi nancial analysis. By following the basic principles outlined in this chapter, a nonprofi t can help to ensure that it remains trustworthy and accountable.

Element One: Financial Policies

A nonprofi t board should adopt policies for regulating confl ict of interest, pro- tecting whistle-blowers, setting the budget reserve, and managing investments. The need for these and other policies may emerge in strategic planning efforts, as described in Chapter Five; in a board review of the board’s ability to carry out its fi nancial oversight responsibilities, as described in Chapter Nine; in efforts to quantify the costs and benefi ts of program initiatives, as described in Chapter Thirteen; or through other means. In the rest of this section, we review policy areas that every nonprofi t should consider.

Confl ict of Interest Policy

Nonprofi ts need to set confl ict of interest policies not only to be consistent with the law but also to make their practices justifi able to key stakeholders and to establish enforceable procedures for handling confl icts of interest. As discussed further in Chapter Fourteen, public relations issues may arise over fi nancial policies and practices, so an understanding of public perceptions of policies and expectations for their enforcement is important. Federal law, and also state law in some states, addresses compensation and excess benefi t transactions for

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nonprofi t board members and executive staff.4 Nonprofi ts in the United States are prohibited from giving private inurement and excessive personal benefi t to board members and staff: for example, through contracts overly favorable to a family member of the board chair or excessive compensation of the CEO. Even when the law allows a particular fi nancial arrangement, the public may perceive it to be improper. The Internal Revenue Service (IRS) asks nonprofi ts to report in their Form 990 whether their confl ict of interest policy has been enforced.

Consider a nonprofi t that wishes to sell property (a situation we will discuss further in Chapter Fourteen in the context of media coverage of the Nature Conservancy). A board member who wants to buy this property has a confl ict of interest. As a private individual she may want it at a cheap price to save herself some money; but as a board member she should want to sell it at the highest price possible to maximize the benefi t to the nonprofi t. Such fi nancial transactions between nonprofi ts and board members are surprisingly extensive. A 2006 study revealed that 21 percent of nonprofi ts bought or rented goods, services, or prop- erty from a board member.5 In some U.S. states, fi nancial transactions between a nonprofi t and its board and staff members are illegal. In other states they are legal when the board and staff members of the nonprofi t act in the best interest of the nonprofi t and contract with someone affi liated with the nonprofi t only when that is the best deal possible for the nonprofi t. Some nonprofi ts set policies forbidding sales and purchases that may personally benefi t board and staff members, or they establish procedures for handling any confl icts of interest arising from purchase and sales activities.

Nonprofi ts should supply training for board and staff members (paid and volunteer), with specifi c examples of the ways in which the nonprofi t’s confl ict of interest policies might be violated and what to do in situations where the policy is unclear. The training should include discussion of the potential con- sequences for the violator and the nonprofi t if policies are not followed. Board and staff members should sign statements affi rming their understanding and willingness to comply with the policies. They also should be clear on procedures that will be followed once a confl ict of interest is disclosed. For example, the board may vote on whether a confl ict of interest exists and whether the person with the confl ict of interest is excluded from relevant discussions and votes. When board and staff members understand why the confl ict of interest policies are important and what steps will be taken to enforce them, it is more likely that they will follow them.

Employees and board members may have a fi nancial interest in a company doing business with the nonprofi t without concern as long as they have placed that fi nancial interest in a blind trust. With a blind trust they do not know their

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144 Managing Nonprofi t Organizations

holdings and do not have any discretion over these assets. Politicians, including the president of the United States, use blind trusts when they have control over government funds going to the private sector. Blind trusts are also useful for lead- ers of nonprofi ts that do economic development and other types of work from which leaders’ investments may benefi t.

Gratuities, kickbacks, and loans are ripe for confl ict of interest concerns. A gratuity is a gift, monetary payment, favor, free meal, honorarium, and so forth, that is legal but may be perceived as improper. A recommended policy is that nonprofi ts either set a relatively low limit for acceptable gratuities (for example, up to $25), or ban them altogether. A kickback, which is a payment from a ven- dor in return for getting the nonprofi t’s business, is illegal. Nonprofi ts should also not provide kickbacks in exchange for political favors. A New York state legisla- tor recently resigned from offi ce after he admitted that he took kickbacks from a charity he founded.6 In response to the scandal the New York Public Interest Research Group called for the State Attorney General’s Offi ce to initiate a review to see if other legislators have illegal kickback arrangements with nonprofi ts in the state. A loan from a nonprofi t to a board or staff member can also be considered inappropriate. The Sarbanes-Oxley Act explicitly forbids private loans to insiders in for-profi t corporations but does not extend this rule to nonprofi ts. However, some states recommend or require that nonprofi ts not provide loans to board members and executives. Examples of nonprofi ts that ignored this advice can easily be found. For example, Mount Sinai Hospital and School of Medicine gave its president a $2.25 million, interest-free loan as part of its recruitment package and was criticized in the Chronicle of Philanthropy for the lost value from the loan. The hospital could have earned signifi cant profi t by investing that amount rather than loaning it without charging interest.7

Whistle-Blower Protection Policy

A nonprofi t must report in its IRS Form 990 whether it has adopted a whistle- blower policy.8 The Sarbanes-Oxley Act makes it a federal crime for a nonprofi t to retaliate against an employee who reports suspected fraudulent activities. This is one of the few provisions of the Sarbanes-Oxley (SOX) Act that must be adhered to by nonprofi ts as well as for-profi t corporations. Nonprofi ts should give employ- ees and board members options for sharing concerns and should have mecha- nisms to ensure that the concerns are reviewed and not ignored. Cynthia Benzing and her colleagues review a variety of studies, including their own research, show- ing that whistle-blower protections are not in place in all nonprofi ts despite SOX.9

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As demonstrated in our opening scenario involving CEAP, whistle-blowers are a critical mechanism for uncovering improper fi nancial practices.

Budget Reserve Policy

A nonprofi t should set a policy to budget funds in reserve at a certain level. This is fi scally prudent because it protects the nonprofi t in the event that revenues are lower or expenses are higher than expected. There are many reasons why a nonprofi t might misestimate its revenues and expenses. For example, expectations may not be met due to an economic downturn, unanticipated expense due to an act of nature (such as a tornado or a hurricane), equipment breakdown, reduced funding (such as the early termination of a large grant), or a signifi cant rise in costs (such as a spike in employee health care premiums). As hopeFound discov- ered, having a reserve fund that is controlled by board vote allows a nonprofi t to avoid taking out expensive loans or running a large line of credit.

The bigger a nonprofi t’s reserve, the greater its ability to weather a downturn; however, funders typically take a dim view of what they perceive as an overly large reserve. They quite understandably want a healthy amount of their fund- ing spent on direct services. For example, as a condition of funding, some United Ways require nonprofi ts receiving their funding from undesignated gifts to limit their reserve to 25 percent of the annual budget. Having a policy set by the board about the amount of the reserve fund helps in addressing the great variation in opinion that may exist about what it should be. It also helps to focus the board on seeing that the reserve is maintained at the designated level until needed and then replaced when feasible with funds appropriate for this purpose.

Investment Policy

The investment policy designates an investment offi cer, usually the chief fi nan- cial offi cer (CFO) for a large nonprofi t or a hired fi rm for a small nonprofi t, to manage the investment program. The board must decide whether to pursue a passive or active investment strategy and spell out the values that will guide investment choices. A passive investment strategy, taken by most nonprofi ts, sim- ply tries to obtain the average rate of return on investments. In contrast, an active investment strategy tries to earn a higher rate than the average. Active investing entails more risk. Only a nonprofi t that has a sizable amount to invest (for exam- ple, an endowment) and that can afford the services of a professional investment adviser should undertake active investing. If the investment offi cer follows the

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146 Managing Nonprofi t Organizations

designated investment strategy and exercises due diligence, he or she is relieved of culpability, legal or managerial, for a decline in value of the investments.10

In addition to designating the investment risk orientation, the investment policy also specifi es the types of investments the nonprofi t can use. For example, a nonprofi t that advocates for animal rights may make a policy not to invest in companies that use animals for testing products. Environmental conservation nonprofi ts may choose not to invest in corporations that violate their standards for environmental protection.

Document Retention Policy

Nonprofi ts should have policies for document retention and destruction that are consistent with local, state, and federal laws. Even if the retention period for docu- ments has passed, the Sarbanes-Oxley Act requires that document purging must stop if an offi cial investigation or bankruptcy proceeding is under way or there is a suggestion that one may be started.

Element Two: Accounting

Every successful organization depends on its accounting system to provide data for fi nancial decision making and reporting. Nonprofi t staff and board members should have a basic understanding of the accounts (for example, asset, liability, functional expense, and reserve accounts) used to record information about the operations of the nonprofi t and how those accounts relate to the fi nancial position and activities of the nonprofi t, the accounting cycle, generally accepted account- ing principles, and internal controls.

Accounts

To understand their fi nancial position, organizations need to keep track of what they own (assets) and what they owe to others (liabilities). A summary snapshot of the fi nancial position of the organization is provided by this accounting equation:

Assets � Liabilities � Net Assets.

Some organizations may need only a few accounts to keep track of their assets and liabilities. For example, a small nonprofi t may have assets that include cash on hand and some offi ce equipment. Its liabilities might include an account payable to the local utility and a small loan from a bank. A large nonprofi t may

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own a building (asset) that was fi nanced with a mortgage (liability) and furniture and fi xtures (assets) and may have invested some of its funds in stocks or bonds (assets). Some nonprofi ts may have all their net assets in an unrestricted net asset account, whereas others may have unrestricted net assets and also endowment funds and other types of restricted asset accounts.11

In addition to knowing their current fi nancial position, organizations also need to account for their activities. This requires that they be able to identify their revenues (for example, gifts, grants received, program revenues, interest earned, and so on) and their expenses (for example, utility costs, interest payments, sala- ries, insurance, fees, and so on). The basic accounting equation for summarizing the activities of an organization is

Revenues � Expenses � Net Income or Net Loss.

Although all organizations need to have detailed accounting records of their assets, liabilities, revenues, and expenses, nonprofi t organizations have some addi- tional requirements for tracking different types of expenses (for example, program and fundraising) and for different types of funds (for example, restricted, unre- stricted, and temporarily restricted). We address these issues later in this chapter.

The Accounting Cycle

The accounting cycle refers to a process that allows for the accurate recording and summarizing of transactions by an organization. Whether accounting records (the books) are kept manually or with an automated system, the same basic pro- cess applies. Although the offi cial accounting cycle contains several more detailed steps, the gist of the process consists of three key activities:

• Documenting. Whenever a transaction takes place, a source document (for example, a bill, invoice, receipt, deposit slip, purchase order, or check) should be generated or received.

• Recording. Upon the receipt of a source document, an entry is made to record the data in the appropriate accounts and the source document is fi led, consistent with the organization’s document-retention policy.

• Reporting. Adjusting entries are made and fi nancial statements (described later in this chapter) are prepared.

Numerous accounting software packages are available, including some that help nonprofits conform to generally accepted accounting principles related to fundraising record-keeping rules (see the next section), rules on cost allocations

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148 Managing Nonprofi t Organizations

to fundraising versus program activities, rules prohibiting allocations of compensa- tion or fees for fundraising based on amounts raised, and IRS Form 990 reporting requirements.12 Some commonly used software packages are QuickBooks for Nonprofits, QuickBooks Pro, BlackBaud, Financial Edge, Sage MIP Fund Accounting, Kinters FundWare, and Peachtree.

Generally Accepted Accounting Principles (GAAP)

Uniform accounting standards help to ensure that the fi nancial statements gen- erated by different organizations are consistent and comparable. In 2009, the Financial Accounting Standards Board (FASB) issued the Accounting Standards Codifi cation (ASC, or Codifi cation), which is the source of nongovernmental generally accepted accounting principles (GAAP). The Codifi cation combines thousands of GAAP pronouncements into about ninety topics, organized in a hierarchy of topics, subtopics, sections, and subsections.13 Many basic account- ing concepts and practices are the same in nonprofi t and for-profi t organizations, but there are some important differences when accounting for contributions and expenses.

One of the most important GAAP standards for nonprofi ts is Accounting for Contributions (FASB ASC section 958-605-25). Before this standard was estab- lished, nonprofi ts did not have to record the donor’s intent for the gift. Now, to assist in keeping track of gifts that must be used in certain ways, nonprofi ts must put a gift into one of three categories, depending on a donor’s intent:

• Permanently restricted assets are assets such as endowments, land, and artwork that the donor permanently restricts. In an endowment, the nonprofi t must keep intact the corpus of the gift in perpetuity and can spend only the investment income.

• Temporarily restricted assets are funds temporarily donor-restricted for a particular use: for example, a contribution received from a capital campaign may be restricted for a new building. The building fund may need to grow over several years before the funds are expended.

• Unrestricted assets are funds free of donor-imposed restrictions, such as contributions from individuals and unrestricted grants that are not tied to a particular use.

This categorization scheme helps nonprofi ts honor donors’ wishes. Donors may sue nonprofi ts to have their gifts returned if they believe their intent for the gift was not honored. Nonprofi ts obviously have the most discretion with unre- stricted assets. If all assets are narrowly restricted, a nonprofi t may have diffi culty

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meeting basic operating needs that do not qualify for use of the funds. Therefore nonprofi ts should be careful to have enough unrestricted assets to be able to carry forth the activities promised as a condition of the restricted assets.

One complication related to accounting for donations is whether a donation should be seen as a pass-through contribution. If a nonprofi t collects the donation to turn over to another organization to use, the donation is treated as a liability until it is paid to the other organization. For example, a church may collect contribu- tions for disaster relief efforts. The contributions are treated as liabilities if the church does not intend to directly provide the relief services but rather intends to send the contributions to another organization that will use the funds for the relief services.

The issue of restricted and pass-through contributions is especially relevant when we look at the recent review of 9/11 charities published by the Associated Press.14 Many of these charities delivered what they promised, but others prom- ised to pass on donations to victims or to other nonprofi ts and failed to do so. One nonprofi t, the American Quilt Memorial, promised to construct a quilt with com- memorative squares, but out of the $713,000 given to the organization in dona- tions, the founder spent $270,000 on himself and relatives. Urban Life Ministries had its tax exemption revoked by the IRS when it raised $4 million to help victims and fi rst responders but could account for only $670,000 of expenditures. In a classic case of private inurement, and showing why some states prohibit a non- profi t from having contracts with a fi rm owned by its executive director, a founder of the Flag of Honor Fund raised money to construct a large fl ag with the names of 9/11 victims. According to the Associated Press review, the fl ag is produced by a for-profi t owned by the founder of the nonprofi t and is sold at retail stores, with only a tiny fraction of the money from the sales going to 9/11 charities and most of the profi t going to the founder.

GAAP requires nonprofi ts to report expenses in three categories: (1) program expenses related to service delivery; (2) management and general expenses that support programs, such as the salary and wages of the CEO and CFO; and (3) fund- raising expenses, such as postage and paper for a direct-mail solicitation. Some expenses are easily identifi able. For instance, if a staff person works on only one program that can be easily categorized as direct service to clients, administra- tion, or fundraising, then that person’s salary can be allocated to that category. Other expenses may be less apparent. For instance, the executive director and staff, although chiefl y working on management and general activities, may also work on fundraising and program activities. When that is the case they should keep a time log, recording their time spent in each of the three categories. Time should be recorded at least monthly. Similarly, a portion of building costs (for example, rent and utilities) is allocated to the three expense types, typically based

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150 Managing Nonprofi t Organizations

on the number of square feet used for program, management, and fundraising activities.

GAAP’s three categories for reporting expenses are important because donors and grantors generally want as much of their funds as possible to be spent on pro- grams, and not on management, fundraising, and general services. For this rea- son, some funders, such as the United Way, limit the percentage of total expenses that may be spent on management and general activities. Some watchdog groups report how nonprofi ts allocate their expenses, offering rating schemes based on what these groups suggest are reasonable percentages. These watchdogs include but are not limited to the Better Business Bureau’s Wise Giving Alliance, Charity Navigator, and the American Institute of Philanthropy. Some scholars fi nd that the ratios these groups use to rate nonprofi ts may be misleading to donors and unfairly critical of some types of nonprofi ts.15 The watchdogs do not take into account different types of missions, expenses, revenues, and stages of develop- ment, which makes it problematic to use their ratios to compare substantially different nonprofi ts. For example, a very young nonprofi t may need to spend more on fundraising than more established nonprofi ts in order to raise the capital needed to go to scale to gain effi ciencies in its operations. Simple comparisons of ratios are likely to make this nonprofi t look bad compared to nonprofi ts that are not actively fundraising because they have large endowments or substantial earned income streams.

Accounting Internal Controls

A sound internal control system improves operational effectiveness, enhances the reliability of fi nancial reporting, ensures compliance with applicable laws and regulations, and reduces the opportunity for fraud. If CEAP and HCPC had had better internal controls, perhaps they could have avoided accusations of fi nancial mismanagement. By establishing a disciplined approach through inter- nal controls, hopeFound moved from crisis mode to a more strategic approach to its mission.

The difference between an error (for example, sloppy accounting) and fraud is that fraud is intentional, but an error is unintentional. Following are some exam- ples of fraud:

• Theft of receipts, inventory, or donated goods

• Use of organizational assets for personal benefi t

• Receipt of kickbacks (for example, cash, gifts, promises of subsequent employ- ment) from a vendor in exchange for preferential treatment

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• Overpayments for labor, services, or goods and payments for labor, services, or goods not received

• Overcharging the organization for reimbursements (for example, for travel expenses)

• Collecting donations for one program but using the funds for other purposes

As demonstrated by these examples, nonprofits can suffer from misap- propriation of assets, corruption where infl uence is inappropriately used in a fi nancial transaction, and deliberate falsifi cation of fi nancial statements.16 More examples of fraud can be found by looking at the uniform occupational fraud classifi cation system developed by the Association of Certifi ed Fraud Examiners and discussed by Janet Greenlee and her colleagues.17 Greenlee and her col- leagues also note multiple abuses of trust by nonprofi ts or by organizations masquerading as nonprofi ts. For example, the FBI found that more than two thousand of the Internet sites asking for donations for Hurricane Katrina vic- tims were fraudulent.18

As noted in Chapter Two, persons may be unlikely to commit fraud owing to their personal ethical standards, organizational codes of conduct, and societal norms. However, they may feel pressured to commit fraud or rationalize it when they are facing personal fi nancial pressures, feel unfairly paid, are aware that others are doing it, or think no one will notice or care. In their study of investi- gated frauds committed by nonprofi t employees, Greenlee and her research team found that the larger frauds were more likely to be committed by those who were higher in salary, age, tenure with the nonprofi t, and educational level attained. Managers were the perpetrators in 25 percent of the cases, and executives in 8.6 percent of the cases. Although many nonprofi t employees and volunteers are honest and ethical, it is clear that nonprofi t leaders should not assume that everyone working for a nonprofi t is immune from temptation. Nonprofi ts have an obligation as good stewards to reduce if not eliminate opportunities for fraud and to recognize when pressures and rationalizations may lead to motivations for fraudulent activity.

Conditions that can increase opportunities for fraud include having weak internal accounting controls, not obtaining an independent audit, having poorly trained personnel, installing a new accounting or IT system, changing manage- ment organization and responsibilities, and being overdependent on one person in areas with opportunities for fraud. Stuart Douglas and Kim Mills argue that it may be easier to commit fraud in a nonprofi t than in a for-profi t, due to the atmo- sphere of trust, diffi culty in verifying revenue streams, weaker internal controls, lack of business and fi nancial expertise, and reliance on volunteers.19 For example,

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152 Managing Nonprofi t Organizations

it may be easier for volunteers or employees to keep a donation of money or physical items intended for a nonprofi t than it is for a cashier at a convenience store to pocket a customer’s payment for a purchase of alcohol or help himself to a bottle on the store shelf. There are likely more internal controls at the store, including inventory records, cameras, and cash register records.

There are numerous practices that can help in the prevention and detection of fraud.20 The most fundamental accounting control is to separate accounting duties among two or more persons to help reduce opportunities for fraud and errors. For example, the person keeping the books should not be the person signing the checks. The check signer should not receive bank notifi cations and reconcile bank statements. Even with separation, two or more employees can collude to steal. Separating duties is more challenging in a small nonprofi t with only one or two employees. Board members may perform one or more of the fi nancial func- tions to make separation of duties possible. Also, for large transactions, a nonprofi t may require two signatures.

Besides separation of duties, these practices may reduce the likelihood of fraud:

• Require background and credit checks on all workers who handle cash or keep records of inventories of supplies, equipment, or donated goods.

• Create a positive ethical environment from the top down.

• Select board members who have no fi nancial interests in the nonprofi t’s affairs.

• Direct an audit committee to look for fraud.

• Create a whistle-blower protection system.

• Educate workers on the consequences of fraud.

• Develop and test internal fi nancial controls with the help of an expert.

• Watch tax payments carefully; failures to pay these typically go undetected and so they present an easy opportunity for theft.

• Conduct annual audits using an external fi rm.

• To mitigate losses from fraud, purchase fi delity insurance to cover embezzle- ment losses.

Nonprofi ts that are willing to tolerate theft are open to criticism and poten- tially further financial improprieties. Do not set up confidential repayment arrangements for a perpetrator; instead, contact law enforcement authorities. For example, the executive offi cers of ACORN discovered that the brother of the nonprofi t’s founder had embezzled $1 million in 1999 and 2000, but they kept him on the payroll until 2008 after he and his family agreed to repay the embezzled amount in exchange for confi dentiality. The executive offi cers did not

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inform the board about the situation. This secret arrangement was exposed by The New York Times, damaging the reputation of the nonprofi t.21

Contrast ACORN’s response with that of Points of Life offi cials when they discovered abnormalities in the business practices of a contractor hired to run the nonprofi t’s eBay store for donated travel packages and other items. As soon as concerns were raised by customers who had not received travel vouchers and certifi cates they had purchased, the eBay store was shut down. The nonprofi t contacted the people who had bought the packages and attempted to make good on their commitments to them. It also contacted the donors and some agreed to help the nonprofi t pay back the customers. Points of Light also contacted the U.S. Attorney’s Offi ce in Washington, D.C., the jurisdiction of the nonprofi t, to report the improprieties.22

Element Three: Budgeting

Budgeting is a critical activity for nonprofi ts. It is impossible to make short- and long-term strategic decisions and guide month-to-month operations without a budget explaining how much money the nonprofi t expects to receive and has to spend. A budget can show what funding is available to start a new program or hire a new employee. Checking the annual budget against year-to-date revenues and expenses may show where adjustments in activities and in expectations need to be made in order to fi nish the year without a defi cit. Comparisons of past budgets may reveal trends that show opportunities for growth or best options for managing expenses. For example, a nonprofi t may see that fee receipts for certain programs increased over time and expenses decreased, perhaps indicat- ing an opportunity or need for more investment in the program. A budget can show that when a particular contractor was used, the actual expenses exceeded the contractor’s budgeted expenses, perhaps indicating that the contractor’s estimates should not be trusted. It can show that the nonprofi t expects to be highly dependent on a donation or grant from a particular source, thus reveal- ing vulnerabilities and the importance of particular stakeholders in achieving budget goals. Donors, lenders, and grantmaking organizations may evaluate a nonprofi t’s budget as part of proposals for funding. By creating and monitoring budgets, nonprofi ts can help to ensure that they will not accrue unwanted debt and that they are stewarding gifts according to donors’ intentions. Discrepancies between budgets and actual receipts and expenses may reveal fraudulent activ- ity. The budget is a crucial tool for boards as they fulfi ll their fi nancial oversight duties. Therefore, developing and then monitoring the organizational budget

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154 Managing Nonprofi t Organizations

and specifi c program budgets is a critical mechanism for nonprofi ts to ensure that they are effective and ethical.

Producing a Realistic Budget

To be an effective tool, budgets need to be realistic, consistent with strategic objectives, fl exible, and measurable.23 No one person in a nonprofi t has all the answers and expertise to achieve these criteria. Therefore the budget should be a team effort of the executive staff, program staff, and board of directors. When a fi nance committee of the board and a board treasurer have been appointed, they are likely to be involved in helping to develop the budget before it is submitted for approval to the full board. The budget should refl ect the programs and activi- ties that are expected or desired for the coming year, so the staff should make program recommendations and get the board’s endorsement of programs to be continued and major new initiatives before the budget is prepared. The staff may pull together historical data on expenses and revenues and help the board make assumptions about what the new year will bring in terms of demands for services and economic conditions. If the nonprofi t has conducted a SWOT analysis and an action plan as part of its strategic planning effort (see Chapter Five), this infor- mation can be used to inform the budget. As the year progresses, the budget should be monitored to see if any fl exibility is warranted. This requires accurate accounting to show how closely actual receipts and expenditures are matching the budget.

Estimating and Reviewing Revenues and Expenses

As explained in the previous chapter, a nonprofi t can receive revenues from mul- tiple sources. Some revenues are easy to estimate; others are more problematic. For example, it may be diffi cult to estimate the return from a special direct-mail appeal for donations if this approach has not been tried before. It may also be problematic to know which grant proposals for operating support will be funded over the course of a year. A nonprofi t may expect donors to renew their commit- ments in the coming year, but without formal pledges that funding is uncertain. Business plans for new and continuing earned income ventures should include fi nancial projections that can be used for budgeting purposes.

Typically, as part of the budgeting process for a medium-sized to large non- profi t, the executive director distributes to the program managers a budget cal- endar, budget request forms, and budget instructions. The budget calendar sets the timetable for preparing and adopting the budget. The program managers should justify their budget requests by explaining how they are consistent with

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the nonprofi t’s strategic plan, mission, vision, and priorities as set by the board. For example, university departments may justify budget requests by linking them to the university’s strategic priorities. The program managers should submit esti- mates for the salaries, fringe benefi ts, supplies, and capital items that they need. The budget instructions tell the program managers how to calculate the cost of salary increases, if any; supplies; and capital items (for example, computers). The cost of fringe benefi ts (such as Social Security, health care, and pensions), utilities (such as phones, electricity, and gas), and capital equipment may then be added to the expected expenses. For a smaller nonprofi t, input for the budget may be more informal, and the individuals who coordinate the programs may be volunteers who are not expected to prepare a detailed program budget, though they should be asked to adhere to the budget they are given.

A budget is simply a plan for the fi scal year. Very rarely are the fi nal fi nancial statements for the year an exact match to the original budget. During the year, revenues and expenses are typically somewhat more or less than budgeted. The executive director or a designated staff member should carefully compare bud- geted to actual revenues and expenses, issuing a monthly revenue and expense status report to the board and any program managers. If funds are not avail- able to fund a position or purchase in a particular account, surplus funds may be available in another account. In that case the board can approve a transfer from the surplus account to the defi cit account. Moreover, a nonprofi t may receive revenues during the year that were not budgeted. In that case the budget can be amended to plan for the increased revenues and expenses. Sixty percent of faith- based organizations make such budget revisions during the fi scal year.24 The eco- nomic downturn from 2008 to 2011 reduced many nonprofi ts’ revenue streams. Fifty-two percent of nonprofi ts experienced a decline in contributions; 31 percent received fewer grant funds.25 Such shortfalls may require signifi cant changes to budgets and reconsideration of strategic goals for the year.

Exhibit 7.1 shows a monthly budget status report for a nonprofi t for the month of September. This is the type of fi nancial status document that should be reviewed at board meetings. It provides the annual budget fi gures and year- to-date (YTD) calculations of fi nancial status. For the nonprofi t represented in this report, expenses are currently exceeding income (producing a net defi cit of $325,540), but the nonprofi t’s leaders may expect to receive more donations in a future month in response to a planned special event and may also expect new grants to come in before the end of the fi scal year. They had expected to end the year with $52,801 in unrestricted net assets. However, if there is no expectation that income will come in to cover the current net defi cit and new expenses, then they should revisit their planned activities in order to cut future expenses or generate more income. The last column of the report shows that the

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156 Managing Nonprofi t Organizations

EXHIBIT 7.1. MONTHLY BUDGET REPORT, SEPTEMBER 30

Annual Budget YTD Actual

% of Budget

% Spent Prior Year

INCOME

Charitable foundations $36,598 $27,449 75% 71%

Contributions $33,000 $19,800 60% 68%

Government—local $328,288 $246,216 75% 75%

Government—federal $531,293 $398,470 75% 75%

Government—state $931,791 $605,664 65% 70%

Medicaid $103,182 $51,591 50% 59%

United Way $224,509 $168,382 75% 75%

TOTAL INCOME $2,188,661 $1,517,571 69% 70%

UNRESTRICTED NET ASSETS $52,801

EXPENSE

100—Personnel salaries $1,446,014 $1,209,344 84% 75%

101—Personnel benefi ts $278,778 $226,995 81% 75%

102—Professional services $88,605 $79,745 90% 90%

200—Supplies $57,009 $48,458 85% 81%

300—Travel and communication $21,399 $16,049 75% 69%

301—Communication $38,806 $29,105 75% 75%

302—Staff development: training expense $39,040 $31,232 80% 75%

303—Facilities: utilities/maintenance $28,215 $22,572 80% 69%

400—Facilities: rent $164,063 $123,047 75% 75%

450—Insurance & bonding $47,999 $35,999 75% 75%

475—Dues & subscriptions $13,850 $9,695 70% 70%

480—Lease: vehicle/offi ce equipment $17,034 $10,220 60% 68%

500—Capital outlay $650 $650 100% 100%

TOTAL EXPENSE $2,241,462 $1,843,111 82% 77%

NET DEFICIT �$325,540

Source: Charles K. Coe, Nonprofi t Financial Management: A Practical Guide (Hoboken, NJ: Wiley, 2011), 120. Copyright © 2011. Reprinted with permission of John Wiley and Sons, Inc.

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Financial Stewardship and Management 157

percentage of the budget spent this year is relatively similar to the percentage spent in the prior year for many of the lines. Many of the line items are also at around 75 percent of what was budgeted, which is consistent with the timing of a September report. However, there are some potential areas of concern where the percentage of budget spent at this time of year is higher than in the past (see, for example, personnel salaries and benefi ts [lines 100 and 101] and facili- ties: utilities/maintenance [line 303]); these budget lines should be reviewed as potential problem areas.

Element Four: Banking Relations

A nonprofi t’s use of banking services refl ects how prudent the organization is in stewarding its resources. Periodically seeking banking services encourages banks to “sharpen their pencils” to reduce prices and offer more services to a nonprofi t willing to change banks. The nonprofi t should select a bank by weighing the costs of banking services and the quality of services offered. Core services to review include bill payment, account reconciliation, payroll, electronic funds transfer, check imaging, credit and debit card payments, and security overpayments. Secondary services that may be relevant to a nonprofi t include loans, investment assistance, safekeeping of assets, retirement plan management, and insurance. Even a small nonprofi t should compare what different banks can provide and the banks’ fee structures to determine which should be used.

Element Five: Borrowing

Nonprofi ts borrow to meet both long- and short-term needs. For example, they borrow long term to purchase a building or buy expensive equipment. They bor- row short term to meet cash-fl ow shortfalls that may result from grants awarded but not received, an unexpected lawsuit judgment, a decline in membership con- tributions, an economic downturn, an unexpected spike in costs, an act of nature, or a loss of a major funding source. They may also borrow as a matter of course, as hopeFound did before it began to approach its fi nancial management in a dis- ciplined and strategic fashion. For nonprofi ts with razor-thin reserves, short-term borrowing is commonplace. Other nonprofi ts, enjoying a healthy cash reserve, borrow only in the event of a rare, precipitous fi nancial downturn. Some nonprof- its choose to borrow from a board or staff member. This is not recommended as it creates confl icts of interest and may not be the best business deal for the nonprofi t.

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158 Managing Nonprofi t Organizations

Borrowing involves selecting the debt instrument and acquiring the debt. Three features characterize a debt instrument: the funding period, the repay- ment conditions, and the security against default. A nonprofi t’s borrowing options include line of credit, loan, bond, and lease.

• Line of credit (a line). This option permits borrowing up to a preset amount over a one-year period. Interest accrues on the borrowed amount until it is repaid. An uncommitted line is not put in writing and the lender can terminate it at any time. A committed line is a formal, written agreement with established terms and conditions. A standby letter guarantees that the lender will lend funds should the nonprofi t not be able to pay a major expense.

• Loan. This option has fi xed repayment terms. A revolving credit agreement, also known as a revolver loan, permits the nonprofi t to continually borrow and repay debt up to an agreed-upon amount. A term loan matures in a set number of years, typically one to ten years. A mortgage is a loan to purchase a building or land, which then serves as the loan’s collateral. The nonprofi t pays principal and interest based on a fi xed or variable interest rate.

• Bond. Some nonprofi ts—such as private schools, colleges, nonprofi t associa- tions, and religious organizations—can issue tax-exempt or taxable municipal bonds, known as municipals, for investors to purchase. A state or local govern- ment can also issue tax-exempt bonds on behalf of health care organizations, museums, colleges and private schools, and hospitals. Some bonds issued by nonprofi ts are not tax exempt. For instance, a nursing home or church might issue a taxable bond.

• Lease. A nonprofi t may lease rather than purchase an asset. Leasing makes sense when an asset, such as a computer, is likely to become technologically obsolete.

Element Six: Financial Risk Management

Every nonprofi t faces fi nancial risks and can manage these risks to ensure that it can continue to carry out its mission, protect its assets, and provide a safe environ- ment for workers, volunteers, and others involved in its operations. As discussed in Chapter Fourteen, under the topic of crisis management, nonprofi ts need to be prepared for unlikely scenarios that can threaten their survival. Financial risks may involve (1) damage to property due to carelessness, fi re, natural causes, or faulty mechanisms; (2) lost property due to dishonest acts; (3) loss of income or increased costs due to the malfunction of a revenue-producing facility; (4) liability

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Financial Stewardship and Management 159

EXHIBIT 7.2. RISK REDUCTION METHODS

Type of Risk Risk Reduction Method

Damage to property

Schedule equipment downtime to perform preventive maintenance. Make a safety inspection of general operations (monthly), fi re extinguishers (monthly), dangerous equipment (daily), and other facilities (yearly). Maintain smoke alarms. Maintain duplicates of records and computer fi les off-site. Update virus protection software and maintain fi rewalls. Secure and update employee passwords. Limit employee access to hardware and software programs.

Loss of property

Keep a duplicate record of checks. Prenumber and countersign checks. Take an annual inventory of fi xed assets. Deposit cash daily. Install anticrime deadbolt locks, burglar alarms, barred windows, and safes and vaults.

Liability to others

Adopt a policy that defi nes harassment and ensures no retalia- tion, confi dentiality, and a thorough, impartial investigation. Notify employees that they have no right to privacy regarding their e-mail, voice mail, desks, and lockers. Conduct safety training. Furnish ergonomically designed chairs and desks to avoid health problems. Ensure that drivers have a valid license and safe driving record. Secure donor records. Keep detailed minutes of board meetings and have them approved by the board.

losses due to accidents; and (5) productivity losses due to health problems, addic- tions, or other performance barriers. A nonprofi t may fi nd value in forming a com- mittee of persons willing to identify risks and fi nd ways to eliminate or reduce their incidence and severity. Exhibit 7.2 offers a sampling of risk reduction methods.

Risks can be transferred to other parties. A hold harmless clause in a contract transfers legal liability, holding the other party liable for a loss. The other party must have a certifi cate of insurance, certifying it has adequate insurance to cover the liability assumed by the hold harmless clause. A waiver of subrogation, used in a lease agreement, subrogates the lessee’s right to recovery when a nonprofi t has been negligent.

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160 Managing Nonprofi t Organizations

EXHIBIT 7.3. INSURANCE POLICIES

Type of Policy Coverage

Property damage Building and contents

Covers damage to buildings and their contents.

Business interruption

Reimburses for the loss of income if a fi re or an act of nature renders a facility inoperable.

Computer Offers broader coverage than the building and contents policy, including a loss due to a power surge, virus, or equipment and software failure.

Earthquake and fl ood

Geographically high-risk areas (for example, San Francisco and New Orleans) should insure for their specifi c risks, typically not covered by the building and contents policy.

Boiler and machinery

Covers accidents to boilers, refrigeration and air-conditioning equipment, electrical power generating machines, and research apparatus.

Liability Commercial general liability (CGL)26

Protects employees, board members, and volunteers from third-party claims alleging property damage, bodily injury, personal injury, and adver- tising injury. Covers injuries such as libel, slander, and contract liability.

Improper sexual conduct

The CGL policy may exclude improper sexual conduct coverage. If so, purchase a separate sexual conduct liability policy and include a provision that the policy will cover someone falsely accused of sexual abuse.

Business auto Covers liability (bodily injury and property damage) and fi rst-party auto physical damage (collision and comprehensive).

Directors’ and offi cers’ (D&O) liability

Covers claims against the organization, board members, employees, and volunteers for mismanagement, including libel, slander, third-party harass- ment and discrimination, and copyright infringement.

Workers’ compensation

The federal government requires coverage of full-time and some part-time employees.

Professional liability

Protects against tort liability arising from negligent professional services.

Excess liability Provides excess coverage, usually in $1 million blocks, to the CGL, busi- ness auto, and professional liability policies.

Umbrella liability Provides excess liability coverage. Special events Covers special events such as parades, auctions, and meals that are not

protected by the CGL policy. Cyber liability (also called Internet liability)

Property and commercial liability policies usually do not cover the loss of data suffered when a computer system is breached. This policy pays for staff to reenter data, repair and replace hardware, and resurrect a crashed fi le server.

Crime The standard policy covers (1) fi delity loss (loss due to employee dishon- esty); (2) loss on the premises of money, securities, electronic records, and so forth; (3) loss off the premises due to theft, damage, or mysterious disappearance; (4) forgery loss; (5) securities loss; (6) computer systems fraud; and (7) counterfeit loss.

Fidelity bond Insures against theft and embezzlement. Most nonprofi ts purchase a blanket position bond that covers positions (for example, board members, executive director, and CFO), not the individuals.

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Financial Stewardship and Management 161

Risk may be accepted and addressed through self-insurance or by an insur- ance policy deductible. There are numerous types of insurance policies available to nonprofi ts, as shown by the list in Exhibit 7.3.

Element Seven: Auditing and Financial Analysis

Auditing and fi nancial analysis help to ensure that a nonprofi t stays on track, both in stewarding its resources effectively and in following the law and ethical prin- ciples. They aid transparency and accountability, both increasingly demanded by government and the public.

Auditing

The fi nancial audit produces the most comprehensive report for evaluating fi scal condition. Recommendations vary on which nonprofi ts should invest in an audit. The Better Business Bureau Wise Giving Alliance, a consumer interest group, recommends that a nonprofi t with an annual gross income exceeding $250,000 should have an audit.27 The Panel on the Nonprofi t Sector suggests $1 million as the cutoff. Some states require audits for nonprofi ts with over a certain amount of donations. Audits are required for nonprofi ts receiving $500,000 or more in a single year in direct or pass-through federal funds. These minimums refl ect the fact that audits can be expensive and that for smaller nonprofi ts with few transac- tions the audits are unlikely to reveal anything that a good fi nancial system and end-of-year fi nancial analysis cannot uncover.28

In 2005, 67 percent of nonprofi ts had an external audit conducted by an inde- pendent auditor, and 91 percent of these audited nonprofi ts had annual expenses over $500,000.29 Small nonprofi ts are less apt to have an audit, because of the cost.30 The nonprofi t’s key responsibility in an audit is to close the books and pre- pare the fi nancial statements for the auditor. The most important feature of the auditor’s report is the opinion letter. The auditor will render one of four opinions: (1) an unqualified (“clean”) opinion that the financial statements conform to GAAP; (2) a qualifi ed opinion that the fi nancial statements generally conform to GAAP, but with noted exceptions; (3) a disclaimer opinion that refrains from expressing an opinion because of material (serious) departures from GAAP; and (4) an adverse opinion stating that the fi nancial statements do not conform to GAAP.

A nonprofi t that cannot afford an audit has four less expensive but also less thorough options. In a member review a board member with an accounting, audit- ing, or fi nance background reviews accounting procedures and records in selected areas of concern. In a compilation the auditor compiles fi nancial information into a set of fi nancial statements but does not verify balances or review internal controls.

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162 Managing Nonprofi t Organizations

More extensive than a compilation is an auditor review, in which the auditor ren- ders no opinion on the fi nancial statements but issues a letter stating whether the nonprofi t has complied with GAAP. Finally, in an agreed-upon procedure the auditor evaluates one or more of the nonprofi t’s accounting procedures (for example, for payroll, bank statement reconciliation, or handling cash receipts).

Financial Analysis

Whether or not a nonprofi t purchases auditing services, it should always conduct an internal review of its fi nancial statements. These fi nancial analyses can be helpful in determining whether new systems and strategies need to be developed and whether changes to the budget need to be made before the end of the fi scal year. The statements may be presented at board meetings to show the fi nancial condition of the nonprofi t and provide the board with an opportunity to compare actual expenses with budgeted expenses, look for improprieties such as improper use of a restricted gift account, and watch for potential problems such as an inad- equate amount in the reserve fund. The board should look for any unexplained differences from the normal patterns. There are four key fi nancial statements that offer important information for making midcourse corrections and determining future fi nancial and program strategies and systems.

Statement of Financial Position The statement of fi nancial position enables stakeholders (for example, management, board members, donors, and creditors) to assess the nonprofi t’s current fi nancial condition. A typical activity in board meetings is for the treasurer to report on the nonprofi t’s current fi nancial position. Depending on the report, the board may vote to modify the budget, set new fundraising and program goals, change pricing strategies, or make other changes to affect the nonprofi t’s fi nancial status. If a nonprofi t is in a weak fi nancial position, it may need to seek current-use funding more aggressively. However, if its position is very weak and if it is con- sidering whether to shut down, then donors and creditors may be reluctant to support it.

Statement of Activities The statement of activities summarizes the fi nancial transactions that have increased and decreased net assets, enabling the readers to evaluate fi scal performance, assess the ability to continue services, and evaluate managerial stewardship. This statement also offers the opportunity to look for fraudulent activity: for example, deposits of ticket sales that are too small given perceptions of number of attendees,

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Financial Stewardship and Management 163

or an unprecedented increase in travel costs that is inconsistent with travel authorizations.

Statement of Cash Flows The statement of cash fl ows allows readers to assess the nonprofi t’s ability to gener- ate future cash fl ows, its ability to meet fi nancial obligations, and the reasons for the differences between cash receipts and payments. This statement may indicate that the nonprofi t will need to seek a loan or ask for a deferral on pay- ment in order to cover its bills and make payroll. Conversely, it may show that there is a healthy cash reserve and that perhaps the nonprofi t can increase its services, make capital purchases, or add to its investment portfolio to reduce its available cash.

Statement of Functional Analysis GAAP requires that voluntary health and welfare organizations prepare a state- ment of functional analysis that classifi es expenses by function (for example, program, supporting, and fundraising) and by object or natural classifi cation (for example, salaries, supplies, and travel) in a matrix format. Other types of nonprofi ts may also fi nd that a statement of functional analysis is useful. This information helps in judging how staff members are allocating their time, supplies, space, and other resources of the nonprofi t. It can reveal whether a nonprofi t is basically acting as a fundraising operation, with few to no programming operations. If donations are simply funneled back into the nonprofi t in order to cover the costs of doing more fundraising, then its tax status may be in jeopardy. The statement of functional analysis can also be used to capture and total the expenses for lobbying activity, to help ensure that the nonprofi t does not exceed lobbying limitations set by the government.

Preparing functional analyses for major programs of a nonprofi t can be use- ful in determining whether or not to continue them in their present form, adjust them, or drop them. Though a decision to cut a program is unlikely to be made solely on its fi nancial condition, this may be one factor. Other factors are reviewed in Chapter Thirteen. A functional analysis is helpful in seeing what the fi xed and variable costs are in running a program. Pricing and other marketing decisions can be informed by knowledge of these costs.

Financial Indicators and Ratios

With the data in the fi nancial statements, a nonprofi t can compute ratios and other fi nancial indicators to evaluate its fi scal well-being. We review a variety of ratios below and some benchmarks for the ratios. In the nonprofi t sector these

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164 Managing Nonprofi t Organizations

ratios have been used largely as a punitive measure rather than for planning purposes. External agencies calculate the ratios and give nonprofi ts compara- tive “scores” that may be more or less useful in evaluating a specifi c nonprofi t. Typically, these scoring activities have revolved around informing donors not to give to nonprofi ts that spend too little of their budget on programs. This is prob- lematic for nonprofi ts that don’t get good scores but feel that their budget alloca- tions are reasonable.

To judge the value of the ratios and any resulting externally derived scores, board and staff need to apply more sophisticated and comprehensive views of the nonprofi t’s fi nancial condition. As hopeFound discovered as part of its review of its fi nancial management systems, the board and executive staff need to work together to determine the useful fi nancial indicators for the nonprofi t’s dash- board. An executive director who inappropriately screens and interprets fi nancial data for the board runs the risk of having board members who cannot make good decisions. And an executive director who overwhelms the board with fi ne details on the nonprofi t’s fi nances runs the risk of disengaging the board and having the board either micromanage the nonprofi t or automatically defer to designated experts.

The program effi ciency ratio (program expenses divided by total expenses) captures the percentage of funds spent directly on program services. For nonprofi ts the Better Business Bureau recommends that at least 65 percent of expenses be spent on pro- grams. As discussed earlier in this chapter, this benchmark is controversial. It may unfairly disadvantage nonprofi ts that at particular stages of their life cycle need to raise funds and administrative costs to grow programs. However, if a nonprofi t over many years has a low percentage spent on programs, this can be a sign for concern.

The fundraising effi ciency ratio (fundraising expenses divided by contributions other than grants) measures the percentage of donations going to the nonprofi t. It helps us see whether the level of expenses incurred in getting donations is reasonable. The Better Business Bureau recommends a ratio of no more than 35 percent). This ratio is used to consider whether the nonprofi t is raising money simply to raise more money—in other words, whether the fundraising program is an end in itself. It is problematic to compare nonprofi ts using this ratio or to come up with a benchmark that is reasonable for all nonprofi ts. The smaller a nonprofi t’s established donor base and the more it relies on a narrow, hard-to-reach population, the higher its fundraising effi ciency ratio is likely to be. It takes more money to fundraise for some nonprofi ts than for others.

The unrestricted net assets ratio (unrestricted net assets divided by total expenses) measures a nonprofi t’s cushion against an unanticipated decrease in revenues or increase in expenses. Some United Ways recommend having three months, or 25 percent, of the annual requirement in unrestricted net assets. Of course, grant- making foundations are likely to have high reserves and spend only a portion of

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Financial Stewardship and Management 165

their principle in a given year. For other types of nonprofi ts, having a reserve that is too high can be seen as an opportunity for questioning why more funding is not going into programs.

Cash is the lifeblood for any organization. The number of days of cash on hand is the number of days the nonprofi t could operate if no additional funds were avail- able to cover daily expenses. It is calculated by dividing cash and cash equivalents by total expenses minus depreciation divided by 365.

The current ratio (current assets divided by current liabilities) measures the abil- ity to pay current obligations. It is an indicator of liquidity. A ratio of 1.0 means that there are just enough assets to pay current liabilities. A healthy ratio for most organizations is between 2.0 and 4.0.31

The acid-test ratio (current assets minus inventories divided by current liabilities) is akin to the current ratio and is also called the quick ratio. It measures the ability to meet short-term obligations with the most liquid (most easily convertible to cash) assets, such as marketable securities and accounts receivable. Inventories are not included as an asset because they are relatively illiquid. As with the current ratio, experts recommend a quick ratio of 2.0 to 4.0.32 When there are liquidity problems, a nonprofi t may have trouble borrowing or convincing donors and others to invest in the nonprofi t, given that the organization may be in danger of closing.

The days in accounts receivable ratio (accounts receivable multiplied by 365 and divided by operating revenue) measures the average number of days that accounts are receivable. Receivables should be vigorously collected, particularly when there is a cash shortage and a loan is being considered.

Executive staff and board members should routinely review these ratios and evaluate whether they indicate that any changes are necessary. If the calculated ratios are inconsistent with accepted guidelines, they should consider whether this constitutes a potential crisis that should be managed. Funders and other stakeholders may use the guidelines to make donation and other decisions, thus affecting the nonprofi t’s ability to carry out its mission. Even if deviance from the guidelines is justifi able, a nonprofi t should be prepared for potential backlash and the need to explain itself. If accurate fi nancial information is not readily available to calculate the ratios, that is another area of concern. The board may determine that fi nancial management systems are inadequate and need to be changed or replaced.

Financial Literacy

Financial literacy is an important key to fulfi llment of fi duciary duties. All non- profi t chief executive offi cers need a sound grounding in fi nancial management and the members of the governing board of a nonprofit should understand fi nancial fundamentals. Though all board members do not need to be fi nancial

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166 Managing Nonprofi t Organizations

and accounting experts, at least one member of the board should be able to help other members to understand fi nancial ratios and other analysis tools, and should know what fi nancial documents to ask the executive director to provide. Board manuals and learning sessions at meetings can be used to help board members develop their fi nancial literacy. As in our opening scenarios, consultants and audi- tors can help the nonprofi t in reviewing its fi nancial status and practices and can recommend changes based on their analysis. The board should be responsible for making sure that it has access to any recommendations and that board mem- bers understand the concerns and suggestions. Nonprofi t boards often appoint a treasurer and a fi nance committee to help make sure the board has and under- stands the fi nancial documents it needs to make informed decisions.

Concluding Thoughts

Good fi nancial management starts with competent staff and an informed board. Even a nonprofi t with no paid personnel should take fi nancial management seri- ously. If it has fi nancial accounts, it should use QuickBooks or another simple accounting package to record and report transactions. Internal controls over cash receipts and expenses, such as separation of accounting duties, should be in place. A nonprofi t board should adopt basic accounting policies and follow a budget. Not all nonprofi ts have to borrow funds and many have very little risk exposure. Still, all nonprofi ts should make the time to review their areas of vulnerability, make decisions on how to handle their identifi ed risks, and have a plan to access funds in an emergency. As good stewards of funds, all nonprofi ts should be pre- pared to be transparent and accountable in their fi nancial management systems.

In the next chapter we review marketing in nonprofi ts. It is through the mar- keting function that nonprofi ts reach those using their services. Budgeting and fi nancial analyses show the level of resources available for marketing expendi- tures. Revenues are infl uenced by the success of marketing efforts. Thus the infor- mation in the present chapter can be of assistance to management and boards as they develop rationales for investments in marketing.

Questions for Consideration

1. How can a board’s fi nancial literacy be evaluated and improved, if necessary, so that it can make sound fi nancial judgments? In other words, how can one know whether a board has an adequate or an inadequate understanding of the nonprofi t’s fi nancial management system and current fi nancial condition?

2. How can one train a board to be effective in its fi nancial decision making?

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Financial Stewardship and Management 167

Exercises

Exercise 7.1: Ratio Evaluation

Go to the GuideStar Web site (www2.guidestar.org) and select a nonprofi t in your community. Compute the program effi ciency ratio, fundraising effi ciency ratio, unrestricted net assets ratio, and the quick ratio for the nonprofi t. Discuss any potential concerns that are raised by the computed ratios. Would you recommend that the nonprofi t’s board should discuss any of these ratios? Why or why not?

Exercise 7.2: Policy Evaluation

Interview an executive director about his or her nonprofi t’s fi nancial policies. Ask to see any policies regarding confl ict of interest, whistle-blower protection, budget reserve, and investments. Do you believe these policies can be enforced, and if enforced, are they suffi cient to avoid public concern?

Exercise 7.3: Budget Evaluation

Examine a nonprofi t’s budget and year-to-date totals. Identify any concerns that may indicate that the nonprofi t will end the year with a defi cit. Do you expect that the nonprofi t will have net assets at the end of the fi scal year? If so, why or why not might this be problematic?

Exercise 7.4: Audit Evaluation

Review a nonprofi t’s audit. Were any concerns identifi ed related to the nonprofi t’s fi nancial health or the adequacy of its fi nancial management system?

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168

CHAPTER EIGHT

MARKETING

I n 2004, the American Heart Association created Go Red For Women—a social initiative designed to empower women to take charge of their heart health. The Go Red For Women’s Web site describes the organization’s inception, goals, and results, noting that “in the past, heart disease and heart attack have been predominantly associated with men.1 Historically, men have been the subjects of the research done to understand heart disease and stroke, which has been the basis for treatment guidelines and programs.” Yet cardiovascular disease is also the number one killer of women, claiming the lives of nearly 500,000 American women each year. “Go Red For Women encourages awareness of the issue of women and heart disease, and also action to save more lives.” It helps women understand their risk for heart disease and gives them the tools they need to lead a heart healthy life. Go Red For Women was launched with a national communica- tion campaign that included media relations, events, promotions, and corporate relations strategies. Actress Daryl Hannah and singer Toni Braxton were recruited as celebrity spokespersons, and billboards and radio public service announcements were used to spread health messages across the United States. As a result, a study showed that 50 percent of consumers named Go Red For Women as the number one cause movement for them in 2007. In addition, $300 million has been raised by Go Red For Women, and twenty-six countries around the world have adopted the campaign and conducted awareness activities. Since the program’s inception, over 900,000 women have joined the fi ght. Research has shown that “a woman who ‘Goes Red’ follows an exercise routine, has a healthier diet, visits her doctor for important tests, and infl uences others by talking about heart health.” 2 In addition, a number of useful tools have been provided. For example, the Go Red Heart CheckUp, an interactive online assessment of women’s hearth health, has engaged over two million women to learn their risk of heart disease. In addition, Go Red BetterU is a free, twelve-week, online nutrition and fi tness program that can improve heart health.

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Marketing 169

It includes an online journal and a downloadable coaching tool. Finally, through a national spon- sor, Merck & Co., over 200,000 health care provider offi ces have received Go Red For Women educational tools to use with patients.

� � �

How does a nonprofi t organization interact with those it provides services or products to? How does it learn what its clients or customers want and decide on the best way to make these things available to them? If, like Go Red For Women, the nonprofi t is seeking to change people’s behavior for the better, how does it go about doing that? These are fundamental questions whose answers will determine how a nonprofi t relates to its environment to secure vital resources and accomplish its mission. Marketing starts with the nonprofi t’s mission and strategies and relates the organization to customers, clients, and others that it seeks to provide benefi ts to or infl uence. As the case study that begins this chapter shows, Go Red For Women was based on the goals of the American Heart Association. Go Red For Women’s marketing efforts relied on knowledge and ideas that were known to be effective. The marketing program made use of extensive promotion and publicity to spread the message, and the results were very successful. In this chapter we will examine the nature and functions of nonprofi t marketing. We will consider how marketing helps a nonprofi t learn about needs and desires in its environment and then design and deliver products and services to satisfy them.

General Philosophies of Marketing and Nonprofi t Organizations

Organizations have always engaged in marketing. Our earliest historical records contain accounts of trade and commerce, including evidence about the avail- ability, price, and distribution of goods and services. The notion of marketing as a distinct business process, however, was only developed in the twentieth cen- tury and the most recent ideas about the nature of marketing were developed in the 1950s. Over the course of the twentieth century, the marketing concept has evolved and as it has done so it has become more applicable and acceptable to nonprofi t organizations. The formal expansion of marketing ideas to nonprofi ts began in the late 1960s.

Three orientations toward marketing can be identifi ed, and although they developed at different periods of time, they are all still evident today. The fi rst philosophy of marketing appeared in the early part of the twentieth century and has come to be known as the product or service orientation.3 Appearing in an era of rapidly expanding worldwide customer demand, this orientation focused on

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170 Managing Nonprofi t Organizations

the more effi cient manufacture and distribution of the goods and services that organizations assumed customers wanted. As demand slumped during the depres- sion, however, and competition increased, sales became an increasingly important function. Consequently, in the 1930s, marketing adopted a sales orientation and focused on persuading customers to buy a particular organization’s products or services instead of those of its competitors.

In the 1950s, an important shift in orientation took place. Companies increas- ingly found themselves competing in global markets for consumers with both the information and the means to exercise considerable choice. To thrive in this era of consumer power, organizations had to focus far more on customer needs and desires. In what has come to be known as the marketing orientation, or customer orienta- tion, the focus shifts to the needs of the customer (sometimes also called the target audience or market). The customer, or target market, has now been given the central role in the marketing process. This is clearly evident in the current defi ni- tion of marketing offered by the American Marketing Association: “Marketing is an organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefi t the organization and its stakeholders.”4

The notion of joint value creation for both the consumer and the organiza- tion makes the marketing orientation quite compatible with the missions and activities of nonprofi t organizations, and ideas about how to employ marketing in nonprofi t organizations soon developed. The “birth” of studying how to apply marketing concepts and tools to nonprofi t organizations can be traced to a series of articles by Philip Kotler and his colleagues, written between 1969 and 1973.5 These authors maintained that marketing is a pervasive societal activity, because all organizations are concerned with how their “products” are per- ceived in the eyes of particular “consumers” and seek to fi nd “tools” for furthering their acceptance.6 Kotler defi ned marketing as “the social process by which individu- als and groups obtain what they need and want through creating and exchanging products and services of value with others.”7 Since the 1970s, nonprofi t marketing has developed rapidly and is now both widely taught and practiced.

Distinctive Aspects of Marketing in Nonprofi ts

Nonprofi t marketing, like marketing in for-profi ts, relies on the marketing mix to accomplish its goals. The marketing mix is composed of the four P’s: product, promotion, price, and place (where the product is offered to consumers). These elements can be manipulated by marketing to bring about desired marketing

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results. In order to completely understand nonprofi t marketing, however, we need to consider how the special nature of nonprofi t organizations makes nonprofi t marketing distinctive.8

Nonprofi ts are likely to have multiple objectives. The goal of business fi rms is long-run profi tability. Most nonprofi ts serve multiple constituencies and therefore have multiple objectives. Moreover, the most important of these objectives may be nonfi nancial. As a result, deciding on goals must often involve compromise and consensus building. This makes marketing diffi cult because time must be spent involving and getting the approval of board members, staff, and volunteers. The results of marketing, in addition, may be diffi cult to measure for nonfi nancial goals. Consequently, it may be hard to convince boards or other decision mak- ers in small nonprofi ts that it is worthwhile to allocate scarce funds to marketing instead of to activities more directly related to service delivery.

Along with this, nonprofi ts are likely to have multiple constituencies. For-profi ts are concerned primarily with one constituency—their customer, who is both con- sumer and revenue source. In many nonprofi ts there are two separate constituen- cies: those who subsidize the organization (such as donors) and those who will use or benefi t from the nonprofi t’s services. The effective result is that there are two target markets, which are likely to have very different characteristics, and both markets must be taken into account in marketing plans and programs.

In addition the missions of nonprofi ts may often entail a long-term view of the welfare of target audiences, which may be somewhat at odds with the desires of current benefi ciaries. This may result in tensions between mission and customer satisfaction. For example, Meals on Wheels may provide nutritious food as opposed to the less healthy offerings their clients may prefer. In this way short-term client satisfaction is sacrifi ced. The division between resource provider and consumer noted earlier makes this long-term view more feasible when consumers, or target audiences, will not provide resources for long-term objectives.

Most nonprofi ts provide services as opposed to tangible products. Services have a number of distinctive features that will infl uence the nature and details of marketing. In addition some nonprofi ts produce neither products nor services but seek instead to change some form of social behavior for the better, such as Go Red For Women did.

Finally, nonprofi t organizations are under public scrutiny because they receive public subsidies (at the least a tax exemption) and may raise money from donors. Administrative costs and the marketing costs of fundraising are frequently the subject of media and watchdog attention. Given the adverse consequences that may follow, nonprofi ts need to be mindful of potentially negative public opinion as they design and implement marketing programs.

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172 Managing Nonprofi t Organizations

Developing a Marketing Orientation

In both the product and sales orientations described earlier, marketing begins with the organization and what it wants to offer the customer. In the sales orientation this could go so far as to try to change customers’ preferences to be more in line with the company’s offerings. What is important to note about the marketing orientation is it considers marketing both a philosophy and a function.9 As a philosophy of management, marketing places the target audience (whomever the nonprofi t seeks to infl uence through its marketing activity) at the heart of a nonprofi t’s activities.10 In this way, the nonprofi t seeks to accomplish its mis- sion. In a narrower sense, marketing is the set of functions a nonprofi t uses to gather research and to design, price, promote, and distribute products or services. Although the discussion is often about these marketing functions, the larger, philo- sophical signifi cance of marketing for keeping a focus on the nonprofi t’s mission should not be overlooked.

Andreasen and Kotler describe how marketing will differ depending on a nonprofi t’s orientation.11 A nonprofi t with a product or sales orientation will believe, based on the nonprofi t’s own needs and evaluation, that its products or services are inherently desirable. Numerous consequences follow from this belief. A “best” marketing strategy, also based on the nonprofi t’s own needs and evaluation, is typically chosen and then employed. Any lack of success is attrib- uted to target audience ignorance or lack of motivation. Marketing research is given a minor role, as the organization believes in its offerings. Marketing’s job is seen primarily as promotion. A marketing orientation, in contrast, holds that the only way a nonprofi t can achieve its own goals is by satisfying the needs of its target market.12 To do this the nonprofi t will need to completely under- stand that target market (its needs, attitudes, and consuming behavior) and adapt its own outputs accordingly. This will necessitate planning the marketing pro- gram as a whole and coordinating all its elements with this in mind. In addition marketing must be closely integrated with the other activities of the nonprofi t organization, including strategic planning, production, and evaluation. Heavy reliance will be placed on marketing research to identify potential target mar- kets. These will be analyzed to identify portions of the market (segments) with particular characteristics of relevance to the nonprofi t’s mission, strategy, and actual or potential products or services. For example, a nonprofi t seeking to pro- vide recreational opportunities for children will need to be aware of differences in recreation-related attitudes, desires, and abilities among girls as compared to boys, younger as compared to older children, children from different socioeco- nomic backgrounds, and possibly even children with different health conditions.

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To satisfy the desires of these different target market segments, marketing will use all elements of the marketing mix. For each segment, appropriate products, promotion, prices, and distribution will be developed.

The Marketing Planning Process

The development and maintenance of a marketing orientation requires con- tinuous attention to marketing. Nonprofi ts need to continuously monitor, assess, and react to their customers, clients, and others whom they want to infl uence. Peter Brinkerhoff has outlined a marketing cycle that embodies the customer orientation:13

• Defi ne or redefi ne the market.

• Answer the question, What does the market want?

• Shape or reshape the products or services.

• Set prices for, promote, and distribute the offerings.

• Evaluate the results of the marketing program.

• Start over.

Go Red For Women is a good example of successfully following these steps. The target market was defi ned as women, and that market’s need for better infor- mation and attention to heart care was clearly established. Go Red For Women developed both tools and messages to meet this market’s needs and made them available free of charge to women in several convenient ways, including through the program’s Web site and information provided to physicians. Finally, the results of the marketing program have been evaluated.

In order to be effective, the marketing cycle needs to be embedded in and supported by a planning framework. The strategic marketing plan will (1) evaluate the nonprofi t’s environment and current marketing program, (2) set future mar- keting goals, and (3) develop strategies and tactics for reaching these goals.14 As Figure 8.1 shows, marketing planning should be consistent with and build upon the nonprofi t’s mission, vision, and overall strategic plan.

A good place for marketing planning to start is with the fi ndings and conclu- sions of the internal and external analyses prepared for the overall strategic plan. The next stage of marketing planning should be the development of the general approach that will guide the nonprofi t’s overall marketing program. This will involve setting the basic marketing mission, objectives, and goals. This will be followed by generating key marketing strategies and tactics. These will be based

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174 Managing Nonprofi t Organizations

Nonprofit’s Strategic Plan: Vision, mission, internal

and external analysis

Marketing Audit

Marketing Objectives and Goals

Marketing Strategies

Tactical Considerations: Segmentation

Target audiences Positioning

Implementation and Assessment

FIGURE 8.1. THE MARKETING PLANNING PROCESS

on considerations of the nonprofi t’s current and future target audiences, its mar- ket position, and the use of the marketing mix to reach marketing goals. Setting marketing goals, strategies, and tactics can be complex for nonprofi ts because their marketing may be aimed (sometimes simultaneously) at current or future customers or clients, donors or other funders, or volunteers. The fi nal portions of the plan will involve implementation details and evaluation.

Marketing Information and Research

Marketing planning, decision making, and control need to be based on accurate information. Target populations must be identifi ed and segmented; initial service, price, and promotion levels must be set and pretested; and ongoing marketing campaigns must be monitored and assessed. The need for information may, in fact, be greater for nonprofi ts than for for-profi ts. When nonprofi ts use donors’ money to provide services to clients, they face two sets of constituencies whose desires and needs are important. They need to market themselves to both funders

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Marketing 175

and service recipients. In addition, when nonprofi ts provide services to frail or vulnerable populations who may have few alternatives, it is especially important to assess those populations’ wishes. This is legitimate information to consider in addition to the ideas that donors or those working in the nonprofi t may have about what should be provided for these populations. Nonprofi ts may need to educate themselves and their donors about the conditions their vulnerable clients face. They may in fact provide their clients with a voice in their organization. For instance, the National Alliance on Mental Illness (NAMI) has a consumer council made up of people who have or have had a mental illness. In addition the boards of local chapters of NAMI may include consumers or their representatives. For example, the board of NAMI in Indianapolis includes a community advocate.

A nonprofi t needs a system that routinely collects, analyzes, stores, and dis- seminates relevant marketing information. Such a marketing information, or knowl- edge, system will provide information to key decision makers and, ideally, will have several subsystems.15 An internal reports subsystem collects information from data sources within the nonprofi t, such as program usage levels, demograph- ics of users, contributors, and complaints. A marketing intelligence subsystem collects information from routinely available public sources. This will provide insights into possible future developments in target markets. Such a system could include information provided by those inside the organization, by a special person desig- nated with this task, or by outside parties. A marketing research subsystem, in contrast, collects and analyzes data about a specifi c marketing problem or situation faced by the nonprofi t. Finally, an analytical marketing subsystem organizes general data, performs needed analysis, and provides reports. Usually these are separate from (but support) the marketing research data and analyses used to answer specifi c marketing questions.

Marketing research is problem oriented and can be defi ned as the design, col- lection, analysis, and reporting of reliable marketing information that is relevant to a particular problem faced by an organization in order to reduce uncertainty to tolerable levels at a reasonable cost.16 To accomplish this, the marketing research process goes through a series of steps.

Problem Identifi cation and Research Objectives

This fi rst step is the most important. Because marketing research is designed to gather information to answer specifi c marketing questions, it is critical that the right question be asked. This may seem simple, but it might turn out to be quite complex. It is a matter of identifying the most important factors in a marketing situation and the related questions that must be answered. For example, a nonprofi t may be concerned about low usage levels for its services and feel this indicates that

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176 Managing Nonprofi t Organizations

services need to be redesigned to attract more users. It may then decide that its marketing research objectives are to discover service features that additional users might want. This is premature, however, as there may be a number of reasons for the usage levels that don’t have to do with the features of the service itself. It may be, for example, that the demographics of users have changed in particular loca- tions and that what is needed is a new distribution strategy for existing services. It is important not to unduly limit problem defi nition and the establishment of research objectives. Alternatives should be carefully considered, and some prelimi- nary information or exploratory research may be useful or necessary.

Research Plan Formulation

When research objectives have been set, a research plan can be established to answer specifi c research questions. In the example just given, the objective could be to identify the cause, or causes, of declining usage. The research might then be designed to assess the infl uence of particular factors such as service features, new competition, changing demographics, or other factors. The plan will establish the type of information needed to address the research questions, where those data can be obtained, and the most appropriate data acquisition and analysis strate- gies. It will lay out the steps to be taken to acquire and analyze the needed data.

Data Collection and Analysis

Because marketing research is conducted on human behavior, it uses the meth- ods and statistics of the social sciences—in particular economics, psychology, and sociology. Once the research plan has been specifi ed, standard social science data acquisition and analysis techniques can be used. Standard texts on these techniques as well as their application to marketing are readily available. Researchers can gather their own data (primary data) or use data gathered by others (secondary data). For example, in designing its messages and tools, Go Red For Women used both data from the medical profession on women’s health and data that it had gathered on how women were using its tools and information. Data can be composed of numbers (quantitative data) or words and descriptions (qualitative data). Researchers may ask people questions in surveys, conduct controlled experiments, or observe behavior in its natural settings. Researchers may be interested in consumer charac- teristics, attitudes, knowledge, or actions. For example, a nonprofi t day-care center considering opening a location in a new part of town will need to know how many families with children are in this service area; which child-care providers in this area are being used; families’ satisfaction with these providers; and what programs, services, or other features the nonprofi t center will need to provide in order to get

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parents to send their children to it. Once the data have been gathered, analysis will reveal the patterns in the data. Analysis can range from simple displays and sum- maries of the data to complex statistically based fi ndings that predict future behav- ior. For more sophisticated statistical analysis, quantitative data will be needed. To perform these more complex types of data analysis and interpretation, nonprofi ts that lack qualifi ed staff may employ technically trained consultants.

Interpretation and Reporting of Findings

The results, or fi ndings, of the data analysis are used to answer the research ques- tions. What do the patterns in the data reveal about the behavior that is the cause of concern? For example, is low usage related more strongly to service features or to service location? What are clients’ motives for using the service, and what are others’ motives for not using the service? The interpretations of the fi ndings are compiled and reported so that they can be the basis of strategies to successfully address the marketing problem.

As the steps described in this section suggest, marketing research can be an extensive, time-consuming, and (by implication) possibly expensive process. It is therefore crucial to understand its importance. Research is at the heart of the marketing orientation that nonprofi ts need to adopt. A marketing plan is only as good as the research and data it is based on. Given that marketing ties strategy to results, a marketing plan based on fl awed or no research can produce poor, no, or negative results and consequences for the nonprofi t.

The Marketing Audit

A number of tools have been developed for use in the marketing planning process. A marketing audit will answer the question, Where are we now? Marketing audits are detailed reviews of internal and external factors likely to impinge upon the orga- nization in ways relevant to marketing. Consideration should be given not only to the current state of these factors but also to their future change and development. In some cases an audit will focus on particular or marketing-relevant portions of information previously gathered, but in other cases it may require the gathering of new information.

External analysis can be used to gather information on the general environ- ment, including important political, economic, environmental, sociocultural, and technological factors, as the PEST analysis described in Chapter Five does. A nonprofi t may have gathered this type of information as part of its strategic plan- ning (Chapter Five). The information should, however, now be examined for its

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178 Managing Nonprofi t Organizations

particular relevance for marketing. In addition an analysis of competitors, col- laborators, and stakeholders should be carried out. Information on current and potential competitors is especially important. The competitive environment will include other organizations providing similar or substitute products or services. These organizations can be other nonprofi ts, for-profi ts, or public agencies. It is also important to consider behavior-level competition.17 When seeking a certain behavior from the target population, for example, attendance at a classical music concert, a nonprofi t will also be competing against other behaviors that are pos- sible for that population. These will include listening to other types of music in other venues, patronizing other classical orchestras, and doing a number of things other than listening to music. Finally, a stakeholder analysis is necessary to exam- ine the characteristics and desires of clients, supporters, and other relevant publics.

An internal analysis will assess the nonprofi t’s own marketing activity and its marketing strengths and weaknesses. This will provide information about the current ability of the nonprofi t to implement marketing objectives. Five areas should be assessed:18

• Trends. What are the signifi cant trends in the nonprofi t’s programs, services, participation, and support? Is program participation growing, stable, or shrink- ing? If it is changing, is this due to external conditions, such as an increase or decrease in the number of potential clients in a service area? Is foundation support changing either for the nonprofi t or for the types of services provided?

• Share of market. How much of the market does the nonprofit have in relation to competitive organizations? Who are the nonprofi t’s competitors? How many customers, clients, or other benefi ciaries do the competitors have compared to the nonprofi t?

• Stability. Has the nonprofi t demonstrated “staying power”? How old is the non- profi t? Has the nonprofi t grown, shrunk, or stayed about the same over the last fi ve (or ten or twenty) years? Has the nonprofi t had to abandon programs or services?

• Effi ciency. Has the nonprofi t been cost effective in its use of facilities, per- sonnel, and other resources? What are the benefi ts provided by the current confi guration of services compared to the costs? Could comparable benefi ts be provided by alternative, lower-cost services? For example, how many prema- ture births could be prevented by educational services versus more expensive counseling services?

• Flexibility. Has the nonprofi t been able to adapt to market and environ- mental changes? If there have been changes in the nonprofit’s clients or benefi ciaries or in its operating environment, how has the nonprofi t responded? For example, has the number of children in a nonprofit’s after-school

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program increased as the number of children in a school district increased? If the school district has been supporting the nonprofi t program and has cut funding, has the nonprofi t been able to fi nd other support?

In addition, the nonprofi t should examine its current marketing activities and the resources it has to carry out these and future marketing efforts. This informa- tion should be used to assess the degree to which marketing contributes to the nonprofi t’s mission and to its competitive advantage or disadvantage. Evaluations of Go Red For Women have found it to be a highly successful program. These positive results will help the American Heart Association design future programs and marketing efforts.

The marketing audit will generate a large amount of information. A number of analytical tools are available to compile this information in ways useful for set- ting marketing objectives and strategies. In the following discussion we consider two techniques—the product life cycle and portfolio analysis.

Product Life Cycle

The product life cycle is based on the idea that products and services pass through predictable usage stages. After a product or service is fi rst introduced, its usage will be low and then will grow slowly as the product or service gains visibility and acceptance. After acceptance, it will have a period of sustained growth. If this continues, the market will eventually become saturated and usage will level off. Eventually a new product or service will emerge as a replacement or substitute, and usage will decline. This pattern is shown in Figure 8.2.

Time

Sa le

s Vo

lu m

e

D ev

el op

m en

t

In tr

od uc

tio n

G ro

w th

M at

ur ity

D ec

lin e

FIGURE 8.2. PRODUCT OR SERVICE LIFE CYCLE

Source: Write a Writing, Product Life Cycle (PLC): Stages, Development & Process, http://www .writeawriting.com/business/product-life-cycle-plc-stages-development-process. Reprinted with permission.

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180 Managing Nonprofi t Organizations

Each stage of the life cycle has implications for the marketing mix. Marketing research is used at the development stage. At the introduction stage, raising awareness is of key importance and promotion is used to inform potential users about the product or service and its features. During the latter stages of growth and during maturity, competitors are starting to emerge and marketing is oriented toward dif- ferentiating the offering from others emerging in the market. Positioning strategies are also useful at this point. During the decline stage, there may be a more limited role for marketing. For example, marketing may focus on how distribution chan- nels can be maintained until the product is phased out.

Portfolio Analysis

A portfolio analysis considers the main products, services, or programs of a non- profi t and evaluates them against criteria judged to be important for the organi- zation. A number of frameworks for portfolio analysis are available. They differ in terms of the nature and number of the evaluation criteria. The MacMillan framework,19 a useful portfolio analysis framework for nonprofi ts, was described in detail in Chapter Five (also see Table 5.1 in that chapter). To summarize, this portfolio technique considers three dimensions: program attractiveness, competi- tive position, and alternative coverage. Each dimension can have a high or a low value, resulting in an eight-cell matrix. Products, services, or programs are placed on the matrix in accordance with the way they stack up on the three dimensions. The location of a program on the matrix will suggest whether it should be contin- ued or dropped and how marketing might be used. For example, marketing for a program that is highly attractive and with low alternative coverage might focus on distribution, possibly by adding service outlets. This was the situation Go Red For Women encountered, and its response was to make information and tools widely available on the Internet and through physicians’ offi ces. If the same attractive program had faced high alternative coverage, marketing might have focused on promotion or product differentiation.

Marketing Objectives and Strategy

Once a nonprofi t has analyzed its current situation, it can address the questions of where it wants to go and how it could get there. It is in a position to set mar- keting objectives and goals and then strategies and tactics to achieve them. These marketing objectives should be aligned with the organization’s overall strategic objectives and contribute to their accomplishment. They should also be consistent with the objectives of key units of the organization, such as the service-providing and communication units. Marketing objectives can include generating income

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as well as changing the awareness, attitudes, or behaviors of target audiences. The American Heart Association’s goals were to change women’s behavior, and the marketing goal of Go Red For Women was to provide education designed to lead to that end. Once objectives have been established, marketing strategies will express, in general terms, what the nonprofi t’s broad approach to meeting its marketing objectives will be. Tactics will specify how strategies will be carried out through the marketing mix.

Identifying Offerings and Markets

A useful approach to setting overall objectives is to consider the services, products, or messages the nonprofi t can offer as well as the markets in which they might be offered. The offering and market opportunity matrix shown in Exhibit 8.1 provides an illustration. In this matrix each cell represents a different marketing objective.

EXHIBIT 8.1. OFFERING AND MARKET OPPORTUNITY MATRIX

Existing Offering New Offering

Existing Market

1. Market penetration. The non- profi t seeks greater impact in its current market. It could do this through reductions in price, further promotion, or increased distribution. For example, the Red Cross may decide to have bloodmobiles start visiting sites in different parts of a city.

3. Product or service development. The nonprofi t seeks to enhance its offerings in its current markets. This could be due to the lack of growth of its current offerings or due to customer demand. For example, Go Red For Women was a new program of the American Heart Association in the health care market.

New Market

2. Market development. The nonprofi t seeks to extend its offerings to new markets. It could explore new uses for its offerings or market to new segments. In the case of the American Red Cross, it could start offering instructions in lifesaving to senior citizens or junior high school students.

4. Diversifi cation. The nonprofi t seeks to offer new products to new markets. New offerings could be related or unrelated to current offerings. Related diversifi cation may be due to the desire to expand. Unrelated diversifi cation may be due to necessity if a service area ceases to exist (as when a cure is found for a disease or condition). For example, in a related diversifi cation a nonprofi t providing job training in classroom settings may start a landscap- ing service that employs its own clients.

Source: Adapted from Adrian Sargeant, Marketing Management for Nonprofi t Organizations (New York: Oxford University Press, 2009), and based on H. Igor Ansoff, Corporate Strategy (New York: Penguin Books, 1968).

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182 Managing Nonprofi t Organizations

In any approach it is important to analyze the competitive environment the non- profi t will face. Michael Porter has outlined three strategic options for competi- tion.20 These are discussed in detail in Chapter Five. In summary, a differentiation strategy entails offering something that few or no others offer, and a cost strategy entails seeking to be the lowest-cost provider in the market. Both of these strat- egies are oriented toward large markets. A focus strategy leads the nonprofi t to select a limited market segment and provide a unique offering.

Adrian Sargeant draws out the implications of cost and differentiation strat- egies.21 A nonprofi t will need a sustainable cost advantage over its competitors to succeed with a cost strategy. For this strategy it is important that services or products are standardized, so that consumers can select on the basis of price. In addition, consumers should be readily able to switch to lower-priced offerings. A differentiation strategy is possible when services or products can be modifi ed to appeal to consumers. This differentiation can be identifi ed or applied to any product aspect, including design, the imagery associated with it and how it is promoted, or where and how it is available.

Segmenting Markets

Marketing efforts are directed toward target audiences. These audiences are chosen to allow a nonprofi t to use its limited resources so as to most effectively accomplish its mission and goals. The identifi cation of these audiences is accom- plished through market segmentation. Segmentation involves identifying groups of potential consumers based on some meaningful criteria. These segments can then be evaluated for their marketing attractiveness. There are of course many ways to identify groups of people, and marketers have come up with a very large number of criteria that may be used for segmentation, including objective and psychological factors. These criteria can be categorized as follows:

• Demographic criteria include people’s age, generation, gender, sexual orientation, race and ethnicity, family life cycle, income, occupation, and social class. Data are often relatively readily available on these characteristics. A nonprofi t’s mission and strategies will lead it to serve market segments with particular demographic characteristics. For example, the Boy Scouts provides services to boys in particular age ranges. Market segments may also be defi ned by income, a factor important to nonprofi ts dealing with inner-city poverty for example. In a similar fashion, virtually any demographic could be the basis of a nonprofi t market segment.

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• Geographical criteria identify the locations of potential consumers. This information is especially useful when used in conjunction with other factors such as demographics or psychographics. For example, nationwide non- profi ts, such as Goodwill Industries and the United Way, have local divisions or chapters in defi ned geographical areas, including major cities. In addition, local nonprofi ts, such as religious or educational organizations, are likely to draw their clients or members from particular neighborhoods.

• Product or service criteria include benefi ts that are being sought, loyalty to the brand, and user status. For example, a symphony orchestra may evaluate to what degree different patrons may prefer different styles of classical music, and tailor its offerings accordingly.

• Psychographic criteria are factors such as lifestyle, values, attitudes, opin- ions, and personalities. For example, an environmental nonprofi t may seek to recruit middle-class, politically left-leaning members.

Market segments are then analyzed to select those segments that appear most appropriate to pursue with a marketing effort. Targeting uses a variety of basic criteria to evaluate segments.22 Most important, the segment should fi t with the mission of the nonprofi t and, given its present and future capabilities, the non- profi t should then be able to develop a marketing mix that will appeal to the seg- ment. In addition the characteristics of the segment should be measurable and distinct enough to differentiate it from other segments, and its members should be accessible to the nonprofi t. Also, the segment should be large enough to justify a marketing effort, and the behavior of people in the segment stable enough for planning purposes.

A number of broad strategic targeting choices are available:23

• Undifferentiated (mass) marketing. Go after the whole market with one offer and marketing mix, and try to reach as many members of the target audience as possible. For example, the Humane Society of the United States provides animal protection services to anyone, and its public service announce- ments about its work against abuse of animals are designed to appeal to the general public.

• Differentiated marketing. Go after all or several market segments with an offer and market mix for each. For example, a local chapter of the American Red Cross may offer a variety of programs that appeal to different market seg- ments. These programs might include blood collection, support for the Armed Forces, transportation to medical appointments, fi rst aid training, and youth education.24

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184 Managing Nonprofi t Organizations

• Concentrated marketing. Go after one market segment with a unique offer and marketing mix. Go Red For Women has identifi ed its market segment as women and provides information and tools to promote heart health.

• Mass customization. Customize the offering to individuals. This is a recent development characterized by organization and customer interaction that results in customized fabrication or assembly.25 Communication with individual customers is made more feasible by consumers’ access to the Internet. For- profi t examples include Dell’s “build to order” model for marketing computers and tourism companies’ offers of package holiday alternatives. Although mass customization could be used by nonprofi ts, a recent report notes that most mass customization applications are still in business-to-business industries.26

Positioning

Positioning involves creating and maintaining an image of an organization’s offering, relative to its competitors’ offerings, in the minds of target audiences.27 Consumers can evaluate and compare products and services on many dimensions. Nonprofi t marketers need to understand which dimensions their target audiences use to evalu- ate the nonprofi t’s offering and to compare it to others. Alternative or competitive offerings can then be placed on a continuum of these dimensions. Two or three dimensions can be displayed on perceptual maps and used to assess the relative positions of the nonprofi t’s offering and the alternative or competitive offerings.

Positioning can be used strategically to help a nonprofi t build on its present strengths, search for a market niche, or reposition the competition (through messages characterizing the competition).28 The following process can be used to develop and choose among positional alternatives for each market segment of interest:29

• Determine the factors that are important to each market segment.

• Survey the market to uncover the current positions of each competitive offer- ing (including the nonprofi t’s own).

• Create a perceptual map for each segment of interest, and analyze the non- profi t’s present or planned positioning compared to that of competitors.

• Analyze the alternative attractive positions available and the marketing resources required to achieve them.

• Decide what position is most strategically benefi cial.

• Create an integrated marketing program to achieve the position.

Positioning can become quite complex. The position a nonprofi t has in the minds of its constituencies can be due to perceptual as well as objective

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factors. It is necessary to determine which factors are important in order to design marketing programs appropriately. In addition, nonprofi ts often deal with multiple constituencies, such as different types of clients or patrons and various funder types. It is likely that different constituencies will use different dimensions to rate a given provider or will rate alternative providers differently on any given dimension. When different constituencies are important, position- ing must be considered for each. Finally, it is unlikely that a nonprofi t can excel on every dimension of importance to its segments. Therefore the position that a nonprofi t decides to strive for will, most likely, involve trade-offs on various dimensions. The nonprofi t will need to decide which dimensions it is best off excelling on relative to its competitors.

Branding

The American Marketing Association defi nes a brand as “a name, term, design, symbol, or any other feature that identifi es one seller’s good or service as distinct from those of other sellers.”30 A nonprofi t’s brand is a way for the public to iden- tify and recognize the nonprofi t. Brands may take the form of a name, trademark, logo, or slogan. There are numerous examples of nonprofi ts whose names we probably all know and encounter regularly, including the United Way, American Red Cross, Humane Society of the United States, and Salvation Army. Ideally brands will be memorable, meaningful, likable, transferable, adaptable (meaning that their use can be extended and customized), and legally protectable.31 It is important to stress, however, that brands are only symbols. What is important is that they are designed to infl uence perceptions and convey complex psychologi- cal and emotional messages about the nonprofi t to target publics. These percep- tions and messages can hold a variety of meanings about the nonprofi t, including its attributes, benefi ts, values, culture, personality, and the nature of its users.32 A nonprofi t’s brand, therefore, both refl ects the nonprofi t’s mission and unique social contribution and makes a promise of performance to target audiences and other stakeholders.33

Developing a brand involves defi ning what is distinctive about the nonprofi t and what it does and why the nonprofi t deserves consideration by the various audiences it seeks to infl uence. This information guides the construction of the images the nonprofi t wishes to convey in relation to its attributes and the decisions to be made about how these images are to be conveyed.

Successful branding can lead to these benefi ts:34

• Differentiation. Users will know what they will get from the nonprofi t.

• Enhanced performance. Users will come to trust the nonprofi t and that should lead to more use of its products and services.

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186 Managing Nonprofi t Organizations

• Reputation insurance. Users will have confi dence in the nonprofi t, enabling it to better weather any short-term problem or crisis.

• Enhanced loyalty. Users will develop emotional ties with the nonprofi t.

• Partnerships. Other organizations will be more likely to want to associate with the nonprofi t.

Branding can, however, involve a number of challenges. Branding may require complex planning and implementation. Going far beyond appropriate names and logos, its success also depends on the consistency of all other communication the nonprofi t has with its publics as well as the degree to which the nonprofi t’s actions reinforce or undercut the images and messages conveyed in that communication. A good deal of effort and substantial resources might be needed to establish and maintain the communication fl ow needed to build and reinforce the brand. In addition, behavior in all elements and at all levels of the nonprofi t must reinforce the brand, and this may be diffi cult in large or geographically dispersed nonprofi ts.

Branding for members of the Millennial generation (roughly classifi ed as individuals born between 1979 and 1994) is a good example of these challenges. In a recent report on twenty-two- to thirty-year-olds, Patricia Martin noted: “Young people of each generation have unique characteristics. . . . Millennials are genuinely different from the Boomer generation in its youth. Much of this can be attributed to the rapid rise of technology from generation to generation.”35 A major differentiating characteristic for Millennials is their increased use of social media for communication and interaction. Martin’s report offered three insights on how marketers can interact with this generation:

• The brand is no longer at the center of the universe—the user is. Millennials will need to be given vehicles to provide input on the marketing mix. A brand man- ager for Ford observes: “We want their unbiased, unfi ltered opinion . . . good, bad, or indifferent. It can’t be in-your-face branding or they’ll be turned off.”

• Have something meaningful to say. Millennials’ deep-seated desire for authen- tic experiences needs to be met by content that is emotionally intense and rings true. Brands increase their emotional appeal by staying committed to intensely dramatic story lines and characters.

• Help them belong to the brand. Millennials crave knowledge that can be shared. It empowers and makes them infl uential. Brands that understand and appreciate the need to learn and exchange information can make a strong connection. Helping Millennials to connect with the organization and each other can be done by such things as soliciting and responding to consumer comments, engaging bloggers, interviewing Millennials, and inviting reviews and commentaries.

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Managing Offerings

After target markets have been chosen based on the considerations and analyses outlined above, marketing can move to the next stage of formulating tactics, which uses the four elements of the marketing mix—the four P’s. As discussed earlier these four variables, or tools, that marketing has at its disposal are product, promotion, price, and place (distribution channels).

Product

The organization’s product is usually the fi rst consideration, as its parameters will shape or determine the other elements of the mix. The use of the term product in the marketing mix comes from for-profi t marketing, which is, indeed, often devoted to the sale of products. For nonprofi ts, the meaning of the product cat- egory in the marketing mix must be expanded to include services and programs. As we noted previously, even though some nonprofi ts provide tangible products, most nonprofi ts provide services instead. In addition, some nonprofi ts carry out marketing programs aimed at changing behaviors. Termed social marketing, these programs don’t offer anything tangible to target audiences and rely on commu- nication to fulfi ll their function.

Products Products are tangible items delivered to recipients in target markets. Marketing prod- ucts involves a number of strategic considerations. Products are designed to provide core benefi ts to recipients, satisfying the needs and desires of recipients that led them to patronize the nonprofi t in the fi rst place. A nonprofi t can also provide additional value to recipients by augmenting, or enhancing, a product. Augmentation can further differentiate a nonprofi t from competitors by meeting more target market needs or wants.

A nonprofi t’s mix of products can be described and strategically manipulated in terms of (1) length, width, and depth; (2) mission relevance; and (3) ability to attract customers, or patrons.36 Length refers to the number of product types or lines. Width refers to the number of basic offerings in each product line. Depth refers to the number of variations each offering has. These factors can be varied to meet target market desires. Goodwill is an interesting example. Goodwill takes in used goods and resells them in its retail outlets. Goods can be almost any type of nonperishable material, including all varieties of clothes, furniture, household goods, sporting goods, electronics, books, and so forth. Goodwill’s products, there- fore, are high on length, width, and depth. Products designed to play a major role in attracting patrons are called product leaders or fl agship products. A nonprofi t

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188 Managing Nonprofi t Organizations

might add a highly prestigious product to its product line in order to establish a product leader.

Services Services have a number of distinguishing features with implications for marketing:37

• Intangibility. Services do not exist until they are consumed, and each instance of a service goes out of existence as soon as it is consumed. Service producer claims cannot be assessed beforehand, making it diffi cult to differen- tiate offerings. For example, a counseling session starts and ends at particular times, and neither its quality nor its results can be assessed until the service is delivered.

• Perishability. Services cannot be produced in advance and stored during slow times. Excess capacity is lost, and it is diffi cult to ensure optimal utiliza- tion. It is not possible to have counseling sessions sitting on the shelf during periods of slow demand. During these periods, counselors will be idle.

• Simultaneity. Services are produced and consumed at the same time. This means that the producer and consumer need to interact and be in the same place at the same time. Counseling sessions, for example, require the presence of both parties.

• Heterogeneity. Service quality will vary among organizations, providers, and occasions. This makes it diffi cult to guarantee performance standards and quality. For example, different counselors providing the same type of therapy are likely to conduct their sessions in somewhat different manners, depending on such things as their personalities and training. Even the sessions with the same counselor will vary depending on the counselor’s mood, the client’s feel- ings, and the stage of the therapy.

Given these features, marketing services requires different approaches than marketing products does. A key issue is the assurance of quality. The target audi- ences will perceive and judge the quality of services by comparing their expecta- tions of service quality with the actual service delivered. This makes it critically important to understand what a target market’s perceptions of service quality are and what they are based on. This may require obtaining information from target audience members, which they themselves might fi nd diffi cult to provide.38 For example, those new to counseling may not have a good idea of what forms posi- tive outcomes can take. Once such information is obtained, however, a nonprofi t can then develop objective measures of service quality and monitor its performance against these measures. Target audiences can also be provided with indirect signs

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of service quality, such as high-quality facilities; knowledgeable, courteous, and helpful employees; and certifi cates or giveaways. For instance, the Red Cross has obtained a well-deserved reputation as this country’s premier private sec- tor responder to disasters. This reputation has been built up over the years by well-publicized performances in responding to both human-caused and natural disasters. To maintain the quality of its response the Red Cross has developed extensive recruitment, training, and logistical procedures that allow it to respond quickly and effectively.

Social Marketing Social marketing refers to an attempt to change some form of social behavior for the benefi t of target audiences or society at large. This may sometimes entail large shifts in target market behavior, such as increasing healthy behavior as the American Heart Association has sought to do. Nonprofi ts carry out social market- ing through communication with target audiences. They can also provide incen- tives and use other means to facilitate or encourage behavioral change. Social marketing emerged as a distinct concept in the early 1970s. As the story of Go Red For Women at the beginning of this chapter shows, social marketing can deal with important social issues and can have signifi cant positive results. A wide variety of social issues have been addressed by social marketing, and well-known campaigns have been carried out to, for example, counter drug and alcohol abuse, persuade students to stay in school, and urge expectant mothers to obtain prenatal care.

Social marketing seeks to have target markets do one of four things: (1) accept a new benefi cial behavior (by composting food waste, for instance), (2) reject a potentially undesirable behavior (by not starting smoking, for instance), (3) modify a current behavior (by getting more exercise, for instance), or (4) abandon an old undesirable behavior (by stopping texting while driving, for instance).39 Social marketing has a number of unique features and challenges. On the one hand target audiences may be indifferent to the issues behind the target behaviors, or they may not see any direct personal benefi ts from the behavioral change. On the other hand the behavior may involve controversial topics, or the target audience may actually be opposed to the behavioral change. A number of dimensions will determine how diffi cult it may be to achieve change. Change will be more diffi cult when people are highly involved in the behavior, when the behavior is continual (rather than occurring once or a few times), and when the behavior is exhibited by groups (rather than individuals).40

Given its complexity and diffi culty, social marketing requires careful plan- ning. Appropriate marketing objectives and target markets must be identifi ed. The offering (messages or incentives, or both) must be based on solid research about the determinants of current and desired behaviors and how appropriate

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190 Managing Nonprofi t Organizations

behavioral change may be made. Likewise the other elements of the marketing mix, especially promotion, must be designed and implemented to be consistent with the behavioral models.

Currently, social marketing campaigns rely heavily on the Internet. Leah King reviews a major social marketing campaign to promote behavioral change that was developed by Schwartz and Hardison and that employs an online inte- grated model (Figure 8.3).41 In this model, online resources—such as Web sites, e-mails, blogs, and electronic interactions—are used to bring about behavioral change. Web sites can be used to provide information about particular behaviors, such as the dangers of smoking. Target audiences can be engaged and given tools to help them contemplate behavioral change. For example, online tools can be provided to assess smoking behavior and health status. In addition, other audi- ence members can share their experiences and intentions to change their behav- ior—for instance by cutting down on or quitting smoking—via blogs or other individual communications. Finally, this behavioral change can be sustained by facilitating self-help or support groups.

Commenting on the use of this model, King concludes:

• Offl ine behavioral change activities should translate to the online environment, making it a defi nitive place for audiences to go to understand, share, and sustain a behavioral change. A comprehensive Web site can be a frequent destination point where the evolving mix of information, activities, and community can support a change in a particular health behavior.

Awareness of Behavior

Audience- Targeting

Online Advertising and Web Sites1

Contemplate Behavior Change

Audience Engagement

Interactive Features— Individual to Site2

Share Behavior Intentions

Audience- Sharing

Interactive Features— Individual to Individual3

Sustain Behavior

Audience Ownership

Interactive Features— Community Interactivity4

FIGURE 8.3. ONLINE INTEGRATION MODEL TO PROMOTE BEHAVIORAL CHANGE

Source: Leah King, “Using the Internet to Facilitate and Support Health Behaviors,” Social Marketing Quarterly 10, no. 2 (2004): 72–78. Copyright © 2004 Routledge. Reprinted with permission.

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• To effectively reach an audience on the Internet, with the intent to support or change behavior, an organization must understand the audience members’ online habits, such as where they go on the Internet and why, what informa- tion they want and how they seek it, and how they will communicate what they learn to others.

• Interactive advertising and marketing promotions on complementary Web sites can send visitors to a site, as well as deliver audience members who have already moved past awareness and may be ready for the Web site to help them make or sustain a health behavior change.

• Nonpaid partnerships with complementary sites are valuable in building mes- sage awareness and sending traffi c to a site.

King describes a major social marketing campaign that used this model. The National Youth Anti-Drug Media Campaign was created by Congress in 1998.42 The campaign’s target audiences include teens, their parents, and other infl uenc- ers (the press, entertainers, and educators). Six different Web sites were designed to provide information to these different target audiences. Messages in numerous media (radio, TV, and print) were used to present drug prevention messages and to invite target audiences to visit these Web sites for more information. The Web sites also provide a place for audiences to exchange information, advice, and support. Over a fi ve-year period, the Web sites garnered a total of more than 50 million visitor sessions and 150 million page views. For example, Freevibe.com was developed for teens fourteen to sixteen years old. It had 1 million visitors per month in 2004.

Promotion

Promotion is communication to the market about the availability and benefi ts of the service or product the nonprofi t offers. In general, promotion is held to have a number of objectives. Promotion is used to inform target audiences. This could involve telling new users about an offering or informing current users about new features of an ongoing offering. In addition, promotion is used to persuade current and potential users to engage in some form of behavior. This could be positive, as in buying or using a service or product, or negative, as in refraining from some detrimental behavior. Promotion can also be used to remind users that a service or product is available or has certain features. This is useful when a service has been available for some time or a product is at the mature stage of its life cycle. Finally, promotion can be used to differentiate a specifi c offering from others the nonprofi t or its competitors has. Particular features making a product or service better or more appropriate than alternatives would be stressed.

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192 Managing Nonprofi t Organizations

It is important to recognize that promotion is a form of communication with current and potential users. This goes beyond thinking solely about the wording of an advertisement. The communication process entails a sender or source (the nonprofi t) intending to convey a particular thought, encoding that thought in a message of words or symbols, transmitting that message via some communication channel or medium (for example, television or a brochure) to a receiver (target user), who subsequently decodes the words or symbols into thoughts. In addition, receivers always provide feedback to senders (another message), and the whole process can be affected by noise, or distortions, at all stages of the process.

To be effective, promotion must take all aspects of the communication pro- cess into account. An understanding of the receiver will suggest the decoding process that he or she will use and the potential for interpretations of the mes- sage that will differ from those intended. For example, adolescents are likely to interpret a message from what they perceive as an authority fi gure quite differ- ently from the way older people would. These considerations infl uence the design of important message characteristics such as theme and style.43 Given the over- all marketing objective and the more specifi c promotional objective, the overall theme, or broad idea or subject matter, of the message needs to be determined. Following this, a consistent style or tone needs to be established by using appropri- ate symbols. For a message about providing homes for abused dogs, for example, to what extent should the dogs be shown in their abused state as opposed to after they are happily established in their new homes?

Marketers also need to decide on the tools they will use to deliver promotion. Taken together, these tools are referred to as the promotional mix. A major option in the promotional mix is paid advertising. Advertising can produce dramatic mes- sages. These can, however, be expensive to produce. In addition, paid advertising is impersonal because the message cannot be customized or made specifi c to small segments of the target market. The nature of the medium used and the need for effi cient distribution will determine the size and diversity of the audience. Television advertising, for example, will go to anyone watching television at the particular time the advertisement appears.

It might also be possible for a nonprofi t to get its services or programs fea- tured in a public service announcement (PSA). PSAs are messages deemed to be in the public interest, and a nonprofi t may be able to get some parts of the message development, production, and distribution donated free of charge by other con- cerned parties.

Another option is sales promotion. Sales promotions provide short-term incen- tives designed to stimulate demand, such as gifts, discounts, premiums, and con- tests. Although short-term demand may increase, sales promotions have several potential drawbacks. They may be linked in users’ minds to the many sales

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promotions that for-profi ts carry out, thereby making the nonprofi t appear less special. In addition, users may become accustomed to the promotion feature and react negatively when it is over (for example, when prices go back to normal).

More directed methods for promotion may also be used. The most common of these is direct mail. Using its own fi les on users or large consumer and other databases, a nonprofi t can customize its mailings to particular recipients. These can be made to appear almost as one-to-one messages and be quite cost effective.

The most recent development is the growth of electronic formats for promotion. They take advantage of the dramatic and rapid rise of computer technology, the Internet, and social media. These vastly enhance the ability of nonprofi ts to communicate with target audiences and of audience members to communi- cate with each other. Data from the World Bank show that in 2009, 78 percent of the U.S. population were Internet users.44 This was up from 44 percent in 2000. Nonprofi ts have responded to the increased Internet use. A 2004 study by GuideStar of over six thousand nonprofi ts found that about 97 percent used the Internet to provide information, such as mission statements, fi nancial reports, and instructions, and about 55 percent used it to gather support, such as memberships, donations, and volunteers.45 The chief electronic channels for marketing are Web sites and social media.

Web sites have become virtually mandatory for nonprofi ts today. Web sites are used to provide information and engage audiences. A 2004 study by the Network for Good of over two thousand individuals found that 49 percent said that they had visited nonprofi t Web sites and searched for information about specifi c causes or volunteer opportunities.46 Of these, more than 75 percent said they engaged in some further activity while visiting the Web site. In terms of what makes a Web site good, respondents reported that the top fi ve characteristics were signifi cant content about the nonprofi t’s cause, information about how donations were spent, ease of use, information about how to get involved, and information about how to become a member. In addition, a Web site should47

• Be easy to navigate.

• Be able to tailor itself to different users.

• Provide the potential for two-way communication.

• Provide related links.

• Have a look and feel that is consistent with the organization’s brand identity.

Social media are personal communication channels that link friends, fam- ily members, and associates. These channels include blogs, e-mails, podcasts, YouTube, MySpace, Twitter, and Facebook. Social media have tremendous

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194 Managing Nonprofi t Organizations

potential for mobilizing people. For instance, communication over social media played an important role in the overthrow of the government of Egypt in early 2011.48 The power of connection can also be used by marketers. A recent study found that whereas one infl uential person’s word of mouth tends to infl uence the buying behavior of two other people, the infl uence jumps to eight others when communication is online.49

The example of the National Youth Anti-Drug Media Campaign presented earlier is a good example of how Web sites and social media can be interwoven to support and reinforce promotional campaigns. The previous discussion about marketing to Millennials clearly illustrates how this socially connected age group is leading organizations to incorporate and integrate social media into the promo- tion of products and services. In order to facilitate the use of social media by their consumers, it is now commonplace for nonprofi ts to be on Facebook, YouTube, Twitter, and other social media.

Price

Pricing for nonprofi ts involves a number of complexities that for-profi ts do not normally encounter. The missions of nonprofi ts involve nonfi nancial goals. In addition, there may be multiple ways of pursuing a mission and these may entail incompatible ramifi cations for pricing. Also, target audiences may be unable to pay for the full (or any) value of the services they receive.

There are a number of general considerations when thinking about whether or not to charge prices.50 Charging prices will of course bring in income. It may also promote more customer awareness of the nonprofi t, help the nonprofi t to measure output, discourage overuse of a product or service, promote feelings of ownership among users, and preserve users’ dignity. However, prices should not be charged if doing so will threaten the mission or if benefi ciaries will have signifi cant diffi culties paying.

More specifi cally, a pricing strategy can be established to accomplish a num- ber of different objectives. Prices may be set to bring in as much revenue as possible, thereby maximizing profi tability. For this, it will be necessary for the nonprofi t to understand the demand its users have. Another objective may be to recover the cost of production, either the full cost or some part of the cost if the remainder is covered by internal or external subsidies. The nonprofi t may also seek to maximize market share and attract as many users as possible. This objec- tive could entail being the lowest-priced provider in the market. Considerations of social equity may also infl uence pricing strategy. This may entail charging less to those who are less well off and more to those who are wealthier. Finally, pric- ing may be used as a negative incentive, for example to encourage people not to

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engage in some behavior—similar to what the government tries to do by setting high taxes on cigarettes.

Generally speaking, there are three approaches to setting prices. The cost of producing the service, good, or program may be used as a basis for establishing price. Pricing to just cover that cost (break-even pricing) is one example of this approach. Pricing to provide a set percentage over cost (a markup) is another. This approach to setting prices is most feasible when costs can be accurately determined. For example, a nonprofi t providing information on the available homes in a neighborhood to prospective home buyers could use this strategy because its costs for the material it provides (standard housing information) will be clear. This is not always the case, however, and when it is diffi cult to allocate costs to specifi c services or programs, cost-based pricing will be diffi cult or inaccurate.

There can be a number of diffi culties in determining costs.51 Organizations have both fi xed and variable costs. Variable costs can usually be attributed to each product. For example, the cost of each piece of the housing material described above can be known. Fixed costs, however, do not change with the volume of sales. These costs include such things as rent, monthly salaries, and other overhead items. Fixed costs are divided by total sales to provide the average fi xed cost for each item, so this average cost will vary with sales volume. In addition, when an organiza- tion produces more than one product or service, it must decide how to allocate overhead to each of the products or services. For example, the housing nonprofi t may also provide fi nancial management training and home repair programs. The allocation of overhead to the various programs may be somewhat arbitrary.

Setting prices based on user demand is a second approach. It is divorced from costs and may bring in either more or less than cost-based pricing. It does, how- ever, put the nonprofi t more in touch with its users. For example, a food bank may price its goods so that low-income people can afford them. To use this technique well, a nonprofi t will need to understand the elasticity of demand among its users. This refers to the amount that demand will decrease as price increases. If a non- profi t seeks to benefi t as many users as possible, then decreases in demand due to higher prices will be an important consideration.

The third approach is to set prices in relation to the competition. For example, this type of pricing can be found among nonprofi ts in the highly competitive day-care or nursing home industries. This option is relatively easy to implement, as competitors’ prices should be readily available. Competitors’ prices may be a way to gauge what prices a market might bear and so to establish a “ceiling” for a nonprofi t’s price. Competitors’ prices are also targets for undercutting, pro- viding a way for a nonprofi t to try to increase its market share. It is important to ensure, however, that beating a competitor’s price does not lead to sacrifi cing quality or to mission drift.

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196 Managing Nonprofi t Organizations

Place

This portion of the marketing mix addresses the question of how the prod- uct, service, or program is made available, or distributed, to target audiences. Distribution channels have been defi ned as “conduits for bringing together the marketer and target customer or market at the same place and time for the pur- pose of facilitating a transaction.”52 A number of functions need to be accom- plished in distribution channels, including transporting, storing, sorting, buying, selling, and fi nancing. Two basic aspects of distribution channels are (1) the design of the physical and logistical details of the channel and (2) the performance of the channel in meeting the needs and desires of the target market.

A major decision in channel design is whether distribution should be direct or indirect. In direct distribution the nonprofi t will control all aspects of getting the service, product, or program to the user. This will afford the nonprofi t the most control of the design and performance of the channel. This design can, however, require signifi cant resources and a high degree of expertise. It may be more eco- nomical and effective for a nonprofi t to use indirect distribution and a number of specialized intermediaries to fulfi ll some of the distribution functions.

Another important decision in distribution channel design is how many loca- tions will be used and what will be available at each location. This decision is related to both the characteristics of users and the expenses of establishing mul- tiple locations. Three options are usually considered. Convenience goods or services are those that users will not make much of an effort to acquire. These must be made widely available at many locations. A nonprofi t example might be anti- smoking literature. Most people would not go out of their way to acquire this material. Consequently, it must be made widely available to them at places they are likely to frequent for other purposes. Conversely, users will make some effort to acquire shopping goods or services, and these can be located at fewer and farther apart locations. An example would be Goodwill retail outlets. Finally, specialty goods and services are considered by shoppers to be so special that they will make signifi cant efforts to acquire them. For these items, the nonprofi t can choose a location pattern that is most economical for the organization. For example, the Humane Society of the United States provides specialized animal protection ser- vices and normally has only one facility in a city.

A second broad concern is the way in which the distribution channel affects the target market’s experience as it acquires the service or product. In the for- profi t world this might be called the buying experience. Distribution channels can enhance the experience users have in several ways.53 Factors such as the number, location, and characteristics of outlets can make things easier for users by saving them time and expense. Having everything needed available at all locations will also help. Of course, this is likely to require additional expenses for the nonprofi t.

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Marketing 197

Another factor is the atmosphere of the place of delivery. The design of a health facility, for instance, might try to create feelings of professionalism as well as car- ing in the minds of patients.

Concluding Thoughts

In this chapter we have examined one of the most important ways that nonprofi ts relate to their environments. Marketing is usually responsible for generating the resources nonprofi ts need to survive while at the same time providing the ser- vices, products, or programs the nonprofi t uses to fulfi ll its mission. To successfully initiate and maintain these important transactions, marketers match the target audience’s needs and desires with the organization’s mission and capabilities in creative ways to produce value for both. Research, planning, strategy, and tactics need to align to produce these results.

In the next chapter we begin the next section of the book. In that section we cover the topics of leading, managing, and delivering. Chapter Nine begins the section by considering the top levels of the nonprofi t and discussing boards and governance.

Questions for Consideration

1. Based on the marketing principles described in this chapter, can local com- munity-based nonprofi ts with limited marketing budgets effectively compete with national, better-resourced nonprofi t and for-profi t organizations for the same clients? How?

2. Identify a nonprofi t with a highly visible and successful brand. What percep- tions are associated with this brand?

3. Identify and discuss both a successful social marketing effort and an effort that has not been successful. What might be the reasons for success on the one hand and lack of success on the other in these cases?

Exercises

Exercise 8.1: Marketing Opportunities

What steps might Go Red For Women take if its objectives fell in each of the four cells of Exhibit 8.1? Consider each cell separately.

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198 Managing Nonprofi t Organizations

Exercise 8.2: Services

Identify a nonprofi t service that appears to be at the introductory stage of its life cycle. Compare it to nonprofi t services that are at later stages of the life cycle. From a marketing standpoint, what would you recommend for each of these services?

Exercise 8.3: Marketing Penetration Versus Diversifi cation

Identify a nonprofi t pursuing a market penetration strategy and another nonprofi t pursuing a diversifi cation strategy. Compare the two nonprofi ts: How do their marketing efforts differ?

Exercise 8.4: Segments

How might the market for child care be meaningfully segmented? Suggest a posi- tion in this market for a nonprofi t provider, using three criteria. How might this position and the criteria differ from those adopted by a for-profi t provider?

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PART THREE

LEADING, MANAGING, AND DELIVERING

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201

CHAPTER NINE

BOARDS AND GOVERNANCE

T he National Association for the Advancement of Colored People (NAACP) is the oldest and largest civil rights association in the United States, and it has gone through some challenging times. Since its establishment in 1909, this nonprofi t has had a succession of executive directors and board members, some of whom have been more effective in leading the organization than others. Myrlie Evers-Williams is one of the board members standing out from the pack. A divided board, tensions between the board and the executive director, scandals resulting in legal action against the organization, and lack of strategic attention to membership interests had left the organization weakened. As chair of the NAACP board, Evers-Williams led the board in a successful effort to save the organization from a perilous situation in which its reputation and fi nances were at a dangerous low point. She regained fi nancial support from donors by admitting the organization’s problems and arguing that the organization was worth saving due to its historic civil rights contributions. She revised management structures to increase effi ciency and accountability and inspired board members to change their policies and practices from a somewhat self-interested and subgroup orienta- tion. Under her direction, they worked together for the good of the organization. In sharp contrast to her predecessor, she relied on reasoned arguments rather than threats of retribution to infl uence board members. In commenting on her role in saving the organization, she stated: “I’ve always built a team. I did not do it; we did it together. How sad that so many people perceived that there was only one person that could save the organization. I did not possess all the required talents, so like any good manager you surround yourself with the best talent possible.” 1

� � �

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202 Managing Nonprofi t Organizations

In the United States the governing board is legally designated as holding the fi duciary responsibility for a nonprofi t organization. Board members are expected to ensure that the nonprofi t operates according to the rules under which it was established and is accountable for expending resources appropri- ately. For a 501(c)(3), public-serving organization, this means the nonprofi t is responsive and accountable to community interests and does not exist to serve the organizational founders. For nonprofi ts classifi ed by the Internal Revenue Service as member-serving (mutual benefi t nonprofi ts), the board is responsible for honoring members’ interests and giving them the rights assigned to them in the bylaws. For grantmaking foundations, the board primarily acts to see that the organization pursues the wishes of the funding source(s) within legal guidelines. For all types of nonprofi ts, the board is expected to oversee the executive direc- tor, set and protect the mission of the nonprofi t, ensure that laws are followed, and decide what overall strategies will be effective in achieving the nonprofi t’s mission and realizing its vision. As illustrated by the NAACP, the governing board of a nonprofi t is not always successful in these tasks but can be reinvigo- rated with a common vision and can once again become a key driver for success in an organization.

Governing boards for nonprofits are an important channel for civic participation2 and for establishing the legitimacy that allows nonprofi ts to receive fi nancial support and operate without heavy government regulation. Stakeholders may judge a nonprofi t by the individuals who serve on its board.3

Ideally, the governing board and executive director forge an effective partner- ship, working in sync to lead the nonprofi t organization. On the one hand boards can be dysfunctional and contribute little to a nonprofi t’s success in achieving its mission and gaining fi nancial stability. A board may be limited or undermined by an executive director who is uncomfortable or unskilled at supporting the board’s governance role. On the other hand boards may be critical to a nonprofi t’s effec- tiveness and survival, particularly when the organization is experiencing a change of executive director, challenges to its mission, and fi nancial and reputational stresses, as the NAACP found when Evers-Williams was elected by that organiza- tion’s board as the board’s leader.

This chapter explores nonprofit leadership by the governing board. We examine board responsibilities and effectiveness and review options for board confi guration and composition. We also examine tools to aid board functioning. Owing to the board’s role as a decision-making group that needs to consider potentially confl icting interests and approaches, we have also included a discus- sion of confl ict management. Finally, we take a broad look at the concept of governance, going beyond the idea that governance is solely the board’s role and responsibility.

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Boards and Governance 203

Responsibilities of Nonprofi t Governing Boards

In many countries, including the United States, government establishes a non- profi t governing board’s responsibilities, but those looking to nonprofi ts for ben- efi cial products, services, and programs typically have hopes, if not expectations, that a board will go beyond what is legally required.4 The following list of board responsibilities is adapted from a practical guide published by BoardSource, one of the leading resource centers for boards:5

1. Set the organization’s mission and purpose. The board is responsible for creating and reviewing mission statements and articulating the goals and means for pursuing the mission.

2. Select the chief executive. The executive director reports to the board, and it is the board’s responsibility to hire and, when justifi ed, fi re the director.

3. Provide proper financial oversight. Boards are legally responsible for seeing that proper fi nancial controls are in place. They should help to develop the annual budget and regularly review fi nancial statements to see that resources are being handled appropriately.

4. Ensure adequate resources. Boards have the responsibility of seeing that the nonprofi t has the resources needed to pursue the mission. Goals set by the board should emerge from an understanding of the resources required to meet them.

5. Ensure legal and ethical integrity and maintain accountability. The board should make sure that the nonprofi t honors the law and meets ethical standards.

6. Ensure effective organizational planning. The board should be involved in strategic planning and in monitoring the achievement of strategic goals.

7. Recruit and orient new board members and assess board perfor- mance. The board is responsible for its own functioning and development and should evaluate its own performance.

8. Enhance the organization’s public standing. The board members serve as representatives of the nonprofi t. The board should act to attract support for the organization.

9. Determine, monitor, and strengthen the organization’s pro- grams. The board should determine what programs should be offered and review them to ensure that they are effective and consistent with the mission.

10. Support the chief executive and assess his or her performance. The board is responsible for ensuring that the executive director has the

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204 Managing Nonprofi t Organizations

resources and professional support to be effective, and the board should eval- uate the director’s performance.

Legally Required Board Duties

According to U.S. law for incorporated nonprofi t organizations and charitable trusts, there are three standards to which members of the board are accountable. In meeting these standards, the board fulfi lls its fi duciary duties. The legal stan- dards for nonprofi t boards are duty of care, loyalty, and obedience.

Duty of Care Board members are required to participate in making well-informed decisions on behalf of the nonprofi t. This involves holding adequate meetings, prudently reviewing material facts necessary to make reasoned decisions, consulting experts if needed, and ensuring that a quorum is in attendance to make offi cial decisions. So long as board members are operating in good faith and demonstrating that they are trying to make prudent decisions, they are likely to be seen as exhibit- ing duty of care. In the case of Queen of Angels Hospital v. Younger, the board was seen to have violated its fi duciary duty of care by entering into an inappropriate settlement. The board approved fi nancial payments to Catholic sisters who had not worked for the hospital, in response to an unjustifi ed claim that the sisters were owed compensation for past services. The board never asked for evidence of hours worked and the sisters’ work could be reasonably seen as donated, therefore the court ruled that the board did not exercise good business judgment.6

Naomi Ono suggests that nonprofi t boards should carefully document their decision-making processes to show that they exercised due care. They should create and retain background materials, meeting notes, minutes, and statements explaining their decisions for any actions that may be scrutinized. In addition to showing that material facts were reviewed, the board should show that the deci- sion was made with active board participation. Meetings should be held with prior notice and the bylaws should be followed in regard to quorums and voting procedures. Boards should also monitor any committees that have been delegated important roles related to board decision making to ensure that the board is acting responsibly when it uses committee information or recommendations.7

Duty of Loyalty Board members need to set aside their personal and business interests and make decisions in the best interest of the nonprofi t. Once a board has made a decision, each board member is expected to stand behind it or resign from the board. However, board members may still wish to record their dissent from a decision for

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Boards and Governance 205

the record. This may protect them from personal liability if this decision is later found to be in violation of board duties or connected to illegal activities. Board members are also expected to respect confi dentiality in relation to the nonprofi t’s legitimate activities.

Examples of violations of duty of loyalty are numerous. For example, a direc- tor who convinces a board to buy unneeded insurance from her fi rm and pay her a commission is getting improper personal benefi t. A director who sits on the boards of two nonprofi ts that compete with one another for grants and gifts is likely to be unable to show duty of loyalty to both organizations. Even a board member who invests in a for-profi t corporation that competes with the nonprofi t may have a confl ict of interest. Board members who capitalize on an opportunity available to the nonprofi t are also likely to be in violation. For example, a board member who buys artwork or other property that was fi rst presented for sale to the nonprofi t is in violation unless the nonprofi t has already rejected the opportunity. In the seminal case of Stern v. Lucy Webb Hayes National Training School for Deaconesses & Missionaries, the board was found to violate duty of loyalty by mismanaging hospi- tal funds. The board members had voted to invest the funds in banks where some of them had personal interests, despite the opportunity to obtain better returns elsewhere. The disinterested board members were not made aware of the confl ict- ing interests held by the members who could benefi t from the transactions, and they had not sought to uncover any relevant confl icts of interest.8

A simple method that boards can use to prevent violations of the duty of loy- alty standard is to have a confl ict of interest policy and have each board member sign a statement that he or she understands and will comply with the policy. The policy and statement should be reviewed annually. During the policy review and annual statement signing, as well as when relevant situations arise, board members should disclose confl icts. When a confl ict arises, the board may choose to have the member abstain from voting and not be present during board discussion of the issue. The board may also take extra care and appoint a special independent com- mittee to investigate options not involving benefi ts to board members.9 Boards should also have policies for dismissing and replacing individuals whose confl icts make it impossible for them to be effective board members.

Duty of Obedience Board members are responsible for ensuring that the nonprofi t remains true to its purpose as stated in its charter or articles of incorporation when it was estab- lished. Donated funds should be used to fulfi ll the nonprofi t’s mission. Board members should make decisions that keep the nonprofi t within the bounds of its stated mission. This means that boards should get legal advice if they wish to substantively change the mission. To illustrate the importance of caution, consider

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206 Managing Nonprofi t Organizations

a New York court ruling that a hospital board was violating its duty of obedience by voting to close the hospital’s teaching, research, and acute care facility and sell the real estate to another hospital.10

Boards also should be careful about which donations they accept. If the use of the donation is highly restricted or open to multiple interpretations, they may be better off either refusing the gift or requiring a modifi cation of the gift con- tract in order to avoid future legal battles over the donor’s intent. Interpreting a donor’s intentions can become especially tricky when the donor is deceased, as demonstrated by the case of The Barnes Foundation. The foundation endured numerous lawsuits related to duty of obedience when it decided that it was essen- tial to move a deceased donor’s art collection from its original location. The terms of the trust setting up the foundation specifi ed that the artworks be left in place, that the institution stay in its present home, and that no new facilities be con- structed. The board of trustees claimed that for the foundation to survive, the collection needed to be taken out of its suburban location and relocated for greater public access and increased fundraising opportunities.11

Protection from Liability

Board members who do not fulfi ll their fi duciary duties may face legal action. Penalties can be imposed on individual board members who receive excess fi nan- cial benefi ts from a nonprofi t. Board members are legally required to avoid private inurement, which is related to the non-distribution constraint for nonprofi ts. Board members should not distribute any profi ts of the organization to themselves, nor should they enter into contracts with the nonprofi t that are not in the best interest of the nonprofi t. In some states, board members are forbidden from self-dealing, that is, contracting with the nonprofi t they serve. Board members can be com- pensated and reimbursed by the nonprofi t for expenses incurred for board ser- vice, but the compensation and reimbursement must be considered reasonable.

Some nonprofi ts have insurance policies to at least partially protect their board members from having to suffer personally if the organization is sued or has other fi nancial diffi culties. The policy may cover penalties to the nonprofi t or the board members when the board is found to have violated its duties and the individual board members are not accused of criminal activity. It may also pay for legal representation for board members when their performance or private benefi ts come under scrutiny.

Some nonprofi t boards in the United States have adopted provisions of the 2002 Sarbanes-Oxley Act, although the U.S. government requires nonprofi t compliance with only two of these provisions. The Act was developed in response to scandals in the for-profi t arena and places new requirements on corporate boards. Following Sarbanes-Oxley, some states added their own regulations to constrain nonprofit

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Boards and Governance 207

boards. The Act requires nonprofi ts to protect whistle-blowers and sets rules regarding destruction of documents. Other provisions of the Act that have led to voluntary or state-level changes to some nonprofi t board practices include mandated use of audit committees and prohibitions on loans to board members and executive directors.12

Executive Director Roles Versus Board Roles and Responsibilities

One of the most common challenges in nonprofi ts is differentiating between the roles of the board and of the executive director. A simple rubric is that the board focuses on the big picture and overall strategies for the organization and the executive director focuses on the day-to-day implementation of the strate- gies and general work routines. More concretely, this means that the board sets major policies, such as the mission, code of ethics, service philosophy, and fundamental mandates, for the nonprofi t along with broad strategies and goals. This may be easier said than done, given that most boards meet fewer than four times a year, most boards have limited information, and some members may have been on the board for only a short time. Nonprofi t staff are usually deemed responsible for minor procedures, standard operating plans, and work rules that guide day-to-day operations. Under this division of labor, there is a blurring of responsibilities in some areas: for example, in setting marketing and fi nancial policies.

Not all scholars agree on how best to set up board and executive direc- tor relations to support a high level of board and organizational effectiveness. John Carver, one of the most vocal critics of traditional approaches to nonprofi t boards, is not alone in stating that most boards perform work that is best left to the executive director.13 In his policy governance model, Carver outlines a framework for differentiating between board and executive director tasks. He designed this model as a means of preventing boards from veering away from strategic, big- picture decisions on the one hand or simply rubber-stamping the staff ’s recom- mendations on the other. Overall, Carver’s model states that the board should14

• Set ends policies that describe what the organization is supposed to accomplish.

• Give the executive director discretion in the methods for achieving ends, although the board should set means statements indicating boundaries the director cannot cross.

• Explicitly delineate the responsibilities of the board and of the executive director.

• State the procedures the board will follow.

• Determine to whom, ultimately, the board is accountable.

In contrast to Carver’s position, other scholars suggest that blurring the boundaries between board tasks and executive director tasks is appropriate.

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208 Managing Nonprofi t Organizations

Richard Chait, William Ryan, and Barbara Taylor argue that the executive direc- tor and board should work together on what is most important to the nonprofi t. Acting as a team, they should be concerned with fi duciary responsibilities and ensure that laws are followed and resources are properly stewarded. In addition, the board should work with the executive director and other top staff on strategic planning, setting long-term directions, and establishing goals. The board should also work with the executive director to engage in generative, or “out of the box,” thinking.15 Researchers see this blurring of board and executive director roles most often in younger, volunteer-based, grassroots organizations. These organizations tend to have boards that are more involved in the daily operations of the nonprofi t.

Few nonprofi ts ever achieve the ideal set out by Carver, and typically boards are strongly guided by the executive director. Research has found that the power balance between the board and the executive director varies across nonprofi ts and even within the same nonprofi t over time. Developmental stage, age, size, and distance from the original donors and founders can affect what roles and respon- sibilities are assumed by the board.16 Francie Ostrower and Melissa Stone found that boards tend to have more power than the executive director when the non- profi t is not heavily reliant on government resources and when a nonprofi t is in crisis, small, nonbureaucratic, or young. Executive directors tend to have more power when they have professional credentials and seniority and their board members do not have high socioeconomic status. Boards composed mostly of women tend to have less power than boards composed mostly of men do.17

In actuality there is a great deal of variation in how boards operate, and strong predictors of division of responsibilities do not exist. The full NAACP case, only sketched in the opening chapter scenario, offers a historical review of how the power dynamics of the board chair, board, and executive director shifted over time.18 It illustrates the power struggles that one nonprofi t experienced between its board and executive director and the negative outcomes of lacking a clear policy about board and staff responsibilities and expectations. Unfortunately for the NAACP, when one individual pursued a great deal of control over the organization, the imbalance of power led to improprieties that put the NAACP in jeopardy. We see the old adage that power corrupts in operation in this case, as well as the way a crisis can emerge when a board does not effectively resist a powerful executive director or board chair and fails to act as a whole to exercise duty of care, loyalty, and obedience.

One model that can be useful for assessing board and executive director dynamics has been offered by Miriam Wood and then revisited by Julia Classen.19 Wood suggests that board behavior is cyclical. Following the founding period, boards tend to go through operating phases of super-managing, focusing on cor- porate responsibility, and ratifying, as elaborated in Table 9.1. There is no set

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Boards and Governance 209

TABLE 9.1. PHASES OF BOARD AND EXECUTIVE DIRECTOR DYNAMICS

Phase Board Concerns Board Recruitment

Founding: collective subphase

The board of directors is personally and profes- sionally invested in creating the new nonprofi t. Directors tend to serve as both board members and volunteers and to work side by side with the nonprofi t’s executive director, if one exists. The board is concerned with whether and how the nonprofi t will survive. The potential problem is that board and staff roles are intertwined, making it diffi cult to have proper checks and balances.

Board members are the founders or friends of the founders. They are drawn to the nonprofi t by their passion for the mission or are chosen by the founders from the founders’ existing network.

Founding: sustaining subphase

The board sees the nonprofi t as relatively stable. A concern is what types of board member skills, expertise, and contacts are needed to sustain the organization. Directors’ responsibility in this phase is to establish a board to support the nonprofi t and executive. Potential problems are that new board members may not have as strong a passion for the nonprofi t mission as the founders do and may not understand their governance role.

The initial board members step off, making way for new members chosen for the skills, resources, and contacts they can bring to the nonprofi t.

Super- managing

Board members brought on for their expertise and skills begin to question the executive leader and attempt to infl uence the nonprofi t in their governance role. The board begins to feel more independence from the executive. It spends time managing in addition to governing. The potential problem is that the board may attempt to micromanage, challenging the executive director’s authority over operations.

New members begin to see their primary role to be stewardship and oversight, but some board members are still acting as volunteers under the supervision of the executive director or other staff.

Focusing on corporate responsibility

The board is focused on its governance respon- sibility and expects accountability and transpar- ency from the executive leader. The executive director manages systems to provide the board with needed information for decision making, but the board may use additional information sources. There is a clear separation of board and executive director responsibilities. The potential problem is the board’s dependency on the exec- utive director for information and transparency.

The board acts to recruit and guide new members, who are chosen to govern and support, not to man- age the nonprofi t.

Ratifying The board performs its duties in a cursory manner. Its focus is on running effi cient meetings. The board is functional but largely disengaged. The potential problem is that the board does not fully address its governance responsibilities, assuming that all is well. It becomes a “rubber-stamping” board.

Increasingly busy and pres- tigious board members are chosen, who have limited time to devote to board affairs.

Source: The information in this table is adapted from Miriam M. Wood, “Is Governing Behavior Cyclical?” Nonprofit Management & Leadership 3, no. 2 (1992). Copyright © 1992. Adapted with permission of John Wiley and Sons, Inc.

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210 Managing Nonprofi t Organizations

time frame for each of the phases of this cycle, and boards may return to an earlier phase in response to the types of challenges they are facing. Though not all nonprofi ts experience these phases as described in the table, the phases illustrate some common ways that boards and executive directors may relate and how the relationship may evolve over time.

Effectiveness of the Governing Board

As part of their responsibilities, boards should assess their own performance and consider ways to improve the contributions they make to the governance of the nonprofi t. A simple activity is to rate the board’s success with its responsibilities and to identify and address barriers to more successful performance. More comprehen- sive tools for identifying a board’s strengths and weaknesses include but are not lim- ited to BoardSource’s online self-assessments, which can be used by board members to see how well they are fulfi lling their responsibilities and achieving board diver- sity and inclusion. In addition to a generic tool for nonprofi ts, BoardSource offers specialized, online board self-assessment tools, so that membership associations, community foundations, schools, and credit unions can more specifi cally address the unique features of their mission and context.20 Assessment tools that have been adopted by researchers looking at nonprofi t and board effectiveness include one offered by the National Center for Nonprofi t Boards21 and two published in aca- demic research journals.22 All these tools share the basic assumption that nonprofi t boards should fulfi ll core responsibilities and their fi duciary duties.

There is no one measure of effectiveness to apply across all nonprofi t boards. Executive directors and board chairs are likely to prioritize different criteria in assessing the performance of individual board members and the board as a whole.23 The priorities and achievements of a board may vary depending on funding sources, program challenges, and other factors. For example, the board of a nonprofi t that relies heavily on donations from individuals may designate fundraising as a major priority and consider itself to be effective if it brings in large financial gifts. Nonprofit executive directors who are actively engaged in advocacy may judge their board on how well it provides access to and legitimacy with important policymakers. Boards that are governing long-established, well- functioning nonprofi ts will likely place little emphasis on mission development and establishing policies and parameters for operations, but boards governing newly formed struggling nonprofi ts that are still determining their purpose and methods may judge their effectiveness on their internal policy creation and enforcement. A board of a new nonprofi t may judge itself on how successful it is in building the nonprofi t’s visibility and reputation.

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Boards and Governance 211

There are a limited number of research studies examining the infl uences on particular dimensions of board effectiveness and the ways in which boards infl u- ence organizational effectiveness.24 Robert Herman and David Renz are among the researchers who have systematically attempted to link board and nonprofi t effectiveness. Following are some of the fi ndings from a review of studies:

• Having major donors on a board was connected to organizational effi ciency.25

• The kind of activities board members emphasized was linked to dependency on donations and government support.26

• Boards whose members received training on how to be a good board member were more effective than boards that did not train members.27

• Nonprofi ts with boards involved in formal planning had higher performance.28

• Nonprofi t fi nancial strength and growth was related to board formalization and common vision.29

• General board effectiveness was unrelated to board size and number of com- mittees and related to involvement in strategic planning.30

• Greater board size was linked to a greater number of donations31 and to a lower percentage of funds spent on projects.32

• Organizational effectiveness was positively related to the activity level of the board in strategic planning, board development, resource development, fi nan- cial management, and confl ict resolution.33

Scholars debate the importance of nonprofi t boards to overall organizational effectiveness.34 Boards vary greatly in the degree to which they simply follow the instructions and recommendations of their executive director versus developing and making their own decisions. They also vary in what responsibilities they han- dle beyond basic fi duciary duties. This makes it diffi cult to do large-scale studies. There are too many variations among board structures, strategic orientations, and responsibilities to come to strong conclusions about the infl uence of boards on organizational effectiveness. What is clear is what distinguishes actively engaged boards with the potential to positively contribute to organizational effectiveness from more passive and inactive boards whose efforts make little difference to the nonprofi t’s success.

Chait, Holland, and Taylor suggest that boards are likely to be high perform- ing and to make positive contributions to nonprofi t organizational effectiveness when they demonstrate six competencies:35

1. Contextual competency. Boards demonstrate contextual competency by considering the organization’s culture, norms, values, principles, and history

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212 Managing Nonprofi t Organizations

when making decisions. For example, Evers-Williams helped the NAACP board to invoke the NAACP’s civil rights mission and values in order to regain the support of funders who had withdrawn their funding due to the organization’s mismanagement.

2. Educational competency. Boards that take time to educate themselves about the organization and its environment and that analyze their own func- tioning are more likely to have the information needed to recognize poor per- formance and address emerging concerns about effectiveness. Evers-Williams demonstrated educational competency by directly confronting the subgroups on the NAACP board and showing them that the organization could survive only if board members worked as a whole rather than competed for power.

3. Interpersonal competency. Boards need to operate as a group of indi- viduals, taking advantage of individual board members’ skills and knowledge, building cohesiveness, and grooming future board leaders. As discussed in more detail later in this chapter, Evers-Williams used her interpersonal skills to develop board consensus and increase the motivation and participation of the more passive members of the NAACP board.

4. Analytical competency. Boards are likely to make better decisions when they seek multiple perspectives and feedback to help them recognize com- plexities in situations and issues the organization is facing. As the NAACP board worked to save the nonprofi t, it sought feedback from various internal and external stakeholders to understand their interests and what the non- profi t could do differently to better address their needs.

5. Political competency. Boards need to understand and be sensitive to the interests of the organization’s key constituents. This helps them develop and maintain healthy relationships. For example, in recruiting a new executive director for the NAACP, the board had to negotiate what authority the direc- tor would have in relation to the board. The interests of the new director had to be weighed against needs for accountability and transparency.

6. Strategic competency. Given that a main responsibility of boards is set- ting strategies, boards need to concentrate their time on key strategic priori- ties and not be waylaid by less important concerns. One of the challenges for the NAACP board was transitioning from a short-term crisis orientation focused on developing strategies to save the organization into a more optimal situation where the board could develop longer-term strategies focused on mission achievement.

Nonprofi t boards vary in the tools they use to build their competencies and the amount of attention they give to improving their effectiveness and accountability.

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Boards and Governance 213

Thomas Holland explains what boards can do to help ensure that they are acting appropriately:36

• Set explicit statements of expectations and responsibilities. These statements should be written for individual board members as well as the board as a whole. For example, the board can write board job descriptions that spec- ify obligations and values to be honored.

• Emphasize adherence to confl ict of interest policies. For example, the board can insist that board members who have personal or business inter- ests in a decision be transparent about those interests and refrain from voting when they can directly benefi t from the board’s decision.

• Foster effectiveness and accountability by staying focused on pri- orities. By setting goals for the board and periodically revisiting its progress on these goals, a board may be able to keep itself focused.

• Make it a practice to have two-way communication with constitu- encies. The board should report what it is doing and solicit feedback. For example, the board can invite visitors to board meetings and have open com- ment periods, and can also seek informal feedback on the nonprofi t’s reputation.

• Conduct assessments of themselves and formal evaluations by outsiders. Assessments can improve accountability and give guidance for needed improvements. For example, boards can use an annual retreat to review performance standards and the outcomes of their efforts, and then board mem- bers can brainstorm and experiment with alternative approaches to their work.

Each board must develop its own approach to its governance role.37 There is no single best way to organize and operate, though some states set basic param- eters on choices of design, policies, and practices. For example, some states have laws that set the minimum number of board members and forbid self-dealing (contracting with a board member’s fi rm by the nonprofi t). To go beyond what is legally required for nonprofi t boards, we suggest a structural contingency theory approach.38 In other words, the board should fi t itself to the contingencies of the nonprofi t’s situation. In the next section we review some of the options for boards and examine the way in which contingencies infl uence the best choice.

Determining Board Confi guration by Contingency

A useful list of board types is provided by Patricia Bradshaw. She argues that the environment of a nonprofi t suggests what type of board it should have, and she reviews fi ve basic board confi gurations.39

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214 Managing Nonprofi t Organizations

Policy Governance Confi guration The policy governance confi guration is found in boards that follow Carver’s model and other frameworks in which there is a clear delineation between board and staff roles and the board is focused on big-picture strategy and policy setting. In this model the structure is formalized and there is a strict hierarchical arrangement between the board and staff. Board committees tend to be permanent with clear mandates. The board tends to be focused mostly on defending the nonprofi t’s position in its niche. Many large, established nonprofi ts focused on service delivery have this type of board. It is typical of nonprofi t hospitals and universities.

Constituency/Representative Governance Confi guration The constituency/representative governance confi guration is similar to the policy gover- nance confi guration in that it is formalized, with clarity of roles and responsibili- ties, and uses permanent committees with clear mandates. However, it tends to be more decentralized in its decision making, giving more power to committees and staff. It also has a more diverse membership, as board members are elected or appointed to designated seats by constituency groups. Board members may feel that they are representing particular interest groups. The NAACP has this type of board, with seats assigned to specifi c geographical regions. A focus of this type of board is making sure constituent voices are heard.

Entrepreneurial/Corporate Governance Confi guration A board with an entrepreneurial/corporate governance confi guration is less formalized and bureaucratic than the previously described boards. It tends to use short-term task forces and project groups more than permanent committees. There is less clarity and more overlap in the roles of board and staff. The focus is on effi cient work processes and getting things done. Planning processes tend to informally emerge rather than being formally structured. Board members contribute an entrepreneurial perspective, refl ecting an interest in innovation to improve the performance of the nonprofi t. Many new nonprofi ts have boards fi tting this con- fi guration, until they establish more formal and structured ways of operating.

Emergent Cellular Governance Confi guration The emergent cellular governance confi guration is the most informal of the types. This board has organic, emergent ways of operating. There is little formalization and bureaucracy. The board regularly seeks input and involvement from non- board members. This confi guration is most likely to be present in nonprofi ts with alternative or nonmainstream ideologies, such as feminist, social justice, and anti- oppression organizations. The board may clearly articulate the value of shared leadership and avoid giving too much power to any one individual.

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Boards and Governance 215

Hybrid Confi guration Some boards do not fi t cleanly into any of these confi gurations. They may have characteristics of each type. These hybrid boards may be the result of adaptations to environmental pressures and preferences of nonprofi t leaders.

� � �

Bradshaw argues that when external environments are uncertain and unstable, the entrepreneurial/corporate or the emergent cellular confi guration is the best choice. These boards have fewer fi xed structures, allowing them to more quickly mobilize to deal with environmental changes. Their more diverse memberships may help them recognize and deal with changing issues. The constituency/ representative or emergent cellular confi guration may be best when a nonprofi t’s external environment is complex, containing multiple stakeholders with potentially competing interests rather than a simple environment with a homogeneous set of stakeholders who share the same expectations. These structures encourage a diver- sity of voices on the board. The policy governance board, the most traditional one in the United States, may be best suited to a stable, noncomplex environment with well-known, predictable challenges and consistent stakeholder expectations.40

Another useful framework of board types is suited to member-serving nonprofi t organizations, such as professional and trade associations like the National Association of Manufacturers and the Association of Fundraising Professionals. These nonprofi t organizations are established to serve members, and thus there are pressures on the boards of these types of organizations to refl ect member interests. Georg von Schnurbein identifi es the following four general types of association boards.41

Satellite Governance A satellite governance structure can emerge in membership associations that have affi liates who are individuals. The affi liates may control the national organization through their designated seats on the national board. The board acts somewhat like a parliament, with individuals on the board voting primarily to support the interests of their home base rather than the interests of the national association. The national association is weak compared to the regional affi liates.

Delegate Governance Delegate governance is similar to satellite governance in that the board is based in a federalist structure, with strong infl uence by affi liates of the national association. However, in the delegate type of governance the members that the national orga- nization exists to serve are organizations whereas in the satellite type the members are individuals. The national board is composed of individuals appointed by the member organizations as organizational representatives. The representatives tend

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216 Managing Nonprofi t Organizations

to be chosen for their skills in political negotiation and ability to protect their home organization’s interests.

Executive Governance An association board that features executive governance has little power and defers to paid staff of the association. The staff carry out much of the work of the organization with the assistance of advisory groups. Board members act more like clients of the organization than like individuals with governance authority.

Inner-Circle Governance Associations may have a small number of members who dominate the board through the power they have in their industry domain. Regional affi liates of the association have minimal infl uence compared to these powerful elite members. In this inner-circle governance model a core subgroup of the board is in control.

� � �

The framework offered by von Schnurbein helps us see that it is not enough to consider the power of the board in relation to the executive director. In non- profi ts serving members, the power of the nonprofi t’s members is also relevant and should be considered a key strategic contingency in deciding on board struc- ture. In federalist structures, where board seats are reserved for specifi ed affi liates, the affi liates are likely to have greater infl uence over the national organization than the executive director does. In more centralized structures in membership associations, the executive director or a few powerful members have an opening to take more control. The more important the nonprofi t is to members, the more they are likely to want representation and power on the board.

Determining Board Composition

Board members bring knowledge, skills, perspectives, and connections to their boards. Which of these assets are most valued will vary from board to board. Not all board members can be expected to individually offer everything that a nonprofi t requires. A high-capacity board will be able to turn to individual board members to fulfi ll specifi c needs. For example, though all board mem- bers should be able to read their nonprofi t’s fi nancial statements, not all may be good at understanding complicated loan arrangements. Therefore the board of a nonprofi t that borrows and lends funds may benefi t from including an accoun- tant on the board to assist in making sure that loan operations are appropriate. A grid showing current and desired assets of board members can be a useful tool for evaluating the composition of a board and considering the types of individu- als that should be recruited to fi ll open board seats. Exhibit 9.1 offers a board composition analysis grid used by the United Way of King County, Washington.

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EXHIBIT 9.1. BOARD COMPOSITION ANALYSIS GRID

Sphere of Infl uence

O ther

A ccess to com

m unity leaders, groups

A ccess to neighborhood leaders, groups

A ccess to people w

ith expertise

A ccess to people w

ith m oney

Area of Expertise

Real estate/property m anagem

ent

Public relations

Financial m anagem

ent

Fundraising

H um

an resources

Legal

Evaluation

Program

Geographic Area

Represented

South King C ounty

N orth King C

ounty

King C ounty

G reater Seattle

East King C ounty

Sector

M edical

Sm all business

Local m edia

Faith-based

C orporate

Political

Education

Law enforcem

ent

N eighborhood

U nion

Race or Ethnicity

O ther

N ative A

m erican

H ispanic/Latino

C aucasian

A frican/A

frican-A m

erican

A sian/Pacifi c Islander

Gender and Age

Self-identifi es as gay, lesbian, bi, or transgender

Self-identifi es as disabled

65 and over

55–64

45–54

35–44

25–34

18–24

M ale

Fem ale

Years o n

B o

ard

Board Member

Note: This grid helps the Nominating Development Committee in their selection of new board members, [allowing the committee] to match community expertise, skills, experience, professions, etc., with the agency needs as defi ned by the board and committees.

Source: United Way of King County, Washington. Reprinted by permission of the United Way of King County.

2 1

7

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218 Managing Nonprofi t Organizations

Research suggests that demographic heterogeneity on a board can facili- tate sensitivity to stakeholders and innovativeness.42 Having board members with access to diverse information and contacts can position a nonprofi t to take advantage of opportunities. Through their connections with different communities, board members can monitor perceptions and expectations of the nonprofi t and learn about external changes affecting the organization’s ability to carry out its mission. Boards that draw members from a homoge- neous, tightly connected pool of individuals may be limiting the perspec- tives and information that can be brought to board discussions as well as opportunities to communicate with constituent groups. Therefore a common recommendation for boards is to recruit candidates who have connections to important constituent groups and can bring new, relevant perspectives to board meetings.

Some boards, recognizing the value of having certain viewpoints and expe- riences at the table, have designated seats for certain types of board members. For example, an individual may be appointed to a board as the designated representative of a particular geographical region, client group, age group or social class, or agency partner. Some boards seek to proportionally refl ect the demographics of the population the nonprofi t serves, sometimes due to pressure from external stakeholders. For example, Habitat for Humanity International encourages minority and local community representation on the boards of its affi liates.43 The funding decisions of some grantmaking foundations, such as the Z. Smith Reynolds Foundation, are infl uenced by how well the composition of the board of a grant-seeking nonprofi t refl ects the population the nonprofi t serves.

Boards may be dominated by particular types of identity groups.44 For exam- ple, the boards of the YWCA and the Junior League, both with missions related to women, have been found to be dominated by females. Social service agencies and hospitals with a religious affi liation tend to have boards dominated by members of that religion. Alumni organizations for private schools, not surprisingly, are dominated by individuals with academic degrees from those schools. Studies have shown that, overall, nonprofi t boards tend to be dominated by males, especially for the larger and more prestigious nonprofi ts,45 and by individuals with manage- rial and professional experience and management education.46 Some evidence suggests that although there is no apparent gender bias in nonprofi t organizations’ recruitment of board members with graduate management degrees, a bias for males is seen when comparing male and female board members without gradu- ate education.47 By understanding the types of identity groups on their boards, nonprofi t leaders can better identify coalitions among board members that form because of shared backgrounds and interests. The minorities on a board may

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Boards and Governance 219

require extra support and encouragement if they are to bring any unique perspec- tives and talents to board activities.

Board composition should refl ect consideration of the reputation and val- ues of board members. Having board members who are well respected suggests that the nonprofi t is legitimate and trustworthy, which may be especially helpful at times when stakeholders may be in doubt about what the nonprofi t is actually doing. By selecting board members that embody certain values, the nonprofi t is sending a signal about the kind of organization it is. For example, Rikki Abzug and Joseph Galaskiewicz argue that having board members with high levels of education along with management and professional backgrounds signifi es to external constituents that the nonprofi t is committed to being effi cient.48

Who is asked to serve on boards and who does the asking depends on the type of board. Some boards are self-perpetuating. The current board members elect individuals to fi ll empty seats, often after a nomination committee offers its recommendations. Member-serving nonprofi ts often have boards elected by the organization’s members. Sometimes subgroups of members elect representa- tives to serve in designated seats on the board. Boards may also have ex offi cio members appointed by an external authority. For example, bylaws may specify that a sponsor of the nonprofi t or a government agency has the right to appoint a board member. A certain number of board seats may also be reserved for cli- ents. For example, federally qualifi ed health centers that are neighborhood clin- ics for underserved populations require 51 percent of the board to be clients of the clinic. Recruiting board members from the client base may require special efforts to fi nd interested individuals willing to learn how to be an effective board member. The Bron Afon Community Housing charitable organization in the United Kingdom devotes space on its Web page to board recruitment and train- ing materials, demonstrating the type of information that may help persuade clients to serve on a board.49

The average size of boards differs across the nonprofi t sector. Nonprofi ts with larger budgets and staffs tend to have larger boards, as do nonprofi ts that have particularly complex operations. There is no clear empirical link between board size and the effectiveness of the board and nonprofi t. Factors to consider in deciding on the size of the board include legal minimum size requirements and the nature of the work of the board. Smaller boards may have an easier time scheduling meetings and getting a quorum. They also may fi nd it easier to serve as a cohesive unit and have fewer costs associated with the management of board affairs. Larger boards have a greater challenge in ensuring that all board members are actively engaged and informed, especially if the board relies heavily on committees to do much of its work. However, larger boards provide greater breadth and depth of experience and contacts.

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220 Managing Nonprofi t Organizations

Using Board Tools

A variety of tools are available to help boards be more effective. The bylaws are required at the incorporation stage and, if changed, should be sent to the appro- priate state government authority. Other tools may be created and evolve over time to serve board needs and challenges.

Bylaws The bylaws of a board are the rules under which it operates. For example, bylaws provisions are likely to cover board size, qualifi cations for candidates for board seats, offi cer positions, and voting processes. By following these rules a board can avoid having to reinvent procedures and can act consistently, thus minimizing impressions of unfairness or confusion in procedures, such as how confl icts among board members are handled. Most states offer model bylaws for nonprofi ts that can be adopted in full or modifi ed by a board. Some of these state model bylaws are derived from the Revised Model Nonprofi t Corporation Act developed by the American Bar Association.50 States adopting the Act in whole or in part for model bylaws include Indiana, Mississippi, Montana, North Carolina, South Carolina, Tennessee, Washington, and Wyoming. If a nonprofi t does not develop and follow its own bylaws, the state government will consider the nonprofi t responsible for acting in accordance with the model the state has adopted.

Offi cers Boards are traditionally led by a board chair or president who runs the meetings and may be given the authority to sign contracts and checks for the nonprofi t. Other popular offi cer positions are vice chair or chair-elect, treasurer, and secre- tary. The vice chair typically leads board meetings when the chair is absent. The treasurer coordinates the board’s review of fi nancial statements and may have the authority to sign organizational checks. The secretary is often responsible for seeing that minutes of meetings are taken and then approved by the board at a subsequent meeting. Some boards appoint a parliamentarian or ask the secretary to monitor the board to ensure that it follows its bylaws and meeting rules, such as Robert’s Rules of Order.

Committees Many boards use committees to perform tasks between board meetings that are better suited to a small group than the whole board. Board committees may or may not include staff and nonboard members. William Brown and Joel Iverson found that nonprofi ts emphasizing innovation and experimentation, rather than defending their current niche, were more likely than other boards to make greater use of committees and to have nonboard members serving on board committees.51

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Boards and Governance 221

Standing committees are permanent groups established in the bylaws as part of the board structure. Popular standing committees are an audit and fi nance commit- tee to oversee the auditing of fi nancial statements and review monthly fi nancial reports, a nominating committee to recommend new board members, a fund development committee to bring in donations, a program committee to monitor services, a human resource committee to attend to staffi ng issues including reviews of the executive director, and an executive committee made up of offi cers of the board to make decisions between board meetings. Ad hoc committees or task forces may be used to deal with short-term or special needs.

Orientation, Training, Self-Assessments, and Organizational Reports As mentioned earlier in this chapter, it is important that board members are well educated about the nonprofi t and its environment. Boards that offer ori- entations to new board members can give them a good start on learning what they need to know to be effective board members. Useful documents for board members include the organization’s constitution and bylaws, mission statement, plans, annual reports, goals, budget, fi nancial reports, program descriptions, orga- nizational chart, and policies. Additional useful materials for board members are relevant laws, a contact list for board members and committees, commit- tee descriptions, the board member job description, board offi cer job descrip- tions, meeting agendas and procedural rules, event schedules, meeting minutes, organizational evaluations, and needs assessments. Board self-assessments can help members to understand their weak areas and identify needs for board development.

Advisory Groups A nonprofi t may have advisory groups in addition to its governing board. There are many names for these groups, including advisory board or council. Some may be attached to specifi c projects, such as a special event or a pilot program supported by a grant, or to a need, such as fundraising. These groups may take some of the pressure and workload off the governing board. They can also serve as a grooming ground for prospective governing board members or as a place for governing board members to serve after their term on the governing board has ended. This type of group may attract individuals who are willing to help the nonprofi t in a limited capacity without fi duciary responsibility.

Managing Board Confl ict

A board is a group of unique individuals so inevitably there will be opportuni- ties for disagreements and miscommunications among board members. Confl ict

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222 Managing Nonprofi t Organizations

is natural in any group, and it is a sign of a passive and disengaged board if disagreements among board members or between the board and the executive director never surface. By managing confl ict well, a board can help to ensure effective leadership.

Confl ict occurs in stages. In the fi rst stage, latent confl ict, conditions are ripe for confl ict but people lack awareness of the confl ict. Some of the conditions that encourage confl ict are resource scarcity, discomfort with power differences, lack of consensus on goals and strategies, competing values, and underdeveloped norms for interaction. Boards can fi nd it helpful to make sure there are no latent confl icts related to board decisions. Latent confl ict may be exposed by assigning someone to act as devil’s advocate and to raise possible opposing viewpoints, and by a board chair who assures board members that it is appropriate to raise concerns and questions.

In the perceived confl ict stage, individuals are aware that confl ict exists. During this stage it is helpful to analyze the sources of the confl ict. Is it due to personal differences, informational deficiencies, incompatible roles, or environmental stress? Is the focus of the confl ict on an issue or on the people involved in the issue? To remove emotional intensity from a confl ict, it is useful to try to turn the focus away from the people involved and reframe the confl ict as a disagreement on an issue rather than a personal dispute. Once a confl ict becomes personal it may be diffi cult to resolve it without hurt, frustration, and anger. Ideally, a con- fl ict will be used constructively to share information, negotiate differences, and creatively improve situations for all parties.

When individuals feel tense or anxious as a result of misunderstandings or disagreements, there is felt confl ict, which can turn into manifest confl ict if the individ- uals act to pursue their positions or interests. This may involve acting aggressively or withdrawing from the situation. In some cases, in order to avoid perceived con- fl ict or when confl ict remains latent, members of a board will engage in group- think, showing agreement with an initial decision in an effort to avoid honest discussion of an issue. Exhibit 9.2 presents symptoms of groupthink. In some cases an individual will knowingly escalate a confl ict in order to increase the likelihood that it will be addressed. This escalation may take a variety of forms, including getting third parties involved, for example by leaking information to the media. When a confl ict is not resolved effectively, frustration and dissatisfaction can result.

Kenneth W. Thomas offers a review of fi ve confl ict-handling modes and recommendations for their use (see Exhibit 9.3). How best to handle confl ict will vary across situations. The choice of a confl ict-handling style depends on the personalities involved, norms for interacting, perceived interests at stake, time demands, and perceptions about the outcomes of past confl icts.

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Boards and Governance 223

EXHIBIT 9.2. SYMPTOMS OF GROUPTHINK AMONG BOARD MEMBERS

Invulnerability Members feel safe and protected from ineffective action.

Overrationalization Members ignore warnings and rationalize their board’s behavior.

Moral superiority Members believe the board is inherently moral and ethical.

Stereotyping Members view those holding opposing viewpoints as incompetent or unworthy of consideration.

Pressure dynamics Members encourage conformity and do not allow exploration of alternatives.

Self-censorship Members fail to express questions or concerns.

Perception of unanimity

Members perceive that everyone on the board has the same view.

Use of mind guards Members keep from others information that could undermine consensus and cause concerns and questions to be raised.

Source: Adapted from Irving Janis, “Groupthink,” Psychology Today, June 1971.

An effective board will establish a culture in which members feel free to express opinions about issues and do not let confl icts turn personal. Encouragement of differences of opinion can help the board members to avoid groupthink and reach better decisions. The board members will also understand that once a board decision is made, the full board should support it, even those members who voted against the decision. Individual board member divisiveness and lack of commitment to board decisions can create confusion among staff asked to follow through on the board’s directives.

One of Myrlie Evers-Williams strengths as the NAACP board chair was her ability to bring the board together for effective decision making. Rather than use threats or shut individual board members out from decision making, she used log- ical, rational arguments to persuade them to agree with her positions. Under crisis conditions, when a common but ineffective response is to be defensive, she openly shared information and asked for input from stakeholders. By role-modeling dis- cussion behaviors, she helped to change the board’s culture so that members became more open to diverse viewpoints and challenges to the status quo. Her experience demonstrates the possibility of turning around even very entrenched boards and making them more effective in managing confl ict and ultimately in governing their nonprofi t.

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224 Managing Nonprofi t Organizations

EXHIBIT 9.3. FIVE CONFLICT-HANDLING MODES AND WHEN TO USE THEM

Mode When to Use This Mode

Competing or forcing

When quick, decisive action is vital

When unpopular actions need implementing

When you know you are right about issues vital to the nonprofi t’s welfare

When facing people who take advantage of noncompetitive behavior

Collaborating To fi nd an integrative solution when all concerns are important

When you wish to learn

To merge insights from people with different perspectives

To gain commitment through a consensual process

To work through feelings negatively affecting a relationship

Compromising When a goal is not worth the time and effort to collaborate or compete

When opponents with equal power have mutually exclusive goals

To achieve temporary settlements

To arrive at a solution under time pressure

As a backup when collaboration or competition is unsuccessful

Avoiding When an issue is trivial or more important issues are pressing

When you perceive no chance of satisfying your concerns

When potential disruption outweighs the possible benefi ts of resolution

When people need to cool down and regain perspective

When information gathering is needed

When others can resolve the situation more effectively

When an issue is tangential or symptomatic of other larger issues

Accommodating When you fi nd you are wrong

When issues are more important to others than to you

To build social credits for later use

To minimize loss

When harmony and stability are especially important

To allow others to develop by learning from mistakes

Source: Adapted from Kenneth W. Thomas, “Toward Multi-Dimensional Values in Teaching: The Example of Confl ict Behaviors,” Academy of Management Review 2, no. 3 (1977): 487.

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Boards and Governance 225

A Broader Conception of Governance

This chapter should not leave the impression that boards are the only entity responsible for governing nonprofi t organizations. As David Renz explains, the domain of “governance” has moved beyond the domain of “the board.”52 Renz argues that when communities confront complex problems, they address them through a network of organizations. No one nonprofi t provides all the leadership to address the problem. A single nonprofi t may provide the services to address the problem, but the overall approach is designed, organized, resourced, and coordinated (in Renz’s word, “governed”) through the overarching network of relationships among the relevant entities. The structure of these relationships and the leadership existing within this structure may constantly evolve. The boards of nonprofi ts that are part of these overall networks need to understand their role in the context of this system of leadership. Within this shared power dynamic, effective boards understand the need to cross organizational boundaries and share accountability for community impact.

Judy Freiwirth suggests that in this broader governance framework, nonprofi t boards may contribute through four functions: planning, advocacy, evaluation, and fi duciary care.53 As planners they may assist in strategic direction setting and coordination and may provide input on trends and priorities. As advocates they may help with needs assessments and contribute to decisions about policies and advocacy activities. For the evaluation function, they may participate in evaluation design and implementation, offering resources, feedback, and expertise. Their fi duciary care activities may include defi ning resource needs, developing resource streams, and stewardship of resources. For an example of this shared governance in action, consider Freiwirth’s example of Homes for Families, a statewide orga- nization in Massachusetts that serves the homeless. Each year, its board and staff hold a visioning session with a range of constituents and partner organizations that helps to shape its own and others’ initiatives. As part of the network serving the homeless, Homes for Families delivers a leadership development program whose graduates share responsibility for devising and implementing advocacy strategies.

Concluding Thoughts

Not all of us are called to serve on the board of a nonprofi t organization. Those who do serve need to understand the legal and moral responsibilities entailed in board governance. This chapter has outlined basic responsibilities and the

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226 Managing Nonprofi t Organizations

duties of care, loyalty, and obedience for board members. It has presented competencies and tools that can be drawn upon to create an effective board. This chapter has also outlined choices for board composition and structure and reviewed basic approaches to confl ict. Boards have the opportunity to take active roles in guiding and supporting their organizations. Those that do can provide a critical factor by ensuring that their nonprofi ts stay accountable to key stakeholders.

The next chapter helps us learn more about the executive director role in nonprofi ts. Ideally, the board and executive director work as a team to forward the best interests of the nonprofi t and the communities it serves. Understanding the executive leadership role can help boards prepare for executive transitions and for their responsibilities in reviewing the performance of the executive and providing support for the operations of the nonprofi t.

Questions for Consideration

1. Are there common characteristics desirable for all nonprofi t board members? If so, what are they? Beyond any common characteristics, what types of diversity should be sought for a board?

2. In a shared governance system, boards need to understand their nonprofi t’s role as part of a larger system of relationships. How can boards prepare themselves to be effective in contributing to governance in a network of orga- nizations addressing the same social problem?

Exercises

Exercise 9.1: Comparing Boards

Compare the boards of two nonprofi ts. What are the similarities and differences in their size, composition, offi cers, and use of committees? What factors do you think may explain these similarities and differences?

Exercise 9.2: Bylaws

Read the bylaws of a nonprofi t board. How are the bylaws helpful in increasing board effi ciency and reducing the possibility of confl ict? Are there any recom- mendations you would make for amending the bylaws?

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Boards and Governance 227

Exercise 9.3: Managing Board Confl ict

Attend a board meeting for a nonprofi t organization. Did the chair of the board encourage board members to express their views and differences of opinion? Were any confl icts manifested during the meeting? If so, what was the confl ict and was it handled effectively?

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228

CHAPTER TEN

EXECUTIVE DIRECTORS AND LEADERSHIP

S antropol Roulant is a nonprofi t in Montreal, Canada, providing critical services to those in need and a space for diverse people to be deeply and meaningfully involved in their community. It has always been run by young people living in the community. The core service is a Meals on Wheels delivery program. The nonprofi t also offers a rooftop garden (in partnership with other agencies) and workshops on cooking and bicycles. Information on its Web site refl ects its thoughtful approach to its leadership structure and the roles and responsibilities of its executive director and board based on legal needs and democratic principles.1 After its fi rst nine years of existence it con- verted to a membership-based organization, with members electing the board. The executive director is encouraged to run for a board seat. Unlike the many nonprofi ts that have a narrow conception of who is a member and requirements that members pay dues, Roulant treats as a member anyone who within the past year has received meals, made a donation, volunteered, or been an employee.

Santropol Roulant was founded in 1995 by Chris Godsall and Keith Fitzpatrick, when both were under the age of twenty-eight. They led the organization until 1997. To staff the organization, they took advantage of government funding for six-month contracts for youth need- ing employment. This set the organization on its path of dealing with regular staff transitions, including those in the job of executive director. Since its founding the nonprofi t has gone through a succession of directors, some leading during rocky times and even on the verge of bankruptcy. Despite fi nancial challenges and the high turnover of executive directors and staff, the Roulant has continued to survive, winning awards for its involvement of youth and level of community service.

A video posted on YouTube outlines the organization’s planned approach to one of its executive leadership transitions. In the video the focus is on the change from a highly charismatic leader to Jane Rabinowitz, who was seen to offer a more managerial orientation.2 Rabinowitz worked for fi ve years for Santropol Roulant before assuming executive leadership of more than fi ve hundred volunteers and ten full-time and two part-time employees. She describes the nonprofi t as

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Executive Directors and Leadership 229

a functional family where volunteers, staff, and clients are equally valued. Job duties are fl exible, and everyone pitches in when work is to be done. Staff and volunteers feel empowered to try new ideas and are meaningfully involved in decision making.

After taking over, Rabinowitz set out to establish human resource policies and procedures with the advice of the board. She interviewed staff individually to understand the lack of consistency and transparency in how human resources were handled and then brought the staff together to discuss shared concerns. She treated this challenge and other “growing pains” as opportunities for the young staff to learn. Another of her priorities was to involve the nonprofi t in larger networks. As one mechanism for this, employees were encouraged to sit on boards of local organizations where they could exchange ideas helpful to the Roulant and the community. The nonprofi t has developed a document outlining its core principles of engagement, which it shares with its fellow network members. The nonprofi t’s leaders believe these principles, presented later in this chapter, are the key to its success.

Rabinowitz sees her role as enabling others who come to the organization with a desire to do good work. She states, “It is important for us at the Roulant to help the young people who are involved in the organization to understand what it is to make intentional choice—to choose to do something because it resonates with who you are as a person. To enable them to choose to do something good and to obtain joy through this work. This is a big part of what Santropol Roulant is about.”

� � �

What makes the perfect leader? When we look at Santropol Roulant under Rabinowitz’s leadership, we see a leader who has her own ideas but is working to draw out and implement the ideas of others. Should we blame her if the orga- nization fails to thrive? Is she truly a leader if we cannot say that she personally set the direction for the organization and then found individuals willing to follow that direction? In a nonprofi t organization, particularly one established to serve members, traditional notions of a leader as someone who individually crafts a vision and motivates others to pursue it may not be the best model.

This chapter examines leadership, focusing on the role of the executive direc- tor rather than the board. We review individual and group characteristics, power dynamics, and environmental factors that can affect the choice and effectiveness of leadership efforts. In addition, we examine shared leadership and substitutes for formal leadership in nonprofi ts. The chapter closes with thoughts about execu- tive director development and succession.

The Nonprofi t Executive Director

According to the legal framework in many countries, including the United States, the executive director is subordinate to the board, even when the director is the founder of the organization. In some nonprofi ts the executive director has a seat

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230 Managing Nonprofi t Organizations

on the board and votes in board decisions. This may be in a seat designated for the director or, as in the case of Santropol Roulant, a seat that the director has won in an election. Typically in the United States, individuals fulfi lling the executive director role who also have voting rights on the board are called presidents; other- wise they tend to be called executive directors or chief executive offi cers (CEOs).

Nonprofi ts usually have one person in charge of the overall management of the organization. This chief staff person, whom we are calling the executive director or CEO throughout this book, may be paid or unpaid.

However, as discussed in Chapter Four, on the structure of nonprofi ts, some nonprofi ts have two top leaders with management responsibilities. For example, in arts organizations there may be an artistic director and an administrative direc- tor.3 The artistic director manages the artistic programming, and the adminis- trative director manages such other functions as marketing and accounting, and neither director has authority over the other. At the Metropolitan Opera, a general manager and a music director fi ll the top executive roles. We can also fi nd examples of dual-executive structures in religious, educational, health, and other types of nonprofi t organizations. Dual leadership structures tend to occur in nonprofi ts where special expertise, often obtained through education from a specialized institution such as a seminary, medical school, or music conservatory, qualifi es an individual to have an executive-level role in managing the pursuit of the core mission but does not give that person the administrative know-how to manage a complex organization. The administrative side of the nonprofi t is therefore split from the mission side, with both executive-level directors reporting as equals to the board.4

Some nonprofi ts based on feminist or democratic principles of empowerment and equal participation and voice exist without hierarchical structures that place one individual in charge with power over other organizational members.5 Usually in these types of organizations, there is a decision-making team that manages the operations of the organization, with no one in clear authority over the oth- ers. An executive decision-making team is also typical of all-volunteer, grassroots organizations that have a single executive director but tend to frequently rotate volunteers in and out of that top leadership role.

The authority of the executive director may change over time as a nonprofi t gets more complex or the experience and expertise of the director grows. For example, the Burning Man organization, which coordinates a free expression festival, adopted an informal shared leadership structure in its early days but found that over time a clearer hierarchy of authority was needed.6 The festival grew from an experimental art experience project on a beach in California, coor- dinated by a group of volunteers, to a bustling temporary city of over forty-eight thousand people living for a week in an experimental community in the Black Rock desert. As the complexity of the weeklong event grew, so too did the need

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Executive Directors and Leadership 231

for formal leadership embedded in the position of a single executive director, now in charge of an incorporated for-profi t organization.

Responsibilities of the Nonprofi t Executive Director

Scholars tend to place the burden of ensuring a nonprofi t’s growth and survival on the executive director rather than on the board, arguing that the person in the director’s role generally has the greatest familiarity with the complexity of the organization’s internal operations, environment, and growth opportunities.7 As Herman and Heimovics put it, the executive director has executive centrality. It is up to the director to enable the governing board to carry out its duties. Compared to the board, the executive director has easier access to information on how well the organization is functioning, has greater expertise related to the organization’s mission, and often serves as the public face for the nonprofi t; and thus he or she carries the burden of responsibility for the organization’s successes and shortcomings.8

Nonprofi t operating manuals and textbooks tend to talk about the executive director’s role as administering the day-to-day affairs of the organization while the board makes the bigger-picture decisions affecting the nonprofi t.9 In actuality, as discussed in the previous chapter, these roles are often blended. Some “rub- ber-stamping” boards, in fact, make no decisions independent of their executive director’s advice and desires. Michael Worth presents the ten basic responsibilities of a nonprofi t executive director as compiled by BoardSource:10

1. Commit to the mission.

2. Lead the staff and manage the organization.

3. Exercise responsible fi nancial stewardship.

4. Lead and manage fundraising.

5. Follow the highest ethical standards, ensure accountability, and comply with the law.

6. Engage the board in planning, and lead implementation.

7. Develop future leadership.

8. Build external relationships, and serve as an advocate.

9. Ensure the quality and effectiveness of programs.

10. Support the board.

A search of job advertisements and job descriptions for nonprofi t executive directors shows that they often refl ect these responsibilities but also reveal a wide range of emphases or priorities in what is desired. Exhibit 10.1 gives Santropol Roulant’s description of what it wants in an executive director.

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232 Managing Nonprofi t Organizations

EXHIBIT 10.1. JOB DESCRIPTION FOR THE SANTROPOL ROULANT EXECUTIVE DIRECTOR

Santropol Roulant is a young organization with a history of innovation and creative development, whose mission is to bring people together across generations and cul- tures through food initiatives and to build a healthy and dynamic community. The executive director is responsible for leading Santropol Roulant through the next stages of its organizational development while ensuring program excellence, relevance and creating new opportunities for involvement in the community. She will do so with vision and imagination to both develop the internal capacity of the organization, and the scope and depth of the organization’s voice in local and national issues. Ultimately, her role is to imagine new and dynamic ways of providing essential social services that have a larger vision for social change, act as a catalyst for community development and are empowering to individuals and communities.

The executive director manages all aspects of, and has general authority and responsibility for, Santropol Roulant’s activities and operations in accordance with the vision, mission, policies and goals established by the board of directors. The executive director works with the board of directors on strategic planning and policy develop- ment and implements those directives within board guidelines and she provides lead- ership and direction to [the] organization’s staff and volunteers. The executive director is accountable to the board of directors.

As the Roulant job description refl ects, an executive director’s responsibilities include management as well as leadership tasks. It is a management task to ensure that work is performed in an effective and effi cient manner. It is a leadership task to decide what the work should be and to motivate others to pursue the vision that drives the work. A useful summary of the distinctions between managers and lead- ers is provided by John Kotter. He explains that leaders focus on change by setting direction and vision, aligning people to that vision, and motivating people to achieve the vision. In contrast, managers plan and budget to produce results. They organize, staff, and structure jobs and reporting relationships to implement plans; and they control, problem solve, and correct deviations from the plan.11 In other words it is a leadership task to develop a shared plan and a management task to coordinate its implementation. For example, Jane Rabinowitz of the Roulant was acting as a leader when she set as a priority the development of human resource management policies in order to ensure fairness and transparency. She acted as a manager when she coordinated the process for developing and implementing the policies.

Source: Santropol Roulant, The Government of Santropol Roulant—Roles and Responsibilities (2009), http://santropolroulant.org/2009/E-membership.htm. Reprinted by permission of Santropol Roulant.

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Executive Directors and Leadership 233

Leadership Responsibilities

A generic list of leadership responsibilities applicable to nonprofi t executive direc- tors can be drawn from James Kouzes and Barry Posner’s framework.12 These authors argue that successful leaders need to engage in the following fi ve key leadership activities.

Challenge the Process Leaders should experiment and take risks to encourage innovation and fi nd better alternatives to the status quo. For example, the Robert Wood Johnson Foundation (RWJF) is challenging its process by soliciting feedback from grantees and com- parisons with other foundations to get ideas for improving its operations. RWJF executive director Risa Lavizzo-Mourey used the foundation’s “B” grades to moti- vate information gathering and changes to operations, even though the benefi t of the changes may not be apparent for years.13

Inspire a Shared Vision Leaders should have an end picture in their mind and share it to enlist oth- ers to realize their vision. As a founder of the Southern Christian Leadership Conference and a great orator, Martin Luther King Jr. was a master at inspir- ing others. His “I Have a Dream” speech continues to be a compelling vision statement.14

Enable Others to Act It is not all about them. Leaders should collaborate, build teams, and support coalitions. Darell Hammond, the founder and director of KaBOOM!, designed his nonprofi t to encourage and support community-based organizations inter- ested in working together to create playgrounds. He understands that by building connections and social capital among the individuals he touches, they may work together to address local problems long after his involvement ends.

Model the Way Leaders should behave in ways consistent with their beliefs and values. Mahatma Gandhi lived his values. As the leader of the Indian National Congress he did not ask any of its members to do anything he would not do himself. His day-to-day activities refl ected the values he espoused: nonviolence, truth, and modesty.

Encourage the Heart Leaders should celebrate accomplishments and believe in and care for their work- ers and their organization’s mission. The HR Council for the Nonprofi t Sector

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234 Managing Nonprofi t Organizations

offers the following advice for recognition: don’t delay praise, do it because you are truly appreciative, give details of the achievement, do it in person or use a handwritten note, don’t mix in criticism, and don’t wait for perfect performance.15

Understanding Leadership

Scholarship on leadership offers many ideas with applicability to the nonprofi t sector. We review the most promising by organizing them around fi ve basic prin- ciples of leadership:

• Effective leaders are not all the same.

• Effective leaders change their style to fi t the situation.

• Effective leaders are self-aware and operate out of a strong value system.

• Effective leaders integrate and balance roles and perspectives.

• Effective leaders use power and infl uence wisely.

Effective Leaders Are Not All the Same

Early scholars introduced trait theories of leadership, arguing that some people have innate characteristics, constant across time and situation, that make them great leaders. After decades of research, no common set of stable personality traits had emerged that distinguished effective leaders from followers, and these great person theories were discredited.16 Academic scholars and practitioners continue to come up with lists of common leadership characteristics and behaviors, but there is now an assumption that individuals can be taught to be great leaders, whether or not they are born with specifi c traits.

Nonprofi t leaders come in all physical forms and personality styles. However, some people still have leadership prototypes or mental images of leadership that affect their perceptions of who is or is not an effective leader. Research has shown that individuals are more likely to be seen as effective leaders when they exhibit physical traits that are consistent with stereotypes about leaders, including, for exam- ple, stereotypes related to race, gender, and height.17 Stereotypes can be culturally and historically specifi c. For example, in the early years of the United States, tall, white, extroverted males were assumed to be more leaderlike than other males, and their greater access to leadership opportunities served to reinforce these perceptions.

The nonprofi t sector has helped to weaken leadership stereotypes. In the United States, women and minorities rose to positions of infl uence in nonprofi ts even when they faced career barriers in other sectors.18 Jane Addams, founder

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Executive Directors and Leadership 235

of the nonprofi t Hull House and the fi rst American woman to be given a Nobel Peace Prize (awarded in 1931), Clara Barton, founder of the American Red Cross (established in 1881), and Martin Luther King Jr., cofounder in 1957 of the Southern Christian Leadership Conference, are just a few of the historical fi gures who led nonprofi ts and shaped the nonprofi t sector as we experience it today. Even when they could not vote or were excluded from membership in infl uential societies, women, African Americans, Catholics, Jews, and other disenfranchised or otherwise marginalized individuals created and led nonprofi ts and thus partici- pated in American civic life. Many of the nonprofi t institutions they established as alternative power structures still exist today. But the traditional leadership pro- totypes may still partially explain why, in some nonprofi t subsectors, white males have historically held more top leadership positions.19

Though people no longer believe there is only one personality and physical profi le for successful leaders, scholars are fi nding that certain personality charac- teristics tend to be common among them. Successful leaders tend to be ambitious, high energy, tenacious, trustworthy, reliable, open, intelligent, and self-confi dent. They have a desire to lead and are able to integrate large amounts of informa- tion. They know their industry and relevant technical matters, trust in their own abilities, take initiative, are creative, and have the ability to adapt to the needs of followers and the requirements of situations.20 They tend to be more coopera- tive, verbal, and well educated than their followers.21 They are admired for being honest, forward looking, inspiring, and competent.22 In a survey of what makes a good leader in the nonprofi t and for-profi t sectors, characteristics distinguishing strong nonprofi t leadership were effective relationship management, empathy and inclusiveness, transparency and confi dence, and patience and fl exibility.23

Effective Leaders Change Their Style to Fit the Situation

Effectiveness of a given leadership style depends on situational factors. Therefore, leaders need to have different styles in their repertoire. Leaders fi rst need to choose how task and relationship oriented they should be. They also need to choose whether to take a more transactional or transformational approach to their leadership.

Task- and Relationship-Oriented Leadership One of the most basic leadership frameworks suggests that leaders should vary their approach depending on the situation and have in their portfolios the follow- ing three styles of behavior:

• Task-oriented leadership. Leaders defi ne and organize work relation- ships, determine roles and responsibilities, and establish communication channels and procedures. For example, Jane Rabinowitz, executive director

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236 Managing Nonprofi t Organizations

of Santropol Roulant, exhibited a task-oriented leadership style when develop- ing human resource management policies by setting up an interview schedule and asking everyone to contribute individually and in a group to the review of existing practices and analysis of possible policies to develop.

• Relationship-oriented leadership. Leaders nurture friendly and warm working relationships, encourage trust and respect, and satisfy social and emotional needs. Rabinowitz demonstrated relationship-oriented leader- ship in ensuring that young volunteers felt welcomed and valued for their contributions.

• Laissez faire leadership. Leaders are nondirective, are neither task nor relationship oriented, and may be empowering by staying out of the way. Rabinowitz took a laissez faire approach in the Roulant’s efforts to have its staff serve on other agency boards. Staff had independence in deciding what boards to join and what information to exchange during board meetings.

Studies show that a task-oriented style tends to be most effective in highly unfavorable situations for the leader and also in highly favorable ones, such as being trusted and respected by subordinates and having formal authority. A relationship-oriented style is more effective when the situation is more moder- ate. In situations where tasks are ambiguous, task-oriented leadership tends to work best.24

For a nonprofi t executive director, this means that if he or she is not well trusted or respected by the staff or board, it may be best to demonstrate compe- tency and gain credibility by focusing on assigning tasks and scheduling activities so that formal goals can be achieved, rather than spending a lot of time trying to get to know individuals on a personal basis in order to try to satisfy their social and emotional needs. In this kind of situation, staff and board members are likely to be cynical about immediate attempts to focus on improving relationships rather than technical work outcomes. As staff confi dence grows in a leader’s ability to produce task-oriented results, more of the leader’s time and effort should be spent on nurturing work relationships.

For leaders who are well liked and respected, adopting a task-oriented approach is likely to be effective. Workers already feel they are in a supportive environment, so a task-oriented approach can improve effi ciency while not under- mining a positive work culture. This does not mean that relationship-oriented behaviors should be avoided. They can be combined with more task-oriented ones, as Rabinowitz did in leading the Roulant. For activities where staff and volunteers are fully competent to carry out the tasks, as in routine meal delivery, Rabinowitz’s best use of time is to engage in friendly interactions that demon- strate that she values others’ contributions to the organization.

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Executive Directors and Leadership 237

The Hersey and Blanchard situational leadership theory elaborates when to use task- and relationship-oriented leadership styles. It has the premise that leadership behaviors should be chosen based on the job maturity or readiness of followers to carry out tasks.25 There are four main leadership behaviors in this model: del- egating, supporting, coaching, and directing. If followers have low competence and low commitment to perform, coaching is suggested. Leaders using coaching combine task-oriented and relationship-oriented behavior, giving direction to the worker and also being encouraging as the worker learns how to perform. When a worker has high competence and high commitment, delegating is appropriate. The leader can take a hands-off approach and the worker is likely to be successful at the task. For workers with moderate to high competence and variable commit- ment, leaders should use a supporting style to encourage the behavior without directing it. When workers have low competence but high commitment, the work- ers can benefi t from and are likely to welcome the directing style, in which the leader tells them how to do a task.

Transactional Versus Transformational Leadership Styles Another useful leadership style framework contrasts transactional and transforma- tional leadership styles.26 Transactional leadership is well suited to organizations that do not need major changes. Transactional leader behaviors involve working within existing systems to ensure that the mission is appropriately pursued. An individual acting as a transactional leader promotes organizational stability and incremental improvements. In contrast, transformational leadership behaviors involve inspiring followers to work to achieve a new vision and implement major change in an organization. A transformational leadership style is called for when a nonprofi t is fi rst founded or faces a major crisis or environmental changes that undermine the value of its current mission and approach.

Santropol Roulant has moved back and forth between transactional and trans- formational leaders. For example, when it faced its fi rst fi scal crisis and was left without a formal leader, it brought back one of the initial founders who had proven his ability to radically transform the organization by taking it from concept to reality. He left the executive director position when the need for a transformational leader ended and someone more comfortable with a transactional style could be appointed. Leaders who can easily switch styles offer the most versatility for a nonprofi t.

Effective Leaders Are Self-Aware and Operate Out of a Strong Value System

Knowing and accepting oneself is necessary for personal well-being, growth, self-confi dence, and general success in life. It is also a critical fi rst step in know- ing and accepting others.27 Individuals are unlikely to be good at creating and

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238 Managing Nonprofi t Organizations

maintaining inclusive and diverse organizations without being aware of how they perceive themselves as similar and as different from others.28 Scholars argue that only by understanding themselves can individuals hope to be successful as lead- ers. According to Frances Hesselbein and Alan Shrader, “Leadership is a matter of how to be, not how to do.”29 Robert Quinn provides us with the thought that “each leader is different. Each one has her own unique approach. It is not what they do. It is who they are that matters.”30

Nonprofi t executive directors need to understand their own values, how those values align with the missions of their organizations, and that others may be act- ing based on different sets of values. For all of us, our values are the “deep-seated, pervasive standards that infl uence every aspect of our lives: our moral judgments, our responses to others, [and] our commitments to personal and organizational goals.”31 It is by consciously surfacing our values that we connect deeply to a non- profi t’s mission and become passionate in our work. Clarifying our values helps us make decisions and stay on course.

Without a mission that attracts workers and other supporters, a nonprofi t, no matter its leader’s skills, is likely to fail. Executive directors need to under- stand, believe in, and clearly communicate their organization’s mission. By link- ing it to shared values, they can inspire others to work to achieve that mission. For example, individuals who value safety may be inspired to support nonprofi ts that reduce criminal behavior. Some individuals value education and health, and leaders may call on that value in inspiring them to help schools and hospitals. By emphasizing values that others share, leaders gain widespread support.

Executive directors have a responsibility to leave their nonprofi t if they no longer believe in its mission or values. Their effectiveness is undermined when they stay without agreeing with what the nonprofi t stands for and hopes to accom- plish. This was the case for Candy Lightner, the founding president of MADD (Mothers Against Drunk Driving). She left the organization when it changed its goals to emphasize problems with drinking alcohol that were unrelated to drunk driving. She explained, “It has become far more neo-prohibitionist than I ever wanted or envisioned. I didn’t start MADD to deal with alcohol. I started MADD to deal with the issue of drunk driving.”32

Exemplary leaders embody the values that they promote. When their vision for what they hope to accomplish in life aligns with an organizational vision, they can act with integrity on their own behalf as well as on behalf of the organization, nurturing relationships that help them and the organization at the same time. Santropol Roulant’s nine core principles of engagement (Exhibit 10.2) show the values one nonprofi t is attempting to embed as the fundamental basis for all its actions. Its leaders believe that the nonprofi t’s successes are due to its following these principles.

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Executive Directors and Leadership 239

EXHIBIT 10.2. SANTROPOL ROULANT’S NINE CORE PRINCIPLES OF ENGAGEMENT

1. People as gifts—Each person who comes in contact with Santropol Roulant is seen as a whole person with many dimensions that, when given space to fl ourish, feed the organization’s vibrancy, capacity to innovate, and overall effectiveness.

2. Relational productivity—Creating the space and skills for healthy interpersonal and group communication are essential and highly productive aspects of organi- zational life.

3. Comfort with change—We embrace change and uncertainty as opportunities to learn and evolve. For a youth-run organization such as Santropol Roulant, staff and volunteer turnover are necessary and positive elements of our organizational rhythm.

4. Cultivating individual learning and organizational creativity—We value personal growth, curiosity, and play as essential to Santropol Roulant’s dynamism and productivity.

5. Collaborative leadership—We strive to be deeply participatory, sharing decision- making and leadership in a way that contributes to everyone’s learning and growth while we deliver on our mission.

6. The importance of space—We pay attention to the state and arrangement of the physical space as it affects the way people relate to the organization and to each other.

7. Gravitational structuring—We invite people to involve themselves in the tasks, projects, conversations, and decisions that they are drawn to based on their own interests and curiosities.

8. Coherence—We aim to live our deepest values in all our relationships: with cli- ents, staff, board members, volunteers, funders, partners, neighbors, etc.

9. Community building—We strive to become a living expression of the change we want to see in the world, rather than simply an instrument for that change.

It has long been known that building and maintaining trust is a critical lead- ership skill. People are more likely to collaborate and follow the directions of others when they view those others as trustworthy.33 When leaders’ values guide them and are transparent to others, their actions become predictable and their decisions understandable. This leads to the development and maintenance of trust. Jurkiewicz and Massey explain that leaders should not be preoccupied with trying to please others. Instead, they can earn respect by making tough deci- sions based upon principled criteria, taking responsibility for those decisions, and

Source: Santropol Roulant, “Santropol Roulant’s Core Principles of Engagement” (n.d.), http:// hrcouncil.ca/hr-toolkit/documents/SR_Core_Principles.pdf. Reprinted by permission of Santropol Roulant.

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240 Managing Nonprofi t Organizations

proceeding on their chosen path with conviction.34 The ability to demonstrate consistent adherence to values and ethical standards may be even more important for a leader of a nonprofi t organization than for one in the for-profi t business sec- tor. Thomas Jeavons argues that in order to be entrusted with scarce resources, nonprofi t executive directors need to appear trustworthy, ethical, and willing to uphold higher values in their organization’s operations.35

In addition to being aware of their personal values and how those fi t with their nonprofi t’s values, leaders should be aware of their weaknesses and strengths. Rather than focusing energy on trying to improve their weak areas, leaders can compensate for them.36 For example, if leaders know they are not great at setting standards, they can join with someone who is good at spearheading that activity. If they are aware that they tend to sound overly authoritarian, they can delegate decisions to teams and take a laissez faire approach to give the teams the space and freedom to reach consensus without a leader’s involvement. Knowing their strengths, they can devote time and effort to developing situations that work well with their strongest leadership styles. For example, when leaders know they are good at motivating others through passionate speeches, they can seek out oppor- tunities for public speaking.

Being self-aware is also a critical component of cultural competency, which is the ability to understand, communicate with, and interact effectively with people of different cultures and backgrounds. Cultural identities may be related to race, ethnicity, nationality, gender, age, sexual orientation, physical abilities, class, job status, language, religion, and immigrant status. To have an inclusive workplace, nonprofi t leaders need to be aware of their assumptions, beliefs, and biases and the ways in which these traits may affect who feels welcome and respected in their organization and who does not.37 By being self-aware of their intuitive approach to diversity, they can better counter any of their tendencies that might undermine inclusion. CompassPoint Nonprofi t Services presents lessons from its Cultural Competence Learning Initiative, including one that emphasizes the importance of leader self-awareness. It tells the story of an executive director who was able to move multiculturalism forward only after recognizing that she was not asserting needed leadership because she was white and thought she should allow people of color to lead the effort. Once she recognized that she needed to champion diversity and inclusion just as she championed other initiatives, the nonprofi t was able to make more progress.38

Effective Leaders Integrate and Balance Roles and Perspectives

Lee Bolman and Terrence Deal tell us that effective leaders use multiple frames or ways of looking at and interpreting a situation.39 These frames present different lenses

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for understanding and responding to their organization’s challenges. Depending on the frame, different leadership behaviors may be chosen, so it is important to integrate all the frames before strategizing about how to respond to a situation. The frames are

• Structural: attention to goals, expectations, procedures, and policies

• Symbolic: attention to shared beliefs, values, and norms

• Human resources: attention to hopes, relationships, and preferences

• Political: attention to power, confl ict, and shared interests in relationships

These frames have been applied to nonprofi ts by Roger Herman and Richard Heimovics.40 In their research, Herman and Heimovics found that effective non- profi t executive directors are more likely than their less effective counterparts to use a political frame. The political frame gives them a perspective on how con- fl icts, power relationships, and external factors infl uence decisions and policies. In using this frame they apply confl ict resolution skills and work with coalitions and interest groups. The researchers found that in general, nonprofi t executive direc- tors tend to strongly emphasize the structural frame. When using the structural frame, they set clear goals, expectations, procedures, and policies. Frames found to be used less frequently by nonprofi t executive directors are the human resources and symbolic frames. When using the human resources frame, they are responsive to hopes, relationships, and preferences and act to empower others. Their use of the symbolic frame involves creating shared beliefs, values, and norms, in other words, fostering a shared organizational culture.

The most effective nonprofi t leaders are those that can look at a situation from multiple frames and act in ways that address the needs highlighted by each view. For example, an effective executive director may show staff and board members how being responsive to powerful external interest groups is consistent with organizational values (symbolic frame) and can result in rewards for staff members (human resources frame), and that established procedures are being followed (structural frame) that improve the bargaining position of the nonprofi t (political frame).

Sometimes applying multiple frames leads executive directors to act in seemingly incompatible roles. They exhibit behavioral complexity, a term that cap- tures how leaders respond to competing expectations of numerous constituen- cies by assuming numerous roles.41 Behavioral complexity theory and related empirical fi ndings suggest that leaders need to balance roles rather than see them as either-or options,42 just as they need to look at situations from multiple perspectives.

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Effective Leaders Use Power and Infl uence Wisely

Given the importance of political skills to a nonprofi t executive director, it is useful to review sources of power that the director and others may possess as well as infl u- ence strategies that they may adopt. Effectiveness in infl uencing others can be pre- dicted by organizational and personal sources of power as well as strategies used.43

Many people have negative reactions to the idea of strategizing about build- ing and using power. Some worry that too much power held by an individual may lead to abuses of power and may not be in the best interest of the collec- tive group. Their concerns are valid. Research has shown that the more power an organizational leader has, the less likely he or she is to listen to others and consider their advice.44 Powerful people tend to have an excessive belief in their own judgment. Astute executive directors understand that politics and use of power are inevitable and that by understanding power dynamics, and being open to others’ ideas, they can better forward the interests of their organization.45 As Rosabeth Moss Kanter and other scholars have explained, leaders can use their power to intercede favorably for someone in trouble, attract resources, get access to other decision makers, set agendas, acquire useful information, and build a high-performing workforce.46

Personal and Positional Sources of Power Personal as well as organizational characteristics affect how much power one per- son has over another. In analyzing the power dynamics in a situation it is useful to use the list developed by John French and Bertram Raven to look at the types of personal and positional power leaders have: legitimate, reward, coercive, refer- ent, expert, effort-related, centrality-related, criticality-related, fl exibility-related, visibility-related, and relevance-related.47

Legitimate power comes from having authority from followers to exert infl uence over them. Individuals who are seen as legitimate leaders tend to be perceived as able to make good on their commitments to followers. Legitimate power often comes from the position one holds. Thus executive directors have a ready source of legitimate power over their staff by virtue of their job title. However, executive directors can lose legitimacy despite their title if they act outside the values and norms of their followers or appear to be ineffectual in getting tasks done. They also may lose power as soon as they lose their title. Their staff may be doing what they ask because of their position, not them, so when they change roles they may fi nd that their infl uence over certain people is lost. Thus a founder who moves from an executive director role to a board member or other volunteer role may fi nd that he or she now has less infl uence over the daily operations of the nonprofi t.

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Reward power arises from the ability to control rewards and positive outcomes for others. It is closely related to coercive power, the ability to influence others through fear of punishment. In response to reward power, people comply in order to receive positive benefi ts, whereas coercive power leads to compliance to avoid negative consequences. Rewards and punishments that may be under a nonprofi t executive director’s control include but are not limited to money, information, work assignments, work shifts, acceptance, and praise and criticism. In Chapter Twelve we will discuss in detail the use of rewards and punishments (that is, posi- tive and negative incentives) as a motivating tool.

Executive directors with referent power have influence over others because they are personally liked by them. Charismatic individuals have high referent power. People enjoy being around them, admire them, and want to please them. Agreeable people also tend to have referent power. They make friends easily, and their friends are willing to support them out of friendship and personal lik- ing. There is evidence that an attractive appearance is linked to referent power. Attractive people have been found to be more successful, which may be due to assumptions by followers that they have socially desirable personality character- istics and are virtuous and effective.48 Those with high referent power are more likely to serve as role models than are those with low referent power. By increasing their referent power, executive directors may fi nd that others are more likely to emulate their attitudes and behaviors.

Executive directors with expert power have technical knowledge and expertise that others rely upon. Having unique and useful knowledge is a source of power. Individuals are likely to follow the direction or instructions of someone who, they believe, understands an issue or problem better than they do. However, there is a downside to an executive director’s development of highly specialized knowl- edge. The investment required for a high level of expertise may not be worth the benefi ts if having a general understanding is suffi cient given one’s other sources of power. Also, when the director is the only person with a particular expertise, then the nonprofi t has no one who can monitor for improprieties or serve as a backup to handle situations when the director cannot be involved due to being on vacation or sick leave, having a confl ict of interest, or having to resolve other priorities. Having an executive director with strong expert power can also add to the diffi culties faced by a nonprofi t when that director leaves unexpectedly and there is no succession plan in place. The knowledge the director has may be lost. Succession planning should involve developing individuals who share or can replace the current executive director’s expertise.

Individuals can obtain effort-related power through active, dependable perfor- mance. The more that they can show useful effort, the more they are likely to be relied on by others and given discretion to act without supervision. They may

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244 Managing Nonprofi t Organizations

be sought out for new opportunities or deferred to because of their past per- formance and willingness to work hard. There is also a sense of indebtedness or obligation that can build over time out of gratitude for past effort. This can explain reluctance to fi re an executive director with long years of experience in a nonprofi t even when current performance is poor. The extraordinary effort that the director exerted in the past carries power into the present.

There are fi ve forms of power that individuals can acquire through their position in an organization or network. One is centrality-related power, which comes from controlling how others interact and gain information. As described earlier in this chapter, executive directors typically have centrality-related power with their boards, what we called executive centrality. They tend to have more information than the board does on the nonprofi t’s operations and performance outcomes. They can present this information in a way that makes them look effective and encour- ages others to go along with their recommendations. They may also control the fl ow of important information to staff, clients, and other stakeholders.

Criticality-related power comes from performance of tasks critical to others’ per- formance. The more one’s performance affects others’ performance, the more power one has. If others can work around a person without much trouble or concern, that person lacks criticality-related power. This explains why volunteers sometimes feel powerless in a nonprofi t when employees’ work does not depend on the volunteers’ performance. Volunteer tasks are peripheral to the employees’ tasks. If an executive director has criticality-related power, others understand that the director’s success is critical to the nonprofi t’s success. There are many ways an executive director can increase criticality-related power, for example, by being responsible for acquiring and allocating resources for others to perform their jobs, composing work teams, and approving and contributing to others’ assignments.

Discretion over what one does provides fl exibility-related power. It is important for a nonprofi t to have checks and balances so that this source of power is not abused. Directors who have too much fl exibility can create situations that are unethical and ineffective. For example, William Aramony of the United Way of America had discretion to use funds to pay for expenses unrelated to the non- profi t’s mission and to implement practices that ended up being inconsistent with the organization’s values and the law. As a Time magazine article stated, “In a way, William Aramony was a victim of his own success—and excess.”49 The United Way board had provided Aramony with much independence. Perhaps the board felt comfortable with this given that he had been president of the nonprofi t for twenty-one years and was credited with dramatically increasing its receipts.

Visibility-related power comes from being in a position where one can be known and seen by infl uential others. Executive directors who become popular with the media have power because of this. Others are reluctant to challenge them given

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how well they are known. They become highly identifi ed with their nonprofi t. If they do fall in stature, it can have serious repercussions for their nonprofi t, as the United Way found with President Aramony when his indiscretions were uncovered and he was convicted of embezzlement. Donations to United Ways across the country dropped. However, the visibility-related power of an executive director can also be a benefi t to a nonprofi t. The visibility can lead to doors being opened for the director that bring more resources to the organization. Positive attention and awareness can help with mission achievement.

Executive directors can also have relevance-related power. The ability to control the tasks and outcomes of high priority to others gives power. The more relevant a nonprofi t’s mission is to community leaders and funders, for example, the more power its executive director is likely to have with them. At Santropol Roulant the executive director is highly relevant to the volunteers who use the nonprofi t as a way to connect to the community, and to the clients who rely on meal deliveries as a source of physical and social sustenance.

Strategies for Infl uencing Others We now turn to a review of three general strategies for infl uencing others: retribu- tion, reciprocity, and reason.50 These strategies are not foolproof, and their ethical appropriateness will vary across situations. It may be possible for each strategy to be thwarted by the person who is the object of the infl uence attempt.51 Still, it is useful for executive directors to be able to use these strategies wisely and recognize when others are using them.

Retribution involves forcing others to do what the infl uencer wants. This can take the form of intimidation or coercion. For example, an executive director may threaten to fi re an employee if the employee’s performance does not improve. An advantage of the retribution approach is that it can result in quick action. A disadvantage is that it may raise concerns about violation of rights and may engender resentment, harming the relationship of the infl uencer and the person being infl uenced. Others observing the infl uence attempt may see it as exploitative, too aggressive, or uncooperative. The desired behavior may be unsustainable without an escalation of threats. A retribution strategy typically requires a con- tinual threat to maintain behaviors, unless the individual being infl uenced gets over any resentment and fi nds intrinsic value in the performance of the desired behaviors. It may be possible to weaken a retribution strategy by pointing out mutual dependencies and making counterthreats.

An infl uence strategy with less risk is reciprocity, in which the individual encour- ages others to want to do what the individual desires. Reciprocity can involve obligating others or bargaining with others. For example, an executive director may offer to increase the budget of a department if the department head takes

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246 Managing Nonprofi t Organizations

on additional tasks. For this strategy to work, the actors involved typically need to be seen as trustworthy and to hold resources seen as valuable by the other party. It is helpful if there are established norms for exchanges and adequate time for negotiating. This strategy may encourage an instrumental, “what’s in it for me?” view and the assumption that interactions with the infl uencer are negotiable. In response to reciprocity infl uence attempts, the person being infl uenced may fi nd it helpful to his or her interests to point out any manipulative and high-pressure bargaining tactics and suggest alternative exchange processes.

Reason is the third general infl uence strategy. Through reason a leader can appeal to personal values and present facts that stress merits and needs. For exam- ple, the executive director can show an employee that showing up late for work is a hardship for clients and goes against the employee’s belief that one should always show respect for others. The desired behavior may be sustainable without further intervention when a reasoning strategy is used and is based on shared goals and values. With a reason strategy the person being infl uenced may accept the inherent merit of performing the desired behavior and internalize the desire to see it performed. This strategy may require more time than retribution or reciprocity, due to the need to build trust, discuss the common goals and values related to the situation, and resolve any disagreements or misunderstandings. As trust builds, this strategy may become more effective and effi cient to use. A rea- soning infl uence strategy may be undermined by highlighting those beliefs, values, and goals that are not shared; affi rming a right to refuse a request; and ending the discussion before any agreement is reached.

Strong Leaders and Shared Leadership

Some of the same characteristics that make for a strong leader may in fact weaken a nonprofit. In this section we discuss ways in which a dominant leader may jeopardize an organization, and we suggest that nonprofi ts encourage sharing of leadership responsibilities.

Charismatic Leadership

Leaders with charisma have personal magnetism, a quality that inspires uncriti- cal devotion from followers. Under charismatic leadership, followers are swayed by the force of their leader’s personality, seeing the leader as having exceptional, sometimes even superhuman qualities. Followers’ enthusiasm for a charismatic leader can bring them to rally around the leader’s vision and work under the leader’s direction. At the same time, followers’ fervent devotion and enthusiasm may result

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in their overlooking any negative qualities of the leader and may create resistance to anyone opposing or replacing the leader.

Although charismatic leaders can be quite effective in the short term, some scholars argue that a charismatic leader can pose a risk to the organization in the long term. Followers want the approval of charismatic leaders, and are motivated to please the leader rather than to act based on shared vision or values. The long- term sustainability of a nonprofi t can be harmed when individuals affi liate with the organization because they are drawn to its charismatic leader rather than feeling a commitment to the organization’s mission. Some authors go so far as to suggest that too much dependence on the personal talents of any leader may be harmful. As John Gardner explains, some “leaders are, perhaps, very talented to solve problems personally, but if they fail when it comes to institutionalizing this process, their departure severely weakens the organizations they leave behind.”52

Leaders do not have to be charismatic to inspire followers. Numerous exam- ples exist of effective leaders who lacked charisma. This point is reinforced in Shirley Sagawa and Deborah Jospin’s book on charismatic nonprofi t organiza- tions.53 They fi nd that a nonprofi t can develop a high degree of social capital even when its leaders are not individuals that attract followers through the force of their own personalities. Leaders can build strong connections among their nonprofi t’s core constituents and create bridges to other groups or individuals outside this core group. The strength of these connections can motivate the individuals involved to pursue activities that support an organizational vision. The individuals are not drawn to each other due to their desire to follow a single charismatic leader’s direc- tion but rather because of coherence with the organizational mission.

Founder Executive Directors

Some of the most charismatic leaders of nonprofi ts also happen to be the found- ers. They possess the talents, knowledge, and skills needed to bring their dreams to life. Many nonprofi ts owe their establishment and continued existence to the deep personal commitment their founders brought to them, as well as to the founders’ personal magnetism that attracts followers. However, having a strong founder may leave a nonprofi t open to founder’s syndrome, in which the founder has too much control over the organization, leaving it vulnerable. A founder’s weaknesses may haunt an organization even after the founder’s departure.

Because of the strong personal investment that founders who are executive directors have in their organizations, they may have trouble sharing power with others in the nonprofi t. In one of the few available studies of founders versus non- founders, Stephen Block and Steven Rosenberg discovered that founders tended to have more control over the board than nonfounders did.54 Founder-led nonprofi ts

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248 Managing Nonprofi t Organizations

had boards that met less frequently than boards in nonprofi ts run by nonfounders did, and the founder executive director was more likely to set the board agenda and have more infl uence in swaying board votes. Founders also tended to have a stronger belief than nonfounders that they should play an instrumental role in recruiting board members. When a board does not have adequate power over a founding executive director, the founder may see the board as accountable to him or her rather than the other way around.

A founder may have leadership traits that are more appropriate for the founding of a nonprofi t than for its long-term management. Looking at nonprof- its working in developing countries, L. David Brown and Archana Kalegaonkar discuss how gifted visionaries and entrepreneurial founders can be amateurs at organizing and managing organizations.55 Susan Chambre and Naomi Fatt also noted managerial and technical failings among charismatic leaders in their study of newly established nonprofi ts addressing AIDS.56 Although founders may have a talent for rallying others around a vision, in doing so they may focus more atten- tion on gaining external support than establishing effective internal procedures.

What happens in the formative years of a nonprofi t is critical to its long-term survival. A founder can imprint his or her agenda and vision on an organization, and initial policies and practices can endure for many years. Allowing a dominant founder to have too much control in a nonprofi t may result in embedded manage- rial challenges, legacies of whatever weaknesses the founder had. If the founder was highly skilled and competent, other staff may have relied too heavily on him or her, making it diffi cult to fi ll the skills gap when the founder leaves. A founder who does not build capacity in others as a backup to his or her own abilities may leave the nonprofi t with staff who have diffi culty adjusting to the greater levels of power and responsibility they have after the founder’s departure.

By proactively preparing for the departure of a founder, or in fact any execu- tive director, a nonprofi t may be able to avoid some of the vulnerabilities that can arise from these transitions, especially if efforts are made to avoid overdependence on the director in the fi rst place. In some cases the departure of a founder who has been serving as the executive director gives the organization an opportunity to become stronger. Miriam Wood found that when organizations lose a founder, they tend to hire executive directors who focus on internal management, which is a common area of weakness in a founder-led nonprofi t.57

Shared Leadership

Relying heavily on a charismatic leader or founder is clearly not a sustainable model. Even having a highly respected executive director can have a downside for a nonprofi t. The deference given the director may make it diffi cult to encourage

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wide representation in decision making and build broad leadership capacity. Some scholars argue that leadership needs to be embedded in a community, not in a single individual with an agenda.58 Sonia Ospina, Bethany Godsoe, and Ellen Schall explain that leadership creation is a collective process; it should not be left in the hands of one individual.59 The message for nonprofi t executive directors from this line of thought is that leadership should be shared.60 Co-leadership and empowerment of others is critical for nonprofi t executive directors to be effective in the short and long term.

This is the approach taken by Santropol Roulant. Nobody serving as its exec- utive director expects to be in this job for long. Executive directors at the Roulant know they have to prepare the next generation of leaders. Therefore they push decision making down through the organization. The Roulant defi nes itself as a youth-led organization, and plans on executive directors aging out of the posi- tion. New executive directors know there are others in the organization whom they can rely on to have useful skills, knowledge, and contacts. They see it as their responsibility to ensure that power is shared with others in the organization with leadership interests.

As Santropol Roulant has learned, leadership can be found and should be fostered throughout an organization. Chairs of committees and program heads can take on leadership tasks. Advisory groups and task forces can provide leader- ship through their contributions of advice and other resources. Interim directors, drawn from leaders previously retired from the nonprofi t, may serve in temporary leadership roles. By reducing the importance of any one person to the organiza- tion, a nonprofi t can develop a strong, broad-based foundation of current and future leaders.

Leadership Transitions and Leader Development

A change of executive director can be a trying time for a nonprofi t. Staff and board members who have come to rely on a strong executive director may fi nd that the organization does not have the internal capacity to fi ll the departing leader’s shoes. The departure may also come with a loss of supporters, those who were involved in the organization because they were drawn to the director rather than to the organizational mission. When an executive director is asked to resign by a board, a different array of challenges may emerge. The requested resignation may signal dissatisfaction with the situation but not necessarily a plan for moving forward. The board may attempt to take over management functions if the executive position is left vacant. An interim or new executive director may need to assess the situation quickly and determine whether he or she agrees with

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250 Managing Nonprofi t Organizations

the views of the board, staff, and other stakeholders about what is needed and feasible. A poor choice of a new executive director or a long period without one may compound problems and make it diffi cult for the nonprofi t to survive the transition and regain momentum.

Managing nonprofi t executive transitions has become an industry. Numerous consulting fi rms and transition guides are available to assist nonprofi ts in address- ing leadership succession proactively or responding quickly to an emergency need for a new executive director. Still, few nonprofi ts have an executive succession plan. A recent survey of a random sample of U.S. nonprofi ts showed that even though respondents recognized the importance of succession planning, few were in organizations that were ready for a transition. No internal pipeline for talent had been developed, no emergency succession plan was available, the board and the director had not discussed the possibility of succession, and no procedures had been established to handle an executive leadership change.61

As when hiring for any position, it is helpful to have procedures for identify- ing potential candidates, encouraging interest, screening prospects, preparing a realistic job preview, interviewing, orienting the person chosen for the position, and supporting the new hire. It may also be necessary to select an interim director to fi ll the void while a permanent choice is being identifi ed and recruited. Boards should consider whether the previous executive director can and should be on hand to help with the selection and orientation process and reduce any tensions from the transition.

It is the responsibility of the board to hire the executive director, leaving the director to hire all other staff members. A key transition task is for the board to assess the organization, determine what type of director is needed at this stage of the nonprofi t’s development, and defi ne the existing and projected organizational and environmental challenges. The board should also plan to be on hand to offer support to the director as he or she adjusts to new responsibilities. Asking the director for thirty- and ninety-day workplans for the fi rst months on the job may facilitate the director’s prioritization of tasks and ensure that the board’s and the director’s expectations for early job performance are consistent.

According to research by Michael Allison, boards face three typical threats to successful transitions: (1) they underestimate the risks and costs of bad hires; (2) they are unprepared for the hiring task; and (3) they fail to take advantage of the opportunities in executive director transitions.62 Hiring a new executive leader can be a time for refl ection and renewal. Boards can benefi t their nonprofi ts by using the loss of a director as an impetus for a careful assessment of the organiza- tion and the priority roles and responsibilities for the new leader.

Candidates for the executive director position may be internal or exter- nal. There is some evidence, though largely anecdotal, that nonprofi t executive

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directors are unlikely to move to the director’s slot in another nonprofi t.63 Perhaps more typically, executive director roles are fi lled by nonprofi t employees who move up the ranks inside a nonprofi t or move from one nonprofi t to another to gain more leadership responsibility. Although many employees in the nonprofi t sector stay in that sector for their entire working careers, sector shifting is not unusual.64 Some scholars expect that the sector may see an infl ux of formerly retired individu- als to replace Baby Boomers who retire. These new leaders may have leadership experience in government or for-profi t businesses. In addition, there has been tre- mendous growth in higher education programs to prepare individuals for work in the nonprofi t sector.65 Graduates of these programs may add to the labor pool for nonprofi t executives.

The 2006 Daring to Lead report created intense interest in a projected lead- ership defi cit for the nonprofi t sector. The study revealed that many nonprofi t executives planned to leave their jobs within fi ve years.66 That same year The Bridgespan Group estimated that a large number of senior managers would be needed in the sector over the next decade.67 Adding to concerns about future shortages of qualified leaders are 2007 and 2008 study reports that suggest younger workers are reluctant to become nonprofi t CEOs. Some of the reasons given for this reluctance are the same as those given for why current leaders plan to leave their jobs: lack of adequate compensation, diffi culty in maintaining a healthy work-life balance, and fundraising demands. In addition, some young nonprofi t professionals reported that they were frustrated by lack of mentoring from senior executives.68

Although the projected leadership defi cit has produced a range of recom- mendations for nurturing future leaders, there are doubts about how serious this so-called crisis actually is. In 2009, Janet Johnson suggested that the labor market and nonprofi t organizations will adjust in response to supply and demand. She expects higher executive pay, increased labor market participation by older work- ers, skill acquisition among younger workers, skill sharing among volunteers and board members, venture philanthropy, and even a reshaping of the composition of the sector to mitigate Baby Boomer retirements.69 Not all current executive directors will retire at once. As younger individuals rise to executive positions, they will have the opportunity to slowly reshape expectations about the nature of the work of a nonprofi t executive director. Increasing professionalization of the sector through college programs, accreditation systems, and regulatory envi- ronments may also shift the general nature of the work and the rewards and challenges of it.

Internal leadership development programs may encourage and prepare current staff to take over executive director positions, as demonstrated by the experience of Santropol Roulant. To encourage movement up the ranks, staff

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252 Managing Nonprofi t Organizations

can be given opportunities to impress board members with their leadership abili- ties and encouraged to enroll in courses to improve their leadership abilities and credentials. Promising staff members can be supported in efforts to develop their networks. Identifying and nurturing staff with the potential to take on the executive director role can help to ensure that an internal leadership succession goes smoothly.

Many university programs explicitly train students for jobs as nonprofi t lead- ers. Current executive directors have been surveyed to fi nd out what they believe are the most important training topics and the results used to design educational programs.70 The choice of topics has remained relatively stable over time, with slight variations based on the characteristics of the organization to be led and each respondent’s background. In one study the following topics were ranked as highly important to nonprofi t executive directors: leadership, ethics and val- ues, long-term planning, fi nancial management, conducting effective meetings, creativity, public relations, interpersonal skills, short-term planning, managing change, confl ict management, program evaluation, collaboration and networking, fundraising, quality management, public speaking, needs assessment, managing a diverse workforce, personal growth and stress management, volunteer man- agement, marketing, staff compensation and evaluation, board recruitment and development, and grantwriting.71 We can easily add to this list, for example by including cultural sensitivity and entrepreneurial skills, both of which are topics receiving a fair amount of attention from writers interested in leadership and capacity building.72 The NASPAA and NACC standards for nonprofi t manage- ment programs, discussed in Chapter One and outlined in the Appendix, also provide a sense of what is needed to prepare future leaders.

It is the rare executive director who has a full range of highly developed leadership skills. Effective directors will look for ways to develop needed skills and to empower others who have skills that they are lacking. They can also fi nd ways to mitigate their weaknesses through substitutes for leadership. These substi- tutes are organizational factors that reduce the need for active leadership. For example, a strong organizational culture may carry shared values and norms that shape behaviors and beliefs. Formal policies, rules, and standardized pro- cedures can reduce the need for task-oriented leadership. Professional training and certifi cations can guide behaviors, making it less necessary for leaders to inspire commitment to high work quality. Nonprofi t workers with high self- confi dence and competence may feel less need for an emotional connection with and support from a leader than workers do who are unsure of expectations and their own abilities. Highly cohesive teams may fi nd that they can guide and support each other without the help of someone with hierarchical authority over them.

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Concluding Thoughts

Executive directors are symbols for their organizations. They need to have a rep- ertoire of styles, perspectives, roles, and behaviors from which to draw depending on the situation. It is their responsibility to share leadership with others to ensure the long-term sustainability of the organization. Effective leadership requires skills in infl uencing others, either directly or indirectly, and using power wisely. Whether it is fair or not, our human tendency is to hold nonprofi t executive direc- tors accountable for everything about their nonprofi ts’ performance, whether praiseworthy or blameworthy. By developing leadership skills in both themselves and potential successors, encouraging shared leadership, and using leadership substitutes, nonprofi t executive directors can strengthen their organizations and build sustainability.

In the next chapter we discuss human resource management. All nonprofi t leaders, no matter the size of their organization, can benefi t from strategically involving individuals to carry out the mission. Human resource management systems and strategies can help with this endeavor.

Questions for Consideration

1. This chapter argues that there are dangers in having a very powerful and dominant executive director. Do you agree with this argument? Why or why not?

2. What are your leadership strengths and weaknesses? In what types of situa- tions do you think you excel as a leader?

Exercises

Exercise 10.1: Leadership Lessons

Interview a nonprofit executive director and ask what lessons he or she has learned about leading a nonprofi t. Report back on how this person’s leadership lessons fi t with the ideas in the chapter.

Exercise 10.2: Leadership Style

Select and watch a video on YouTube featuring an executive director of a nonprofi t. What type of leader do you think this person is—transformational,

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254 Managing Nonprofi t Organizations

transactional, or both? Were any task-oriented or relationship-oriented leader- ship behaviors illustrated in the video?

Exercise 10.3: Management and Leadership Tasks

Find a job listing for a nonprofi t executive director. What management tasks are described in the ad? What leadership tasks are described? How attractive is this job to you? Which features are most attractive, and which are least attractive?

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255

CHAPTER ELEVEN

STRATEGIC HUMAN RESOURCE MANAGEMENT

Liz O’Neill, executive director of Big Brothers Big Sisters: Edmonton & Area (BBBSE), understands the importance of human resources to her organization.1 In 2010, the nonprofi t was able to serve 3,500 children with 2,700 volunteers.2 To provide effective one-on-one mentor- ing to children in need and their families, BBBSE puts the right people in the right places to do the right things. Under O’Neill’s tenure the organization has thrived. In one year alone, it doubled the number of children served without doubling or overtaxing the BBBSE staff. The continual, demand-driven growth has been managed by careful attention to human resources, participating in a shared services arrangement with other agencies, and building an organizational culture that values paid and volunteer employees and has a strong client and service delivery focus.

O’Neill credits a reinvented human resource management system with being a key factor in the organization’s success. BBBSE participated in a pilot program that provided assistance and best-practice advice on all areas of human resource management to executive directors of six nonprofi ts in the Edmonton area. The directors reviewed their organizations looking for opportu- nities to increase effi ciency without sacrifi cing quality. During the pilot, O’Neill was able to fi nd ways to partner with other agencies to better meet client needs, and to design a staffi ng structure that would increase the engagement of employees and the technical and social support given them. She got the encouragement and insight she needed to step back and look at the big picture, rather than focusing only on immediate staff issues. As a result, she streamlined the service delivery process, resulting in fi nancial savings. Some of the savings were used to create new positions for a manager of human resources and a manager of mission effectiveness. Eventually, staff who no longer fi t the new delivery approach were let go in a process that gave them support as they

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256 Managing Nonprofi t Organizations

looked for other employment. This was a diffi cult but needed process, as O’Neill describes in a video about the BBBSE.3

The more intentional focus on human resources and its integration with other functions has been worth the effort. Volunteer and paid staff retention is high, though the nonprofi t struggles to retain individuals with child-care challenges. Workers have a common understanding of what needs to be done and a shared vision of what they want to achieve. They have opportunities to give feedback, voice concerns, participate in the development of new programs, and engage in the annual budgeting and planning process. Local advisory committees and representatives from area agencies contribute their ideas to help BBBSE. Everyone involved with the nonprofi t is invited to training sessions to ensure that board members, staff, and volunteers all share a common language. O’Neill continues to work to build capacity in her workforce, in agencies sharing services with BBBSE, and in other Big Brothers Big Sisters chapters.

� � �

The two previous chapters examined nonprofi t boards and executive directors. This chapter focuses on the workers who carry out the operations of the orga- nization, primarily the paid and volunteer staff. Boards and executive directors depend on the capacity of these workers to effectively pursue their nonprofi ts’ missions. Therefore human resource management considerations should be inte- grated into strategic planning processes, evaluation practices, and decision making on budgets and action plans. O’Neill discovered with BBBSE that taking a proac- tive and comprehensive approach to human resources, rather than simply react- ing to day-to-day staff issues, increased her nonprofi t’s ability to grow without requiring additional fi nancial resources. Other nonprofi ts may benefi t similarly from looking for ways to improve human resource capacity while taking into account fi nancial constraints, labor supply, and service demands.

In this chapter we defi ne human resource (HR) capacity and strategic HR management. Then we look at how to estimate HR capacity needed for the future. Next, we explain the cycle of involvement for workers, a four-stage model that incorporates basic HR functions and activities, beginning with initial involve- ment and moving through development, maintenance, and separation. The next chapter will add more information and examples on the topic of infl uencing worker motivation and performance in the nonprofi t sector.

Human Resource Capacity and Human Resource Management

Human resource capacity refers to the abilities, experience, and talent of the peo- ple who conduct the work of the organization internally—the board, execu- tive director, paid staff, and volunteers, and for some nonprofi ts, the members.

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HR capacity may also incorporate contingent workers, those individuals who work for the nonprofi t on a nonpermanent basis. Contingent workers include con- sultants, independent contractors, freelancers, temporary contract workers hired through an external labor fi rm, student interns, loaned executives, workers paid with government stipends (for example, AmeriCorps VISTA, RSVP, and Peace Corps members), court-assigned community service workers, and welfare recipi- ents required to do community service.

Human resource management refers to the policies and practices in place to mobilize and maximize this capacity. HR management infl uences the workplace culture and working conditions as well as the skills, knowledge, and abilities that individuals bring to their jobs and that can be developed through training and other means. Strategic HR management provides managers with tools and techniques to motivate their workers and to reduce risks for the workers, the organization, and those served. For example, it can enforce reward systems that are fair and ensure that worker safety and any rights to dispute resolution are protected.

If the nonprofi t’s current HR capacity does not match its current or projected HR needs, then new individuals need to be started on the cycle of involvement or current workers’ abilities need to be developed and better leveraged so service demands can be met with the existing workforce. Key questions are: Which tasks should be contracted out and which performed in-house? and, What types of workers should be recruited for the tasks—for example, should they be paid or volunteer? In cases where resources are severely constrained—due to the loss of a large grant, for example—a nonprofi t may have to scale back its HR capacity. Key questions then are: How, if at all, can capacity be maintained at less cost? or, What type of HR capacity should be let go if a shortage in at least one skill, knowledge, or ability area is unavoidable? BBBSE offers us an example of how a review of HR capacity and HR management gave its executive director the idea that she could serve more clients with the same number of volunteers within the existing budget, but only if the volunteers were better supported through a new HR director position and redesign of the service delivery system.

Assessing Current HR Capacity

To assess HR capacity, nonprofi t leaders need a clear understanding of what cur- rent workers are able and willing to do. A simple way to evaluate a nonprofi t’s current HR capacity is to list the main tasks that need to be done in the organiza- tion and match each task to the abilities required to perform it. The next step is to conduct an abilities inventory. This inventory captures the abilities that workers are or could be demonstrating. The abilities may be recognizable from a review of job descriptions for fi lled positions as well as from individual worker characteristics such

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258 Managing Nonprofi t Organizations

as education obtained, certifi cates and licenses earned, work experience (volunteer and paid), hobbies, and demonstrated abilities such as foreign language skills.

Even when workers have the ability, they may not be willing to perform par- ticular tasks. Performance assessments, worker surveys, individualized develop- ment plans, and personal interviews can help to determine whether a person is ready and motivated to take on different responsibilities. Additional training or mentoring may be required to increase confi dence and competency with par- ticular work tasks. Motivational tools may be helpful in increasing the desire to perform assigned tasks well.

An HR matrix can capture gaps between current and desired HR capa- bilities. Tasks that need to be completed to achieve the nonprofi t’s mission are identifi ed on the vertical axis, and available workers are listed on the horizontal axis. Information can be entered for each individual to indicate the abilities they currently have that relate to the task needs, as well as their available time for the desired task activity. The matrix can also show the abilities each individual could be asked to develop based on readiness and time available, and how those poten- tial abilities match tasks that need to be assigned. At BBBSE, O’Neill’s assess- ment of current HR capacity revealed that no one had adequate time or skills to strategically coordinate and support the volunteers and thus that the hiring of a manager of human resources was justifi ed.

Forecasting Demand for Services

A variety of internal and external factors may infl uence future demands for services and thus the HR capacity and HR management that will be needed. Typically, only large, well-resourced nonprofi ts have the time and dollars to conduct sophisticated forecasting of demands for services. However, even the smallest nonprofi ts can track when their services are being used and determine whether demand is exceeding what can be made available given current HR capacity. By collecting data on ser- vices delivered and waiting lists, patterns may be identifi ed that explain peak and low demand times through the year as well as longer-term trends.

All nonprofi ts can look for environmental changes that may lead to signifi cant increases or decreases in service demand. Simple scans of mass media and indus- try-specifi c reports can reveal external conditions likely to affect service demands, such as the forthcoming closure of an agency that will result in its clients searching for new service providers. Questionnaires can be used to see if current clients plan to return for more services. The Internet can be used to fi nd reports on immigra- tion and other trends affecting the geographical community served. What follows is a sampling of factors that can affect service demand. We encourage nonprofi ts to look for additional factors that are important in their specifi c context.

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Strategic Human Resource Management 259

Economic Conditions Economic conditions are a key driver of demand for many nonprofi t services and the size of the available labor pool. For example, as unemployment rises, demands on nonprofi ts that provide food, shelter, and job hunting services rise. When unem- ployment is low, nonprofi ts may need to pay more to compete with other employers for the most qualifi ed workers and may fi nd it more diffi cult to attract volunteers from a reduced supply. Some federal government data point to great resilience in the nonprofi t sector in the United States, despite recessions. One study states that total nonprofi t sector employment grew by 8.8 percent from 2009 to 2010, a period with staggering job losses in the private business sector. There was greater need for services offered through nonprofi ts and funding available to increase HR capacity. Laid-off workers added to the pool of potential paid employees and volunteers available to nonprofi ts. Only one category of nonprofi ts, those with fewer than ten employees, showed a drop in employment. For nonprofi t health care organizations with over a thousand employees, employment was up 16.7 percent,4 due at least partially to the infl ux of government economic recovery funds.5

Population and Demographic Shifts In areas facing population and demographic shifts, nonprofits may discover that their current HR capacity either exceeds or is insuffi cient for the projected demand for their services. If they have excess capacity, they may respond by either reducing the workforce or expanding their service area or mission. In the Washington, D.C., area, for example, nonprofi ts serving low-income immigrants shifted their HR capacity to reach those in need in surrounding counties, moving their focus away from the area near their home offi ces, where the greatest need once existed but where now there are few low-income immigrants.6 Demographic shifts can also change the abilities workers need to have. For example, in a com- munity with an infl ux of immigrants with limited English language skills, local nonprofi ts may seek bilingual staff who can serve this group.

Realization of Mission Some nonprofi ts are fortunate to see the need for their services decline because they or others have been successful in resolving the problem they were founded to address. For example, once polio prevention measures were in place, the March of Dimes needed to fi gure out what to do with its excess HR capacity. Other nonprofi ts fi nd that mission success leads to greater not lesser demand. Nonprofi ts that offer well-received artistic performances may fi nd that future shows are sold out. Nonprofi ts that improve understanding and reduce the stigma of an addic- tion, such as gambling, or a disease, such as mental illness, may fi nd, as they desired, that more individuals seek treatment services.

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260 Managing Nonprofi t Organizations

Natural Environment Some nonprofi ts’ service demands change with conditions in the natural environ- ment. For example, extreme temperatures, storms, and natural disasters can leave individuals in need of services for shelter. Emergency rooms and health clinics experi- ence demands for different types of health services based on time of day and season.

Other Actors in the Service Network A nonprofi t’s service demands are likely to shift when other organizations start, expand, or end the same or similar services. Marketing and awareness campaigns by organizations that complement or compete with a nonprofit may change demand for the nonprofi t’s services. A public information campaign by govern- ment to encourage exercise and better nutrition, for example, may have ripple effects on demands for recreational facilities, community gardens, health clinics, and other nonprofi t services tied to health-related behaviors.

External Funding and Government Reimbursement Policies As discussed in Chapters Six and Fourteen, the government may determine which organizations are approved providers of services. Government agencies may also dictate what quantity of service a nonprofi t must make available if it receives gov- ernment funding. The geographical and demographic scope of a nonprofi t’s service provision may also be set by a funding source. The availability of government grants and reimbursements to a potential client may infl uence whether or not services are affordable and therefore pursued, as well as the type of professional qualifi cations providers must have for the client to take advantage of the government funding.

Technological and Cultural Shifts New technologies and public attitudes can affect demand. Some nonprofits’ approaches can become outmoded while others come into fashion. For example, younger generations tend to prefer to get a nonprofi t’s information from its Web site rather than in personal meetings. Forms can be completed online and data sets automatically updated, reducing the demand for staff time. Additional exam- ples are that innovative medical interventions are reducing the need for major surgery and universities are fi nding a greater interest among students in distance learning over traditional courses, changing HR capacity needs.

Forecasting HR Capacity Needs

Once a nonprofi t has a sense of its current HR capacity and likely changes in demands for services, it can better predict its future HR capacity needs. Key ques- tions to be answered are

• What skills and knowledge will be needed to meet our strategic goals?

• What kinds of workers and how many of them are needed to fulfi ll the vari- ous needs?

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• What new jobs will be needed, and what existing jobs will no longer be needed?

• Can our current workforce fi ll the needed jobs?

• How successful are we likely to be in retaining current workers?

• What do we need to do to develop workers for these jobs?

• Do we have enough managers and trainers to develop and support the workers?

• Are our current HR resources and practices adequate for future needs?

HR capacity-building decisions should be informed by an understanding of what each type of worker is likely to be able to provide and what resources will be needed to manage different types of workers. For example, BBBSE relies heavily on volunteers. A nationwide study by Big Brothers Big Sisters showed that what mattered to the children was that they had a caring adult in their lives, not the activities they did with the person matched to them.7 If these adults were paid to be caring, they likely would not have as much impact. The children know that the adults matched to them are volunteers; this reinforces the idea that they care.

Most volunteers work within the nonprofi t sector, and some nonprofi ts rely completely on volunteer labor.8 Volunteers and paid staff can differ in how they enhance the capacity of a nonprofi t. A variety of studies have examined how val- ues and norms affect decisions about the use of volunteers versus paid employees. For example, Donileen Loseke found considerable ambivalence about using paid workers in a domestic violence shelter.9 Paid employees can be seen as incongru- ent in self-help and self-empowerment programs that foster peer-to-peer support networks. Use of paid workers in nonprofi ts may also be seen as undermining the idea that nonprofi t work refl ects an altruistic calling and supporting the idea that work in a nonprofi t should be treated as an instrumentally rewarding career. Economic formulas are inadequate for calculating the costs and benefi ts of using volunteers versus paid staff. Many nonprofi ts use volunteers despite the lack of obvious economic benefi t,10 but there is evidence that the demand for volunteers is infl uenced by calculations of volunteer productivity, outputs, and economic cost.11 This suggests that, as Woods Bowman concludes, volunteers are not simply replacements for paid workers.12

The Cycle of Involvement

Effective human resource management has multiple activities. These activi- ties can be categorized by their place in the cycle of involvement. As shown in Exhibit 11.1, the activities in the cycle fi t into four stages: initial involvement, development, maintenance, and separation.

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2 6

2

Determine rationale for new workers

Attract candidates Screen and select workers

Initial Involvement

Development

Maintenance

Separation

Establish written and psychological contracts

Provide learning opportunities

Maintain and file records

Measure performance, identify developmental needs, and share feedback

Facilitate a safe and productive work environment

Understand reasons for separation

Socialize workers

Provide compensation, benefits, and recognition and rewards

Possibly renegotiate position

EXHIBIT 11.1. CYCLE OF INVOLVEMENT FOR PAID AND VOLUNTEER EMPLOYEES

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Stage 1: Initial Involvement

The initial involvement stage includes four activities: determining the rationale for new workers, attracting candidates, screening and selecting new workers, and establishing written and psychological contracts.

Determine Rationale for New Workers At the initial involvement stage the rationale for involving new workers should be determined and clearly articulated. This requires a thorough understanding of the mission, goals, strategies, and structure of the nonprofi t—topics we discussed in previous chapters. When explaining why more workers are needed, nonprofi t leaders should be able to clearly link the HR needs to the organization’s mis- sion and plan. At BBBSE, for example, Liz O’Neill justifi ed hiring a manager of human resources because past experience demonstrated that without permanent staff to provide continuity, insuffi cient attention was likely to be given to HR issues. She also recognized that there was unmet demand that could be handled if someone were available to better leverage the volunteers’ time. Fortunately, due to costs saved with the redesign of the service delivery process, BBBSE was able to add the position without increasing the budget.

The argument for fi lling the new position with a volunteer, paid staff mem- ber, student intern, or contracted temporary worker should be integrated into the rationale for the position. Even when funding might be available to hire paid staff, there may be good reasons for choosing another type of worker. Jeffrey Brudney offers numerous reasons for choosing a volunteer over a paid staff member, including cost effectiveness, improved ability to obtain external grants, enhanced community access, better connections with clients, and fundraising benefi ts.13 If the rationale for using a volunteer instead of a paid staff member is that the volunteer will be better able than a paid professional to establish a peer-to-peer relationship with a client, then relevant characteristics of the clients should deter- mine the type of volunteer sought. For example, survivors of domestic abuse may work best as volunteers with battered women seeking shelter. If it is argued that volunteers are better fundraisers than paid staff for major gifts, then those who are more comfortable in this fundraising role and who have personally made a fi nancial gift to the nonprofi t should be sought.

Nonprofi ts may be able to signifi cantly increase their HR capacity by out- sourcing tasks to consulting fi rms or using other types of temporary contingent work relationships. Consultants, temporary labor fi rms, loaned executives, student interns, stipended workers such as AmeriCorps VISTA or Peace Corps personnel, and other types of workers who can handle short-term or specialized assignments for the nonprofi t can increase the nonprofi t’s capacity without adding permanent

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264 Managing Nonprofi t Organizations

paid employees or volunteers. A benefi t is that the nonprofi t does not need to offer insurance and retirement benefi ts to these types of workers. It also does not need to worry about these workers expecting advancement opportunities in the non- profi t, although the workers may be informally evaluated for their potential for permanent positions. Use of temporary or contingent work relationships is popu- lar in the United States14 and is likely to grow in the nonprofi t sector.15 Scholars in other countries have also noted the contributions of this type of labor to the nonprofi t sector.16 Research indicates that HR professionals who provide pro bono work to nonprofi ts, such as Eldon Emerson, who advised Liz O’Neill of BBBSE as part of the pilot program described in the opening case, are an especially valuable resource and their ranks are growing.17

Attract Candidates The initial involvement stage may also involve attracting potential new workers to the nonprofi t. Though it is usually easier and more cost effective to retain and retrain workers than to recruit new ones, it is not always possible. Individuals can be promoted, demoted, or moved laterally to new positions within an organiza- tion in response to capacity needs. However, at times an inadequate HR capacity may make it impossible to draw only from the current workforce. In addition, contracts, union rules, government regulations, and employment policies may prevent changing a current employee’s responsibilities.

To recruit new workers, a fi rst step is to consider the characteristics needed for the position and the types of individuals who are likely to have those charac- teristics. Rather than taking a scattergun approach where the nonprofi t broadly promotes the opportunity and invites anyone interested to apply, it may be more cost effective and less frustrating for everyone involved if the nonprofi t adopts a more targeted appeal so that applicants better fi t its needs. If the job requires certain skills, credentials, and time availability, that can be made clear. Written job descriptions should be used to determine which qualifi cations and commitments are required and which are preferred. Essential elements of job descriptions for both volunteers and paid employees are the following:

• Job title

• Supervisor’s title and contact information

• General description of position, including responsibilities and duties

• Overview of task assignments and their connection to the nonprofi t’s mission

• Qualifi cations required and qualifi cations desired

• Assessments and training needed (for example, criminal background check, confi dentiality agreement, health assessment, and required orientation and training participation)

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Strategic Human Resource Management 265

• Time commitment

• Benefi ts (tangible and intangible)

There are numerous mechanisms for fi nding individuals suited to nonprofi t work positions.18 Searches outside the organization may involve print advertisements, radio and television promotions, Web site postings, social media communications, placement agencies, executive recruiters, professional search fi rms, career centers on university and college campuses, internship program listings, executive loan pro- grams of corporations, government placement programs, announcements in news- letters of professional and trade associations, and volunteer centers. Nonprofi ts can also seek referrals from staff, boards, other agencies, and clients. Word-of-mouth advertising is often effective because current workers can recruit individuals from their professional and personal circles and share stories of what it is like to work at the nonprofi t.19 Another recruitment mechanism may be labor unions. Though union members are not common in most of the nonprofi t sector, when they are needed the appropriate trade union may be critical in fi nding these qualifi ed workers.20

When identifying appropriate methods for soliciting potential workers, non- profi ts can benefi t from thinking broadly. Demographic and generational shifts in labor pools and greater competition for workers as Baby Boomers retire suggest that nonprofi ts will need to be increasingly attentive to the need to create a wel- coming and supportive environment for workers with diverse backgrounds and interests. One of the risks of relying primarily on word-of-mouth advertising is that the pool of candidates identifi ed is likely to be less diverse than it would be if multiple methods of advertising were used to attract potential workers. There are few studies comparing discrimination across sectors, but what is available suggests that there may be less discrimination affecting wages and other work aspects in the nonprofi t sector than in other sectors.21 Still, when nonprofi t staff draw job candidates from their personal networks rather than through more broad-based advertisements, they are likely to attract individuals who are more rather than less similar to them. This can initiate a negative spiral—the more a nonprofi t lacks diversity, the more diffi cult it may be to attract diverse candidates. Those who do consider working for the nonprofi t may see it as an organization for people of a certain age, ethnicity, gender, or other easily observable characteristic. In recruit- ment strategies, nonprofi ts should also consider how disabilities may be accom- modated so that lack of such accommodation does not prevent the nonprofi t from having the best candidates for positions.

No matter whether a nonprofi t is seeking a paid employee or a volunteer, it is important to fi nd people with a good fi t to the characteristics of the job and the organization’s culture, norms, and values.22 Workers with a good fi t are most likely to demonstrate high performance, satisfaction, and commitment. Simply believing in the nonprofi t’s mission is not enough to ensure a good fi t. Nonprofi ts

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266 Managing Nonprofi t Organizations

should offer realistic previews of the job, work atmosphere, and organizational culture. Individuals who have more accurate information are better at selecting a work setting that will keep them motivated and committed. For example, someone who wants to work to help children in a youth-serving agency may not apply for an advertised position if he understands that the responsibilities will involve little contact with children. Someone who is concerned about career advancement may recognize that a job is not a good fi t if she understands that it offers few opportunities to demonstrate leadership abilities.

It is perhaps obvious that nonprofi ts should seek individuals who are qualifi ed to perform a job at the desired level or who can be trained to meet the standards for the position. However, some nonprofi t leaders may engage in nepotism or feel that they need to hire unqualifi ed individuals recommended by their donors. To understand the qualifi cations for the position, the nonprofi t may perform a job analysis to determine what is required for effective performance. The desired KSAs (knowledge, skills, and abilities) can be written into a job description and noted in position announcements to help in the attraction and screening of can- didates and, ultimately, to be used in performance appraisals.23

One of the special challenges for nonprofi ts is to carefully manage the vol- unteer recruitment process. Having more individuals on the volunteer list than can actually be employed is problematic. The volunteers may feel disappointed not to be called to action or may feel that they are not given meaningful work because there are too many volunteers. Having backup support can be useful but can result in workers called in and then left with no worthwhile tasks to perform. Volunteers can be frustrated when they expect to perform tasks at the core of the mission but are assigned administrative or other types of tasks that are peripheral even though necessary for accomplishment of the mission. Although their ideal- ism may have driven them to work for the nonprofi t, it is unlikely to sustain them if they see their tasks as not meaningful because they are not exposed to direct mission outcomes. Though it may be tempting to amass a long list of individuals who wish to volunteer, recruiters should be careful to be honest about what work opportunities truly exist.

Crowdsourcing, outsourcing a task to a large group in an open call for assistance, typically over the Web, is a relatively new approach to increasing capacity, but nonprofi ts have been experimenting with it.24 Netsquared.org used crowdsourc- ing to fi nd a new logo through an online design contest. A New York public radio show used listeners as researchers and citizen reporters. HopeLab asked the kids it was trying to reach to come up with ideas for increasing physical activity. Some may say that crowdsourcing is just an alternative method for fi nding and using volunteers, but typically it is for a short-term, one-task engagement. With crowd- sourcing, there is little investment in the activities of the cycle of involvement, in

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Strategic Human Resource Management 267

contrast to what we encourage for more committed volunteer or paid workers who want to contribute to the mission on a longer-term basis and be more inte- grated into the nonprofi t.

Screen and Select Workers Screening and selection processes for workers vary in their formality and value. Though interviews are a popular means for screening a pool of candidates, research shows they are not that useful in predicting job performance. They can convey information for judging whether there is likely to be a good fi t and clear- ing up misconceptions about the job and organization. Checking references can also be misleading, given that some reference providers limit the information they provide due to fear of lawsuits or other reasons. Still, references can be useful in verifying facts and providing examples of observed and recorded behaviors, such as unexcused absences, public speaking experiences, and success in meet- ing deadlines. Licenses to practice and educational degrees should be checked to ensure that a job candidate does have needed credentials. In some cases, criminal background checks are legally required, for example, when the prospective worker will have close contact with youth.

Nonprofi ts should have systems in place to ensure legal compliance in the selection process. Paid employment in the nonprofi t sector is subject to the same set of rules as employment in for-profi ts. For example, in the United States, Title VII specifi cally prohibits employment discrimination based on race, skin color, religion, sex, and national origin. Other Acts address other forms of illegal dis- crimination, such as discrimination owing to age or pregnancy. Immigration laws establish hiring limitations for noncitizens. Though the use of volunteers is not as regulated as the use of paid workers, there are still legal guidelines that should be followed for volunteer screening and selection to avoid claims of negligent hiring if the volunteer should happen to do harm. For some work assignments, background checks need to be run on volunteers as well as paid employees. In addition to addressing hiring practices and eligibility, laws affect what contract provisions can be offered, such as wages, hours, leave benefi ts, safety, and insur- ance coverage. For additional information, nonprofi ts can consult the Web sites of such government agencies as the Department of Labor and the Internal Revenue Service’s tax-exempt division, and also state and local government Web sites.

Establish Written and Psychological Contracts Before a mutual decision to enter into a working relationship is made, it is impor- tant that the initial responsibilities of the position and related performance expec- tations are clearly understood by both parties. Although the tasks and objectives associated with the position should be aligned with the nonprofi t’s mission, a

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268 Managing Nonprofi t Organizations

variety of different work arrangements can be designed, depending on the needs of the organization and the prospective worker. For example, workers may split time across organizations. For some situations, the nonprofi t may need to nego- tiate how the same job can be shared by more than one worker. At the initial involvement stage, work times and sharing policies should be coordinated and agreed to by the worker and the nonprofi t.

Once choices are made about which persons to bring into the organiza- tion as new workers, any required permissions must be obtained as part of the contracting process. Nonprofi ts should be clear on who is legally required to be treated as a paid employee and who is a contract worker and then fi le the appro- priate paperwork. In the United States, the Internal Revenue Service provides resources for classifying workers and determining the appropriate information to fi le (www.irs.gov). Sometimes, special permissions are required. Nonprofi ts seeking to hire temporary foreign professionals on H-1B visas are subject to wage rules and must demonstrate inadequate domestic labor supplies in formal requests for H-1B hires.25 For youth workers, permissions should be obtained from a parent or legal guardian. Internship and loaned executive arrangements may require special paperwork.

With paid employees, deciding on compensation can be tricky. Wage surveys can be used to fi nd averages for different types of nonprofi t positions in differ- ent parts of the country and for nonprofi ts with different types of missions and budget sizes. Going outside these norms may result in criticism. Many nonprofi ts can be found that were attacked by the press and the public for overcompensat- ing workers. For example, for months in 2008 the board of the United Way of Central Carolinas defended its $1.2 million pay package to its executive director but eventually unanimously asked the longtime director to resign or be fi red in response to community pressure.26 This nonprofi t is not alone in originally seeing no wrong in a pay package and then backing down in the face of public outcry or a government investigation. In 2011, the board of the Young Adult Institute, a nonprofi t serving people with developmental disabilities, took action to remedi- ate the nearly $1 million pay packages it gave to its former executive director and other high-level executives.27 Additional examples can easily be found.

Although a written contract may provide information about the tasks and performance expectations of a position as well as information about any compen- sation or benefi ts the worker will receive, it is unlikely that any written contract will be extensive enough to incorporate all of the expectations that the nonprofi t has for the worker or that the worker has for the organization. Research has shown that whenever an individual agrees to work for an organization, in addition to any explicit legal contract, an implicit psychological contract comes into play that captures that individual’s perceptions of the obligations he has to the organization

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Strategic Human Resource Management 269

and the obligations the organization has to him.28 These psychological contracts exist for all types of workers.29 When a formal written contract does not exist, the psychological contract may gain importance in capturing perceptions of mutual obligations. If a worker perceives a breach in the psychological contract—for example, not being given training that was expected or being passed over for a promotion—possible consequences include reductions in satisfaction, productiv- ity, and desire to continue with the nonprofi t.

A manager can make an effort to avoid psychological contract breaches by encouraging prospective and new workers to reveal their understanding of recip- rocal obligations. If any of the perceived obligations cannot be honored, the manager can explain this and potentially mitigate any negative consequences. For example, a manager can explain to a prospective volunteer who might be expect- ing to use volunteer work as an entry to paid work that even if she does a great job it is unlikely that she can be hired into a paid employment position.

Instead of using internal workers, nonprofi ts may outsource tasks to business fi rms or other nonprofi ts, minimizing the demands of later stages of the cycle of involvement but making the contracting stage particularly critical in dictating the work arrangement. When outsourcing tasks, nonprofi ts need to be attuned to any laws prohibiting them from contracting with individuals or fi rms associated with their board members or paid staff. The use of a competitive bidding process can help in avoiding accusations of giving some individuals or fi rms an unfair advantage in obtaining a contract.

Stage 2: Development

The development stage involves helping workers to defi ne themselves as part of a nonprofi t and to hone the skills, knowledge, and abilities to perform effectively. Basic development activities, which can be repeated throughout an individual’s time with a nonprofi t, include socializing, measuring performance, identifying developmental needs, sharing feedback, and providing learning opportunities.

Socialize Workers Early in the socialization process, as one task in a performance management system, workers need to be given a clear understanding of their job responsi- bilities and performance expectations.30 Creating an explicit performance plan with workers helps to align their activities with the organizational mission and provides the foundation for future performance evaluations. The socialization process should also reinforce values in the organizational culture. For example, many organizations make valuing diversity part of their mission and recognize the importance of creating and sustaining a culture that is supportive for all

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270 Managing Nonprofi t Organizations

members of a diverse workforce. Thus socialization activities should be inclusive and should encourage workers to embrace their own individuality as well as the individuality of others. A nonprofi t’s cultural values may be explicitly shared with new workers through orientation materials, welcoming speeches, and other communications that make clear the ethical foundation and operating principles for the organization.

Over time, individuals are socialized to their new roles. Workers engaging with a nonprofi t for the fi rst time as well as workers who are transferred or pro- moted to a new position have the status of outsiders until they are accepted by those in their work unit. In the development stage they gain what they need to be productive workers, and learn the values and norms of their work unit. John Wanous, Arnon Reichers, and S. D. Malik offer a four-stage integrative approach to socialization (see Figure 11.1).31 The time it takes to go through the stages will vary by individual, job, and organization. It is important for managers to

• Worker confirms or disconfirms expectations.

• Conflicts may emerge between worker’s personal values and the organizational climate.

• Worker discovers which behaviors are rewarded and which are punished.

• Worker is initiated to the job tasks and interpersonal roles.

• Worker copes with others’ resistance to change.

• Worker builds congruence between self and organization.

• Worker copes with place in structure and any role ambiguity.

• Worker learns behaviors congruent with the organization’s desires.

• Worker resolves conflicts of interest related to outside needs and work interests.

• Worker feels commitment to organization.

• Worker develops new interpersonal relations, values, and altered self-image.

• Worker demonstrates dependability and commitment.

• Worker feels high general satisfaction.

• Worker and others have feelings of mutual acceptance.

• Job involvement and intrinsic motivation increase.

Stage 1: Confronting and

accepting organizational

reality

Stage 2: Achieving role clarity

Stage 3: Locating oneself

in the organizational

context

Stage 4: Detecting

signposts of successful

socialization

FIGURE 11.1. SOCIALIZATION OF WORKERS

Source: Adapted from John P. Wanous, Arnon E. Reichers, and S. D. Malik, “Organization Socialization and Group Development Toward an Integrative Perspective,” Academy of Management Review 9 (1984): 674.

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Strategic Human Resource Management 271

recognize that workers need time to understand and accept organizational reali- ties, be clear on their role, see how they fi t into the larger organization, and feel successfully integrated. Orientations, introductions to fellow workers, mentoring programs, tours, team-based assignments, and briefi ngs can speed up the social- ization process. Each of these activities gives workers opportunities to engage with coworkers, ask questions about the nonprofi t, and observe other workers.

Eventually, a worker may come to identify himself with the nonprofi t. His self- image may be tied to his role and involvement in the organization. This is some- times the case with founders. They may fi nd it hard to leave their nonprofi t or see it change from what they created. They may feel a loss of themselves as the nonprofi t transforms and may leave them behind. Other highly socialized workers may also feel their personal identity threatened by the loss of a founder. Understanding this socialization dynamic can help in managing transitions from a founder to a new leader. There may be a grieving process, and workers may need time to alter their self-image to fi t with the reality of the changed nonprofi t. New rituals and inter- personal relations will take time to develop and become the new norm.

Measure Performance, Identify Developmental Needs, and Share Feedback It is the rare worker whose performance is excellent starting with the fi rst day on the job. Even those performing simple tasks are likely to need to fi gure out where to get needed supplies, when rest breaks are appropriate, and what their coworkers are like. Identifi cation of any developmental needs may come from the workers themselves, supervisors, peers, mentors, or others aware of performance weaknesses, such as clients.

A variety of tools can help with measuring performance, identifying devel- opmental needs, and sharing feedback. Some of the most common tools are performance appraisals, self-evaluations, benchmarking, balanced scorecards, outcome measurement, peer reviews,32 and career counseling. Quality improve- ment systems in nonprofits can also provide workers with performance data and set them on a path of continuous improvement.33 Using specifi c behavioral measures that are tied to a worker’s performance objectives, rather than making general observations, can pinpoint what, if anything, the worker needs to change going forward. Table 11.1 gives some examples of performance measures that can be used, some developmental issues that may be responsible for poor perfor- mance, and some potential solutions to help the worker improve.

Poor performance may not be the fault of the worker. Infl uences on perfor- mance will be discussed in more detail in the next chapter. In brief: unclear divi- sion of labor, confl icting objectives, lack of resources, and other organizational factors may result in poor performance. It is important to identify the root cause of poor performance before determining a solution. Holding a performance

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272 Managing Nonprofi t Organizations

TABLE 11.1. MEASURES OF POOR PERFORMANCE UNDERLYING DEVELOPMENTAL ISSUES AND POTENTIAL SOLUTIONS

Measures of Poor Performance

Possible Underlying Developmental Issues If Performance Does Not Meet Expectations Potential Solutions

Grievances fi led against the worker

Diffi culty managing confl ict; lack of cooperativeness;

challenges with diversity

Social or interpersonal training focused on confl ict management

Diversity training

Poor quality or low quantity of outputs

Lack of understanding of processes

Unwillingness to ask for resources or assistance

Technical training

Training on assertiveness and effective negotiation techniques

High number of missed deadlines and average days late in submit- ting work; unexcused absences; lateness in getting to work

Problems with managing time

Too many assignments

Confl icting home and work responsibilities

Time and stress management training

Restructuring workload

Flexible work schedule; modifi - cation of work hours

Poor evaluations from audiences at public pre- sentations; disclosure of privileged or private information to reporters or others

Lack of public speaking experience

Unclear or inappropriate information

Lack of organization-wide communication plan and crisis management procedures

Communication training

Orientation to the organization, organizational fact sheets, orga- nizational spokesperson

Guidance on privacy laws and organizational procedures

Source: Adapted from John P. Wanous, Arnon E. Reichers, and S. D. Malik, “Organization Socialization and Group Development: Toward an Integrative Perspective,” Academy of Management Review 9 (1984).

review meeting provides an opportunity for discussion with the worker to identify the most appropriate developmental activities to improve future performance, based on the root cause of the problem.

Of course the level of investment in performance objective setting, perfor- mance review, and feedback has to be justifi ed by the likely benefi ts. For some short-term work engagements, these processes are unlikely to be worth much time or effort. Still, there may be some opportunity to provide useful feedback to the worker and to consider how the next engagement of this nature can be more productive for the nonprofi t and whoever is involved. For example, a non- profi t leader who is disappointed or pleased with the quality of a student work project should inform the students and the supervising faculty member of that

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Strategic Human Resource Management 273

conclusion. Perhaps changes could be made for future assignments to bring more benefi ts to all involved.

Research suggests that performance evaluation is one of the most uniformly disliked organizational processes,34 and it is often viewed as having little benefi t for the organization, the manager, or the employee.35 Performance evaluation often is assumed to be a negative process, focused on fi nding fault and assigning blame. A good performance evaluation system, however, might be better described as providing a process for celebrating past successes and identifying opportunities for future growth. This reframing of the performance evaluation process does not mean that performance problems are ignored—both negative and positive vari- ances between actual and desired performance need to be addressed. The focus, however, is not on punishing poor past performance but on facilitating excellent future performance.

To help set the right tone in a feedback meeting, it is best for the manager to start out with positive behaviors and performance outcomes. After celebrating these successes, asking the worker to identify areas that she would like to improve on and inquiring about what the manager could do to help her be more suc- cessful are also helpful for maintaining a positive, collaborative tone. Managers should keep in mind that the main goal of the feedback discussion is to come up with an action plan that will benefi t the organization and the worker. That action plan may include making some organizational changes (for example, revising the service delivery process to streamline the work required) and some modifi cations to managerial behaviors (for example, providing more explicit directions when giving assignments) as well as providing some developmental opportunities for the worker. In keeping with the positive tone set at the beginning of the performance evaluation meeting, the developmental opportunities identifi ed should refl ect the interests of the worker as well as the needs of the organization.

Provide Learning Opportunities Most individuals are motivated by the desire to improve themselves. This is discussed in more detail in the next chapter. What is relevant here is that HR management should incorporate learning opportunities for workers. These opportunities can take a variety of forms. Coaching, counseling, mentoring, and training can all be used as interventions to improve performance and keep moti- vation high. Coaching tends to focus on developing abilities whereas counseling focuses on changing attitudes. Coaches share advice and information and help in setting standards and goals. In counseling, workers recognize problems and come up with solutions. Both coaching and counseling can be effective when workers are ready to change, are nondefensive, and feel supported rather than offended by the intervention. Mentoring involves matching a senior worker with a junior one.

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274 Managing Nonprofi t Organizations

The senior worker can serve as a role model and can facilitate the junior worker’s development by offering advice, making useful introductions, and providing opportunities for the junior worker to participate on important projects. Training tends to focus on addressing needs for task-related knowledge and skills.

Coaching may be especially helpful for executive directors when they come into their position without much preparation and do not have an adequate peer support network. CompassPoint found that within six months of a coaching pro- gram for nonprofi t executives, these leaders displayed improvements in their com- munication with staff, stronger leadership abilities, and greater self-confi dence. The coaching was also positively correlated with retention.36 Positive results were also reported by Robert Fischer and David Beimers in their review of a pilot coaching program for nonprofi t executives.37

For many workers, job changes may satisfy developmental interests. Job rotation involves rotating workers among jobs at the same organizational level. This allows them to use different skills and gives them exposure to multiple aspects of the non- profi t. For example, interns at a hospital may change departments in order to get a better sense of their work preferences and a broader picture of how the depart- ments interact. Job enlargement involves adding tasks to a job to make it more complex and meaningful. For example, workers may be asked not only to stuff envelopes for a fundraising solicitation but also to keep track of donations received and to send thank-you letters, helping them to see the results of their envelope-stuffi ng efforts. Job enrichment involves giving workers more responsibility and decision-making authority. Workers may be asked to plan and prioritize their tasks, allocate resources to and implement the tasks, evaluate the outcomes, and decide whether to continue with the tasks. For example, as part of a job enrichment program, a worker involved in processing fundraising mail solicitations may be asked to decide the frequency of the mailings and to provide input on the content of the solicitation letters.

Stage 3: Maintenance

The maintenance stage of involvement includes the many routine human resource activities that facilitate the ongoing work relationship. Examples of these activities are providing compensation and benefi ts, recognizing and rewarding workers, facilitating a productive and safe work environment, and keeping records and submitting paperwork.

Provide Compensation, Benefi ts, and Recognition and Rewards Workers need to be compensated according to contractual agreements. Compensation schemes vary widely in the nonprofi t sector, but concerns that the sector does not offer living wages are generally unfounded for nonprofi ts with paid

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Strategic Human Resource Management 275

full-time employees. For some jobs, nonprofi ts may even pay better than employ- ers in the government and for-profi t sectors do. Laura Leete offers a variety of explanations for why pay in the nonprofi t sector may be lower or higher than pay in other sectors for the same jobs.38 One explanation for lower pay is that nonprofi t workers are willing to accept it because they derive well-being or can pursue their ideological goals from their participation in the nonprofi t. They may also accept lower pay because they do not think that the nonprofi t enterprise is using them to make a profi t. Another explanation is that differences in pay are due to differences in the size and resources of the employer and are not related to whether or not it is a nonprofi t. An explanation for why nonprofi t salaries and wages are sometimes higher than those for the same jobs in another sector is that the nonprofi t has the benefi t of lower taxes, fewer regulatory costs, and lack of profi t-maximizing pressures, all of which can lead to having more resources to devote to compensating workers.

Many organizations provide nonprofi t salary information that can be con- sidered in setting appropriate pay. Examples of salary information providers searchable on the Internet are salary.com, GuideStar Nonprofi t Services (for information on top executive salaries), Professionals for Nonprofits, Charity Navigator, and payscale.com. The Philanthropy Journal offers links to a variety of 2010 nonprofi t salary reports.39 A review of the reports demonstrates that average salaries depend not only on job title but also on mission, location, budget size, and the methodology of the salary study.

Formal and informal acknowledgments of performance and intrinsic and extrinsic rewards are part of maintaining involvement. Whether serving in a paid or volunteer capacity, workers are likely to appreciate being treated in a manner that shows their contributions are valued and promises made to them are being honored. For paid employees there is clear evidence that how they are treated affects organizational performance and worker well-being. Anna Haley- Lock and Jean Kruzich list studies demonstrating that nonprofi ts offering more generous and fl exible benefi ts have higher worker retention, job performance, and worker satisfaction, whereas employee dissatisfaction, burnout, and turnover are more common in nonprofi ts with low pay, irregular work hours, and limited insurance and retirement pensions.40 Studies do not fi nd consistent differences in benefi ts between the nonprofi t and other sectors but do provide evidence of wide variation in what benefi ts are offered for similar positions.41 In the next chapter we discuss ways to show workers that they are appreciated. Recognition opportunities are countless, from a simple verbal expression of thanks to per- formance bonuses, volunteer of the year celebrations, and other awards and rewards that require an investment in recording performance information and producing fair evaluations.

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276 Managing Nonprofi t Organizations

Facilitating a Safe and Productive Work Environment The maintenance stage also involves facilitating a safe and productive work environment. For example, in the United States, work conditions should con- form to the standards and rules outlined in the Occupational Safety and Health Administration (OSHA) Act. Accommodations may need to be made for work- ers with disabilities, as outlined in the Americans with Disabilities Act (ADA). All workers should be protected from harassment by coworkers as well as by other individuals who interact with the organization, including clients and board mem- bers. Workers should be given the resources needed to perform their jobs. A work culture should be established that promotes ethical standards and the values of the organization. One challenge that volunteers and contingent workers who are being paid by other organizations may face is that they may be wrongly perceived as being cost free and thus may not be given what they need to perform well. They should be given offi ce space, access to other workers, training opportunities, supplies, performance feedback, and other needed resources.

Maintain and File Records Nonprofi ts should keep appropriate records for each worker. This should be done not just to meet legal requirements but also to track information useful for understanding HR capacity and providing performance feedback. Certain employment information such as health checks and Social Security numbers should be kept private and protected to avoid identity theft and violations of privacy.

Robert Mathis and John Jackson offer a list of ratios that may be helpful in identifying HR potential problem areas.42 For example, it is useful to know how long it typically takes to fi ll certain types of job vacancies and recruitment costs per applicant hired. This may help nonprofi ts in judging the value of different types of job advertising options and may also provide information on the likely necessity of adjusting others’ work assignments to cover important tasks until a position is fi lled. It may also be useful to keep track of the percentage of employ- ment offers accepted out of the offers extended. If the percentage is low, perhaps the compensation and benefi ts offered are not competitive. Keeping track of com- pensation costs over total revenue, particularly compensation for those who are not directly delivering services, can be helpful in judging whether the nonprofi t is vulnerable to public criticism of the proportion of the budget devoted to salaries. Another useful ratio to examine is the number of resignations per year over the number of employees per year. If voluntary turnover is high, perhaps the selec- tion process is not encouraging good fi ts or perhaps other problems exist, such as poor working conditions, frustration with coworkers, or other issues that may be correctable. Of course it may be, as we found in Chapter Ten with Santropol

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Strategic Human Resource Management 277

Roulant, that high turnover is expected owing to the types of workers attracted to the nonprofi t, such as the Roulant’s youth workers.

Stage 4: Separation

At this stage of the cycle of involvement the individual leaves the nonprofi t or is directed to another position. A termination of a work relationship may be vol- untary or involuntary, planned or unplanned. The goal of the nonprofi t should be to have amicable separations, where workers feel fairly treated and have good feelings toward the organization. Workers should leave with an accurate under- standing of the nonprofi t and acceptance of the need for the separation.

Understand Reasons for Separation Some human resource management systems will have a mechanism, such as an exit interview, to debrief the worker and gain information on the reasons for the separation. The exit interview is an opportunity to reduce any negative feelings from the departure of the worker. Positive feelings can be enhanced by thanking the worker for his contribution and discussing ways he can continue to be involved with the nonprofi t. The nonprofi t may have the ability to offer outplacement services such as career counseling, résumé assistance, job hunting workshops, job listings, and referrals. Discussing these resources during the exit interview may improve the departing worker’s attitude about the organization.

When a worker is leaving because of dissatisfaction, information obtained in the exit interview may be especially helpful for identifying areas for organizational improvement. Disgruntled or frustrated workers may be more willing to hon- estly express their opinions once they know they are leaving the organization. For example, a worker who has been feeling overwhelmed may not have communi- cated this to his supervisor but in an exit interview may indicate that his tasks were too complicated or that he was poorly trained. Once this information is known, it may be possible to remedy that problem for future workers, or it may even open an opportunity to delay or prevent the separation of the current worker.

Possibly Renegotiate Position Losing a valued volunteer or paid staff member can negatively affect the non- profi t’s ability to achieve its mission. It may be worthwhile to fi nd a way to retain an individual who wishes to voluntarily separate from the organization. Perhaps an alternative arrangement might be acceptable to the worker. For example, a full-time staff member might be willing to continue on a part-time basis or as a volunteer. An individual who feels that her work is not challenging enough may be moved to a new position or given additional responsibilities, consistent with overall HR capacity needs.

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278 Managing Nonprofi t Organizations

Concluding Thoughts

As noted in the opening case on BBBSE, the success of any organization depends on having the right people, in the right place, doing the right things. Good HR management is about aligning workers to the mission. At the initial involvement stage, the mission is the driving force behind the rationale for adding new workers, fi nding workers with a good fi t, and setting job expectations. In the development stage, socialization reinforces workers’ commitment to the mission. Measuring performance, identifying developmental needs, and providing feedback help to ensure that workers’ activities are consistent with the mission. In the maintenance stage, providing compensation and benefi ts creates a sense of reciprocal obligation on the part of the worker. Recognizing and rewarding workers for their efforts to achieve the organizational mission further heightens workers’ commitment. Separation is inevitable, but can be managed in a way that ensures wise use of HR resources and gives input for improving HR capacity for mission achievement.

In the next chapter we continue to examine performance issues. We add more information on theories of motivation and offer practical guidance on how to create and maintain a motivated, high-performing workforce. Combined with a strategic HR management system, efforts to motivate workers are likely to be fruitful in enhancing HR capacity.

Questions for Consideration

1. Does a nonprofi t have an ethical responsibility not to violate its volunteers’ psychological contracts? Why or why not? How can a nonprofi t try to avoid breaches of the psychological contract?

2. Under what circumstances should nonprofi ts offer compensation that is com- petitive with what for-profi t employers are offering for the same position? When, if ever, is it all right to pay less?

3. Think about the economic and social environment today. What implications do current conditions have for the ability of a nonprofi t to attract new volun- teers and paid staff ?

Exercises

Exercise 11.1: Cycle of Involvement

Consider the last job you held. Apply your experience to the cycle of involvement. What occurred at each of the four main stages? What was done well at each stage? What could have been improved at each stage?

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Strategic Human Resource Management 279

Exercise 11.2: Recruitment Ads

Find and compare two job ads for similar nonprofi t positions. Using the ideas in this chapter, consider whether one ad is more likely than the other to attract applicants with a good fi t to the nonprofi t. Explain why one ad is better, or why both ads will have similar results.

Exercise 11.3: Paid Versus Volunteer Workers

Analyze the composition of a nonprofi t’s workforce. Concentrate on the paid and volunteer workers. How do these two types of workers differ in their work assignments and in the activities and resources that support them in each stage of the cycle of involvement?

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280

CHAPTER TWELVE

MOTIVATION AND PERFORMANCE

T he High Line is a park in Manhattan built on the infrastructure for a long-unused elevated rail line. The High Line railway opened in 1934, and the last train ran on the tracks in 1980. Using the High Line for a new purpose was the brainchild of Robert Hammond and Joshua David, who met at a community meeting and shared a desire to save the rail line.1 In 1999, they formed Friends of the High Line to prevent the demolition of the historical struc- ture and to turn it into something that the neighborhoods it ran through could enjoy. The found- ers of the Friends group were committed to changing residents’ minds from seeing the neglected railway as an ugly problem to viewing it as a unique asset for the city. Groundbreaking on the park was celebrated in 2006, after seven years of building a coalition of supporters, collecting design ideas, conducting economic analyses to show benefi ts greater than the cost of construction, convincing CSX Transportation, Inc., to donate the elevated structure to the city, and gaining the approval of city, state, and federal authorities. The fi rst section of the High Line Park was opened in 2009 and the second in 2011. For twelve years these founders, along with the friends and staff they recruited, maintained their motivation and momentum to preserve the High Line and make it into a destination site. In the words of actor Edward Norton, the park demonstrates that “things that ought to be, can be.” The success of the Friends of the High Line serves as inspiration for other groups interested in urban, historical, and environmental preservation.

The High Line has been described as representative of the next generation of public parks, urban spaces where communities work together to defi ne how to use them to benefi t their neighbor- hoods. Motivations of supporters of the High Line vary. The designer Diane Von Furstenberg calls it a “ribbon” through the city that is “beautiful and romantic.” For some the appeal is less aesthetic and more about keeping a reminder of the city’s industrial past. Others see it as a place to educate schoolchildren and where people with diverse backgrounds can come together for

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Motivation and Performance 281

recreation. Still others are motivated by the tax revenues and increased property values that the High Line generates.

The founders were able to successfully bring together numerous parties with varying moti- vations to act to preserve the structure and build this urban oasis. Starting as a small group of like-minded volunteers, the Friends of the High Line is now a nonprofi t with over fi fty-fi ve staff members, twenty-eight board members, and fourteen ex offi cio and emeritus board members. It provides 70 percent of the annual operating budget for the public park. The Friends maintain the High Line Park under an agreement with the City of New York and cultivate a vibrant community around the High Line through tours, lectures, performances, public art projects, and other activities.

� � �

This chapter is about motivation and performance in nonprofi t settings. As our opening story suggests, for nonprofi t organizations the desire to motivate oth- ers typically extends beyond the formal employment setting. In addition to paid employees, nonprofi t leaders may need to motivate volunteers, collaboration partners, government offi cials, legislators, donors, service recipients, and other stakeholders. To make High Line Park a reality, Robert Hammond and Joshua David motivated artists, architects, business owners, civic leaders, grantmaking foundations, neighborhood residents, schoolteachers, and others to join together to brainstorm uses for the High Line, contribute fi nancial support to make the vision happen, lobby government, personally use the redeveloped space, and entice others to enjoy its benefi ts. However, motivation was not suffi cient in itself. The leaders needed to provide resources and training to ensure that individuals who were willing to help with the park were able to do so effectively.

In this chapter we review how motivation combined with ability affects behavior. The previous chapter examined human resource management systems for nonprofi ts and discussed recommended management practices for both paid employees and volunteers. This chapter concentrates on understanding human dynamics in order to encourage peak performance. It also offers information use- ful in diagnosing reasons for poor performance and creating conditions that can improve work attitudes, behaviors, and outcomes.

Infl uences on Performance

Three simple formulas are useful for those who wish to infl uence performance.2 A model based on the formulas is shown in Exhibit 12.1. The model illustrates that performance is dependent on ability and motivation to perform. Ability depends on having the capacity and opportunity to perform through one’s aptitude, training, and resources. Motivation is a function of one’s desire and commitment. So, for

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282 Managing Nonprofi t Organizations

example, the founders of Friends of the High Line had to fi gure out who had the ability to turn over the rail line to the city and then motivate them to do so. They also had to persuade government offi cials to perform the actions necessary to turn the rail line into a park. The founders recognized that they did not have the aptitude or the resources to design the park and therefore turned to others who were more qualifi ed to do so. In order to motivate the designers, the found- ers inspired them with ideas drawn from a design competition and established a contract with due dates and payment schedules. This helped to encourage the designers’ desire and commitment.

When an individual’s performance is inadequate, managers can diagnose the cause (or causes) of the problem. One of the fi rst questions to ask is whether the poor performance is due to a lack of ability or lack of motivation to perform a task. If it is due to a lack of ability, that may in turn be due to lack of aptitude, training, or resources. If it is a motivational problem, the person may not have the desire or commitment to perform.

• Aptitude to perform. Individuals may not have the skills, knowledge, or personality traits to excel. If a task requires a high level of collaboration and communication, they may not have the capacity to build trust or share tasks

Three Formulas

Performance is a function of ability and motivation.

Ability is a function of aptitude, training, and resources (capacity and opportunity to perform).

Motivation is a function of desire and commitment (willingness to perform).

Aptitude

Training

Resources

Desire

Commitment

Ability

Performance

Motivation

EXHIBIT 12.1. INFLUENCES ON PERFORMANCE

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Motivation and Performance 283

with others. They may also not have adequate physical strength or intellectual understanding. An example from the High Line project is that Hammond and David knew they did not have the aptitude to fi gure out the best use for the old railway, and therefore they commissioned studies and held a design competition.

• Training to perform. An individual may have the innate aptitude to per- form but may not know how to perform. A person may be trained to perform a task a certain way, but the training may be incorrect or insuffi cient or may become out of date over time, leading to performance problems. In the case of the High Line, in order to help schoolteachers to use the park effectively in their courses, the Friends offer curriculum guides and training sessions for educators.

• Resources to perform. The opportunity to perform is dependent on what the environment offers or doesn’t offer that is needed to perform. Lack of resources can lead to poor performance. Individuals may be unable to perform a task well because they don’t have needed materials, supplies, technology, instructions, access, or other resources. The Friends of the High Line had videos, reports, and drawings for advocates to use for fundraising and lobby- ing purposes. Without these materials the advocates’ efforts would likely have been less successful.

• Desire to perform. Individuals may not want to perform. They may believe the benefi ts of not performing outweigh the benefi ts of performing. They may not see the value of the positive outcomes of performing and therefore may be unwilling to perform. For example, initial resisters to the use of the High Line as a park thought that the structure was an eyesore and could not be saved. Once convinced that saving it was possible, however, some offered their fi nancial and volunteer support.

• Commitment to perform. Individuals may have the desire to perform but lack the drive to persevere. They lack commitment to perform. For example, volunteers and donors can experience fatigue, believing that their efforts are making only a little dent in a complex social problem. Their motivation to continue to invest in the cause can weaken over time as they get distracted with other demands for their attention. The founders of the Friends of the High Line were able to maintain commitment through rallies, progress reports, and celebration of milestones.

Leaders and managers can use a variety of methods and tools to address aptitude, training, resources, desire, and commitment. Table 12.1 offers some general suggestions for each.

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284 Managing Nonprofi t Organizations

Theories of Motivation

Theoretical treatments of motivation typically focus on content theories of motivation, which give primary emphasis to variables inside the individual that affect motiva- tion, and on process theories of motivation, which look at the environment as well as the individual to explain motivation. Classic motivation theories are Abraham Maslow’s needs hierarchy, Clayton Alderfer’s ERG theory, Frederick Herzberg’s two-factor theory, David McClelland’s learned needs theory, and also public service motivation theory, expectancy theory, operant conditioning theory and behavior modifi cation, social learning theory, goal-setting theory, and equity theory.

TABLE 12.1. GENERAL RECOMMENDATIONS FOR INFLUENCING HIGH PERFORMANCE

Predictor of Performance Recommendations

Aptitude Recruit those who already have the needed knowledge, skills, and abilities.

Reassign or train individuals lacking aptitude.

Form teams to have complementary aptitudes available.

Training Design and deliver training so that individuals understand how and when to perform certain behaviors.

Provide manuals and relevant reference material.

Encourage individuals to identify their weaknesses in knowledge, skills, and abilities so that the nonprofi t can address them to avoid performance problems.

Resources Modify technology to compensate for aptitude or training needs.

Ensure that information needed to perform well is provided.

Provide adequate space, time, coworkers, and physical supplies.

Desire Help the individual understand the benefi ts of their performance for them- selves and others.

Create a work context where individuals see the outcomes of their performance.

Highlight the underlying values of the organization or program so that indi- viduals can better understand the meaningfulness of their work.

Commitment Chop large, long-term tasks into smaller, short-term ones so that individuals can see progress.

Rotate jobs to avoid boredom and fatigue.

Reduce distractions.

Ensure that jobs are challenging but not frustrating or discouraging.

Celebrate small wins along the way to the big accomplishments.

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Though these classic theories of motivation typically are applied to for- profi t settings, there is evidence that they fi t nonprofi t workplaces.3 For example, René Bekkers examined motivations for volunteering and found that incentives, value orientations, and role modeling all explain the motivation to volunteer.4 Catherine Schepers and her coauthors found that the basic premises of the classic theories are consistent across the nonprofi t and for-profi t sectors but the actual motivating factors may differ; nonprofi t employees tend to have stronger prefer- ences than those in for-profi t settings for social rewards, work that helps others, growth opportunities, and intrinsic rewards.5 Volunteers tend to have strong needs for personal growth, external recognition, and social affi liation.6 In the next sections we draw out basic lessons from each classic theory of motivation and use them as jumping-off points for elaborating what research tells us about motivation and performance in the nonprofi t sector. The basic lessons are the following:

• People are motivated to satisfy their needs and may not have the same needs as others.

• If some needs cannot be satisfi ed, people focus on satisfying other needs.

• People are motivated by both intrinsic and extrinsic incentives.

• The work environment affects the needs people seek to satisfy.

• Nonprofi ts attract people with altruistic impulses.

• People act on what they expect to bring the most good and least bad results.

• People’s behavior is infl uenced by positive and negative reinforcements.

• People modify attitudes and behaviors to match those of role models.

• Goals can be motivating—when set appropriately.

• People want rewards to be fair.

People Are Motivated to Satisfy Their Needs and May Not Have the Same Needs as Others

Maslow’s hierarchy of needs provides insights on the needs that individuals may attempt to satisfy through their paid and volunteer work.7 Maslow arranges these needs in pyramid form, according to priority, arguing that individuals attempt to satisfy the lower-level survival needs before the upper-level needs. Individuals strive to move up the pyramid due to a fundamental need to grow and develop. According to Maslow, unsatisfi ed needs cause confl ict, stress, and frustration, which can negatively affect performance. Researchers have been unable to sub- stantiate Maslow’s claim that fulfi lled needs cease to motivate behavior and

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286 Managing Nonprofi t Organizations

that workers’ behaviors are dominated by a desire to fulfi ll the lowest order need that has not yet been fulfi lled. Though no empirical evidence has been found to support the idea of a hierarchy of need satisfaction behavior, the idea that individuals get involved in nonprofi t organizations to satisfy needs is clearly established. It is also clear that managers in nonprofi t organizations should not assume that all individuals have the same needs. Maslow identifi ed physiological, safety and security, social, esteem, and self-actualization needs, as represented in Figure 12.1.

Being involved with a nonprofi t, such as the Friends of the High Line, enables individuals to pursue the basic needs identifi ed by Maslow. These needs are refl ected in the mission statements of a large number of nonprofi ts. Many nonprofi ts are established to help individuals with their physiological, safety, and security needs. Thus one sees shelters and soup kitchens in cities throughout the United States. Many nonprofi t recreational clubs primarily serve people’s social needs, and clubs for youth are often established with esteem as well as social needs in mind. For example, Boys and Girls Clubs and other youth-serving membership organizations, such as the Girl Scouts, work to build confi dence and create social networks for positive peer support. Many staff, volunteers, and donors contribute to nonprofi ts in ways that fulfi ll their personal self-actualization needs. Through involvement with nonprofi ts, they fi nd meaning and develop their knowledge and skills.

FIGURE 12.1. MASLOW’S HIERARCHY OF NEEDS

Source: Adapted from Abraham H. Maslow, Maslow on Management (New York: Wiley, 1998).

Physiological. Need for food, drink, shelter, and relief from pain and fatigue

Safety and Security. Need for freedom from threat of bodily harm

Social. Need for love, affection, affiliation, and sense of belonging to social units and groups

Esteem. Need for self-esteem and esteem from others

Self-Actualization. Need to fulfill oneself by making maximum use of one’s aptitude and potential

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The same behaviors may satisfy different needs as well.8 For example, a volunteer act, such as serving meals or tutoring a child, may fulfi ll any of the following needs captured in E. Gill Clary and his colleagues’ Volunteer Functions Inventory (VFI):

• Social: satisfi ed by spending time with friends and gaining approval from those we admire

• Career: satisfi ed by gaining job-related benefi ts or advancement

• Understanding: satisfi ed by learning, practicing skills, and honing abilities

• Values: satisfi ed by expressing altruistic or humanitarian concern

• Protective: satisfi ed by reducing guilt over feeling more fortunate or by escap- ing personal problems

• Enhancement: satisfi ed by a sense of personal growth or esteem

It is not always easy to know what needs specifi c employees, volunteers, donors, and others are fulfi lling through their involvement with nonprofi ts. Rather than designing all available tasks, and the conditions under which they are performed, to satisfy multiple needs, it may be better to allow for some self-selection of tasks and fl exibility in how they are performed. If a worker seems to lack motivation, managers and leaders wishing to motivate him may fi nd it helpful to try to deter- mine his most important needs and help him choose tasks or adjust task conditions to better satisfy those needs. Individuals with high social needs, for example, may choose tasks that are performed as part of a group. Individuals with high esteem needs may ask for tasks where they are likely to get a lot of positive feedback.

If Some Needs Cannot Be Satisfi ed, People Focus on Satisfying Other Needs

Alderfer’s ERG theory is consistent with the basic idea that humans act to sat- isfy their needs.9 Alderfer argues that the needs in Maslow’s hierarchy should be combined into three basic sets of needs: existence needs satisfi ed by food, air, water, compensation, and safe working conditions; relatedness needs satisfi ed by meaningful social and interpersonal relationships; and growth needs satisfi ed by an individual making creative or productive contributions.

Alderfer gets credit for the idea, backed up by research, that multiple needs may be affecting an individual’s behavior at the same time. People typically have multiple motivations for acting in a certain way. When an individual is frustrated in satisfying one set of needs, she will likely focus on satisfying another set of needs. For example, if satisfaction of her need for growth is blocked because there

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288 Managing Nonprofi t Organizations

is no opportunity to get a more challenging position, her manager might encour- age her to focus on relatedness needs by providing opportunities to socialize and affi liate with others in work teams, task forces, or employer-organized volunteer groups or sports teams.

Richard Waters and Denise Bortree offer some useful conclusions about motivating work environments in nonprofi ts. Finding that trust and inclusion are highly critical in maintaining the commitment of teen volunteers, they recom- mend that paid staff show respect and appreciation by including volunteers in the workgroup, welcoming them to meetings, supporting their efforts to perform, involving them in decision-making opportunities, and understanding their needs and concerns. 10 These recommendations are consistent with standard advice for volunteer management programs. If paid staff do not see volunteers as making valuable contributions and think that the volunteers are a resource drain, integrating volunteers with staff can negatively affect staff members’ sense of satisfaction and commitment. Asking paid staff to invest their time, effort, and resources in poorly performing volunteers can lead to low morale and staff turn- over. Conversely, asking staff to invest in high-performing volunteers can lead to greater staff retention and well-being.11 A key lesson for integrating staff and volunteers is that neither the employees nor the volunteers want to feel that their time is being wasted.

People Are Motivated by Both Intrinsic and Extrinsic Incentives

Herzberg’s two-factor theory proposes that there are some factors that lead to job dissatisfaction when they are insuffi cient but do not lead to high levels of satisfac- tion no matter how abundant they are.12 Hygiene factors are extrinsic incentives, such as supportive supervisors and safe working conditions and externally given rewards such as salaries and benefi ts. In contrast, motivators are intrinsic incen- tives, operating inside an individual. These intrinsic incentives include enjoyment of the work, sense of importance of the work, interest in the tasks, feeling of personal growth, and fulfi llment of higher-order needs such as esteem and self- actualization. Though researchers have not confi rmed the idea that intrinsic and extrinsic incentives work differently to affect satisfaction and motivation, they have found that both types can affect attitudes and behavior of paid employees and volunteers. In particular, it is clear that altruistic (other-serving) as well as instrumental (self-serving) motivations help to explain interest in volunteering13 and in having paid employment in the nonprofi t sector.14

As mentioned in Chapter Ten on executive directors and leadership, national studies suggest that nonprofi ts will be facing signifi cant challenges in retaining their current executive directors and recruiting younger generations to leadership

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roles. The 2006 Daring to Lead study report found that directors were planning to leave their jobs due to inadequate compensation, burnout, lack of contributions to retirement accounts, and overwhelming fundraising responsibilities.15 The 2008 Ready to Lead? study report looked at the nonprofi t leadership pipeline and found that next generation leaders are frustrated by a lack of mentorship and unclear internal career paths.16 Some fi nd the prospect of becoming a nonprofi t executive director unappealing due to fundraising responsibilities, long hours, and low pay and retirement benefi ts. These studies reinforce the idea that there are disincen- tives (hygiene factors) for work in the nonprofi t sector that managers can attempt to ameliorate or avoid to better recruit and retain nonprofi t workers.

Putting Herzberg’s ideas into action, nonprofi ts should seek to make work more interesting, meaningful, and personally fulfi lling in order to boost motiva- tion and satisfaction. They should also provide extrinsic rewards such as praise from supervisors and pleasant working conditions. Some nonprofi t leaders have a tendency to rely on intrinsic motivators rather than extrinsic ones. They feel that the opportunity to contribute to achieving the mission of the nonprofi t should be a suffi cient motivator. Therefore they may choose to pay low salaries, not invest in staff development, and assume that employees and volunteers will per- form at a high level without needing much positive feedback or encouragement. Unfortunately, this may lead to those pursuing careers in the nonprofi t sector feeling underpaid and overwhelmed with work demands.

There is much discussion in the nonprofi t sector about the greater presence of intrinsic motivation in this sector than in the others. Studies have found that nonprofi t paid employees tend to have weaker monetary orientations than their counterparts in the for-profi t sector do.17 For example, in a study of nonprofi t careers and sector switching, nonprofi t paid employees were found to place more importance on having work that helps others and less importance on high sal- ary than for-profi t paid employees did.18 This high level of intrinsic motivation is often used to explain why nonprofi t workers are willing to accept low wages. When extrinsic rewards are increased, intrinsic motivation is theorized to drop.19 John Deckop and Carol Cirka found this in their examination of the introduction of a merit pay system in a nonprofi t. The employees who had the highest level of intrinsic motivation were the ones who experienced the greatest decline in this type of motivation when faced with a merit pay system.20 However, other studies, such as a study of AmeriCorps members, have not found that intrinsic motivation drops in the presence of extrinsic rewards.21

Some of the simplest and least expensive rewards can have a great infl uence on satisfaction and motivation. For example, one study of volunteers for Meals on Wheels found that a hot, fresh cookie given to volunteers each day they volun- teered generally was more valued by them than occasional drawings for fuel cards,

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snacks on holidays, appreciation events, acknowledgments in newsletters, meetings with celebrities, and other tangible rewards. Some of the volunteers studied were actually less likely to continue volunteering if they perceived that they were being paid or somehow compensated, however little, for their time and effort. Overall, this study showed, like many others, that volunteers and paid staff tend not to want the same rewards to the same degree. Making a posi- tive difference, being able to help others, and receiving small, tangible rewards like a cookie were generally very useful in keeping most volunteers motivated.22

The Work Environment Affects the Needs People Seek to Satisfy

McClelland’s learned needs theory says that performance is based on needs for achievement, power, and affi liation. It also offers the insight that needs are learned through cultural infl uences, and therefore the work environment can reinforce the pursuit of certain needs.23 For example, being rewarded by a supervisor for being dominant and taking charge strengthens a person’s need for power and his sub- sequent efforts to get power. Extending this idea of learned needs, if a for-profi t company encourages and rewards volunteering, its employees are more likely to be motivated to volunteer. Working alongside their boss on a community service project can satisfy for-profi t employees’ needs for affi liation and achievement, and having the opportunity to serve in a volunteer leadership role can satisfy needs for power.24 Even his occupation can infl uence a person’s desire to volunteer. Natalie Webb and Rikki Abzug found that occupational groups vary in the likelihood that they will do volunteer work, and concluded that norms and values within occupa- tions help shape desires to volunteer.25

This premise that needs are learned can be linked to the massive literature on how leaders can affect organizational culture.26 The culture of an organization refl ects the shared beliefs, attitudes, values, and norms that guide behavior and atti- tudes within that organization. Artifacts of the culture include the organization’s mission statement, slogans, codes of conduct, visible awards and recognitions, and facilities; the ways members dress; and their manner of interacting. Something as simple as how the phone is answered and what is displayed on offi ce walls can suggest the values and norms that are shared in an organization. Nonprofi t lead- ers need to understand their organization’s culture and the behaviors that are reinforced by it. For example, workers are likely more willing to be creative and to experiment when innovation is a cultural value than they are when the culture is more bureaucratic and rule following is valued. A leader can strengthen a culture by setting up reward systems consistent with shared beliefs, values, and norms. For example, by praising paid staff for working collaboratively with volunteers and ensuring that rewards are given to teams of volunteers and staff, some of the

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typical power differences between staff and volunteers may be weakened and the idea that all workers are equally valued may be reinforced. The organiza- tional culture can reinforce or reduce staff and volunteer tensions, depending on how well volunteer management systems are understood and appreciated by employees.27

Nonprofi ts Attract People with Altruistic Impulses

Public service motivation (PSM) theory was originally developed to be applied to gov- ernment employees, though it subsequently has been applied to the nonprofi t and for-profi t sectors. James Perry and Lois Wise suggested that public employees have four main dimensions of motivation: attraction to public service, commit- ment to the public interest, compassion, and self-sacrifi ce.28 Work in the nonprofi t sector can serve as an outlet for these altruistic impulses. Research on public service motivation has found that individuals vary in their willingness to put oth- ers’ interests above their own and put themselves at risk in order to help others. Individuals with higher levels of public service motivation are more likely to work in the nonprofi t or government sectors than the for-profi t sector.

Researchers fi nd high rates of burnout in the nonprofi t sector, as individu- als put their work-life balance at risk in order to help others. They may feel guilt about going on vacation or accepting salary or other rewards when those they are trying to help are still suffering. As John Brauer and Jed Emerson put it in their article on burnout of nonprofi t staff: “Plenty of people come to the ‘do-good’ professions with the belief that they, along with others, should do no less than change the world. They can’t seem to do enough to help their agencies pursue their missions. But this beautiful passion can lead straight to burnout when the issues of poverty don’t end, the environment continues its decline, and a realiza- tion dawns that no one person or agency can solve such complicated and over- whelming issues.”29 To avoid burnout, nonprofi t managers can insist that staff take vacations and work reasonable hours. They can also help workers focus on small wins where they can see that they are making a positive difference, so that they are not discouraged.

People Act on What They Expect to Bring the Most Good and Least Bad Results

Expectancy theory has been relatively well supported by empirical research since its introduction by Victor Vroom. It says that individuals calculate the probability and value of their achievement of good and bad outcomes as a result of their actions. Then they behave in a way likely to result in the most good and the

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292 Managing Nonprofi t Organizations

least bad results.30 The theory assumes that individuals are rational and follow utilitarian principles. More recent formulations of the theory look at two types of expectancies: the likelihood that effort will lead to a certain performance level and the likelihood that the performance level will result in receiving a certain level of reward. The theory guides managers to learn what expectations workers have regarding the link between effort and performance and between performance and rewards. It also suggests that managers should learn what workers see as the most preferred rewards. They can then help a worker see that performing at a certain level is possible and that this performance will result in rewards the worker values.

Any time a nonprofi t takes on a challenging mission in which individuals doubt whether success is possible, expectancy theory is useful. It helps managers understand that sometimes perceptions of what is possible need to be changed to encourage peak performance on tasks. For example, to rally initial detractors around the idea of making the High Line into a positive asset, the leaders of the effort had to fi rst convince them that an ugly eyesore could be made beauti- ful. Without belief that the nonprofi t can actually succeed, behavior is likely to be lackluster, even counterproductive. Many nonprofi ts have ambitious missions and are dealing with complex, diffi cult social problems. Leaders need to be able to show progress in achieving these missions to keep workers motivated. Noting milestones is critical for keeping volunteers and staff engaged when the fi nal destination appears far away.

Expectancy theory also helps managers to understand the phenomenon of burnout, common among volunteers and staff dealing with the toughest social problems. After years of seeing little progress in addressing social ills or helping individuals who cannot seem to make progress or who frequently regress, workers can feel burnt out. They stop expecting to be able to be of help or no longer see that the rewards are worth the effort. Nonprofi t workers may experience burn- out when they are faced with pressures to quantify their successes even though achievements are hard to document. Sometimes single stories about someone who was helped can remind workers that their work is meaningful and feasible despite being under-resourced. This relates to the often repeated story of the person who justifi es throwing stranded starfi sh back into the ocean by saying that even though all the starfi sh can’t be saved, his actions make a difference to the few starfi sh that are saved.

People’s Behavior Is Infl uenced by Positive and Negative Reinforcements

Operant conditioning and behavior modification approaches draw from the work of behavioral psychologists such as B. F. Skinner. They explain how managers can reinforce desired behaviors and extinguish less desired ones. For example, if a

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volunteer is routinely ignored by her supervisor every time she asks for a new assignment, the volunteer is unlikely to keep asking for new work. The lack of attention by the supervisor is a negative reinforcement. The behavior of asking for more volunteer work will eventually be extinguished. However, if the volunteer is enthusiastically greeted and thanked when she turns in an assignment and asks for more work, she is likely to want to fi nish her work and get more tasks to complete. The supervisor is providing a positive reinforcement.

Operant conditioning and behavior modifi cation research offers important implications for managing workers. An important fi nding is that positive reinforce- ment is more effi cient in infl uencing behavior than punishment. Also rein- forcement after each occurrence of a behavior produces more rapid acquisition of the desired behavior, but the behavior is also more likely to stop when the reinforcement ends. Intermittent reinforcement is likely to take longer to establish the desired behavior, but once the reinforcement stops the behavior is likely to continue longer.31

Reinforcements may be as simple as being thanked, praised, scolded, embarrassed, rewarded with a token of appreciation, or presented as a positive role model. An important caution is that it is easy to reward one behavior while hoping for another.32 For example, a nonprofi t may say it wants good customer service but may actually reward employees for speed in moving to the next customer. In order to be effective in encouraging desired behaviors, any per- formance management system needs to be sensitive to what it is incentivizing.33

People Modify Attitudes and Behaviors to Match Those of Role Models

Social learning theory helps managers to understand how individuals motivate them- selves by choosing a role model and copying that person’s behavior and attitudes.34 An implication of this theory for nonprofi t managers is that workers can benefi t from having individuals to observe and admire. Managers can expose workers to potential positive role models, but it is the workers’ choice whether they emulate these models. Learning by observing is common. In addition to formal training, people learn by watching fellow team members and others in their work and social environments. Conferences, shared interest meeting groups, reading circles, and job shadowing are just a few of the avenues for observing others and fi nding role models.

Mentoring programs may be very effective in increasing performance in non- profi t organizations. Mentors can help with technical training and knowledge sharing, thus improving the abilities of those mentored. Mentors can also affect motivation by serving as role models. One study of employees of a nonprofi t elder-care program found that those with mentors had significantly stronger

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motives to help others and reported higher boosts in self-esteem, more under- standing of social problems, and greater refl ection of their values in their work. They had stronger beliefs in the organization’s mission, a greater desire to be supportive of peers, and less stress in their caregiving tasks.35 This nonprofi t’s positive results from a formal mentoring program suggest that an investment in coordinating mentoring may be worthwhile. By sharing their lessons learned and perspective gained from experience, mentors can ease the challenges facing less seasoned workers and model positive attitudes and behaviors.

All those involved in a nonprofi t should be aware that whenever they are being observed, their behaviors and attitudes may be a model for others. Even clients can be role models. Many employees and volunteers report that they learn much from interacting with service recipients. In our chapter on executive direc- tors we explore how they are role models and the importance of their behavior in setting the tone for the organization. In Chapter Two we discuss why it is important for unethical behavior of employees to be stopped when discovered; otherwise these behaviors may be modeled by others. Part of the value of leaders getting out of their offi ces and “walking around” is that they can refl ect positive attitudes and behaviors and observe others. If they see negative role models, they can try to change the behaviors of these individuals or remove them from the workplace.

Goals Can Be Motivating—When Set Appropriately

Goal-setting theory outlines how goals can infl uence behavior.36 We reviewed in Chapter Two how clear and meaningful goals enable stakeholders to judge organizational effectiveness by whether or not these goals have been met. In this chapter our focus is on individual and team-level goals. To encourage high per- formance, goals should be specifi c and challenging yet reachable. When goals are not achieved, commitment to goal-related tasks and similar tasks may falter. For example, fundraisers who do not reach a fundraising goal may enter the next campaign with less motivation than fundraisers for successful campaigns have.

When a nonprofi t fails to reach certain goals, leaders should actively manage future expectations. They can do this by helping workers see that current con- ditions allow new goals to be reached. If necessary, they can diagnose with the worker why a goal was not met. If it was due to lack of ability, they can see that the worker has adequate resources and training to meet the goal. If it was due to lack of motivation, they can see what might change the worker’s desire and com- mitment to achieve the goal.

People vary in how they respond to goals but, in general, as the perceived value of a goal increases so does the commitment to the goal. Feedback about

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progress in achieving a goal is usually necessary for the goal to positively infl u- ence performance. A diffi culty in applying this theory is that goals may be hard to specify or counterproductive, particularly when dealing with high-level strategy or in situations with multiple, complex, and competing goals.37

Using a goal-setting framework, Mary Tschirhart and colleagues looked at the importance of initial goals set by AmeriCorps members working in non- profi t organizations and then at their perceived accomplishment of these goals.38 The researchers found evidence for fi ve general goals and linked them to desire to volunteer one year later. Those AmeriCorps workers who had not achieved their goals had less intention to volunteer in the future. The researchers also found that when these workers did not believe their work had helped them to feel good about themselves or feel needed, they were less likely to report high levels of achievement of other important goals. It seems that the level of satisfaction with achievement of self-esteem goals can affect the pursuit and achievement of other goals. A practical implication from this research is that managers can benefi t from understanding workers’ goals and helping to ensure that they are reachable, either by providing adequate training and resources for goal achievement or by persuading workers to change their goals when they are unrealistic.

People Want Rewards to Be Fair

Equity theory brings the insight that workers compare their efforts and rewards to others in similar work situations.39 Most individuals have a need to be treated fairly and are likely to change their behavior if they perceive an inequity. If oth- ers seem to be getting greater rewards for the same work, or the same rewards for lesser work, workers are likely to respond in one of several ways. They may put less time or effort into their work. They may decide to try to achieve greater outputs to call attention to their superior performance. They may change which people they are comparing themselves with or reevaluate their calculation of inputs, outputs, and outcomes. Other options they may pursue are to quit or to decide that the inequity is tolerable.

In the nonprofi t sector, workers may not be able to make exact comparisons, and they may see inputs and outcomes as multifaceted, making it diffi cult to cal- culate and compare ratios to see whether equity is being preserved. For example, a paid staff member working as a fundraiser may compare herself to a volunteer who is raising funds for the same campaign. The staff member may have differ- ent kinds of relationships to nurture with prospective donors and more or fewer resources to support fundraising activities than the volunteer does. The rewards these workers receive for their efforts also vary greatly. In particular the staff member has pay as an extrinsic reward. The value of the theory is in helping

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managers to see the possible negative consequences of perceptions of inequity. It also suggests that managers should be aware of the comparisons that workers are making and their sensitivity to perceived inequity.

Laura Leete fi nds that equity concerns are stronger in the nonprofi t sector than in the for-profi t arena.40 A sense of what is fair affects many dimensions of nonprofi t work, particularly pay systems. In Deckop and Cirka’s examination of a merit pay system in a nonprofi t, they found that equity and expectancy con- cerns were prevalent. Some individuals felt that performance appraisals were not accurate and that the pay was not distributed to reward those with the highest performance, though that was the stated purpose of the merit pay program.41 These types of beliefs can have negative effects on performance.

Not being consistent in types of rewards used for workers in different jobs also can be problematic. Anna Haley-Lock explains that nonprofi t managers risk under-rewarding the individuals who are assumed to be intrinsically motivated and whose work is directly related to the nonprofi t’s mission while over-rewarding those who are not in mission-focused functions, do not appear to be “called” to work in the nonprofi t, and are assumed to be doing the job for the money.42 The inequity that results can cause motivational and performance problems.

Concluding Thoughts

In general, worker satisfaction is high in the nonprofi t sector.43 Numerous stud- ies have shown that nonprofi t employees in general are satisfi ed and more loyal than their for-profi t counterparts, even in the presence of lower wages, excessive workloads, and stress from inadequate resources. They tend to stay with their organizations because they feel attached to the mission and are satisfi ed with their experience.44 Most individuals have stable preferences for employment in one sector over another. These preferences are linked to personal values as well as to educational and work backgrounds.45 Even though the nonprofi t sector may have to compete with the for-profi t sector for talented leaders, there will always be individuals who have a passion for nonprofi t projects and who are eager to work toward achieving a mission that fi ts their value system.

The fundamental dynamic that performance is predicted by ability and motivation should not be ignored. This chapter has outlined a variety of ideas for infl uencing ability and motivation based on classic theories and empirical research. These concepts, combined with ideas from the preceding chapter on human resource systems, form a foundation of basic knowledge on how to encourage high levels of performance among paid staff and volunteers. In the next chapter on program evaluation, we reveal more insights on performance by

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looking not at individual workers’ effectiveness but at the effectiveness of pro- grams as a whole.

Questions for Consideration

1. Should compensation for equivalent jobs be lower in the nonprofi t sector than in government or the for-profi t sector? When is this appropriate? Why or why not?

2. How would you determine whether the poor performance of someone you are supervising is due to a problem of ability or of motivation?

Exercises

Exercise 12.1: Satisfying Needs

Consider a job you know well. Prepare an inventory of the personal needs that might be satisfi ed through performing this job. How could the work environment be changed to allow more of these needs to be satisfi ed through the job?

Exercise 12.2: Positive and Negative Reinforcements

Observe your own behavior for three days. During this time period, how often did you use positive and negative reinforcements with others? Did their reactions differ depending on what type of reinforcement you used? When were you most likely to use negative reinforcements, and when were you most likely to use posi- tive reinforcements?

Exercise 12.3: Responding to Inequity

Think about a time when you experienced inequity in a work situation. How did you respond to the inequity? Could you or the organization have addressed the inequity in other ways? If so, how?

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PART FOUR

EVALUATING, CONNECTING, AND ADAPTING

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CHAPTER THIRTEEN

PROGRAM EVALUATION

T he Nurse-Family Partnership (NFP) program was founded by physician David Olds, professor of pediatrics, psychiatry, and preventive medicine at the University of Colorado Denver.1 While working in an inner-city day-care center in the early 1970s, Olds was struck by the endemic risks and diffi culties in the lives of low-income children. He realized the children needed help much earlier and, basing his effort on the work of both academics and practitioners, designed a unique home visitation program that would rely on registered nurses and begin during pregnancy. The program’s goals included improving pregnancy outcomes by improving women’s prenatal health, improving child health and development by reducing dysfunctional caregiving, and improving each mother’s life course by helping her develop a vision for her future, which would involve planning any future pregnancies, staying in school, and fi nding employment.

Over the next thirty years, he tested the program in randomized, controlled trials. The fi rst trial was with poor, white, and rural families in Elmira, New York, in 1977. The program was found to produce positive impacts. In order to test the generality of the model, a second test was conducted in Memphis, Tennessee, among inner-city African American families. Similar positive results were found. A third trial was conducted in Denver, Colorado, in order to test the model on Hispanic families and also to test the effi cacy of using paraprofessionals instead of nurses (this had been suggested as a cost-saving measure). The test showed that the program was effective for Hispanics but that using paraprofessionals produced inferior results. The analysis of the results of these trials resulted in thirteen academic papers that, taken together, demonstrated positive results. This con- vinced funders and policymakers to support expansion of the program, and in 1996, the program was established in sites in Ohio, Wyoming, California, Florida, Missouri, and Oklahoma. The Nurse-Family Partnership National Service Offi ce, a national nonprofi t, was established in 2003 to facilitate quality replication of the Nurse-Family Partnership program across the United States

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302 Managing Nonprofi t Organizations

and to provide implementing agencies with ongoing support in nursing education and practice, program quality assurance, marketing, government relations, and more. The program has continued to grow tremendously. By 2005, it was operating in twenty states and serving twenty thousand families. As of August 2010, the program had expanded to thirty-two states. In addition, since 2006, inquiries have been received from a number of other countries about instituting the model.

� � �

As our opening case example shows, the Nurse-Family Partnership program was carefully designed. It was based on theories of behavior and extensively evaluated before being widely disseminated. Evaluation results were used to determine the fi nal program confi guration. The result is a program that is widely respected for delivering consistently positive results. Nonprofi ts are facing increasing demands that they demonstrate their impact. Foundations and philanthropists are seeking to be more strategic as they seek social impact, government agencies are requiring information on program results, and board members want information on organi- zational activities.2 How can nonprofi t organizations determine how well they are doing in their pursuit of their mission? How can they determine if their programs are benefi tting their clients? How can they provide information to funders and other stakeholders who want evidence of impact before making funding or other decisions of importance to the organization? In this chapter we will examine how nonprofi ts evaluate the effectiveness of their programs in order to answer these questions. We focus here on the evaluation of specifi c programs and not the evaluation of the effectiveness of the nonprofi t as a whole, which is considered in detail in Chapter Two. For nonprofi ts with single programs, nonprofi t and pro- gram effectiveness are closely related. In larger nonprofi ts with multiple programs, however, the assessment of organizational effectiveness is more complex and goes beyond the results of any one program evaluation.

Program Evaluation and Accountability Management

The evaluation of programs has a long history. In her review of evaluation, Susan Paddock points out that in the United States, formal evaluations of organiza- tions and programs began with student assessment in the late 1800s.3 Following World War II, evaluation began to be applied to public program administration. The social programs of the Great Society in the 1960s, which led to signifi cant increases in public expenditures, were accompanied by an increase in attention to evaluation.4 Legislators sought independent, thorough analysis of the per- formance of such programs as the War on Poverty, Model Cities, and the like. For many programs, Congress mandated that funding be set aside for program

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evaluation. Evaluations of programs had been performed before this, but they had usually been carried out in-house by agency staff. A key feature of the new evaluation model was the insistence on outside evaluators.

Legislation requiring regular review of federal programs was enacted in the early 1970s, when the federal government devolved the provision of many federal programs to the states.5 Formal evaluation was a requirement of the funding. In addition, the Offi ce of Management and Budget established its Evaluation and Program Implementation Division. As a result of these developments, pro- gram evaluation has boomed, both among practitioners and academics. Today a number of professional journals, such as Evaluation Quarterly, focus on this area, and a professional association, the American Evaluation Association, is available to students and professionals in this fi eld.

The evaluation of government programs started with a relatively simple rational model. The research assessed the degree to which the initial goals of the program had been accomplished by the end of the program. Over time, however, the methodology was augmented in important ways to take into account the realities and complications of public programs. For example, programs often had multiple goals, and programs could change over time due to unforeseen circum- stances. In addition, evaluations began to be used to improve program perfor- mance while programs were still under way.

Program evaluation has been widely adopted in the nonprofi t sector as well. Since the 1980s, nonprofi ts have faced cutbacks in government funding, economic slow- downs and recessions, the rise of a conservative political ideology favoring market- based solutions to social problems, and an increase in the competition for funding as the number of appeals has increased. In this environment, funders and other external stakeholders have increasingly demanded that nonprofi ts provide evidence that they are making a difference and producing impact. As a result, accountability has become a major concern for nonprofi ts. Program evaluation is a central aspect of accountability and has therefore become increasingly important for nonprofi ts.

In its most general sense, accountability refers to an obligation or willingness to accept responsibility or to account for one’s actions.6 Following from this, organi- zational accountability is usually defi ned as an organization being answerable to someone or something outside itself and accepting responsibility for activities and disclosing them.7 Organizations can also be accountable to internal standards. The standards may be expressed through codes of conduct and the mission state- ment.8 Accountability involves four core components:9

• Transparency: collecting and making information available for scrutiny

• Answerability or justifi cation: providing clear reasons for actions and decisions so that they may be questioned

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304 Managing Nonprofi t Organizations

• Compliance: adhering to rules or standards through the monitoring and evaluation of procedures and outcomes

• Enforcement: applying sanctions for shortfalls in transparency, justifi cation, or compliance

In practice, accountability involves three fundamental questions. To whom is the organization accountable? For what is the organization accountable? By what means can the organization be accountable? Alnoor Ebrahim reviews non- profi t accountability and notes that nonprofi ts are expected to be accountable to multiple actors, including upward to funders and patrons, downward to cli- ents, and internally to themselves and their mission.10 In addition, nonprofi ts are accountable for fi nances, governance, performance, and mission. Finally, nonprofi t accountability mechanisms include disclosure statements and reports, evaluation and performance assessment, self-regulation, participation, and adap- tive learning.

Program evaluation plays an important role in accountability. Kevin Kearns notes that “accountability, in essence, is the obligation of public and nonprofi t organizations to serve a higher authority—the public trust—which is the ultimate source of their mandate, their authority, and their legitimacy.”11 This public trust is served by the outputs and outcomes of nonprofi t organizations, and account- ability requires the evaluation of these results. For the NFP, evaluation was essen- tial not only for developing the program but also for convincingly demonstrating to funders and policymakers what the value of the program was and that the program was worthy of support.

The 1990s saw several major initiatives to promote evaluation in the non- profi t sector. The Government Performance and Results Act of 1993 empha- sized accountability in nonprofi ts receiving federal support.12 In addition, in 1996, the United Way of America (UWA) launched its outcome measure- ment initiative to evaluate program outcomes in United Way–funded agen- cies.13 The model developed for the UWA has become the most widely used approach to outcome measurement in the nonprofi t sector, with a reported 450 local United Ways encouraging about 19,000 United Way–funded agen- cies to measure outcomes in 2008.14 The basis of the UWA model is the clear specifi cation of program inputs, activities, outputs, and outcomes, as shown in Figure 13.1. Some important strengths of the UWA model that have been widely incorporated into current program evaluation practice include an emphasis on outcomes, program improvement as a primary motivator, and the use of logic models as an important tool.15 These will be discussed in detail in the following sections.

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Understanding Basic Program Theory

Before we discuss the details of program evaluation, we need to defi ne the basic elements of programs (see Figure 13.1). Inputs include those to be served by the pro- gram as well as the resources needed for program activities, such as labor and capi- tal. Program activities are the steps an organization takes to bring about the intended program results. This could include instruction, counseling, or medical procedures. Outputs are the most direct consequences of program activities. In a vocational edu- cation program, for instance, program activities could include holding a number of classes. Outputs in this case would be the number of hours of instruction the students received over the course of instruction. Outputs, it is hoped, will pro- duce outcomes. Outcomes are the short-term and intermediate changes that occur in program participants as a result of the program activities. Outcomes can involve changes in knowledge, skills, attitudes, intentions, or behavior. In our example, stu- dent outcomes would be an increase in vocationally relevant knowledge and skills. Outcomes are not the ultimate goals of programs, however. Impacts are the broader changes that program outcomes are designed to bring about within program par- ticipants or their surroundings, including the community, society, or environment. Graduates of the vocational education program should be able to obtain better jobs, which will benefi t not only their well-being but also their communities.

The Program Evaluation Process

The program evaluation process should proceed through a series of logically related steps, including preparing for evaluation, securing agreement and com- mitment by leaders and stakeholders, choosing an appropriate evaluation design,

Programs consist of

Examples of NFP program elements are Inputs: nurses, mothers, children, other caregivers Program activities: home visitation, prenatal health care, counseling and education Outputs: appropriate child care, job search Outcomes: planning pregnancies, employment Impacts: healthy and functioning families

Inputs Program Activities Outputs Outcomes Impacts

FIGURE 13.1. BASIC ELEMENTS OF PROGRAMS: THE NFP EXAMPLE

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306 Managing Nonprofi t Organizations

collecting and analyzing data, and reporting the results of the evaluation. This basic model can be used by both large and small nonprofi ts.

Preparing for Program Evaluation

Nonprofi ts must have both the will and the ability to evaluate their programs. They must build capacity, defi ne purposes, set goals, and get all necessary buy-in.

Building Evaluation Capacity To build evaluation capacity, an organization needs to “continuously create and sustain overall organizational processes that make quality evaluation and its use routine.”16 This requires allocating adequate human capital and material and fi nancial resources to evaluation. Boris Volkov and Jean King describe three ele- ments of evaluation capacity:17

• Resources devoted to evaluation: personnel, facilities, funds, equipment, software, and time, along with staff and volunteer skills, knowledge, experi- ence, and motivation

• Structures conducive to evaluation: an evaluation capacity-building plan, inclusion of evaluation in organizational policies and procedures, a sys- tem for reporting and monitoring evaluations, and effective communication and feedback systems

• Organizational context supportive of evaluation: internal support for evaluation integrated with the demands of external stakeholders for evaluation

Determining Program Evaluation Purpose If evaluation findings are to be used to achieve greater accountability and enhanced performance, the evaluations themselves need to be carefully planned and a number of important questions should be addressed. Paddock points out that program evaluation can18

• Inform planning decisions. • Determine whether more detailed, full-blown evaluations are needed. • Track program progress. • Determine whether a program has accomplished its goals (outcome evaluation). • Determine whether a program has been implemented as planned (process evaluation). • Measure the effectiveness or effi ciency of units or practices. • Determine whether there are unintended consequences. • Assess the degree of stakeholder satisfaction. • Compare programs or approaches to determine which might be best in a new

setting.

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Program Evaluation 307

Evaluations of the NFP program were used for all of these purposes. The fi rst evaluation was used to test the initial program design. Subsequent evalu- ations tested the effectiveness of the program for other service recipients and geographical areas. In addition, two different service delivery modes were tested to determine which was more effective and effi cient. Finally, the results of the evaluations were the basis for planning program expansion and the establishment of a national nonprofi t organization.

Given these diverse purposes, it is clear that evaluations can be performed for a variety of stakeholders. For any evaluation, however, stakeholders may have diverse agendas and favor different performance criteria and indicators. In these situations, program evaluation is likely to involve disputes and political games. A consideration of NFP stakeholders and interests clearly illustrates this point. These stakeholders obviously included the mothers and families who were getting services as well as the nurses who were providing the services. These stakeholders would want services that were effective and easy to deliver. The agencies implement- ing the program would be interested in how well their programs were being run and the outcomes obtained. Other child welfare providers might be interested in the degree to which some portion of the services could be adopted by their agen- cies. Local government offi cials and social service providers would be interested in how the services could make good use of public resources. Finally, aca- demics would be interested in identifying exactly what program activities produce which results and what that might mean for theories of child welfare. To mitigate the possibility of confl ict, it is important that agreement among stakeholders is reached before an evaluation begins. No matter which type of evaluation is being considered, it is important to identify major stakeholders and involve them in the process.

Getting Full Stakeholder Buy-In Those responsible for the future of the programs must be included in the evalu- ation process and must believe that the process will lead to positive results. It is important therefore that the fi rst step in evaluation planning be the commitment of organizational leaders. This commitment should entail both the provision of support for the evaluation as well as an agreement to give serious consideration to the evaluation results. It is also important that stakeholders for whom the program is important be included in the planning and possibly the design process for the evaluation. These stakeholders are likely to include representatives of various staff functions and possibly clients or others outside the organization. The pro- gram staff have detailed knowledge of program operations and are in the best position to both pinpoint key aspects of the way programs are actually run and help interpret fi ndings. Clients can identify program successes and problems as well as other, possibly unintended, program effects.

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308 Managing Nonprofi t Organizations

Establishing Clear Goals It is crucial at this time to clearly establish the specifi c goals and eventual use of the evaluation. This may well involve negotiation among key stakeholders. However, it is important at this stage that negotiation be followed by agreement, as that (1) signals to stakeholders that this is a serious effort and worthy of the time and effort required, and (2) secures the cooperation of those expected to act on the fi ndings. Finally, adequate resources and time frames need to be estab- lished. The best evaluation goals and designs can be undermined by inadequate resources or time. This will then lead to frustration on the part of those involved in the process and potentially cynical attitudes about the commitment of orga- nizational leaders to program improvement. For the NFP program, evaluation goals changed over time. The early evaluations were concerned with testing the program that David Olds had designed. He had based the program details on his and other practitioners’ experiences as well as on the academic literature. It was important to establish that the expectations drawn from these sources were borne out in practice. A test of alternative service providers (nurses versus paraprofes- sionals) was also conducted, and evaluations were used to test the degree to which the program could be used for a range of communities and ethnic groups.

Determining the Evaluation Approach

Once the purpose and goals of the evaluation have been established, a number of options are available for the shape the evaluation will take. Space precludes a detailed discussion of program evaluations for each of the purposes we listed previously. We will instead focus on process and outcome evaluations, because they are the two most general types and are most likely to be used by nonprofi t organizations.

Two general evaluation approaches have been distinguished. The approach taken will have consequences for the types of questions the evaluation can answer, who will do the evaluation, and the types of data gathered. John Thomas describes an objective scientist approach.19 This approach is based on the natural science model of research, and it has particular implications for program evaluation. A key fea- ture of this approach is the quest for objectivity. Procedures to ensure this include distance between the evaluator and the program, in order to minimize the infl u- ence of potentially biased program staff. Consequently, outside evaluators are used. In addition, quantitative data are gathered. These data are seen as objec- tive in that they do not require the subjective interpretation that qualitative data do. The goal of the evaluation is to assess whether program goals were accom- plished. The internal workings of the program are not considered, and the evalu- ation is performed at the end of the program. Thus this evaluation has a summative purpose, and the model it follows is described as an outcome evaluation process.

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The objective scientist approach was developed in the early days of program evaluation in public agencies. It was based on the idea that program goals were clear and could be objectively measured and that data on goal accomplishment was suffi cient for decision makers. This may have been the case for legislators debating program renewal, but it was not suffi cient for those concerned with program improvement. They needed more information about program details. To provide this information, an alternative approach, termed utilization-focused evaluation, was developed.20 In this approach the goal is a more comprehensive evaluation that includes the insights of program staff and the details of program operations. Although the objective views of outsiders have value, program staff have intimate knowledge of how a program actually operates and can identify problems in cause-and-effect relationships in program logic, clarify intermediate program steps, provide details on subjective program goals, and assist in interpret- ing results. To support these evaluations, fi ne-grained qualitative data are used in addition to objective data. The evaluation is designed to produce the knowledge that will allow staff to modify a program to enhance its outcome and impact. The knowledge may be used before the program ends. Thus this evaluation has a formative purpose, and the model it follows is described as a process evaluation process.

The NFP initial program model was founded on a core principle that regis- tered nurses, by virtue of their education, were best qualifi ed to conduct home visits. As the program gained acceptance, however, funders sought to reduce pro- gram costs by using paraprofessionals, who were expected to have a high school education but no bachelor’s degree or any college preparation, instead of regis- tered nurses. To test this, a study was done in Denver in which the outcomes for paraprofessional-visited mothers were compared with those for nurse-visited moth- ers. The evaluation of this study showed that nurse-visited mothers had the same positive outcomes as found in previous evaluations whereas paraprofessional- visited mothers had far fewer positive outcomes. Moreover, a process evaluation was also conducted. This showed that the quality of interactions between mothers and nurses was higher than between mothers and paraprofessionals (for example, nurses provided more information and were more trusted). This was held to be responsible for the difference in outcomes between the two ways of delivering the program. These results were used to justify the continued use of nurses.

Understanding Theories of Change and Logic Models

Programs are essentially tests of ideas about making something happen. Once support is gathered for particular goals, a program to bring about the necessary conditions or changes to accomplish those goals can be established. For example, if there is enough support for reducing smoking, an antismoking program can be

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310 Managing Nonprofi t Organizations

established. Social programs, in turn, are based on theories of change about how mod- ifi cation of behavior or social impact can be produced. These theories of change specify relationships between causes and effects and serve as the foundation for determining program activities and outcomes. For example, the theory of change that underlies an antismoking program consisting of distributing educational mate- rial is different from the theory of change that underlies an approach consisting of raising tobacco prices. The fi rst program relies on the theory that people can be educated to do what is healthy, whereas the second relies on the theory that people are rational calculators and will pay only so much for any commodity. Although both theories have been shown to work in some contexts, it may not be clear which would work better in the case of smoking. Social behavior is complex, and the best way to bring about changes in behavior may often be unclear or contested.

How does this relate to program evaluation? Outcome evaluation can tell the nonprofi t whether its program outcomes are as desired. If they are, the orga- nization has evidence that the cause-and-effect relationships assumed by the program’s theory of change are supported and useful. For example, the posi- tive evaluations of the NFP programs strongly supported a conclusion that the underlying theories of prenatal health and caregiving and parental support were valid and useful in bringing about the desired results. When desired program outcomes are not obtained, however, outcome evaluation alone will not help a nonprofi t to distinguish between two possible causes for the failure. One cause might be that the program’s theory of change is not appropriate, meaning that the cause-and-effect relationships are not as expected, and consequently, program activities do not bring about the changes in behavior desired. We could call this a theory failure. In the case of an antismoking program relying on education, if the expected reduction in smoking does not come about, it may be that education is of limited use for this type of addiction. Alternatively, the theory of change may be appropriate, but the program may not have been correctly run. For example, perhaps the educational material in the antismoking program was not distributed to the right people or in the right manner. A problem often encountered is that budgets levels are not adequate or are compromised in the course of running the program. We could call this a program administration failure. In this case, supplement- ing the outcome evaluation with a process evaluation, in order to closely evaluate the way the program is run, will help to determine whether the lack of impact is due to theory or program administration failure.

Our discussion points to the need to base programs on well-articulated theo- ries of change. On the one hand these theories may be extensive, complex, and based on academic research, like those used by the NFP. On the other hand they may be more modest in scope and also based on experience and practice. A good example of the latter can be seen in Project Superwomen, a program designed

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to help female abuse survivors fi nd employment.21 Theories of change can be developed through a series of steps, beginning with identifying assumptions and out- comes. Project Superwomen involved the assumptions that (1) nontraditional jobs for women (electrician, for instance) have better wages and so should be the target of training, and (2) women who have been through abuse need coping skills in addition to job training. Desired outcomes included (1) long-term employment, (2) coping skills, (3) marketable skills in nontraditional jobs, and (4) workplace behavior skills. This step is followed by backward mapping and connecting outcomes. Backward mapping involves looking at the desired outcomes and specifying the antecedents (program steps) needed to produce them. For Project Superwomen, backward mapping found the following descending series of antecedents:

• The fi nal outcome, women’s long-term employment, is brought about by the intermediate outcomes of women attaining coping skills and job and work- place skills.

• Coping skills are taught through peer-to-peer counseling and counseling and practical support for crises. Skills are taught in internships, which are preceded by training about workplace expectations and classes in job skills. In addition, employers are educated about how to use interns.

• Getting access to this teaching requires that women enroll in the program, which requires that women are ready to commit and attend as well as able to access child care if needed.

• Before any of this can happen, women need to hear and learn about the pro- gram, which requires that a variety of sources (such as social service agencies) provide information to them.

Finally, the mapping is displayed in a logic model. The logic model should make clear the assumptions, interventions, and other conditions associated with producing the outcomes. In addition to the basic program elements, the logic model can be used to specify antecedent and mediating variables. These variables are important in establishing the parameters within which the program operates and that may have an impact on program performance and results. For example, the program is likely to have different results for women of different educational levels (an antecedent variable). In addition, the commitment of employers to providing quality internships is likely to be important in the attainment of out- comes (a mediating variable). Logic models make the theory of change and the basis for producing impacts clear and provide a sound basis for program evalu- ation. Exhibit 13.1 displays the theory of change and logic model for Project Superwomen.

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312 Managing Nonprofi t Organizations

EXHIBIT 13.1. THEORY OF CHANGE AND LOGIC MODEL FOR PROJECT SUPERWOMEN

Women Attend Training

About Expectations

in the Workplace

Long-Term Employment at a

Livable Wage for Domestic

Violence Survivors

Survivors Attain Coping

Skills

Survivors Know How to Get Help and

Deal with Their Issues

Survivors Have

Marketable Skills in

Nontraditional Areas

Survivors Attend

Peer-to-Peer Counseling

Women Have New Support System

3

5

4

E

6

8

7 11

12

10

9

13

B

D

C

A

2

G

Survivors Experience and Enact

Appropriate Workplace Behavior

Women Serve

Internships

Employers Are Educated as to

How to Use Interns

Women Attend Training in

Nontraditional Skills

Women Attain Regular

Child Care

Social service agency, training program, and nonprofit shelter provider

for survivors of domestic violence collaborate to develop an employment

program geared to the particular issues for survivors of domestic abuse.

Women Enroll in Program

Women Are Ready to

Commit and Attend

Program Women Hear

About the ProgramF

14

1

Intervention

Assumptions (see facing page)

Related Interventions (see facing page)

Domino Effect (no intervention needed)

1

A

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Assumptions Interventions

A. There are jobs available in nontraditional fi elds for women.

B. Jobs in nontraditional areas of work for women, such as electrical, plumbing, carpentry, and building management, are more likely to pay livable wages and are more likely to be unionized and provide job security. Some of these jobs also pro- vide a ladder for upward mobility, from apprenticeship to master, giving entry- level employees a career future.

C. Women who have been in abusive rela- tionships need more than just skills; they need to be emotionally ready for work as well.

D. Women can learn nontraditional skills and compete in the marketplace.

E. The program cannot help all women, and so entry into the program must include screening so that women who have suffi cient literacy and math skills to take the training and have lives stable enough to attend classes are admit- ted. The program does not have the resources to handle providing basic skills or major social services.

F. Women who have left abusive situations are often single mothers and therefore cannot work unless they have child care.

G. Women must be out of the abusive situa- tion. The program assumes that women still in abusive situations will not be able to attend regularly, may pose a danger to others, and will not be emotionally ready to commit.

1. Implement outreach campaign.

2. Screen participants.

3. Set up counseling sessions.

4. Lead group sessions.

5. Provide help for short-term crises, such as housing evictions or court appearances.

6. Provide one-on-one counseling.

7. Develop curricula in electrical, plumbing, carpentry, and building maintenance.

8. Conduct classes.

9. Develop curricula and experiential learning situations.

10. Conduct classes.

11. Identify potential employers.

12. Create employer database.

13. Match women to internships.

14. Help women secure permanent jobs.

Sample Indicators

Outcome Long-term employment at a livable wage for domestic violence survivors.

Indicator Employment rate.

Target population Program graduates.

Baseline 47% of program attendees are unemployed. 53% are earning minimum wage.

Threshold 90% of the graduates remain in job at least six months and earn at least $12 per hour.

Source: Andrea Anderson, The Community Builder’s Approach to Theory of Change: A Practical Guide to Theory Development (Washington, D.C.: Aspen Institute Roundtable on Community Change, 2005), Resource Toolbox, p. 33. Reprinted with permission of The Aspen Institute.

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314 Managing Nonprofi t Organizations

Specifying Program Goals

Specifying measurable goals is a crucial activity in program evaluation—it links the logic model and the evaluation process. We can distinguish between impact goals, outcome goals, and activity goals. Outcome and impact goals serve as the basis for outcome evaluation; activity goals serve as the basis for internal program activities and process evaluation. The latter might include numbers of hours of instruction, counseling, or internships. In the NFP program, we have an example of clearly specifi ed outcome and activity goals. Program activity would begin during pregnancy. Nurses would visit mothers to build trust and provide education on prenatal care, diet, and the dangers of drug use.22 In all, nurses try to make fourteen visits dur- ing pregnancy and twenty-eight visits during infancy. Nurses provide information, encourage family members to help, assist mothers in envisioning a future con- sistent with their values and goals, and help mothers to evaluate contraception, child-care options, and career choices. The activity goals were established and refi ned though extensive research in which alternative activities were evaluated and rejected, such as the use of paraprofessionals instead of nurses. Activity goals will often be the easiest to articulate, achieve, and measure—hence the pressure to restrict program evaluation to process evaluation.

For program and evaluation purposes, an additional type of goal has been designated by Carol Weiss.23 Bridging goals are defi ned as falling between activity and outcome goals. Bridging goals are seen as relying on activity and leading to outcome. For example, in the NFP program’s effort to get mothers to stay in school, the bridging goal between conversations with mothers (the activity) and mothers staying in school (the outcome) might be an increased awareness by mothers of the lifelong negative consequences of dropping out. Bridging goals are the links between program activities and outcomes and hence are at the heart of the theory of change the program is seeking to embody. Therefore they represent the conceptual basis on which the program is built. To demonstrate that the program’s theory of change is appropriate, it is necessary to show that the bridging goals have been accomplished and have led to the outcome. For the NFP the theory of change is based on the notion that appropriately provided support and education can lead to positive behavioral change. Changes in moth- ers’ attitudes and motivations could be assumed to be crucial links and can serve as bridging goals.

Collecting Data

Proper data collection in the three NFP trials was essential to the success of the overall evaluation of the NFP. Given the goal of establishing the NFP as a major public health initiative, it was important to gather support from funders,

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community leaders, practitioners, and academics. These stakeholders would assess the value of the program using evidence found in program evaluations, and this evidence was only as strong as the data it was based on. Program improvement and development also depended on convincing data on program operation and impact.

Program evaluation data collection and analysis is based on the various research methodologies that have been developed in the social sciences, includ- ing psychology, sociology, and economics, to name a few. This is an extensive topic, and many good texts, some geared specifi cally toward evaluation, are avail- able. Here, we can provide only some basic guidelines. Jane Wei-Skillern and colleagues have provided a useful way of relating data acquisition to evaluation, as shown in Figure 13.2. They note that as one moves from inputs to impacts, one tends to go further out in time, away from the center of the organization, down in degree of control, down in measurability, up in abstraction, and down in the degree to which one can confi dently attribute causation. A lot of data are normally collected in zone 1 for program administration. Data for process evaluation are also readily available. Data availability in zone 2 is more ques- tionable. The question becomes, how far “outside” the organization should data routinely be collected on the results of the organization’s activities (that is, what is the normal data horizon)? The question of how far outside the orga- nization to go for data is also relevant for an assessment of impacts (zone 3).

Organizational boundary

Normal data horizon

Input

Activities

Zone 1 Process evaluation

Zone 2 Outcome evaluation

Zone 3 Outcome evaluation

Outputs

Outcomes

Impacts

FIGURE 13.2. ZONES OF THE VALUE CHAIN, PERFORMANCE MANAGEMENT, AND EVALUATION

Source: Adapted from Jane Wei-Skillern, James Austin, Herman Leonard, and Howard Stevenson, Entrepreneurship in the Social Sector (Thousand Oaks, CA: Sage, 2007), 332.

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316 Managing Nonprofi t Organizations

Data in this zone would be expensive to come by and attributions of causality would become more diffi cult. Nonprofi ts may fi nd it diffi cult to gather and use zone 3 data.

The NFP started carrying out evaluations immediately after the initiation of its program in each of the three study sites. We would place these studies in zone 2. These evaluations quickly found positive results. In Elmira, New York, women in the program trial were enrolled prior to their thirtieth week of preg- nancy.24 They were subsequently given four different levels of service. These will be described when we discuss experimental designs in the section below. For the women who received nurse visits, the visits began during pregnancy (ideally within the fi rst trimester) and were conducted weekly, biweekly, or monthly over a two-year period. To gather data to assess program outcomes, women were inter- viewed at enrollment and at six, ten, twelve, twenty-two, and twenty-four months after the birth of their child. At six, twelve, and twenty-four months, children were weighed, measured, and given developmental tests. Medical and child abuse and neglect records were also checked over the two years. Data from this study showed that mothers who received nurse visits smoked less during pregnancy and had fewer preterm deliveries than mothers who received no services. In addition, they neglected or abused their children less and provided more appropriate child care, and their children were seen less frequently in emergency rooms or by physi- cians to be treated for accidents and poisoning.

The NFP model, however, hypothesized longer-term benefi ts from the pro- gram.25 These effects would be found in zone 3. For mothers, the hypothesized benefi ts included reduced substance abuse, less welfare dependence, and more widely spaced pregnancies. For their children, projected long-term benefits included fewer emotional, behavioral, and cognitive problems and less school failure, antisocial behavior, and substance abuse. The NFP felt it was important to try to assess the long-term consequences of its programs and has carried out extensive follow-up studies.26 For example, in Elmira, studies followed families for fi fteen years after the child’s birth and found statistically signifi cant effects on children’s disciplinary records. In Memphis, three-, six-, and nine-year follow-up studies found the children of visited mothers to have superior scores on a variety of measures, including vocabulary and arithmetic tests and a mental processing composite at age six, and higher grade point averages and academic achieve- ment at age nine. In Denver, the results of four-year follow-up studies also found the children of visited mothers to have superior scores on a variety of measures, including language tests and behavioral adaptation in testing. Because of the care that was given to the initial testing of the programs, subsequent testing could be carried out (clients could be located, and so forth). The program was also able to secure funding for further evaluations.

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Understanding Different Types of Data The data used in evaluations may come from a variety of sources. Program administration requires the keeping of records on program inputs, activities, and outputs. Statistics based on this information are also routinely computed. These are, however, usually quantitative measures useful for running the program, and they do not convey any subjective or interpretive information. These data may be useful in process evaluations but are seldom detailed enough to be the primary source of information. Data on outcomes may be periodically or spo- radically gathered as part of other organizational activities, such as strategic planning or marketing.

Information may be obtained directly from service recipients. In some cases, client records may be available from other sources. More typically, client percep- tions about the services they received and their satisfaction with these services are assessed through surveys. Surveys can be administered in personal interviews, through the mail, by phone, or over the Internet. The advantage of surveys is that they can be tailored to the data needs of the evaluation. For example, addi- tional relevant client information can also be obtained through these surveys, such as demographics, related activities, or other services or organizations used. Downsides of surveys include potentially low response rates for mail or phone surveys, given the deluge of advertising and solicitations that people receive; varying rates of responses to Internet surveys owing to limited computer use among some populations; and questions about the accuracy of self-reported information. People may be hesitant to divulge information on sensitive or con- troversial topics, such as drug or alcohol use, for example. They may also be concerned about confi dentiality or worried about the use to which their informa- tion may be put. In addition, the design of even a moderately extensive survey requires careful attention to technical factors such as question wording and sur- vey layout. These technical details are covered in texts or guides on conducting survey research.

Finally, several qualitative data collection techniques are available, primarily observation and in-depth interviewing. These techniques are usually carried out by trained experts. Observers need to be aware of the various ways in which the information they are looking for can be displayed. For example, in observing a group interaction, they need to know how group cohesion might be manifested. In-depth interviewers need to be sensitive to times when probes should be used to solicit more detailed information or allow respondents to branch out to other, related, aspects of the topic. These techniques are worth the effort, however, because they can provide very detailed information on the way programs were run or clients were affected.

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318 Managing Nonprofi t Organizations

Collecting Outcome Evaluation Data Outcome evaluation requires data on the degree to which program outcome goals were realized. These goals have to do with changes brought about in recipients due to program activities. Consequently, data on recipient changes attributable to program activity must be obtained. A variety of data collection designs are available. They all compare program outcomes with what would have happened without the program. Adele Harrell and her colleagues provide a good overview of these designs.27 They vary in terms of the degree to which causation can be inferred. They also vary in terms of the diffi culty of data collection and analysis. Organizations with limited resources or expertise may not be able to carry out the more sophisticated designs. They could, however, consider some of the less elaborate ones.

To show that program activity caused behavioral change, it is necessary to show that the behavioral change varied in tandem with the program activity (covariation), that the program occurred before the behavior changed ( proper time order), and that the behavioral change was not caused by any other factors (nonspu- riousness). The fi rst two conditions can usually be dealt with in a fairly straightfor- ward manner through program design. The fi nal requirement, however, may be extremely diffi cult to address.

Experimental designs have been developed to explicitly address all three requirements. Individuals or groups are assigned to one of two groups at random. This is to ensure that the two groups are similar at the start of the experiment. Each group is given a pretest, measuring the behavior of interest. One group is then subject to the experimental treatment (the NFP program in our example). The other group, the control group, does not receive the treatment. Both groups are tested again in a posttest, and any differences between the two groups can be attributed to the impact of the treatment. Although such experiments are the gold standard for assessing causation, their use in real-world settings is lim- ited. The major problem is the ability to make random assignments to control and treatment groups and the appropriateness of this. Some programs, such as youth curfews, cannot be selectively given to a subset of the target population. In addition, ethical questions may be raised against withholding benefi ts to the control group.

The NFP used an experimental design in testing its program. The Elmira study is typical.28 Four hundred pregnant women were recruited through the health department antepartum clinic, the offi ces of private obstetricians, Planned Parenthood, the public schools, and a variety of other health and human services agencies. These women had at least one of the following maternal characteris- tics that predispose infants to health and developmental problems: (1) young age

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(less than nineteen years old), (2) single-parent status, or (3) low socioeconomic status. The families were assigned at random to one of four treatment conditions:

• Treatment 1. These families served as a control group. During pregnancy no program services were provided. Infants were screened for sensory and developmental problems at one and two years of age. If needed, referrals to specialists were made.

• Treatment 2. Families were provided free transportation for regular prenatal and well-child care at local health care providers. Screening for infants was provided at one and two years.

• Treatment 3. Families were provided nurse home visits during pregnancy in addition to transportation and screening services. Nurses visited families about every two weeks and made an average of nine visits during the pregnancy.

• Treatment 4. Families received the same services as those in treatment 3. In addition, the nurse continued to visit until the child was two years old. Initial visits were every week. The frequency declined to once every six weeks over the course of the two years.

This experimental design made sophisticated statistical analysis of the impacts of the different treatments possible and was responsible for the accep- tance of the fi ndings, which were published in numerous academic journals.

Although objections to experimental designs can sometimes be addressed with creative design or follow-up services to a control group, outcome evaluations are often carried out using quasi-experimental designs. These designs relax the require- ments of experimental designs. The most common variation is the relaxation of random assignment to treatment or control groups. Usually, evaluators use existing groups that are as similar as possible for comparison purposes. For example, two classes in the same school could be used. Multivariate statistical techniques are then used to control for the remaining differences between the groups.

There are, in addition, a number of nonexperimental designs, departing further from the experimental ideal. They do not have comparison groups or individuals not exposed to the program. Although they are relatively easy and inexpensive, they have numerous methodological shortcomings. A major limitation is that they cannot estimate the full impact of the program as no data are available for people receiving no services. These designs include

• Before and after comparisons of program participants

• Time series designs based on repeated measures of outcomes before and after the program for groups that include program participants

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320 Managing Nonprofi t Organizations

• Panel studies based on repeated measures of outcomes in the same group of participants

• Postprogram comparisons among groups of participants

Given their resources and expertise, small, community-based nonprofi ts may fi nd that these simpler, nonexperimental designs are most appropriate for them. These designs can be used as long as some measure of the participant charac- teristics of interest can be obtained. For example, to what degree did people smoke before and after a smoking cessation program? Simple questions can be used to assess this. Other measures based on observations may also be used. For example, did participants increase their strength and endurance after a physical fi tness program?

Collecting Process Evaluation Data Harrell and colleagues also describe designs for the collection of data for process evaluations. These data are collected to show to what degree programs are being implemented as specifi ed, to identify any unintended consequences and unantici- pated outcomes, and to understand the program from the perspectives of staff, participants, and the community. Designs include case studies, focus groups, and ethnography.

Case studies entail in-depth studies of programs to determine how the program is operating, what barriers to program implementation have been encountered, what strategies are the most successful, and what resources and skills are necessary for program operations. Case studies can also be used to evaluate competing pro- gram models in order to identify the best alternative. The information gathered will help program designers choose or develop key program elements most in line with the program’s theory of change and logic model. Case studies produce quali- tative data, gathered from semistructured interviews, focus groups, or researcher observations. Semistructured interviews ask specifi c questions but allow respon- dents to answer in as much detail as they want to provide. In addition, probes can be used to solicit additional material. In this way, respondents can reveal complex and unanticipated descriptions and explanations of program realities.

Focus groups are useful for examining both attitudes and behavior. A number of stakeholders are brought together for a focused discussion. These group dis- cussions are guided by a facilitator. Another researcher is present to take detailed notes. The conversations are also recorded. Several general questions are used to direct the conversation among group members. The goal of the discussion can vary. It may be to arrive at consensus on an issue or to surface as many divergent viewpoints as possible. Given the goal, the composition of the group should be carefully chosen to provide relevant viewpoints and characteristics. Afterward the

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Program Evaluation 321

conversations are summarized by the researcher, using both the detailed notes and the recording. If numerous focus groups are held, an overall summary is also produced.

Ethnography uses observation and unstructured interviews to study program processes, the community context of the program, causal processes as participants view them, and models of decision making. The goal is to understand the subjec- tive experience of the staff, participants, and others and then use this information to understand whether and how program goals are being achieved. Researchers observe program operations, make detailed fi eld notes, and analyze their observa- tions and notes to identify themes and trends. This fl exible, unstructured approach is useful for identifying unintended consequences and unanticipated outcomes. Unexpected observations may lead to entirely new theories of change.

Analyzing Data and Presenting Results

Data need to be analyzed before they are meaningful. Evaluations begin with particular purposes, and analysis must be adequate to address the questions an evaluation set out to answer. Data analysis is a highly specialized fi eld, and if the analysis is to go beyond simple descriptions and breakouts, specially trained staff or outside expertise is likely to be needed. Outcome evaluations rely on compari- sons of groups or individuals. Statistical analysis will be needed to determine the results of the experimental and related designs discussed above. These analytical techniques are used extensively in psychological research and are well developed. Process evaluation relies in whole or part on the analysis and interpretation of qualitative data. Reasons for success or failure are sought. Statistical analysis plays a lesser part in these analyses, which rely heavily on description, summarization, and interpretation. Researcher experience with these methods is an important factor for obtaining useful results. The fi elds of sociology and anthropology have developed and employ these methods.

When results have been obtained, they need to be distributed to the evalu- ation stakeholders, including organizational leaders, board members, program staff, and funders or other outsiders involved in or concerned about the evalu- ation. The information needs of these various groups are likely to differ, and results should be confi gured and reported accordingly. For some groups, such as funders or government agencies, outcome data are most relevant and suffi cient for their decision making. For others, such as program managers, process data are most relevant. They seek to make judgments about and improvements in program activities and need highly detailed information. Higher-level organi- zational leaders, such as board members, may want some of each type of data. Summary outcome data are important for them, but their decisions also concern

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322 Managing Nonprofi t Organizations

program activities. For any stakeholder group, it is important to provide neither too little nor too much information. Too little information will leave questions unanswered and frustrate decision making. Too much or overly complex infor- mation will confuse and possibly mislead those getting it. Finally, besides being shaped to stakeholder needs, results also need to be provided in a timely manner. Decisions may need to be made in particular time frames, which then need to be accommodated by evaluators.

Challenges to Evaluation in Practice

Nonprofi ts face a number of challenges when it comes to program evaluation. Many community-based nonprofi ts lack the will, expertise, and resources for the kind of large-scale, substantially funded evaluations conducted by experts that occur in the government context.29 In the nonprofi t context, evaluations demanded by stakeholders can be seen as intrusive diversions from the real work of the organization.30 Comments gathered by Joanne Carman and Kimberly Fredericks from a study of human service nonprofi ts attest to these diffi culties:31

“The amount of time and money we spend on program evaluation is not worth it.”

“We simply don’t have the knowledge or expertise to do quality program evaluation.”

“Much of what we do for program evaluation is symbolic.”

“Spending time and resources on evaluation takes away from what we do best—provide services.”

“Program evaluation requirements are just hoops that our funders make us jump through.”

In spite of the challenges, most nonprofi ts are concerned about evaluating their programs. Carman and Fredericks found that 90 percent of the nonprofi ts in their study reported that they evaluated their programs. The extensiveness of evaluations, however, varied considerably. About a third reported that they did very little or only some evaluation. At the other extreme, only 18 percent reported that they went out of their way to evaluate all of their programs. Evaluation results were used for strategic management as well as for external reporting or program promotion. The most frequent strategic management uses of evaluation information included helping to make changes in existing programs (93 percent of the nonprofi ts) and establishing program goals or targets (75 percent). In addition,

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between 60 percent and 70 percent used the information for each of the follow- ing: strategic planning, developing new programs, making decisions about staffi ng, and making decisions about fi scal allocations. Use of evaluation information for reporting purposes included reporting to the board (82 percent) and reporting to funders (67 percent), outreach and public relations (59 percent), and seeking new funding (53 percent).

As these fi ndings show, program evaluation provides practical benefi ts to nonprofi ts.32 Evaluation can help to provide feedback and direction to staff, focus boards on program issues, identify service units or participant groups that need attention, compare alternative service delivery strategies, identify partners for col- laborations, allocate resources, recruit volunteers and attract customers, set targets for future performance, track program effectiveness over time, increase funding, and enhance a public image. In order to realize these benefi ts, however, leaders in nonprofi ts and funding agencies must foster an appreciation of the benefi ts of evaluation as well as provide the support and resources necessary.

Small and midsized nonprofits should not forgo program evaluation. Although their evaluations need to follow appropriate procedures, their programs and services are likely to be simpler and smaller in scope than those of larger non- profi ts. This makes following the steps in this chapter easier. Fewer staff will be needed, and it might be possible to use volunteers.33 Data will be easier to gather, and analysis can be less elaborate. In addition, assistance for program evaluation is available from a variety of sources. These resources explain program evaluation logic and design in everyday terms, provide practical guidance for carrying out the steps needed, and contain links to further resources. Nonprofi ts can use these to educate their staff members and guide the evaluations. Some examples of useful online resources for program evaluation include the following:

Foundation Center, Tools and Resources for Assessing Social Impact, (http:trasi .foundationcenter.org)

Delaware Association of Nonprofi t Organizations, Info Central: Program Evaluation, (http://www.delawarenonprofi t.org/infocentral/programeval.php)

The Free Management Library, Basic Guide to Outcomes-Based Evaluation for Nonprofi t Organizations with Very Limited Resources, (http://managementhelp .org/evaluation/outcomes-evaluation-guide.htm)

University of Wisconsin-Extension, Program Development and Evaluation, (http://www.uwex.edu/ces/pdande/evaluation/index.html)

Evaluations can become embroiled in political tensions. A nonprofi t’s stake- holders, including the board, staff, volunteers, consumers, funders, community

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324 Managing Nonprofi t Organizations

leaders, and regulators, may have different, and possibly competing, views on the desirability, goals, and techniques of program evaluation. Nonprofi t leaders must balance these multiple viewpoints when making decisions about program evalua- tion. In order to make program evaluation the basis of organizational improvement and a cornerstone of organizational learning, leaders must motivate and mobilize internal stakeholders. Salvatore Alaimo characterizes this as an internal push for evalu- ation.34 Leaders should communicate that evaluation is an effective tool for helping the organization accomplish its mission and should provide resources for evaluation capacity building. In addition, demands from external stakeholders must also be addressed. Moreover, these external pulls must be integrated with the internal push for evaluation. The need to satisfy external stakeholders and acquire resources may need to be balanced with the desire to retain autonomy.

An in-depth evaluation of a workforce development project for the James Irwin Foundation provides the basis for some useful recommendations for address- ing some of the key internal challenges to successfully organizing evaluations in nonprofi ts:35

• Involve leaders of the organization: their sustained endorsement is especially critical for buy-in by others in the organization and for follow-through as the evaluation proceeds.

• Establish a high level of trust between funders and the nonprofi t: nonprofi ts need to feel free to expose weaknesses in their performance without fear that their funders will use this against them when considering future funding.

• Clarify roles, responsibilities, and expectations: this involves having clarity about such things as what the steps in the process will be, who will do them, and when they will be done.

• Allocate suffi cient time for technical assistance that might be needed: if special- ized knowledge is needed for evaluation design or data acquisition and analysis but it is not obtained, serious errors in interpretation may occur and lead to inappropriate action.

• Involve a broad range of staff: incorporate staff from throughout the organiza- tion in creating a culture supportive of evaluation.

• Ensure that staff can devote suffi cient time: make evaluation tasks part of the regular work of the staff, instead of adding them on top of existing workloads.

Funders have played a key role in the spread of nonprofi t outcome evalua- tion. However, as noted earlier, tensions can arise between funders and nonprofi ts. To address these issues, nonprofi ts can work with funders to establish a more col- laborative evaluation environment.36

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• To be most constructive, funders should be encouraged to view their role as helping agencies to develop evaluations that will provide the most useful infor- mation for programs.

• Funders serve their own best interests by helping agencies to develop evalu- ation capacity. This includes support for hands-on, experiential training and ongoing technical assistance.

• Local funders can collaborate with each other to support agency evaluation efforts. This could include pooling funds as well as establishing common ter- minology, methodologies, or reporting requirements.

• When funders make outcome data a reporting requirement, they should drop other requirements that do not relate to this focus. When process information is required, it should clearly relate to outcomes and not general agency operations.

Concluding Thoughts

Nonprofi t organizations are given a number of benefi ts. They receive exemptions from taxes, individuals and corporations give them fi nancial contributions, and individuals also give of their time and volunteer efforts. These benefi ts are pro- vided so that nonprofi ts, through their services and activities, can contribute to the welfare of individuals and society. This chapter has covered the questions at the heart of the nonprofi t missions and operations: What have we been able to do? and, What have the results been? These questions are of crucial impor- tance to those running nonprofi t programs and to other nonprofi t stakeholders. Program evaluation is both a logical approach and a set of techniques that allows nonprofi ts to answer these questions. It is the basis for documenting a nonprofi t’s value, justifying public confi dence and support, and improving programs.

The next chapter considers major stakeholders in nonprofi t environments. It discusses government and public relations. Government and key portions of the public can signifi cantly affect nonprofi t organizations, and their understanding of the outcomes of nonprofi t programs is likely to play an important role in their decision making about nonprofi ts.

Questions for Consideration

1. Are accountability and program evaluation likely to differ for nonprofi ts, for- profi ts, and government agencies? Why or why not?

2. Can all nonprofi t programs and services be evaluated? Think of some types of nonprofi t programs or services that might be very diffi cult or impossible

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326 Managing Nonprofi t Organizations

to evaluate. What accounts for the diffi culties? How might evaluation design be used to address these diffi culties?

Exercises

Exercise 13.1: Accountability

Select a nonprofi t organization you are familiar with, and then answer the follow- ing questions about it:

1. To which stakeholders might this organization be accountable?

2. How could this nonprofit comply with the four core components of accountability?

3. How could this nonprofi t use program evaluation for accountability?

Exercise 13.2: Evaluation Design

Select a nonprofit program you are familiar with, and then respond to the following:

1. In one sentence, describe the program’s goal.

2. What is the program’s theory of change?

3. Draw a logic model of the program.

4. Design an outcome evaluation for the program.

5. Design a process evaluation for the program.

Exercise 13.3: Evaluation Challenges

Considering the nonprofi t you selected in the fi rst exercise, answer the following questions:

• What might its key internal challenges be when doing a program evaluation?

• What external challenges might it encounter?

• How could it successfully address these challenges?

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327

CHAPTER FOURTEEN

PUBLIC AND GOVERNMENT RELATIONS

T he Nature Conservancy is one of the world’s leading conservation organizations. Founded in 1951, it has done much to protect land and water through a nonconfrontational, col- laborative approach. Unlike the World Wildlife Fund and other conservation nonprofi ts that, at least initially, treated for-profi t businesses as adversaries, The Nature Conservancy has tried to forge partnerships with businesses, founded on scientifi cally based approaches to sustainability. Over the years its working relationships with businesses have led to accusations that it is not staying true to its mission: “Protecting nature, for people today and future generations.” One of its greatest challenges was salvaging its image after a series of critiques in The Washington Post. Following are some of the headlines and related statements from that series, showing the numerous ways in which the practices and policies of the nonprofi t were attacked.

Nonprofi t Land Bank Amasses Billions The Conservancy is the world’s richest environmental group, amassing $3 billion in assets by pledging to save precious places. But recently it has aligned closely with corporations. In addi- tion to land conservation, it pursued drilling, logging and development. Its approach has led to strange bedfellows.

$420,000 a Year and No-Strings Fund Offi cials at The Nature Conservancy say their fi nances are an open book, a stance charity experts describe as essential to promoting public trust. Still, simple answers can prove diffi cult to get.

Image Is a Sensitive Issue A look inside The Nature Conservancy reveals a whirring marketing machine that has poured millions into building and protecting the organization’s image, laboring to transform the char- ity into a household name.

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The Washington Post attempted to show that The Nature Conservancy was “transform- ing from a grassroots group to a corporate juggernaut.” 1 The newspaper claimed that corpora- tions, board members, and major donors were inappropriately benefi ting from the policies and practices of the large nonprofi t. As a result of the comments in the paper’s series, The Nature Conservancy was investigated by a U.S. Senate committee, the Environmental Protection Agency (EPA), and the Internal Revenue Service. The negative exposure contributed to concerns of the U.S. Congress about nonprofi ts and debate on whether to further regulate the nonprofi t sector.2 The Nature Conservancy made a press release available that explained its position on The Washington Post series. Here is an extract from that release:3

We want to set the record straight—both about the risks we’ve taken, our mistakes and how we propose to correct them; but also about our record of achievement, grossly neglected and misrepresented by The Washington Post “Big Green” series. We must and will continue to take risks in our work to protect lands and waters today, before they and their wealth of life are lost to us and to our children. The Washington Post “Big Green” series about The Nature Conservancy was based on a two-year investigation conducted by reporters from The Washington Post. The Nature Conservancy cooperated fully with The Washington Post, providing literally thousands of pages of requested documents and scheduling interviews with dozens of staff, partners and other experts, including four separate interviews with our president, Steve McCormick. Instead of a balanced report, however, The Washington Post “Big Green” series lacked a fair contextual description of our accomplishments and simpli- fi ed complex issues, explored in depth in the following pages. Although The Washington Post “Big Green” series was fraught with mischaracterizations and omissions of fact, we at The Nature Conservancy recognize some mistakes we have made in pursuit of innovation and conservation change. Many of these we had begun correcting and learning f rom before The Washington Post investigation began. We take full responsibility for our actions, as we always have. Through intensive self-examination across The Nature Conservancy, as we have done throughout our history, we know we will emerge a stronger organization, one better able to accomplish our conservation goals. . . . By reviewing our mission, strategy and values, and summarizing the steps we are taking to correct our missteps, we hope to convert the criticism leveled at us into a real dialogue about the future of how we do conservation [Reprinted with permission from The Nature Conservancy].

� � �

The strategic response of The Nature Conservancy to the media attacks and government investigation reveals the benefi t to nonprofi ts of having strong public relations and government relations programs. As The Nature Conservancy discov- ered, actions may be interpreted by others as inappropriate even when a nonprof- it’s board and staff believe that they are ethical. Once a nonprofi t’s reputation is under scrutiny, government may step in to further regulate its behaviors or impose

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Public and Government Relations 329

penalties. The public may withdraw its support or demand greater accountability. In The Nature Conservancy’s case, negative attention by The Washington Post news- paper resulted in a government probe. As a large well-resourced nonprofi t, The Nature Conservancy was able to devote considerable resources to responding to allegations and advocating to protect its interests.

No nonprofi t, whatever its size, is immune to public relations challenges, and any nonprofi t may wish to engage in advocacy. As we saw in Chapter Two, not all stakeholders will evaluate the ethics and effectiveness of a nonprofi t in the same way using the same criteria. No matter the size and perceived vulnerability to criticism of a nonprofi t, we recommend proactively developing public and government relations skills and strategies and having a crisis management plan in place. In this chapter we will focus on how nonprofi ts can strategically com- municate to establish and maintain a positive image and reputation, manage a crisis, advocate for their cause and organizational interests, and lobby for desired legislation.

Image and Reputation

Image and reputation are important intangible resources for nonprofi t organiza- tions.4 A negative image or tarnished reputation can harm relationships with both internal and external stakeholders. Image and reputation refl ect the knowledge and opinion that stakeholders hold about the organization.5 Reputation refl ects perceptions of the organization’s actions over its lifetime6 and may consist of three aspects: familiarity with the organization, beliefs about what to expect from the organization in the future, and impressions about the organization’s favorability.7 A positive reputation, therefore, requires consistently positive action over an extended period of time. Image relates to external stakeholders’ current knowledge, feelings, and beliefs about an organization.8 Image involves the mental pictures or associations that are formed when stakeholders see or hear the orga- nization’s name or see its logo, symbol, or trademark.9 Image is therefore more malleable and can change quickly. Chapter Eight, on marketing, elaborates on this discussion by focusing on how to create and maintain a positive brand.

Image and reputation are critical to nonprofi t organizations, given that they are granted discretion to operate by the government and may be rewarded with donations and tax benefi ts. Although IRS rules and regulations (such as the non- distribution constraint) provide legal guidelines for nonprofi ts, the general public and other stakeholders typically have standards and expectations for nonprofi t behavior that exceed those required by law. Nonprofi ts’ legitimacy is based on being perceived as trustworthy stewards of the public’s resources (donations, tax

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330 Managing Nonprofi t Organizations

exemptions, and so forth) and reliable providers of social benefi ts. A positive image and reputation helps nonprofi ts to attract and retain employees, volunteers, and donors and maintain good relations with other stakeholders such as clients, media, and legislators.

Understanding how changes to their image can affect them, some nonprofi ts strategically promote a positive and coherent image through their fundraising, marketing, and public relations communications. For example, a hospital may present itself as highly concerned about patient care. If the hospital ranks high in a patient satisfaction or surgery outcomes survey, it may share this information with the public to reinforce that positive image.

Nonprofi t leaders protect their organization’s reputation by ensuring that they understand the expectations and values of the public and government, and by recognizing and responding to potential crises when their organization’s pur- poses, actions, and outcomes are not aligned with those expectations and values. For example, The Nature Conservancy carefully and quickly responded to gov- ernment inquiries, demonstrating that it was transparent and eager to adjust its practices to be consistent with the U.S. Senate’s desires and expectations. It issued press releases and other communications to reassure stakeholders that it would seek continual improvement and was committed to its founding values.

A variety of tools and techniques are available for reputation management such as reputation scorecards, key performance indicators, competitive bench- marks, media content analysis, journalism surveys, opinion polls, branding guide- lines, and measurement of Web page usage.10 These tools and techniques provide information on how the nonprofi t is representing itself and how others are view- ing the organization. Even small organizations can keep track of the extent and tone of their media coverage, Web site hits, client satisfaction, staff and volunteer turnover, and goal achievement. They can use this information to assess whether they are likely to be meeting expectations and whether their image and reputation are in jeopardy.

Strategic Communication

Communication to enhance image and build reputation should be part of a non- profi t’s strategic plan. A nonprofi t should be able to clearly present what it stands for and hopes to accomplish. Its values should be apparent in its actions and words. The Nature Conservancy demonstrated its appreciation of the importance of values in reiterating what it stands for throughout its press release responding to the negative Washington Post coverage. For example, the opening paragraph states, “We must and will continue to take risks in our work to protect lands and waters today, before they and their wealth of life are lost to us and to our children.”

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Communication plans should be established to further organizational goals and reinforce a consistent brand. For each strategic goal, the communication plan should outline the change that is sought for a particular target audience.11 Communication objectives may be to create awareness, engage the audience, move the audience to act, maintain relationships, or all of these. Good commu- nication objectives specify the following types of objectives:

• Target audience: for example, U.S. senators

• Nature of the desired change in the target audience: for example, greater approval of The Nature Conservancy

• Specifi c knowledge, attitude, or behavior to be achieved: for example, understanding of the appropriateness of The Nature Conservancy’s policies related to the selling of land

• Amount of change desired: for example, enough change in senators’ per- ceptions to avoid government regulation or penalties

• Target date: for example, by the end of the U.S. Senate probe

A communication plan should be built around these objectives. Further steps include conducting research, developing messages, producing materials, assessing resources, and writing workplans.12 We next discuss public relations as a com- munication process.

Public Relations

The Public Relations Society of America (PRSA), the nation’s largest commu- nity of public relations and communication professionals, notes that both the defi nition and the practice of public relations have evolved from the fi eld’s for- mal inception in the early twentieth century. Early defi nitions of public relations focused on press agentry and publicity. More contemporary defi nitions incorpo- rate notions of engagement and relationship building. In 1982, PRSA adopted a defi nition that is now widely used and accepted: “public relations help an orga- nization and its publics adapt mutually to each other.”13 The term publics refers to all the audiences that are relevant to an organization. Kotler defi nes a public as “a distinct group of people and/or organizations that has an actual or potential interest and/or impact on an organization.”14

It is important to emphasize that public relations is more than the fl ow of information between an organization and its publics. It is a communication process that engages and informs key audiences, builds important relationships, and brings vital information back into an organization for analysis and action.

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332 Managing Nonprofi t Organizations

Nonprofi ts need to listen to their publics, scan their policy environments, and bring this information back for discussion about whether any action is necessary in response to what was learned. Public relations therefore involves the following management functions:15

• Anticipating, analyzing, and interpreting public opinion, attitudes, and issues that might impact, for good or ill, the operations and plans of the organization.

• Counseling management at all levels in the organization with regard to policy decisions, and courses of action and communication, taking into account their public ramifi cations and the organization’s social or citi- zenship responsibilities.

• Researching, conducting, and evaluating, on a continuing basis, pro- grams of action and communication to achieve the informed public understanding necessary to the success of an organization’s aims. These may include reviewing marketing; fi nancial; fundraising; employee, community, or government relations; and other programs.

• Planning and implementing the organization’s efforts to infl uence or change public policy. Setting objectives, planning, budgeting, recruit- ing and training staff, developing facilities—in short, managing the resources needed to perform all of the above.

Staff and volunteers in nonprofi t organizations perform these functions in order to gain acceptance for the organization’s mission, create and maintain a climate favorable for action, and inform and motivate key stakeholders.16 Some nonprofi ts invest in a public relations professional or department to guide these functions. Whether or not it has public relations experts on staff, every nonprofi t engages to some extent in public relations, whether formally or informally. All board members, staff, and volunteers of a nonprofi t serve as its representatives and can offer useful information about how the organization is perceived. Even clients and donors may affect a nonprofi t’s image and reputation. All bear some responsibility for what the public believes about the nonprofi t.

The Public Relations Process

A nonprofi t’s process of guiding its public relations begins with an assessment and proceeds through setting goals, objectives, and strategies; learning about target audiences; developing, delivering, and determining the effectiveness of its mes- sages; and throughout, ensuring that its messages and approaches are ethical.

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Assess Internal and External Factors Affecting Public Relations

A public relations plan starts with an assessment of the nonprofi t’s public rela- tions context. This assessment considers general internal and external factors and their relevance for public relations. Building from questions developed by Smith, Bucklin & Associates, here are some things to ask as part of this assessment:17

• What are the strengths and weaknesses of the nonprofi t organization?

• How do perceptions square with realities? Are perceptions of strengths and weaknesses accurate and consistent across audiences?

• How do important constituencies feel about the nonprofi t? Does the nonprofi t organization elicit respect, excitement, frustration, anxiety, disappointment, or some other emotion?

• How do important constituencies share information about the nonprofi t?

• How does the nonprofi t compare to similar organizations? Are the compari- sons favorable?

• How would the nonprofi t operate in an ideal world? How would it be per- ceived? How would it work with its most important publics, such as supporters, donors, volunteers, members, the news media, lawmakers, and community leaders?

Set Goals, Objectives, and Strategies

Specifi c public relations goals, objectives, and strategies should be developed in conjunction with a nonprofi t organization’s strategic plan. The public relations goals should support other goals and the overarching vision for the organization. For example, increased awareness (a public relations goal) may have to come before an endowment fund can be built (a fundraising goal). Success in increasing the geographical reach of a program (a program goal) may depend on motivating individuals who have tried the service to refer others to it (a public relations goal). Measurable public relations objectives come out of these goals; for example, one objective may be to have fi fty referrals to a program in the fi rst year of its operation.

The best strategies to accomplish objectives will depend on what resources are available for public relations. Resources include staff, facilities, and funds for researching audiences; producing material (such as press releases, pub- lic announcements, mailings, and media kits); and contacting and responding to media and other stakeholders. The organization should assess the degree to which these tasks could and should be done by employees, volunteers, or consul- tants. Community leaders may be willing to speak on behalf of the organization.

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334 Managing Nonprofi t Organizations

Also, other organizations, including businesses or nonprofi ts, may be willing to provide facilities and audiences for speeches, produce informational material, or give donations for public relations activities.

Identify and Research Target Audiences

Once objectives have been established and resources inventoried, target audiences should be identifi ed. Eileen Wirth explains that “the essence of all public relations is targeting strategic messages to audience segments that the organization needs to advance its goals.”18 For nonprofi t organizations, target audiences usually include current and potential service recipients, volunteers, funders, and in some cases government bodies. In most cases leaders and program directors will be able to identify target audiences. Volunteers, clients, and consultants also may provide useful information about relevant audiences. For each target audience the non- profi t should have a communication goal, specifying what it hopes to accomplish with the public relations effort.

Once audiences have been identifi ed, image research can be used to assess spe- cifi cally what the audience members know and feel about the organization, what images of the organization they hold, and where they get their information. For audiences that are well known, this information may be easy to obtain. Information can be collected on a regular basis from user satisfaction surveys; searches for media coverage; phone logs of inquiries; and recruitment and exit interviews with staff, board members, and volunteers. For audiences that do not usually have interac- tions with the nonprofi t, formal research methods, if affordable, can be used. Focus group sessions and surveys can be used to uncover potential public relations issues. Outside consultants may be used to provide the expertise needed to collect reliable and valid information. Nonprofi ts that cannot afford extensive image research can at least assign someone, such as a volunteer or student intern, to ask staff, volunteers, board members, and those using the nonprofi t’s services if their opinions of the organization are positive or negative and why.

Develop Messages

Once research is completed and audiences understood, it is time for message devel- opment. For each target audience, messages should be based on the public relations goals and audience research. On the one hand, if research shows that awareness is low, educational messages can be developed that help individuals learn about the nonprofi t. On the other hand, if research shows that opinions of the organization are poor, then the message may be crafted to change opinions rather than build awareness. If the goal is to inspire action, such as the signing of a petition, then

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the message may be designed to encourage the desired behavior, rather than build awareness or change opinions.

Janet Weiss and Mary Tschirhart summarize the extensive literature on how people process communications, and note some key infl uences on the success of a message:19

• Source credibility. The more trusted the source, the more likely the mes- sage will be heeded and accepted.

• Message clarity. The message must be understandable, which typically means that a simpler message is likely to have more impact.

• Fit with prior knowledge. Messages are more likely to be accepted when they are consistent with what is already known or believed.

• Exposure. It may be necessary to repeat messages before they are noticed. The message needs to compete with other demands for attention. It can be helpful to vary the way the message is delivered, while retaining its meaning.

Consider a campaign by Edelman, a PR firm, and the American Heart Association (AHA) targeting women. The award-winning campaign focused on generating awareness that heart disease is the number one killer of women and encouraged women to visit GoRedForWomen.org to join and take heart check- ups. The campaign raised the percentage of women aware that heart disease is a top killer of women and also resulted in an increase in donations to AHA and in heart checkups. The campaign designers credited the use of spokesperson Marie Osmond, whose mother and grandmother died of heart disease, along with sto- ries shared through online forums from “women like me,” for helping to make a convincing message. The message that heart disease is a killer was noncontro- versial, but research had found that women did not see the disease as a personal threat and also that they tended to act on information delivered by their peers. The campaign aimed to inspire action by telling multiple motivating stories that personalized the disease statistics.

Not all nonprofi ts have the luxury of working with fi rms to create their cam- paigns. However, low-budget efforts can also demonstrate positive results. For example, Google AdWords can build awareness and drive visitors to nonprofi t Web sites, and can be free for nonprofi t organizations. A staff member at the Northern Clay Center, a nonprofit dedicated to advancing the ceramic arts, has explained in YouTube videos how his use of AdWords, based on a whim, resulted in more individuals becoming aware of his nonprofi t’s offerings. By using AdWords to put the nonprofi t’s message through keywords, images, and photos on the Google search page, new audiences were reached.

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336 Managing Nonprofi t Organizations

Choose Communication Outlets and Deliver Messages

A wide variety of print media outlets are available to reach targeted audiences and accomplish the goals set out for each. Each type of media has distinct fea- tures, advantages, and limitations.20 Print media, such as newspapers, magazines, newsletters, and bulletins, may offer a better opportunity for an organization to tell its story in depth than a television news interview or talk show. General news- papers may provide the greatest audience coverage, but more highly targeted pub- lications offer the opportunity to refi ne messages and provide details of interest to special audiences. Nonprofi ts can research which reporters cover relevant issues and offer themselves as resources. Executive directors or experts affi liated with the nonprofi t can position themselves to be a source of useful quotes for report- ers. Nonprofi ts can also submit letters to the editor or opinion pieces. Over time, relationships can be built with reporters and editors that can help a nonprofi t to get repeated and positive coverage.

A variety of broadcast options are available. These include public radio and television, cable public access channels, all-news radio and television stations, and public affairs programs. A nonprofi t can develop a story and pitch it to an appro- priate reporter or assignment editor. For television, usually the more visuals made available the better. In addition, the organization can make representatives avail- able for interviews. A public service announcement (PSA) can be developed to be broadcast on local radio and television stations. Clear Channel Communications, a large media conglomerate, has a Web site where nonprofi ts can post a PSA to be used by radio stations.21

A nonprofi t can use wire and video services to broadcast press releases. These may reach large audiences as the services disseminate information to a variety of media outlets. This information is often picked up by journalists and disseminated in their media. Services may, however, charge a per-release or membership fee. Major wire services include Associated Press, MediaLink, Reuters, and PR Newswire.

The Internet is growing rapidly as a communication vehicle, especially among younger audiences. Web site blogs and text messages on mobile phones have attracted donations and votes. For example, you can tell your friends to text “HAITI” to 90999 to donate $10 to Red Cross relief efforts in that country. A video game, Darfur Is Dying, was created by college students to put players into the role of Sudanese refugees—the game has been played millions of times, raised thousands of dollars, and attracted mainstream news coverage.22 Urban Ministries of Durham has a video game where players put themselves in the shoes of the homeless or unemployed. Games and videos can help the public better under- stand the nature of the need the nonprofi t is addressing. For example, affl uent individuals may better understand how challenging it is to fi nd and retain a job

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Public and Government Relations 337

when one has no money for transportation or no place to shower and safely store work clothes. Some nonprofi ts have virtual world avatars that can help spread their messages. Second Life offers space for nonprofi ts to set up display and meet- ing spaces that can be used to help educate visiting avatars. For example, Second Chance Trees has a place where avatars can learn about the value of different types of trees, plant a virtual one, and get a real one planted for them for free.

At the minimum, a nonprofi t should develop a Web site and refresh it regu- larly with news releases, information about upcoming events, and other items of interest to constituencies. It should take advantage of free social media such as Twitter and Facebook to help spread its news. Nonprofi ts may also be able to get their stories out via Web sites hosted by YouTube for nonprofi ts, and by The NonProfi t Times, The Chronicle of Philanthropy, and Philanthropy Journal.23

Evaluate Effectiveness and Ethics of the Communication

Once messages are delivered, it is important to try to assess their impact. Did they reach the intended audience? Did they accomplish what was intended, for example, build awareness or inspire action? If not, they may need to be changed, repeated, or even delivered through different outlets. Did they have unintended consequences? For example, antismoking messages from health organizations were at times found to have boomerang effects, as some messages actually encouraged rather than discouraged smoking. A boomerang effect in social psychology is a mes- sage recipient’s reaction of defi ance to or rejection of the message because he feels his freedoms are being restricted. This reaction may be conscious or unconscious.24

In addition to considering whether the messages were effective, nonprofits should ask, Were the messages ethical? For example, were the outcomes of the orga- nization honestly portrayed? Were privacy concerns honored? Did the nonprofi t avoid exploiting clients for their public relations value? Did all individuals portrayed in photos give their permission to have their image shared by the nonprofi t?

Ethics in Public Relations

If public relations activities are perceived as advertising or narrow self-serving behavior, they may encounter skepticism from audiences. People are becoming increasingly wary of efforts to justify, take undue credit for, or escape blame for actions and outcomes. It is therefore very important that public relations is carried out ethically. In Exhibit 14.1 we offer a summary of the main issues in the ethics framework created by the Public Relations Society of America. It is relevant to nonprofi t organizations of all sizes that have individuals acting in public relations roles, whether or not these individuals are trained public relations professionals.

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338 Managing Nonprofi t Organizations

EXHIBIT 14.1. SUMMARY OF SELECTED PROVISIONS IN THE PUBLIC RELATIONS SOCIETY OF AMERICA CODE OF ETHICS

Building Principles on Core Values The Code of Ethics, created and maintained by the PRSA Board of Ethics and Professional Standards (BEPS), sets out principles and guidelines built on core val- ues. Fundamental values are advocacy, honesty, expertise, independence, loyalty, and fairness.

Translating values into principles of ethical practice, the Code advises pro- fessionals to

• Protect and advance the free fl ow of accurate and truthful information. • Foster informed decision making through open communication. • Safeguard confi dential information. • Promote healthy and fair competition among professionals. • Avoid real, perceived, or potential confl icts of interest. • Work to strengthen the public’s trust in the profession.

Code guidelines, like tactics supporting strategies, zero in on putting value and principles into play for working professionals facing everyday tasks and challenges. Guidelines for public relations professionals include the following:

• Be honest and accurate in all communications. • Avoid deceptive practices. • Reveal sponsors for represented causes and interests. • Act in the best interest of clients or employers. • Follow ethical hiring practices to respect free and open competition. • Avoid confl icts between personal and professional interests. • Decline representation of clients requiring actions contrary to the Code. • Accurately defi ne what public relations activities can accomplish. • Report all ethical violations to the appropriate authority.

Source: Adapted from Public Relations Society of America, “Member Code of Ethics,” http:// www.prsa.org/AboutPRSA/Ethics/CodeEnglish.

Many nonprofi ts do not have public relations professionals on their staff. They often do, however, have individuals such as staff, board members, vol- unteers, vendors, and consultants who feel passionately about the nonprofi t’s cause and wish to tell others about the positive work of the organization. An ethical practice is to disclose one’s relationship to an organization when publi- cally praising it. For example, news editorials, blogs, posted comments, and

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speeches should be clear on the relationship of the writer or speaker to the organization.

In addition to using inappropriate endorsements by those who have a fi nan- cial stake in a nonprofi t’s product or service, there are a variety of irresponsible actions that may be taken by a nonprofi t in its effort to positively showcase itself and advocate for its cause. These include falsely claiming celebrity endorsements, overstating the number of supporters, infl ating numbers or types of clients served, claiming success for services without backup documentation, claiming the need for services is greater than can be justifi ed, naming partners and collaborators that are such in name only or that have not agreed to be recognized in this way, misrepresenting competitors and competing perspectives, and not disclosing confl icts of interest.25 To help prevent these practices, a nonprofi t may enforce comprehensive policies for public communications on its behalf or on behalf of those individuals and organizations with which it is affi liated. For example, a review process can be used for public communications to ensure that more than one individual approves the content, audience, and delivery method. Policies to protect whistle-blowers may help to ensure that questionable communications are brought to light when fi rst observed.

Risk and Crisis Management

Shortly after the terrorist attack on 9/11, the American Red Cross, a nonprofi t used to dealing with the crises faced by others, found itself embroiled in a crisis of its own.26 The Red Cross set up a “Liberty Fund” for 9/11 victims and quickly raised $547 million in donations. Widespread criticism was then leveled at the Red Cross when it was learned that the Red Cross planned to use some of the funds for non-9/11 purposes, contrary to donor expectations. However, it had long been Red Cross practice to raise funds for subsequent disasters, and it did not intend for donors to think that all funds donated would be for 9/11 victims. Another issue was that the Red Cross collected more blood than it could use. Because it was perishable, the excess blood had to be destroyed. In addition, the Red Cross president and CEO abruptly resigned. Throughout the crisis, critics charged that the information the Red Cross released was unclear and not timely. The Red Cross subsequently took steps to deal with the issues raised by its critics. For a more nuanced understanding of this situation, see Paula DiPerna’s case study.27

The Red Cross’s experience, like that of The Nature Conservancy, shows that even the most well-intentioned and experienced nonprofi t organizations can encounter a potential crisis. The Nonprofi t Risk Management Center defi nes an organizational crisis as a sudden situation that threatens an organization’s ability

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to survive. It is an emergency, disaster, or catastrophe that may involve death or injury, lost access to the use of facilities or equipment, disruption or signifi cantly diminished operations, unprecedented information demands, intense media scru- tiny, or damage to an agency’s reputation.28

Problems and issues can quickly come to the public’s attention. The press is notoriously successful at telling the public what to think about, though less successful in telling them what to think. Press coverage of nonprofi ts varies, but researchers have found that it is generally favorable, unless reporters are framing a situation as a scandal.29 The public is often ill informed and therefore may not be able to grasp the complexities of a situation. Some argue that this was the situation with The Nature Conservancy and that the news articles presented an oversimplifi ed picture. Rather than argue against the complaints and try to fully explain the complexities, The Nature Conservancy’s message across a range of communication mechanisms was that it promised to do a better job. Although some might argue that The Nature Conservancy was “guilty” in its dealings with corporations and therefore could take no other position, others might contend that the leaders understood that it was in their best interest to accept the concerns and move forward rather than position The Nature Conservancy as argumentative and unwilling to accept criticism.

Risk Assessment and Management

Though crises usually come as a surprise, nonprofi t organizations should try to identify their risks. This is part of overall risk assessment and management. Risk management is a process that helps an organization deal with uncertainty. The pro- cess includes an assessment of internal and external factors bearing on possible risks (such as staff expertise, risk history, and fi nancial and political environments), the identifi cation of relevant risk types and specifi c risks, and the evaluation of risks in terms of likely frequency and severity. Once potential risks have been identified, the nonprofit can develop a plan for responding to each of them. Nonprofi ts can also develop systems to monitor and improve their risk identifi ca- tion and management process.30

As part of risk management, a nonprofi t should create an inventory of risks. These include but are not limited to avoidable risks such as fi nancial diffi cul- ties, actual or alleged client maltreatment, service or product failure, accidents, transportation-related mishaps, guilt by association, employment disputes, and criminal conduct. The nonprofi t should also consider unavoidable risks, includ- ing such things as natural disasters, civil unrest, and unexpected loss or death of key personnel. In addition, it should look at risks that come with being involved with organizations and individuals external to the nonprofi t, such as collaboration

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partners, donors, and even detractors who may try to infi ltrate and sabotage the organization.

As noted in Chapter Seven in the discussion of fi nancial risks, there are four main options for responding to identifi ed risks:

• Avoidance. Eliminate the risk: for example, stop a controversial or unsafe behavior.

• Transfer. Contract the risk to others: for example, buy insurance or contract out the risky activity.

• Reduction. Take preventative measures: for example, require criminal back- ground checks for all staff and volunteers.

• Retention. Assume the risk: for example, prepare a plan for a possible back- lash from a risky activity.

Crisis Management

One of the most serious types of risks is an attack on an organization’s reputa- tion. The news media can play a major role in this. Larry Lauer notes that a crisis becomes more dangerous for the reputation of an organization if the situation changes from news organizations reporting a balanced story to news organiza- tions using an alleged scandal to compete with each other for readers and view- ers.31 Also, the longer that news stories are reported, the more potential there is for reputational damage.

An important goal for crisis management is to help the organization’s lead- ership to deal effectively with the crisis and thereby contain the reporting to as short a time period as possible. This will involve analyzing the risk that a problem will grow to be a crisis, having procedures in place to mobilize if a crisis should occur, and providing appropriate communications to relevant audiences. An often repeated recommendation is to be as concerned about perceptions as reality. It is particularly important for an organization to avoid looking defensive and instead to display that it is dealing as quickly and effectively as possible with the crisis. If the nonprofi t is at fault, the best approach is likely to be to apologize and promise to do better. Though it may be tempting to conceal information, scapegoat, or accuse the accuser, this is rarely successful in reassuring the nonprofi t’s stakehold- ers and avoiding escalation of the situation.

Crises may fall into several types, including

• Rapidly or slowly developing. A natural disaster can take an organization by surprise, whereas a fi nancial crisis may be years in the making.

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342 Managing Nonprofi t Organizations

• Externally or internally focused. Crises may be caused by forces outside organizations, such as economic or social turmoil. Factors inside nonprofi ts, such as embezzlement by an employee or a product defect causing injuries, may also cause crises.

• Preventable or unavoidable. Steps can be taken to mitigate the likelihood of some crises, such as those stemming from workplace safety. Other crises, such as natural disasters, can occur despite any steps that might be taken.

• Isolated or linked. A crisis may affect a single nonprofi t in isolation, as when a client starts a lawsuit, or involve several organizations, as when payments to social service providers by a government agency are delayed. When more than one organization is likely to respond to the same potential crisis, it is useful to coordinate responses. Coordination may help in avoiding audience confusion and reinforcing the shared message.

Given the diversity of potential crises, every nonprofi t can benefi t from hav- ing a crisis management plan that inventories risks and looks at what may or may not be available to address a crisis.32 Committees can be used to create the plan and implement it if a potential crisis emerges. As part of the crisis management plan, nonprofi ts may include a risk fi nancing strategy, which lays out sources of funds to use if necessary. Even though commercial insurance is a common source of fi nancing, it may not be an option and alternatives may need to be considered. Every nonprofit should try to have a financial cushion to pay for unexpected expenses. As part of crisis management planning, contingencies should be devel- oped to guide organizational action. For example, what can the organization do to continue operations during inclement weather or after the loss of certain facilities?

Having general communication policies and practices can help when facing a potential crisis.33 Managers should be aware of the need for and be profi cient at effective communication. General written communication policies and procedures should include guidelines for privacy and for liability, addressing the kinds of infor- mation that will and will not be disclosed. Rules should be established for the ways in which the organization responds to media and public requests for information and comments. Spokespersons for various aspects of organizational activity should be designated. Numerous guides are available for preparing for and managing dur- ing a crisis.34 Scrambling to respond while the crisis unfolds is likely to be ineffective and may even worsen the problem. A series of steps are commonly recommended:

• Assign overall responsibility for managing the crisis. The crisis man- ager will operate in consultation with the crisis management committee if the organization has one.

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• Establish the facts. The facts should be immediately investigated. Responsibility for this should be assigned to those closest to the events that transpired. The facts should be established before any substantive statements are made.

• Decide what information to share and prepare a fact sheet. A fact sheet should be prepared; the information should adhere to what the investiga- tion of the facts reveals and decisions about disclosure.

• Prioritize audiences. Targets for communication should be identifi ed and prioritized. Internal audiences should be notifi ed fi rst and informed of the facts and the response. Those directly affected by what happened should also be quickly notifi ed. Communication with the news media may follow. Ideally, those most directly affected will not hear the news fi rst from the media and be unprepared for media inquiries.

• Select one or more spokespersons. If necessary, several spokespersons can be used, each representing one aspect of a complex situation. For exam- ple, one person may speak to the impacts of the crisis on the fi nances of the organization, another about implications for clients, a third about any effects on the community, and so on. It is important, though, that the messages are coordinated and consistent.

• Prepare public statements and spokespersons. Prepare lists of ques- tions that might be raised and also suggested responses. Presentations should be rehearsed. Not talking may be appropriate when there are good reasons for it, including lack of information, inappropriate questions, or news stories that are not legitimately related to the crisis.

• Determine methods of public release of information. These could include statements to the media, interviews, dissemination of fact sheets, or press conferences. Procedures should be developed for handling requests for follow-up information. The objective for all public statements should be to contain the story within a reasonable time frame.

• Respond appropriately. If possible the crisis should be turned to the orga- nization’s advantage. Lauer notes that the public will judge an organization in large part on how well it handled the crisis.35 Will the organization be perceived as one caught off guard and ineffective or as one with strong values that knows what it is doing? A positive image will be portrayed if the organization has strong values, clear policies, known procedures, a readiness to act quickly, and confi dent and prepared leadership.

• Evaluate and plan improvements. Evaluation of the management of the situation should be conducted to reveal lessons for the future. The crisis should

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344 Managing Nonprofi t Organizations

be monitored to be sure that it is not escalating and to reduce the possibility that it could emerge again. Given their recent experience, the crisis manage- ment team and organizational leaders should consider possible improvements to the general crisis management plan and to the organization.

Effective and appropriate communication is the key to crisis management. But as the Colorado Nonprofi t Association suggests, at times no action is needed.36 There is no need to respond when the situation of concern is not directly con- nected to the nonprofi t. Another organization may be more suited to responding to the situation, especially if the nonprofi t does not have unique information to share. For example, if a nonprofi t is asked to comment on the supposed wrongdo- ing of another nonprofi t, it may be better off staying silent than talking without knowing all the facts and perceptions related to the situation.

Government Relations

We now turn to a discussion of government relations. This can involve advocacy, a broad term signifying the act of pleading or arguing in favor of a cause, idea, or policy, and lobbying, a type of advocacy in which actions are taken to affect specifi c legislation by infl uencing decisions of legislators and offi cials in the gov- ernment. As with public relations, planning and strategic communication are at the core of government relations. In Chapter Six, we reviewed government as a potential source of revenue. Here we focus on efforts to infl uence government opinion, actions, and policies by nonprofi ts working alone or as part of a coali- tion or movement.

Importance of Nonprofi t Lobbying

It is nonprofits that have pushed for many significant changes in the United States and other countries. Consider Amnesty International, whose mission is to demand human rights for all. By mobilizing its members the organization has been able to convince governments to commute death sentences, free political prisoners, and bring torturers to justice. Mothers Against Drunk Driving (MADD) has lobbied for laws to discourage underage drinking. In North Carolina the NC Center for Nonprofi ts used lobbying to help defeat a proposal that would have allowed state agencies to retain 2 percent of nonprofi ts’ state government grants to pay for oversight activities. The Nature Conservancy has been pushing for leg- islative action on climate change. These organizations are just a few of the many nonprofi ts that have active advocacy agendas.

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Many individuals and organizations have called for more nonprofi ts to get engaged in the political process. Some argue that rather than limit themselves to a Band-Aid approach to social problems, nonprofi ts should take the opportunity through lobbying to attempt to change the conditions that lead to those prob- lems. They also point out that lobbying can result in greater funding coming to nonprofi ts and other organizations engaged in researching and addressing the problems. J. Craig Jenkins suggests that nonprofi ts have an important role to play in facilitating civic participation and helping broaden representation in the public policy arena.37

Bob Smucker also emphasizes the importance of lobbying, quoting the reli- gious leader Paul H. Sherry who said: “The primary role of voluntary associations in American life is not service delivery but to continuously shape and reshape the vision of a just social order . . . to argue for that vision with other contenders in the public arena, and to press for its adoption and implementation. For voluntary associations to do less than that is to abdicate their civic responsibility.”38

Although it is easy to give reasons why nonprofi ts should lobby and to list nonprofi ts that lobby, the nonprofi ts that do so are in the minority. Of those that do lobby, most are classifi ed as 501(c)(4) or (c)(6) organizations. Most 501(c)(3) nonprofi ts are ambivalent about or fearful of lobbying.39 Rather than risk break- ing the rules about their permitted activities, many nonprofi ts choose to avoid lobbying activity. They may also avoid lobbying because they think it puts them at a higher risk of being audited or subjected to other types of investigations, a fear that the U.S. government says is unfounded.

Clarifying the opportunities and risks involved may help in encouraging staff and board members to advocate on behalf of their organization’s cause and interests. To this end, it is important to distinguish between political activities and legislative activities.

Political Activities

In the United States, all 501(c)(3) nonprofi ts (including unregistered religious orga- nizations) are prohibited from political activities.40 They are banned from directly or indirectly participating in or intervening in any political campaign on behalf of or in opposition to a candidate for elective offi ce. This includes a prohibition against providing campaign contributions, fundraising for a candidate, or issu- ing verbal or written statements for or against a candidate. These nonprofi ts can encourage individuals to register or vote in elections but cannot show any bias that would favor one candidate over another. They can also distribute a candi- date’s voting records if this is done throughout the year and not just prior to an election. If a 501(c)(3) organization violates these prohibitions, that is, engages

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346 Managing Nonprofi t Organizations

in electioneering, it could lose its tax-exempt status or be penalized, with taxes imposed on the nonprofi t and its managers.

The government’s position against political activities by 501(c)(3) nonprofi ts has been in effect for over half a century. In every recent presidential election, the IRS has investigated nonprofits for allegedly violating its rules. For example, the NAACP received a note from the IRS saying that agency was commencing an investigation to see if the 501(c)(3) component of the organization had intervened in a political campaign. The IRS wrote: “We have received information that during your 2004 convention in Philadelphia, your organization distributed state- ments in opposition of George W. Bush for the offi ce of presidency. Specifi cally in a speech made by Chairman Julian Bond, Mr. Bond condemned the administra- tion policies of George W. Bush on education, the economy and the war in Iraq.” The note included a warning that extra taxes could be imposed on the NAACP and a personal tax could be imposed on any manager who agreed to the forbid- den activities.41 After a two-year investigation, the IRS found that the NAACP did not violate the ban on partisan electioneering in 2004.

Not all nonprofi ts face such a strict prohibition against political activities. U.S. nonprofi ts with greater latitude include civic and social welfare groups, which are classifi ed as 501(c)(4) nonprofi ts; labor unions, which are 501(c)(5) non- profi ts; and chambers of commerce and trade associations, which are typically 501(c)(6) nonprofi ts. Adding to the possible confusion about which activities are legal is the U.S. Supreme Court’s January 21, 2010, decision in Citizens United v. Federal Election Commission. This landmark decision stated: “Government may not suppress political speech on the basis of the speaker’s corporate identity. No suffi cient governmental interest justifi es limits on the political speech of non- profi t or for-profi t corporations.” However, this decision did not apply to 501(c)(3) nonprofi ts, which remain banned from political speech that could infl uence elections.

The 2010 decision was the result of an appeal of a lower court decision in 2008 that prevented Citizens United, a 501(c )(4) conservative nonprofi t, from airing a fi lm critical of Hillary Clinton within thirty days of the 2008 Democratic primaries. The Supreme Court overturned the 2008 decision against the airing of the fi lm but upheld provisions related to disclosures of sponsors of advertisements for the fi lm. Citizens United had a long-standing interest in fi lms aired during political campaign periods. In 2004 and 2005, it fi led unsuccessful complaints with the Federal Election Commission, arguing that ads for Michael Moore’s Fahrenheit 9/11, a fi lm that was critical of the Bush administration, constituted political advertising during the 2004 presidential campaign. Given the remaining ambiguity in the relevant court decisions, nonprofi ts that are interested in using political fi lms before elections should seek expert legal advice.

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Public and Government Relations 347

Legislative Activities: Lobbying

All nonprofi ts registered in the United States can take action to support or oppose specifi c legislation at the national, state, and local levels. Limitations on lobbying are greatest for 501(c)(3) organizations. However, even there the limits are generous, allowing much higher expenditures on lobbying activity than are typically reported by this category of nonprofi t.42 Legislators have attempted to make the relevant laws less ambiguous in order to encourage these types of nonprofi ts to lobby. To this end, the 1976 Lobby Law clarifi ed and expanded the amount of allowable lob- bying expenditures for 501(c)(3) organizations. Later, the Lobbying Disclosure Act of 1995 required organizations that engage in lobbying to register and report their activities. In 1990, the IRS put forth a variety of regulations that help to distinguish what is allowable and what is not for different types of nonprofi ts.

An explanation for the differences in treatment across nonprofi t types is that the 501(c)(3) organizations have the benefi t that donations to them are tax deduct- ible for the donor.43 This is a form of government subsidy, intended to encourage support of nonprofi t missions. The government is forgoing the tax revenue that it could have derived from these donor funds. Therefore the government wants to ensure that this untaxed revenue will in fact be used to support nonprofi ts’ activities that directly relate to their missions and not to pay for political activities or lobbying. Other nonprofi ts do not have the benefi t of receiving donations that are tax deductible for the donors, and therefore the government is less likely to be seen as helping to support their political activities or lobbying efforts.

To understand lobbying limits, we fi rst need to distinguish between grass- roots and direct lobbying. In grassroots lobbying a nonprofi t attempts to infl uence the opinions of the general public, ultimately in order to infl uence legislation. To be seen as engaging in grassroots lobbying, a nonprofi t must spend funds to encourage the general public or a segment of the public to contact legislators in reference to specifi c legislation. The nonprofi t must also convey a point of view on the merits of the legislation. In direct lobbying a nonprofi t expends funds to com- municate directly with legislators or government offi cials who may participate in formulation of legislation.

Under the law it is not considered lobbying for a nonprofi t organization to engage in activities that involve

• Appearing before or communicating with any legislative body about a possible decision on matters that might affect the organization’s existence, powers, or duties or the exemptions or deductibility of contributions to it. For example, the funds that The Nature Conservancy spent on defending its land-selling practices during the Senate probe were not counted as lobbying.

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348 Managing Nonprofi t Organizations

• Giving members information on legislation, as long as the nonprofi t is not encouraging its members to lobby their legislators or asking these members to urge nonmembers to attempt to infl uence legislation.

• Responding to written requests from legislative bodies for technical advice on developing or pending legislation.

• Examining and discussing broad social, economic, and similar problems.

The federal government offers two regulatory regimes for 501(c)(3) public charity nonprofi ts that wish to engage in lobbying. These nonprofi ts can operate under the insubstantial rule or elect to lobby using IRC Form 5768, “Election/ Revocation of Election by an Eligible 501(c)(3) to Make Expenditures to Infl uence Legislation.” The option to elect to lobby is highly recommended due to inherent problems with the insubstantial rule. Also, it is very easy for a nonprofi t to elect. All it must do once its board votes to elect, is submit the form, and track and report its lobbying expenditures.

Under the insubstantial rule, lobbying may be permitted as long as it is an insub- stantial part of the nonprofi t’s total activity, but expenditure restrictions and what counts as an insubstantial part are unclear. For example, volunteer hours may be included in the determination of whether or not the lobbying activities are substan- tial, not just the amount of direct expenditures on lobbying. If questioned by the IRS, the nonprofi t must show that it had an insubstantial amount of lobbying, but there is ambiguity in how to show this. Evaluation of compliance to the rule is subjec- tive and therefore record-keeping requirements increase. Details on all activities that could be seen as affecting legislation must be tracked, not just direct expenditures.

It was the uncertainty and vagueness in the insubstantial rule that led to the more specifi c restrictions laid out in the 1976 Lobby Law. Once a nonprofi t for- mally elects to lobby, the limits and penalties for violations are clear. For example, a 501(c)(3) public charity nonprofi t will not lose its tax-exempt status unless its “normal” total lobbying expenditures for each tax year exceed more than 150 percent of the limit or its grassroots lobbying expenditures for the tax year are more than 150 percent of the grassroots limit.

As of February 2011, the expenditure limits for a nonprofi t that elects to lobby are calculated as a percentage of the nonprofit’s total expenditures to accomplish its exempt purposes. This total does not include costs associated with a separate fundraising unit and capital expenditures. Under these limits, the per-tax-year lobbying expenditure that is nontaxable is the lesser of $1 million or

1. 20 percent of the total exempt purpose expenditures if they are no more than $500,000

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Public and Government Relations 349

2. $100,000 plus 15 percent of the excess of the exempt purpose expenditures over $500,000 but not over $1,000,000

3. $175,000 plus 10 percent of the excess of the exempt purpose expenditures over $1,000,000 but not over $1,500,000

4. $225,000 plus 5 percent of the excess of the exempt purpose expenditures over $1,500,000 44

Of the total amount available for nontaxable lobbying, only 25 percent can be used for grassroots lobbying.

This means that a nonprofi t expending $100,000 for its exempt purposes could spend $20,000 on lobbying and only $5,000 of that could be used for grassroots lobbying. A nonprofi t expending $1 million for its exempt purposes could spend $175,000 on lobbying ($100,000 plus 15 percent of $500,000), of which only $43,750 could be used for grassroots lobbying. A nonprofi t expending $4 million for its exempt purposes could spend $400,000 ($225,000 plus 5 percent of $2,500,000), with $100,000 of that amount available for grassroots lobbying. The IRS Web site offers instructions for calculating limits and identifying lobbying expenditures.

It is important to emphasize that if a nonprofi t elects to lobby, it is the expen- ditures that are counted to see if limits are honored, not the extent of the activity itself. Moreover, these expenditures cannot be paid for out of private, earmarked grants. In other words, the 501(c)(3) cannot get a grant specifi cally for lobbying from a private foundation or corporation. However, it can use general support grants from private foundations and grants earmarked for lobbying from com- munity foundations. In general, it cannot use federal funds to lobby, but special defi nitions and rules apply.

These very generous rules suggest that 501(c)(3) nonprofi ts should not be fearful that they will exceed lobbying limitations. The government has repeatedly demonstrated that nonprofi ts are welcome to participate in shaping legislation. By adding their voices to the political process, nonprofi ts can ensure that legislators consider multiple perspectives and understand the interests of individuals who are unable or reluctant to speak for themselves. Nonprofi ts can use the power of collective action to gain attention and credibility for their causes. They can work with their constituents to determine what makes a good society and, through lob- bying, act to achieve this vision.

Planning and Implementing Government Relations

There are numerous books, articles, and guides to help nonprofi ts develop effec- tive lobbying campaigns. Information on this topic can easily become outdated. The growth in social media and networking, for example, has dramatically

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350 Managing Nonprofi t Organizations

changed lobbying practices. Power shifts among political parties and special inter- est groups can change the lobbying environment. Still, there are some general ideas that appear to have lasting value. We outline these in the following discus- sion, focusing fi rst on steps in the general government relations process. We then provide ideas for engaging individuals in a lobbying campaign and discuss design- ing and delivering effective messages.

The general steps outlined at the beginning of this chapter for public rela- tions can be adapted for government relations. Once a nonprofit learns of a legislative or government policy issue of importance to the organization and its clients, it can take these steps:

1. Assess internal and external factors. What are the strengths and weak- nesses of the various positions on the issue and who are the actors likely to take a particular side? What emotions does the issue raise? How is information shared on the issue? What organizations are likely to want to work with the organization on the issue and with whom would it like to work? What is the legislative process and timeline for the issue? What are the fi nancial and political implications of working on this issue?

2. Set goals and objectives. What does the nonprofi t want to accomplish relative to the issue? Is the goal to raise awareness, educate a particular audi- ence, or inspire action? How should success be measured? How do the goals related to the issue fi t with the nonprofi t’s strategic goals? Should the nonprofi t allocate resources and management systems to lobbying and other forms of advocacy? What should the budget and sources of funds be for the effort?

3. Identify and research target audiences. What groups or individuals need to be reached? What is their current understanding of and position on the issue? What values and interests do they have that are aligned with or contrary to the nonprofi t’s position on the issue? Which individuals and orga- nizations are they likely to see as credible sources of information on the issue? What should the mix be between grassroots and direct lobbying?

4. Develop messages. What is the message for each target audience? Is it as noncontroversial as possible? Can be it be repeated with slight variations?

5. Choose communication outlets and deliver messages. What are the best mechanisms for reaching the targets: social networking, postal mail, phone calls, personal meetings, radio shows, television ads, op-eds, letters to the editor, concerts, public forums and speeches, online maps, text messaging, e-mail, brochures, protests, marches, petitions, blogs, wikis, virtual worlds, billboards, yard signs, videos, or yet another approach? Who has access to each target audience and should deliver the message?45

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Public and Government Relations 351

6. Evaluate effectiveness and ethics. Is the campaign working? Is it legal and ethical? What should be continued and what changed? Has the overall mission of the organization been advanced or hindered by the advocacy activity? Have there been any unintended consequences?

On the one hand, political mobilization can be decentralized, occurring through informal grassroots organizations and multisector coalitions that mobilize volunteers, as was the case in the origins of the civil rights movement and the women’s move- ment.46 On the other, it may be centralized, occurring through established nonprofi ts with their own registered lobbyists. There is ongoing debate about the advantages of conducting advocacy through decentralized versus centralized organizations.47

Decentralized advocacy organizations may best embody democratic values and maximize civic involvement. They offer more points of access for involvement through the loosely connected cells of the advocacy structure than does a cam- paign run in a highly centralized fashion, where access and control come through a single or lead organization. Decentralized campaigns are better at empowering grassroots leaders and are more diffi cult for powerful actors to repress. However, the more decentralized the advocacy campaign, the more likely it is to suffer from ineffi cient decision making, coordination problems, resource constraints, message confusion, and confl icts in viewpoints. For example, when a campaign goes viral, as in the case of tell-a-friend campaigns or unauthorized viral ads, the message may be controversial and the nonprofi t may need to deny developing or approv- ing it. For example, viral messages encouraging condom use among teens to pre- vent HIV/AIDS may create problems for the nonprofi t originating a campaign to increase awareness of the disease. Negative messages about a politician in relation to a particular policy may be made and electronically disseminated independently of the nonprofi t that started the campaign to discuss that policy.

More centralized advocacy structures tend to come with a sharper focus on orga- nizational survival, which can divert resources from the advocacy activities. However, because there are fewer stakeholders who need to debate the issues and agree on acceptable responses to them, centralization can lead to faster prepara- tion, more consistent messages, more professional communications, and greater ease in negotiating compromise positions. In addition, when resources can be held by a single organization, it may be easier to fi nd and allocate them in response to an opportunity or threat. However, as discussed in Chapter Nine, many nonprof- its operate in a shared governance system. To effectively address complex social problems they need to cross organizational boundaries and work collaboratively, making highly centralized advocacy structures unattractive or even infeasible. By operating as part of an advocacy coalition, a nonprofi t may be more effective in encouraging systemic changes.

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352 Managing Nonprofi t Organizations

The differences between decentralized and centralized efforts are refl ected in the origins of the pro-life and pro-choice movements. John McCarthy describes the pro-life movement as relatively decentralized, rooted in networks of local churches. In contrast, the pro-choice movement historically did not have a preex- isting infrastructure, such as networks of churches, that could serve as the organiz- ing force for its advocacy activities. It took a more centralized approach, relying more on professionals than volunteers.48 Today, both sides attract grassroots vol- unteers as well as professional paid lobbyists.

Engaging Advocates

A nonprofi t’s advocates are those who will speak and write to promote the organi- zation’s position and well-being. Barry Hessenius offers a useful review of what it takes to engage advocates in a lobbying campaign.49 He notes that people need to clearly understand what they are being asked to do, have the necessary tools, feel they have the needed skills or will be trained, and have a realistic goal. They are more likely to participate if they feel they will be acting in concert instead of alone. Although it is important that they feel they are part of a coordinated effort, they also should feel that their individual contribution is essential. The campaign should be organized on the principle that everybody counts. It also helps if the activity is fun and successful. Showing measurable results throughout the campaign can create a sense of excitement and achievement. More folks are likely to want to join the effort if they think it will be pleasurable and worthwhile. Hessenius also recom- mends that the campaign tap into a sense of outrage. People who have a personal stake in the outcome of the campaign are more likely to want to participate.

But how do you fi nd the constituents who will agree with your issue and feel a personal stake in it? Katya Andresen suggests a telescoping approach to identify- ing people likely to support a cause. She advises nonprofi ts to start at the broadest level with people likely to be interested and then narrow the focus down to those most interested and able to participate. For national issues she suggests looking fi rst at recruiting at the national level, then at the state, city, and neighborhood levels. Starting broadly and zeroing in can help in ultimately identifying those with strong stakes.50

Saul Alinsky championed a different approach that focuses in on local com- munities and then links these communities together if appropriate. The idea is to empower local leaders who can work within their communities to identify com- mon interests. As they gain strength they can negotiate agreements with public and private sector institutions.51 Rather than recruiting individuals to follow a previously established cause, the causes emerge from the local communities. Using the networks of existing participants to grow the effort can be effective no matter what general organizing approach is taken.

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Public and Government Relations 353

Typical of many nonprofi ts with missions focused on social change, Common Cause expects to retain only a small majority of members from year to year. A classic problem is that over time advocates lose sympathy for the cause and drop out, or limit their contributions to a donation. It may also be challenging to convert sympathizers into active participants, so some “members” may join but never play active roles in a campaign. To fi ll the holes left by departing and pas- sive members, Common Cause recruits broadly and keeps membership dues and time commitments low. As Common Cause’s experience demonstrates, to sustain a long-term campaign it is important to continually build membership.

To build and sustain active participation, it is helpful to frame a campaign’s focus as a broad moral issue that appeals to generally accepted standards and legal equity, and also to highlight material benefi ts for participants. For example, in the welfare rights movement, most welfare mothers initially got involved to gain material benefi ts but then became committed to the ideology of the movement and the solidarity of the group. Other movements have also been successful in stressing both desirable societal outcomes and personal benefi ts for advocates.52

Once the passion for a cause is tapped, advocates need to be prepared and organized for the effort. Nonprofi ts need to be able to guide advocates so that they can reach the right legislators and legislative aides with the right message at the right time. Bob Smucker argues that to be effective lobbyists, individuals need only three things: a few basic facts, belief in the cause, and common sense.53 Nonprofi ts can prepare advocates by educating them on the substance of the legislation at issue, why it is important, what the costs will be if it is enacted, and what the likely outcomes will be if it is passed or does not pass. The Center for Lobbying in the Public Interest is one of the leading organizations that provide training and other resources to help staff and volunteers associated with 501(c)(3) nonprofi ts to be effective with their advocacy efforts. There are also numerous consultants and grassroots organizers who know how to attract, prepare, and manage staff and volunteers for advocacy campaigns.

Designing and Delivering the Advocacy Message

Few advocates can effectively handle more than one issue. When a nonprofi t keeps advocates focused on one issue, the communications of those advocates are likely to be more effective in persuading others to take their position. Popular advice for advocates includes the following:54

• Be brief, in both written and verbal communications.

• Be clear, which may mean simplifying complex subjects without losing accuracy.

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354 Managing Nonprofi t Organizations

• Be informative; share facts and stories that are compelling and that illustrate your point.

• Make the case that action is needed now.

• Be persuasive, polite, and relentless but not argumentative or demanding.

• Be grateful; thank people for their time and, if the effort is effective, later for their vote.

• Make personal contact, the more personalized the communication, the better.

• Plan on small wins and long-term strategies rather than quick, decisive victories.

Concluding Thoughts

This chapter has examined public and government relations. For both, strategic communication plans are a key to success. Nonprofi t leaders can listen to con- stituents and design strategies and messages that will reach desired audiences, but it is not only these leaders who will infl uence the success of a campaign. All individuals associated with a nonprofi t have the opportunity to shape the image, reputation, and perceived advocacy positions of the nonprofi t. Coordination and control of messages can be pursued, but there can be value in more decentralized approaches to communication. Contingency plans should be developed to address any concerns that may arise that could result in full-blown crises.

In our next chapter we explore partnerships, alliances, and affi liations. Not only can these be instrumental for advocacy efforts but they may also be of benefi t to general public relations efforts. In this increasingly networked world, funders and other resource holders consistently call for collaborative initiatives. Finding the right organizations to work with on the right projects is often critical to mis- sion achievement.

Questions for Consideration

1. Some say there is a special burden on nonprofi ts to do good and be good. Therefore when a nonprofi t’s image or reputation is tarnished, it tends to reflect badly on the whole nonprofit sector. Still, nonprofits are typically assumed to be operating with good intentions. Why, if at all, is it important for a nonprofi t to invest resources in public relations when its mission clearly states that it exists to serve the public? Couldn’t these resources be better devoted to program delivery?

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Public and Government Relations 355

2. Nonprofits and government agencies often complement one another in addressing complex social problems. Many nonprofi ts do not formally engage in lobbying yet they have visions for a better world. Should government increase its encouragement of them to engage in the political process? If so, how? Do you agree with the existing limits on lobbying activity for various types of nonprofi ts?

Exercises

Exercise 14.1: Link Between Reputation and Image

Identify a nonprofi t organization that is widely recognized as having a good repu- tation. Upon what is this reputation based? How does the organization’s image reinforce the organization’s reputation?

Exercise 14.2: Crisis Management Review

Identify a nonprofi t organization that has recently undergone a crisis. Evaluate the organization’s response based on the principles described in this chapter. Alternatively, read “Shark Fundraising at the Foundation,” by David Paas, pub- lished in Nonprofi t Management & Leadership 5, no. 4 (1995): 433–438. Develop a crisis management response to the situation faced by the foundation featured in the article.

Exercise 14.3: Advocacy Opportunity

Identify one piece of pending legislation at the local, state, or national level that deals with an issue important to some nonprofi ts. What types of nonprofi ts might wish to lobby for or against this legislation, and why? For a national-level perspec- tive on legislative issues affecting nonprofi ts, see the INDEPENDENT SECTOR’s Word on Washington Web page at http://www.independentsector.org/hot_on_the_hill.

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356

CHAPTER FIFTEEN

PARTNERSHIPS, ALLIANCES, AND AFFILIATIONS

T he Cancer Vaccine Collaborative (the Collaborative) is a joint program of the Cancer Research Institute (CRI) and the Ludwig Institute for Cancer Research (LICR).1 CRI’s mission is to support and coordinate laboratory and clinical efforts that will lead to the immuno- logical treatment, control, and prevention of cancer. CRI is headquartered in New York City, with volunteer offi ces in California, Connecticut, Massachusetts, New Mexico, Texas, and Virginia. LICR is a nonprofi t research organization committed to improving the control of cancer through integrated laboratory and clinical research and novel therapeutic strategies based on the emerging understanding of cancer. The core of the LICR is concentrated at ten research locations: two each in Australia, Sweden, and the United States, and one each in Belgium, Brazil, Switzerland, and the United Kingdom. The Collaborative was founded to address the multiple challenges of cancer vaccine development. Research over the last twenty years has established that an optimal cancer vaccine must include several components (or immune agents) each with a distinct func- tion. Moreover, due to product development agendas, supply scarcity, and proprietary concerns, corporations may limit academic researchers’ access to vaccine components. Academics therefore have great diffi culty in gaining access to promising vaccine components and securing permission to combine them in an investigative cancer vaccine. Finally, identifying optimal combinations of multiple vaccine components is a complex and time-consuming clinical task. The Collaborative is a coordinated global network of clinical trial sites with special expertise in immunology that conduct parallel, early stage clinical trials to identify the optimal composition of successful therapeutic cancer vaccines. The Collaborative is the world’s only international network of cancer vaccine clinical trial sites and immune monitoring laboratories. It was established by CRI and LICR to address their shared goal of accelerating the development of therapeutic cancer vaccines.

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Partnerships, Alliances, and Affi liations 357

“The formation of the Collaborative was motivated by our realization that our two organiza- tions share common objectives,” says CRI executive director Jill O’Donnell-Tormey. “These goals—understanding the immunological response to cancer, harnessing that knowledge for patient benefi t, and accelerating the translation of basic research into new cancer therapies—could best be achieved by combining our resources and requiring that our scientists collaborate rather than compete.” The Collaborative includes eminent clinical investigators from leading research and medical clinical trial sites and fi rst-class immune monitoring laboratories. These are supported by an extensive and comprehensive independent trials management infrastructure that provides regulatory, safety, and compliance expertise and oversight, trial management, shared data col- lection software, intellectual property management, and funding. By designing complementary trials to be run in parallel at multiple sites, and by standardizing the types of immunological measurements taken, the Collaborative helps to extract the immunological knowledge necessary to eventually optimize a therapeutic vaccine at a signifi cantly accelerated pace compared to efforts carried out solely by competing industry interests The results have been groundbreaking, and the Collaborative has produced some of the most comprehensive knowledge available today about cancer. The Collaborative has established collaborations with more than fi fteen companies to obtain vaccine components. The clinical trials network has been expanded from six sites in New York to nineteen sites on four continents. Since 2001, more than forty clinical trials have been completed or are ongoing, and nearly seven hundred patients have been treated. In addition, more than 120 scientifi c papers have been published in peer-reviewed journals.

� � �

The Cancer Vaccine Collaborative described in our opening case links two major cancer research centers into a global network to carry out cancer vaccine trials. Although this collaboration is larger in scope and operations than a more typi- cal collaboration between local nonprofi ts, it is nevertheless a striking example of how nonprofi ts with shared goals can take advantage of the expertise and capabilities they each possess to produce far-reaching results. All nonprofi ts face decisions about with whom they should work. Nonprofi t organizations cannot accomplish their missions and goals alone. Like all organizations they need others to provide them with vital inputs and services. Other organizations may also use a nonprofi t’s output. In addition, in many cases nonprofi ts will work with other organizations in arrangements designed to benefi t both by taking advantage of their relative strengths. The Cancer Vaccine Collaborative is an example of such a joint effort. In this chapter we will discuss a wide variety of such cooperative arrangements. We address a number of questions: Why do nonprofi ts seek part- ners? What factors determine the scope and intensity of a collaborative relation- ship? What role does governance play in collaboration? What factors increase the chances for successful collaboration? What challenges need to be addressed to successfully establish and manage the relationship?

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358 Managing Nonprofi t Organizations

Why Collaborate?

Why would a nonprofi t seek a cooperative relationship with another organiza- tion? A wide variety of benefi ts stemming from collaboration have been cited.2 For example a nonprofi t may gain access to new facilities, such as when a youth- serving nonprofi t partners with a church in order to get the use of the church gymnasium. Also, a nonprofi t may become more effi cient, such as when a non- profi t shares offi ce space or administrative personnel with another in order to cut costs. Two small nonprofi ts providing similar services might combine to expand the service into different neighborhoods. Another benefi t may be increased vis- ibility and political clout. Collaborating nonprofi ts may each know different local politicians or community leaders. However, beyond the particular benefi ts that might result from specifi c collaborations, we need to also look at the internal and external factors that infl uence the decision to collaborate.

Darlyne Bailey and Kelly Koney, building on research on collaboration in for-profi ts and government, have laid out six perspectives on nonprofi t collabora- tive activity: they center on social responsibility, operational effi ciency, resource interdependence, environmental validity, domain infl uence, and strategic enhance- ment.3 These perspectives inform most listings of the bases and types of collabora- tion that are found in the literature. David Campbell, Barbara Jacobus, and John Yankey discuss the implication of these perspectives for nonprofi t mergers.4 These perspectives are, however, relevant for all cooperative relationships.

Social Responsibility

The social responsibility perspective emphasizes the nonprofi t’s goal and responsibil- ity to solve social problems. Risk and responsibility are shared by the community actors who have a stake in the issue or problem.

Key Factors to Consider for Social Responsibility

• What are the specifi c social problems in the community?

• What services or activities does the community need to solve these problems?

• How can the nonprofi t best contribute to solving this problem?

As social responsibility is the key basis for nonprofi t activity, we will consider its implications for nonprofi t cooperation further. Nonprofi t missions normally transcend organizational boundaries, and shared interests in social issues can lead to cooperation if collective action will produce more social benefi ts. This should lead nonprofi ts to behave more like a community of organizations than

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Partnerships, Alliances, and Affi liations 359

like business fi rms in a for-profi t industry.5 In a for-profi t industry, organizational and cooperative action (for example, a joint venture) is designed to benefi t indus- try businesses. Nonprofi ts, however, should be concerned about the benefi ts their independent and cooperative actions provide to their publics over and above just the benefi ts for their own organizations. For example, this driver would lead non- profi ts to consider how many alternative providers are available relative to com- munity needs, and the degree to which their organization is a community asset or liability. Ian MacMillan’s framework, which we introduced in Chapter Five, on strategy, is useful for this type of decision making.6 Decisions on partnership for- mation can be made based on the three dimensions of the framework. Competitive position considers how well the nonprofi t is doing relative to the other providers of like services in a given area. Program attractiveness is the degree to which the program meets a variety of internal and external factors, such as the organiza- tion’s mission and the skills of its personnel and also whether the program is well supported, has a growing client base, and is sustainable. Alternate coverage takes into account the number of other providers with similar programs in the same region.

Being in a strong competitive position indicates that a nonprofit is well accepted and, presumably, doing a better job than its competitors at providing the program or service. It is therefore effectively using community resources. Community benefi t should be considered even when the program is not very attractive to the nonprofi t. In this situation a for-profi t would most likely abandon the service. A nonprofi t would likewise seek to exit this unattractive service but would want to see its program delivery skills (which are responsible for its strong competitive position) maintained in the community. It could do this by transfer- ring skills or program coverage to the best of the other agencies providing this service. If these other organizations require assistance, the nonprofi t would col- laborate with them to build their capacity. For example, an environmental non- profi t that has decided to move out of a garden refuse collection program that is not generating any revenue might consider making its specialized collection bins available to another nonprofi t, such as one providing recycling services.

Conversely, from the community’s standpoint, nonprofi ts in a weak competi- tive position are not the most effective users of resources. In general, options for these weaker nonprofi ts are to either seek partners or abandon the service or program. Partnership is especially important when alternative coverage is low, meaning that the community would benefit from the nonprofit’s presence. MacMillan notes that these situations may result in new programs to meet needs that have only recently developed but are rapidly growing. A nonprofi t may not have the skills to be a strong competitor, but given the attractive program, it could seek resources or a partner to build that program. In the early days of the AIDS/ HIV epidemic, many nonprofi ts sought to provide services. Given the complex

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360 Managing Nonprofi t Organizations

nature of the disease and treatment, many of these early entrants ended up col- laborating with others.

Operational Effi ciency

The operational effi ciency perspective makes the point that collaboration can be undertaken to produce economies of scale and that such collaboration is often driven by funders or other stakeholders seeking to increase service volume. Funders’ interest in collaboration may be driven by a concern about the dupli- cation of services and the duplication of appeals for resources that result from numerous competing providers. Government agencies, foundations, and feder- ated funders such as the United Way all feel this pressure.

Key Factors to Consider for Operational Effi ciency

• Where are operations least effi cient?

• To what degree are these ineffi ciencies also a concern of stakeholders?

• Are these ineffi ciencies best addressed alone or through collaboration?

Resource Interdependence

The resource interdependence perspective focuses on the idea that organizations need resources from each other to meet objectives and survive. For example, grant- makers and service providers may need each other to meet mission objecives. Also, nonprofits may cooperate in service delivery. For example, a nonprofit addressing the needs of the homeless may refer its clients to other providers for help with particular problems related to their homelessness, such as addiction or unemployment. These providers may refer clients in return. In this way agencies become interdependent as they benefi t themselves and their partners.

Key Factors to Consider for Resource Interdependence

• What are the critical resources the nonprofi t needs?

• From which organizations might these resources be acquired?

• What is the nature of the interdependence that would result from these resource exchanges?

Environmental Validity

The environmental validity perspective holds that legitimacy is a key resource and that nonprofits will pursue strategies to acquire and bolster it, including collaboration with others. Nonprofits are rewarded for living up to social

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Partnerships, Alliances, and Affi liations 361

expectations that they provide community benefi ts. However, they often pro- vide services that are hard to evaluate, and the benefi t of these services may not be clear to the community. A loss of legitimacy in the eyes of key stakeholders will likely be detrimental for future funding.

Key Factors to Consider for Environmental Validity

• What is the basis of legitimacy in the eyes of prominent community stakeholders?

• Can legitimacy be acquired by the organization’s efforts alone?

• What are other sources in the community from which the nonprofi t could acquire legitimacy?

• What community pressures might affect cooperating with these sources?

Domain Infl uence

The domain infl uence perspective focuses on power as a reason for collaboration. An organization can secure resources by enhancing its power or infl uence in its domain, or sphere of activity. Collaboration can be used to increase and control resources, set standards for service, and infl uence funder priorities. This is a politi- cal model, in which organizations seek to align with others who share common interests to enhance their power over other organizations.

Key Factors to Consider for Domain Infl uence

• What are the ways in which the nonprofi t lacks power to accomplish its goal?

• Could the presence of other organizations be used to enhance the nonprofi t’s power?

Strategic Enhancement

The strategic enhancement perspective emphasizes the use of collaboration as a means of increasing competitive advantage. Nonprofi ts must respond to externali- ties, such as funder or marketplace demands, and these may prove problematic for individual nonprofi ts. In this case a joint venture could be used to produce benefi ts that two organizations could share but that neither alone could produce. Joint fundraising is one example of this approach. In addition, government or third- party funders may seek more comprehensive services. Several nonprofi ts, each providing a narrow range of services, could collaborate to provide the continuum of services desired by funders.

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362 Managing Nonprofi t Organizations

Key Factors to Consider for Strategic Enhancement

• After assessing the level and type of competitive advantage likely to be needed in the future, can the nonprofi t attain that competitive advantage by itself ?

• What other organizations might be available for a collaboration designed to enhance competitive advantage?

� � �

A number of these perspectives are usually at work in every collaboration deci- sion. Jessica Sowa conducted a study of twenty interagency collaborations among early childhood education providers.7 These nonprofi ts reported that their col- laborations were established to: improve core organizational services; use the resources of the collaboration to strategically address existing service gaps; and address organization-level needs that included enhancing organizational sur- vival, achieving legitimacy, and improving the strategic position of each nonprofi t within its fi eld of endeavor. The Cancer Vaccine Collaborative, for example, provides a number of these benefi ts to its cooperating partners. It helps each partner advance the social goal of developing cancer treatment. The comple- mentary resources provided by each partner allow the Collaborative to provide a much more effi cient way to conduct clinical trials, thereby addressing an impor- tant need in the fi eld. And the status of the well-respected nonprofi ts forming the Collaborative give it, and the researchers associated with it, legitimacy. This facilitates the work of the Collaborative and is instrumental in the establishment of cooperative relations with corporate partners.

Defi ning Types of Collaborative Relationship

Up to this point we have been using the terms cooperation and collaboration loosely to refer to any joint efforts of two or more organizations. Joint relationships vary greatly, however, and a variety of terms have been used to classify them, including: cooperation, coordination, collaboration, alliance, joint venture, partnership, and merger. We have found that these terms are not consistently defi ned (except for merger, which has a legal defi nition). In addition, the bases of these classifi cations vary in terms of the nature of the relationship, the autonomy of the partners, and the outcome (such as the signifi cance of the resources exchanged). However, what the types we have described do have in common is that in all of them, the activities of two organizations are more or less closely intertwined.

In this section, we will examine the work of James Austin and David La Piana, who provide useful frameworks for describing and analyzing the range of

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Partnerships, Alliances, and Affi liations 363

relationships that organizations can engage in. In both frameworks, relationships vary from less to more extensive. Each framework, however, provides readers with a different useful set of factors for understanding the range of relationships possible. For the remainder of the chapter, except when noted, we will refer to all of these relationships as collaborations. This will help to avoid terminological confusion. Moreover, the factors we discuss in the remainder of this chapter in relation to collaboration development, success, and challenges are relevant to all types of relationships. It is typically the extensiveness of the relationship that determines the portions of the factors that may be more or less signifi cant and the amount of effort organizations may invest in particular factors. Finally, owing to their special characteristics, in this section we will also examine mergers and cross-sector collaborations in detail.

The Collaboration Continuum

A framework that is useful for understanding the range of collaborative relation- ships is James Austin’s collaboration continuum. Although formulated to describe relationships between nonprofits and for-profits,8 the continuum is useful in describing the relationship between any two types of organizations. Austin fi nds that collaboration intensity varies along seven dimensions. These dimensions are listed in the fi rst column of Table 15.1. Each dimension varies in degree as the collaboration type varies, as shown in columns 2, 3, and 4.

Austin uses seven dimensions to characterize three types of collaborations. He notes, however, that these types are only three of the possible points on this

TABLE 15.1. THE COLLABORATION CONTINUUM

Relationship Dimension Simple Collaboration Transactional Collaboration

Integrative Collaboration

Level of engagement Low High

Importance to mission Peripheral Central

Magnitude of resources Small Big

Scope of activities Narrow Broad

Interaction level Infrequent Intensive

Managerial complexity Simple Complex

Strategic value Minor Major

Source: Adapted from James Austin, “Strategic Collaboration Between Nonprofi ts and Business,” Nonprofi t and Voluntary Sector Quarterly 29 (2000): 69. Copyright © 2000, Association for Research on Nonprofi t Organizations and Voluntary Action. Reprinted by permission.

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364 Managing Nonprofi t Organizations

continuum. Depending on their location on the continuum, collaborations will vary in terms of the collaboration mind-set, the strategic alignment of the partners, the value that the collaboration has for each partner, and the management of the relationship. We should note, in addition, that there may be cases where all seven dimensions will not vary in tandem. For example, a nonprofi t’s mission may be sig- nifi cantly affected by a collaboration involving a relatively low level of interaction or management complexity. This might occur, for instance, when a key staff mem- ber participates in a coalition that provides valuable information or knowledge.

Simple collaborations are at one end of the spectrum. These collaborations involve only little contact between partners. Writing in terms of collaborations between nonprofi ts and for-profi ts, Austin labels these as philanthropic collaborations. They usually involve only a donation from the for-profi t to the nonprofi t. If we gen- eralize to a nonprofit collaborating with other nonprofits or public agencies, we would label these relationships as simple collaborations. They are character- ized by minimal collaboration in defi ning activities, minimal fi t beyond a shared interest in a particular issue, generic resource transfer, and a low level of contact between designated organizational personnel. An example is EmployAlliance, a collaborative project that won the U.S. Secretary of Labor’s Fifth Anniversary New Freedom Initiative Award. It is a collaboration among six nonprofi ts that fi nd employment leads for their disabled clients. As Dave Stevens, a career counselor at the Chicago Lighthouse, describes his part in this effort, “I now work with people who are blind, so when I get a job requiring sight, instead of letting it go fallow, I pass it along to other local agencies for people with disabilities via EmployAlliance, which in Chicago is under the Chamber of Commerce.”9 These collaborations may also be short-lived, such as when two or more nonprofi ts participate on a team or task force to address a specifi c problem or short-term issue. For example, repre- sentatives of relevant nonprofi ts may be called together to come up with a plan to assist in a new citywide plan to deal with homelessness. Or nonprofi ts may meet to discuss how to address proposed changes in government funding or policy. These short-term collaborations can be contrasted with the longer-lasting relationships that characterize the more extensive collaborations discussed next.

Transactional collaborations have a higher level of involvement between partners. These collaborations involve a more extensive partnering mind-set with increased understanding and trust; an overlap in mission and vision; a more equal exchange of resources (possibly involving core competencies); and extended relationships throughout the organization. Jane Arsenault provides an example of the develop- ment of such a collaboration. Three chamber music groups with declining audi- ences discovered through audience research that there was considerable overlap in their audiences. Their initial collaborative effort was to convert their mailing lists to the same software and develop a single mailing list, which they then all used.

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Partnerships, Alliances, and Affi liations 365

This simple collaboration expanded to allowing audiences of one group to get discounted tickets to the performances of the other groups. Further collaborative development included coordinating their concert calendars by negotiating concert dates. A fi nal step was for the groups to develop a common calendar of events and mail it to the entire combined audience. Future efforts may include joint fundrais- ing and board development.10

Finally, integrative collaborations entail extensive, multidimensional partner involvement. These collaborations are characterized by a joint or merged mind- set. They have, in addition, a broad range of activities of strategic signifi cance, high mission alignment and shared values, and joint benefi t creation. Projects are identifi ed and developed at all levels of the organizations. Deep personal relationships develop across the organizations, and the culture of each organiza- tion infl uences the culture of the other. The Cancer Vaccine Collaborative is a good example of an integrative collaboration and clearly illustrates the benefi ts that can result from this level of interaction. The Collaborative has an identity beyond that of its participants. It addresses the core missions of the partners and integrates their core capacities and facilities, including trial sites and laboratories. It has developed a shared system that supports all aspects of the scientifi c work.

The Partnership Matrix

Another well-known framework for understanding the types of collaborations nonprofi ts engage in has been developed by David La Piana (see Figure 15.1).11 His partnership matrix distinguishes between partnerships based on programs (such as health care, counseling, or recreation services) and those based on administration (functions such as accounting, facilities management, or human resources). Partnerships may also be based on a combination of program and administration activities.

The horizontal axis describes the degree of partner integration. At one end of this spectrum are loose partnerships where each organization retains a great deal of autonomy. In this framework, collaborations are only one type of partner- ship. They are not permanent relationships and decision-making power remains with the individual organizations. Sharing information and referring clients are examples of this type of relationship and are seen quite frequently among non- profi ts of all types. For example, nonprofi ts providing counseling services will routinely refer clients to other agencies for other needs their clients have (such as housing or nutrition).

Strategic alliances are more extensive partnerships and entail a degree of restructuring of the partner organizations. They are based on an agreement that commits them to future joint activities and a degree of shared decision-making

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3 6

6

Administrative Consolidation • Contracting for services • Exchanging services • Sharing services

Joint Programming • Single focus or program • Multi-focus or program • Integrated system

Management Services Organization

Parent/Subsidiary Corporation

Corporate Merger/ Acquisition

Joint Venture Corporation

Collaboration • Information sharing • Program coordination • Joint planning

A d

m in

is tr

at io

n P

ro g

ra m

Greater IntegrationGreater Autonomy

Contract or MOU Change in Corporate Structure

• No permanent organizational commitment

• Decision-making power remains with individual organizations

Collaboration • Involves a commitment for the future

• Decision-making power is shared or transferred

• Is agreement-driven

Strategic Alliance • Involves changes to corporate control and/or structure, including creation and/or dissolution of one or more organizations

Corporate Integration

Strategic Restructuring

FIGURE 15.1. THE PARTNERSHIP MATRIX

Source: La Piana Consulting, The Partnership Matrix (2011), http://www.lapiana.org/downloads/ThePartnershipMatrix_LaPianaConsulting_2011.pdf. Copyright © 2011, La Piana Consulting. Reprinted with permission. www.lapiana.org.

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Partnerships, Alliances, and Affi liations 367

power. This agreement is usually a formal one. Alliances can involve the sharing, exchanging, or contracting of administrative functions to increase administrative effi ciency or the joint launching and managing of programs to further mission:

• Joint programming describes two organizations sharing in the operation of a program or the provision of a service. An example can be found in Spokane, Washington, where a neighborhood action program and a business develop- ment association have teamed up to recruit, educate, and provide loans to low-income adults interested in starting a business. This is an example of a single-purpose, joint collaboration.

• Administration consolidation describes two organizations sharing administrative functions. An example can be found in Wooster, Ohio, where a substance abuse program and a shelter for abused women undertook a joint capital campaign and now jointly own the building that houses their offi ces.

Corporate integrations are partnerships that involve changes in corporate con- trol or structure, possibly involving the creation or dissolution of one or more organizations:

• Management services organizations are established to integrate administrative functions. For example, a management service organization was created by two multipurpose human service organizations in Springfi eld, Massachusetts. This new organization provided all the back-offi ce functions for the agencies and also provided some administrative support for four smaller organizations.

• Joint venture corporations are created to further specifi c administrative or program goals. Governance is shared by the partners. A case in point is a joint venture formed by three major visual arts organizations in Louisville, Kentucky. They established a new limited liability company to jointly operate a gift store and gallery. In addition, the Cancer Vaccine Collaborative is a good example of a new organization that was formed from a joint venture that involved both merging programs and establishing new administrative functions.

• Parent-subsidiary relationships involve the integration of administrative or program functions, with one partner overseeing the activities of the other. For example, a multipurpose human service organization in Cincinnati, Ohio, formed a parent-subsidiary relationship with a mental health agency (the sub- sidiary). All administrative functions, policies and procedures, and some pro- grams have been consolidated. The mental health agency’s board is appointed by and its executive director reports to the human service organization.

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368 Managing Nonprofi t Organizations

Mergers

Mergers are the most signifi cant collaborations, and so we consider them in more detail. Mergers involve the integration of all administrative and program func- tions of two or more organizations through the dissolution of one or more of the organizations or the creation of a new merged organization. One example of a merger involves two organizations providing educational, mental health, and other services to children with physical and mental disabilities in the San Francisco Bay Area. They dissolved their organizations and merged all of their functions in a new agency. David La Piana has written extensively about non- profi t mergers. He notes that “the success of an increasing number of mergers is inspiring other nonprofi t leaders to take a closer look at this strategy. Though these leaders may have previously considered a merger but abandoned the idea as too risky, they now feel more comfortable going where others have gone before.”12 We will consider some of the main points made by La Piana.

Under the term merger, La Piana includes a variety of nonprofi t restructuring options. Outright mergers can be accomplished either by dissolving one organization and leaving its assets to another or dissolving both organizations by merging them into a new third organization. Another option is an asset transfer. In this transac- tion the organizations remain separate, but the valuable assets of one (which may include money, real property, a name, or other intangibles) are “purchased” by the other. The purchase may be for cash or (more commonly) for some other consideration, such as a commitment to continue the organization’s mission. Alternatively, nonprofi ts may form interlocking boards. This option allows the organi- zations to maintain their separate legal identity. The nonprofi ts can, nevertheless, merge their operations by reconfi guring their boards so that the same individuals are on each board. A joint executive director may also be appointed.

The Arizona’s Children Association (AzCA) provides a good example of a nonprofi t that has pursued mergers and acquisitions (M&A) strategically and real- ized substantial value from doing so. Its efforts are discussed in a report on merg- ers published by The Bridgespan Group.

Fifteen years ago, AzCA was a $4.5 million organization, focused primarily on offering residential services in Tucson. As they looked to the future, AzCA’s lead- ers realized that they would need to modify their mission to have the kind of impact they wanted. As Fred Chaffee, AzCA’s president and CEO, put it, “We were primarily a residential treatment organization, and we didn’t have any ser- vices in primary prevention and early childhood work. From a mission perspective of protecting kids and preserving families, we needed to be serving kids earlier to give families the tools and reach kids before they arrived at residential services.”

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Partnerships, Alliances, and Affi liations 369

But AzCA didn’t have the staff expertise, donor relationships, or “brand” to build a new effort to serve families. So 10 years ago, AzCA acquired an organi- zation that did, marking the beginning of a rapid, strategic expansion through M&A. Six acquisitions later, AzCA has grown into a $40-million state-wide nonprofi t with a broad continuum of care for children and their families. This growth did not just come from the “purchase” of other organizations. Each acquisition allowed AzCA to add new services and skills, and to spread them to every offi ce and program across the organization. Then, once the organization achieved “critical mass” in a given area, it engaged in competitive bidding to further organic growth. (Critical mass, according to Chaffee, “means more than just numbers of people; it’s reputation, community and brand awareness.”) But all of this rested on the success of AzCA in using M&A to gain footholds in new services, geographies and benefi ciary populations. Arizona’s Children Association’s approach has proved prescient, as the trend in recent years has been to move more children from residential to out-patient or in-home care. As a result, AzCA’s diversifi cation has positioned the organization well to weather the corresponding changes in funding priorities.13

Given what is at stake, serious self-assessment is needed before making a deci- sion to seek a merger. Organizations should have clarity on why a merger might be sought. Normally, the reasons involve improving fi nances, gaining access to a larger skill set, or enhancing mission pursuit. In addition, the expected outcomes of the merger should be clear. Additional factors that enhance the prospects of merger success include the nonprofit’s being able to keep a focus on its mis- sion, having a unity of strategic purpose, having leadership that speaks with one voice, having solid board-management relationships, having a history of successful risk taking, having a growth orientation, and being familiar with other success- ful mergers. Whether or not the organization is in crisis needs to be considered. A crisis will create strain in the organization, use resources and staff time, and put the organization in a weak bargaining position with potential partners. Nevertheless the merger may be a signifi cant opportunity and may in fact help to resolve the crisis. Finally, the state of the executive leadership needs to be consid- ered. For example, mergers may occur more easily when one organization has lost its executive leader. When both leadership teams are intact, then the organizations must determine who will lead the merged organization. Diffi cult decisions about the leaders in the separate organizations may need to be made.

Potential partner assessment is also of vital importance and has some spe- cial features. Potential merger partners usually know each other. For a merger to advance through the early negotiation stage, they must also trust each other. It is important that knowledge and trust be based on valid, fi rsthand information

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370 Managing Nonprofi t Organizations

rather than secondary information or rumor. It is also better if the organizations have a history of working together successfully. This experience can provide the most useful information for building trust; assessing the skills, assets, and potential contributions of the partner; and designing future programs.

Negotiation is necessarily complex in mergers. The organizations should form a joint merger negotiation committee. The committee needs to consider all of the issues each partner deems important. It needs to decide on the particular form the merger will take. It also needs to communicate regularly with the boards and management teams of the organizations. When all issues and details have been considered and a decision made, the committee will draft a proposed merger agreement. The board of each organization will then vote on the agreement. If the vote of each board is affi rmative, the merger can be implemented.

The Bridgespan report on the Arizona’s Children Association addresses this:

As Arizona’s Children Association has gained experience with M&A, its leaders have integrated the topic into their discussions about strategy. Five or six times a year, the management team convenes to discuss when and where the organi- zation should grow, and if there are any potential M&A candidates to evaluate as a means to achieving their goals. Arizona’s Children Association’s leaders also have developed a robust internal capability with staff members seasoned in vetting and integrating acquisitions, and solid benchmarks on the cost/benefi ts of merging, which they can use to raise funding for merger-related expenses. Arizona’s Children Association probes any merger possibility with a set of 10 key questions that its leaders use as a high-level fi lter to assess how well a can- didate organization fi ts with AzCA’s strategic goals in terms of service, geog- raphy and brand. These questions also assess organizational fi t and fi nancial impact. Once a candidate has passed this test, AzCA deploys a “swat team” of 10 internal staff representing fi nance, clinical staff and programming, IT and HR that meets with their counterparts when a merger or acquisition is being seriously considered. This group has developed a template used to identify both the costs for undertaking a merger and the cost effi ciencies from supporting it. Arizona’s Children Association’s leaders have used these fi gures as an aid in raising the funds to support several of its most recent deals.

Finally, AzCA also deploys this team during postmerger integration, under- standing that the majority of the work—and the greatest challenge to ensur- ing a successful merger—stems from joining two cultures. Arizona’s Children Association’s leaders see the organization’s strength as an M&A partner as essential to its ongoing M&A efforts. [President and CEO Fred] Chaffee says, “The biggest fears as a CEO or board member when you get acquired are, ‘I’m going to lose my sense of identity and I’m going to lose my mission.’ We have

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Partnerships, Alliances, and Affi liations 371

people on the AzCA board who represent every acquisition, and we have two of the fi ve former CEOs still on staff. When we go in to have an initial discus- sion, we say: ‘Here are the names of former CEOs who either worked for us or in the community of agencies we acquired.’ They don’t sugarcoat it, but they give positive feedback and help to allay those fears.”14

Cross-Sector Collaborations

Nonprofi ts work in partnership with for-profi ts and government agencies in cross- sector collaborations. These collaborations are necessary for solving the most diffi cult public challenges, such as dealing with environmental concerns, providing health care, or revitalizing communities. John Crosby, Barbara Bryson, and Melissa Stone defi ne cross-sector collaborations as the “linking or sharing of informa- tion, resources, activities, and capabilities by organizations in two or more sectors to achieve jointly an outcome that could not be achieved by organizations in one sector separately.”15 They point out that a basic reason for cross-sector collabo- ration is the shared-power approach to many issues in American society, where many groups and organizations are involved in dealing with public challenges. Although most of the points made in this chapter pertain equally well to nonprofi t collaborations with any organizations, cross-sector collaborations involving non- profi t organizations involve some special features.

Nonprofi t and Government Collaborations To examine nonprofi t and government collaborations, we need to consider the motives that government agencies have to collaborate with organizations in other sectors. H. Brinton Milward and Keith Provan discuss four types of networks that government agencies establish, and we will review these types here.16 Nonprofi t organizations can be partners in any of these networks. Service implementation networks are used to deliver services that a government agency funds but does not directly deliver, such as many health and welfare services. Services are jointly produced by two or more other organizations, and integration is important to ensure that services are reliably produced and that vulnerable clients do not fall through the cracks. Government funding to private sector providers is normally arranged by contract. These contracts can be major sources of funding for nonprofi ts, and we discuss nonprofi t contracting with government in Chapter Six on resource acquisition.

Information diffusion networks are established between government agencies to share information across organization and department boundaries. They are used to help agencies anticipate and prepare for problems that involve high uncertainty, such as disaster response. Although the bulk of collaboration in these networks is likely to be among government agencies, nonprofi ts may also be valuable sources

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372 Managing Nonprofi t Organizations

of information that government agencies find helpful. Milward and Provan give the example of cooperation between the National Institutes of Health and medical foundations to manage the fl ow of knowledge from government-funded research so that everyone in a program that involves this research is informed of problems, protocols, and fi ndings.

Problem-solving networks are designed to solve immediate and pressing problems, such as disasters. As such, these networks can grow out of information diffusion networks. Public managers confront demands for quick action, and this shapes the nature of the network that is established. Collaborations may be temporary, and after the problem or issue is dealt with the network may disband or become dormant. As disaster or emergency response often involves nonprofi t organiza- tions, they can be important members of these networks. A major example is the American Red Cross, whose resources are important components of the emer- gency response plans of local communities. Although the exact Red Cross activi- ties will vary for each particular emergency, the Red Cross will nevertheless be a partner in community preparedness planning.

Finally, community capacity-building networks are established to help communities build the social capital they need to deal with both current and future needs, such as economic development or prevention of alcohol or drug abuse. Networks and partnerships build social capital in that they promote trust and norms of reciprocity between organizations.17 This makes coordinated or joint action between organiza- tions easier. Given their important roles in communities, nonprofi t organizations will be important partners in these networks. For example, Milward and Provan report on a federal grant that created an agency whose goal was to weave together all the sub- stance abuse prevention resources in an urban county. The number of agencies was large and included municipal agencies such as police and schools as well as specifi c nonprofi t, for-profi t, and government drug and alcohol prevention agencies. Goals included bringing isolated agencies to the table and bridging the various worlds of substance abuse prevention to bring about a more coordinated community response.

Nonprofi t and For-Profi t Collaborations Joseph Galaskiewicz and Michelle Colman discuss four types of nonprofi t and for-profi t collaborations.18 Both nonprofi ts and business fi rms have economic and noneconomic incentives to engage in collaboration. Nonprofi ts can get a variety of resources from fi rms, and fi rms can enter into collaborations with the goal of increasing sales. In addition, the collaboration will be designed to enhance social welfare. Although this aligns with the rationale for nonprofi t existence, it can benefi t fi rms as well, who also experience pressures to be concerned with more than the fi nancial bottom line. Firms engage in philanthropic collaborations in order to help nonprofi ts deliver mission-related services. This assistance usually

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takes the form of donations of money or company products, but more exten- sive collaborations are also found. These can take the form of fi rm employees volunteering for the nonprofi t, the fi rm sharing expertise with the nonprofi t, or the fi rm participating in the nonprofi t’s program. KaBOOM! a well-known non- profi t builder of children’s playgrounds, has a variety of corporate partnerships that illustrate the range of collaborations possible.19 KaBOOM! combines the efforts of corporate and community (nonprofi t) partners to build the playgrounds. Corporate partners provide contributions and employee volunteers. KaBOOM! has used contributions from a wide variety of corporate partners to build over two thousand playgrounds across the country with this model.

In strategic collaborations, fi rms seek to realize benefi ts for themselves while also advancing social welfare through the activities of nonprofi ts. These types of collaborations have also been labeled social investing or strategic philanthropy. Collaboration activities can include a firm’s sponsorship of nonprofit events and donations of fi rm products or equipment. Having the fi rm’s name promi- nently displayed is expected to give the fi rm credibility and legitimacy in the eyes of community stakeholders. In addition, donations may give prospective custom- ers exposure to the fi rm’s products. For example, major computer manufacturers have made donations of equipment to schools. One effect of these donations was that students became familiar with these products.

KaBOOM! engages in strategic collaborations with a number of corpora- tions. As recently described on the About KaBOOM! Web page, “This year, Dr Pepper Snapple Group (DPS) introduced Let’s Play, a community partnership designed to get kids active nationwide. The fi rst Let’s Play initiative is a three-year commitment to KaBOOM! Together, through Let’s Play, DPS and KaBOOM! will build or fi x up 2,000 playgrounds by the end of 2013, benefi ting an estimated fi ve million children across North America. With the launch of Let’s Play, DPS will continue to promote fi t and active lifestyles, a key component of ACTION Nation, DPS’ corporate philanthropy program.”

Commercial collaborations are focused primarily on increasing revenues for the fi rm and the nonprofi t. These collaborations have fewer direct connections to service delivery and instead involve cause-related marketing and the licensing of nonprofi t names and logos. In cause-related marketing the fi rm typically aligns itself with a cause and a nonprofi t by providing a portion of sales revenue to the organization. The firm hopes to gain sales by advertising its association. In a licensing arrangement the nonprofi t sells a fi rm the right to use the non- profi t’s name or logo in the fi rm’s promotional activities. The nonprofi t gains the licensing fee as well as increased exposure through the fi rm’s promotion. A ques- tion that may come up in these collaborations is the degree to which the nonprofi t endorses the superiority of the fi rm’s products or services.

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374 Managing Nonprofi t Organizations

KaBOOM! is involved with several corporations in cause-related marketing arrangements. For example, through a licensing agreement, Ben & Jerry’s created KaBerry KaBOOM! ice cream, for which KaBOOM! received a per-purchase contribution.

Finally, political collaborations are aimed at advancing the political aims of part- ners. Corporate motives may include improving business conditions, avoiding nega- tive publicity or investor or customer dissatisfaction, and demonstrating that the fi rm is addressing social and environmental concerns. Firms can combine lobby- ing and contributions to similarly interested nonprofi ts in order to garner advan- tageous political support. In addition, corporations may use alignments with nonprofi ts to provide access to the policy process. As Galaskiewicz and Colman note, “many companies view philanthropic contributions as a tactic to become credible and ensure that the fi rm and its interests are taken into account when policies are formulated or decisions are made.” Collaborations can go beyond donations, as in the case of FedEx and the Environmental Defense Fund (EDF) collaboration on the development of hybrid diesel-electric delivery trucks.20 FedEx had the purchasing power to attract manufacturers and provided test facilities. The EDF provided the metrics for environmental performance. Through the col- laboration, FedEx established itself as an industry leader in clean truck technol- ogy and enhanced its brand value. The EDF advanced its mission and helped to reduce air emissions and transform the market for clean truck technology.

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Although there are clearly benefi ts to the partners in cross-sector collaborations, they also face a number of issues. Austin points out that as partnerships become more integrative, they involve more and more signifi cant elements of each orga- nization and increasing levels of interaction. As a result, the organizations will face increasing challenges.21 A primary challenge is that the partners have dif- ferent ends. Nonprofi ts are created to provide social benefi ts, for-profi ts must respond to their owners, and public agencies are tied to the political process. At some point in the collaboration, these divergent ends may lead to confl icts. For example, the relative emphasis placed on creating social versus economic return in a collaboration may well differ for the nonprofi t and the business partner. Austin also notes that for collaborations to work, each partner must perceive that it gains enough value to continue the relationship, and this may prove diffi cult. In any nonprofi t and for-profi t collaboration, the corporate partner may conclude that the marketing benefi ts of the collaboration do not justify the effort expended. In addition, partners may have unequal power, misconceptions about one another, and different decision-making styles.22 These differences can lead to feelings of inequality and mistrust. Although these issues can plague any collaboration, when

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combined with differences in ends and values, they become especially problem- atic. Nevertheless, careful attention to the factors important for collaboration formation and management can lead to successful cross-sector collaborations. In the sections that follow, we discuss how nonprofi ts can successfully address the challenges of forming and maintaining collaborations.

Developing a Process for Collaboration

Collaboration is the result of a process that develops over time. Numerous authors have investigated this development and identifi ed a general pattern in the nature of the process and how it unfolds. A number of models have been developed that describe the process as a series of stages or steps. These models vary in the spe- cifi c number of stages, how these stages are labeled, and the boundaries between stages.23 However, all the models describe a sequential process that moves from initial planning and a decision to seek a collaboration to generating and evaluat- ing specifi c potential partners and then to forming and implementing a formal collaborative relationship and fi nally to evaluating the operation of the collabora- tion. We will consider several key points in this process.

Initial Planning

Each stage of collaboration development is important, and the outcomes of a given stage depend upon successfully meeting the challenges of the previous stage. Given this, it is hard to overemphasize the importance of the initial stages of the process. Arsenault discusses aspects of preliminary planning, partner identifi ca- tion, and initial negotiation.24 The planning process should result in clear col- laboration goals for the nonprofi t, based on its needs. Preliminary planning and the assessment of organizational readiness should include the following activities:

• Make sure internal constituencies understand the organization’s situation in its environment.

• Identify the goals that leaders would like to accomplish as a result of collaboration.

• Determine the degree of support for these goals among board members, leaders and managers, key staff, funders, key donors, important political supporters, and existing collaboration partners.

• Educate the board and management about the collaboration options for reach- ing goals.

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376 Managing Nonprofi t Organizations

• Carefully think through the potential impact on the organization if the initia- tive succeeds.

• Determine the funds available to pay for any professional services that might be needed.

• Identify clear parameters and roles and responsibilities for internal and exter- nal communication in the search for a partner and in early negotiations.

• Determine the members of the negotiating team.

• Defi ne what the nonprofi t organization brings to the table.

• Establish clear roles for partner identifi cation and the early negotiation process.

• Determine initial screening criteria.

The Arizona’s Children Association described earlier is a good example of an organization taking initial planning very seriously. This is to be expected given the scope of the mergers it has engaged in. These procedures, however, are also crucial for other types of collaborations.

Identifying Potential Partners

It is also important to assess what the organization will bring to the table. What can partners stand to gain by collaborating? Organizational strengths should be assessed in relation to

• Cash assets

• Leadership expertise: such as business skills, fundraising ability, and political clout

• Administrative capacity: such as management information, accounting, and human resources

• Physical plant: real estate and location

• Donor access: personal connections, history, and recognition

• Volunteers: volunteer base and its management

• Unique competencies: such as intellectual property, staff skills, and program models

• Public presence and community image

Several methods are available for identifying potential partners. The organiza- tion may develop its own information and then select and approach a specifi c can- didate for collaboration. Collaborations can grow out of the personal relationships

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of executive directors and board chairs. Board members and managers are likely to have personal knowledge of potential collaborators as well as contacts with others who might have this type of information. Their personal knowledge and networks are important in that they are likely to contain specifi c and relevant information. If such personal knowledge is not available, information about potential partners can be obtained from relevant secondary sources such as IRS reports (especially Form 990 information), industry data on high-performing organizations, or the annual reports of particular organizations.

Forming the Collaboration

Once specifi c potential partners are identifi ed, they can be approached by organi- zational representatives to assess their interest in collaboration. A second method is for the organization to issue a formal request for proposal (RFP). In this latter case the negotiating team identifi es a list of possible collaborators. Material is prepared describing the organization, what it is trying to do, and what its criteria are for collaboration. This material is provided to the potential collaborators, and interested organizations are requested to respond with a letter of interest.

Once potential collaborators are identifi ed, representatives of the organizations meet to assess the degree of mutual interest and compatibility. This can be done through a side-by-side analysis that addresses aspects of each organization deemed relevant to the collaboration.25 This could include a comparison of missions, visions, values, cultures, governance, programs, human resources, and other assets.26 It is important to assess the degree of congruence between the collaboration goals of the prospective partners as well as their backgrounds, current situations, and future potentials. This examination will be more extensive for collaborations that are expected to be more extensive and long lasting. For example, two substance abuse programs that seem to have similar goals may fi nd at this stage that they are not congruent, perhaps because one is faith based and the other is not.

If the two organizations agree to collaborate, negotiations will be needed to establish the general terms of the basis for collaboration and to formalize the relationship. The extensiveness of the negotiations and the degree of formaliza- tion will depend on the type of collaboration. For simple collaborations a memo of understanding, laying out the general points for future cooperation, may suffi ce. For more extensive collaborations, such as joint ventures, detailed plans for future joint action will need to be negotiated and legal documents may be required. For example, the Cancer Vaccine Collaborative involves extensive, long-lasting, and multifaceted interactions between numerous aspects of each partner. When specifi c interactions need to be specifi ed in advance, such as coordinated lab trials in the case of the Collaborative, detailed schedules or even contracts can be drawn up.

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378 Managing Nonprofi t Organizations

Evaluating the Collaboration

When the functional details have been formalized, collaboration can be imple- mented, and joint action can begin. Once again, the type of collaboration will determine the type and degree of interaction of personnel and processes. The results of these interactions should be the collaboration benefi ts expected. At some point, there should be an assessment of the benefi ts each partner receives through collaboration. This will lead to a decision to continue the collaboration as is, to expand or contract particular aspects of it, to renegotiate its basic terms, or to terminate the collaboration.

As noted previously, the Arizona’s Children Association deploys a team to eval- uate postmerger integration, focusing particularly on the integration of the cultures of the two organizations. Amelia Kohm and David La Piana provide other exam- ples of the ways in which collaboration evaluations have been used by partners. In one case a human service nonprofi t in Spokane, Washington, formed a microen- terprise program with a business development association. The program resulted in increased services for low-income clients, including access to capital and business education. The staff at both organizations were quite happy with the program and saw only relatively minor adjustments needing to be made to the program in the future. In contrast, the collaboration between a substance abuse treatment center and a shelter for abused women in Wooster, Ohio, was more challenging. The orga- nizations agreed to develop a joint facility but were hampered by leadership transi- tions. These were eventually resolved, and the facility opened with shared staff and costs. The clientele of both organizations seemed to like the facility and location. Most of the people interviewed felt that the relationship between the organizations would continue and grow, perhaps with the organizations merging in the future.27

It is important for nonprofi t boards and managers to understand that the depic- tion of collaboration development as a simple linear series of stages is somewhat of an oversimplifi cation. The process can be iterative, and the collaboration may not reach the fi nal stage.28 Unexpected complications may arise during the course of implementation that necessitate a return to negotiation or the selection of a dif- ferent potential partner. In addition, dysfunctional interpersonal dynamics during negotiation or implementation may make further progress diffi cult or impossible.

The Role of Governance

Suzanne Feeney discusses the strategic roles that nonprofi t boards play in col- laborations and mergers.29 These roles are an extension of the governance and stewardship roles that boards play in their individual organizations. The degree to which the board has responsibilities and tasks in a collaboration will vary with the

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scope of the collaboration. Informal collaboration will require little, if any, board involvement, whereas joint ventures or mergers will require extensive involvement. The responsibilities can be understood in relation to fi ve board functions. The functions and examples of board activity during collaboration are the following:

• Executive director and board interactions. The board’s role may include assessment of planning, reviewing and approving contracts or com- mitments, and hand-in-hand planning or leading.

• Stakeholder outreach and boundary spanning. The board’s role may include partner assessment, gathering and interpreting information, communi- cating with stakeholders, and building community support. This may be an exten- sive process, as stakeholders include funders, clients, regulators, and others, and each stakeholder is likely to have a different orientation toward any collaboration.

• Fiduciary and fi nancial responsibility. The board’s role may include assessing risk potential and resource commitments, playing a governance role when required by a formal agreement, dissolving and transferring assets, and ensuring legal compliance.

• Policy development and monitoring. The board’s role may include ensuring program and mission alignment and also mission consistency and congruence.

• Ensuring organizational health. The board’s role may include monitoring staff morale and program or service delivery, monitoring organizational impact, supporting the CEO and staff, and monitoring culture change.

Factors Promoting Collaboration Success

Paul Mattessich, Marta Murray-Close, and Barbara Monsey have reviewed the research on collaboration and have compiled for the Amherst H. Wilder Foundation a comprehensive inventory of twenty factors infl uencing success- ful collaboration.30 The breadth of the factors included in the inventory attests to the diffi culty of establishing and maintaining successful collaboration. The Wilder Foundation provides a workbook for using the inventory to assess current or potential collaborations. The workbook recommends that relevant personnel rate the degree to which they feel the collaborative group or situation possesses each of the twenty factors. The assessment is not designed to provide a single numerical score but rather to identify factors that may be missing or problem- atic in a collaboration. The twenty factors are organized into six categories. We present the six categories of the Wilder framework here, along with paraphrased questions that illustrate each of the twenty factors.

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380 Managing Nonprofi t Organizations

1. Factors related to the environment:

• Do the potential partners have a history of collaboration or cooperation in the community that provides them with an understanding of the roles and expectations required in collaboration?

• Is the collaborative group seen as a legitimate leader in the community and is it perceived as reliable and competent (at least in relation to the group’s goals)?

• Do political leaders, opinion makers, persons who control resources, and members of the public support (or at least not oppose) the mission of the group?

2. Factors related to membership characteristics:

• Do members of the group share an understanding and respect for each other and their respective organizations, including how each organization operates, its cultural norms and values, its limitations, and its expectations?

• To the extent that they are needed, does the group include representatives from each segment of the community that will be affected by its activities?

• Do the partners believe that they will benefi t from their involvement in the collaboration and that the advantages of membership will offset costs, such as loss of autonomy and turf ?

• Do members have the ability to compromise? Members will need to com- promise because the many decisions made within the collaborative effort cannot possibly fi t the preferences of every member perfectly.

3. Factors related to process and structure:

• Do members of the group feel “ownership” of both the way the group works and the results or products of its work?

• Does every level of each partner organization have at least some represen- tation and ongoing involvement in the collaboration?

• Is the group open to varied ways of organizing itself and accomplishing its work?

• Do the partners clearly understand their roles, rights, and responsibilities, and understand how to carry out those responsibilities?

• Does the group have the ability to sustain itself in the midst of major changes, even if it needs to change some major goals, members, or the like, in order to deal with changing conditions?

• Can the structure, resources, and activities of the group change over time to meet the needs of the group without overwhelming its capacity, at each point throughout the collaboration?

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4. Factors related to communication:

• Do group members interact often, update one another, discuss issues openly, and convey all necessary information to one another and to people outside the group?

• Do members establish personal connections—producing a better, more informal, and cohesive group working on a common project?

5. Factors related to purpose:

• Are the goals and objectives of the group clear to all partners, and can they realistically be attained?

• Do partners have the same vision, with a clearly agreed-upon mission, set of objectives, and strategy?

• Do the mission and the set of goals, or the approach, of the group differ, at least in part, from those of the member organizations (that is, does it have a unique purpose)?

6. Factors related to resources:

• Does the group have an adequate fi nancial base, along with the staff and materials needed to support its operations?

• Does the individual who provides leadership have organizational and interpersonal skills, and does he or she carry out the role with fairness?

Challenges to Collaboration Success

In general, any problems in relation to the success factors outlined in this chapter could limit the success of the collaboration. In addition, a number of factors have been considered particularly important.31 The more extensive the collaboration is, the more potentially problematic these factors will become.

• Incompatible mission, vision, and values. Mission, vision, and values are the basic building blocks upon which specifi c nonprofi t activities are built. If these fundamental ideological and value orientations are not congruent, signifi cant disagreements are likely regarding any joint activities.

• Culture. Organizational culture is of major importance because it affects the behavior of organizational participants, has both visible and unobservable elements, and is diffi cult and slow to change. Nonprofi ts, given their focus on missions to serve people, are likely to have distinctive cultures. It is important to assess the culture of each partnering organization and to attend to cultural incompatibilities.

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382 Managing Nonprofi t Organizations

• Ego. Collaboration may involve the modifi cation or giving up of some respon- sibility or activity. Both leaders and members may resist if they feel that their organization or group is somehow “lessened” in this process. This can pertain to a perceived loss of prestige or power as well as to a perceived diminishing of the values or worldviews that organization members are invested in. For example, executive directors and boards are particularly infl uential in mergers, and McLaughlin has paraphrased some typical expressions of ego by board members, such as, “This organization has been around for 112 years, and it’s going to be around for the next 112,” and, “I refuse to be known as the last president of this organization.”32

• Turf. Each organization has established itself in a particular domain or sphere of operation that it may tend to defend. For example, a nonprofi t may resist giving another nonprofi t access to its clients or treating its partner as an equal.

• Cost. Costs can be incurred in both time and resources. As we have noted, col- laboration development can be very time consuming. It may take a signifi cant time to complete a partnership agreement, and much staff time can be used during search and negotiation stages. Complex or extensive collaborations may also involve expenditures for information gathering, analysis, and due diligence. Resources will also be needed if the collaboration involves new or altered programs or services. Finally, opportunity costs inherent in the col- laboration should also be considered.

Several reports on unsuccessful collaborations point to the corrosive impact of these factors. A report on the merger between three well-established Jewish groups, for example, alleged that the fi rst years of the merger had been marked by “unclear expectations, unshared visions, mixed motivations, and multi-layered power games.”33 It also alleged that problems resulted from an inadequate under- standing, by consultants, of the cultures of the organizations. Another report on a failed merger between a university medical center and health maintenance system in Pennsylvania pointed to three interrelated issues, including dysfunctional lead- ership, distrust among board members, and different organizational cultures.34

Concluding Thoughts

Collaboration is a fact of organizational life. The diverse missions of nonprofi t organizations may lead to collaborations with partners in any sector, and thus the collaborations can take a wide variety of forms. However, a number of important characteristics of collaborations can be identifi ed. In this chapter we examined the reasons why nonprofi ts might collaborate, the forms that collaborations can

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Partnerships, Alliances, and Affi liations 383

take, the process by which collaborations are established, and factors leading to collaboration success. Understanding these factors will enhance the likelihood that a collaboration will meet the nonprofi t’s expectations.

In the next chapter we explore change and innovation. Change often comes about through and as a result of collaboration. Therefore planning for greater mission impact or responding to changes may entail establishing, nurturing, and managing a collaboration.

Questions for Consideration

1. Six reasons why nonprofi ts might collaborate were identifi ed (social respon- sibility, operational effi ciency, and so on). Might it be possible for a particu- lar collaboration to advance one of these objectives while detracting from another? In the case of this kind of confl ict, what factors might lead a non- profi t to favor one objective over another?

2. If the answers to the questions posed in the “Factors Promoting Collaboration Success” section are yes, how will this mitigate the factors discussed in the “Challenges to Collaboration Success” section?

Exercises

Exercise 15.1: Types of Collaboration

Identify a nonprofi t collaboration that exemplifi es one of the six perspectives on nonprofi t collaboration presented in the chapter.

Exercise 15.2: Austin’s Collaboration Continuum

Select a nonprofi t that you are familiar with or defi ne a hypothetical nonprofi t. Using Austin’s collaboration continuum, discuss how this nonprofi t might form a transactional or an integrative collaboration with another nonprofi t.

Exercise 15.3: Cross-Sector Collaboration

Looking again at the nonprofi t you selected for the previous exercise, discuss how it might form a transactional or integrative collaboration with a for-profi t organi- zation. How might it form such a collaboration with a public agency?

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384

T each For America was started in 1989 with a novel approach to remedying the achieve-ment gap between rich and poor students in the United States.1 Its founder, Wendy Kopp, proposed having graduates of top universities spend two years teaching disadvantaged students. Teach For America would provide recruits with intense training over the summer and then place them in schools in low-income communities. Low-income students would benefi t by having bright, energetic teachers, and the recruits would become lifelong advocates for education. The idea caught on rapidly. By June 1990, the organization had trained fi ve hundred new university graduates, or corps members. The following year, helped by positive news stories, the organization attracted three thousand applicants for seven hundred positions. The budget jumped to $5 million and prominent corporations and foundations endorsed Teach For America. Success led Teach For America to start two other organizations under its umbrella. TEACH! was started to help school districts improve their new teacher recruitment and support, and the Learning Project was begun to develop innovative summer school programs in inner cities. As it grew, however, Teach For America failed to build adequate organizational capacity and remained overly reliant on too few large foundations and individual donations. Expenses outstripped income, and by 1995, the organization was in debt, enrollments were dropping, and it had been criticized in an academic journal, further eroding fi nancial support and morale.

Teach For America, though, was able to rebound from this low point through a concerted effort to stabilize fi nances, refocus on its mission, and bolster its structure and culture. It trimmed its budget by 25 percent to more closely match income and expenditures and charged its regional

CHAPTER SIXTEEN

ORGANIZATIONAL CHANGE AND INNOVATION

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offi ces to broaden the funding base. As a result, the organization went from 275 funders in 1993 to more than 1,400 in 1998. The organization refocused on accomplishing its original mission. This led it to spin off TEACH! and the Learning Project. Teach For America dedi- cated itself to clear organization- and constituency-building goals and instituted quantifi able performance goals. Organizational structure was enhanced by moving from a relatively fl at organization and fairly informal interactions to a more hierarchical structure with a senior management team composed of vice presidents for major internal units and more formal interactions. The culture had become diffused as the organization grew, with different units developing different understandings and outlooks. A consistent culture was revived by having everyone participate in the generation of eight core values. The staff buy-in that resulted set a new, positive, tone in the organization.

The changes made by Teach For America greatly strengthened the organization. By 1997, it was covering its operating expenses and had retired its long-term debt. Staff felt more committed, and morale and relations between staff and managers had improved. Performance goals were set and reviewed and programs had been strengthened. In 2000, now on a fi rm fi nancial footing, it launched an expansion plan, and by 2003, 3,400 corps members reached more than 250,000 students. Teach For America is not sitting on its lau- rels and is aware of the need for future change. Everyone in the organization is charged to continuously ask two questions: Are the members and alumni of the corps truly expanding educational opportunities? Is the organization building the internal capacity to realize its goals today and in the future?

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The story of Teach For America shows us an example of the kinds of changes a nonprofi t can go through. Although young organizations such as Teach For America are particularly vulnerable to pressures for major change, older organi- zations are not immune. In this chapter we will examine how nonprofi ts change and innovate. To change means to make different. What is the impetus for change, or making something different, in a nonprofi t? What kinds of changes do we fi nd in nonprofi ts, and how do these changes come about? We will also discuss innovation, an important type of change for nonprofi ts. To innovate is to begin something new. Nonprofi ts are frequently faced with new ways to accomplish their missions and serve their constituencies. How do they innovate and adopt new ways to address challenges and opportunities?

Change is an ubiquitous feature of the natural and social world. The Greek philosopher Heraclitus wrote over 2,500 years ago that “nothing endures but change.”2 Although it may be ubiquitous, change is not easy for individuals, orga- nizations, communities, or society. For organizations, change can take many forms, including growth, decline, or alteration in structures or processes. In addition,

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each form of change has different characteristics. An organization’s founding is quite different from its dissolution. Moreover, there are risks involved, as not all changes are benefi cial and organizations may run into diffi culties before they achieve success. In addition, change, even if benefi cial, will always involve costs in such things as time, personnel effort, and possibly resources. Finally, change upsets the status quo, which can be threatening. Consequently, organizations and the people in them may resist change, even if in the long run it is likely to be benefi cial.

As these observations indicate, change will be challenging for organiza- tions. This is all the more so in light of the fact that the pace of environmen- tal change and the pressure on organizations to adapt are increasing. In a recent report, McKinsey & Company expressed the situation currently facing organizations: “Today, the overriding problem for every organization is how to change, deeply and continually, and at an accelerating pace. We live in a world where change is ‘shaken, not stirred.’ Yet in most organizations, prac- tices and structures refl exively favor the status quo over change and renewal.” The report goes on to say: “In most organizations, innovation is still mostly an afterthought. It’s a project, an initiative, or a function, but it’s not an activity that involves everyone, every day.”3

The need to change certainly affects nonprofi t organizations. This is so, in part, due to a number of trends that have been felt in the nonprofi t sector for some time. As the pace of population growth, resource scarcity, and global interdependence increase, social problems are becoming increasingly intense and complex. Nonprofi ts worldwide are under pressure to contribute to the solu- tions to these problems, but also to do more with less. Financial pressures on nonprofi ts have increased. Costs have been rising faster than infl ation while government funding has decreased, and private donations and grants have not made up the difference.4

These trends are refl ected in a recent report in The Chronicle of Philanthropy on emerging forces in the nonprofi t sector.5 The forces include governments in crisis, strains on the safety net, and falling donations and volunteerism as a result of the recession and the meager recovery of the last few years. In addition, nonprofi t employees have been hit by layoffs, salary freezes, and benefi t cuts and are ripe for burnout. On the donor side, donors are increasingly specifying how their con- tributions should be used and are looking for new ways to determine that their contributions have made a difference. Moreover, few nonprofi ts have discov- ered how to use the new social media to raise money. In spite of these challenges, however, Lester Salamon notes that there are also opportunities for nonprofi ts.6 These include demographic shifts, such as the growth of the elderly population,

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that increase the demand for nonprofi t services, and the increased visibility and credibility of nonprofi ts that has resulted from nonprofi t involvement in major social and civic events, such as disaster relief efforts. What is clear is that, in this rapidly changing world, nonprofi t organizations will need to search for new ways to both address the challenges the nonprofi t sector faces and take advantage of its opportunities.

Understanding Change in Nonprofi ts

In this section we will examine the nature of change in nonprofi ts. We will fi rst consider the general processes and specifi c forces that lead to change in non- profi ts. We will then discuss the parts of a nonprofi t that can change, how large or signifi cant changes can be, and the resistance to change that a nonprofi t may encounter.

Process-Driven Change

In the most general sense, we can defi ne organizational change as the adoption of a new or different idea or behavior by an organization.7 The literature on orga- nizational change is huge. In a search using the key words change and development, Andrew Van de Ven and Marshall Poole identifi ed over one million articles, from a variety of disciplines, and at least twenty specifi c theories.8 This literature shows that change can be associated with general organizational processes as well as a number of specifi c driving forces. General organizational processes that entail change include life cycles, goal setting, confl ict, and evolution.9 Each of these can be seen at work in nonprofi t change.

Organizational Life Cycles Organizational life cycles have been associated with change. The idea that orga- nizations have life cycles is borrowed from biology and posits a sequence of stages occurring during the existence of an organization. These stages vary predictably as they are based on an underlying process of growth and development (analogous to birth, growth, and death in a biological organism). A popular organizational life cycle model has been developed by Larry Greiner. In this model, organizations go through fi ve stages as they grow. Challenges develop at each stage, and these must be overcome if the organization is to grow further and advance to the next stage. The life cycle stages in this model are outlined in the following list:10

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388 Managing Nonprofi t Organizations

• Creativity, or start-up. This stage requires strong leadership and vision to marshal the resources, energy, and commitment needed to launch the orga- nization. The organization is likely to be fairly informal, with people helping out and pitching in as needed to get the work done. As the organization grows, however, this fl exibility and informality that helped launch the organization becomes less productive, and more professional management and formal struc- tures are needed.

• Direction. Further growth will be facilitated by the introduction of more formalized structures and systems. These rules and procedures are used by top leaders to direct action. As growth proceeds, however, the system of control becomes unwieldy and lower-level units and managers push for more auton- omy. Delegation is the solution for this, but top managers may be unwilling to give up the control they have.

• Delegation. The discretion needed by lower levels of the organization will result in the formation of semiautonomous subunits (divisions or departments) that are given targets or goals and the discretion to accomplish them in the ways they see as best. Top management is responsible for overall strategy and direction. Delegation, however, can lead to parochial attitudes in subunits, duplication of efforts, communication problems, and inconsistent strategic action.

• Coordination. The problem of delegation can be met by centralizing opera- tions. A head offi ce provides coordination of human resources, marketing, production, and other functions across the different divisions and operating units. Over time this will lead to the proliferation of rules and red tape, which will inhibit operations, perhaps to the point where the coordinating systems and programs become dysfunctional. The activity of following rules can become more important than producing results. In this case the organization has become too large to be centrally controlled through formal and bureau- cratized systems.

• Collaboration. In order to overcome the crisis of red tape, the organization needs to fi nd ways to enhance innovation. This will involve simplifying struc- tures and procedures and installing coordination through fl exible, collaborative means, such as task forces, cross-functional teams, or matrix structures.

Teach For America is a good example of an organization moving through the fi rst two stages. The early days of the organization were characterized by a great deal of creativity, energy, and enthusiasm. During this period, operations were quite informal. This informality, however, proved dysfunctional as the organization grew, and as a consequence, a more hierarchical and formal system of control was put

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in place to manage a larger and more diverse organization. A life cycle approach that is particularly relevant for nonprofi t organizations has been developed by Paul Light. Termed the development spiral, it will be discussed later in this chapter.

Organizational Evolution Organizational evolution also uses ideas about change from biology. In the bio- logical world, change at the species level takes place through the natural selection processes of variation, selection, and retention. Analogously, organizational change can take place through the replacement of one form, or type, of organization by another. In the organizational world, change results as types of organizations compete for scarce resources. New types of organizations are constantly being developed, and those that are better at acquiring resources will replace types of organizations that are less able to do so. For example, in the child welfare fi eld, changes in funder priorities have resulted in the decline of orphanages and the rise of community-based options for custodial care (such as foster care).

Organizational Goal Setting Organizational goal setting may lead to purposive strategic change in individual organizations. Goals are continuously changed to respond to external and internal changes. For example, nonprofi ts evaluate their missions periodically, create and review strategies yearly, and assess goal accomplishment even more frequently. In setting the agendas for these changes, leadership at a number of levels is involved. Board members and top leaders have responsibilities for changing mission and strategy, whereas changes in operational goals and plans are made by lower-level leaders. In all cases, any changes made will be the result of the dynamics of deci- sion-making processes at these levels. These decision-making processes could unfold relatively harmoniously or be characterized by confl ict. Teach For America was able to reverse its downward spiral by setting goals to bolster fi nances, establish new structure, and revitalize its culture.

Organizational Confl ict Organizational confl ict may lead to organizational change driven by opposi- tion and disputes. Organizations are composed of interest groups, each seek- ing to have its viewpoint expressed in organizational action. For example, even though top leaders may propose major changes the board may not approve them. Board members may disagree with the direction of the organization proposed by top leaders and these disagreements may be negotiated. In these situations the changes that result may be compromises. In addition, new leaders often come to a nonprofi t with specifi c plans and these may, likewise, be considered and approved by the board. Subunits of the nonprofi t may attempt to infl uence decisions. For

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example, a nonprofi t’s service staff may want the nonprofi t to expand its pro- grams and serve more clients. The fi nance department, however, may have con- cerns about how to fi nance the growth and may want to maintain the status quo, put off growth, or grow very slowly. These confl icts may need to be resolved by decision makers higher up in the organization. External confl icts can also drive change. Nonprofi ts may need to negotiate with funders or meet a competitor’s actions.

Specifi c Drivers of Nonprofi t Change

In addition to the organizational processes just considered, organizational change can be the result of more specifi c environmental pressure and internal forces.11 Patrick Dawson outlines a variety of internal and external drivers, or triggers, that can be expected to infl uence all organizations, including nonprofi ts.12

External Drivers External drivers include general factors as widespread as the globalization of mar- kets, which will present new opportunities as well as challenges. Drivers on a some- what smaller scale include government laws and regulations, fl uctuations in the business cycle or the economy, major political and social events or changes, and advances in technology. All types of organizations can be infl uenced by these driv- ers. For example, some nonprofi ts have global operations, and all nonprofi ts in the United States are subject to IRS rules. Moreover, the downturn in the U.S. economy in the last few years has reduced contributions for many nonprofi ts, and a change of presidential administrations can result in increases or reductions in federal programs that support nonprofi ts. Nonprofi ts can expect yet other drivers and inhibitors of change.13 A nonprofi t’s mission can be an important driver of change. Nonprofi ts expect to affect individuals and communities. If the desired social change is accom- plished, nonprofi ts may need to redefi ne their missions or strategies to stay relevant. However, given the large social issues that nonprofi ts usually seek to address, it is more likely that they or their external stakeholders may judge progress in mission accomplishment to be insuffi cient. This will lead to pressure to reevaluate strategies or programs or redefi ne the mission.

Changes in external constituencies may also result in nonprofi t change. Nonprofi ts are closely tied to external constituencies, and any changes in these groups may generate pressures for change. For example, the increase in the number of elderly people in the United States may result in more needs for services. Or a worsening economy may result in higher community poverty, unemployment, and health care needs. Likewise, changes in government policy could result in more or fewer social needs, as well as changes in government funds available for nonprofi ts. Even major

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natural disasters may require a prolonged response by nonprofi ts. For example, New Orleans is still dealing with problems caused by Hurricane Katrina, which struck in 2005. In addition, donor preferences may change. Donors may change their fund- ing priorities as new issues or problems arise and capture the public’s attention. A nonprofi t signifi cantly reliant on donations will be affected by these shifts and may need to change in response. In addition, nonprofi ts may rely on national or inter- national donors, whose priorities may be quite different from the priorities of the local community. Nonprofi ts have a number of options to address funding shortfalls resulting from the loss of funders. They may seek income from other sources, such as fees or charges. In addition, they may cut costs, drop or alter services, or establish partnerships with other service providers.

Finally, a nonprofi t’s visibility and accountability can lead to pressure for change. As a nonprofi t gains visibility and prominence, expectations for transparency and accountability may increase. These expectations can come from a variety of external actors, including the general public or citizen groups, government agen- cies or regulators, professional associations, and other nonprofi ts. The nonprofi t may fi nd itself the target of confl icting expectations and demands. Irrespective of the choices that might be made, these pressures will result in the need for organizational change. For example, a nonprofi t providing chemical dependency services for the homeless may be obligated to open a facility in a certain neighbor- hood by a city contract or grant. Clients, however, may want and advocate for other services, and residents may seek to block the establishment of a facility in their neighborhood.

Internal Triggers Internal triggers exert pressure for change from inside the organization. In the organizational change literature, four general internal triggers to change are typically identifi ed: the organization’s technology, primary task, personnel, and administrative structures.14 For example, signifi cant changes can be expected if an educational nonprofi t moves to all online instruction, a day-care center becomes a preschool, a legal services nonprofi t replaces lawyers with paralegals, or a non- profi t cooperative becomes bureaucratic.

Besides these general drivers, nonprofits can be expected to face addi- tional internal forces for change. These include values, performance, and lead- ership.15 Nonprofit missions and the strategies to accomplish them are values driven. Signifi cant differences and confl icts can arise within the organization about the most desirable means and ends. For example, should a community services nonprofi t work toward short- or long-term solutions to neighborhood problems? Helping residents repair their houses would be the former whereas enhancing the economic development of the community would be the latter.

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In addition, should it help all community residents or only low-income ones? The outcomes of these debates will likely entail changes in goals and operations. A second factor is that as nonprofi ts grow and gain experience and capabilities, they may experience internal pressures for improving performance as well as demands to demonstrate results. Each of these has implications for change. Improving performance may involve refi ning or expanding programs to serve more clients, serve them better, or establish services in a new location. It may also, as in the case of Teach For America, result in eliminating some services in order to refocus and improve others. Demands to demonstrate results can be met by instituting or improving outcome evaluation. Finally, nonprofi ts will face leadership transitions. As a nonprofi t grows, founders must normally step aside to be replaced by a new leadership team. This may entail a change in vision, goals, or strategies as well as the establishment of new procedures. Any subsequent major changes in leaders may likewise entail similar changes.

Elements That Can Be Changed

As we have seen, there are a multitude of reasons why a nonprofi t would want or need to change. It is also important to examine what a nonprofit might want to change. The literature on strategic organizational change has focused on four general types of change, corresponding to the major elements of an organization: change in strategy and structure, change in technology, change in products and services, and change in people and culture. Richard Daft discusses the unique properties of these types of changes.16

Strategy and Structure Change Strategy and structure change involves the elements that provide admin- istration, supervision, and management. This includes changes in struc- tural arrangements and strategic plans as well as in features such as policies, coordination techniques, control systems, and accounting and budgeting. Such changes can affect major aspects of the organization and are therefore normally made from the top down. The top leaders of an organization have the authority needed to make this type of change, and this type of change is most easily adopted by an organization with a mechanistic, or more bureaucratic, formalized, and centralized structure. Such an organiza- tional structure is best for facilitating changes in structures, rules, and procedures throughout the organization. For example, the establishment of a more formal, hierarchical structure at Teach For America was initiated by Wendy Kopp. In addition, we can see this type of change in major nonprofi t reorganizations, such

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as mergers. Mergers are strategy driven and under the control of top manage- ment and are discussed in detail in Chapter Fifteen.

Technology Change Technology change involves the instituting of different techniques for producing products or services. This may entail new knowledge, skills, or other competen- cies. This type of change normally occurs from the bottom up. Those in the research or production levels of the organization are most likely to have the exper- tise to evaluate and propose technology changes. If approved, these changes are then instituted in the organization. Ways to promote and encourage technology change include fl exible (or organic) structures that allow participants freedom to be creative and develop or introduce new ideas, creative departments, venture or collaborative teams, and corporate entrepreneurship. For example, a change to the Montessori method of education in a nonprofi t preschool will be led by and be under the direction of the teaching staff.

Product and Service Change Product and service change involves the outputs of the organization. For nonprof- its these outputs will often be the services provided to constituencies. Changes can be made to provide for new or additional needs of clients, respond to competitors, or take advantage of new opportunities for mission accomplishment. Successful product or service change occurs on the horizontal level. It entails (1) linking the different, specialized units or groups that develop, produce, and market new products or services, and (2) linking these units or groups with relevant sectors in the external environment. In this way the nonprofi t can become aware of the need or opportunity to respond to its environment and can acquire the ability to turn ideas into new products and services. For example, Goodwill Industries of Central Indiana recently started a charter school. This nonprofi t sought to combat a root cause of unemployment, lack of education, by establishing this new school for the children of its clients and for other students. Starting this school required extensive horizontal activity and coordination. Teams had to study client needs, develop business plans, recruit instructors, market services, recruit students, and integrate the school into the Goodwill organization at the level of other major Goodwill operations and services.17

People and Culture Change People and culture change involves change in regard to the behavior, values, attitudes, or beliefs of organizational participants. For nonprofits, these par- ticipants could include volunteers as well as employees. Changing people and

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394 Managing Nonprofi t Organizations

culture is typically more diffi cult than changing other aspects of the organization. Numerous diffi cult-to-change factors are involved, including individual psychol- ogy and personality as well as the norms and values embedded in organizational practices. Teach For America went through an elaborate process to arrive at core values that were shared by organizational participants. An initial list was gener- ated by top management. This was distributed to and amended by other levels of the organization until agreement was eventually reached. As change requires the actions of people, any change involving one of the other three types of change almost always requires some change in people and culture. A major approach to bringing about change in the human and social aspects of organizations is organizational development, which will be considered later.

Degree of Change

An important aspect of organizational change is that it can vary dramatically in scope and signifi cance. For a nonprofi t, we can see this by contrasting a minor change in how services will be delivered with a change in mission. The former is an example of what Warner Burke calls evolutionary change, whereas the latter can be considered revolutionary change—a complete overhaul that could affect all of the categories just described, from strategy and structure to people and culture.18

David Wilson provides a helpful framework that identifi es four degrees of change.19 The fi rst degree, status quo, refers to no change in current practice, operations, or strategy. Expanded reproduction involves producing more of the same goods or services. This level of change affects mainly operations. An example would be the opening of additional Goodwill retail outlets in different areas of a city. Changes in organizations tend to be resisted, and it can be expected that more signifi cant changes may encounter the most resistance. Consequently, most changes in organizations tend to be expanded reproduction, relatively small incremental steps or adjustments to address a problem or take advantage of an opportunity. Evolutionary transition is a more signifi cant degree of change. It occurs within existing parameters of the organization (such as structure and technol- ogy) and affects mainly the direction, strategy, and goals of the organization. An example would be a youth counseling agency that has focused on mental health issues adding drug counseling services for its clients. Finally, revolution- ary transformation involves shifting or redefi ning existing parameters and making major changes in strategy, structure, or technology. Nonprofi t transformation is discussed in detail in a later section.

Change efforts can have a time imperative. At times, change needs to be dramatic and signifi cant, altering major aspects of organizational functioning. Stephen Jay Gould has proposed a punctuated equilibrium model of organizational

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change.20 In this model, organizations exist in steady states for a period of time. During this period only small or minor changes are made. This period, however, can be interrupted (punctuated) by the need for a sudden dramatic change, which is then followed by another period of equilibrium. Signifi cant changes in the environment can bring about dramatic nonprofit changes. As noted earlier in this book, the March of Dimes offers a classic example. It was founded in 1938 with a mission to eliminate polio. When medical sci- ence perfected a vaccine against polio in the 1950s and 1960s, the March of Dimes needed to transform itself. Today, the mission of the March of Dimes is to help mothers have full-term pregnancies and to research the prob- lems that threaten the health of babies.21

Resistance to Change

As the discussion so far reveals, nonprofi ts face a variety of pressures to change. Change, however, alters and disrupts established patterns of activity in organi- zations. It creates uncertainty and threatens some organizational participants. Resistance can arise on every organizational level, including individual, sub- group, organizational, and environmental levels. As the degree of change increases, it can be expected that resistance will likewise increase. At the individual level, Dawson identifi es a number of general factors that can inhibit change. A change in jobs may require changes in skills. A change may pose a threat to employment or result in a reduction in economic security or job displacement. Or a change may result in a disruption of social relations due to new work arrange- ments or a lowering of status due to redefi ned authority relationships.22

Tony Eccles identifi es a number of more specifi c reasons why employees may resist change. Employees may fail to understand the problem given as the reason for change. They may have a preference for an alternative solution to the problem or feel that the proposed solution will not work. The proposed solution may have unacceptable personal costs or insuffi cient rewards. They may fi nd the required new values and practices personally unacceptable or repugnant. Finally, management motives themselves may be questioned.23

Change may be resisted by other levels, including subunits, the organization, and even the organization’s environment. These levels bring in a set of additional factors.24 Within workgroups, norms, cohesion, or groupthink may lead to resis- tance. A host of factors at the organizational level may inhibit change, including power relations and confl ict, differences in functional orientations between sub- units, a rigid or mechanistic structure, lack of resources or sunk costs, and fi nally, the organizational culture itself. Resistance can also be found in the organization’s environment. The organization may have contractual agreements with others that

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396 Managing Nonprofi t Organizations

prohibit change. In addition, public or community beliefs and opinions may limit the amount of change that an organization feels it can engage in.

A nonprofi t’s special characteristics may also pose particular challenges for change. Jacquelyn Wolf identifi es a number of factors that may inhibit nonprofi t change:25

• Nonprofi ts’ nature. Nonprofi ts are characterized by a culture of integrity, an altruistic mission, and the creation of social benefi ts. Evaluations may be based on personal experience with the organization. Policies, programs, clients, staff, and volunteers may be as important to participants as goals and results, or even more important. For example, a program to mentor inner-city youth may be based on long-term personal relationships. These relationships are likely to be idiosyncratic and based on the personalities of mentors and mentees. The dedication and commitment of mentors may be the key to both program suc- cess and the satisfaction of both parties, and any changes that might inhibit mentor dedication are likely to be resisted.

• Breadth of purpose. Nonprofi ts tend to have very general mission state- ments that don’t provide clear criteria for program decisions. Nonprofi ts need to take stakeholder expectations into account, and these can vary signifi cantly. For example, the stakeholders of a reentry program for released prisoners include the professional staff, the released prisoners, the public and private funders, and neighborhood residents. Professional staff may want to provide accepted levels of service, the former prisoners might want a program with fewer obligations or restrictions, funders may want more demonstrated out- comes, and the neighborhood may not want the facility at all. Changes favor- ing one of these stakeholder groups may well be resisted by the others.

• Demanding environment. For nonprofi ts, demands for services have gone up while donations have not kept pace. In addition, operating grants are down while contracts and project funding are up. The sector is more professionalized than in the past, and funders expect administrative effi ciency and entrepreneur- ship. Wolf observes that nonprofi ts must show hard-hitting business capacity as well as compassionate concern and advocacy for the needy. Changes to facilitate the former may confl ict with the latter. For example, in a food bank that has provided free food, there may be resistance to the idea of charging for food, on the grounds that this might hurt those most in need.

• Volunteer and staff mix. Volunteers have motivations and needs different from those of paid staff. Nonprofi ts must address how to meet these needs with their mission, values, and policies for volunteer recruitment and management. They must also integrate the volunteers into the work of the staff. In some cases, staff may be more professional and have a larger overview and information

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base. A nonprofi t that uses a large volunteer base will need to assess the impact that changes in structure, programs, or technology will have on its volunteers. For example, if a nonprofi t were thinking of computerizing more of its opera- tions, it might need to consider how this change could affect the extent to which it could use volunteers.

• Increasingly mixed structure. Nonprofits are seeking more earned income. This can produce confl icting cultures in the organization. A tra- ditional culture characterized by an altruistic or charity orientation and devotion to services and advocacy for the less advantaged will likely con- fl ict with an entrepreneurial, market-oriented culture that might arise in a program of the nonprofi t that receives commercial income, competes with for-profi ts, and has a better-off clientele. Implementing programs or admin- istrative changes that satisfy both cultures is diffi cult.26 For example, in a nonprofi t dedicated to helping the homeless, one department might provide free mental health and addiction services to those just entering the program and another department might employ the most able clients in an income- producing venture (such as lawn care). The commercial side of the organiza- tion may resent the reallocation of its revenue to fund an expansion of the mental health program.

These diffi culties do not lessen the need for nonprofi ts to change, and non- profi t managers need to understand how changes take place in organizations and must have frameworks and tools to successfully implement needed changes.

Managing the Change Process

Given the importance of change, its complexity, and the resistance that may be encountered, good management of the change process is essential for success. In general, the organizational change process typically proceeds through a number of stages. Burke identifi es four primary phases: prelaunch, launch, postlaunch, and sustaining the change.27

The prelaunch phase establishes important initial conditions, including basic management orientations toward change. Managers should be aware of their per- sonal disposition, motives, and values in regard to the factors needed for successful change. These include ambition, the need to achieve, tolerance for ambiguity, ability to effectively handle challenging circumstances, appreciation of shared decision making, and strong values that can be communicated to others. In addi- tion, managers should have a thorough knowledge of the organization’s environ- ment. Not only are many changes brought on by environmental shifts but most

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will also entail some action in regard to the environment. For example, the orga- nization will likely need to establish changed or new relationships with funders, clients, or other stakeholders. Although the awareness of the need for change may come from a variety of sources, top management should be convinced of the need and establish the organizational commitment to proceed. This should be accom- panied by a vision that provides a clear direction for the change process to follow.

The decision to change starts the launch phase. At this point, management should take responsibility for communicating the need for change to the organiza- tion. Top management normally does this, but other leaders who will be directly involved in the change can be brought in to promote buy-in. In addition, it may be useful to hold an initial event to capture attention, provide focus, and establish that the change effort is now under way. This could take the form of workshops, meetings, or the establishment of task forces. Finally, action should be taken to head off and overcome resistance. Wolf discusses techniques for dealing with the following causes of resistance.28

• Loss of control. People in nonprofi ts are concerned about what will happen with both their careers and the organization’s mission. Widespread involve- ment of organizational participants can be used to address these concerns: for example, by establishing task forces to deal with aspects of the change.

• Excessive uncertainty. There may be more uncertainty than necessary if information is not shared widely enough. Excessive rumors are a clear symptom of this. Uncertainty can be addressed by providing more infor- mation and establishing better communication: for example, by offering briefi ngs and question-and-answer occasions.

• Real threats. With any change, some people will be adversely affected. The best policy is to let them know as soon as possible and not pretend otherwise.

• Valuing past contributions. Although the change will be presented as an improvement, the past should not be painted as all bad. People in the organiza- tion will have worked hard on past programs and are likely to be emotionally involved. Managers should praise what was good in the past.

• Concern about future competence. People may fear that they will not have the skills needed after the change. Managers should assure people that they will be supported if new skills are needed or that there will be training and a break-in period.

• Past resentments. Change brings up an opportunity to air grievances, even if they are not directly related to the current situation. Managers need to acknowledge individuals’ feelings but should stress that everyone now needs to be part of the solution to the current situation.

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Burke makes the point that the postlaunch phase can be difficult and uncertain. Actions must be taken to ensure that the change proceeds. Once unleashed, change may seem to take on a life of its own. Top lead- ers may feel they lack control, and participant reactions may range from enthusiastic support to skepticism. Change, especially in large organi- zations, is often too complex to be accomplished by one action alone. As a result, multiple levers of change may need to be employed in tandem. These levers can include new mission or strategic statements, the institution of training and development, new compensation systems, or the establishment of teams or task forces. Change leaders face some particular challenges during this phase. They can expect to come under fi re from those unhappy with the change, even if it was successful. The behavior of a change leader will be scrutinized for consis- tency with earlier statements about the change. Inconsistency will damage trust in the change leader. It is essential that the change leader perseveres, especially as the initial enthusiasm for the change wanes. The change leader needs to remind participants of what they are doing and why. The vision should be repeated in as many ways as possible.

Burke’s fi nal phase involves sustaining the organizational change effort. One goal in this phase is the establishment of a momentum that will lead to further change. The tendency of a changed organization to settle into a new equilibrium (where change does not happen) needs to be countered. Appropriate changes will enhance organizational operations and should be maintained as long as use- ful. However, environments are constantly changing, and changes made at one point in time will not eliminate the need for future changes. Organizations must be ready to make further changes as needed. Change leaders must constantly monitor the environment for forces that will require adaptation. Another way to counter equilibrium is to prevent homogeneity in the change leadership. New change leaders from outside the organization or other functional units will infuse the change process with new blood and counter tendencies toward groupthink. Finally, new change initiatives, in line with the original change objectives, may be deliberately launched by the change leader to keep the organization moving forward. The point is that although particular change initiatives may end, the change process itself does not.

Models of Planned Change

A large number of frameworks, recipes, and models have been proposed to help managers understand and guide the change process. They may focus on change at the individual level or at the larger organizational level. In general, individual

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400 Managing Nonprofi t Organizations

change models rely on the analysis of factors promoting or inhibiting the inte- gration of individuals and groups into organizational systems or processes. In contrast, organizational change models rely on the use of structure or strategy to enhance the alignment, or fi t, between the organization and its environment. We present some of the major frameworks in the remainder of this section.

Lewin’s Force Field Model

Kurt Lewin developed an early model of change in organizations.29 The model relies on a process of unfreezing, change, and refreezing. The model is centered on the balance among the forces driving and restraining, or inhibiting, organizational change. If these forces are roughly in balance, a quasi-stationary equilibrium will exist in the organization, during which little or no organizational change will take place. This is a temporary state, however, as the balance is not perfect and cannot be maintained, due to changing external or internal circumstances. To bring about positive change, managers need to identify the driving and restrain- ing forces and unfreeze the equilibrium. This is done through selectively remov- ing restraining forces and increasing appropriate driving forces. This will change behavior in the desired direction. Refreezing is an essential fi nal step and can be accomplished through the judicious application of restraining forces to keep change from going too far, thereby reestablishing the equilibrium. The establish- ment of the desired behavior is not seen as a lasting solution, in any sense. Future changes will be required, which will require a repeat of the process. Lewin’s model remains the central feature of many planned change models, the essence of which is recognition of driving and restraining forces and the taking of appro- priate action to manage the balance in the desired direction.30

The force fi eld diagram in Figure 16.1 illustrates the situation of a nonprofi t seeking to enhance the economic attainment of its clients through, for example, neighborhood economic development. The nonprofi t currently lacks revenue to expand its programs. By enhancing commercial revenue through its development activities or raising donations, it could shift this undesirable equilibrium in a posi- tive direction.

Organizational Development

Organizational development (OD) is a major approach to implementing organiza- tional change. OD originated in the late 1950s and has become a standard fi eld of academic study and research as well as an applied practice. As David Jamieson and Christopher Worley note, most defi nitions of organizational development describe it as (1) a planned process intending to bring about change, (2) through the use of various

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interventions, (3) using behavioral science knowledge, (4) having an organization or systemwide focus, and (5) typically involving a third-party change agent.31

The basic OD model involves three stages: diagnosis, intervention, and moni- toring. Diagnostic devices are used to determine the need for intervention and primarily include individual and group interviews and surveys.32 Surveys can assess job satisfaction, organizational climate, job assessment, and leadership. Interventions are crucial for effective OD and typically involve relationship-build- ing techniques. These could include individual counseling and sensitivity training. T-group training involves individuals focusing on their actions, how these actions are perceived by others, and how these others react. The goal is to identify unin- tended consequences of behavior. Team building helps members of a workteam diagnose task, process, and interpersonal problems within the team and develop solutions. Intergroup training can be used to help groups or teams learn to work better together. In addition, OD may be used for job redesign, management by objectives, enhancing communication channels, and establishing other problem- solving processes. After interventions, changes are evaluated and monitored to assess the success of the OD effort and determine if additional OD is needed.

Tandon discusses the use of OD for nonprofi t organizations.33 Typically, rec- ognition of the need for change is felt initially by fi eld project staff, headquarters staff, leaders, or a major donor. Project evaluations can also turn up the need for

Current State Inability to link poor

to the market. Lacking revenue to sustain greater

development activities. Desired State Generate greater

revenue.Driving Force

Restraining Force

Existing synergies between development

and business

Shrinking donor market

E Q U I L I B R I U M

FIGURE 16.1. LEWIN’S FORCE FIELD MODEL APPLIED TO AN ECONOMIC DEVELOPMENT NONPROFIT

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402 Managing Nonprofi t Organizations

change. Both the recognition of the need for change and the commitment for OD should occur not just among top leaders but throughout the organization and also among its key external partners. Diagnosis typically starts with the aspect of the nonprofi t that prompted the need for OD. For example, if a program review surfaced the need, the diagnosis should focus on project planning and implemen- tation. Irrespective of where the diagnosis starts, it is important to consider the elements to be enhanced by OD in the context of the nonprofi t as a whole and its external environment. In addition, in order to generate commitment to the OD and its implementation, it is important to have key leaders and the widespread membership of the nonprofi t participate in the diagnosis.

Interventions for nonprofi ts fall into four categories. Identity and strategy OD interventions are normally linked to strategic planning but will involve broader concerns. These concerns may include assessments of planning, design, and staff roles. A nonprofi t evaluating the results of its strategic planning may engage in this type of organizational development.

Human dimension OD interventions are the most common. They are designed to improve internal functioning in such areas as communication, participation, decision making, confl ict resolution, motivation, morale, and so forth. They also include role clarifi cation and team building. These interventions are particularly important for nonprofi ts given their people-centered nature and need to operate harmoniously. Nonprofi ts involved in mergers will fi nd this type of OD useful as human resources will need to be combined or reconfi gured in some way.

Technostructural OD interventions are concerned with congruence between a nonprofi t’s technology (the core functions of the organization) and structure. These interventions will address the introduction of new technology and its integration into the nonprofi t. In addition, these interventions may consider the formalization of roles and procedures; program planning, monitoring, and evalu- ation; and job and work design. Goodwill Industries could have used this type of OD during the establishment of its charter school, because teaching was not the central focus of its existing operations.

Finally, external relations OD interventions focus on strengthening the non- profi t’s external relationships. Partnerships and relationships will be assessed with an eye toward enhancing joint initiatives and organizational networks. These interventions focus on the enhancement of interorganizational relationships in terms of the allocations of time and resources needed to establish and maintain them. Besides other civil society organizations, nonprofi ts also need to deal with government, the media, and for-profi ts, and these relationships will also be consid- ered with an eye toward how they could be strengthened for mission accomplish- ment. We must remember, however, that network partners must cooperate with any changes proposed. This could put limits on what an external relations intervention

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can accomplish. Important decisions about the roles of network partners may be made within the network, not by individual organizations.34 For example, in a coalition to address homelessness, providers may be assigned services or areas of the city to work in.

Building Adaptive Capacity

Carl Sussman provides an organizational level approach that nonprofi ts can use to build their capacity for change.35 Adaptive capacity is the ability of a nonprofi t to take the initiative in making adjustments that will result in improved performance, relevance, and impact. Adaptive capacity involves not only the ability to respond to change but also the ability to generate and initiate change. Nonprofi ts thus will not be mere reactors but can themselves seek to infl uence their environments in their favor. This more proactive approach will often require forging new external relationships.

Four qualities are essential for building adaptive capacity. These qualities will create a nonprofi t that is both fl exible and linked to the most important parts of its environment. To maintain vital connections to its environment, a nonprofi t needs an external focus and network connections. An external focus allows a non- profi t to focus continually on environmental dynamism and complexity. Dynamism refers to the degree to which the environment is changing, and complexity refers to the number of environmental elements simultaneously needing attention. An external focus is developed through external contacts that provide rich information about the environment. Such contacts are developed by an active board, strategic partnerships, and other personal, professional, or organizational affi liations.

The environment, however, is more than just a source of information. In today’s complex and interconnected environments, action is increasingly taking place not in individual organizations but in formal or informal networks of orga- nizations. Network connections, therefore, are becoming more important for mis- sion accomplishment. For example, Sussman describes the National Children’s Facilities Network. It was formed by four community development organizations to advocate for funding for child-care centers in low-income communities. Despite not having any staff, the network currently has twenty-four members and has secured $2.5 million in federal appropriations.

Being connected to the environment is only part of what is needed for adaptive capacity. Nonprofi ts must have internal properties that let them take advantage of these connections. They must be inquisitive and innovative. To be inquisitive is to be knowledge seeking. Inquisitive nonprofi ts seek out data and information. They use this to learn, and then they apply and share what

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404 Managing Nonprofi t Organizations

they have learned. Nonprofits attain and enhance inquisitiveness through outcome measurement, knowledge management, and organizational learn- ing. Outcome measurement is covered in Chapter Thirteen. For knowledge management it is important to distinguish between raw data and information that conveys meaning, and knowledge (which allows action).36 Sussman defi nes learning as the process of collecting data and transforming it into knowledge. Data and information become organizational knowledge when they are used to improve organizational actions. For example, a nonprofi t may become aware that local government seeks to revitalize particular neighborhoods in the city. The nonprofi t could use this information to design new programs or enhance existing ones. To do this, it will need to ascertain such factors as which govern- ment agencies will be involved, how new revenues will be distributed, and how client needs could be better addressed.

Finally, nonprofi ts need to be innovative. Innovation is covered in detail later in this chapter, but we can point out here that it is important for adaptive capac- ity for several reasons. It entails the creation of new or improved programs and services. This goes hand in hand with challenging conventional or accepted wis- dom. Sussman calls innovation the generative component of adaptive learning in that it gives nonprofi ts the ability to initiate change and not just react. Adaptive nonprofi ts promote innovation to ensure that they continually change in order to remain relevant and effective.

The Development Spiral

Paul Light provides an integrated life cycle model for sustaining nonprofi t perfor- mance.37 In his model, nonprofi t development proceeds through fi ve stages (Light refers to these stages as landings). In each stage the nonprofi t’s goal expands. To reach these expanded goals, the nonprofi t must address questions and challenges regarding its environment, structure, leadership, and systems. These questions are outlined in Table 16.1.

The questions Light poses represent the major considerations and challenges a nonprofi t will encounter at each stage. Unless the nonprofi t takes successful actions to address these questions, the nonprofi t cannot move to the next stage. In this sense the model is similar to Greiner’s, which we considered at the begin- ning of the chapter. The factors and issues Greiner considers in his model can be seen refl ected in the questions about structure in Light’s model. For example, Light’s fi rst structural question (“Who does what?”) is addressed in Greiner’s discussion about the creativity stage. Likewise, the question, “How much can we do?” corresponds to Greiner’s direction stage; “Can we increase our impact by

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TABLE 16.1. THE DEVELOPMENT SPIRAL

Stage Goal

Questions We Need to Ask Ourselves at Each Stage

Environment Structure Leadership Systems

Organic nonprofi t

Presence How will we make a difference?

Who does what? Why do we exist? How will we know success?

Enterprising nonprofi t

Impact Where will we expand?

How much can we do? How do we remain authentic?

How do we cope with breadth?

Intentional nonprofi t

Focus How do we fi t? Can we increase our impact by concentration?

How do we remain faithful?

How have we done thus far?

Robust nonprofi t

Endurance What are our futures?

How do we stay agile? What are our values? How do we insure against vulnerabilities?

Refl ective nonprofi t

Legacy How can we lead? How do we get younger?

How do we change the future?

How do we manage freedom?

Source: Adapted from Paul Light, “The Spiral of Sustainable Excellence,” in Sustaining Nonprofi t Performance (Washington, DC: Brookings Institution, 2004), 142.

4 0

5

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406 Managing Nonprofi t Organizations

concentration?” corresponds to delegation; “How do we stay agile?” corresponds to coordination; and “How do we get younger?” corresponds to collaboration. Light’s model, however, goes on to assess the implications for nonprofi t growth and devel- opment of other dimensions, including the nonprofi t’s environment, leadership, and systems, in this way providing a more integrated model.

The most important questions are asked at Light’s organic stage. The answers to these questions will establish direction and early momentum toward impact. The answers to “How will we make a difference?” and, “Why do we exist?” establish the nonprofi t’s mission. “Who does what?” sets the initial scope of operations and the division of labor. “How will we know success?” establishes the basis of evaluation and subsequent changes. Although not all the answers will be clear yet, many nonprofi ts do not address these questions adequately. As a result, they may fail to become visible enough to attract support or build the infrastructures needed for further development. Of course some nonprofi ts have founders with very clear answers to these initial questions. These nonprofi ts will move quickly to the next stage. Teach For America started with a very clear vision of success and a simple operating model. Both of these resonated with funders, and the nonprofi t was able to expand rapidly.

If nonprofi ts develop to Light’s enterprising stage, they face a different set of challenges. Growth and expansion, especially if driven by funder priorities, can result in loss of focus, mission drift, confusion, underinvestment in core admin- istrative functions, and employee burnout. To overcome these diffi culties, non- profi ts must regain a focus on intentional action. This will require revisiting both priorities and capacities and likely result in divesting programs and releasing staff that do not align clearly with the major agendas chosen. This in turn may cre- ate resistance internally and among external constituencies. If the nonprofi t can successfully address these challenges, it can move to the robust stage. Light defi nes robustness as the ability to withstand and exploit uncertainty. This is accom- plished by hedging against vulnerabilities and shaping the environment to one’s benefi t. This entails having a focus on the longer term, identifying various alter- native futures, and being willing to prepare for multiple futures simultaneously by adapting organizational structures and processes. Nonprofi ts must be able to assess risks realistically. However, they must also act opportunistically and take leaps of faith when outcomes warrant it. Teach For America illustrates the prob- lems caused by rapid growth accompanied by underdeveloped administrative capacity and mission drift. These almost led to the failure of the organization. Intentional action to address the problems, however, resulted in a turnaround and left the organization poised to move into the robustness stage.

The independent actions taken at the robust stage can lead a nonprofi t to become isolated, less accountable, imperialistic, or self-righteous. To overcome

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this, nonprofi ts need to reach the refl ective stage. At this stage larger questions again come into play. For example, the nonprofi t may think about how it can contribute to the future of its service area. It may revisit the initial reasons for its founding to reconcile these reasons with the enhanced capabilities it currently has. It will seek to stay relevant by streamlining, spinning off, or assisting newer organizations; enter- ing into alliances and partnerships; and otherwise engaging with the environment. Refl ective nonprofi ts stay refl ective by constantly revisiting the mission as well as the techniques that helped them move up the spiral. In this stage a stable and sustain- able Teach For America might turn to thinking about the fi eld of education more broadly. It might, for example, seek to infl uence education policy and establish new partnerships to give itself a national policy voice.

Nonprofi t Transformation

Transformations are extreme, or revolutionary, changes in organizations. Trans- formations affect the core form or essential competencies of organizations. These competencies are what defi ne an organization—the primary reasons for its exis- tence—and what make it distinct. For example, the American Red Cross provides a well-known set of disaster relief and human services in a particular way. If it were to undergo a transformation, these services would change signifi cantly. This is far different from incremental or evolutionary changes such as organizational development or building adaptive capacity.

Transformations have been studied in for-profi ts. Ralph Kilmann and Teresa Covin offer a number of conclusions about corporate transformations. These fi ndings should also pertain to nonprofi t organizations. Transformations are often “no other choice” adaptations to the environment, driven by concern for survival. In addition, the most important part of the process may be formulating a new vision fundamentally different from the present state. Both executives and other personnel must be convinced that the old ways are not working anymore and that a new organization can be created to replace the current inadequate one. Major efforts must be focused on behavioral changes, which are likely to involve some pain for everyone, including senior management. Change must focus on the entire organization, although different subunits will absorb the changes differ- ently. Transformations should be led by line managers, preferably senior manag- ers, to ensure resources and commitment. Finally, an increase in both vertical and horizontal information fl ow and communication is needed for success.38

Felice Perlmutter and Burton Gummer discuss the transformation process in nonprofi t organizations. Transformations pose a particular challenge for nonprofi t organizations as they must continue to serve their fundamental purpose and the mission they presented to the IRS. In the extreme case, a fundamental change in

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408 Managing Nonprofi t Organizations

mission may necessitate the dissolution of a nonprofi t and the formation of a new one. Perlmutter and Gummer point out that transformation is the result of dramati- cally changing circumstances in the environment. They outline a variety of factors that are particularly relevant for bringing about transformations in nonprofi ts.39

• Change in legitimacy: when an informal group, such as a self-help group, obtains formal recognition by incorporating as a formal nonprofi t.

• Change in sector: when organizations change the part of society or the social economy under which they operate. Although the conversion of a non- profi t to a for-profi t is most common, for-profi ts or public sector organizations may also convert to nonprofi t status.

• Change in professionalism: when the professional credentials of a nonprofit’s staff change. This could entail going from nonprofessional or paraprofessional to professionally credentialed staff or shifting from one type of professional to another.

• Change in technology: when the means by which activities are accom- plished change. Given the pace of technological change, this change is becoming increasingly common. It may involve the introduction of new treatment models or changes in hardware or software for either service pro- vision or administration.

• Change in mission: when nonprofi ts, through necessity or choice, change the basic ends they are pursuing. For example, the mission of the March of Dimes shifted to a concern with birth defects when its original mission, work- ing to eradicate polio, was accomplished.

• Change in structure: when a nonprofi t signifi cantly redesigns its subunits or major processes for accomplishing work. For example, as a nonprofi t grows and takes on additional activities it could divide those activities into specialized divisions.

• Change in funding: when a nonprofi t’s resource base changes. This is per- haps the most common type of change, given the volatility in income sources. Old sources of revenues may dry up, as when a nonprofi t loses the support of a major funder. Or new revenue sources may emerge, as when government agencies or foundations decide to put more resources into a service area.

• Change in charismatic leadership: when the individual who has led the nonprofi t primarily through the force of his or her personality or vision leaves the organization. This person may be the organization’s founder. Another

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charismatic leader, with perhaps a different vision, may then take over, or the organization may need to fi nd a leader who is more focused on establishing rules and procedures.

• Change in societal values: when a change occurs in the views and beliefs of major parts of the society. Nonprofi ts in related areas will need to respond to such a change. For example, the movement to deinstitutionalize the men- tally ill resulted in signifi cantly enhanced opportunities for community-based, nonprofi t mental health organizations.

As we can see from this discussion, transformations involve major changes in nonprofi ts. Perlmutter and Gummer go on to discuss a number of strategies that leaders can use to deal with nonprofi t transformations: political, organizational, professional, and individual.

Political strategies employ organizational politics and the use of power to accomplish goals. These strategies may be particularly important for nonprofi ts due to the presence of competing values, goals, and interests in their environment. Moreover, these competing views are also likely to be mirrored by stakehold- ers within the organization. To deal with these political environments, nonprofi t leaders need to be watchdogs for their constituents’ needs and advocates for their organizations. In addition, they need to network with key interest groups and community leaders.

Organizational strategies will need to be used when the consequences of change require altered modes of operating or interacting within the nonprofi t. For exam- ple, a shift to a more decentralized structure may require more fl exible and cre- ative interactions between individuals or subunits. These will need to be learned and accepted by participants. In the extreme case of mergers, staff and cultural adjustment will need to be addressed in addition to the structural and process changes.

Professional strategies involve responding to the environment by changing the conceptual, ideological, and technical underpinnings of the work of professional staff. For example, the services to mentally ill clients in a deinstitutionalized con- text include assistance with a variety of additional issues, such as housing and employment. Professional staff will need to be willing and able to provide such assistance in addition to psychiatric treatment.

Finally, individual strategies address the characteristics and actions of successful change managers. These managers will need to understand the importance of initiative, innovation, and risk taking. They need to display these characteristics as they analyze alternatives and then plan and implement change.

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410 Managing Nonprofi t Organizations

Innovation

An innovation is the adoption of an idea or behavior that is new to an organization, its industry or market, or the general environment.40 It is a departure from exist- ing practices or technology and often represents a signifi cant departure from the state of the art at the time it appears.41 Innovations can involve products, services, processes, or structures and can range from minor variations to radical depar- tures.42 Minor variations might involve changes to existing products or services, including cost reductions, repositioning, and new applications. For example, a nonprofi t that helps neighborhood residents with minor home repairs could ask residents to start donating part of a weekend day to helping its staff expand services. More innovation is involved in product improvements or revisions and additions to product or service lines. In this case the nonprofi t could decide to start helping small retailers improve their facilities.

New products or services entail the most innovation. These can be new to the company, new to the market, or new to the world. Process innovations can involve any processes in administration, support, production, or service delivery. Innovation can include modest improvements or signifi cant revisions of exist- ing processes as well as the development of minor or major new processes. For example, Nonprofi t Shopping Mall is a new online service that turns consumer dollars into charitable donations.43 The organization partners with major online retailers such as Target, Amazon, Home Depot, Bloomingdale’s, Expedia, Petco, and iTunes. These companies donate a percentage of each purchase to the shop- per’s nonprofi t of choice. A shopper begins by visiting Nonprofi t Shopping Mall, choosing a charity, and then clicking through to a retailer.

What is important from an organizational standpoint is whether or not an innovation is ultimately adopted. Without this, it is merely a good idea. Innovation adoption is a complex matter, involving the characteristics of the innovation itself in interaction with organization characteristics and the environmental context.

Characteristics of Innovation Affecting Adoption Gerald Zaltman, Robert Duncan, and Jonny Holbek summarize the characteris- tics of innovations that will infl uence their adoption. The list is very long, but the factors are important considerations for those in a nonprofi t who are involved in developing adoptable innovations. The length of the list also attests to the com- plex nature of innovation. In a very real sense, there are no shortcuts, and the factors that follow will be relevant for success.44

• Cost. There may be both initial and continuing fi nancial costs. It will take an initial outlay of resources to start a new nonprofi t service as well as continuing

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Organizational Change and Innovation 411

costs as the service is produced. In addition, nonfi nancial social costs may involve power, status, or social position in the organization. The status of those in a nonprofi t responsible for a new service may be infl uenced by the success or failure of that service. The reputation of the CEO may suffer if a new non- profi t program proves unsuccessful.

• Return on investment. The “payoff,” the benefi ts gained as a result of expenditures on the innovation, is especially important when scarce resources are involved. In addition, the benefi ts of new nonprofi t services (such as neigh- borhood cohesion) may be hard to measure, thereby leading to an underesti- mate of return.

• Risk and uncertainty. A successful innovation may provide opportunities for other, related, innovations. If unsuccessful, an innovation may result in damage. Marshall Becker, in a study of public health offi cials, identifi ed politi- cal risks to innovation, including opportunities for political opponents and risk to reputation and position.45

• Communicability. It is important to be able to communicate the results and benefi ts of an innovation—especially in processes where a number of activities or processes are at work. In those cases it is important to show which part of the result is due to the innovation. For example, is higher student achievement the result of a student mentoring program (the innovation) or some other factor?

• Compatibility. How similar is an innovation to an existing product or ser- vice that it may eventually supplement, complement, or replace? The degree to which an innovation requires changes or adjustments on the part of other elements of the organization will infl uence the speed of adoption. An innova- tion involving only a simplifi cation of delivery techniques will be more readily adopted than one that also requires new funding, accounting, or facilities.

• Complexity. The more complex an innovation is in terms of the operations required, the slower its acceptance is likely to be. In an educational nonprofi t, for example, adding new computers to allow for self-paced learning of existing lessons is less complex than changing the curriculum.

• Perceived relative advantage. The new feature that an innovation pro- vides over its alternatives is a central feature. The visibility of the relative advantage and the ability to demonstrate that advantage are important. This will be the major focus of program and outcome evaluations, which are used for internal decision making and external funding.

• Status quo ante. The reversibility of the innovation, or the degree to which the previous state (the status quo ante) could be reestablished matters. When

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412 Managing Nonprofi t Organizations

alternative innovations are being considered, the more reversible ones will be adopted sooner. Can the innovation be adopted without abandoning current practice? Can the innovation be broken down into components that can be adopted gradually with the benefi t of feedback?

• Commitment. Successful innovation use requires commitment and also the endorsement of higher authority as well as the attitudinal and behavioral acceptance of users. If partial commitment can be made, this will help in obtaining later commitment.

• Interpersonal relations. An innovation will affect relations within and between organizations. Innovations may be more or less disruptive or integra- tive. Depending on the success or failure of an innovation, the position of an individual supporting the innovation will be strengthened or weakened.

• Publicness. Public goods are produced and available to everyone (as fl uorida- tion of the public water supply is, for example) and must be accepted even by those opposing them. Nonprofi ts need to be prepared for opponents to mount stiff resistance.

• Gateway features. An important question is the number of gatekeepers who need to approve an innovation. Having to get many approvals may delay or possibly stop the adoption of the innovation. An accepted innovation’s gate- way capacity is its ability to make the adoption of future innovations easier. Therefore nonprofi ts that desire large-scale social change might ask, What kinds of initial innovations are most likely to bring this about? It is possible that even small social changes can set the stage for large-scale innovation.

Environmental Sources of Innovation General environmental features have been linked to higher levels of innovation in organizations. External actors may offer incentives for innovation by directly providing resources (such as foundation funding) or instituting favorable policies (such as tax incentives).46 External actors may not just encourage innovation, they may require it. For example, changing federal regulations may require changes in industry performance standards for hospitals.47 Finally, involvement in networks has also been positively linked to innovation.48

In Chapter Three we reviewed a number of sources of entrepreneurial opportunities for nonprofi ts. Entrepreneurial nonprofi ts will seek innovations (their own or those of others) to address these opportunities. We summarize these sources of innovative opportunity here: general environmental and indus- try sources;49 technological, public policy, public opinion and taste, and social and

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Organizational Change and Innovation 413

demographic changes;50 economic or social market failures;51 and market barriers, weakened populations, lack of voice, and negative externalities.52

Management of Innovation Michael Morris, Donald Kuratko, and Jeffrey Covin point out that innovation poses dilemmas for organizational leaders.53 For example, innovation is about the unknown whereas management is about control. Innovation is about breaking the rules, but rule breakers may not last long in organizations. In addition, failure is likely if an organization does not innovate, but the more an organization inno- vates, the more it fails. Innovation is risky, but not innovating can be even more risky. An organization that innovates may make its own products or services obso- lete. Morris, Kuratko, and Covin go on to provide guidelines for fostering an innovative organization: Have unreasonable expectations, which will facilitate the search for breakthrough ideas. Create elastic business defi nitions, and defi ne the organization not by what it does but by its core competencies and strategic assets. Consider the organization a cause and not a business. Draw strength from worth- while visions and causes that go beyond profi ts or growth. Allow new voices to be heard. Those who are young, are newcomers, or are on the periphery may have ideas you have not heard before. Create an open market for ideas and capital. Allow entrepreneurial ideas to compete, and establish small funds for prototypes or market trials. Finally, foster low-risk experimentation. Don’t try only for high- risk innovations. Strike a middle ground between being a cautious follower and a high-risk taker.54

Writing for social entrepreneurs ( particularly nonprofit organizations), Gregory Dees provides a number of more specifi c guidelines for facilitating orga- nizational innovation.55 Cultural norms that support innovation include a rest- less drive for continuing improvement, receptivity to new ideas at all levels and sources, rigorous screening and testing of new ideas, respect for honest mistakes and calculated risk taking, and responsibility and authority for innovation at lower levels of the organization. Individual and organizational capabilities are also needed. These include skills in information gathering and processing; working across functional lines and organizational boundaries; thinking creatively, criti- cally, and constructively; thinking into the future; and managing risk, uncertainty, and timing. Mechanisms to support and reinforce innovative behavior include a clear and compelling shared vision, systems for reliably measuring organizational performance, strong signals supporting innovation from senior management, rewards in the form of recognition and resources, funding to support innovation, incorporation of innovation into individual performance evaluation, accountability for innovation all the way up to the board level, and willingness to create new units

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414 Managing Nonprofi t Organizations

when new ventures are based on potentially threatening innovations that cannot be accommodated by the existing organization.

The value of these supporting mechanisms is borne out in a study by Paul Light of eighteen innovative nonprofi t organizations in Minnesota. These orga- nizations provided services in the arts, community development, housing, social services, education, and the environment. They were committed to being innova- tive by design and had histories of innovativeness. Light’s major fi ndings included the following:56

• Innovative organizations stayed thin, with a minimal number of managerial layers in their middle and upper levels. This made hierarchy less of a barrier to innova- tion. For example, Theatre de la Jeune Lune established two self-managed teams, one dealing with artistic decisions, the other with administrative decisions. These two teams reported to and interacted with each other to make decisions for the organization.

• They created room to experiment: for example, by setting up task forces charged with innovation. The Phoenix Group, whose mission was to get the homeless off the streets and into a productive life, is an example. The organization struc- tured itself as an incubator of innovation. It started a mix of housing, employ- ment, and counseling programs. Besides renovating housing, the organization started a grocery store, a café, an auto repair shop, and an upholstery business. In the process, it employed two to three hundred people, most of whom were recovering from addiction.

• They were particularly good at pushing authority downward, allowing frontline employees the authority to come up with new service delivery approaches. For example, the Dowling School (a magnet school) included teachers, students, and staff in decision making. Students from fi rst to sixth grade had a formal voice in making school policy. They were organized into teams that made soft- ware recommendations and participated in a system for generating suggestions about changes to the way the school operated.

• They lowered barriers to internal collaboration, assuming that creativity was spread throughout the organization and that the ability to share ideas and exchange information was an important way to harness this creativity for organiza- tional innovation. Some organizations created common spaces where people could interact—sometimes at the facility and at other times off-site. Luther Theological Seminary evaluated what its students needed as today’s Christian leaders. It came to the conclusion that its calendars, department lines, and governance structures needed to change. It created interdisciplinary course construction teams to design a new curriculum, grouped its academic depart- ments into three new divisions, modifi ed the calendar and course sequence to

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give students more options, changed the faculty appointment and promotion policy to emphasize a common mission, and created a new academic leader- ship team at the top.

• A large number of the organizations shifted to a more democratized structure. A majority of the organizations went through leadership transitions during the course of the study, and all but one shifted to a more participative style. Organizational democracy has numerous benefi ts, creating a shared sense of commitment, pushing authority downward, and creating more channels for good ideas to fl ow to the top. For example, under new leadership in 1991, the Walker Art Center moved to a more democratic approach. In the pro- cess, Walker staff and volunteers were consulted about the future of the orga- nization. Achieving one of the center’s new goals (“manage staff creatively and progressively”) meant emphasizing a participative management style to improve internal communication and staff recognition.

• The innovative organizations primed themselves for innovativeness by making funds available to support innovative initiatives. Most created an innovation invest- ment fund. There are two questions when creating an innovation investment fund. The fi rst is how much money to put at risk (because innovations are risky ventures). The size of the organization’s budget is the primary factor here. The second is how to choose among competing ideas. The nonprofi ts in the study made deliberate choices, often following an investment banking model or establishing an internal foundation.

• The availability of resources for innovation supported an internal marketplace of ideas. Ideas competed against each other and were evaluated on their merits, as opposed to organizational politics or happenstance. The organizations in the study used hard questions to evaluate the merits of innovations. They assessed the priority of the needs the innovation addressed, what the long-term payoff for the organization would be, how reasonable the budget was, whether other sources were contributing to the project, and the anticipated timing of the project.

• These innovative organizations also prepared for stress. Facing the challenges of external and internal drivers for change puts people, subunits, and the orga- nization as a whole under pressure. To be successful, organizations need to be able to channel the challenges and stress in productive ways. For example, WomenVenture was formed through a merger, for fi nancial reasons, of two radically different organizations. The organizations were initially unwilling to give up their old identities; however, the lack of a common identity and the associated organizational stresses and strains almost led to the failure of the new organization. A new president addressed a severe fi nancial crisis, and issues such as the new organization’s name, location, budgets, staffi ng, policies,

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416 Managing Nonprofi t Organizations

and procedures were eventually managed. The result was that WomenVenture was able to emerge as a strong organization able to start new, innovative programs.

Concluding Thoughts

The pace of change in the areas where nonprofi ts are active is increasing. Changes pose challenges and offer opportunities to nonprofi ts. Nonprofi ts have no choice but to respond to these changes. If they do not change, nonprofi ts will lose touch with their environments and stakeholders and will decrease the chances that they will accomplish their missions. The result will be rapid or eventual organizational decline. A changing world may surprise an unaware nonprofi t, forcing it to respond in a rapid, unsystematic fashion. This response may address the immediate situation yet fail to make the most of the underlying changes in the nonprofi t’s world. A better response is to develop the nonprofi t’s capacity to understand change, ana- lyze situations calling for change, and take the steps necessary to lead change with positive consequences.

This chapter concludes our consideration of specifi c nonprofi t management techniques and tools. In the next and fi nal chapter we turn to larger questions and ask readers to think about what the future might hold for nonprofi ts and to refl ect upon what this might mean in light of what they have learned in the last sixteen chapters.

Questions for Consideration

1. Funders are important stakeholders for nonprofi ts. What aspects of change in nonprofi ts can they affect? How can they make change easier for nonprofi ts?

2. Where do you see a lot of innovation occurring now in the nonprofi t sector? Why is this change happening? Are there positive benefi ts?

Exercises

Exercise 16.1: Force Field Model

This chapter considers both internal and external forces for change. Discuss one or more examples of nonprofi ts where internal and external forces are driving

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Organizational Change and Innovation 417

forces. Discuss examples where internal and external forces are restraining forces. Finally, discuss examples where internal and external forces oppose each other.

Exercise 16.2: Transformation

If your school or academic department were to undergo a transformation, what would likely change? Of the factors listed by Felice Perlmutter and Burton Gummer (changes in legitimacy and so forth), which, if any, could bring such a transformation about?

Exercise 16.3: Innovation

Suggest an innovation for Teach For America, another nonprofi t you are familiar with, or a hypothetical nonprofi t. What characteristics of this innovation would facilitate adoption? Might any characteristics hinder adoption? How might the nonprofi t’s leaders make adoption more likely?

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418

This book ends where it started, with a focus on the mission. It is the mission that determines whether an organization will be recognized by the govern- ment as a nonprofi t or a for-profi t, and thus what discretion and mandates it will have. It is the mission that should guide the board and executive director in setting and pursuing strategies and evaluating the outcomes of the organization’s efforts. And it is the mission that inspires the strongest form of commitment among volunteers, donors, and others who choose to add their contributions to forward that mission’s achievement.

When leaders and managers lose sight of the mission, and the values behind it, they lose an ethical guidepost and run the risk of accusations that they are using the nonprofi t as simply a commercial enterprise or instrument for govern- ment contracts, or even worse, putting their personal interests above those of the nonprofi t and the public to whom it is accountable. Peter Frumkin might frame this as having an instrumental rationale, which if taken to the extreme might result in a nonprofi t acting as a vendor focused solely on responding to government funding opportunities or as a competitive market actor neglecting underserved communities in favor of activities that can better contribute to the nonprofi t’s or an individual’s earned income revenue stream.1

When well defi ned, a mission gives the nonprofi t’s leaders and managers a sense of the current reality, the social problem, and the organization’s approach to the prob- lem. It also inspires a sense of what is possible, leading to a vision of a better world.

CHAPTER SEVENTEEN

THE FUTURE OF NONPROFIT LEADERSHIP AND MANAGEMENT

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The Future of Nonprofi t Leadership and Management 419

Peter Senge claims that effective leaders manage the creative tension between the current reality and the vision.2 When individuals are content with current reality, they can become complacent. When they see the vision as too far from reality, they may become cynical or experience burnout and disengage. The right amount of tension can create energy that can be directed toward pursuing the vision. The nonprofi t leader’s job is to help others dream of what is possible and show them a path, or at least the obvious fi rst step, to achieving it. The nonprofi t manager’s job, then, is to coordinate resources and action so that this path is pur- sued as effectively and effi ciently as possible.

The Challenge of Understanding Current Reality

But what if current reality is constantly shifting or unknown? This book helps leaders to address the problem of discovering the current situation a nonprofi t is facing, internally and externally. For example, we reviewed how to do a SWOT analysis, complete a needs assessment, and prepare a program portfolio. We noted that stakeholders may have distinct views of a situation based on their values, interests, and limited information, and we discussed how to gather multiple per- spectives on a situation and manage confl icting viewpoints. These activities aid leaders, managers, and other stakeholders in getting a shared sense of the current reality. The challenge is how to deal with realities that are frequently shifting.

The pace of change is accelerating. The world is experiencing exponential advances in communication, computing, and other technologies that affect the nature of today’s social problems and possible approaches to them. Institutions are increasingly interdependent. Some nonprofi ts are involved in multi-actor, sys- temic approaches that were impossible decades ago. The ability to access and analyze information has dramatically increased. This means that the reality lead- ers see today may not be the reality of next month. Even if leaders can get a fi rm grasp of current reality, it is hard for anyone to imagine what the future will hold a decade from now, or some may say, even a few years from now. Once it was common to have ten-year strategic plans; now organizations tend to have one- year plans or at most three-year plans. As William Shakespeare wrote, “we know what we are, but know not what we may be.”

Imagining the Future

In this chapter we encourage readers to think about what kind of leaders and managers nonprofi ts of the future will need. To aid this effort, we note what some

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420 Managing Nonprofi t Organizations

thought leaders and futurists are imagining and discuss some trends that are likely to affect nonprofi ts. Some of the predicted changes apply to all sectors and oth- ers are specifi c to nonprofi ts. Although managers and leaders can try to prepare themselves and their organizations for what the trend lines say is to come, as an observation often attributed to physicist Niels Bohr warns us all, “prediction is very diffi cult, especially about the future.”

General trends noted in 2010 by the U.S. National Intelligence Council and the European Union’s Institute for Security Studies include a more globalized interdependent economy, a wealth and power shift from West to East, a reduction in the world infl uence of the United States, climate change, and greater threats to global security and stability from scarcities, infectious diseases, and terrorism.3 In addition, international migration is affecting the demographics of particular regions, changing social needs and increasing the diversity of interests, norms, and values. Nonprofi ts operating in the world arena may fi nd suspicion of global governance efforts and more global-level players emerging from countries such as India, Russia, Brazil, and China.

Community-based nonprofi ts operating in the United States may fi nd that migration fl ows and generational shifts are changing the composition of the pop- ulations who seek their services and their talent pools for staff and volunteers. For example, needs for services for older Americans are likely to grow as Baby Boomers age. As more Generation Y’s enter the workforce, nonprofi ts will need to aggressively attract and retain them by offering meaningful tasks and empower- ment and by an embracing of diverse backgrounds and interests.

In the United States, intergenerational wealth transfers, the increasing eco- nomic power of other countries, and new communication tools are affecting fundraising strategies and outcomes. As wealth is passed on to younger genera- tions, philanthropic priorities change, leaving some nonprofi ts fl oundering. Fund development prospects increasingly include individuals from other countries who traditionally have not contributed signifi cantly to U.S.-based nonprofi ts. Peer-to- peer fundraising using social media is increasing in its variations and total dollars raised.4 More donors have an investment orientation to their philanthropy and expect two-way communication.

When we asked some thought leaders in the nonprofi t sector to contribute to this chapter by giving us a sense of what they thought the future would hold for nonprofi ts, we heard a lot about accountability. Putnam Barber, author of Nonprofi ts in Washington and editor of Nonprofi t FAQ, wrote:

Accountability is only going to get more and more important. Nonprofi ts of every size and type are going to be asked—by governments, by ratings groups, by actual and potential grantors and donors, and, most importantly, by those

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The Future of Nonprofi t Leadership and Management 421

they seek to serve—to demonstrate publicly the strengths and value of what they do. With thought, determination, and—let’s face it—a little luck, this emphasis can be a plus for everyone. It’s going to be up to nonprofi ts, though, to change the rules of the game. Let’s call it proactive accountability. Here’s what’s needed: First, board commitment to efforts like “Charting Impact” that structure the defi nition and description of the work (www.chartingimpact.org). Second, complete and accurate transparency about fi nances, including doing what is required and expected by government agencies with responsibility for oversight and regulation. Third, rejection of game playing in fundraising appeals and other communications—no more bragging about meaningless “stars” or presenting results that distort reality in pursuit of support or acclaim. Fourth, active engagement in efforts to break the pattern of wasteful and mis- leading forms of “accountability” that have been tolerated and ignored—while growing ever more burdensome—for way too long. In other words, commit to being known and respected for doing good work and candid and clear about what it takes to do it.

To follow Barber’s advice, managers and leaders are going to have to publically and programmatically recognize their nonprofit’s dependency on other actors to achieve mission outcomes. It is unlikely that nonprofits addressing entrenched, complex social problems can effectively do this work alone. They also need to understand the growing sophistication and interconnectedness of those who work to evaluate nonprofi ts’ efforts. Information on a nonprofi t’s inputs and outputs may be accessible from multiple sources, not all controlled by the non- profi t. Honest, authentic communication will, as always, be critical to maintaining stakeholders’ trust.

John Graham, the CEO of ASAE: The Center for Association Leadership, reminded us of the effect of changes in the workforce on nonprofits. He commented:

As the workforce continues to evolve, nonprofi ts’ ability to maintain relevancy in a changing demographic landscape will be more important than ever. We now have a multigenerational workforce that includes Gen X workers, Millennials, and Baby Boomers who are postponing retirement. With multiple generations in the workforce, we face the challenge of reconciling a range of professional development needs, work-life balance expectations, and value propositions. The workforce is also becoming more ethnically diverse, so man- aging and encouraging a diverse and inclusive workplace—with pathways to management and other leadership positions—is essential for the future success of associations.

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422 Managing Nonprofi t Organizations

There are numerous writings on how the multiple generations living and working today differ from one another, giving nonprofi ts guidance on how their leadership and management approaches need to change as each new generation enters the workforce.5 But a cautionary note is in order: more than ever nonprofi ts are in a world where quick and easy categorizations of the generations may lead them down faulty paths. The members of Generation Y are more diverse than members of previous generations; diversity is one of this generation’s defi ning characteristics. This means that leaders and managers should be careful about making assumptions about Generation Y members’ specifi c work styles, interests, and values. They also will be working side by side with older workers who may have become comfortable with certain workplace practices and policies. Leaders and managers who can treat each worker as an individual with unique motiva- tions and abilities will have a leg up in building their HR capacity and an advan- tage over those who want to compartmentalize their workforce, limiting their workers’ potential contributions.

Lastly, we share some thoughts from Jonathan Reckford, chief executive offi - cer of Habitat for Humanity International. He told us:

One of the challenges that nonprofi t groups must sometimes address is the assumption that we are somehow less than professional—that we are driven by passion for a cause rather than a bottom line. This is not an either/or. Nonprofi ts often arise out of grassroots movements where people are motivated by a sense of calling and mission. However, we are also accountable to donors, to the community (in the case of Habitat for Humanity, a global community) and to those whom we serve. We are using other people’s money to help those in need. We need to have higher standards than businesses because more is at stake. The same skills that make leaders successful in the private sector are needed in the nonprofi t world. You can’t run a nonprofi t like a business, but all nonprofi ts require leaders with great competence, drive, humility and character.

Mr. Reckford returns us to the idea that this is a book about leading and managing nonprofi ts. Although we encourage the use of for-profi t business tools and orientations, they must be tempered with an understanding of the lim- its of their applicability to the nonprofi t setting. Social entrepreneurship efforts are blooming in many countries, and their leaders may choose to operate them as nonprofi ts, for-profi ts, hybrids (for example, B Corporations), or government entities. We also know that nonprofi ts in some industries have long competed and collaborated with business and government organizations. In these arenas it may be diffi cult for the public to understand what distinguishes a nonprofi t provider

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The Future of Nonprofi t Leadership and Management 423

from a provider in another sector. There is a responsibility to honor the trust and discretion afforded nonprofi t organizations by virtue of their legal status. To pre- serve the integrity of the nonprofi t sector, its leaders and managers must uphold high standards.

Leadership Development

Educators are well aware of the growth in career opportunities in the nonprofi t sector and of the professional development needs of individuals wishing to take advantage of these opportunities. In higher education there is an increasing num- ber of undergraduate and graduate programs in nonprofi t management.6 As men- tioned in our opening chapter, the Nonprofi t Academic Centers Council (NACC) and the National Association of Schools of Public Affairs and Administration (NASPAA) offer guidelines on the subject areas these programs should cover. A perusal of the NACC list (see the Appendix) suggests the breadth and depth of knowledge and skills areas that nonprofi t managers and leaders are encouraged to develop. In addition to formal degree programs, there are workshops, seminars, and other learning opportunities to build leadership and management capacity.

As the future unfolds, new development needs will be revealed. Recall, for example, that just twenty years ago, a person getting an MBA degree was not exposed to the value of social media in building business relationships. There will always be new ways for nonprofi ts to touch lives and make positive differences. An orientation to continual learning will help nonprofi t leaders and managers to ensure that worthwhile opportunities are not missed and that their organizations remain open to the most effective ways to forward their missions.

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425

APPENDIX

MAPPING OF CHAPTER CONTENT TO NACC GUIDELINES FOR STUDY IN NONPROFIT LEADERSHIP, THE NONPROFIT SECTOR, AND PHILANTHROPY

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4 2

6 NACC Curricular Topics for Undergraduate Study*

NACC Curricular Topics for Graduate Study* Corresponding Book Chapter(s) and Notes

Comparative Perspectives on Civil Society, Voluntary Action, and Philanthropy

Comparative Perspectives on the Nonprofi t Sector, Voluntary Action, and Philanthropy

Our focus is primarily on the United States, but we provide international comparisons. We discuss international trends in Chapter 17.

Foundations of Civil Society, Voluntary Action, and Philanthropy

Scope and Signifi cance of the Nonprofi t Sector, Voluntary Action, and Philanthropy History and Theories of the Nonprofi t Sector, Voluntary Action, and Philanthropy

Each of the chapters covers material that fi ts under these topics; however, most coverage is in Chapters 1 and 3. Dynamics between the nonprofi t sector and other sectors are covered primarily in Chapters 6, 14, and 15.

Ethics and Values Ethics and Values Most coverage of this topic is in Chapter 2, but discussion of ethics is woven throughout the book.

Public Policy, Law, Advocacy, and Social Change

Public Policy, Advocacy, and Social Change; Nonprofi t Law

The legal framework is covered in Chapter 3. Advocacy and lobbying is covered in Chapter 14. Legal and tax implications of charitable giving and commercial activity are covered in Chapter 6.

Nonprofi t Governance and Leadership

Nonprofi t Governance and Leadership Leadership, Organization, and Management

Nonprofi t boards and governance are covered in Chapter 9, and executive directors and leadership theory in Chapter 10. Innovation and change are covered in Chapter 16.

Community Service and Civic Engagement

We cover the involvement of students in nonprofi ts in Chapter 11, on human resource management.

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7

Leading and Managing Organizations

Subtopics under this topic are covered in Chapters 2, 3, 4, 5, 10, 12, 13, and 15.

Nonprofi t Finance and Fundraising

Nonprofi t Finance Fundraising and Development

Subtopics under this topic are covered in Chapter 6.

Financial Management Financial Management and Accountability

Financial management is covered in Chapter 7. Issues of accountability are woven throughout the book.

Managing Staff and Volunteers Nonprofi t Human Resource Management

We cover human resource management and human resource capacity in Chapter 11, and motivation and performance theories are in Chapter 12.

Nonprofi t Marketing Nonprofi t Marketing Most of the material on marketing is in Chapter 8.

Professional and Career Development

Some subtopics under this topic are covered in Chapter 2 with the discussion the of professional norms.

Assessment, Evaluation, and Decision-Making Methods

Assessment, Evaluation, and Decision-Making Methods

Chapter 13 covers program evaluation. Organizational evaluation is addressed in Chapter 2, and worker performance review is in Chapters 11 and 12.

Nonprofi t Economics Social entrepreneurship is covered in Chapter 3; pricing schemes are covered in Chapter 8.

Information Technology and Management

Public relations and communication are covered in Chapter 14.

* Note: This table lists the curricular topics identifi ed in the guidelines; each topic has a number of subtopics. This book covers many of these subtopics but not the entire set.

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429429

Chapter One

1. The statistical information in this chapter is from the National Center on Charitable Statistics, Quick Facts About Nonprofi ts (2009), accessed November 25, 2011, http://nccs .urban.org/statistics/quickfacts.cfm; 501(c)(3) Public Charities (n.d.), accessed November 25, 2011, http://nccsdataweb.urban.org/PubApps/nonprofi t-overview-segment.php?t=pc; and 501(c)(3) Private Foundations (n.d.), accessed November 25, 2011, http://nccsdataweb .urban.org/PubApps/nonprofi t-overview-segment.php?t=pf.

2. National Center on Charitable Statistics, Quick Facts About Nonprofi ts. 3. David H. Smith, “Some Challenges in Nonprofit and Voluntary Action Research,”

Nonprofi t and Voluntary Sector Quarterly 24 (1995): 99–101. 4. Lester M. Salamon, America’s Nonprofi t Sector: A Primer, 2nd ed. (New York: Foundation

Center, 1999). 5. Peter Frumkin, On Being Nonprofi t: A Conceptual and Policy Primer (Cambridge, MA: Harvard

University Press, 2002). 6. Lester M. Salamon, ed., The State of Nonprofit America (Washington, DC: Brookings

Institution Press, 2002). 7. More information on B corporations is available at the B Lab Web site, http://www

.bcorporation.net; B Lab is the nonprofi t that certifi es B corporations. 8. Bradford Gray and Mark Schlesinger, “Health,” in The State of Nonprofi t America, ed. Lester M.

Salamon (Washington, DC: Brookings Institution Press, 2002), 65–106.

NOTES

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430 Notes

Chapter Two

1. Case details are from Dan Immergluck’s report “What Happened to CANDO and What’s Needed Now?” unpublished manuscript (prepared for the Local Initiatives Support Corporation, Chicago, 2003).

2. Alan Fischer, “Elderly Couple Pays Dearly for Baptist Fund’s Trouble,” Arizona Star, September 26, 1999; and Terry Sterling’s series of articles in the Phoenix New Times: “In the Name of the Father and the Son and the Wholly Owned Subsidiary,” May 22, 1997; “The Moneychangers,” April 16, 1998; “A Shaky Foundation,” April 23, 1998; “Poring a Foundation,” December 10, 1998; and “Savings Bondage,” September 10, 1998. Also see “Baptist Foundation of Arizona,” Wikipedia (n.d.), accessed June 30, 2011, http:// en.wikipedia.org/wiki/Baptist_Foundation_of_Arizona.

3. Kim S. Cameron was one of the fi rst to lay out multidimensional frameworks for assessing effectiveness; see especially, “Critical Questions in Assessing Organizational Effectiveness,” Organizational Dynamics 9 (1980): 66–80, and “Effectiveness as Paradox: Consensus and Confl ict in Conceptions of Organizational Effectiveness,” Management Science 32 (1985): 539–553. Robert Herman and David Renz explored effectiveness in nonprofi ts using a multidimensional frame- work in “Multiple Constituencies and the Social Construction of Nonprofi t Organization Effectiveness,” Nonprofi t and Voluntary Sector Quarterly 26 (1997): 185–206.

4. Jim Collins explores the difference between the for-profi t and nonprofi t sectors in the ways they view money as an indicator of effectiveness in his book Good to Great in the Social Sectors (New York: HarperCollins, 2004).

5. For a rich discussion of this dynamic see Steven Kerr, “On the Folly of Rewarding A, While Hoping for B,” Academy of Management Executive 9, no. 1 (1995): 7–14 (original article published 1975).

6. Jonathan Weill, “Andersen Agrees to Pay $217 Million to Settle Suits over Audits of Baptist,” The Wall Street Journal, May 6, 2002.

7. John M. Bryson and Barbara C. Crosby offer instructions on how to identify stakehold- ers involved in policy domains in Leadership for the Common Good: Tackling Public Problems in a Shared-Power World (San Francisco: Jossey-Bass/Wiley, 1992). Their technique can be helpful in considering the multiple stakeholders affecting or affected by a particular nonprofi t.

8. The triangle was inspired by Harvard professor Mark Moore’s strategic triangle. It suggests the need for a balanced approach to effectiveness. Another example of the need for balance is the competing values approach introduced by Robert E. Quinn and John Rohrbaugh. For one of their earliest treatments of the topic see “A Spatial Model of Effectiveness Criteria: Toward a Competing Values Approach to Organizational Analysis,” Management Science 29, no. 3 (1983): 363–377.

9. Peter Panepento, “Ethical Standards Erode at Nonprofi t Groups, Study Finds,” Chronicle of Philanthropy, March 27, 2008. See the survey results at http://www.ethicsworld.org/ ethicsandemployees/nbes.php#2007nnes.

10. David Shulman, “More Lies Than Meet the Eyes: Organizational Realities in Nonprofi t Organizations,” International Journal of Not-for-Profi t Law 10, no. 2 (2008): 5–14.

11. For more information about the examples discussed here see Robert H. Doktor, “Asian and American CEOs: A Comparative Study,” Organizational Dynamics 18, no. 3 (1990): 46–56; Rosalie L. Tung, “Handshakes Across the Sea: Cross-Cultural Negotiating for Business Success,” Organizational Dynamics 19, no. 3 (1991): 30–40; and Debra L. Nelson and James Campbell Quick, Organizational Behavior: The Essentials (New York: West, 1996).

12. The review of personality factors is drawn from Nelson and Quick, Organizational Behavior.

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Notes 431

13. Amar Bhidé and Howard H. Stevens, “Why Be Honest If Honesty Doesn’t Pay?,” Harvard Business Review, September–October 1990, 121–129.

14. The review of contextual factors for unethical behavior is drawn from Nelson and Quick, Organizational Behavior.

15. The Ethics Resource Center, http://www.ethics.org, offers trend data on organizational ethics programs and ethical behavior and attitudes of employees. It also has resources for ethical training and evaluating workplace ethics.

16. This list of training goals builds on the idea that ethical conduct is based on moral aware- ness. For more information see James R. Rest, ed., Moral Development: Advances in Research and Theory (New York: Praeger, 1994), 26–39.

17. Kenneth Blanchard and Norman Vincent Peale, The Power of Ethical Management (New York: Fawcett Crest, 1988).

18. See World Wildlife Fund, WWF Code of Ethics: How We Behave Towards Our Mission, Our World, and Ourselves (n.d.), accessed December 3, 2011, http://wwf.panda.org/who_we_are/ organization/ethics.

19. Thomas H. Jeavons, “Ethical Nonprofi t Management,” in The Jossey-Bass Handbook of Nonprofi t Leadership & Management, 2nd ed., Robert D. Herman & Associates (San Francisco: Jossey-Bass/Wiley, 2005), 204–229.

20. “Detroit Zoo Director to Lose a Month’s Pay,” Chronicle of Philanthropy, July 3, 2007, accessed July 10, 2011, http://philanthropy.com/blogs/philanthropytoday/ detroit-zoo-director-to-lose-a-months-pay/13521.

21. Panel on the Nonprofi t Sector, Strengthening Transparency, Governance, Accountability of Charitable Organizations: A Final Report to Congress and the Nonprofi t Sector (Washington, DC: INDEPENDENT SECTOR, June 2005); and Principles for Good Governance and Ethical Practice: A Guide for Charities and Foundations (Washington, DC: INDEPENDENT SECTOR, October 2007).

22. Maryland Association of Nonprofi t Organizations, The Standards for Excellence: An Ethics and Accountability Code for the Nonprofi t Sector (2009), accessed January 12, 2012, http://www .marylandnonprofi ts.org/dnn/Strengthen/StandardsforExcellence/ExploretheCode.aspx.

23. Mary Tschirhart, “Self-Regulation at the State Level by Nonprofi ts: The Membership Association Form as a Self-Regulatory Vehicle,” in Nonprofi t Clubs: Voluntary Regulation of Nonprofi t and Nongovernmental Organizations, ed. M. K. Gugerty and A. Prakesh (New York: Oxford University Press, 2010), 85–99. Other chapters in this book also speak to account- ability mechanisms for nonprofi ts.

24. Panepento, “Ethical Standards Erode at Nonprofi t Groups, Study Finds.” 25. Lester M. Salamon, S. Wojciech Sokolowski, and Associates, Global Civil Society: Dimensions

of the Nonprofi t Sector, vol. 2 (Bloomfi eld, CT: Kumarian Press, 2004). 26. René Bekkers, “Trust, Accreditation, and Philanthropy in the Netherlands,” Nonprofi t and

Voluntary Sector Quarterly 32 (2003): 596–615. 27. Doktor, “Asian and American CEOs”; Tung, “Handshakes Across the Sea”; and Nelson

and Quick, Organizational Behavior.

Chapter Three

1. Leslie R. Crutchfi eld and Heather McLeod Grant, Forces for Good: The Six Practices of High- Impact Nonprofi ts (San Francisco: Jossey-Bass/Wiley, 2007).

2. Wendy Kopp, One Day, All Children . . . : The Unlikely Triumph of Teach For America and What I Learned Along the Way (New York: PublicAffairs, 2003); Wendy Kopp, A Chance to Make

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432 Notes

History: What Works and What Doesn’t in Providing an Excellent Education for All (New York: PublicAffairs, 2011).

3. Wendy Kopp: Advice for Social Entrepreneurs, video posted by Stanford University’s Entrepreneurship Corner (n.d.), accessed November 26, 2011, http://www.youtube.com/ watch?v=TUAS1iY1f7s.

4. Kennard T. Wing, Thomas H. Pollak, and Amy Blackwood, The Nonprofi t Almanac 2008 (Washington, DC: Urban Institute Press, 2008).

5. For information on the size and scope of the nonprofi t sector in a range of countries see Lester M. Salamon, S. Wojciech Sokolowski, and Associates, Global Civil Society: Dimensions of the Nonprofi t Sector, vol. 2 (Bloomfi eld, CT: Kumarian Press, 2004).

6. Bill McKelvey and Howard Aldrich, “Populations, Natural Selection, and Applied Organizational Science,” Administrative Science Quarterly 28 (1983): 101–128.

7. Stephen R. Block, Why Nonprofi ts Fail (San Francisco: Jossey-Bass/Wiley, 2004). 8. Howard Aldrich, Organizations Evolving (Thousand Oaks, CA: Sage, 1999). 9. Dan H. McCormick, Nonprofi t Mergers: The Power of Successful Partnerships (Gaithersburg, MD:

Aspen, 2001). 10. Anthony J. Filipovitch, “Organizational Transformation of a Community-Based Clinic,”

Nonprofi t Management & Leadership 17, no. 1 (2006): 103–115. 11. Jacques Delacroix and Glenn Carroll, “Organizational Foundings: An Ecological Study

of the Newspaper Industries of Argentina and Ireland,” Administrative Science Quarterly 28 (1983): 274–291.

12. W. Richard Scott and Gerald Davis, Organizations and Organizing: Rational, Natural, and Open System Perspectives (Upper Saddle River, NJ: Pearson Prentice Hall, 2007).

13. Howard Aldrich and Martin Ruef, Organizations Evolving, 2nd ed. (Thousand Oaks, CA: Sage, 2006).

14. Richard H. Hall, Organizations: Structures, Processes, and Outcomes, 8th ed. (Upper Saddle River, NJ: Pearson Prentice Hall, 2002), 186.

15. Dennis Young, “Entrepreneurship and the Behavior of Nonprofi t Organizations: Elements of a Theory,” in The Economics of Nonprofi t Institutions: Studies in Structure and Policy, ed. S. Rose- Ackerman (New York: Oxford University Press, 1986), 162.

16. Paul Light, “Reshaping Social Entrepreneurship,” Stanford Social Innovation Review 4 (Fall 2006): 47–51.

17. J. Gregory Dees and Peter Economy, “Social Entrepreneurship,” in Enterprising Nonprofi ts: A Toolkit for Social Entrepreneurs, ed. J. Gregory Dees, Jed Emerson, and Peter Economy (New York: Wiley, 2001), 12–13.

18. James Austin, Howard Stevenson, and Jane Wei-Skillern, “Social and Commercial Entrepreneurship: Same, Different, or Both?” Entrepreneurship Theory & Practice 30, no. 1 (2006): 1–22.

19. William A. Sahlman, “Some Thoughts on Business Plans,” in The Entrepreneurial Venture, ed. William A. Sahlman, Howard H. Stevenson, Michael J. Roberts, and Amar Bhidé (Boston: Harvard Business Press, 1999), 138–176.

20. Kathi Jaworski, “Massachusetts Takes Another Step Toward Social Impact Bond Funding for Social Programs,” Nonprofit Quarterly, June 29, 2011, accessed December 5, 2011, http://www.nonprofi tquarterly.org/index.php?option=com_content&view=article&id= 13581:massachusetts-takes-another-step-toward-social-impact-bond-funding-for-social- programs&catid=155:nonprofi t-newswire&Itemid=986; Nonprofi t Finance Fund, “What

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Notes 433

Is a Social Impact Bond (SIB)?” (n.d.), accessed December 5, 2011, http://nonprofi tfi nancefund .org/social-impact-bond-initiative.

21. Teach For America, Web site, accessed July 14, 2011, http://www.teachforamerica.org/ what-we-do/our-approach.

22. William Bygrave, “The Entrepreneurial Process,” in The Portable MBA in Entrepreneurship, ed. William Bygrave and Andrew Zacharakis (Hoboken, NJ: Wiley, 2004), 1–28; Peter Drucker, Innovation and Entrepreneurship (New York: Harper Business, 1985).

23. See Carol Moore’s model in her paper “Understanding Entrepreneurial Behavior,” in Academy of Management Best Paper Proceedings, ed. J. A. Pearce II and R. B. Robinson Jr., 46th Annual Meeting of the Academy of Management (Briarcliff Manor, NY: Academy of Management, 1986).

24. Bygrave, “The Entrepreneurial Process.” 25. Robert Hisrich, Michael Peters, and Dean Shepherd, Entrepreneurship, 6th ed. (Boston:

McGraw-Hill/Irwin, 2005), 62. 26. Arthur Brooks, Social Entrepreneurship: A Modern Approach to Social Value Creation (Upper Saddle

River, NJ: Pearson Prentice Hall, 2009). 27. Peter Drucker, Innovation and Entrepreneurship (New York: Harper Business, 1985), 35. 28. Jerry Kitzi, “Recognizing and Assessing New Opportunities,” in Enterprising Nonprofi ts: A

Toolkit for Social Entrepreneurs, ed. J. Gregory Dees, Jed Emerson, and Peter Economy (New York: Wiley, 2001), 45–46.

29. Kitzi, “Recognizing and Assessing New Opportunities,” 52–59. 30. For a comparison of business and strategic plans see Charles A. “Chip” Brethen, “The Business

Plan Versus the Strategic Plan—Part 1” (Bizquest, n.d.), accessed July 24, 2011, http://www .bizquest.com/resource/the_business_plan_versus_the_strategic_plan__part-31.html.

31. Web sites offering nonprofit business plans include The Bridgespan Group, Sample Nonprofit Business Plans (March 30, 2009), accessed December 5, 2011, http://www .bridgespan.org/sample-nonprofi t-business-plans.aspx; and Bplans, “Nonprofi t Youth Services Business Plan” (n.d.), accessed December 5, 2011, http://www.bplans.com/ nonprofi t_youth_services_business_plan/executive_summary_fc.cfm.

32. See NPower Basic Business Plan April 2005 (2005), accessed December 4, 2011, http://faculty .maxwell.syr.edu/acbrooks/pages/Courses/Documents/Soc%20Ent/NPowerNY.pdf, for the complete plan.

33. Alexander Tübke, Success Factors of Corporate Spin-Offs (Boston: Kluwer, 2005), 4. 34. Joseph W. Cornell, Spin-Off to Pay-Off: An Analytical Guide to Investing in Corporate Divestitures

(New York: McGraw-Hill, 1998), 40–42. 35. Michael H. Morris, Donald F. Kuratko, and Jeffrey G. Covin, Corporate Entrepreneurship &

Innovation (Mason, OH: South-Western/Cengage Learning, 2008), 244–245. 36. See the Quaqua Society’s news Web page at http://www.quaqua.org/news.htm. 37. David Garvin, “Spin-Offs and the New Firm Formation Process,” California Management

Review 25 (1983): 3–20. 38. “Entrepreneurs: Will They Stay or Will They Go?,” Capital Ideas 3, no. 3 (2002), accessed

December 6, 2011, http://www.chicagobooth.edu/capideas/win02/entrepreneurs.html. 39. Peter Dobkin Hall, A History of Nonprofi t Boards in the United States (BoardSource E-Book Series,

2003), accessed December 6, 2011, http://www.boardsource.org/dl.asp?document_id=11. 40. Courtney Macavinta, “Scientologists Settle Legal Battle” (CNET News, March 30, 1999),

accessed December 6, 2011, http://news.cnet.com/2100-1023-223683.html.

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434 Notes

41. Examples are from Liz Galst, “Nonprofi t Groups Spin Off Green Ventures,” The New York Times, October 28, 2009, accessed December 6, 2011, http://www.nytimes.com/2009/10/29/ business/smallbusiness/29sbiz.html.

42. The Vera Institute’s Spin-Off Tool Kit may be accessed at http://www.vera.org/ download?fi le=1469/Vera_Tool_Kit_Final.pdf.

43. Brad J. Caftel, Forming a Subsidiary of a Nonprofi t, Charitable Tax-Exempt Corporation (Oakland, CA: The National Economic Development & Law Center, 2002), accessed January 30, 2009, http://www.insightcced.org/uploads/publications/legal/720.pdf.

44. Caftel, Forming a Subsidiary of a Nonprofi t, Charitable Tax-Exempt Corporation. 45. Sharon M. Oster, “Nonprofi ts as Franchise Operations,” Nonprofi t Management & Leadership

2, no. 3 (1992): 224. 46. Oster, “Nonprofi ts as Franchise Operations,” 226. 47. Sharon Oster, “Nonprofit Organizations and Their Local Affiliates: A Study in

Organizational Forms,” Journal of Economic Behavior & Organization 30 (1996): 83–95. 48. Brennen Jensen, “Housing Charity Settles Lawsuit with Texas Affiliate,” Chronicle of

Philanthropy, July 24, 2008. 49. “Manitou Girl Scout Council Proves to Be One Tough Cookie,” JS Online: Milwaukee-

Wisconsin Journal Sentinel, May 31, 2011.

Chapter Four

1. Case details are from The Bridgespan Group case study of the organization, in Alex Cortez and Alan Tuck, “Our Piece of the Pie (Formerly Southend Community Services): Making the Biggest Difference in Hartford” (April 1, 2006), accessed December 6, 2011, http:// www.bridgespan.org/LearningCenter/ResourceDetail.aspx?id=360.

2. Bob Searle, Alex Neuhoff, and Andrew Belton, “Clients at the Center: Realizing the Potential of Multi-Service Organizations” (The Bridgespan Group, July 7, 2011), accessed January 5, 2012, http://www.bridgespan.org/clients-at-the-center-for-mso .aspx?resource=Articles.

3. Jeffrey Bradach, Nan Stone, and Thomas Tierney, “Four Questions for Charities to Answer as They Seek to Thrive in Hard Times,” Chronicle of Philanthropy, January 2009, 29.

4. Henry Mintzberg, The Structure of Organizations (Upper Saddle River, NJ: Pearson Prentice Hall, 1979).

5. Richard Daft, Organization Theory and Design, 9th ed. (Mason, OH: South-Western/Cengage Learning, 2007).

6. Peter Hall and Pamela Tolbert, Organizations: Structures, Processes, and Outcomes, 9th ed. (Upper Saddle River, NJ: Pearson Prentice Hall, 2005).

7. W. Richard Scott and Gerald Davis, Organizations and Organizing: Rational, Natural, and Open System Perspectives (Upper Saddle River, NJ: Pearson Prentice Hall, 2007).

8. Jerald Hage, “An Axiomatic Theory of Organizations,” Administrative Science Quarterly 10 (1965): 289–320.

9. Max Weber, The Theory of Social and Economic Organization, trans. A. M. Parsons and T. Parsons (New York: Free Press, 1947).

10. Wikimedia Foundation, “Home,” accessed December 6, 2011, http://wikimediafoundation .org/wiki/Home.

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Notes 435

11. Tom Burns and G. M. Stalker, The Management of Innovation (London: Tavistock, 1961). 12. Joyce Rothschild-Whitt, “The Collectivist Organization: An Alternative to Rational-

Bureaucratic Models,” American Sociological Review 44 (August 1979): 509–527. 13. Carl Milofsky, Community Organizations: Studies in Resource Mobilization and Exchange (New York:

Oxford University Press, 1988); David Horton Smith, Grassroots Associations (Thousand Oaks, CA: Sage, 2000).

14. Richard M. Burton and Borge Obel, Strategic Organizational Diagnosis and Design: The Dynamics of Fit, 3rd ed. (Boston: Kluwer Academic, 2004).

15. Burton and Obel, Strategic Organizational Diagnosis and Design. 16. Daft, Organization Theory and Design. 17. John Galbraith, Designing Complex Organizations (Reading, MA: Addison-Wesley, 1973); John

Galbraith, Organizational Design (Reading, MA: Addison-Wesley, 1977). 18. James Thompson, Organizations in Action (New York: McGraw-Hill, 1967). 19. Burton and Obel, Strategic Organizational Diagnosis and Design. 20. Hall and Tolbert, Organization, 19. 21. Herbert Simon, Administrative Behavior (New York: Free Press, 1957). 22. Geert Hofstede, “Intercultural Confl ict and Synergy in Europe,” in Management in Western

Europe: Society, Culture and Organization in Twelve Nations, ed. David J. Hickson (New York: de Gruyter, 1993), 1–8.

23. Paul Dimaggio and Walter Powell, “The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational Fields,” American Sociological Review 48 (1983): 147–160.

24. Daft, Organization Theory and Design.

Chapter Five

1. Case details are from Judith A. Ross, Becoming Strategic: The Evolution of the Flinn Foundation, CEP Case Study No. 3 (Cambridge, MA: Center for Effective Philanthropy, March 2009), accessed June 1, 2009, http://www.effectivephilanthropy.org/assets/pdfs/CEP_Flinn.pdf.

2. Sun Tzu, The Art of War, trans. Lionel Giles (El Paso, TX: Norte Press, 2007). 3. See, for example, Frederick Taylor, The Principles of Scientific Management (New York:

HarperCollins, 1911); Henri Fayol, General and Industrial Management, trans. Constance Storrs (London: Pitman, 1949); Ralph Davis, The Principles of Factory Organization and Management (New York: HarperCollins, 1928); Ralph Davis, The Fundamentals of Top Management (New York: HarperCollins, 1951).

4. Roger Courtney, Strategic Management for Voluntary Nonprofit Organizations (New York: Routledge, 2002).

5. Alfred Chandler, Strategy and Structure: Chapters in the History of Industrial Enterprise (Cambridge, MA: MIT Press, 1962); H. Igor Ansoff, Corporate Strategy (Gretna, LA: Pelican, 1965).

6. Chandler, Strategy and Structure, 13. 7. Stephen Cummings, “Strategy: Past, Present, and Future,” in The Sage Handbook of New

Approaches in Management and Organizations, ed. Daved Barry and Hans Hansen (Thousand Oaks, CA: Sage, 2008).

8. Henry Mintzberg, “The Fall and Rise of Strategic Planning,” Harvard Business Review, January–February 1994, 107.

9. Roger Courtney, Strategic Management for Voluntary Nonprofi t Organizations.

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436 Notes

10. Mintzberg’s research is summarized in Henry Mintzberg and James Waters, “Of Strategies, Deliberate and Emergent,” Strategic Management Journal 6, no. 3 (1985): 257–272.

11. Henry Mintzberg, Bruce Ahlstrand, and Joseph Lampel, Strategy Safari: A Guided Tour Through the Wilds of Strategic Management (New York: Free Press, 1998).

12. Mintzberg et al., Strategy Safari. 13. Courtney, Strategic Management for Voluntary Nonprofi t Organizations. 14. David Gerard, Charities in Britain: Conservatism or Change? (London: Bedford Square Press,

1983); J. Malcolm Walker, “Limits of Strategic Management in Voluntary Organizations,” Journal of Voluntary Action Research 12, no. 3 (1983): 39–55.

15. Courtney, Strategic Management for Voluntary Nonprofi t Organizations. 16. Courtney, Strategic Management for Voluntary Nonprofi t Organizations. 17. Michael Porter, Competitive Strategy (New York: Free Press, 1980). 18. Raymond Miles and Charles Snow, Organizational Strategy, Structure, and Process (New York:

McGraw-Hill, 1978); the types are also summarized in “Four Strategic Types (Raymond Miles and Charles Snow),” 12Manage: The Executive Fast Track (n.d.), accessed May 20, 2009, http://www.12manage.com/methods_miles_snow_four_strategic_types.html. Also see Courtney, Strategic Management for Voluntary Nonprofi t Organizations.

19. Ian MacMillan, “Competitive Strategies for Not-for-Profi t Agencies,” in Advances in Strategic Management, vol. 1, ed. Robert Lamb (Greenwich, CT: JAI Press, 1983), 65.

20. The description of MacMillan’s strategy types is adapted from Michael J. Worth, Nonprofi t Management: Principle and Practice (Thousand Oaks, CA: Sage, 2009).

21. John Bryson, “Strategic Planning and the Strategy Change Cycle,” in The Jossey-Bass Handbook of Nonprofi t Leadership and Management, 3rd ed., David O. Renz and Associates (San Francisco: Jossey-Bass/Wiley, 2010). 230–261.

22. American Red Cross, Web site, accessed July 12, 2011, http://www.redcross.org. 23. American Red Cross of Greater Indianapolis, “About Us” (n.d.), accessed July 15, 2011,

http://www.redcross-indy.org/AboutUs/default.aspx. 24. The discussion of environmental assessment techniques draws on Courtney, Strategic

Management for Voluntary Nonprofi t Organizations. 25. Sharon M. Oster, “Nonprofi ts as Franchise Operations,” Nonprofi t Management & Leadership

2, no. 3 (1992): 223–238. 26. American Red Cross, Web site. 27. Oster, “Nonprofi ts as Franchise Operations.” 28. Porter, Competitive Strategy. 29. For more on the resource-based view of strategy, see Jay Bamey, “Firm Resources and

Sustained Competitive Advantage,” Journal of Management 17, no. 1 (1991): 99–120; Robert M. Grant, “The Resource-Based Theory of Competitive Advantage: Implications for Strategy Formulation,” California Management Review 33, no. 3 (1991): 114–135; Gary Hamel and C. K. Prahalad, “Strategy as Stretch and Leverage,” Harvard Business Review, March–April 1993, 75–84; John Kay, Foundations of Corporate Success (New York: Oxford University Press, 1993); Margaret Peteraf, “The Cornerstone of Competitive Advantage: A Resource-Based View,” Strategic Management Journal 14, no. 3 (1993): 179–191.

30. Bryson, “Strategic Planning and the Strategy Change Cycle.” 31. Kevin Kearns, “From Comparative Advantage to Damage Control: Clarifying Strategic

Issues Using SWOT Analysis,” Nonprofi t Management & Leadership 3, no. 1 (1992), 3–22. 32. Bryson, “Strategic Planning and the Strategy Change Cycle.”

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Notes 437

33. Work done under the label of strategic management is concerned with how strategy is incor- porated and integrated into all aspects of organizational action. See, for example, Garth Saloner, Andrea Shepard, and Joel Podolny, Strategic Management (Hoboken, NJ: Wiley, 2000).

34. Bryson, “Strategic Planning and the Strategy Change Cycle.” 35. Cummings, “Strategy: Past, Present, Future.” 36. Mintzberg et al., Strategy Safari. 37. Mintzberg, “The Fall and Rise of Strategic Planning.” 38. Charles Lindblom, “The Science of Muddling Through,” Public Administration Review 19,

no. 2 ( 1959): 79–88. 39. James Quinn, Strategies for Change: Logical Incrementalism (Homewood, IL: Irwin, 1980). 40. Henry Mintzberg, “Crafting Strategy,” in Understanding Nonprofi t Organizations, ed. J. S. Ott

(Boulder, CO: Westview Press, 2001), 158–166. 41. Henry Mintzberg, Mintzberg on Management: Inside Our Strange World of Organizations (New York:

Free Press, 1989). 42. Mintzberg et al., Strategy Safari. 43. Mintzberg et al., Strategy Safari. 44. Courtney, Strategic Management for Voluntary Nonprofi t Organizations, 102–103. 45. Robert Grant, Contemporary Strategy Analysis, 5th ed. (Malden, MA: Blackwell, 2005), 25. 46. Courtney, Strategic Management for Voluntary Nonprofi t Organizations. 47. Cummings, “Strategy: Past, Present, Future.” 48. Courtney, Strategic Management for Voluntary Nonprofi t Organizations.

Chapter Six

1. Case details are from the Oakes Children’s Center Web site, http://www.oakeschildrenscenter .org; and Robert Tyminski, “Reducing Funding Risk and Implementing a Fundraising Plan: A Case Study,” Nonprofi t Management & Leadership 8, no. 3 (1998): 275–286.

2. Oakes Children’s Center, “Mission & Vision” (n.d.), accessed December 13, 2011, http:// www.oakeschildrenscenter.org/mission.htm.

3. National Center for Charitable Statistics, Quick Facts About Nonprofits (n.d.), accessed December 13, 2011, http://nccs.urban.org/statistics/quickfacts.cfm.

4. Kennard T. Wing, Katie L. Roeger, and Thomas H. Pollack, The Nonprofi t Sector in Brief: Public Charities, Giving and Volunteering, 2010 (Washington, DC: Urban Institute, 2010).

5. Angela L. Bies, “Public Philanthropy,” in Philanthropy in America: A Comprehensive Historical Encyclopedia, 3 vols., ed. Dwight F. Burlingame (Santa Barbara, CA: ABC-CLIO, 2004), 402–404. This encyclopedia has short entries on many topics relevant to this chapter.

6. Kirsten A. Gronbjerg, Understanding Nonprofi t Funding: Managing Revenues in Social Services and Community Development Organizations (San Francisco: Jossey-Bass/Wiley, 1993).

7. Steven R. Smith and Michael Lipsky, Nonprofits for Hire: The Welfare State in the Age of Contracting (Cambridge, MA: Harvard University Press 1993).

8. Elizabeth T. Boris, Erwin De Leon, Kaitie L. Roeger, and Milena Nikolova, Human Service Nonprofi ts and Government Collaboration: Findings from the 2010 National Survey of Nonprofi t Government Contracting and Grants (n.d.), accessed December 13, 2011, http://www.urban.org/

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438 Notes

publications/412228.html. Additional materials from this survey are available at http:// www.urban.org/nonprofi tcontracting.cfm.

9. See Rick Cohen, “Undone by Public Funding? New Study Points to Reasons,” Nonprofi t Quarterly, October 7, 2010, accessed December 13, 2011, http://www.nonprofi tquarterly .org/index.php?option=com_content&view=article&id=6316.

10. See Lester M. Salamon, S. Wojciech Sokolowski, and Associates, Global Civil Society: Dimensions of the Nonprofi t Sector, vol. 2 (Bloomfi eld, CT: Kumarian Press, 2004), accessed November 5, 2011, http://ccss.jhu.edu/pdfs/CNP/CNP_table401.pdf, for international comparisons from 1995 to 2000.

11. Robert J. Wineburg, Faith-Based Ineffi ciency: The Follies of Bush’s Initiatives (Westport, CT: Praeger, 2007).

12. See Protect (a joint website of Protect & the National Association to Protect Children), “Who We Are, ” accessed December 14, 2011, http://www.protect.org/about-protect; and the National Association to Protect Children’s Facebook profi le, in which this organization emphasizes its rejection of government funding: http://www.facebook.com/protectnow/ posts/194007363977025. Concerns that government funding suppresses nonprofi ts’ politi- cal activity were not supported in a study reported by Mark Chaves, Laura Stephens, and Joseph Galaskiewicz, “Does Government Funding Suppress Nonprofi ts’ Political Activity?” American Sociological Review 69 (2004): 292–316.

13. Crazy Horse Memorial, “Frequently Asked Questions” (n.d.), accessed December 14, 2011, http://www.crazyhorsememorial.org/faq. Additional explanations for the deci- sion not to use government funding are discussed by Maxwell Wallace, “Crazy Horse Memorial Information” (n.d.), accessed December 14, 2011, http://www.ehow.com/ about_6466627_crazy-horse-memorial-information.html.

14. Partnering with Nonprofi ts in Tough Times: Recommendations from the San Francisco Community-Based Organizations Task Force (April 2009), accessed December 14, 2011, http://stridecenter.org/ articles/CBOTaskForceReporFinalSFF.pdf.

15. For a thoughtful review of mission drift, see Howard P. Tuckman and Cyril F. Chang, “Commercial Activity, Technological Change and Nonprofi t Mission,” in The Nonprofi t Sector: A Research Handbook, 2nd ed., ed. Walter W. Powell and Richard Steinberg (New Haven, CT: Yale University Press, 2006), 629–644.

16. Amy E. Knaup, “Survival and Longevity in Business Employment Dynamics Data,” Monthly Labor Review 128, no. 5 (May 2005): 50–56.

17. For a comprehensive treatment of pricing see Dennis R. Young and Richard Steinberg, Economics for Nonprofi t Managers (New York: Foundation Center, 1995).

18. See Habitat for Humanity of Kent County, “About” (n.d.), accessed December 14, 2011, http://www.habitatkent.org/ReStore.aspx, for a local chapter’s description of its ReStore.

19. Issie Lapowsky, “The Social Entrepreneurship Spectrum: Nonprofi ts with Earned Income,” Inc., May 2011, accessed January 12, 2012, http://www.inc.com/magazine/20110501/ the-social-entrepreneurship-spectrum-nonprofi ts-with-earned-income.html.

20. Ten Thousand Villages, Annual Report (2010), http://www.tenthousandvillages.com/pdf/ Annual_Report_2010.pdf.

21. Bruce Mohl, “Group: Most Charities Sell Donor Lists,” Boston Globe, December 1, 2004. 22. Beth Battle Anderson, J. Gregory Dees, and Jed Emerson, “Developing Viable Earned

Income Strategies,” in Strategic Tools for Social Entrepreneurs: Enhancing the Performance of Your Enterprising Nonprofi t, ed. J. Gregory Dees, Jed Emerson, and Peter Economy (Hoboken, NJ: Wiley, 2002), 191–233.

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Notes 439

23. R. Steinberg, “Membership Income” in Financing Nonprofi ts: Putting Theory into Practice, ed. D. R. Young (Lanham, MD: Altamira Press, 2006), 121–156.

24. Mary Tschirhart, “Nonprofi t Membership Associations,” in The Nonprofi t Sector: A Research Handbook, 2nd ed., ed. Walter W. Powell and Richard Steinberg (New Haven, CT: Yale University Press, 2006), 523–541. Also see Mary Kay Gugerty and Aseem Prakesh, eds., Nonprofi t Accountability Clubs: Voluntary Regulation of Nonprofi t and Nongovernmental Organizations (New York: Oxford University Press, 2010).

25. Sesame Workshop, Licensees (n.d.), accessed December 16, 2011, http://supportus.sesame workshop.org/site/c.nlI3IkNXJsE/b.2748689.

26. Mary Tschirhart, Robert K. Christensen, and James L. Perry, “The Paradox of Branding and Collaboration,” Public Productivity and Management Review 29, no. 1 (2005): 69–87.

27. Shirley Sagawa and Eli Segal, Common Interest, Common Good: Creating Value Through Business and Social Sector Partnerships (Boston: Harvard Business Press, 2000).

28. Plumstead Theatre Society v. Commissioner, 74 Tax Court 1324 (1980), aff ‘d 675 F. 2d 244 (9th Cir. 1982).

29. P. Promotion of Fine Arts and the Performing Arts: Analysis of the Goldsboro Art League and Plumstead Theatre Society Cases, and UBIT Considerations, 1982 EO CPE Text, accessed January 12, 2012, http://www.irs.gov/pub/irs-tege/eotopicp82.pdf.

30. Kimberly A. Stockton and Daniel W. Wallick, “Endowment and Foundation Investing: The Challenge of Defi ning the Liability” (Vanguard Investment Counseling & Research, 2009), accessed December 14, 2011, https://advisors.vanguard.com/iwe/pdf/FASENF.pdf.

31. Stockton and Wallick, “Endowment and Foundation Investing.” 32. Chetan Narain, “Congressman to Propose Mandating Endowment Spending,” Daily

Princetonian, October 10, 2008, accessed January 12, 2011, http://www.dailyprincetonian .com/2008/10/10/21744.

33. Peter Conti-Brown, “Scarcity Amidst Wealth: The Law, Finance, and Culture of Elite University Endowments in Financial Crisis,” Stanford Law Review, March 6, 2011, 699–749.

34. See Peter Frumkin, Strategic Giving: The Art and Science of Philanthropy (Chicago: University of Chicago Press, 2006).

35. An article in Time magazine helps to tell the story: “Education: Rebuilding Boys Town,” Time, August 5, 1974.

36. David Bass, Management of Underwater Endowments Under UPMIFA: Findings of a Survey of Colleges, Universities, and Institutionally Related Foundations (Washington, DC: AGB in partner- ship with Commonfund Institute and NACUBO, 2009).

37. “Universities’ Financial Straits: A Moody’s Retrospective,” Harvard Magazine, June 18, 2010. 38. See, for example, Presbyterian Endowment Education & Resource Network, Investment

Policies and Guidelines (n.d.), accessed December 14, 2011, http://www.presbyterianendow ment.org/information/library/investment/investment-policies-and-guidelines.

39. Jennifer Sokolowsky, “Seattle Nonprofi t Refuses Comcast Funds After Tweet Controversy,” Puget Sound Business Journal, May 20, 2011, accessed January 12, 2012, http://www.bizjournals .com/seattle/blog/2011/05/seattle-nonprofi t-refuses-comcast.html.

40. Stephanie Strom and Jim Robbins, “Montana Museum Board Breached Duty, Court Says,” The New York Times, April 30, 2008, accessed December 14, 2011, http://www.nytimes .com/2008/04/30/us/30museum.html.

41. Bair Museum, “New Bair Museum Slated to Opening Memorial Day Weekend,” press release (April 4, 2011), accessed December 14, 2011, http://www.bairfamilymuseum.org/ press/20110404.aspx.

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440 Notes

42. Eleanor Brown and Al Slivinski, “Nonprofit Organizations and the Market,” in The Nonprofi t Sector: A Research Handbook, 2nd ed., ed. Walter W. Powell and Richard Steinberg (New Haven, CT: Yale University Press, 2006), 140–158.

43. This conclusion is supported by the following discussions: Susan Rose-Ackerman, “Do Government Grants to Charity Reduce Private Donations?” in Nonprofi t Firms in a Three- Sector Economy, ed. Michelle White (Washington, DC: Urban Institute, 1981), 95–114; and James Andreoni and A. Abigail Payne, “Do Government Grants to Private Charities Crowd Out Giving or Fundraising?” The American Economic Review 93, no. 3 (2003): 793–812.

44. Tuckman and Chang, “Commercial Activity, Technological Change and Nonprofit Mission.”

45. Tuckman and Chang, “Commercial Activity, Technological Change and Nonprofit Mission.”

46. Robert Payton, Philanthropy: Voluntary Action for the Public Good (New York: MacMillan, 1988). 47. For an overview discussion of the concept of charity see Frumkin, Strategic Giving. 48. See, for example, Jerry D. Marx and Vernon Brooks Carter, “Hispanic Charitable Giving:

An Opportunity for Nonprofi t Development,” Nonprofi t Management & Leadership 19, no. 2 (2008): 173–188.

49. Peter M. Blau, Exchange and Power in Social Life (New York: Wiley, 1964). 50. Andrew Carnegie, The Gospel of Wealth (1889), accessed December 14, 2011, http://carnegie

.org/publications/search-publications/pub/272. 51. See Adrian Sargeant, “Using Donor Lifetime Value to Inform Fundraising Strategy,”

Nonprofi t Management & Leadership 12, no. 1 (2001): 25–38; Wesley E. Lindahl and Christopher Winship, “Predictive Models for Annual Fundraising and Major Gift Fundraising,” Nonprofi t Management & Leadership 3, no. 1 (1992): 43–64; and Adrian Sargeant and Elaine Jay, Fundraising Management: Analysis, Planning and Practice (New York: Routledge, 2010).

52. For examples, see Karen Maru File, Russ Alan Prince, and Dianne S. P. Cermak, “Creating Trust with Major Donors: The Service Encounter Model,” Nonprofi t Management & Leadership 4, no. 3 (1994): 269–284.

53. John J. Havens, Mary A. O’Herlihy, and Paul G. Schervish, “Charitable Giving,” in The Nonprofi t Sector: A Research Handbook, 2nd ed., ed. Walter W. Powell and Richard Steinberg (New Haven, CT: Yale University Press, 2006), 542–567.

54. See Dwight Burlingame, ed., Critical Issues in Fundraising (Hoboken, NJ: Wiley, 1997), and in particular Julian Wolpert’s chapter “The Demographics of Giving Patterns,” 75–80.

55. John J. Havens and Paul G. Schervish, Geography and Generosity: Boston and Beyond (Boston: Boston College, Center on Wealth and Philanthropy, 2005).

56. Analysis of regional variations is based on data from the Center on Philanthropy at Indiana University, Giving USA 2005 (Chicago: Giving USA Foundation, 2005).

57. For a YouTube video of Melinda Gates talking about her and her husband’s giving and their call to government and other donors to do more, see Melinda Gates: Rich Should Give Half (n.d.), http://www.youtube.com/watch?v=wFyY91p_JdA&feature=relmfu.

58. Carol J. Loomis, “The $600 Billion Challenge,” Fortune, June 16, 2010, accessed December 14, 2011, http://features.blogs.fortune.cnn.com/2010/06/16/gates-buffett-600-billion- dollar-philanthropy-challenge.

59. The Giving Pledge, Web site, accessed December 14, 2011, http://givingpledge.org/#enter. 60. Angela M. Eikenberry, “Fundraising in the New Philanthropy Environment: The Benefi ts

and Challenges of Working with Giving Circles,” Nonprofi t Management & Leadership 19, no. 2 (2008): 141–152.

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Notes 441

61. For more information on the history of community foundations, see Peter Dobkin Hall, “The Community Foundation in America, 1914–1987,” in Philanthropic Giving, ed. Richard Magat (New York: Oxford University Press, 1989), 180–199.

62. See Foundation Center, Proposal Writing Short Course (2011), accessed December 14, 2011, http://foundationcenter.org/getstarted/tutorials/shortcourse/components.html.

63. Stanley Weinstein, The Complete Guide to Fundraising Management, 2nd ed. (New York: Wiley, 2002).

Chapter Seven

1. Case details are from a slide presentation and case study: Nonprofi t Finance Fund, hope- Found: Finding the Way Through Data, Discipline & Dialogue (Case Study) (SlideShare, 2011), accessed December 14, 2011, http://www.slideshare.net/nonprofi tfi nancefund/hopefound- case-study. This presentation was prepared by the fi rm that helped the nonprofi t.

2. Beth Wood, Investigative Report: Harnett County Partnership for Children, Inc., Community Education and Programs, Inc., Lillington, North Carolina, May 2010 (Raleigh, NC: Offi ce of State Auditor, 2010), accessed January 12, 2012, http://www.ncauditor.net/EPSWeb/Reports/ Investigative/INV-2010–0357.pdf.

3. BoardSource, The Sarbanes-Oxley Act and Implications for Nonprofi t Organizations (2006), accessed January 15, 2012, http://www.boardsource.org/clientfi les/sarbanes-oxley.pdf.

4. Board Source, The Sarbanes-Oxley Act and Implications for Nonprofi t Organizations. 5. Francie Ostrower and Marla Bobowick, Nonprofit Governance and the Sarbanes-Oxley Act

(Washington, DC: Urban Institute 2006), 8. 6. Rebecca Harshbarger and Brendan Scott, “State Pol Guilty of Charity Scam,” The New

York Post, January 17, 2011, accessed December 14, 2011, http://www.nypost.com/p/ news/local/state_pol_guilty_of_charity_scam_8OcezPDKqKqXyrv6sAFroL.

7. Harvey Lipman and Grant Williams, “Charities Bestow No-Interest Loans on Their Well- Paid Executives,” Chronicle of Philanthropy, February 5, 2004, accessed January 15, 2012, http://philanthropy.com/article/Charities-Bestow-No-Interest/61934.

8. See Internal Revenue Service Form 990, “Return of Organization Exempt from Income Tax,” Part VI, line 13.

9. Cynthia Benzing, Evan Leach, and Charles McGee, “Sarbanes-Oxley and the New Form 990: Are Arts and Culture Nonprofi ts Ready?” Nonprofi t and Voluntary Sector Quarterly 40, no. 6 (2011): 1132–1147.

10. Resources for understanding investment choices for nonprofi ts include Robert P. Fry Jr., Who’s Minding the Money? An Investment Guide for Nonprofi t Board Members, 2nd ed. (Washington, DC: BoardSource, 2009).

11. See Charles K. Coe, Nonprofit Financial Management: A Practical Guide (San Francisco: Jossey-Bass/Wiley, 2011), for more information on accounting and charts of accounts.

12. See Janet S. Greenlee, “Nonprofi t Accountability in the Information Age,” in Approaching Foundations, New Directions for Philanthropic Fundraising, no. 27, ed. Paul P. Pribbenow (San Francisco: Jossey-Bass/Wiley, 2000).

13. Richard F. Larkin and Marie DiTommasso, Wiley Not-for-Profi t GAAP 2009: Interpretation and Application of Generally Accepted Accounting Principles for Not-for-Profi t Organizations (Hoboken, NJ: Wiley, 2009).

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442 Notes

14. Associated Press, “Over Past Decade, Some 9/11 Charities Failed Miserably,” SILive, August 25, 2011, accessed January 15, 2012, http://www.silive.com/september-11/index.ssf/2011/08/ over_past_decade_some_911_char.html. For a slightly different take on the AP story, see Rick Cohen, “AP Report Finds Many 9/11 Charities Failed Miserably,” Nonprofi t Quarterly Newswire, August 29, 2011, accessed January 15, 2012, http://www.nonprofitquarterly.org/index .php?option=com_content&view=article&id=15386:ap-report-fi nds-many-911-charities- failedmiserably&catid=155:nonprofi t-newswire&Itemid=986.

15. For example, see the executive summaries of two August 2010 studies commissioned by the Direct Marketing Association Nonprofi t Federation: Jessica Sowa, “Charity Rating Scales: The Challenge of Developing ‘Effective’ Measures of Nonprofi t Organizational Effectiveness” (August 2010), accessed December 14, 2011, http://www.nonprofi tfederation .org/sites/default/fi les/Executive_Summary_Charity_Rating_Scales.pdf; and George Mitchell, “Reframing the Discussion About Nonprofit Effectiveness” (August 2010), accessed December 14, 2011, http://www.nonprofi tfederation.org/sites/default/fi les/ Executive_Summary_Reframing_the_Discussion_about_Nonprofi t_Effectiveness.pdf.

16. Joseph T. Wells, Principles of Fraud Examinations (Hoboken, NJ: Wiley, 2005). 17. Janet Greenlee, Mary Fischer, Teresa Gordon, and Elizabeth Keating, “Investigation of

Fraud in Nonprofi t Organizations: Occurrences and Deterrents,” Nonprofi t and Voluntary Sector Quarterly 36 (2007): 676.

18. Diana Aviv’s September 28, 2005, testimony to the U.S. Senate Finance Committee, “Hurricane Katrina: Community Rebuilding Needs and Effectiveness of Past Proposals,” is cited in Greenlee et al., “Investigation of Fraud in Nonprofi t Organizations.”

19. Stuart Douglas and Kim Mills, “Nonprofi t Fraud: What Are the Key Indicators?” Canadian FundRaiser, August 16, 2000, accessed September 1, 2011, http://www.charityvillage.com/ cv/research/rlegal16.html.

20. See Michael DeLucia, “Preventing Fraud: From Fiduciary Duty to Practical Strategies,” New Hampshire Bar Journal, Summer/Autumn 2008, 6–12; also see Edward McMillan, Preventing Fraud in Nonprofi t Organizations (Hoboken, NJ: Wiley, 2006).

21. DeLucia, “Preventing Fraud.” 22. Stephanie Strom, “Funds Misappropriated at 2 Nonprofi t Groups,” The New York Times,

July 9, 2008, accessed December 14, 2011, http://www.nytimes.com/2008/07/09/ us/09embezzle.html?pagewanted=1.

23. Clifton Gunderson LLP, Best Practices of Nonprofit Budgeting and Cash Forecasting (2008), accessed December 14, 2011, http://www.cliftoncpa.com/Content/5HQ5OYA9WU .pdf ?...Nonprofi tBudgeting.

24. John Zietlow, Jo Ann Hankin, and Alan Seidner, Financial Management for Nonprofit Organizations (Hoboken, NJ: Wiley, 2007), 255.

25. GuideStar Publications, The Effect of the Economy on the Nonprofi t Sector: A June 2010 Survey (Washington, DC: GuideStar, 2009).

26. For an in-depth discussion of CGL, refer to Melanie L. Herman, “Risk Management,” in The Jossey-Bass Handbook of Nonprofi t Leadership and Management, 2nd ed., ed. Robert D. Herman & Associates (San Francisco: Jossey-Bass/Wiley, 2005), 560–584.

27. Better Business Bureau Wise Giving Alliance, Standards for Charity Accountability (2003), accessed January 12, 2012, http://www.bbb.org/us/Charity-Standards.

28. These fi gures are reported in Terrie Temkin, “Audits for Smaller Nonprofi ts,” Philanthropy Journal, February 7, 2009, accessed December 14, 2011, http://www.philanthropyjournal .org/resources/managementleadership/audits-smaller-nonprofi ts.

29. Ostrower and Bobowick, Nonprofi t Governance and the Sarbanes-Oxley Act.

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Notes 443

30. Temkin, “Audits for Smaller Nonprofi ts.” 31. Steven H. Berger, Understanding Nonprofi t Financial Statements, 3rd ed. (Washington, DC:

BoardSource, 2008), 46. 32. Berger, Understanding Nonprofi t Financial Statements.

Chapter Eight

1. Case details are from American Heart Association, “About the Movement,” Go Red for Women (n.d.), accessed July 5, 2011, http://www.goredforwomen.org/about_the_movement .aspx; information about the communication campaign is from Cone Communications, “AHA Go Red for Women” (n.d.), accessed July 5, 2011, http://www.coneinc.com/ aha-go-red-for-women.

2. Information from the Fall 2007 Go Red For Women Database Survey, reported on American Heart Association, Go Red for Women.

3. See C. Whan Park and Gerald Zaltman, Marketing Management (New York: Dryden Press, 1987); and Alan Andreasen and Philip Kotler, Strategic Marketing for Nonprofi t Organizations (Upper Saddle River, NJ: Pearson Prentice Hall, 2008), for the historical development of these orientations.

4. American Marketing Association, Dictionary, defi nition of marketing (n.d.), accessed March 10, 2010, http://www.marketingpower.com/_layouts/Dictionary.aspx?dLetter=M.

5. Philip Kotler and Sidney Levy, “Broadening the Concept of Marketing,” Journal of Marketing, January 10–15, 1969; Philip Kotler and Gerald Zaltman, “Social Marketing: An Approach to Planned Social Change,” Journal of Marketing, July 3–12, 1971; Benson Shapiro, “Marketing for Nonprofi t Organizations,” Harvard Business Review, September– October 1973, 223–232.

6. Paulette Padanyi, “Operationalizing the Marketing Concept: Achieving Orientation in the Nonprofi t Context,” in The Routledge Companion to Nonprofi t Marketing, ed. Adrian Sargeant and Walter Wymer (New York: Routledge, 2008), 12.

7. Philip Kotler, Marketing f or Nonprofi t Organizations, 2nd ed. (Upper Saddle River, NJ: Pearson Prentice Hall, 1982), 6.

8. See Eugene Johnson and M. Venkatesan, “Marketing,” in The Nonprofit Management Handbook: Operating Policies and Procedures, ed. Tracy Connors (Hoboken, NJ: Wiley, 1993), 132–133; Adrian Sargeant, Marketing Management for Nonprofit Organizations (New York: Oxford University Press, 2009); and Andreasen and Kotler, Strategic Marketing for Nonprofi t Organizations.

9. Sargeant, Marketing Management for Nonprofi t Organizations. 10. The term target audience is adopted by Andreasen and Kotler, Strategic Marketing for Nonprofi t

Organizations. 11. Andreasen and Kotler, Strategic Marketing for Nonprofi t Organizations. 12. Johnson and Venkatesan, “Marketing.” 13. Peter Brinkerhoff, “The Marketing Cycle for a Not-for-Profi t,” Journal of Voluntary Sector

Marketing 2, no. 2 (1997): 168–175. 14. Sargeant, Marketing Management for Nonprofi t Organizations. 15. Walter Wymer, Patricia Knowles, and Roger Gomes, Nonprofit Marketing: Marketing

Management for Charitable and Nongovernmental Organizations (Thousand Oaks, CA: Sage, 2006); Andreasen and Kotler, Strategic Marketing for Nonprofi t Organizations.

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444 Notes

16. Wymer et al., Nonprofi t Marketing. 17. Andreasen and Kotler, Strategic Marketing for Nonprofi t Organizations. 18. Johnson and Venkatesan, “Marketing.” 19. Ian MacMillan, “Competitive Strategies for Not-for-Profi t Agencies,” in Advances in Strategic

Management, vol. 1, ed. Robert Lamb (Greenwich, CT: JAI Press, 1983), 65. 20. Michael Porter, Competitive Strategy (New York: Free Press, 1980). 21. Sargeant, Marketing Management for Nonprofi t Organizations. 22. Brenda Gainer and Mel Moyer, “Marketing for Nonprofi t Managers,” in The Jossey-Bass

Handbook of Nonprofi t Leadership & Management, 2nd ed., Robert D. Herman & Associates (San Francisco: Jossey-Bass/Wiley, 2005), 277–309.

23. Andreasen and Kotler, Strategic Marketing for Nonprofi t Organizations. 24. American Red Cross of Greater Indianapolis, “Services” (n.d.), accessed July 15, 2011,

http://www.redcross-indy.org/Services/default.aspx. 25. Andreas M. Kaplan and Michael Haenlein, “Toward a Parsimonious Definition of

Traditional and Electronic Mass Customization,” Journal of Product Innovation Management 23, no. 2 (2006): 168–182.

26. Gb3group.com, “Mass Customization” (n.d.), accessed August 1, 2011, http://www .gb3group.com/mass-customization.php.

27. Jack Trout with Steve Rivkin, The New Positioning: The Latest on the World’s #1 Business Strategy (New York: McGraw-Hill, 1997).

28. Andreasen and Kotler, Strategic Marketing for Nonprofi t Organizations. 29. Wymer et al., Nonprofi t Marketing. 30. American Marketing Association, Dictionary, defi nition of brand (n.d.), accessed February,

10, 2010, http://www.marketingpower.com/_layouts/Dictionary.aspx?dLetter=B. 31. Brad VanAuken, The Brand Management Checklist: Proven Tools and Techniques for Creating Winning

Brands (Eastbourne, UK: Gardners Books, 2004). 32. Jennifer L. Aaker, “Dimensions of Brand Personality,” Journal of Marketing Research 34, no.

3 (1997): 347–356. 33. Sargeant, Marketing Management for Nonprofi t Organizations. 34. Sargeant, Marketing Management for Nonprofi t Organizations. 35. Patricia Martin, Tipping the Culture: How Engaging Millennials Will Change Things (Chicago:

LitLamp Communications, 2010). 36. Andreasen and Kotler, Strategic Marketing for Nonprofi t Organizations. 37. See Eugene M. Johnson, Eberhard E. Scheuing, and Kathleen A. Gaida, Profi table Service

Marketing (Homewood, IL: Dow-Jones-Irwin, 1986); Valarie A. Zeithaml, A. Parasuraman, and Leonard L. Berry, “Problems and Strategies in Service Marketing,” Journal of Marketing 49, no. 2 (1985): 33–46.

38. Assessing perceived service quality can be quite complex if done well. See Sargeant, Marketing Management for Nonprofi t Organizations, for a discussion of various techniques.

39. Philip Kotler and Nancy Lee, Social Marketing: Infl uencing Behaviors for Good (Thousand Oaks, CA: Sage, 2008).

40. Andreasen and Kotler, Strategic Marketing for Nonprofi t Organizations. 41. Leah King, “Using the Internet to Facilitate and Support Health Behaviors,” Social

Marketing Quarterly 10, no. 2 (2004): 72–78. 42. Offi ce of National Drug Control Policy, “National Youth Anti-Drug Media Campaign,”

accessed January 18, 2012, http://www.whitehouse.gov/ondcp/anti-drug-media-campaign.

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Notes 445

43. Brenda Gainer and Mel Moyer, “Marketing for Nonprofi t Managers,” in The Jossey-Bass Handbook of Nonprofi t Leadership & Management, 2nd ed., Robert D. Herman & Associates (San Francisco: Jossey-Bass/Wiley, 2005), 277–309.

44. World Bank, “World Development Indicators” (last updated July 28, 2011), accessed July 30, 2011, http://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&met_y=it_net_user_p2&id im=country:USA&dl=en&hl=en&q=internet+usage.

45. Wymer et al., Nonprofi t Marketing. 46. Wymer et al., Nonprofi t Marketing. 47. Kotler and Lee, Social Marketing. 48. L. Gordon Crovitz, “Egypt’s Revolution by Social Media: Facebook and Twitter Let the

People Keep Ahead of the Regime,” The Wall Street Journal, February 14, 2011. 49. Kotler and Lee, Social Marketing. 50. Wymer et al., Nonprofi t Marketing. 51. BlacksAcademy.net, “Cost-Based Pricing” (n.d.), accessed August 1, 2011, http://www

.blacksacademy.net/content/4001.html. 52. Wymer et al., Nonprofi t Marketing. 53. Andreasen and Kotler, Strategic Marketing for Nonprofi t Organizations.

Chapter Nine

1. Case details are from J. E. Austin, Elaine V. Backman, Paul Barese, and Stephanie Woerner, The NAACP, Harvard Business School Case 9-398-039, November 7, 1997.

2. Francie Ostrower and Melissa M. Stone, “Governance: Research Trends, Gaps, and Future Prospects,” in The Nonprofi t Sector: A Research Handbook, 2nd ed., ed. Walter W. Powell and Richard Steinberg (New Haven, CT: Yale University Press, 2006), 612–628; Ruth McCambridge, “Underestimating the Power of Nonprofit Governance,” Nonprofit and Voluntary Sector Quarterly 33, no. 2 (2004): 346–354.

3. Rikki Abzug and Joseph Galaskiewicz, “Nonprofit Boards: Crucibles of Expertise or Symbols of Local Identities?” Nonprofi t and Voluntary Sector Quarterly 30, no. 1 (2001): 51–73.

4. BoardSource, The Nonprofi t Board Answer Book, 2nd ed. (San Francisco, Jossey-Bass, 2007). 5. BoardSource, The Nonprofi t Board Answer Book. 6. N. Ono, “Boards of Directors Under Fire: An Examination of Nonprofi t Board Duties in

the Health Care Environment,” Annals of Health Law 7, no. 3 (1998): 107–138. 7. Ono, “Boards of Directors Under Fire.” 8. Ono, “Boards of Directors Under Fire.” 9. Ono, “Boards of Directors Under Fire.” 10. Jeremy Benjamin, “Reinvigorating Nonprofi t Directors’ Duty of Obedience,” Cardozo Law

Review 30, no. 4 (2009): 1677–1708. 11. Benjamin, “Reinvigorating Nonprofi t Directors’ Duty of Obedience.” 12. Michael J. Worth provides a useful discussion of Sarbanes-Oxley in Nonprofi t Management:

Principles and Practices (Thousand Oaks, CA: Sage, 2009). 13. Others commenting on board effectiveness include Michael Klausner and Jonathan Small

“Failing to Govern? The Disconnect Between Theory and Reality in Nonprofi t Boards and How To Fix It,” Stanford Social Innovation Review 43 (Spring 2005): 42–49.

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446 Notes

14. John Carver, Boards That Make a Difference: A New Design for Leadership in Nonprofi t and Public Organizations, 3rd ed. (San Francisco: Jossey-Bass/Wiley, 2006).

15. Richard Chait, William P. Ryan, and Barbara E. Taylor, Governance as Leadership: Reframing the Work of Nonprofi t Boards (San Francisco: Jossey-Bass/Wiley, 2005).

16. Miriam M. Wood, “Is Governing Behavior Cyclical?” Nonprofi t Management & Leadership 3, no. 2 (1992): 139–163; David O. Renz, “Leadership, Governance, and the Work of the Board,” in The Jossey-Bass Handbook of Nonprofi t Leadership and Management, 3rd ed., David O. Renz and Associates (San Francisco: Jossey-Bass/Wiley, 2010), 125–156.

17. Ostrower and Stone, “Governance.” 18. Austin et al., The NAACP. 19. For a fresh treatment of Miriam Wood’s model (described in Wood, “Is Governing

Behavior Cyclical?”), see Julia Classen, “Here We Go Again: The Cyclical Nature of Board Behavior,” Nonprofi t Quarterly, Spring 2011, 16–21.

20. See BoardSource, Assessment Tools (n.d.), http://www.boardsource.org/Assessments/self assessments.asp, for descriptions of BoardSource materials.

21. Larry Slesinger, Self-Assessment for Nonprofi t Governing Boards (Washington, DC: National Center for Nonprofi t Boards, 1996).

22. Douglas K. Jackson and Thomas P. Holland, “Measuring the Effectiveness of Nonprofi t Boards, Nonprofi t and Voluntary Sector Quarterly 27, no. 2 (1998): 159–182; Mel Gill, Robert J. Flynn, and Elke Reissing, “The Governance Self-Assessment Checklist: An Instrument for Assessing Board Effectiveness,” Nonprofi t Management & Leadership 15, no. 3 (2005): 271–294.

23. In an exploratory study Kevin Kearns found that board chairs and executive direc- tors weighted criteria differently when comparing the effectiveness of board members: “Effective Nonprofi t Board Members as Seen by Executives and Board Chairs,” Nonprofi t Management & Leadership 5, no. 4 (1995): 337–358.

24. Ostrower and Stone, “Governance.” Also see William A. Brown, “Exploring the Association Between Board and Organizational Performance in Nonprofi t Organizations,” Nonprofi t Management & Leadership 15, no. 3 (2005): 317–339.

25. Jeffrey L. Callen, April Klein, and Daniel Tinkelman, “Board Composition, Committees, and Organizational Efficiency: The Case of Nonprofits,” Nonprofit and Voluntary Sector Quarterly 32, no. 4 (2003): 493–520.

26. Mayer N. Zald, “Urban Differentiation, Characteristics of Boards of Directors, and Organizational Effectiveness,” American Journal of Sociology 73, no. 3 (1967): 261–272; Jeffrey Pfeffer and Gerald R. Salancik, The External Control of Organizations: A Resource Dependence Perspective (Stanford, CA: Stanford University Press, 2003; originally published 1978).

27. Jeffrey L. Brudney and Patricia Dautel Nobbie, “Training Policy Governance in Nonprofi t Boards of Directors,” Nonprofi t Management & Leadership 12, no. 4 (2002): 387–408.

28. Julie I. Siciliano, “The Relationship Between Formal Planning and Performance in Nonprofi t Organizations,” Nonprofi t Management & Leadership 7, no. 4 (1996), 387–403.

29. Pat Bradshaw, Vic Murray, and Jacob Wolpin, “Do Nonprofi t Boards Make a Difference? An Exploration of the Relationship Among Board Structure, Process, and Effectiveness,” Nonprofi t and Voluntary Sector Quarterly 21, no. 3 (1992): 227–249.

30. Bradshaw et al., “Do Nonprofi t Boards Make a Difference?” 31. David E. Olson, “Agency Theory in the Not-for-Profi t Sector: Its Role at Independent

Colleges,” Nonprofi t and Voluntary Sector Quarterly 29, no. 2 (2000): 280–296. 32. Pablo de Andrés-Alonso, Natalia Martin Cruz, and M. Elena Romero-Merino, “The

Governance of Nonprofi t Organizations: Empirical Evidence from Nongovernmental

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Notes 447

Development Organizations in Spain,” Nonprofi t and Voluntary Sector Quarterly 35, no. 4 (2006): 588–604.

33. Jack C. Green and Donald W. Griesinger, “Board Performance and Organizational Effectiveness in Nonprofit Social Services Organizations,” Nonprofit Management & Leadership 6, no. 4 (1996): 381–402; Brown, “Exploring the Association Between Board and Organizational Performance in Nonprofi t Organizations.”

34. The following articles are among the discussions that have informed the debate on the importance of a board to nonprofit effectiveness: Brown, “Exploring the Association Between Board and Organizational Performance in Nonprofi t Organizations”; Robert D. Herman and David O. Renz, “Board Practices of Especially Effective and Less Effective Local Nonprofi t Organizations,” American Review of Public Administration 30, no. 2 (2000): 146–160; Katherine O’Regan and Sharon M. Oster, “Does the Structure and Composition of the Board Matter? The Case of Nonprofi t Organizations,” Journal of Law, Economics & Organization 21, no. 1 (2005): 205–227.

35. Richard P. Chait, Thomas P. Holland, and Barbara E. Taylor, Improving the Performance of Governing Boards (Phoenix, AZ: Oryx Press, 1996).

36. Thomas P. Holland, “Board Accountability: Lessons from the Field,” Nonprofi t Management & Leadership 12, no. 4 (2002): 409–428.

37. See, for example, Maureen K. Robinson, Nonprofi t Boards That Work: The End of One-Size- Fits-All Governance (Hoboken, NJ: Wiley, 2001); and Candace Widmer and Susan Houchin, The Art of Trusteeship: The Nonprofi t Board Member’s Guide to Effective Governance (San Francisco: Jossey-Bass/Wiley, 2000).

38. See Lex Donaldson, The Contingency Theory of Organizations (Thousand Oaks, CA: Sage, 2001), for a summary of contingency theory.

39. Patricia Bradshaw, “A Contingency Approach to Nonprofit Governance,” Nonprofit Management & Leadership 20, no. 1 (2009). 61–81.

40. Brudney and Nobbie, “Training Policy Governance in Nonprofi t Boards of Directors,” fi nd that Carver’s policy governance model is less likely to be successfully implemented in organizations with more than fi fteen board members and where the board members also function as staff.

41. Georg von Schnurbein, “Patterns of Governance Structures in Trade Associations and Unions,” Nonprofi t Management & Leadership 20, no. 1 (2009): 97–115.

42. For an overview of board diversity and inclusion issues, see William A. Brown, “Inclusive Governance Practices in Nonprofi t Organizations and Implications for Practice,” Nonprofi t Management & Leadership 12, no. 4 (2002): 369–385.

43. See, for example, D. Mark Austin and Cynthia Woolever, “Voluntary Association Boards: A Refl ection of Member and Community Characteristics,” Nonprofi t and Voluntary Sector Quarterly 21, no. 2 (1992): 181–193.

44. Abzug and Galaskiewicz, “Nonprofi t Boards.” 45. Ostrower and Stone, “Governance”; Francie Ostrower, Nonprofi t Governance in the United States:

Findings on Performance and Accountability from the First National Representative Study (Washington, DC: Urban Institute, 2007).

46. Abzug and Galaskiewicz, “Nonprofi t Boards.” 47. Mary Tschirhart, Kira Kristal Reed, Sarah J. Freeman, and Alison Louie Anker, “Who

Serves? Predicting Placement of Management Graduates on Nonprofi t, Government, and Business Boards,” Nonprofi t and Voluntary Sector Quarterly 38, no. 6 (2009): 1076–1085.

48. Abzug and Galaskiewicz, “Nonprofi t Boards.”

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448 Notes

49. See Bron Afon Community Housing, Board Member Recruitment (n.d.), accessed December 17, 2011, http://www.bronafon.org.uk/Home/Workingwithus/BoardMemberrecruitment/ tabid/623/Default.aspx.

50. See the Revised Model Nonprofi t Corporation Act (1987) at http://www.muridae.com/ nporegulation/documents/model_npo_corp_act.html.

51. William A. Brown and Joel O. Iverson, “Exploring Strategy and Board Structure in Nonprofi t Organizations,” Nonprofi t and Voluntary Sector Quarterly 33, no. 3 (2004): 377–400.

52. David O. Renz, “Reframing Governance,” Nonprofi t Quarterly, Winter 2010, 50–53. 53. Judy Freiwirth, “Community-Engagement Governance: Systems-Wide Governance in

Action,” Nonprofi t Quarterly, Spring 2011, 40–50.

Chapter Ten

1. Case details are from HR Council for the Nonprofi t Sector, “Workplaces That Work, Case Study #2: Santropol Roulant” (n.d.), accessed December 21, 2011, http://hrcouncil.ca/ hr-toolkit/santropol-case-study.cfm.

2. Santropol Roulant—Leadership and Transitions, video posted by The J. W. McConnell Family Foundation (June 2008), accessed December 21, 2011, http://www.mcconnellfoundation .ca/en/resources/multimedia/video/santropol-roulant-leadership-and-transitions.

3. Wendy Reid and Rekha Karambayya, “Impact of Dual Executive Leadership Dynamics in Creative Organizations,” Human Relations 62 (2009): 1073–1112.

4. Gary M. Romano, “Dual-Executive Structures in Religious Non-Profi t Organizations” (master’s thesis, Virginia Polytechnic Institute and State University, June 1995); Reid and Karambayya, “Impact of Dual Executive Leadership Dynamics in Creative Organizations.”

5. Patricia Yancey Martin, “Rethinking Feminist Organizations,” Gender & Society 4, no. 2 (1990): 182–206.

6. Katherine Kang-Ning Chen, Enabling Creative Chaos: The Organization Behind the Burning Man Event (Chicago: University of Chicago Press, 2009).

7. Robert D. Herman and Richard D. Heimovics, “Executive Leadership,” in The Jossey-Bass Handbook of Nonprofi t Leadership and Management, 2nd ed., ed. Robert D. Herman & Associates (San Francisco: Jossey-Bass/Wiley, 2005), 153–170; Robert D. Herman and Richard D. Heimovics, Executive Leadership in Nonprofi t Organizations: New Strategies for Shaping Executive- Board Dynamics (San Francisco: Jossey-Bass/Wiley, 1991).

8. Herman and Heimovics “Executive Leadership.” 9. Arnold J. Olenick and Philip R. Olenick, A Nonprofi t Organization Operating Manual: Planning

for Survival and Growth (New York: Foundation Center, 1991); Michael J. Worth, Nonprofi t Management: Principles and Practices (Thousand Oaks, CA: Sage, 2009).

10. BoardSource, The Source: Twelve Principles of Governance That Power Exceptional Boards (Washington, DC: BoardSource, 2005), cited in Worth, Nonprofi t Management: Principles.

11. John Kotter, “What Leaders Really Do,” Harvard Business Review, May–June 1990, 103–111. 12. James M. Kouzes and Barry Z. Posner, The Leadership Challenge, 4th ed. (San Francisco:

Jossey-Bass/Wiley, 2007). 13. Shahryar Minhas and Susan Parker, “The Robert Wood Johnson Foundation” (Center

for Effective Philanthropy, n.d.), accessed December 21, 2011, http://www.effectivephilan thropy.org/assets/pdfs/CEP_RobertWoodJohnson_RepeatCase.pdf.

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Notes 449

14. To listen to the speech go to Internet Archive, http://www.archive.org/details/ MLKDream.

15. See HR Council for the Nonprofit Sector, “Keeping the Right People: Employee Recognition” (n.d.), accessed December 21, 2011, http://hrcouncil.ca/hr-toolkit/keeping- people-employee-recognition.cfm, for this list as well as other resources on employee recognition.

16. Gary A. Yukl, Leadership in Organizations, 2nd ed. (Upper Saddle River, NJ: Pearson Prentice Hall, 1989).

17. Angelo J. Kinicki, Peter W. Hom, Melanie R. Trost, and Kim J. Wade, “Effects of Category Prototypes on Performance-Rating Accuracy,” Journal of Applied Psychology 80, no. 3 (1995): 354–370.

18. See David C. Hammack, Making the Nonprofi t Sector in the United States (Bloomington: Indiana University Press, 1998).

19. For a review of labor in the United States see Laura Leete, “Work in the Nonprofi t Sector,” in The Nonprofi t Sector: A Research Handbook, ed. Walter W. Powell and Richard Steinberg (New Haven, CT: Yale University Press), 159–179. For a discussion of the underrepresentation of women in nonprofi ts in Norway, see Dag Wollebaek and Per Selle, “The Role of Women in the Transformation of the Organizational Society in Norway,” Nonprofi t and Voluntary Sector Quarterly 33, no. 3, suppl. (2004): 1205–1445.

20. Jerald Greenberg and Robert A. Baron, Behavior in Organizations, 5th ed. (Upper Saddle River, NJ: Pearson Prentice Hall, 1995).

21. Debra L. Nelson and James Campbell Quick, Organizational Behavior: Foundations, Realities, and Challenges, 4th ed. (Mason, OH: South-Western/Cengage Learning, 2003).

22. Kouzes and Posner, The Leadership Challenge. 23. See Ray & Berndtson, Successful Leaders in the Nonprofi t Sector: Ten Qualities for Top Performance

(2005), accessed December 21, 2011, http://www.odgersberndtson.ca/fi leadmin/uploads/ canada/Documents/PDFs/NonProfi tE.pdf.

24. Fred E. Fiedler and Martin M. Chemers, Leadership and Effective Management (Glenview, IL: Scott, Foresman, 1974); the path-goal theory advances Fiedler’s earlier work. See also Chester Schriesman and Mary Ann Von Glinow, “The Path-Goal Theory of Leadership: A Theoretical and Empirical Analysis,” Academy of Management Journal 20, no. 3 (1977): 398–405, for research support for employing task-focused leadership in ambiguous task situations.

25. Paul Hersey, Kenneth H. Blanchard, and Dewey E. Johnson, Management of Organizational Behavior (Upper Saddle River, NJ: Pearson Prentice Hall, 2008).

26. James MacGregor Burns, Leadership (New York: HarperCollins, 1978). 27. Erich Fromm, “Selfi shness and Self-Love,” Psychiatry 2 (1939): 507–523; Carl R. Rogers,

On Becoming a Person (Boston: Houghton Miffl in, 1961). 28. Barry Cross Jr., “Perspective Then and Now: Making the Invisible Visible,” Diversity Factor

16, no. 2 (2008): 9–15. 29. Frances Hesselbein and Alan Shrader, Leader to Leader 2: Enduring Insights on Leadership (San

Francisco: Jossey-Bass/Wiley, 2008), xii. 30. Robert E. Quinn, “Building the Bridge as You Walk on It,” Leader to Leader 34 (2004): 21–26. 31. Kouzes and Posner, The Leadership Challenge, 212. 32. “MADD as Hell and Not Going to Take It Anymore,” Broadcasting, April 1985, 58. 33. Hyejin Bang, “Leader-Member Exchange in Nonprofi t Sports Organizations: The Impact

on Job Satisfaction and Intention to Stay from the Perspectives of Volunteer Leaders and Followers,” Nonprofi t Management & Leadership 22, no. 1 (2011): 85–106.

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450 Notes

34. Carole L. Jurkiewicz and Tom K. Massey Jr., “The Infl uence of Ethical Reasoning on Leader Effectiveness,” Nonprofi t Management & Leadership 9, no. 2 (1998): 173–186.

35. Thomas H. Jeavons, “When the Management Is the Message: Relating Values to Management Practice in Nonprofi t Organizations,” Nonprofi t Management & Leadership 2, no. 4 (1992): 403–417.

36. Daniel Goleman, “Leadership That Gets Results,” Harvard Business Review, March–April 2000, 78–90.

37. See Patricia St. Onge et al., Embracing Cultural Competency: A Roadmap for Nonprofi t Capacity Builders (Nashville, TN: Fieldstone Alliance, 2009).

38. CompassPoint Nonprofit Services, Multicultural Organizational Development in Nonprofit Organizations: Lessons from the Cultural Competence Learning Initiative (2010), accessed October 5, 2011, http://www.compasspoint.org/sites/default/files/docs/research/CP%20 Cultural%20Competence%20Lessons%20FINAL%20RPT.pdf.

39. Lee G. Bolman and Terrence E. Deal, Reframing Organizations: Artistry, Choice, and Leadership, 3rd ed. (San Francisco: Jossey-Bass/Wiley, 2003).

40. Herman and Heimovics, “Executive Leadership.” 41. Robert Hooijberg and Robert E. Quinn, “Behavioral Complexity and the Development of

Effective Managers,” in Strategic Leadership: A Multiorganizational-Level Perspective, ed. Robert L. Phillips and James G. Hunt (Westport, CT: Quorum Books/Greenwood, 1992), 161–175.

42. Robert E. Quinn, Sue R. Faerman, Michael P. Thompson, Michael McGrath, and Lynda S. St. Clair, Becoming a Master Manager: A Competing Values Approach, 5th ed. (Hoboken, NJ: Wiley, 2011).

43. John R. P. French Jr. and Bertram Raven, “The Bases of Social Power,” in Studies in Social Power, ed. Dorwin Cartwright (Ann Arbor, MI: Institute for Social Research, 1959), 150–167.

44. Kelly E. See, Elizabeth W. Morrison, Naomi B. Rothman, and Jack B. Soll, “The Detrimental Effects of Power on Confi dence, Advice Taking, and Accuracy,” Organizational Behavior and Human Decision Processes 116, no. 2 (2011): 272–285.

45. David A. Whetten and Kim S. Cameron, Developing Management Skills, 5th ed. (Upper Saddle River, NJ: Pearson Prentice Hall, 2002).

46. Rosabeth Moss Kanter, “Power Failures in Management Circuits,” Harvard Business Review, July–August 1979, 65–75.

47. French and Raven, “The Bases of Social Power.” 48. Whetten and Cameron, Developing Management Skills. 49. Michael Duffy, “Resignation Charity Begins at Home,” Time, June 24, 2001, accessed

December 21, 2011, http://www.time.com/time/magazine/article/0,9171,159170,00.html. 50. David Kipnis, “Psychology and Behavioral Technology,” American Psychologist 42 (1987): 30–36. 51. Ideas on neutralization are taken from Whetten and Cameron, Developing Management Skills. 52. John W. Gardner, On Leadership (New York: Free Press, 1990); Alfred Vernis, Maria Iglesias,

Beatriz Sanz, and Angel Saz-Carranza, Nonprofi t Organizations: Challenges and Collaboration (New York: Palgrave Macmillan, 2006).

53. Shirley Sagawa and Deborah Jospin, The Charismatic Organization: Eight Ways to Grow a Nonprofi t That Builds Buzz, Delights Donors, and Energizes Employees (San Francisco: Jossey Bass/ Wiley, 2009).

54. Stephen R. Block and Steven Rosenberg, “Toward an Understanding of Founder’s Syndrome: An Assessment of Power and Privilege Among Founders of Nonprofit Organizations,” Nonprofi t Management & Leadership 12, no. 4 (2002): 353–368.

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Notes 451

55. L. David Brown and Archana Kalegaonkar, “Support Organizations and the Evolution of the NGO Sector,” Nonprofi t and Voluntary Sector Quarterly 31, no. 2 (2002): 231–258.

56. Susan M. Chambre and Naomi Fatt, “Beyond the Liability of Newness: Nonprofit Organizations in an Emerging Policy Domain,” Nonprofi t and Voluntary Sector Quarterly 31, no. 4 (2002): 502–524.

57. Miriam M. Wood, “Is Governing Behavior Cyclical?” Nonprofi t Management & Leadership 3, no. 2 (1992): 139–163.

58. In addition to Vernis et al., Nonprofi t Organizations, see Mary Tschirhart, Artful Leadership (Bloomington: Indiana University Press, 1996); and Wilfred H. Drath and Charles J. Palus, Making Common Sense: Leadership as Meaning-Making in a Community of Practice (Greensboro, NC: CCL Press, 1994).

59. Sonia Ospina, Bethany Godsoe, and Ellen Schall, “Co-Producing Knowledge: Practitioners and Scholars Working Together to Understand Leadership,” in Building Leadership Bridges, ed. Cynthia Cherrey and Larraine R. Matusak (New York: International Leadership Association, 2002), 59–67.

60. Vernis et al., Nonprofi t Organizations. 61. Karen Froelich, Gregory McKee, and Richard Rathge, “Succession Planning in Nonprofi t

Organizations,” Nonprofi t Management & Leadership 22, no. 1 (2011): 3–20. 62. Michael Allison, “Into the Fire: Boards and Executive Transitions,” Nonprofi t Management &

Leadership 12, no. 4 (2002): 341–351. 63. Allison, “Into the Fire.” 64. Mary Tschirhart, Kira Kristal Reed, Sarah J. Freeman, and Alison Louie Anker, “Is the

Grass Greener? Sector Shifting and Choice of Sector by MPA and MBA Graduates,” Nonprofi t and Voluntary Sector Quarterly 37, no. 4 (2008): 668–688.

65. Roseanne M. Mirabella, Nonprofi t Management Education: Current Offerings in University-Based Programs (Seton Hall University, 2009), http://academic.shu.edu/npo.

66. Jeanne Bell, Richard Moyers, and Timothy Wolfred, Daring to Lead 2006: A National Study of Nonprofi t Executive Leadership (San Francisco: CompassPoint Nonprofi t Services, 2006).

67. Thomas J. Tierney, “The Leadership Defi cit,” Stanford Social Innovation Review, Summer 2006, 26–35.

68. See Josh Solomon and Yarrow Sandahl, Stepping Up or Stepping Out: A Report on the Readiness of Next Generation Nonprofit Leaders (New York: Young Nonprofit Professionals Network, 2007). Also see Marla Cornelius, Patrick Corvington, and Albert Ruesga, Ready to Lead? Next Generation Leaders Speak Out (San Francisco: CompassPoint Nonprofi t Services with the Annie E. Casey Foundation, the Meyer Foundation, and Idealist.org, 2008).

69. Janet L. Johnson, “The Nonprofit Leadership Deficit: A Case for More Optimism,” Nonprofi t Management & Leadership 19, no. 3 (2009): 285–304.

70. For examples see Drew A. Dolan, “Training Needs of Administrators in the Nonprofi t Sector: What Are They and How Should We Address Them?” Nonprofi t Management & Leadership 12, no. 3 (2002): 277–292; and Michael O’Neill and Kathleen Fletcher, eds., Nonprofi t Management Education: U.S. and World Perspectives (New York: Praeger. 1998).

71. Mary Tschirhart, “Nonprofi t Management Education: Recommendations Drawn from Three Stakeholder Groups,” in Nonprofi t Management Education: U.S. and World Perspectives, ed. Michael O’Neill and Kathleen Fletcher (New York: Praeger, 1998), 62–80.

72. For example, see Terence Jackson, “A Critical Cross-Cultural Perspective for Developing Nonprofi t International Management Capacity,” Nonprofi t Management & Leadership 19, no. 4 (2009): 443–466.

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452 Notes

Chapter Eleven

1. Case details are from HR Council for the Nonprofi t Sector, “Workplaces That Work, Case Study #3: Big Brothers Big Sisters—Edmonton” (n.d.), accessed December 21, 2011, http://hrc ouncil.ca/ hr-toolkit /BBBS_Case study.cfm.

2. Big Brothers Big Sisters: Edmonton & Area, “History” (2010), accessed December 22, 2011, http://www.bbbsedmonton.org/ABOUT/History/tabid/60/Default.aspx.

3. Big Brothers Big Sisters: Edmonton & Area, video posted by HR Council for the Nonprofi t Sector (2008), accessed December 22, 2011, http://www.youtube.com/watch?v=9rkPfHK8cP4.

4. Agency for Healthcare Research and Quality, Medical Expenditure Panel Survey (July 2011), accessed December 22, 2011, http://www.meps.ahrq.gov/mepsweb/survey_comp/ Insurance.jsp.

5. Rick Cohen, “HHS Data: Nonprofi t Jobs Picture Mixed, Faster Job Growth Than in For- Profi t Sector, Small Nonprofi ts Hit Hard by Recession,” Nonprofi t Quarterly, October 5, 2011, accessed December 22, 2011, http://www.nonprofi tquarterly.org/index.php?option=com_ content&view=article&id=16496:hhs-data-nonprofit-jobs-picture-mixed-faster-job- growth-than-in-for-profi t-sector-small-nonprofi ts-hit-hard-by-recession&catid=153:featur es&Itemid=336.

6. Venture Philanthropy Partners, Greater Than the Sum of Its Parts, Part 1: A Regional Perspective on Changing Demographics ( January 2009), accessed December 22, 2011, http://www.vppartners .org/sites/default/fi les/reports/VPP-Greater-than-the-Sum.pdf.

7. Joseph P. Tierney and Jean Baldwin Grossman, with Nancy L. Resch, Making a Difference: An Impact Study of Big Brothers Big Sisters (Philadelphia: Public/Private Ventures, 2000), accessed December 22, 2011, http://www.ppv.org/ppv/publications/assets/111_publication.pdf.

8. Laura Leete, “Work in the Nonprofi t Sector,” in The Nonprofi t Sector: A Research Handbook, 2nd ed., ed. Walter W. Powell and Richard Steinberg (New Haven, CT: Yale University Press, 2006), 159–179.

9. Donileen Loseke, The Battered Woman and Shelters: The Social Construction of Wife Abuse (Albany: State University of New York Press, 1992).

10. Woods Bowman, “The Economic Value of Volunteers to Nonprofit Organizations,” Nonprofi t Management & Leadership 19, no. 4 (2009): 491–506.

11. Femida Handy and Narasimhan Srinivasan, “The Demand for Volunteer Labor: A Study of Hospital Volunteers,” Nonprofi t and Voluntary Sector Quarterly 34, no, 4 (2005): 491–509.

12. Bowman, “The Economic Value of Volunteers to Nonprofi t Organizations,” 504. 13. Jeffrey L. Brudney, “Designing and Managing Volunteer Programs,” in The Jossey-Bass

Handbook of Nonprofi t Leadership and Management, 2nd ed., ed. Robert D. Herman & Associates (San Francisco: Jossey-Bass/Wiley, 2005), 310–344.

14. Susan N. Houseman, “Why Employers Use Flexible Staffi ng Arrangements: Evidence from an Establishment Survey,” Industrial and Labor Relations Review 55, no. 1 (2001): 149–170; Mary Tschirhart and Lois R. Wise, “U.S. Nonprofi t Organizations’ Demand for Temporary Foreign Professionals,” Nonprofi t Management & Leadership 18, no, 2 (2007): 121–140; Arne L. Kalleberg, “Nonstandard Employment Relations: Part-Time, Temporary and Contract Work,” Annual Review of Sociology 26 (2003): 341–365.

15. Joan E. Pynes, Human Resources Management for Public and Nonprofi t Organizations (San Francisco: Jossey-Bass/Wiley, 1997).

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Notes 453

16. Stephen Almond and Jeremy Kendall, “Taking the Employees’ Perspective Seriously: An Initial United Kingdom Cross-Sectoral Comparison,” Nonprofi t and Voluntary Sector Quarterly 29, no, 2 (2000): 205–231.

17. James W. Shepard Jr., Strengthening Leadership and Human Resource Capacity in the Nonprofi t Sector: Pro Bono as a Powerful Solution: National Research Findings (San Francisco: Taproot Foundation, n.d.), accessed December 22, 2011, http://www.taprootfoundation.org/docs/Taproot- Strengthening-Leadership-HR-Capacity.pdf.

18. For good ideas see Mary R. Watson and Rikki Abzug, “Finding the Ones You Want, Keeping the Ones You Find,” in The Jossey-Bass Handbook of Nonprofit Leadership and Management, 2nd ed., ed. Robert D. Herman & Associates (San Francisco: Jossey-Bass/ Wiley, 2005), 623–659.

19. See Michael A. Zottoli and John P. Wanous, “Recruitment Source Research: Current Status and Future Directions,” Human Resource Management Review 10 (2000): 353–382, for a review of research on recruitment sources.

20. Pynes, Human Resources Management for Public and Nonprofi t Organizations. 21. Pynes, Human Resources Management for Public and Nonprofi t Organizations. 22. For reviews of the literature on fi t see Amy L. Kristof-Brown, Ryan D. Zimmerman, and

Erin C. Johnson, “Consequences of Individuals’ Fit at Work: A Meta-Analysis of Person- Job, Person-Organization, Person-Group, and Person-Supervisor Fit,” Personnel Psychology 58, no. 2 (2005): 281–342; and Benjamin Schneider, “Fits About Fit,” Applied Psychology 50, no. 1 (2001): 141–152.

23. The example comes from Lawrence Kleiman, Human Resource Management, 2nd ed. (Mason, OH: South-Western/Cengage Learning, 2000).

24. The examples come from Rebecca Leaman, “Crowdsourcing: How Business and Nonprofits Tap into the Wisdom of Crowds” ( June 11, 2008), accessed December 22, 2011, http://www.wildapricot.com/blogs/newsblog/2008/06/11/ crowdsourcing-how-business-and-nonprofi ts-tap-into-the-wisdom-of-crowds.

25. Tschirhart and Wise, “U.S. Nonprofi t Organizations’ Demand for Temporary Foreign Professionals.”

26. Eric Frazier and Kerry Hall, “United Way’s Challenge: Rebuilding a Region’s Trust,” Charlotte Observer, August 27, 2008, accessed December 22, 2011, http://www.charlotteobserver .com/2008/08/27/153812/united-ways-challenge-rebuilding.html.

27. Barbara Benson, “Pay Scandal Shakes Nonprofit’s Board,” Crain’s New York Business, September 12, 2011, accessed December 22, 2011, http://www.crainsnewyork.com/ article/20110912/FREE/110919989.

28. Denise M. Rousseau, Psychological Contracts in Organizations: Understanding Written and Unwritten Agreements (Thousand Oaks, CA: Sage, 1995). For a discussion of the applicability of psy- chological contracts to volunteers see Steven M. Farmer and Donald B. Fedor, “Volunteer Participation and Withdrawal: A Psychological Perspective on the Role of Expectations and Organizational Support,” Nonprofi t Management & Leadership 9, no. 4 (1999): 349–368.

29. Matthew A. Liao-Troth, “Attitude Differences Between Paid Workers and Volunteers,” Nonprofi t Management & Leadership 11, no. 4 (2001): 423–442.

30. A detailed discussion of strategy-based performance management systems can be found in Dick Grote, The Performance Appraisal Question and Answer Book: A Survival Guide for Managers (New York: AMACOM, 2002). For a summary of Grote’s system and guidelines for giv- ing feedback, see Robert E. Quinn, Sue R. Faerman, Michael P. Thompson, Michael

bnotes.indd 453bnotes.indd 453 08/05/12 4:07 PM08/05/12 4:07 PM

454 Notes

McGrath, and Lynda S. St. Clair, Becoming a Master Manager: A Competing Values Approach, 5th ed. (Hoboken, NJ: Wiley, 2011), 60–63.

31. John P. Wanous, Arnon E. Reichers, and S. D. Malik, “Organization Socialization and Group Development Toward an Integrative Perspective,” Academy of Management Review 9 (1984): 674.

32. Martin E. Purcell and Murray Hawtin, “Piloting External Peer Review as a Model for Performance Improvement in Third-Sector Organizations,” Nonprofit Management & Leadership 20, no. 3 (2010): 357–374.

33. For a discussion of these programs see Ben Cairns, Margaret Harris, Romayne Hutchison, and Mike Tricker, “Improving Performance? The Adoption and Implementation of Quality Systems in U.K. Nonprofi ts,” Nonprofi t Management & Leadership 16, no. 1 (2005): 135–151.

34. Gina Imperato, “How to Give Good Feedback,” Fast Company, August 31, 1998, accessed December 22, 2011, http://www.fastcompany.com/magazine/17/feedback.html.

35. Charles S. Jacob, Management Rewired: Why Feedback Doesn’t Work and Other Surprising Lessons from the Latest Brain Science (New York: Penguin, 2009), cited in Quinn et al., Becoming a Master Manager, 60.

36. CompassPoint Nonprofi t Services, Executive Coaching Project: Evaluation of Findings, study con- ducted by Harder+Company Community Research (2003), accessed December 22, 2011, http://www.compasspoint.org/sites/default/fi les/docs/research/2_cpcoachingexecsumm.pdf.

37. Robert L. Fischer and David Beimers, “Put Me In, Coach: A Pilot Evaluation of Executive Coaching in the Nonprofi t Sector,” Nonprofi t Management & Leadership 19, no. 4 (2009): 507–522.

38. Leete, “Work in the Nonprofi t Sector.” 39. Terrie Temkin, “Nonprofit Salaries in 2010,” Philanthropy Journal, July 26, 2010, accessed

December 22, 2011, http://www.philanthropyjournal.org/resources/managementleadership/ nonprofi t-salaries-2010.

40. Anna Hayley-Lock and Jean Kruzich, “Serving Workers in the Human Services: The Roles of Organizational Ownership, Chain Affi liation, and Professional Leadership in Frontline Job Benefi ts,” Nonprofi t and Voluntary Sector Quarterly 37, no. 3 (2008): 443–467.

41. Hayley-Lock and Kruzich “Serving Workers in the Human Services.” 42. Robert L. Mathis and John H. Jackson, Human Resource Management: Essential Perspectives, 2nd

ed. (Mason, OH: South-Western/Cengage Learning, 2002).

Chapter Twelve

1. Case details are from the High Line Web site, http://thehighline.org; see especially the “History” and “Friends of the High Line” pages. The site also includes videos.

2. These formulas and the scholars who have used them are presented in David A. Whetten and Kim S. Cameron, Developing Management Skills, 5th ed. (Upper Saddle River, NJ: Pearson Prentice Hall, 2002).

3. Assessments of the empirical grounding for the theories and their value to the evolution of management thought are drawn from a variety of textbooks. The most useful for this chap- ter are John M. Ivancevich and Michael T. Matteson, Organizational Behavior and Management, 6th ed. (Boston: McGraw-Hill/Irwin, 2002); Hal G. Rainey, Understanding and Managing

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Notes 455

Public Organizations, 3rd ed. (San Francisco: Jossey-Bass/Wiley, 2003); and Debra L. Nelson and James Campbell Quick, Organizational Behavior: The Essentials (New York: West, 1996).

4. René Bekkers, Giving and Volunteering in the Netherlands: Sociological and Psychological Perspectives (Utrecht, Netherlands: Interuniversity Center for Social Science Theory and Methodology, 2004).

5. Catherine Schepers, Sara De Gieter, Roland Pepermans, Cindy Du Bois, Ralf Caers, and Marc Jegers, “How Are Employees of the Nonprofi t Sector Motivated? A Research Need,” Nonprofi t Management & Leadership 16, no. 2 (2005): 191–208.

6. Joan E. Pynes, Human Resources Management for Public and Nonprofi t Organizations (San Francisco: Jossey-Bass/Wiley, 1997); Matthew J. Chinman and Abraham Wandersman, “The Benefi ts and Costs of Volunteering in Community Organizations: Review and Practical Implications,” Nonprofi t and Voluntary Sector Quarterly 28, no. 1 (1999): 46–64.

7. Abraham H. Maslow, Maslow on Management (Hoboken, NJ: Wiley, 1998). 8. This is a basic premise of functional theory that has strong empirical backing. See Daniel

Katz, “The Functional Approach to the Study of Attitudes,” Public Opinion Quarterly 24 (1960): 163–204, for a basic statement of the theory. For an application to volunteers, see E. Gil Clary and Mark Snyder, “A Functional Analysis of Altruism and Prosocial Behavior: The Case of Volunteerism,” in Review of Personality and Social Psychology, vol. 12, ed. M. Clark (Thousand Oaks, CA: Sage, 1991), 119–148.

9. Clayton P. Alderfer, Existence, Relatedness and Growth: Human Needs in Organizational Settings (New York: Free Press, 1972).

10. Richard D. Waters and Denise S. Bortree, “Building a Better Workplace for Teen Volunteers Through Inclusive Behaviors,” Nonprofi t Management & Leadership 20, no. 3 (2010): 337–356.

11. Steven G. Rogelberg, Joseph A. Allen, James M. Conway, Adrian Goh, Lamarra Currie, and Betsy McFarland, “Employee Experiences with Volunteers: Assessment, Description, Antecedents, and Outcomes,” Nonprofi t Management & Leadership 20, no. 4 (2010): 423–444.

12. Frederick Herzberg, Bernard Mausner, and Barbara Bloch Snyderman, The Motivation to Work (Hoboken, NJ: Wiley, 1959).

13. Debra J. Mesch, Mary Tschirhart, James L. Perry, and Geunjoo Lee, “Altruists or Egoists? Retention in Stipended Service,” Nonprofi t Management & Leadership 9, no. 1 (1998): 3–22.

14. Mary Tschirhart, Kira Kristal Reed, Sarah J. Freeman, and Alison Louie Anker, “Is the Grass Greener? Sector Shifting and Choice of Sector by MPA and MBA Graduates,” Nonprofi t and Voluntary Sector Quarterly 37, no. 4 (2008): 668–688. Also see Paul Light, “The Content of Their Character: The State of the Nonprofi t Workforce,” Nonprofi t Quarterly 9, no. 3 (2002): 6–16; Shawn Teresa Flanigan, “Factors Infl uencing Nonprofi t Career Choice in Faith-Based and Secular NGOs in Three Developing Countries,” Nonprofi t Management & Leadership 21, no. 1 (2010): 59–75.

15. Jeanne Bell, Richard Moyers, and Timothy Wolfred, Daring to Lead 2006: A National Study of Nonprofi t Executive Leadership (San Francisco: CompassPoint Nonprofi t Services, 2006).

16. Marla Cornelius, Patrick Corvington, and Albert Ruesga, Ready to Lead? Next Generation Leaders Speak Out (San Francisco: CompassPoint Nonprofi t Services with the Annie E. Casey Foundation, the Meyer Foundation, and Idealist.org, 2008).

17. See Philip H. Mirvis, “The Quality of Employment in the Nonprofi t Sector: An Update on Employee Attitudes in Nonprofi ts Versus Business and Government,” Nonprofi t Management & Leadership 3, no. 1 (1992): 23–42; Jenny Onyx and Madi Maclean, “Careers in the Third Sector,” Nonprofi t Management & Leadership 6, no. 4 (1996): 331–346.

18. Tschirhart et al., “Is the Grass Greener?”

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456 Notes

19. Edward L. Deci, Intrinsic Motivation (New York: Plenum, 1975). 20. John R. Deckop and Carol C. Cirka, “The Risk and Reward of a Double-Edged Sword:

Effects of a Merit Pay Program on Intrinsic Motivation,” Nonprofit and Voluntary Sector Quarterly 29, no. 3 (2000): 400–418.

21. Mary Tschirhart, Debra J. Mesch, James L. Perry, Theodore K. Miller, and Geunjoo Lee, “Stipended Volunteers: Their Goals, Experiences, Satisfaction, and Likelihood of Future Service,” Nonprofi t and Voluntary Sector Quarterly 30, no. 3 (2001): 422–443.

22. Laura C. Phillips and Mark H. Phillips, “Volunteer Motivation and Reward Preference: An Empirical Study of Volunteerism in a Large, Not-for Profi t Organization,” SAM Advanced Management Journal, Autumn 2010, 12–39.

23. David C. McClelland, “Business Drive and National Achievement,” Harvard Business Review, July–August 1962, 99–112.

24. Mary Tschirhart and Lynda St. Clair, “Diversity Issues in Workplace Volunteer Service Programs: Participation and Perceptions,” paper presented at the Association for Research on Nonprofi t Organizations & Voluntary Action Conference, Atlanta, GA, November 15–17, 2007.

25. Natalie J. Webb and Rikki Abzug, “Do Occupational Group Members Vary in Volunteering Activity?” Nonprofi t and Voluntary Sector Quarterly 37, no. 4 (2008): 689–708.

26. For more detail on how to guide organizational culture in nonprofits see Paige H. Teegarden, Denice R. Hinden, and Paul Sturm, The Nonprofi t Organizational Culture Guide: Revealing the Hidden Truths That Impact Performance (San Francisco: Jossey-Bass/Wiley, 2011).

27. Steven G. Rogelberg, Joseph A. Allen, James M. Conway, Adrian Goh, Lamarra Currie, and Betsy McFarland, “Employee Experiences with Volunteers,” Nonprofi t Management & Leadership 20, no. 4 (2010): 423–444.

28. James L. Perry and Lois R. Wise, “The Motivational Bases of Public Service,” Public Administration Review 50 (1990): 367–373; James L. Perry, “Measuring Public Service Motivation: An Assessment of Construct Reliability and Validity,” Journal of Public Administration Research and Theory 6 (1996): 5–24.

29. John Brauer and Jed Emerson, “Saving the World and Nonprofi t Staff, Too,” Foundation News & Commentary 43, no. 1 (2002), accessed January 11, 2012, http://www.foundationnews .org/CME/article.cfm?ID=1726.

30. Victor H. Vroom, Work and Motivation (Hoboken, NJ: Wiley, 1964). 31. Rainey, Understanding and Managing Public Organizations. 32. Steven Kerr, “On the Folly of Rewarding A, While Hoping for B,” Academy of Management

Executive 9, no. 1 (1995): 7–14 (original article published 1975). 33. Rob Paton, Managing and Measuring Social Enterprises (Thousand Oaks, CA: Sage, 2003). Also

see Ben Cairns, Margaret Harris, Romayne Hutchison, and Mike Tricker, “Improving Performance? The Adoption and Implementation of Quality Systems in U.K. Nonprofi ts,” Nonprofi t Management & Leadership 16, no. 1 (2005): 135–151.

34. Albert Bandura, Social Learning Theory (New York: General Learning Press, 1977). 35. Bernadette Sánchez and Joseph R. Ferrari, “Mentoring Relationships of Eldercare Staff in

Australia: Infl uence on Service Motives, Sense of Community, and Caregiver Experiences,” Journal of Community Psychology 33, no. 2 (2005): 245–252.

36. Key scholars contributing to this line of research are Edwin A. Locke, Gary P. Latham, and Craig C. Pinder. See, for example, Edwin A. Locke, “Toward a Theory of Task Motivation and Incentives,” Organizational Behavior and Human Performance 3, no. 2 (1968): 157–189.

37. Rainey, Understanding and Managing Public Organizations.

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Notes 457

38. Tschirhart et al., “Stipended Volunteers.” 39. J. Stacy Adams, “Toward an Understanding of Equity,” Journal of Abnormal and Social

Psychology 67 (1963): 422–436. 40. Laura Leete, “Wage Equity and Employee Motivation in Nonprofit and For-Profit

Organizations,” Journal of Economic Behavior & Organization 43, no. 4 (2000): 423–446. 41. Deckop and Cirka, “The Risk and Reward of a Double-Edged Sword.” 42. Anna Haley-Lock, “Variation in Part-Time Job Quality Within the Nonprofi t Human

Service Sector,” Nonprofi t Management & Leadership 19, no. 40 (2009): 421–442. 43. Light, “The Content of Their Character.” Also see Carlo Borzaga and Ermanno Tortia,

“Worker Motivations, Job Satisfaction and Loyalty in Public and Nonprofit Social Services,” Nonprofi t and Voluntary Sector Quarterly 35, no. 2 (2006): 225–248.

44. William A. Brown and Carlton F. Yoshioka, “Mission Attachment and Satisfaction as Factors in Employee Retention,” Nonprofi t Management & Leadership 14, no. 1 (2003): 5–18. Also see Waters and Bortree, “Building a Better Workplace for Teen Volunteers Through Inclusive Behaviors.”

45. Tschirhart et al., “Is the Grass Greener?”

Chapter Thirteen

1. Case details are from Andy Goodman, The Story of David Olds and the Nurse Home Visiting Program (Princeton, NJ: Robert Wood Johnson Foundation, 2006); Nurse-Family Partnership, “About” (n.d.), accessed December 24, 2011, http://www.nursefamilypart nership.org/about/program-history; and David Olds, Perry Hill, Ruth O’Brien, David Racine, and Pat Moritz, “Taking Preventive Intervention to Scale: The Nurse-Family Partnership,” Cognitive and Behavioral Practice 10, no. 4 (2003): 278–290.

2. Patricia Flynn and Virginia Hodgkinson, “Measuring the Contributions of the Nonprofi t Sector,” in Measuring the Impact of the Nonprofit Sector, ed. Patricia Flynn and Virginia Hodgkinson (New York: Kluwer Academic/Plenum, 2001), 3–16.

3. Susan Paddock, “Evaluation,” in Understanding Nonprofi t Organizations: Governance, Leadership, and Management, ed. J. Steven Ott (Boulder, CO: Westview, 2001).

4. Peter Rossi, Howard Freeman, and Sonia Wright, Evaluation: A Systematic Approach (Thousand Oaks, CA: Sage, 1979).

5. Robert Anthony and David Young, Management Control in Nonprofi t Organizations, 6th ed. (Boston: McGraw-Hill/Irwin, 2003).

6. Merriam-Webster (online), defi nition of accountability (n.d.), accessed August 17, 2011, http://www.merriam-webster.com/dictionary/accountability.

7. Grover Starling, Managing the Public Sector, 3rd ed. (Chicago: Dorsey Press, 1986); and Merriam-Webster (online), defi nition of accountability.

8. Ronald E. Fry, “Accountability in Organizational Life: Problem or Opportunity for Nonprofi ts?” Nonprofi t Management & Leadership 6, no. 2 (1995): 181–195.

9. Alnoor Ebrahim and Edward Weisband, Global Accountabilities: Participation, Pluralism, and Public Ethics (New York: Cambridge University Press, 2007).

10. Alnoor Ebrahim, “The Many Faces of Nonprofit Accountability,” in The Jossey-Bass Handbook of Nonprofi t Leadership and Management, 3rd ed., ed. David O. Renz and Associates (San Francisco: Jossey-Bass/Wiley, 2010), 101–122.

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458 Notes

11. Kevin Kearns, Managing for Accountability: Preserving the Public Trust in Public and Nonprofi t Organizations (San Francisco: Jossey-Bass/Wiley, 1996), 11.

12. Melissa M. Stone, Barbara Bigelow, and William Crittenden, “Research on Strategic Management in Nonprofi t Organizations: Synthesis, Analysis, and Future Directions,” Administration & Society 31, no. 3 (1999): 378–423.

13. United Way of America, Measuring Program Outcomes: A Practical Approach (Washington, DC: United Way of America, 1996).

14. Michael Hendricks, Margaret Plantz, and Kathleen Pritchard, “Measuring Outcomes of United Way–Funded Programs: Expectations and Reality,” in Nonprofi ts and Evaluation, New Directions for Evaluation, no. 119, ed. Joanne G. Carman and Kimberly A. Fredericks (San Francisco: Jossey-Bass/Wiley, 2008).

15. Hendricks et al., “Measuring Outcomes of United Way–Funded Programs.” 16. Stacey Hueftle-Stockdill, Michael Baizerman, and Donald W. Compton, “Toward a Defi nition

of the ECB Process: A Conversation with the ECB Literature,” in The Art, Craft, and Science of Evaluation Capacity Building, New Directions for Evaluation, no. 93, ed. Donald W. Compton, Michael Baizerman, and Stacey Hueftle-Stockdill (San Francisco: Jossey Bass/Wiley, 2002).

17. Boris Volkov and Jean King, “A Grounded Checklist for Implementing Evaluation Capacity Building in Organizations,” paper presented at the Joint Meeting of the American Evaluation Association and the Canadian Evaluation Society, Toronto, October 2005.

18. Paddock, “Evaluation.” 19. John Thomas, “Outcome Assessment and Program Evaluation,” in The Jossey-Bass Handbook

of Nonprofi t Leadership and Management, 3rd ed., David O. Renz and Associates (San Francisco: Jossey-Bass/Wiley, 2010): 401–430.

20. Michael Quinn Patton, Utilization-Focused Evaluation: The New Century Text, 3rd ed. (Thousand Oaks, CA: Sage, 1997).

21. ActKnowledge and the Aspen Institute Roundtable on Community Change, Guided Example: Project Superwomen (2003), accessed September 5, 2010, http://www.theoryofchange .org/pdf/Superwomen_Example.pdf.

22. Argosy Foundation, Research Brief: Nurse-Family Partnership (Milwaukee, WI: Argosy Foundation, 2006), accessed August 10, 2011, http://www.argosyfnd.org/usr_doc/Nurse_ Family_Brief.pdf.

23. Carol H. Weiss, Evaluation Research: Methods of Assessing Program Effectiveness (Upper Saddle River, NJ: Pearson Prentice Hall, 1972).

24. David Olds, Charles Henderson, Robert Chamberlin, and Robert Tatelbaum, “Preventing Child Abuse and Neglect: A Randomized Trial of Nurse Home Visitation,” Pediatrics 78 (1986): 65–78.

25. David Olds, Peggy Hill, Ruth O’Brien, David Racine, and Pat Moritz, “Taking Preventive Intervention to Scale: The Nurse-Family Partnership,” Cognitive and Behavioral Sciences, forthcoming.

26. The results of these follow-up studies are summarized at GiveWell, Nurse-Family Partnership (NFP)—Full Review (n.d.), accessed December 24, 2011, http://www.givewell.org/united-states/ early-childhood/charities/NFP/full-review#FormalstudiesoftheNFPmodel. See also the Nurse- Family Partnership Web site at http://www.nursefamilypartnership.org.

27. For a more detailed discussion of outcome and process evaluation data, see Adele Harrell, Martha Burt, Harry Hatry, Shelli Rossman, Jeffrey Roth, and William Sabol, Evaluation Strategies for Human Service Programs: A Guide for Policymakers and Providers (Washington, DC: Urban Institute, 1996).

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Notes 459

28. Olds et al., “Preventing Child Abuse and Neglect.” 29. Mary Kopczynski and Kathleen Pritchard, “The Use of Evaluation by Nonprofit

Organizations,” in Handbook of Practical Program Evaluation, ed. Joseph Wholey, Harry Hatry, and Kathryn Newcomer (San Francisco: Jossey-Bass/Wiley, 2004), 649–669.

30. Salvatore Alaimo, “Nonprofi ts and Evaluation: Managing Expectations from the Leader’s Perspective,” in Nonprofi ts and Evaluation, New Directions for Evaluation, no. 119, ed. Joanne G. Carman and Kimberly A. Fredericks (San Francisco: Jossey-Bass/Wiley, 2008).

31. Joanne Carman and Kimberly Fredericks, “Nonprofi ts and Evaluation: Empirical Evidence from the Field,” in Nonprofi ts and Evaluation, New Directions for Evaluation, no. 119, ed. Joanne G. Carman and Kimberly A. Fredericks (San Francisco: Jossey-Bass/Wiley, 2008).

32. Margaret Plantz, Martha Greenway, and Michael Hendricks, “Outcome Measurement: Showing Results in the Nonprofi t Sector,” in Using Measurement to Improve Public and Nonprofi t Programs, New Directions for Evaluation, no. 75, ed. Kathryn Newcomer (San Francisco: Jossey-Bass/Wiley, 1997).

33. Kopczynski and Pritchard, “The Use of Evaluation by Nonprofi t Organizations.” 34. Alaimo, “Nonprofi ts and Evaluation.” 35. Georgiana Hernandez and Mary Visher, Creating a Culture of Inquiry: Changing Methods—and

Minds—on the Use of Evaluation in Nonprofi t Organizations; A Look at WOW: Working On Workforce Development Project (San Francisco: The James Irwin Foundation, 2001).

36. Plantz et al., “Outcome Measurement.”

Chapter Fourteen

1. Case details are from a series of articles titled “Big Green,” by David B. Ottaway and Joe Stephens, published on various dates beginning in 2001 in The Washington Post, accessed February 14, 2011, http://www.washingtonpost.com/wp-dyn/nation/specials/ natureconservancy.

2. Max Stephenson Jr. and Elisabeth Chaves, “The Nature Conservancy, the Press, and Accountability,” Nonprofi t and Voluntary Sector Quarterly 35, no. 3 (2006): 345–366.

3. The Nature Conservancy, “Setting the Record Straight Regarding The Washington Post ‘Big Green’ Series,” Newsroom (n.d.), accessed February 14, 2011, http://www.nature.org/ pressroom/links/art10505.html.

4. Eric Kong and Mark Farrell, “The Role of Image and Reputation as Intangible Resources in Non-Profi t Organizations: A Relationship Management Perspective,” Proceedings of the 7th International Conference on Intellectual Capital, Knowledge Management & Organizational Learning, Hong Kong Polytechnic University, Hong Kong, China. November 11–12, 2010.

5. Nha Nguyen and Gaston Leblanc, “Corporate Image and Corporate Reputation in Customers’ Retention Decisions in Services,” Journal of Retailing and Consumer Services 8, no. 4 (2001): 227–236.

6. Paul Herbig and John Milewicz, “The Relationship of Reputation and Credibility to Brand Success,” Journal of Consumer Marketing 10, no. 3 (1993): 18–24.

7. Donald Lange, Peggy Lee, and Ye Dai, “Organizational Reputation: A Review,” Journal of Management 37, no. 1 (2011): 153–184.

8. Ian Fillis, “Image, Reputation and Identity Issues in the Arts and Crafts Organisation,” Corporate Reputation Review 6, no. 3 (2003): 239–251; Roger Bennett and Helen Gabriel,

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460 Notes

“Image and Reputational Characteristics of U.K. Charitable Organisations: An Empirical Study,” Corporate Reputation Review 6, no. 3 (2003): 276–289.

9. Edmund R. Gray and John M. T. Balmer, “Managing Corporate Image and Corporate Reputation,” Long Range Planning 31, no. 5 (1998): 695–702.

10. John Baxter, “Corporate Reputation Management,” Ezine Articles (n.d.), accessed January 12, 2011, http://ezinearticles.com/?Corporate-Reputation-Management&id=4773569.

11. Janel Radtke, Strategic Communications for Nonprofi t Organizations: Seven Steps to Creating a Successful Plan (Hoboken, NJ: Wiley, 1998).

12. Kathy Bonk, Emily Tynes, Henry Griggs, and Phil Sparks, Strategic Communications for Nonprofi ts: A Step-by-Step Guide to Working with the Media (San Francisco: Jossey-Bass/Wiley, 2008).

13. Public Relations Society of America, “What Is Public Relations?” (n.d.), accessed December 24, 2011, http://www.prsa.org/aboutprsa/publicrelationsdefi ned.

14. Philip Kotler, Marketing for Nonprofi t Organizations, 2nd ed. (Upper Saddle River, NJ: Pearson Prentice Hall, 1982), 47.

15. This list is quoted from Public Relations Society of America, “What Is Public Relations?” 16. Scott M. Cutlip, Allen H. Center, and Glen M. Broom, Effective Public Relations, 8th ed.

(Upper Saddle River, NJ: Pearson Prentice Hall, 1999). 17. Smith, Bucklin & Associates, “Using Public Relations Tools to Reach a Broader Audience,”

in The Complete Guide to Nonprofi t Management, 2nd ed. (Hoboken, NJ: Wiley, 2000). 18. Eileen Wirth, “Strategic Media Relations,” in The Nonprofi t Handbook: Management, 3rd ed.,

ed. Tracy Connors (Hoboken, NJ: Wiley, 2001), 266. 19. Janet A. Weiss and Mary Tschirhart, “Public Information Campaigns as Policy

Instruments,” Journal of Policy Analysis and Management 13, no. 1 (1994): 82–119. 20. See Lori Mcgehee, “What Is the Best Media to Get Your Message Across?” Rich Tips 2, no.

28 (2004), accessed December 10, 2010, http://richardmale.com/?cat=20&paged=2; and Wirth, “Strategic Media Relations.”

21. To post a PSA on the Clear Channel Web site, visit http//publicservice.clearchannel.com. 22. Ben Rigby, Mobilizing Generation 2.0: A Practical Guide to Using Web 2.0 Technologies to Recruit,

Organize, and Engage Youth (San Francisco: Jossey-Bass/Wiley, 2008). 23. The Web sites are, for YouTube for nonprofi ts, http://www.youtube.com/user/nonprofi ts;

for the NonProfi t Times, http://www.nptimes.com; for The Chronicle of Philanthropy, http:// www.philanthropy.com; and for Philanthropy Journal, http://www.philanthropyjournal.org.

24. Sharon S. Brehm and Jack W. Brehm, Psychological Reactance: A Theory of Freedom and Control (Maryland Heights, MO: Academic Press/Elsevier, 1981).

25. Some of these examples come from Kathy Fitzpatrick and Carolyn Bronstein, Ethics in Public Relations: Responsible Advocacy (Thousand Oaks, CA: Sage, 2006).

26. American Patriot Friends Network, “If You Donated to the Red Cross . . .” (November 13, 2001), accessed December 24, 2011, http://www.apfn.org/apfn/WTC_red-cross.htm.

27. Paula DiPerna, Media, Charity, and Philanthropy in the Aftermath of September 11, 2001 (New York: The Century Foundation, 2003); this publication is also available through the Foundation Center.

28. Melanie Herman and Barbara Oliver, Vital Signs; Anticipating, Preventing and Surviving a Crisis in a Nonprofi t (Washington, DC: Nonprofi t Risk Management Center, 2001), 6.

29. Matthew Hale, “Superfi cial Friends: A Content Analysis of Nonprofi t and Philanthropy Coverage in Nine Major Newspapers,” Nonprofi t and Voluntary Sector Quarterly 36, no. 3 (2007): 465–486.

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Notes 461

30. Melanie Herman, “Risk Management,” in The Jossey-Bass Handbook of Nonprofi t Leadership and Management, 3rd ed., ed. David O. Renz and Associates (San Francisco: Jossey-Bass/ Wiley, 2010), 642–666.

31. Larry Lauer, “How to Handle a Crisis,” Nonprofi t World 12, no. 1 (1994): 34–40. 32. Herman and Oliver, Vital Signs. 33. Lauer, “How to Handle a Crisis.” 34. See, for example, Richard Thompson, “Contingency and Emergency Public Affairs,” in

The Nonprofi t Handbook: Management, 3rd ed., ed. Tracy Connors (Hoboken, NJ: Wiley, 2001), 251–266; and Lauer, “How to Handle a Crisis”; Herman and Oliver, Vital Signs.

35. Lauer, “How to Handle a Crisis.” 36. Colorado Nonprofi t Association, Crisis Communication Plan: Nonprofi t Toolkit (n.d.), accessed

January 10, 2011, http://www.coloradononprofi ts.org/crisiscomm.pdf. 37. J. Craig Jenkins, “Nonprofi t Organizations and Political Advocacy in the Nonprofi t Sector,”

in The Nonprofi t Sector: A Research Handbook, 2nd ed., ed. Walter W. Powell and Richard Steinberg (New Haven, CT: Yale University Press, 2006), 307–332.

38. Bob Smucker, “Nonprofi t Lobbying,” in The Jossey-Bass Handbook of Nonprofi t Leadership & Management, 2nd ed., ed. Robert D. Herman & Associates (San Francisco: Jossey-Bass/ Wiley, 2005), 230. Also see the exempt organizations’ continuing professional education (EO CPE) document by Judith E. Kindell and John Francis Reilly, Lobbying Issues (1997), accessed December 24, 2011, http://www.irs.gov/pub/irs-tege/eotopicp97.pdf, for a review of the legislation and IRS codes affecting lobbying up to 1997.

39. Smucker, “Nonprofi t Lobbying.” 40. Internal Revenue Service, “Charities & Non-Profi ts: Political and Lobbying Activities”

(February 11, 2011), accessed December 24, 2011, http://www.irs.gov/charities/charitable/ article/0,,id=120703,00.html.

41. See a watchdog group’s coverage at OMB Watch, “NAACP IRS Audit” (February 23, 2005), accessed December 24, 2011, http://www.ombwatch.org/node/2281.

42. For useful lobbying resources, including descriptions of laws related to lobbying by nonprof- its, see the Center for Lobbying in the Public Interest, The Law: IRS Rules (2008), accessed December 24, 2011, http://www.clpi.org/the-law/irs-rules. For the U.S. government’s position on political and lobbying activities, as well as other resources for nonprofi ts, see Internal Revenue Service, Tax Information for Charities & Other Non-Profi ts (n.d.), accessed December 24, 2011, http://www.irs.gov/charities/index.html. For articles and analysis on the lobbying rights of nonprofi ts, see OMB Watch, Nonprofi t Lobbying Rights (n.d.), accessed December 24, 2011, http://www.ombwatch.org/Nonprofi t_Lobbying_Rights.

43. Michael J. Worth, Nonprofi t Management: Principles and Practices (Thousand Oaks, CA: Sage, 2009). 44. Internal Revenue Service, Tax-Exempt Status for Your Organization, Publication 557 (revised

October 2011), accessed December 24, 2011, http://www.irs.gov/pub/irs-pdf/p557.pdf. 45. For ideas on how to use the Web, see Rigby, Mobilizing Generation 2.0. 46. Steven Rathgeb Smith and Kirsten A. Gronbjerg, “Scope and Theory of Government-

Nonprofi t Relations,” in The Nonprofi t Sector: A Research Handbook, 2nd ed., ed. Walter W. Powell and Richard Steinberg (New Haven, CT: Yale University Press, 2006), 221–242.

47. Jenkins, “Nonprofi t Organizations and Political Advocacy in the Nonprofi t Sector.” 48. John D. McCarthy, “Pro-Life and Pro-Choice Mobilization,” in Social Movements in an

Organizational Society, ed. Mayer N. Zald and John D. McCarthy (New Brunswick, NJ: Transaction, 1987), 46–69.

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462 Notes

49. Barry Hessenius, Hardball Lobbying for Nonprofi ts (New York: Palgrave MacMillan, 2007). 50. Katya Andresen, Robin Hood Marketing: Stealing Corporate Savvy to Sell Just Causes (San

Francisco: Jossey-Bass/Wiley, 2006). 51. Saul Alinsky, Rules for Radicals (New York: Random House, 1971). 52. Jenkins, “Nonprofi t Organizations and Political Advocacy in the Nonprofi t Sector.” 53. Smucker, “Nonprofi t Lobbying.” 54. Much of this advice is adapted from Smucker, “Nonprofi t Lobbying.” Some additional

ideas are taken from Kristen Wolf, Now Hear This: The Nine Laws of Successful Advocacy Communications (Washington, DC: Fenton Communications, 2001).

Chapter Fifteen

1. Case details are from the following Cancer Research Institute sources: CRI Fact Sheet (2009), http://www.cancerresearch.org/fact-sheet.html; Pressroom (n.d.), http://www.cancerre search.org/Pressroom.aspx?id=2646 ; and Cancer Vaccine Collaborative: A Global Partnership for Clinical Development of Therapeutic Cancer Vaccines (2010), http://www.cancerresearch.org/ programs/research/Cancer-Vaccine-Collaborative.html; all accessed October 5, 2010; and also from Ludwig Institute for Cancer Research, Success Stories (n.d.), accessed October 5, 2010, http://www.licr.org/index.php/Success_Stories.

2. Thomas McLaughlin, Nonprofi t Mergers and Alliances: A Strategic Planning Guide (Hoboken, NJ: Wiley, 1998).

3. Darlyne Bailey and Kelly McNally Koney, Strategic Alliances Among Health and Human Service Organizations (Thousand Oaks, CA: Sage, 2000).

4. David Campbell, Barbara Jacobus, and John Yankey, “Creating and Managing Strategic Alliances,” in Effectively Managing Nonprofi t Organizations, ed. Richard Edwards and John Yankey (Washington, DC: NASW Press, 2006), 391–406.

5. Robert D. Herman, “Preparing for the Future of Nonprofi t Management,” in The Jossey- Bass Handbook of Nonprofi t Leadership and Management, ed. Robert D. Herman & Associates (San Francisco: Jossey-Bass/Wiley, 1994), 616–625.

6. Ian MacMillan, “Competitive Strategies for Not-for-Profi t Agencies,” in Advances in Strategic Management, vol. 1, ed. Robert Lamb (Greenwich, CT: JAI Press, 1983), 61–81.

7. Jessica Sowa, “The Collaboration Decision in Nonprofi t Organizations: Views from the Front Line,” Nonprofi t and Voluntary Sector Quarterly 38, no. 6 (2009): 1003–1025.

8. James Austin, The Collaboration Challenge: How Nonprofi ts and Businesses Succeed Through Strategic Alliances (San Francisco: Jossey-Bass/Wiley, 2000).

9. Deborah Askanase, “Nonprofi t Collaboration: Doesn’t It Make the Pie Bigger? ” Community Organizer 2.0, blog (February 16, 2010), accessed December 27, 2011, http://www .communityorganizer20.com/2010/02/16/nonprofi t-collaboration-doesnt-it-make-the- pie-bigger.

10. Jane Arsenault, Forging Nonprofi t Alliances (San Francisco: Jossey-Bass/Wiley, 1998). 11. David La Piana, The Nonprofi t Mergers Workbook: The Leader’s Guide to Considering, Negotiating,

and Executing a Merger (St. Paul, MN: Amherst H. Wilder Foundation, 2000). 12. La Piana, The Nonprofi t Mergers Workbook. 13. Alexander Cortez, William Foster, and Katie Smith Milway, “Nonprofi t M&A: More Than

a Tool for Tough Times” (February 25, 2009), accessed December 27, 2011, http://www .bridgespan.org/Nonprofi t-M-and-A.aspx.

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Notes 463

14. Cortez et al., “Nonprofi t M&A.” 15. John Bryson, Barbara Crosby, and Melissa Stone, “The Design and Implementation of

Cross-Sector Collaborations: Propositions from the Literature,” Public Administration Review, 66, suppl. s1 (2006): 44.

16. H. Brinton Milward and Keith G. Provan, A Manager’s Guide to Choosing and Using Collaborative Networks (Washington, DC: IBM Center for the Business of Government, 2006), accessed December 27, 2011, http://www.businessofgovernment.org/report/ managers-guide-choosing-and-using-collaborative-networks.

17. Robert Putnam, Bowling Alone (New York: Touchstone, 2000). 18. Joseph Galaskiewicz and Michelle Sinclair Colman, “Collaboration Between Corporations

and Nonprofi t Organizations,” in The Nonprofi t Sector: A Research Handbook, 2nd ed., ed. Walter W. Powell and Richard Steinberg (New Haven, CT: Yale University Press, 2006), 180–204.

19. KaBOOM! Web page, accessed October 2, 2011, http://kaboom.org. 20. Global Environmental Management Initiative and Environmental Defense Fund, Guide to

Successful Corporate-NGO Partnerships (2008), accessed October 3, 2011, http://www.gemi .org/resources/GEMI-EDF%20Guide.pdf.

21. Austin, The Collaboration Challenge. 22. Ida Berger, Peggy Cunningham, and Minette Drumwright, “Social Alliances: Company/

Nonprofi t Collaboration,” California Management Review 47, no, 1 (2004): 58–89. 23. The various models are discussed and outlined in John Yankey and Carol Willen,

“Collaborations and Strategic Alliances,” in The Jossey-Bass Handbook of Nonprofi t Leadership and Management, 3rd ed., ed. David O. Renz and Associates (San Francisco: Jossey-Bass/ Wiley, 2010), 375–400. James Austin, in The Collaboration Challenge, identifi es the stages as connection making, ensuring strategic fi t, generating value, and relationship management. David La Piana, in Real Collaboration: A Guide for Grantmakers (New York: Ford Foundation, 2001), presents a framework that includes inspiration, formalization, operation, and insti- tutionalization or termination. John Yankey, Barbara Jacobus, and Kelly McNally Koney, in Merging Nonprofi t Organizations: The Art and Science of the Deal (Cleveland, OH: Mandel Center for Nonprofi t Organizations, 2001), discuss decision making, planning, imple- mentation, and reviewing or evaluating. Suzanne Feeney, in “Governance Framework for Collaborations and Mergers,” in The Nonprofi t Handbook: Management, 3rd ed., ed. Tracy Connors (Hoboken, NJ: Wiley, 2001), 108–127, breaks the stages down into exploration, decision making, initiation and design, implementation, and monitoring.

24. Arsenault, Forging Nonprofi t Alliances. 25. Yankey et al., Merging Nonprofi t Organizations. 26. Yankey and Willen, “Collaborations and Strategic Alliances.” 27. Amelia Kohm and David La Piana, Strategic Restructuring for Nonprofi t Organizations: Mergers,

Integrations, and Alliances (New York: Praeger, 2003). 28. Bailey and Koney, Strategic Alliances Among Health and Human Services Organizations. 29. Feeney, “Governance Framework for Collaborations and Mergers.” 30. Paul Mattessich, Marta Murray-Close, and Barbara Monsey, Collaboration: What Makes It

Work? 2nd ed. (Saint Paul, MN: Amherst H. Wilder Foundation, 2001). 31. See Yankey and Willen, “Collaborations and Strategic Alliances”; and Michael J. Worth,

Nonprofi t Management: Principles and Practices (Thousand Oaks, CA: Sage, 2009). 32. McLaughlin, Nonprofi t Mergers and Alliances. 33. Gerald Bubis and Steven Windmueller, From Predictability to Chaos? How Jewish Leaders

Reinvented Their National Communal System (Baltimore, MD.: Baltimore Hebrew University

bnotes.indd 463bnotes.indd 463 08/05/12 4:07 PM08/05/12 4:07 PM

464 Notes

Center for Jewish Studies, 2005). See also D. Cohen, “Merger of Jewish Groups Fails to Meet Expectations, Report Finds,” Chronicle of Philanthropy, February 17, 2005.

34. William T. Mallon, “The Alchemists: A Case Study of a Failed Merger in Academic Medicine,” in Academic Medicine, Management Series: Strategic Alliances in Academic Medicine (Washington, DC: Association of American Medical Colleges, 2006), 26–37.

Chapter Sixteen

1. Case details are from Jerry Hauser, “Organizational Lessons for Nonprofi ts,” McKinsey Quarterly, June 2003, accessed August 20, 2011, https://www.mckinseyquarterly.com/ Nonprofi t/Performance/Organizational_lessons_for_nonprofi ts_1314.

2. Charles Kahn, The Art and Thought of Heraclitus: Fragments with Translation and Commentary (New York: Cambridge University Press, 1979).

3. “How Companies Approach Innovation: A McKinsey Global Survey,” McKinsey Quarterly, October 2007, accessed January 18, 2012, https://www.mckinseyquarterly.com/ How_companies_approach_innovation_A_McKinsey_Global_Survey_2069.

4. Jane Wei-Skillern, James Austin, Herman Leonard, and Howard Stevenson, Entrepreneurship in the Social Sector (Thousand Oaks, CA: Sage, 2007).

5. Noelle Barton, Maria DiMento, Holly Hall, Peter Panepento, Suzanne Perry, Caroline Preston, et al., “2010: Daunting Challenges Face the Nonprofit World,” Chronicle of Philanthropy, December 10, 2009.

6. Lester Salamon (ed.), The State of Nonprofi t America (Washington, DC: Brookings Institution Press, 2002).

7. Richard L. Daft, Organizational Theory and Design, 10th ed. (Mason, OH: South-Western/ Cengage Learning, 2010).

8. Andrew H. Van de Ven and Marshall Scott Poole, “Explaining Development and Change in Organizations,” Academy of Management Review 20, no. 5 (1995): 510–540.

9. Warner Burke, Organization Change: Theory and Practice, 2nd ed. (Thousand Oaks, CA: Sage, 2008).

10. Larry E. Greiner, “Evolution and Revolution as Organizations Grow,” Harvard Business Review, July–August 1972, 37–46. See also Michael Morris, Donald Kuratko, and Jeffrey Covin, Corporate Entrepreneurship & Innovation (Mason, OH: South-Western/Cengage Learning, 2008).

11. Richard Hall, Organizations: Structures, Processes, and Outcomes, 9th ed. (Upper Saddle River, NJ: Pearson Prentice Hall, 2005).

12. Patrick Dawson, Understanding Organizational Change: The Contemporary Experience of People at Work (Thousand Oaks, CA: Sage, 2003).

13. Rajesh Tandon, “Organization Development in Nongovernment Organizations,” in Handbook of Organization Development, ed. Thomas Cummings (Thousand Oaks, CA: Sage, 2008), 615–628.

14. Harold J. Leavitt, “Applied Organizational Change in Industry: Structural, Technical, and Human Approaches,” in New Perspectives in Organization Research, ed. William W. Cooper, Harold J. Leavitt, and Maynard W. Shelly (Hoboken, NJ: Wiley, 1964), 55–71.

15. Tandon, “Organization Development in Nongovernment Organizations.” 16. Daft, Organizational Theory and Design.

bnotes.indd 464bnotes.indd 464 08/05/12 4:07 PM08/05/12 4:07 PM

Notes 465

17. Indianapolis Metropolitan High School, “About Us” (n.d.), accessed August 12, 2011, http://www.indianapolismet.org/mod/aboutUs.

18. Burke, Organization Change. 19. David Wilson, A Strategy of Change: Concepts and Controversies in the Management of Change (New

York: Routledge, 1992). 20. Stephen Jay Gould, Ever Since Darwin (New York: Norton, 1977). 21. March of Dimes, “Mission” (2011), accessed September 2, 2011, http://www.marchofdimes

.com/mission/mission.html. 22. Dawson, Understanding Organizational Change. 23. Tony Eccles, Succeeding with Change: Implementing Action-Driven Strategies (New York: McGraw-

Hill, 1994). 24. Jennifer George and Gareth Jones, Organizational Behavior, 3rd ed. (Upper Saddle River, NJ:

Pearson Prentice Hall, 2002); Wilson, A Strategy of Change. 25. Jacquelyn Wolf, “Managing Change in Nonprofit Organizations,” in The Nonprofit

Organization: Essential Readings, ed. David Gies, J. Steven Ott, and Jay Shafritz (Pacifi c Grove, CA: Brooks/Cole, 1990), 241–257.

26. Kate Cooney, “The Institutional and Technical Structuring of Nonprofit Hybrids: Organizations Caught Between Two Fields?” Voluntas 17 (2006): 143–161.

27. Burke, Organization Change. 28. Wolf, “Managing Change in Nonprofi t Organizations.” 29. Kurt Lewin, Field Theory in Social Science (New York: HarperCollins, 1951). 30. Wilson, A Strategy of Change. 31. David Jamieson and Christopher Worley, “The Practice of Organizational Development,”

in Handbook of Organizational Development, ed. Thomas Cummings (Thousand Oaks, CA: Sage, 2008), 99–122.

32. Michael Hitt, Chet Miller, and Adrienne Colella, Organizational Behavior: A Strategic Approach (Hoboken, NJ: Wiley, 2006), 540–546; George and Jones, Organizational Behavior; Wilson, A Strategy of Change.

33. Tandon, “Organization Development in Nongovernment Organizations.” 34. David Renz, “Reframing Governance,” Nonprofi t Quarterly 17, no. 4 (2011): 50–53. 35. Carl Sussman, Building Adaptive Capacity: The Quest for Improved Organizational Performance

(Boston: Management Consulting Services, 2003), 1–18, accessed January 18, 2012, http://www.systemsinsync.com/pdfs/Building_Adaptive_Capacity.pdf.

36. Thomas Davenport and Laurence Prusak, Working Knowledge: How Organizations Manage What They Know (Boston: Harvard Business Press, 2000).

37. Paul Light, “The Spiral of Sustainable Excellence,” in Sustaining Nonprofit Performance (Washington, DC: Brookings Institution Press, 2004), 136–176.

38. Ralph H. Kilmann and Teresa Joyce Covin, Corporate Transformations: Revitalizing Organizations for a Competitive World (San Francisco: Jossey-Bass/Wiley, 1988).

39. Felice Perlmutter and Burton Gummer, “Managing Organizational Transformations,” in The Jossey-Bass Handbook of Nonprofi t Leadership and Management, ed. Robert D. Herman & Associates (San Francisco: Jossey-Bass/Wiley, 1994), 227–246.

40. Daft, Organizational Theory and Design. 41. John Kimberly, “Managerial Innovation,” in Handbook of Organizational Design, vol. 1, ed.

Paul Nystrom and William Starbuck (New York: Oxford University Press, 1981), 84–104. 42. Morris et al., Corporate Entrepreneurship & Innovation.

bnotes.indd 465bnotes.indd 465 08/05/12 4:07 PM08/05/12 4:07 PM

466 Notes

43. Drew Boyd, “Innovation for the Non-Profi t Sector,” Innovation Excellence, blog ( January 23, 2011), accessed December 27, 2011, http://www.business-strategy-innovation.com/ wordpress/2011/01/innovation-for-the-non-profi t-sector.

44. Gerald Zaltman, Robert Duncan, and Jonny Holbek, Innovations and Organizations (Hoboken, NJ: Wiley Interscience, 1973).

45. Marshall H. Becker, “Sociometric Location and Innovativeness: Reformulation and Extension of the Diffusion Model,” American Sociological Review 35, no. 2 (1970): 267–282.

46. Richard Daft and Selwin Becker, Innovation in Organizations: Innovation Adoption in School Organizations (New York: Elsevier, 1978); Constance Holden, “Innovation—Japan Races Ahead as U.S. Falters,” Science 210 (1980): 751–754.

47. Kenneth McNeil and Edmond Minihan, “Regulation of Medical Devices and Organizational Behavior in Hospitals,” Administrative Science Quarterly 22 (1977): 475–490.

48. James Goes and Seung Ho Park, “Interorganizational Linkages and Innovation: The Case of Hospital Services,” Academy of Management Journal 40 (1977): 673–696; Gautam Ahuja, “Collaboration Networks, Structural Holes, and Innovation: A Longitudinal Study,” Administrative Science Quarterly 17 (2000): 425–455.

49. Peter F. Drucker, Innovation and Entrepreneurship (New York: Harper Business, 1985). 50. Arthur C. Brooks, Social Entrepreneurship: A Modern Approach to Social Value Creation (Upper

Saddle River, NJ: Pearson Prentice Hall, 2009). 51. Gregory Dees, Responding to Market Failure, Harvard Business School Case 9-396-344, 1999. 52. James E. Austin, Roberto Gutierrez, Enrique Ogliastri, and Ezequiel Refi cco, Effective

Management of Social Enterprises: Lessons from Business and Civil Society Organizations in Iberoamerica (Cambridge, MA: Harvard University Press, 2006).

53. Morris et al., Corporate Entrepreneurship & Innovation. 54. Morris et al., Corporate Entrepreneurship & Innovation, 42. 55. Gregory Dees, “Mastering the Art of Innovation,” in Enterprising Nonprofi ts: A Toolkit for Social

Entrepreneurs, ed. Gregory Dees, Jed Emerson, and Peter Economy (Hoboken, NJ: Wiley, 2001), 161–198.

56. Paul Light, Sustaining Innovation: Creating Nonprofi t and Government Organizations That Innovate Naturally (San Francisco: Jossey-Bass/Wiley, 1998), 99–124.

Chapter Seventeen

1. Peter Frumkin, On Being Nonprofi t: A Conceptual and Policy Primer (Cambridge, MA: Harvard University Press, 2002).

2. See Peter M. Senge, “The Leader’s New Work” (SoL: Society for Organizational Learning, n.d.), accessed December 21, 2011, http://www.solonline.org/res/kr/newwork.html. Also see Peter M. Senge, The Fifth Discipline: The Art and Practice of the Learning Organization (New York: Doubleday, 2005).

3. National Intelligence Council (United States) and Institute for Security Studies (European Union), Global Governance 2025: At a Critical Juncture (September 2010), accessed December 21, 2011, http://www.dni.gov/nic/PDF_2025/2025_Global_Governance.pdf.

bnotes.indd 466bnotes.indd 466 08/05/12 4:07 PM08/05/12 4:07 PM

Notes 467

4. Zachary Sniderman, “What Does the Social Good Ecosystem Look Like?” infographic (May 18, 2011), accessed December 21, 2011, http://mashable.com/2011/05/18/ social-good-ecosystem-infographic.

5. Frances Kunreuther, Helen Kim, and Robby Rodriguez, Working Across Generations: Defi ning the Future of Nonprofi t Leadership (San Francisco: Jossey-Bass/Wiley, 2008).

6. For a listing of nonprofi t management education programs see Roseanne M. Mirabella, Nonprofit Management Education: Current Offerings in University-Based Programs (Seton Hall University, 2009), http://academic.shu.edu/npo.

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469469

Page references followed by fi g indicate an illustrated fi gure; followed by t indicate a table; and followed by e indicate an exhibit.

INDEX

A Abilities inventory, 257 Abzug, R., 219, 290 Accountability: change driven by nonprofi t’s,

391; debate over regulatory enforcement of, 28–29; defi nition of, 303; four core components of, 303–304; Habitat for Humanity International (HFHI), 422; managing program evaluation and, 302–304; organizational ethic of, 25; three fundamental questions about program, 304

Accounting: GAAP (generally accepted accounting principles) of, 148–150, 161–162, 163; internal controls for, 150–153; tracing accounts, 146–147

Accounting cycle, 147–148 Accounting for Contributions, 148

Accounting Standards Codifi cation (ASC), 148 Acid-test ratio, 165 ACORN, 152–153 Ad hoc committees, 221 Adaptive capacity model of change, 403–404 Addams, J., 119, 234–235 Administration consolidation, 367 Advance ruling, 52 Advisory groups, 221 Advocates: description of nonprofi t’s, 352;

designing and delivering advocacy message, 353–354; engaging, 352–353

Affi liate organization, 56 Aggressive competition orientation, 91, 92t Aggressive divestment orientation, 92t Aggressive growth orientation, 92t Ahlstrand, B., 87, 105, 106

bindex.indd 469bindex.indd 469 10/05/12 11:43 AM10/05/12 11:43 AM

470 Index

AIDS Action Committee of Massachusetts, 120 AIDS/HIV epidemic, 359–360 Alaimo, S., 324 Alcoholics Anonymous (AA), 41–42 Alderfer, C., 284, 287 Alderfer’s ERG theory, 287–288 Alinsky, S., 352 Allison, M., 250 Alternative coverage, 91, 359 American Bar Association, 220 American Cancer Society: founding of, 35;

franchise relationships of, 57 American Heart Association (AHA), 168, 179,

181, 189, 335; public relations “Liberty Fun” 9/11 crisis faced by, 339–340. See also Go Red For Women

American Institute of Philanthropy, 150 American Medical Association (AMA), 122 American Quilt Memorial, 149 American Red Cross: branding by, 185; Clara

Barton as founder of the, 235; community preparedness planning partnership with, 372; differentiated marketing used by, 183; disaster relief and human services provided by, 407; donor lists shared by, 120; founding of, 35; franchise relationships of, 57; hypothetical strategic planning process for, 94–104; identifi cation of strategic issues by, 100, 102e; online donations to, 336; SWOT analysis of, 96e, 99e, 102e. See also International Red Cross

Americans with Disabilities Act (ADA), 276 AmeriCorps VISTA, 257, 263, 289, 295 Amhert H. Wilder Foundation, 379 Analyzers, 90 Anderson, A., 313 Anderson, B., 120 Andresen, K., 352 Ansoff, H. I., 86, 181 Answerability, 303 Aramony, W., 244, 245

Arizona’s Children Association (AzCA), 368–371, 376, 378

Arsenault, J., 364 The Art of War (Sun Tzu), 86 ASAE: The Center for Association

Leadership, 421 Asset transfer merger, 368 Assets: current ratio of, 165; permanently

restricted, 148; temporarily restricted, 148; unrestricted, 148; unrestricted net assets ratio, 164–165

Associated Press, 149, 336 Association of Certifi ed Fraud Examiners, 151 Association of Fundraising Professionals (AFP),

126, 215 Auditing, 161–162 Austin, J., 38, 39, 315, 362, 363, 364

B B corporations, 10, 422 Baby Boomer retirements, 251, 420 Bailey, D., 358 Bair, A. M., 126 Balanced approach: evaluating nonprofi t’s,

20–21; triangle of organizational foci for, 20fi g

Balanced scorecards, evaluation function of, 20 Banking relations, 157 Baptist Foundation of Arizona (BFA):

evaluating internal processes of, 16–17; evaluating resource acquisition by, 16; evaluating stakeholder satisfaction of, 17–18; story of, 11–12

Barber, P., 420–421 Barnes Foundation, 206 Barton, C., 35, 235 Basic program theory, 305 The Beehive Collective, 132 Behavior: Alderfer’s ERG theory on, 287–288;

equity theory on, 295–296; expectancy theory on, 291–292; goal-setting theory

bindex.indd 470bindex.indd 470 10/05/12 11:43 AM10/05/12 11:43 AM

Index 471

on, 294–295; Herzberg’s two-factor theory on, 288–290; McClelland’s learned needs theory on, 290–291; operant conditioning and behavior modifi cation, 292–293; public service motivation (PSM) theory on, 291; social learning theory on, 293–294

Behavioral complexity theory, 241 Bekkers, R., 285 Ben & Jerry’s, 374 Benefi ts, 274–275 Benzing, C., 144 Better Business Bureau’s Wise Giving Alliance,

150, 161 Big Brothers Big Sisters: Edmonton & Area

(BBBSE): assessment of current HR capacity of, 258; examining HR capacity of, 257; HR capacity-building decisions of, 261; story of, 225–226

“Big Green” series (The Washington Post), 328 Blanchard, K. H., 24, 237 Block, S., 247 Board committees, 220–221 Board Composition Analysis Grid, 217e Boards: activities during collaboration, 379;

advisory groups of the, 221; bylaws of, 220; committees of, 220–221; determining composition of, 216–219; managing confl ict within the, 221–224e; offi cers of the, 220; orientation, training, self-assessments, and reports of, 221. See also Governing boards

BoardSource, 231 Bohr, N., 420 Bolman, L., 240 Bond, J., 346 Bonds, 158 Borrowing: issues to consider when, 157–158;

types of, 158 Bortree, D., 288 Bowman, W., 261 Boy Scouts of America: controversy over

moral code of, 23; franchise relationships

of, 57; geographical structure of, 71; marketing segment used by, 182; serving needs of youth, 286

Boy Scouts of America et al. v. Dale, 23 Boys and Girls Clubs, 286 Boys Town, 125 Bradshaw, P., 213, 215 Branding, 185–186 Brauer, J., 291 The Bridgespan Group, 251, 368, 370 Bron Afon Community Housing, 219 Brooks, A., 41 Brown, E., 126 Brown, L. D., 248 Brown, W., 220 Bryson, B., 371 Bryson, J., 100, 103 Budget reserve policy, 145 Budgeting: description and nonprofi t issues

related to, 153–154; estimating and reviewing revenues and expenses, 154–155, 157; example of monthly budget report, 156e; producing realistic budget, 154

Buffett, W., 131 Build strength orientation, 92t Build up best competitor orientation, 92t, 93 Bureaucracy, 65–66 Burke, W., 394, 397 Burning Man organization, 230–231 Burns, T., 68 Bush administration, 116 Bush, G. W., 346 Business case for nonprofi t: business plan,

43–53; market potential assessment, 43; social value potential assessment, 42; sustainability potential assessment, 43

Business partnerships: four types of nonprofi t and, 372–374; Nonprofi t Shopping Mall, 410; philanthropic collaborations, 363t, 364, 372–373; Plumstead case on, 123; revenue source through, 121–124

bindex.indd 471bindex.indd 471 10/05/12 11:43 AM10/05/12 11:43 AM

472 Index

Business plans: establishment process, 49–50, 52–53; executive summary, 47–48; generic outline of the topic headings for, 43–45, 46e–47e; key objectives, 48–49; nonprofi t vision and mission statements, 45; organizations that may qualify for tax exemptions, 51e

Business strategy: a brief history of, 86–87; contemporary, 87–88. See also Strategy

Businesses: funding provided by, 134; nonprofi t partnerships with, 121–124, 372–374

Buying experience, 196–197

C Campbell, D., 358 Cancer Research Institute (CRI), 356 Cancer Vaccine Collaborative

(the Collaborative): collaboration benefi ts to, 362; collaboration negotiation forming the, 377; as integrative collaboration, 363t, 365; as joint venture corporation, 367; partnerships making up the, 356–357; story of, 356–357

CANDO (Chicago Association of Neighborhood Development Organizations): evaluating ability to take balanced approach, 20fi g–21; evaluating goal accomplishment by, 13–15; evaluating growth, learning, and adaptation of, 18–19; evaluating stakeholder satisfaction of, 17–18; story of, 11

Cantillon, R., 36 Capital resources: description of, 15; as

indicator of effectiveness, 15; social entrepreneurship model on, 37–38fi g

Carman, J., 322 Carnegie, A., 128 Carver, J., 207, 208, 214 Case studies, 320 Cash fl ows: number of days of cash on hand,

165; statement of cash fl ows, 163

The Center for Civil Society Studies, 116 Center for Lobbying in the Public Interest, 353 Centrality-related power, 244 Centralized advocacy structures, 351–352 Centralized organizations, 64 CFRE (certifi ed fundraising executive):

Donor Bill of Rights followed by, 25, 26e; professionals with, 25

Chaffee, F., 370–371 Chait, R., 208, 211 Chambre, S., 248 Chandler, A., 86 Chang, C., 127 Change: examining degree of, 394–395;

experienced by nonprofi ts, 385–387; managing the process of, 397–399; nonprofi t elements that can go through, 392–394; process-driven, 387–390; resistance to, 395–397, 398–399; specifi c drivers of nonprofi t, 390–392; Teach For America’s experience with, 384–385

Change drivers: external, 390–391; internal triggers, 391–392

Change models: adaptive capacity, 403–404; development spiral, 389, 404–407, 405fi g ; innovation, 410–416; Lewin’s force fi eld model, 400–401fi g; nonprofi t transformation, 407–409; organizational development (OD), 400–403

Charismatic leaders, 246–247, 408–409 Charitable trust, 50 Charity: description of, 127–128;

organizational ethic of, 26. See also Philanthropy

Charity Navigator, 150 Charity Navigator survey (2004), 120 Charles M. Bair Family Museum, 126 Chicago Lighthouse, 364 Chief fi nancial offi cer (CFO), 145 Chronicle of Philanthropy, 130, 144, 337, 386 Church of Scientology, 55 Ciconte, B. L., 131

bindex.indd 472bindex.indd 472 10/05/12 11:43 AM10/05/12 11:43 AM

Index 473

Cirka, C., 289, 296 Citizens United v. Federal Election Commission, 346 Civil society organizations: demographics

of U.S. volunteers in, 9; popular term for nonprofi ts, 7. See also Nonprofi t sector

Clary, E. G., 287 Classen, J., 208 Clean Air Partners Membership Strategy

(2008), 121, 122e Clear Channel Communications, 336 Cleveland Foundation, 133 Clinton, H., 346 Coaching, 273–274 Coe, C. K., 140, 156 Coercive isomorphism, 78 Collaboration: Cancer Vaccine Collaborative

(the Collaborative) example of, 356–357, 362; challenges facing, 374–375; developing process for, 375–378; domain infl uence issue of, 361; environmental validity issue of, 360–361; governing during, 378–379; operational effi ciency issue of, 360; as organizational life cycle stage, 388; resource interdependence issue of, 360; social responsibility issue of, 358–360; strategic enhancement issue of, 361–362; successful, 379–382

Collaboration continuum, 363t–365 Collaboration process: evaluating the

collaboration, 378; forming the collaboration, 377; identifying potential partners, 376–377; initial planning, 375–376

Collaborative relationships: collaboration continuum, 363t–365; cross-sector collaborations, 371–374; defi ning types of, 362–374; mergers, 368–371; partnership matrix, 365–367

Collaborative success: challenges to, 381–382; factors promoting, 379–381

Collegiate School (later Yale University), 54 Colman, M., 372, 374

Combined Federal Campaign, 134 Comcast Corporation, 126 Commercial collaborations, 373 Commissioner, Plumstead Theatre Society v., 123 Commitment to perform, 283 Committed line, 158 Common Cause, 353 Community capacity-building networks, 372 Community Education and Programs, Inc.

(CEAP), 141, 150 Community organizations, 69 Community-based resources: description of,

15; as indicator of effectiveness, 15 Companion organizations, 55 CompassPoint Nonprofi t Services, 240 Compensation, 274–275 Competition: innovation and perceived

advantage for, 411; pricing tied to, 195 Competitive position, 91, 359 Complexity: geographical, 64; horizontal, 64;

information process, 74; vertical, 64 Compliance, 304 Concentrated marketing, 184 Confl ict: change and organizational, 389–390;

handling government board, 224e; as structural defi ciency, 79

Confl ict of interest policy, 142–144 Confl ict resolution, 224e Constituency/representative governance, 214 Contextual elements: description of, 38; social

entrepreneurship framework on, 38fi g–39 Conti-Brown, P., 124 Contingent workers, 257 Corporate integrations, 367 Cost leadership positioning, 89 Costs: of collaboration, 382; innovation,

410–411. See also Expenses Counseling, 273 Courtney, R., 107, 108 Covin, J., 413 Covin, T., 407

bindex.indd 473bindex.indd 473 10/05/12 11:43 AM10/05/12 11:43 AM

474 Index

Crazy Horse Memorial, 116–117 Crisis management: American Red Cross

“Liberty Fund” for 9/11 victims, 339–340; public relations process during, 340–346

Criticality-related power, 244 Crosby, J., 371 Cross-sector collaborations: description of, 371;

nonprofi t and for-profi t collaborations, 121–124, 372–374; nonprofi t and government collaborations, 371–372; pros and cons of, 374–375

Crowdsourcing, 266–267 Cultural Competence Learning Initiative

(CompassPoint Nonprofi t Services), 240 Culture: changes to people and

organizational, 393–394; collaboration and incompatible, 381; national, 77; organizational, 77, 381

Cummings, S., 104–105, 108 Cycle of involvement: stage 1: initial

involvement, 263–269; stage 2: development, 269–274; stage 3: maintenance, 274–277; stage 4: separation, 277; volunteer employees and, 262e

D Daft, R., 392 Dale, Boy Scouts of America et al. v., 23 Darfur Is Dying (video game), 336 Daring to Lead study (2006), 251, 289 David, J., 280, 281 Davis, G., 63 Dawson, P., 390, 395 Deal, T., 240 Decentralized advocacy organizations, 351, 352 Decision making: framing moral, 24;

self-assessment needed prior to merger, 369; as structural defi ciency, 78

Deckop, J., 289, 296 Dees, G., 413 Dees, J. G., 120 Defenders, 90

Defi nitive ruling, 52 Delaware Association of Nonprofi t

Organizations, 323 Delegate governance, 215–216 Dell Computer, 184 Demographic shifts, 259 Detroit Zoo, 26–27 Development spiral, 389, 404–407, 405fi g; Differentiated marketing, 183 Differentiation positioning, 89–90 DiMaggio, P., 78 DiPerna, P., 339 Distribution channels, 196–197 Divisional structure, 71 Document retention policy, 146 Domain infl uence, 361 Dominant coalition, 77 Donations: accounting of gifts by donor

wishes, 148–149; debate over government grants “crowding out,” 126–127; honoring donors’ intentions for their, 126; pass- through contribution, 149; revenue source of, 126

Donor Bill of Rights, 25, 26e, 126 Donor lists, 119–120 Donor types: breakdown of giving by,

129fi g; businesses, 134; federated funders, 134; foundations, 132–133; giving groups, 131–132; individuals, 130–131

Donors: accounting of gifts by, 148–149; duty of obedience and adherence to wishes of, 205–206; nonprofi t change driven by preferences of, 391; pyramid of giving, 131fi g; types of, 129fi g–134

Douglas, S., 151 Dowling School, 414 Drucker, P., 41 Duncan, R., 410 Duty of care, 204 Duty of loyalty, 204–205 Duty of obedience, 205–206 Dynamism, 403

bindex.indd 474bindex.indd 474 10/05/12 11:43 AM10/05/12 11:43 AM

Index 475

E Earned income: aligning missions with,

118–119; considerations for payments for, 118; description of, 117–118; donor list sales for, 119–120; UBIT (unrelated business income tax) payments due to, 119, 123

Ebrahim, A., 304 Eccles, T., 395 Economic conditions factor, 259 Edelman (PR fi rm), 335 Effort-related power, 243–244 Ego-clashes, 382 Egyptian demonstrations (2011), 194 Electronic format for promotion, 193 Eli Lilly and Company Foundation, 115 Elmira study, 318 Emergent cellular governance, 214 Emergent strategy: defi nition of, 105–106;

as strategic challenge, 104–107 Emerson, E., 264 Emerson, J., 120, 291 EmployAlliance, 364 Employees. See Staff Endowment campaigns, 124 Endowments: investment recommendations

for, 125; as revenue source, 124; “underwater,” 125

Enforcement, 304 Enron scandal, 142 Entrepreneurial corporate spin-off,

54–55 Entrepreneurial/corporate

governance, 214 Entrepreneurship: diverse defi nitions of, 36;

social, 36–42, 421 Environment: defi nition of, 63; HR capacity

service demands and natural, 260; information process linked to, 74–75; providing safe and productive work, 276; resistance to change due to demanding, 396; situational analysis of external and internal,

95–100; structural defi ciency of failed response to changed, 78

Environmental Defense Fund (EDF), 374 Environmental Protection Agency (EPA), 328 Environmental scanning, 97–98 Environmental validity: collaboration and,

360–361; key factors to consider for, 361; legitimacy perceived as resource in, 360, 361

Equity theory, 295–296 ERG theory, 287–288 Ethical codes: encouraging moral action

in keeping with, 24; honoring donors’ intentions, 126; Public Relations Society of America (PRSA), 338e

Ethical issues: building moral awareness of, 24; government relations and related, 351; overview of nonprofi ts and, 21–29; personal, 22–24; public relations communication, 337–339. See also Organizational ethics

Ethnography, 321 European Union’s Institute for Security

Studies, 420 Evaluation: of the collaboration, 378;

nonprofi t organizational, 13–21; program, 302–325

Evaluation and Program Implementation Division (OMB), 303

Evaluation Quarterly, 303 Evers-Williams, M., 201, 202, 212, 223 Evolutionary change, 394 Evolutionary transition, 394–395 Executive centrality, 231, 244 Executive director (ED): board roles and

responsibilities versus, 207–208, 210; founder, 247–248; job description for the Santropol Roulant, 232e; leadership responsibilities of the, 233–234; loss of legitimacy by, 242; overview of the, 229–231; phases of dynamics between board and, 209t; responsibilities of the, 231–232. See also Leadership

Executive governance, 216

bindex.indd 475bindex.indd 475 10/05/12 11:43 AM10/05/12 11:43 AM

476 Index

Expanded reproduction, 394 Expectancy theory, 291–292 Expenses: budgeting, 153–157; estimating

and reviewing, 154–155, 157; GAAP on reporting, 149–150; monthly budget report on, 156e. See also Costs

Expert power, 243 External environmental analysis, 95–98 External relations OD interventions, 402–403 Extrinsic incentives, 288–290

F Facebook, 193 FACTNet, 55 Fahrenheit 9/11 (fi lm), 346 Fatt, N., 248 Federal Election Commission, 346 Federal Election Commission, Citizens United v., 346 Federated funders, 134 FedEx, 374 Feedback: how evaluation provides, 323;

measuring employee performance and, 271–273

Feeney, S., 378 Felt confl ict, 222 Financial Accounting Standards Board

(FASB), 148 Financial analysis, 162–163 Financial indicators and ratios, 163–165 Financial literacy, 165–166 Financial management: accounting, 146–153;

auditing and fi nancial analysis, 161–166; banking relations, 157; borrowing, 157–158; budgeting, 153–157; fi nancial risk management, 158–161; GAAP (generally accepted accounting principles) used in, 148–150, 161–162, 163; setting up policies for, 142–146

Financial policies: budget reserve policy, 145; confl ict of interest policy, 142–144; document retention policy, 146; investment

policy, 145–146; whistle-blower protection policy, 144–145

Financial resources: description of, 15; as indicator of effectiveness, 15

Financial risk management: issues to consider for, 158–159, 161; methods for reducing risk, 159e; types of insurance policies, 160e

Fiscal sponsorship, 52–53 Fitzpatrick, K., 228 501(c)(3) organizations: accountability of,

202; advocacy efforts by, 353; companion organizations established by, 55; funds raised from membership fees of, 120; government’s position against political activities by, 346; regulations governing lobbying by, 347, 348–349; requirements for establishing, 52; tax status of, 50, 51e. See also Section 501(c) (3) tax status

501(c)(4) organizations: companion organizations established by, 55; political activities allowed by, 346; requirements for establishing, 52; tax status of, 50, 51e

501(c)(6) organizations: National Football League’s, 57; political activities allowed by, 346

501(c)(7) organizations, 120 Flag of Honor Fund, 149 Flexibility-related power, 244 Flinn Foundation (Arizona): identifi cation of

strategic issues by, 100; industry analysis of, 97; mission drift of, 95; story of, 85; strategic planning by, 85–86

Focus groups, 320–321 For-profi t and nonprofi t partnerships: four

types of, 372–374; Nonprofi t Shopping Mall, 410; philanthropic collaborations, 363t, 364, 372–373; Plumstead case on, 123

For-profi t businesses: funding provided by, 134; nonprofi t partnerships with, 121–124, 372–374; revenue source through, 121–124

Force fi eld analysis, 98

bindex.indd 476bindex.indd 476 10/05/12 11:43 AM10/05/12 11:43 AM

Index 477

Force fi eld model, 400–401fi g; Ford, W. C., Sr., 57 Ford Foundation, 115 Form 5768, 348 Form 990, 143, 144, 148, 377 Formal organizations, 63 Formalization, 64 Foundation Center, 133, 323 Foundations: format of proposals submitted by,

133; three types of, 132–133 Founder executive directors, 247–248 Founder’s syndrome, 34, 247 Franchise relationships, 56–58 Fraud: classifi cations of, 151; description and

examples of, 150–151; of Hurricane Katrina Web site donations, 151; practices to reduce likelihood of, 152

Fredericks, K., 322 The Free Management Library, 323 Freevibe.com, 191 Freiwirth, J., 225 French, J., 242 Friends of the High Line: enabling individuals

to pursue basic needs, 286; resources to perform provided by, 283; story of, 280–281

Frumkin, P., 124 Fuller, M., 54 Fuller Center for Housing, 54 Functional structure, 69, 71 Fund development: principles of, 137–138;

process of, 134–136 Fundraising effi ciency ratio, 164

G GAAP (generally accepted accounting

principles), 148–150, 161–162, 163 Galaskiewicz, J., 219, 372 Gandhi, M., 233 Gardner, J., 247 Gates, B., 131 Gates, M., 131

Gateway capacity, 412 General Motors Corporation, 132 Generation Y, 420, 422 Geographical complexity, 64 Geographical structure, 71–72 Girl Scouts of the USA: court decision on

eliminating local councils of, 57–58; earned income from cookie sales of the, 119; geographical structure of, 71; serving needs of youth, 286

Giving circle, 132 Giving groups, 131–132 Giving USA, 129, 130 GM Foundation, 132 Go Red For Women: concentrated

marketing used by, 184; evaluations of, 179; marketing data collection and analysis approach by, 176–177; marketing objectives and strategy used by, 181; marketing planning process used by, 173; public relations campaign for, 335; social marketing by, 189; story of, 168–169. See also American Heart Association (AHA)

Goal setting: change and organizational, 389; measureable, time bounded, and challenging criteria for, 14–15

Goals: ensuring stakeholder acceptance of, 14; evaluating CANDO accomplishment of their, 13–14; prioritizing your, 15; setting public relations, 333–334; specifying program, 314

Goal-setting theory, 294–295 Godsall, C., 228 Godsoe, B., 249 Goldman Sachs Foundation, 45 Goodwill Industries: charter school established

by, 402; distribution channels of, 196; franchise relationships of, 57; geographical structure of, 71; products of, 187–188; strategic positioning of, 89

Goodwill Industries of Central Indiana, 393

bindex.indd 477bindex.indd 477 10/05/12 11:43 AM10/05/12 11:43 AM

478 Index

Gould, S. J., 394–395 Governing board effectiveness: considerations

and issues of, 210–211; determining board composition for, 216–219; determining board confi guration by contingency, 213–215; four general types of association boards for, 215–216; six competencies contributing to, 211–212

Governing board responsibilities: ED (executive director) roles vs. board roles and, 207–208, 210; legally required board duties, 204–206; protection from liability, 206–207

Governing boards: collaboration role of, 378–379; description of nonprofi t, 202; effectiveness of, 210–223; examining a broader conception of governance by, 225; fi ve confl ict-handling modes for, 224e; functions during collaboration, 379; NAACP, 201, 202; phases of dynamics of ED and, 209t; responsibilities of nonprofi t, 203–208, 210; symptoms of groupthink among members of, 223e. See also Boards

Government contracts, 115–117 Government grants: debate over donations

being “crowded out” by, 126–127; nonprofi t revenue through, 115–117

Government Performance and Results Act (1993), 304

Government relations: designing and delivering advocacy message, 353–354; engaging advocates, 352–353; lobbying regulations, 347–349; planning and implementing, 349–352

Government vouchers, 115–116 Government-nonprofi t collaborations,

371–372 Graham, J., 421 Grassroots lobbying, 347 Grassroots organizations, 69 Gratuity, 144 Great Society (1960s), 302

Green Bay Packers, 57 Greenlee, J., 151 Greiner, L. E., 387, 404, 406 Groupthink, 223e GuideStar Nonprofi t Services, 275 Gummer, B., 407–409

H H-1B hires, 268 Haag, R., 120 Habitat for Humanity International (HFHI):

accountability of, 422; board composition of, 218; educational material provided to clients by, 107–108; entrepreneurial corporate spin-off of, 54–55; founding of, 35; franchise relationships of, 57; ReStore of, 118

Haley-Lock, A., 275, 296 Hall, P., 76 Hammond, D., 233 Hammond, R., 280, 281 Hardison, A., 190 Harlem School for the Arts, 142 Harnett County Partnership for Children

(HCPC): fi nancial mismanagement accusations against, 150; need to change fi nancial management systems, 141; story of, 141

Harrell, A., 318 Harvard University, 35, 54, 90, 125 Heifer International, geographical

structure of, 71 Heimovics, R. D., 231, 241 Heraclitus, 385 Herman, R. D., 211, 231, 241 Hersey, P., 237 Herzberg, F., 284, 288, 289, 290 Herzberg’s two-factor theory, 288–290 Hesselbein, F., 238 Hessenius, B., 352 Hierarchical organizational chart, 66, 67e Hierarchy of authority, 65

bindex.indd 478bindex.indd 478 10/05/12 11:43 AM10/05/12 11:43 AM

Index 479

Hierarchy of needs (Maslow’s), 285–286fi g High Line (Manhattan), story of, 280–281 Holbek, J., 410 Hold harmless clause, 159 Holland, T. P., 211, 213 Homes for Families, 225 hopeFound: story of, 140–141; SWOT analysis

of, 140–141 Horizontal complexity, 64 Horizontal information linkages, 75–76 HR Council for the Nonprofi t Sector,

233–234 Hull House, 235 Hull House Association, 119 Human dimension OD interventions, 402 Human resource (HR) capacity: assessing

current, 257–258; defi nition of, 256–257; forecasting demand for services, 258–260; forecasting needs for, 260–261

Human resource management: cycle of involvement, 261–277; defi nition of, 257

Human resources: description of, 15; as indicator of effectiveness, 15. See also People

Humane Society of the United States: branding by, 185; distribution channels of, 196; undifferentiated (mass) marketing used by, 183

Hurricane Katrina, 151, 391 Hybrid boards, 215 Hygiene factors, 288

I “I Have a Dream” speech (King), 233 Image: defi nition of, 329; as intangible

nonprofi t resource, 329–330; public relations to enhance, 331–339; risk and crisis management of, 339–344; strategic communication of, 330–331

Image research, 334 Inc. magazine, 119 Indian National Congress, 233

Industry analysis, 97 Infl uence strategies, 245–246 Informal organizations, 63–64 Information diffusion networks, 371–372 Information process: complexity, uncertainty,

and interdependency of, 74; environment and strategy linked to, 74–75; horizontal linkages, 75–76; organizational structure and, 73–76; vertical linkages, 75

In-kind gift, 128 Inner-circle governance, 216 Innovation: building adaptive capacity role

of, 404–405; characteristics affecting adoption, 410–412; description of, 410; environmental sources of, 412–413; management of, 413–416; resources available for, 415

Innovator organization, 34–35 Institute for Security Studies

(European Union), 420 Institutional infl uences, 76–78 Institutional isomorphism, 78 Integrative collaborations, 363t, 365 Integrity, 25 Intended strategy, 105, 106fi g Interdependency: information process, 74;

types of, 74 Interlocking boards, 368 Internal factors analysis, 98–100 Internal Revenue Service. See U.S. Internal

Revenue Service (IRS) International Red Cross, 35, 336. See also

American Red Cross Internet: program evaluation tools found on

the, 323; as public relations outlet, 336 Intrapreneurship, 36 Intrinsic incentives, 288–290 Investment income: nonprofi t revenue

through, 124–125; recommendations for nonprofi t, 125

Investment policy, 145–146

bindex.indd 479bindex.indd 479 10/05/12 11:43 AM10/05/12 11:43 AM

480 Index

IRC Form 5768, 348 IRS. See U.S. Internal Revenue Service (IRS) IRS Form 990, 143, 144, 148, 377 Issue impact analysis grid, 98 Iverson, J., 220

J Jackson, J., 276 Jacob, J. G., 131 Jacobus, B., 358 Jamieson, D., 400 Janis, I., 223 Jeavons, T., 25, 240 Job enrichment, 274 Job Path, 55 Job rotation, 274 John D. and Catherine T. MacArthur

Foundation, 132 Johnson, J., 251 Joint programming, 367 Joint ventures: corporations, 367; nonprofi t

revenue sources through, 121–124; orientation toward, 92t, 93; Plumstead case on, 123

Jospin, D., 247 Junior League, 218 Jurkiewicz, C. L., 239 Justifi cation, 303

K KaBOOM!, 233, 373, 374 Kalegaonkar, A., 248 Kanter, R. M., 242 Kearns, K., 101, 304 Kennedy, J. F., 14 Kickback, 144 Kilmann, R., 407 King, J., 306 King, L., 190–191 King, M. L., Jr., 233, 235 Kitzi, J., 42

Knowledge resources: description of, 15; as indicator of effectiveness, 15

Kohm, A., 378 Koney, K., 358 Kopp, W., 33, 37, 384, 392 Kotter, J., 232 Kouzes, J., 233 Kruzich, J., 275 KSAs (knowledge, skills, and abilities), 266 Ku Klux Klan, 8 Kuratko, D., 413

L La Piana, D., 362, 365, 366, 378 Laissez faire leadership, 236 Lampel, J., 87, 105, 106 Latnet confl ict, 222 Leaders: charismatic, 246–247, 408–409;

laissez faire, 236; personal and positional sources of power by, 242–245; relationship- oriented, 236; strategies for infl uencing others, 245–246; task- and relationship- oriented, 235; “walking around” management by, 294

Leadership: charismatic, 246–247, 408–409; fi ve basic principles of, 234–246; strong leaders and shared, 246–249; trait theories of, 234. See also Executive director (ED)

Leadership development: future opportunities for, 423; transitions of, 249–252

Leadership principles: effective leaders are not all the same, 234–235; effective leaders are self-aware and operate out of a strong value system, 237–240; effective leaders change their style to fi t the situation, 235–237; effective leaders integrate and balance roles and perspectives, 240–241; effective leaders use power and infl uence wisely, 242–246

Leadership transitions, 392 Learned needs theory, 290–291 Learning Project, 384, 385

bindex.indd 480bindex.indd 480 10/05/12 11:43 AM10/05/12 11:43 AM

Index 481

Leasing, 158 Leete, L., 275, 296 Legal cases: Boy Scouts of America et al. v.

Dale, 23; Citizens United v. Federal Election Commission, 346; Plumstead Theatre Society v. Commissioner, 123; Queen of Angels Hospital v. Younger, 204; Stern v. Lucy Webb Hayes National Training School for Deaconesses & Missionaries, 205

Legislation: Americans with Disabilities Act (ADA), 276; Government Performance and Results Act (1993), 304; Lobby Law (1976), 347, 348; Lobbying Disclosure Act (1995), 347; Occupational Safety and Health Administration (OSHA) Act, 276; Public Law 94-142, 111; Revised Model Nonprofi t Corporation Act, 220; Sarbanes-Oxley (SOX) Act, 142, 144, 146, 206–207; Title VII, 267

Legitimacy: accountability as source for, 304; based on being perceived as trustworthy, 329–330; challenges to nonprofi t’s, 10; change in nonprofi t, 408; executive directors who have lost their, 242; funding tied to, 361; governing board’s role in establishing, 202, 210; as resource, 360, 361; strategic collaboration for credibility and, 373

Legitimate power, 242 Leonard, H., 315 Lewin, K., 400–401 Lewin’s force fi eld model, 400–401fi g; Liabilities: acid-test ratio of, 165; current

ratio of, 165 Light, P., 36, 389, 404–407, 405fi g ; 414 Lightner, C., 238 Lilly Endowment, 115 Lindblom, C., 105 Line of credit, 158 Loans, 158 Lobby Law (1976), 347, 348 Lobbying: direct, 347; grassroots, 347;

limitations on nonprofi ts engaged in, 347; what activities are permissible by nonprofi ts, 347–349

Lobbying Disclosure Act (1995), 347 Locus of control, 22 Logic models: applied to Project Superwomen,

312e–313e; evaluation use of, 309–311 Loseke, D., 261 Loudon, D. L., 96, 99 Lucy Webb Hayes National Training School for

Deaconesses & Missionaries, Stern v., 205 Ludwig Institute for Cancer Research (LICR),

54, 356 Luther Theological Seminary, 414

M MacArthur Foundation, 132 MacMillan, I., 91, 359 MacMillan’s strategic orientation framework,

91–93 MADD (Mothers Against Drunk Driving), 238 Malcolm Baldrige National Quality Award, 17 Malik, S. D., 270, 272 Management services organizations, 367 Manifest confl ict, 222 Manitou Girl Scout Council, 57 March of Dimes: changed mission of, 19,

395; goals of the, 14–19; recognition of opportunity by, 42

Marcus Aurelius, 125 Market segmentation: demographic criteria

of, 182; description of, 182; geographical criteria of, 183; product or service criteria of, 183; psychographic criteria of, 183; strategic targeting of, 183–184

Marketing: branding, 185–186; distinctive aspects of nonprofi t, 170–171; distribution channels, 196–197; general philosophies on nonprofi ts and, 169–170; identifying offerings and markets, 181e–182; managing offerings, 187–197; objectives and strategy

bindex.indd 481bindex.indd 481 10/05/12 11:43 AM10/05/12 11:43 AM

482 Index

of, 180–181; positioning, 184–185; pricing and, 194–195; promotion component of, 191–194; segmenting markets, 182–184; social, 189–191

Marketing audit: description of, 177–178; fi ve areas to focus on, 178–179; portfolio analysis included in, 180; on product life cycle, 179fi g–180

Marketing mix (four Ps), 187 Marketing orientation, 172–173 Marketing planning process: data collection

and analysis, 176–177; interpretation and reporting of fi ndings, 177; marketing information and research, 174–175; overview of, 173–174fi g; problem identifi cation and research objectives, 175–176; research plan formulation, 176

Markets: segmented, 182–184; targeting, 183–184

Martin, P., 186 Maslow, A. H., 285–286 Maslow’s hierarchy of needs, 285–286fi g Mass customization, 184 Massey, T. K., Jr., 239 Mathis, R., 276 Matrix structure, 72–73 Mattessich, P., 379 McClelland, D., 284 McClelland’s learned needs theory, 290–291 McCormick, S., 328 McKinsey & Company, 386 Mechanistic structure: comparing organic and,

68t; description of, 68 MediaLink, 336 Medicaid, 115 Medicare, 115 Membership fees, 120–121 Memo of understanding, 377 Mentoring, 273–274; role model, 293–294 Mergers: complexity of negotiation in, 370–371;

description of, 368; different options for,

368–369; potential partner assessment prior to, 369–370; self-assessment needed prior to deciding on, 369

Metropolitan Opera, 230 Migliore, R. H., 96, 99 Miles, R., 90, 91 Millennials: branding approach for, 1868;

social media connections of, 194 Mills, K., 151 Milward, H. B., 371, 372 Mimetic isomorphism, 78 Mintzberg, H., 87, 88, 105, 106 Mission: aligning earned income with, 118–119;

change driven by the, 19, 390–391; changing focus of the, 408; collaboration and incompatible, 381; drifting away from primary, 20; executive directors’ responsibility for the, 238; HR capacity and realization of, 259; network connections to accomplish, 403; spin-offs to expand, 55. See also Nonprofi t organizations; Vision

Mission drift, 20 Mission-driven spin-off, 55 Model Cities, 302 Monsey, B., 379 Moore, M., 346 Moral awareness, 24 Moral decision making, 24 Morris, M., 413 Mosdut Shuva Israel, 142 Motivation: as infl uence on performance, 282e;

intrinsic and extrinsic, 288–290; Maslow’s hierarchy of needs, 285–286fi g. See also Volunteers

Motivation theories: Alderfer’s ERG theory, 287–288; applications to nonprofi t workplaces, 284–285; equity theory, 295–296; expectancy theory, 291–292; goal-setting theory, 294–295; Herzberg’s two-factor theory, 288–290; McClelland’s learned needs theory, 290–291; operant

bindex.indd 482bindex.indd 482 10/05/12 11:43 AM10/05/12 11:43 AM

Index 483

conditioning and behavior modifi cation, 292–293; public service motivation (PSM) theory, 291; social learning theory, 293–294

Motivators, 288 Mount Sinai Hospital and School of

Medicine, 144 Muddling through, notion of, 105 Murray-Close, M., 379 Mutual benefi t, 50 MySpace, 193

N NAACP (National Association for the

Advancement of Colored People): civil rights mission of, 212; companion organization established by, 55; constituency/representative governance used by, 214; governance effectiveness competencies of the, 212; governing board of, 201, 202; government inquiry on political activities by, 346; power dynamics of the board chair, board, and ED of the, 208; story of, 201; subsidiary of, 55–56

National Alliance on Mental Illness (NAMI), 175

National Association of Manufacturers, 215 National Association of Schools of Public

Affairs and Administration (NASPAA), 3–4, 423

National Association to Protect Children, 116 National Center for Charitable Statistics

(NCCS), 113 National Center for Nonprofi t Boards, 210 National Children’s Facilities Network, 403 National culture, 77 National Football League, 57 National Institutes of Health, 372 National Trust for Historic Preservation, 45 National Youth Anti-Drug Media Campaign,

191, 194 Natural environment, 260

The Nature Conservancy: crisis management following bad press on, 339–340; image and reputation of, 329–330; land-selling practices of, 347; public perception of business partnerships by, 122–123; story of, 327; strategic response to media attacks by, 328–329; Washington Post critiques of, 327–329, 330

Needs: Alderfer’s ERG theory on, 287–288; Maslow’s hierarchy of, 285–286fi g

Network connections, 403 New nonprofi t organizations: establishment

process, 49–53; making a business case for, 42–49; social entrepreneurship framework for, 37–42; starting from an existing organization, 53–58

New York City Criminal Justice Agency, 55 New York Public Interest Research Group, 144 The New York Times, 153 9/11 charities, 149 Non-distribution constraint, 206 Nonexperimental designs, 319 Nongovernmental organizations (NGOs), 7 Nonprofi t Academic Centers Council (NACC),

4, 423 Nonprofi t career competencies, 3–4 Nonprofi t corporation, 50 Nonprofi t FAQ (Barber), 420 Nonprofi t Finance Fund, 140 Non-Profi t Management Education Section

(NASPAA), 3–4 Nonprofi t organization evaluation: goal

accomplishment criteria for, 13–15; growth, learning, and adaptation criteria for, 18–20; internal processes criteria for, 16–17; multiple dimensions for, 13–21; resource acquisition criteria for, 15–16; stakeholder satisfaction criteria for, 17–18, 19fi g; taking a balanced approach to, 20fi g–21

Nonprofi t organization types: charitable trust, 50; mutual benefi t, 50; nonprofi t

bindex.indd 483bindex.indd 483 10/05/12 11:43 AM10/05/12 11:43 AM

484 Index

corporation, 50; private foundations, 8, 52; public benefi t, 50; public charities, 7, 52, 113fi g–114fi g; unincorporated association, 50

Nonprofi t organizations: challenge of understanding current reality, 419; competency and curriculum guidelines developed for, 3–4; ethics for, 21–29, 126, 337–339, 338e, 351; founding of, 34–35; imagining the future of the, 419–423; lobbying by, 347–349; making a business case for, 42–49; multiple dimensions for evaluating the effectiveness of, 13–21; the nature of, 6–7; social entrepreneurship framework for, 37–42; stakeholder’s view of the, 31t; stewardship mandate of, 3; widespread societal infl uence of, 12. See also Mission

Nonprofi t Risk Management Center, 339 Nonprofi t sector: challenge of understanding

current reality of the, 419; description of the, 7; diversity in the, 7–9; drivers of the, 259–260; imagining the future of the, 419–423; leading and managing in the, 9–10; multiple functions of the, 8–9; study on resilience of the, 259; volunteers working in the, 9. See also Civil society organizations

Nonprofi t Shopping Mall, 410 NonProfi t Times, 337 Nonprofi ts in Washington (Barber), 420 Normative isomorphism, 78 Northern Clay Center, 335 Norton, E., 280 NPower Basic business plan: executive

summary of, 47–48; key objectives of, 48–49; outline of (2005), 45, 46e–47e

Nurse-Family Partnership National Service Offi ce, 301–302

Nurse-Family Partnership (NFP) program: basic elements of the program, 305fi g; collecting data on the, 314–316, 318; determining evaluation approach of the, 309; evaluation goals for the, 308; goals

of the, 314; purpose of evaluation of, 307; story of, 301–302; theories of change and logic models applied to evaluation of the, 309–311

O Oakes Children’s Center: diversifi ed

funding base developed by, 111–112; fund development process taken by, 135–136; government contracts and grants sought by, 116; revenue portfolio of the, 127; story of, 111–112

Objective scientist approach, 308–309 Occupational Safety and Health

Administration (OSHA) Act, 276 O’Donnell-Tormey, J., 357 Offering and Market Opportunity

Matrix, 181e Offi ce of Management and Budget, 303 Olds, D., 301, 308 Omaha Sun, 125 O’Neill, L., 255, 256, 258, 263, 264 Online integration model to promote

behavioral change, 190fi g–191 Ono, N., 204 Openness ethic, 25 Operant conditioning and behavior

modifi cation, 292–293 Operational effi ciency, 360 Opportunity: recognition of an

entrepreneurship, 41–42; social entrepreneurship framework on, 38fi g, 39

Oral Roberts University, 142 Orderly divestment orientation, 92t, 93 Oregon Organic Coalition, 69, 70e Organic structure: comparing mechanistic

and, 68t; description of, 68–69 Organizational confl ict: change and, 389–390;

handling government board, 224e; as structural defi ciency, 79

Organizational crisis: defi nition of, 339–340; public relations during, 339–346

bindex.indd 484bindex.indd 484 10/05/12 11:43 AM10/05/12 11:43 AM

Index 485

Organizational culture: changes to people and, 393–394; collaboration and incompatible, 381; organizational structure infl uenced by, 77

Organizational development (OD) model, 400–403

Organizational ethics: attributes included for, 25–26; building trust through application of, 26–27; description of, 25. See also Ethical issues

Organizational evolution, 389 Organizational life cycles, 387–389 Organizational structure: bureaucratic,

65–66; defi ciency in, 78–79; description of, 62–63; dimensions of, 64–65; divisional, 71; elements of, 63fi g–64; functional, 69, 71; geographical, 71–72; hierarchical, 66–67e; information processing infl uence on, 73–76; matrix, 72–73; mechanistic, 68t; organic, 68t–69, 70e; political, cultural, and institutional infl uences on, 76–78; reorganization of SCS into Our Piece of the Pie, 60–62; virtual network, 73

Organizational structure dimensions: centralization, 64; complexity, 64; formalization, 64; hierarchy of authority, 65; professionalism, 65; specialization, 65; standardization, 65

Osmond, M., 335 Ospina, S., 249 Oster, S., 56, 97 Ostrower, F., 208 Our Piece of the Pie: founding of, 60; linking

strategy and information process in, 74–75; reorganization of Southend Community Services into, 61fi g–62

Outright mergers, 368

P Paddock, S., 302 Paid advertising, 192 Panel on the Nonprofi t Sector, 161 Parent-subsidiary relationships, 367

Partnership matrix, 365–367 Partnership on Nonprofi t Ventures, 45 Pass-through contribution, 149 Payton, R., 127 Peace Corps, 257, 263 Peale, N. V., 24 People: organizational contributions of, 64;

social entrepreneurship model on, 37–38fi g. See also Human resources

Perceived confl ict stage, 222 Performance: change driven by pressure to

improve, 392; infl uences on, 281–284t; measuring employee, 271–273; structural defi ciency due to declining, 79; theories of motivation for, 284–296

Perlmutter, F., 407–409 Permanently restricted assets, 148 Perry, J., 291 Personal ethics: goals of nonprofi t training on,

24; nonprofi t issue of, 22–23 PEST analysis, 95, 177 Philanthropic collaborations, 363t, 364,

372–373 Philanthropy: origins and description of,

127–128; types of donor gifts of, 129fi g–134; types of gifts, 128–129. See also Charity

Philanthropy Journal, 275, 337 The Phoenix Group, 414 Planned Parenthood, 120, 318 Plumstead Theatre Society v. Commissioner, 123 Points of Light, 153 Police Assessment Resource Center, 55 Policy governance, 214 Political collaborations, 374 Political infl uences, 76–78 Pollack, T. H., 113, 114 Polled interdependence, 74 Poole, M., 387 Population shifts, 259 Porter, M., 89, 97, 182 Portfolio analysis, 180 Positioning, 184–185

bindex.indd 485bindex.indd 485 10/05/12 11:43 AM10/05/12 11:43 AM

486 Index

Posner, B., 233 Power: how leaders effectively use, 242–245;

legitimate, 242; personal and positional sources of, 242–245

Power, W., 78 PR Newswire, 336 Pricing: complexities of nonprofi t, 194;

strategies for, 194–195; user demand and, 195 Private foundations: tax status of, 52; U.S.

Internal Revenue Code category of, 8 Problem solving networks, 372 Process-driven change: organizational

confl ict, 389–390; organizational evolution, 389; organizational goal setting, 389; organizational life cycles, 387–389

Product life cycle, 179fi g–180 Products: convenience goods, 196; description

of, 187–188; innovation of new, 410; as market segmentation criteria, 183; nonprofi t change to, 393; pricing tied to cost of producing, 195

Professional ethics: attributes of, 25–26; description of, 25

Professionalism, 65 Program administration failure, 310 Program attractiveness, 91, 359 Program effi ciency ratio, 164 Program evaluation: accountability

management and, 302–304; challenges to practice of, 322–325; objective scientist approach to, 308–309; online resources for, 323; process of, 305–322; understanding basic program theory for, 305; utilization- focused, 309

Program evaluation process: analyzing data and presenting results, 321–322; collecting data, 314–321; determining the evaluation approach, 308–309; preparing for, 306–308; specifying program goals, 314; understanding theories of change and logic models, 309–313e

Program resources: description of, 15; as indicator of effectiveness, 15

Promotion: description of, 191–192; tools used to deliver, 192–194

Promotional mix, 192 Prospectors, 90 Protection from liability duty, 206–207 Provan, K., 371, 372 Psychological contract, 268–269 Public benefi t, 50 Public charities: limited lobbying allowed by,

348–349; number of expenses (2008) of reporting, 114fi g; revenue sources (2008) for reporting, 113fi g; Section 501(c)(3) tax status of, 7; tax status of, 52

Public Law 94-142, 111 Public relations: assessing internal and external

factors affecting, 333; communication outlet and delivering messages, 336–337; description of, 331–332; developing messages, 334–335; ethical issues of, 337–339; evaluating effectiveness and ethics of communication, 337; identifying and researching target audiences, 334; origins of, 331; setting goals, objectives, and strategies for, 333–334

Public Relations Society of America (PRSA), 331, 337–338e

Public service announcement (PSA), 192, 336 Public service motivation (PSM) theory, 291 Public-serving organizations, 7 Punctuated equilibrium model of change,

394–395 Pyramid of giving, 131fi g

Q Quaqua Society, 54 Quasi-experimental designs, 319 Queen of Angels Hospital v. Younger, 204 Quinn, J., 105 Quinn, R., 238

bindex.indd 486bindex.indd 486 10/05/12 11:43 AM10/05/12 11:43 AM

Index 487

R Rabinowitz, J., 228–229, 232, 235, 236 Raven, B., 242 Reactors, 90 Ready to Lead? study (2008), 289 Realized strategy, 105, 106fi g Reciprocal interdependence, 74 Reckford, J., 422 Recognition/rewards, 274–275 Reel Grrls, 126 Referent power, 243 Reichers, A. E., 272 Relationship-oriented leadership, 236 Relevance-related power, 245 Renz, D., 211, 225 Reproducer, 34 Reputation: defi nition of, 329; as intangible

nonprofi t resource, 329–330; public relations to enhance, 331–339; risk and crisis management of, 339–344; strategic communication of, 330–331

Request for Proposal (RFP), 377 Resistance to change: description of issues

involved in, 395–396; nonprofi t factors that contribute to, 395–397; techniques for dealing with specifi c reasons for, 398

Resource acquisition: danger of complacency regarding, 112–113; Oakes Children’s Center’s diversifi ed funding for, 111–112; revenue portfolios, 126–127; sources and concerns of, 113fi g–126

Resource interdependence, 360 Resource types: capital, 15, 37–38fi g;

community-based, 15; fi nancial, 15; human, 15, 37–38fi g; knowledge, 15; program, 15

Resources: available for innovation, 414–415; collaboration and costs of, 382; collaboration and interdependence of, 360; devoted to evaluation, 306; evaluating nonprofi t’s acquisition of, 15–16; legitimacy perceived as, 360, 361; nonprofi t mandate for

stewardship of, 3; performance infl uenced by, 283; recommendations for infl uencing high performance, 284t

ReStore (Habitat for Humanity), 118 Restructuring-driven spin-off, 54 Reuters, 336 Revenue portfolios, 126–127 Revenue sources: donations, 126–127; earned

income, 117–120; government contracts, grants, and vouchers, 115–117, 126–127; HR capacity demands and changes in, 260; investment income, 124–125; membership fees, 120–121; partnerships with business, 121–124; reported by public charities (2008), 113fi g–114, 113fi g

Revenues: days in accounts receivable ratio, 165; estimating and reviewing, 154–155, 157; monthly budget report on, 156e

Revised Model Nonprofi t Corporation Act, 220

Revolutionary change, 394 Revolutionary transformation, 394 Reward power, 243 Riechers, A., 270 Risk: four options for responding to identifi ed,

341; image and reputation, 339–344; innovation, 411

Risk management: defi nition of, 340; fi nancial, 158–159e, 160e, 161; public-relations process during, 340–346

Robert Wood Johnson Foundation (RWJF), 233 Robert’s Rules of Order, 220 Roeger, K. L., 113, 114 Roosevelt, F. D., 42 Rosenberg, S., 247 RSVP, 257 Ryan, W., 208

S Sagawa, S., 247 Sahlman, W. A., 37

bindex.indd 487bindex.indd 487 10/05/12 11:43 AM10/05/12 11:43 AM

488 Index

Salamon, L., 9, 386 Sales promotion, 192–193 Salvation Army, branding by, 185 Santropol Roulant: high turnover experience

at, 276–277; internal leadership development at, 251–252; job description for the executive director of, 232e; nine core principles of engagement, 239e; relevance-related power of executive director of, 245; shared leadership approach taken by, 249; story of, 228–229; transactional and transformational leadership styles used by, 237

Sarbanes-Oxley (SOX) Act, 142, 144, 146, 206–207

Sargeant, A., 130, 181, 182 Satellite governance, 215 Scenario analysis, 98 Schall, E., 249 Schumpeter, J., 36 Schwartz, B., 190 Scott, W. R., 63 Section 501(c)(3) tax status, 7, 8. See also 501(c)

(3) organizations Segmentation. See Market segmentation Self-dealing prohibition, 206 Sell-out orientation, 92t Senge, P., 419 Sequential interdependence, 74 Service implementation networks, 371 Service network, 260 Services: convenience, 196; description of,

188–189; innovation of new, 410; as market segmentation criteria, 183; nonprofi t change to, 393; organizational ethic of commitment to, 26; pricing tied to cost of producing, 195

Sesame Street (PBS TV show), 121 Sesame Workshop, 121 Shakespeare, W., 419 Share Our Strength, recognition of

opportunity by, 42

Shrader, A., 238 Simple collaborations, 363t, 364 Skinner, B. F., 292 Slivinski, A., 126 Smart Roofs, 55 Smith, D. H., 8 Smucker, B., 353 Snow, C., 90, 91 Social entrepreneurship: continued expansion

of, 421; description of, 36–37; framework of, 37–42; process of, 40–41; recognition of opportunity for, 40–41; special issues of, 40

Social entrepreneurship framework: context, 38fi g–39; on opportunity, 38fi g, 39, 41–42; on people and capital, 37–38fi g; social value proposition, 38fi g, 39

Social investing, 373 Social learning theory, 293–294 Social marketing, 189–191 Social media promotion, 193–194 Social responsibility: defi nition of, 358; how

collaboration may impact, 359–360; key factors to consider for, 358–359

Social returns, 302 Social value proposition: social

entrepreneurship framework on, 38fi g, 39; Teach For America’s, 39

Social Ventures Partners, 132 Socialization of workers, 269–271 Societal ethics: debate over regulatory

enforcement of, 28–29; legal environment supporting, 28; watchdog groups setting nonprofi t, 27–28

Soul of the agency orientation, 92t, 93 Southend Community Services (SCS):

divisional structure of, 71; linking strategy and information process in, 74–75; reorganization of, 61fi g–62; story of, 60

Southern Christian Leadership Conference, 233, 235

Specialization: defi nition of, 65; differentiation positioning through, 89–90

bindex.indd 488bindex.indd 488 10/05/12 11:43 AM10/05/12 11:43 AM

Index 489

Spin-offs: description of, 53; entrepreneurial corporate, 54–55; mission-driven, 55; restructuring-driven, 54

St. Vincent Hospital, 45 Staff: attracting candidates, 264–267; Baby

Boomer retirements affecting, 251, 420; career competencies of, 3–4; compensation, benefi ts, recognition, and rewards, 274–275; cycle of involvement by, 261–277; determining rationale for new, 263–264; establishing written and psychological contracts, 267–269; facilitating a safe and productive work environment, 276; Generation Y, 420, 422; maintaining records on, 276–277; measuring performance, development, and feedback for, 271–273; providing learning opportunities for, 273–274; renegotiating position of, 277; resistance to change by, 396–397; screening and selecting, 267; separation of, 277; socialization of, 269–271. See also Volunteers

Stakeholder mapping: description and function of, 18; example of simple, 19fi g

Stakeholders: ensuring goal acceptance by, 14; evaluating nonprofi t’s ability to satisfy their, 17–18; getting evaluation buy-in from, 307; view of the nonprofi t by, 31t

Stalker, G. M., 68 Standardization, 65 Standby letter, 158 Standing committees, 221 Statement of activities, 162–163 Statement of cash fl ows, 163 Statement of fi nancial position, 162 Statement of functional analysis, 163, 163 Stern v. Lucy Webb Hayes National Training School

for Deaconesses & Missionaries, 205 Stevens, D., 364 Stevens, R. E., 96, 99 Stevenson, H., 38, 39, 315 Stone, M., 208, 371 Strategic collaborations, 373

Strategic enhancement: collaboration and, 361; key factors to consider for, 362

Strategic issues: defi nition of, 100; identifi cation of, 100–101; moving to strategies from, 103

Strategic orientations: MacMillan’s framework for nonprofi ts, 91–93; positioning, 89–90

Strategic philanthropy, 373 Strategic planning: American Red Cross

hypothetical, 94–104; challenges to, 104–107; combining perspectives for, 107–109; general model of, 93fi g; nonprofi ts and, 88–89; process of, 93–104

Strategic planning process: identifi cation of strategic issues, 100–101; preparing to plan, 94–95; situational analysis of external and internal environments, 95–100

Strategic plans: adopting and implementing, 103–104; periodic review and reassessment of, 104; process of developing the, 93–104

Strategic positioning: cost leadership, 89; defender, prospector, analyzer, and reactor roles in, 90; differentiation, 89–90

Strategies for Change: Logical Incrementalism (Quinn), 105

Strategy: defi nition of, 63, 86; emergent, 104–107; information process linked to, 74–75; moving from strategic issues to, 103; nonprofi t change to, 392–393; nonprofi t transformations affecting, 409; OD interventions related to, 402; pragmatic approach to, 108–109; public relations, 333–334. See also Business strategy

Structural contingency theory, 213 Structural defi ciency: decision making as, 78;

declining employee performance, 79; lack of response to environmental changes, 78; too much confl ict, 79

Subsidiaries, 55–56 Sun Tzu, 86 Sunbeam Corporation, 122 Support corporation, 56

bindex.indd 489bindex.indd 489 10/05/12 11:43 AM10/05/12 11:43 AM

490 Index

Sussman, C., 403–404 Sustainable South Bronx, 55 SWOT analysis: of American Red Cross, 96e,

99e; description of, 95, 419; establishing strategic issues using, 101, 103; of hopeFound, 140–141; identifi cation of strategic issues using, 100–101, 102e; producing realistic budget using input from, 154

T Target audiences: government relations and

related, 350; identifying and researching public relations, 334; public relations objectives related to, 331

Targeting markets, 183–184 Task-oriented leadership, 235–236 Taylor, B. E., 208, 211 TEACH!, 384, 385 Teach For America: change experienced by,

384–385, 392; contextual elements of, 38fi g–39; founding of, 33; as innovator organization, 34–35; organizational life cycle of, 388–389; people and capital resources of, 37–38fi g; rapid growth problem experienced by, 406; social value proposition of, 39; story of, 384–385

Technology: defi nition of, 63, 73–74; HR capacity demands and shifts in, 260; nonprofi t change to, 393, 408; organization structure and information processing, 73–76

Technostructural OD interventions, 402 Temporarily restricted assets, 148 Ten Thousand Villages, 119 Theories of change: adaptive capacity,

403–404; applied to Project Superwomen, 312e–313e; development spiral, 389, 404–407, 405fi g ; evaluation application of, 309–311; innovation, 410–416; Lewin’s force fi eld model, 400–401fi g; nonprofi t transformation, 407–409; organizational development (OD), 400–403

Theory failure, 310 Thomas, J., 308 Thomas, K. W., 222, 224 Time magazine, 244 Title holding company, 56 Title VII, 267 Tolbert, P., 76 Training: performance infl uenced by, 283;

recommendations for infl uencing high- performance, 284t

Training employees, 274 Trait theories of leadership, 234 Transactional collaborations, 363t, 364–365 Transactional leadership style, 237 Transformational leadership style, 237 Transparency: evaluation and accountability,

303; organizational ethic of, 25 Tschirhart, M., 295, 335 Tuckman, H., 127 Turf wars, 382 Twitter, 193 Two-factor theory, 288–290

U UBIT (unrelated business income tax)

payments, 119, 123 Uncertainty, 74 Uncommitted line, 158 “Underwater endowments,” 125 Undifferenetiated (mass) marketing, 183 Unincorporated association, 50 United Way of America (UWA): branding by,

185; as federated funders, 134; fi nancial management problems of, 151–152, 244–245; franchise relationships of, 57; GAAP requirements on expenses and, 150; geographical structure of, 71; mission statement of, 45; operational effi ciency pressure on, 360; outcome measurement initiative launched by, 304; resource acquisition by, 15

bindex.indd 490bindex.indd 490 10/05/12 11:43 AM10/05/12 11:43 AM

Index 491

United Way of Central Carolinas, 268 United Way of King County, Washington, 216 University of Wisconsin–Extension, 323 Unrestricted assets, 148 Unrestricted net assets ratio, 164–165 Urban Institute, 114 Urban League, mission statement of, 45 Urban Life Ministries, 149 Urban Ministries of Durham, 336 U.S. Bank, 126 U.S. Department of Education, 115 U.S. Department of Health and Human

Services, 115 U.S. Department of Labor, 60 U.S. Internal Revenue Code: organization

tax status options under the, 51e; private foundations under the, 8; public-serving organizations under the, 7; tax-exempt status under the, 7, 50–53

U.S. Internal Revenue Service (IRS): employee classifi cation by the, 268; 501(c)(3) tax status granted by, 50, 51e, 52, 120, 202, 346, 347, 348–349, 353; 501(c)(4) tax status granted by, 50, 51e, 52, 346; 501(c)(6) status granted by, 57, 346; 501(c)(7) status granted by, 120; Form 990 required by, 143, 144, 148, 377; Form 5768 of, 348; nondistribution constraint regulation of, 329; tax-exempt status granted by the, 7, 50–53; twenty-fi ve types of nonprofi ts recognized by, 8; UBIT payment to, 119, 123

U.S. National Intelligence Council, 420 Utilization-focused evaluation, 309

V Values: change in societal, 409; clarifying

moral intent by promoting, 24; collaboration and incompatible, 381; personal ethics, 24; professional ethics, 25–26

Van de Van, A., 387 The Vanguard Group, 124 Vera Institute of Justice, 55

Vertical complexity, 64 Vertical information linkages, 75 Visibility-related power, 244–245 Vision: better world, 418–419; collaboration

and incompatible, 381; drifting away from mission and, 20. See also Mission

Volkov, B., 306 Volunteer Functions Inventory (VFI), 287 Volunteers: assessing needs fulfi llment of, 287;

community and grassroots organizations, 69; cycle of involvement by, 261–277; demographics of U.S. nonprofi t, 9; resistance to change by, 396–397; Volunteer Functions Inventory (VFI), 287. See also Motivation; Staff

Von Furstenberg, D., 280 Von Schnurbein, G., 216 Vroom, V., 291

W Walker Art Center, 415 “Walking around” management, 294 The Walmart Foundation, 115 Wanous, J. P., 270, 272 War on Poverty, 302 The Washington Post, 327–329, 330 Waters, R., 288 Webb, N., 290 Weber, M., 65, 68 Wei-Skillern, J., 38, 39, 315 Weiss, C., 314 Weiss, J., 335 Welch, P., 124 Whistle-blower protection policy, 144–145 Wikimedia Foundation, Inc., 66, 71 Wilder Foundation, 379 William and Flora Hewlett Foundation, 115 Williamson, S., 96, 99 Wilson, D., 394 Wing, K. T., 113, 114 Wise Giving Alliance, 150

bindex.indd 491bindex.indd 491 10/05/12 11:43 AM10/05/12 11:43 AM

492 Index

Wise, L., 291 Wolf, J., 396, 398 Women’s Action to Gain Economic Security, 55 WomenVenture, 415–416 Wood, M. M., 208, 209, 248 Work: defi nition of, 63; formal organizational

structure of, 63; informal organizational structure of, 63–64

Workers. See Staff World Bank, 193 World Wildlife Fund (WWF): ethical conduct

guidelines of, 24; initial attitude toward for-profi t businesses by, 327; recognition of opportunity by, 42

Worley, C., 400 Worth, M., 231

Y Yale School of Management, 45 Yale University, 54, 124 Yankey, J., 358 YMCA, 218 Young, D., 36 Young Adult Institute, 268 Younger, Queen of Angels Hospital v., 204 Youth Opportunities

grant, 60 YouTube, 193

Z Z. Smith Reynolds Foundation, 218 Zaltman, G., 410

bindex.indd 492bindex.indd 492 10/05/12 11:43 AM10/05/12 11:43 AM