INTRODUCTION

Leadership and Management in Nonprofit Organizations

Don Macdonald

“Today, nonprofit organizations in the United States control upward of $1.5 trillion in assets and are increasingly relied upon to help address society’s ills” according to a McKinsey report.¹ “In the last decades, the activity and influence of nonprofit organizations in almost every country in the world have grown exponentially. Nonprofits have become central to policy making, the promotion of civic action, and the delivery of new quasi-public services.”² Nonprofits operate in an ever-changing world with increasing pressures, hence the need for relevant skills and knowledge for new managers and leaders, which this book attempts to provide.

Definitions and Numbers

Nonprofit organizations are described in different ways, including social organizations, Community and Voluntary Organizations (CVOs), Non-Governmental Organizations (NGOs), and Third Sector Organizations. The sector itself is very varied, even if I ignore all those nonprofit organizations, which are just informal associations and should not require management. I concentrate on those organizations that have been formally constituted in some way or other, such as registered charities and nonprofit companies.

This definition would still encompass tiny nonprofits with only a few volunteers offering a part-time service and on the other hand enormous social enterprises, with hundreds of professional staff, competing for government contracts to deliver social objectives.

Private companies provide services to deliver social objectives, but they are different because they aim to make a profit from those services to go to shareholders. So the definition of a nonprofit organization is that the service must be oriented toward social objectives, with any surpluses invested back into services, the community, or some other public benefit. There are also numerous educational charities, such as schools and universities, which I am not covering because their objectives are primarily educational rather than social, even though there are overlaps between the two areas.

The original nonprofit organizations in Europe were church based, many of which survive in Europe such as Santa Casa de Misericórdia, founded in Portugal in 1498. In the United States (U.S.) in 1739 George Whitefield set up the first charity, Bethesda, an orphanage, while Thomas Coram’s Foundling Hospital was the first secular charity in the United Kingdom (UK) in the same year. “In the 1830s the French observer…. de Tocqueville noted Americans’ remarkable propensity for forming and joining associations.”³ The great expansion of charities in both countries came in the Victorian age, with the founding of the YMCA, Salvation Army, Red Cross and many others. In the UK in 1948, when the National Health Service (NHS) was introduced, around 25 percent of the hospitals were still managed by charities.

Types of Nonprofit Organizations

Charles Handy listed five types of nonprofit organizations:

Chris Durkin believes it is the clear value base and social mission that distinguishes nonprofit organizations from other types of organizations.⁵

In addition, there are a range of different governance structures utilized by different nonprofit organizations; some register as charities, some as limited companies with charitable objectives and some as cooperatives (see Governance chapter). Some operate within one country, others internationally, in countries where “the majority of the population lives in poverty (while) the state does not provide reliable public services or protect citizens.”⁶ There is also a distinction between those nonprofit organizations providing services and others, such as the Bill and Melinda Gates Foundation, which give grants to other nonprofit organizations to carry out work.

As one commentator wrote, the U.S. has a long history of smaller government, lower welfare spending and strong nonprofits, whereas other countries, such as Australia, Canada, and the UK, have combined liberalism with the development of stronger welfare state provisions in the early to mid-20th century.

Funding

The top four countries in terms of charitable giving by individuals as a percentage of GDP are the U.S. (1.44 percent), New Zealand (0.79 percent), Canada (0.77 percent), and the UK (0.54 percent), whereas it was only 0.12 percent in Japan. In the U.S. and Australia, where donation statistics are divided by sector, approximately one-third of all private donations go to religious organizations.

U.S. Nonprofit Organizations

In the U.S. with a population of 318 million, there are more than 1.5 million registered nonprofit organizations including: 1,097,689 public charities, 105,030 private foundations and 68,337 other types of nonprofit organizations, such as chambers of commerce, fraternal and civic organizations.⁷ The sector has grown rapidly but consistently over the last 40 years, as shown by Figure I.1, though large numbers close each year according to the U.S. Internal Revenue.

Figure I.1 The growth of registered nonprofits in the United States

U.S. Staffing and Volunteering

According to a 2012 report by the Center for Civil Society Studies (John Hopkins University), nonprofit employment represented 10.1 percent of total employment in the U.S., with employees totaling 10.7 million. The nonprofit workforce is the third largest of all U.S. industries behind retail trade and manufacturing.

Nonprofit employment by sector is approximately 57 percent for health services, 15 percent for education, 13 percent for social assistance, 7 percent for civic associations, 4 percent for other, 3 percent for arts culture, and 2 percent for professional services. Around 25.3 percent of Americans over the age of 16 volunteered through or for an organization between September 2010 and September 2014.

United Kingdom Numbers

In the UK with a population of 64 million (2013), there are around 166,000 charities registered with the Charity Commission in 2016, most of which are small with about 50 percent having an annual income under £10,000 and around 80 percent under £100,000.⁸ There are around 70,000 social enterprises (Social Enterprise UK), some also registered as charities. Around 100,000 nonprofit organizations are not formally incorporated as companies or charities.⁹ What can be seen from these figures is that the majority of UK nonprofits are very small, locally focused, and “staffed” by volunteers.

Big household names in the UK, such as Cancer Research UK, Save the Children International and British Red Cross with annual incomes above £10m, make up less than 1 percent of UK charities, yet these few hundred account for almost 50 percent of the total income.

Whatever the size of the nonprofit sector, it is much smaller than the private or public sectors. Some suggest that the traditional dividing line between sectors may be breaking down, but to me it seems that there may just be greater interchange of ideas and people; the nonprofit sector is still so much smaller than other sectors.

UK Staffing and Volunteering

According to the NCVO approximately 800,000 people were employed in the nonprofit sector in the UK by the end of 2012, equaling approximately 648,000 full-time equivalent staff. Since 2002, the nonprofit workforce has seen an overall increase of around 234,000 employees (41 percent), with a dip during 2010 to 2011. As a proportion of the total UK workforce, it has risen from 2.1 percent to roughly 2.7 percent during this time. More than two-third (68 percent) of the nonprofit workforce were women compared with the public sector (64 percent) and private sector (39 percent).

In August 2012 through April 2013, 29 percent of adults in England (the largest UK country) said that they had formally volunteered at least once a month in the previous year, and 44 percent said that they had volunteered at least once in that year. This equates to around 12.7 million people volunteering in England once a month, and 19.2 million once a year (NCVO).¹⁰

Context

The current context in which nonprofit organizations managers operate is both challenging and demanding. In the last 50 years (since the author started volunteering for a charity, while still at school), the most important issues include the rise of feminism and women’s rights, the fact that human rights issues have become much higher profile, with disabled people and other minority groups demanding greater rights, while gaining greater access and support, which continues in spite of recent spending cuts.

Diversity issues have become far more important, with the legalization of homosexuality and eventually same sex marriage. The U.S. population is growing slowly, while the UK population is growing apace, with both more children and an aging population, with a consistent rise in non-native born residents, particularly European in the last 10 years. In the U.S. and UK, while Anglican Church attendance has declined, other Pentecostal Christian churches and religions report increased attendances.

There is much less deference across the whole of society; service users’ views are taken much more into account by nonprofit organizations and government itself. Nonprofits have become much more professional, along with an enormous expansion of private companies supporting the charitable sector, on everything including IT, fundraising, and HR.

Standards of living increased steadily over the last 50 years until the 2008 recession, although enormous wealth gaps exist, along with poverty for certain groups; for example, those suffering benefit cuts. Vastly increased numbers go to university. Family structures have changed, with more people living together and bearing children before marriage, which then happens at an older age.

With financial deregulation, globalization has increased, with a huge decline in UK and U.S. heavy industries, a fall in manufacturing employment, a growth in UK and U.S. service industries and an enormous increase in the power of multinational corporations. While there has been a growth in employment rights, this has been accompanied by a growth in zero hours’ contracts and part-time jobs. There is much more international travel and a growth in international charities, which must be linked.

The rise of the contract culture and the introduction of privatization has been profound across many sectors, including railways, and utilities (UK) and prison services. It has led to an increase in private sector organizations delivering health and social care, community health services and unemployment support in the UK; this has been so profound that this has been described as “a shadow state,” with companies too pervasive to be allowed to fail.¹¹

Possibly the most significant change is the arrival of the digital age and social media, with immense changes in how we communicate, work and entertain ourselves. So it is rather unclear what will happen in the next 5 years, let alone the next 50 years.

Opportunities

The current situation for nonprofit organizations is both very pressurized but with numerous opportunities opening up, including:

Pressures

On the other hand, there are numerous pressures on nonprofit organizations:

Management

Management itself is a skill, but it is not an exact science as it involves working with people. Bookshops now stock shelves of management books though most are about private sector management, but issues facing nonprofit managers are very different.

There is no agreed bottom line in nonprofit work, in the way that profit supplies this in the private sector. So there is often disagreement about objectives and methods, or a lack of agreement at all levels, which requires more work to achieve a consensus and proper understanding. Sometimes these disagreements are papered over, leaving a lack of clarity about objectives. An example of this is the way that the UK Anglican Church compromises on decisions about same sex marriage. Many experts believe that fudge and compromise are more prevalent in the nonprofit sector.

Most nonprofits are competitive with their rivals, of any size or sector, for funding, influence, and public attention. Small charities have recently been criticized in the UK for not merging or at least sharing more backroom services. In my view this is only partially fair since most small nonprofits compensate for their size with greater cost-effectiveness. Secular minority nonprofits in the UK have achieved a great deal locally, but not to the same extent nationally, compared to the influence developed by minority religious groups.

All UK governments since 2009 have tried to encourage social enterprise opt-outs but this has proved relatively slow to take off, probably because of staff fears about pensions in the NHS and the emphasis placed on social finance based on loans, which is avoided by most nonprofits because of the risks involved.

Management in the nonprofit sector is subject to different influences from the private sector; an example is that there are more stakeholders, such as donors and beneficiaries. In turn the media also become involved and comment. One significant group of stakeholders are volunteers, vastly more of whom are involved at all levels than in the public or private sectors, even though the influence of professionals prevails in the large nonprofits.

The financial squeeze on nonprofits has created enormous tension between managing flexibility, quality, and affordability as Naomi Eisenstadt, a Scottish Government adviser, stated.¹⁷ Nonprofit management can be likened to a roller coaster ride, with all the highs and lows, which makes it essential that nonprofit managers keep informed, while learning new skills. This book covers the key issues, analyzes essential concepts, while providing relevant and useful advice and information on how to provide good management and leadership. However the issues are so important and the situation changes so often, that it is crucial that people make use of training and coaching, on an ongoing basis, to assist them in planning a way forward in their management roles, coping with change while making a success of their organization.

¹ http://mckinsey.com/industries/social-sector/our-insights/the-dynamic-nonprofit-board

² https://js.sagamorepub.com/jnel/article/download/7583/5732)

³ https://www.penguin.co.uk/books/56324/america-empire-of-liberty

⁴ Handy, C. 1988. Understanding Voluntary Organizations: How to Make Them Function Effectively. Penguin.

⁵ E-mail to author 2016.

⁶ John Casey file:///C:/Users/DONMAC~1.COM/AppData/Local/Temp/7583-24809-1-PB.pdf

⁷ http://nccs.urban.org/data-statistics/quick-facts-about-nonprofits

⁸ https://data.ncvo.org.uk/

⁹ Knight, B. 1993. Voluntary Action. London: Centris.

¹⁰ https://data.ncvo.org.uk/a/almanac14/how-many-people-regularly-volunteerin-the-uk-3

¹¹ http://socialenterprise.org.uk/uploads/files/2012/12/the_shadow_state_3_dec1.pdf

¹² http://ncvo.org.uk/images/documents/policy_and_research/funding/financial-trends-for-small-and-medium-sized-charities-ncvo-lloyds-bank-foundation-2016.pdf

¹³ https://theguardian.com/society/patrick-butler-cuts-blog/2011/jun/22/bid-candy-charities-carved-out-of-work-program

¹⁴ http://cironline.org/americasworstcharities

¹⁵ https://www.penguin.co.uk/books/56324/america-empire-of-liberty

¹⁶ https://gov.uk/government/uploads/system/uploads/attachment_data/file/284712/ptc_survey_2010.PDF

¹⁷ https://theguardian.com/society/2016/sep/06/naomi-eisenstadt-poverty-adviser-to-nicola-sturgeon