CHAPTER EIGHTEEN
Managing the Non-Profit Institution
FIFTEEN YEARS AGO APPLICANTS for entrance positions as overseas field representatives of a major U.S.-based charity were routinely asked, “Do you have enough of a private income to work for a non-profit institution?” For thirty years, until he retired in 1978, the organization’s executive director refused to accept for himself more than $20,000 a year in salary although the charity had grown into a $100 million enterprise. Today the same organization pays the MBAs whom it now recruits a salary of $21,500 and living expenses abroad the first year. And the successor of the old executive director makes $75,000 a year plus bonus.
When Thomas Hoving left the directorship of New York’s Metropolitan Museum of Art in the spring of 1978, the board, deciding that the job had become too big for one man, split it into two, a president-chief executive officer and a director-chief artistic officer. Each position was reported to pay a six-figure salary.
A former student of mine, aged thirty-three, recently moved from assistant vice president-operations of a middle-sized bank to executive director of a suburban county medical society. He heads a full-time staff of thirty-five and is being paid $45,000 a year. In the early 1960s when his physician father served as the unpaid secretary-treasurer of the same society, it had one full-time employee, a woman clerk making $8,000 a year, with the young wife of a physician member editing the newsletter part-time for $50 a month.
Everybody knows that hospitals have exploded in personnel, wages, complexity, patient load, range of services, and costs. But many other service institutions have grown at similar rates in their employment, their complexity, and their costs. Service institutions now pay salaries that are fully competitive with government jobs (though service employees often don’t think so) as well as with all but the top positions in big business. And the demands on service personnel have not only grown fast—they have changed dramatically.
Fifteen years ago, for instance, the Seattle Art Museum, known for its first-rate oriental collections, considered 100,000 visitors a big year. By mid-November of 1978 when the King Tut exhibition closed a four-month run in Seattle it had attracted more than one million visitors to the museum—almost all of them people who fifteen years ago would never have dreamed of going there.
Service institutions have grown so big that they may now employ more people than federal, state, and local government put together. And they are so important that we are beginning to talk of a Third Sector of society—neither public (governmental) nor private in the old sense of the private business sector. The Third Sector is composed of institutions which are not government agencies but which are still not profit-making. Yet so far we have paid little attention to the Third Sector and its economics, management, performance, and impact.
One reason for this is that the Third Sector is such a mixed lot. It includes hospitals, museums, universities, libraries, and symphony orchestras; thousands of industry or trade associations, chambers of commerce, professional bodies like the bar associations or the registered nurses; civic groups like the Boy Scouts and religious ones like the Knights of Columbus; “public-interest” lobbies like the Naderites or the Sierra Club; but also the widget plant’s bowling club and foreman’s association, and any number of special pleaders for every conceivable (or inconceivable) cause.
Some service institutions are huge and occupy palaces like the American Association for the Advancement of Science in Washington or the Ford Foundation in New York; others get by with a part-time clerk and an unpaid secretary-treasurer. Some are run and staffed by high-powered professionals, others by volunteers. Some pass the begging bowl; others live off fees; others, like most public libraries and many museums, are supported entirely or in part by tax money.
Beyond what they are not—that is, government agencies or businesses—they seem to have very little in common.
Another reason for our neglect is that their growth has been so very recent. Until, at the most, two decades ago, the service institutions were marginal. Their goals, their performance, their effectiveness, their productivity helped or harmed no one but themselves. By now, however, the Third Sector has become so important, so big, and so costly that we need to focus on how it is being run. Performance, effectiveness, and productivity of the service institutions will increasingly matter. And they will also become increasingly difficult. Precisely because they have grown so much the service institutions require more and better management—and they require different management.
After such explosive growth, yesterday’s way of doing things has become inappropriate if not counter-productive. Today’s hospital is surely a very different institution from that of seventy-five years ago which existed largely to give the poor a decent place to die, a place, that is, that dispensed “charity.” The museum that attracts such crowds that it has to ration access surely serves purposes different from its old role as a “cultural bastion” for the “refinement of the wealthy classes,” to quote from a nineteenth-century description. But what are its new purposes? And what should they be?
Largely because the organizations for international student exchange—helped, of course, by the charter plane—have done so good a job, today’s middle-class American (and European) youngster takes living and traveling abroad for granted. Do the student-exchange programs still serve a purpose and what is it?
One organization that has faced such questions is CARE. It still handles food parcels, still helps feed people all over the world who are overtaken by disaster—and does the job well, cheaply, and efficiently. But it also has been building on its success and acceptance as a relief agency to become a development agency that challenges poor peasants all over the world to become productive, knowledgeable, and self-supporting agriculturalists.
The success of the evangelical churches may well be based less on conservatism than on their willingness to face up to the fact that in today’s overinstitutionalized society the first job of the minister is no longer to be a social agency—the job that made the American Protestant church so effective in the early years of the century; it may be to minister to the individual.
But, by and large, few service institutions attempt to think through the changed circumstances in which they operate. Most believe that all that is required is to run harder and to raise more money.
And fewer still are willing to accept that success always means organizing for abandoning what has been achieved. In service institutions abandonment is particularly difficult. They are not want-oriented; they are need-oriented. By definition they are concerned with good works and with social or moral contributions rather than with returns and results. The social worker will always believe that the very failure of her efforts to get a family off welfare proves that more effort and more money are needed.
Yet precisely because results in service institutions aren’t easily measured, there is need for organized abandonment. There is need for systematic withdrawal of resources—money and, above all, people—from yesterday’s efforts. The manager of a service institution must constantly ask the unpopular question, “Knowing what we now know, would we get into this activity, this service, this effort if we were not already in it?” And if the answer is “no,” he shouldn’t ask for another study or try to find a way to repackage the old chestnut to make it look fresh to the donors. He should find a way to get out of that service as quickly as possible. At the very least, he should ask himself how methods should be changed to accomplish what his institution originally set out to accomplish.
Both the businessman and the civil servant tend to underrate the difficulty of managing service institutions. The businessman thinks it’s all a matter of being efficient, the civil servant thinks it’s all a matter of having the right procedures and controls. Both are wrong—service institutions are more complex than either businesses or government agencies—as we are painfully finding out in our attempts to make the hospital a little more manageable (no one to my knowledge has tried to do this with the university).
Indeed we know far too little about managing the non-profit institution—it is simply too recent a phenomenon. But we do know that it needs to be managed. And we do know that defining what its task is and what it should not be is the most essential step in making the institutions of the Third Sector manageable, managed, and performing.
(1978)