Nonprofit Leadership and Management

Nonprofit leadership and management is an important area of concern because of the impact of nonprofit organizations on society. The mission statements of most nonprofits are geared towards helping people or addressing a need that is not met through government or private sources. For a long time, nonprofit leadership and management were not considered a priority because the organizations were doing good work. However, as nonprofits grow and become more complex and as funding sources demand tighter accountability for the use of funds, nonprofits find themselves in a position of having to act more like for-profit businesses in terms of structure, strategy, and accountability. Accountability in any organization starts with top management and the leadership team. Without these individuals directing and leading the organization in the proper direction, it is unlikely that nonprofits will grow and expand. There is more emphasis on formal training for nonprofit executives and board members to increase their knowledge of their responsibilities and their abilities to support organizational sustainability.

Keywords Advocacy; Articles of Incorporation; Board; Development Officer; Executive Director; Fundraising; Leadership; Nonprofit fundraising and development; Program Officer; Volunteers

Management > Nonprofit Leadership & Management

Overview

Nonprofit organizations are legal entities that are formed with a mission to do work in the interest of specific constituencies. For example, a nonprofit organization could be formed to support educational interests, community development, address health or housing issues, and other areas that are perceived to have a need. Many nonprofits do not sell a product or service like a for-profit business, although nonprofits may do so. Instead, many nonprofits receive the bulk of their funding through fundraising for personal donations, or through government and private grants.

Nonprofits, like for-profit businesses, are growing rapidly. Dolan (2002) noted that in a ten-year period from the end of the twentieth century to the beginning of the twenty-first century nonprofits grew from 1.2 million to 1.5 million. According to the National Center for Charitable Statistics (NCCS), there are over 1.5 million nonprofit organization in the US, making up 10 percent of all global nonprofit organizations (Candid Learning, 2023). Nonprofits often do work that no one else will do. That growth continued as the twenty-first century progressed. From the 2010s through 2023, nonprofit employment grew by 33 percent compared to 9 percent in the private sector (Van Dam, 2023). In 2023, nonprofit organizations employed 10 percent of the US workforce (Zippia, 2023). Nonprofit organizations, like small businesses, are often located in the community, giving people an opportunity to work where they live. Nonprofits also give employees an opportunity to do something that matters, and employees can often receive intrinsic value from the knowledge that the work that is done helps others.

While for-profit companies have always had a focus and emphasis on leadership, management, and continuous improvement in all areas of business, nonprofits have been more concerned that the result of nonprofit operations resulted in good work being done. But as nonprofits expand and grow, many may have budgets that rival for-profit companies, and they must be run and managed like a business. In addition, private donors, as well as government agencies and foundations, are requiring nonprofits to be more professional and formal in the way they document the activities and use of funds and the way they manage the organization.

Organization of a Nonprofit

Executive Director

The top leader at most nonprofit organizations has the title of executive director. This individual is responsible for the day-to-day leadership of the organization, the supervision of staff, and is the primary advocate and face of the organization. A board is a group of individuals who serve in a fundraising and advisory capacity, providing oversight for a nonprofit. The executive director is the primary interface to and makes contact with the board. Small nonprofits may only have an executive director and fulfill their mission with the work of volunteers. Other large nonprofit organizations rival for-profit businesses with fairly large staff. Nonprofits often have a development officer who is responsible for organizing and raising funds. The development officer has contact with personal donors and may write grant proposals to seek money from the government and private foundations. A program officer is the nonprofit employee in charge of developing, managing, and monitoring the programs the nonprofit offers to its constituents. A communications officer manages the public relations and marketing for a nonprofit organization.

Volunteers

All nonprofits need volunteers to fulfill their missions. Volunteers are unpaid workers who either give their time, financial support, or advocate for the organization. Volunteers may also recruit others to become involved in the organization. Volunteers are often people who are passionate about the work a nonprofit engages in and enjoy spending time serving. Larger and more organized nonprofits often provide training for their volunteers. Some organizations that serve sensitive populations such as children may also require volunteers to undergo training and even background checks to avoid the possibility of liability on the part of the nonprofit as a result of the actions of a volunteer. While volunteers are useful, they can be difficult to control in that they are giving freely of their time. Some nonprofits specify what is required of volunteers and provide guidelines for volunteer behavior and minimal amounts of time that a volunteer must give to remain in good standing. In this way, people who are not truly dedicated are eliminated.

Mission Statement

Individuals who decide to become involved with a nonprofit organization as an employee are often people who are dedicated to the mission of the organization. Brown and Yoshioka (2003, abstract) described a nonprofit's mission as "a strong management tool that can motivate employees and keep them focused." Nonprofit organizations typically push the value of being involved in an organization that supports communities or fights social ills to balance the fact that many nonprofits do not always have budgets to pay salaries comparable to for-profit organizations. Competition for good nonprofit employees can be fierce. However, says Stephen C. Rafe, “Most volunteers who are truly service-oriented need little recognition. For them, the satisfaction comes from helping, from contributing to a job that needs to be done, and from the feeling that they’re appreciated and are making a difference” (Rafe, 2013).

Capacity Building

As nonprofits grow and expand, they become increasingly interested in capacity building. Capacity building is a way in which nonprofits improve the value of internal processes and resources to be able to expand the work that is done. Expansion can mean being able to serve more people of a different population, or it can mean serving more people of the same population. It can also mean being able to offer additional services. Internal capacity also means better skills among employees, better management of technology and processes, and better ability to raise and manage funds.

Inter-organizational networks may bring together two or more nonprofits and are “becoming the new shape of governance as they bring more opportunities to increase the capacities of communities” (Kapucu and Demiroz, 2013). Large-scope services such as health care delivery, disaster preparedness and response, or disease control exceed the capacity of single organizations and require community capacity for collective action, thus improving communities’ capacity to achieve service delivery goals and increasing their well-being. Fostering the involvement of community stakeholders, especially nonprofit organizations and other actors for service provision, distributes the overall burden of individual organizations.

Resource Acquisition

Resources usually are the biggest obstacle for nonprofits. Cargo (2005, p.552) noted, "the nonprofit sector is characterized in large part by its struggle to match resources with oversized missions." Nonprofits with lofty missions must realize that there is only operational capacity to provide services to a finite number of constituents. Nonprofits usually struggle with the amount of money needed operationally versus the amount of money spent on programs. Some infrastructure is needed to provide services, but donors and grantmakers are most interested in minimizing administrative costs and maximizing direct service costs. Some nonprofits also engage in selling products and services to provide value to constituents and to create a revenue stream for the organization. There are nonprofits that are connected to for-profit companies and vice versa, where the for-profit company provides funds for the nonprofit. Many large corporations fund nonprofits as a marketing technique. In other cases, a for-profit wants to engage in a social mission and needs a nonprofit structure to do it.

As funding sources require more professionalism in operations and reporting from nonprofit organizations, more nonprofits seek training and help in capacity building and organizational development. For years, for-profit companies have seen the benefit of investing in leadership to provide value to companies. Now, many nonprofits are doing similar things to bolster nonprofit leadership. At times, this can be at the executive director level and may also include board development. Other leadership programs emphasize leadership with staff assuming that many new leaders of nonprofits may be sources from within the organization. Dolan (2002) noted the decrease in the provision of certain services by the government means that nonprofits may have to step up to the plate to fill the gaps. Nonprofits saw a massive increase in the need for their services during the COVID-19 pandemic. Increased demand for nonprofits to provide services has increased the demand for skilled people to do the jobs of leading and managing nonprofit organizations.

The Executive Director's Job

Executive directors are usually the top leaders of nonprofit organizations. Executive directors of nonprofit organizations need many skills to be effective in their jobs. Executive directors must be good communicators as much of the executive director's job is as an advocate for the organization and its mission and as a persuasive voice to potential donors. Executive directors are typically the most visible person within the organization. The same leadership and management skills that are required of other types of organizational leaders (CEO, COO, president) are usually similar to the skills required of an executive director.

Many experts feel that the mission statement of a nonprofit organization should be used as a management tool and is the source of performance improvement in nonprofits (Brown & Yoshioka, 2003). "Mission statements are formal declarations of organizational values" (Brown & Yoshioka, 2003, p.6). Many nonprofits are started by people who are very passionate about a cause and who decide to create a nonprofit organization to fulfill that passion. Although passion for the mission is important, executive directors also need to be organized. They have supervisory responsibility over employees and organize and direct the nonprofit's activities. The director must execute the organization's strategic plan, monitor daily operations, engage in fundraising, and have contact with constituents. There is a great deal of competition for philanthropic dollars, so the executive director must be good at networking with key individuals in business, government, the nonprofit community, and the community at large. An executive director must be an expert at developing relationships at all levels.

Hiring

The executive director wears many hats, one of which is hiring. The executive director must have a sound supporting cast to keep things running effectively. Hiring and selecting the right people can be a determining factor in the growth and success of a nonprofit organization. Studies have shown that employees in nonprofit organizations somehow identify with the mission and that the mission factors into job satisfaction and on some level, it is as important as compensation (Brown & Yoshioka, 2003).

Finances

Executive directors should have some financial knowledge in that they will be participating in the documentation of financial activities and explaining those to the board, constituents, and funding sources. Nonprofits usually have external accountants and auditors to audit financials in addition to an internal financial person. However, the executive director is responsible for any issues related to finances and can benefit from understanding financial reporting obligations. Executive directors have difficult and demanding jobs without the high level of support that they might find in a corporate setting. This is where external training and development are often useful. Executive directors who attend external nonprofit training programs can network with other nonprofit leaders as they learn. These individuals can also identify strategies that other organizations are using and may be able to identify partners with whom they can jointly develop funding and marketing campaigns or jointly apply for funds.

Leadership Skills

Leadership skills are important for the executive director as they are the most visible and important leader of a nonprofit organization. Leadership skills must be used by the executive director and modeled for other employees. Denhardt and Campbell (2006) suggest that transformational leadership is important because leaders with transformational leadership skills are better at leading organizations through change. Nonprofit organizations are often the creators of change in the communities they serve, and transformational leadership skills can make the adjustment to change easier. Nonprofits can benefit from transformational leadership because there is also a moral component to it. There are two parts to the process of transformational leadership (Denhardt & Campbell, 2006):

• First, there is self-discovery of values.
• Second, there is reflection on these values within a social context.

Executive directors must continuously reflect on the activities of the organization to ensure that they are moral in context, beneficial to constituents and society, and true to the organizational mission. If these components are in place, the job of leading a nonprofit organization can remain exciting and satisfying for the executive leader.

The Board

The board is a very important entity within a nonprofit organization. The board has governance responsibilities meaning that the board is responsible for planning and influencing the nonprofit's activities. “To measure its effectiveness, a nonprofit must ask itself, ‘Are we really delivering on our mission, not just meeting budget, and are we getting maximum impact from our expenditures?’” (Epstein & McFarlan, 2011) Board members can lend support by providing advice and resources to the executive director. Board members may select the executive director and evaluate the director's performance. Nonprofit board members are usually unpaid and are selected based on their ability to raise funds, make personal donations, and because of their personal influence in the community. Sometimes board members are people who feel passionate about the cause and understand its ramifications.

Board Member Recruitment

One of the challenges of the nonprofit board is picking board members who are committed, have good skills, and are available. The problem is that nonprofit board members are typically unpaid, and the types of board members nonprofits want those who are well-connected and can personally donate are typically among the busiest people around. Highly qualified people who are willing to give up their time often have many interests and concerns that are vying for their attention.

Sometimes, nonprofit boards end up being made up of people who are available and not the most skilled. Nonprofits then may choose to engage in board development so that people who are enthusiastic will know their role as board members and be in a position to contribute. Board development also shows board members how they should conduct strategic planning and create a vision and plans for the organization several years down the road. The board should give operational guidance to staff but not supervise staff (although the board does evaluate the performance of the executive director).

Assistance to Board Members

There are many sources of assistance to nonprofit board members, volunteers, and employees who want to learn more about involvement in a nonprofit organization. There are thousands of books and hundreds of research articles and studies on effective nonprofit management. In addition, many universities are offering certificate and degree programs in nonprofit management. Prestigious schools such as Indian University, New York University, and the University of Southern California offer undergraduate and graduate degrees in nonprofit management often within their schools of public affairs (USNew.com, 2023). Dolan (2002) observed training programs for board and nonprofit leadership, with some being patterned after traditional business leader training while other training was developed based on input by practitioners and other experts. Some training is created based on what nonprofit leaders feel they need to be successful on the job. Surveys (Donlan, 2002, p.281) of nonprofit leaders listed the following areas as most important to completing the task of managing and leading a nonprofit organization:

• Fundraising
• Grant writing
• Volunteer administration
• Planning
• Cooperative ventures
• Communication
• Computer skills
• Program evaluation
• Nonprofit accounting.

Nonprofit organizations often seek to select board members with specific skills that will be needed for advice in governance, operations, and legal issues. Bankers, attorneys, accountants, and other professionals are usually sought after because they have intimate knowledge of the issues that nonprofits will face. Board members are charged with selecting new board members when the terms of current members expire, as well as with selecting a diverse group of members. Board members may have an attachment to the power, control, and title associated with board service and may resist efforts to expand or include others on the board. These actions can often slow or stop nonprofit growth and expansion.

Board Capital

Brown (2005) noted that if a board is well organized and performs well, this translates into a high-performing nonprofit organization. One of the reasons this is true is because of what Brown (2005, p.322) calls "board capital." It is a combination of "expertise, experience and reputation." These key components are then available to the nonprofit for its use. Direct expertise and experience can save the nonprofit the cost of acquiring the expertise over time or hiring it externally. Solid reputations of board members can attract donors, volunteers, additional board members, and provide a nonprofit with credibility. The task of the board to guide the strategic planning and long-term agenda for the organization, and this is best done by those who have specific capabilities and expertise.

Viewpoint

For-profit vs. Nonprofit Leadership Challenges

Leaders of all kinds have complex tasks and duties. For-profit leaders often must oversee complex structures, large budgets, and many employees. Nonprofits can also have similar demands, depending on size. Large nonprofits must compete with for-profit companies for employees and must create a structure with systems and processes that support the organizational mission. Nonprofit leaders must be accountable for results just as for-profit leaders are. However, the stakeholders in the accountability system for nonprofit leaders may be board members, donors, grant-makers, employees, and constituents. Meanwhile, for-profit companies may be concerned about stockholders, customers, suppliers, and employees.

Smaller nonprofit organizations struggle for resources and funding in a way that is very similar to the struggle faced by small businesses. With fewer resources, these organizations force those who lead and manage the organizations to wear many hats. Nonprofit institutions usually do not have a product or service that is being sold for a profit. So, production and sales numbers are not metrics usually being measured. Nonprofit institutions instead may measure the number of constituents served, number of donors, and total donor dollars.

Mission Statement

Brown and Yoshioka (2003, p. 5) stated, "The core of every nonprofit organization is its mission." Both for-profit and nonprofit organizations have missions that drive the activity of the organization. A mission statement is a statement of the values of an organization and is useful in defining the organization and its activities. For-profit leaders push the quality of the products and services their company produces as an embodiment of the corporate mission. For-profit leaders attract buyers, investors, and employees through their mission. Nonprofit leaders are a visible embodiment of the organization's mission, and the mission is used to attract donors, volunteers, funders, and employees.

Economic Challenges

For-profit organizations approach the task of adapting to falling sales or economic challenges by tightening the corporate belt. Corporate belt-tightening could result in raising prices, reducing the number of employees, or selling off assets. Nonprofit leaders may not have assets to sell and can't force donors to contribute more. Nonprofit organizations will not be able to serve as many constituents with fewer dollars.

For-profit leaders are most vulnerable to massive changes in buyer behavior and supplier behavior. If buyers decide not to buy, the for-profit institution cannot sell. If suppliers raise their prices, it costs the for-profit institution more to produce the same products or services. If a for-profit business is successful, it becomes profitable and has money to reinvest into the business. If a nonprofit organization is successful, it may have enough money to cover operating costs and serve a larger number of people.

If the nonprofit experiences massive changes in donor and funding streams or massive changes in constituent behavior, a financial impact will be the result. If donors decide to contribute less, nonprofit leaders will have to decide how to increase funds. The decision could involve the makeup of donors or increasing the number of donors to fill the gap. Larger financial factors in the economy may affect contributions. If the nonprofit finds that the number of constituents requesting help grows considerably, the nonprofit may have to turn away some or may provide fewer services to constituents in order to serve more. The nonprofit organization is not able to raise prices. Even if it charges a reduced fee for services to constituents, vulnerable constituents most often cannot afford to pay. For-profits are driven by the bottom line—whether money is made and whether the company is profitable at the end of the day. Nonprofits are driven by the mission and allow it to be the bottom line, driving all activity (Brown & Yoshioka, 2003).

Both nonprofit and for-profit leaders must understand financial budgeting and understand where the money originates. Both types of leaders have to engage in careful planning to make sure resources are utilized properly and to avoid future problems. For-profit and nonprofit leaders are similar in that they must possess a high level of management skill, and both must be cognizant of expenses and operational issues. For-profit and nonprofit organizations differ in the missions they have, but both use the mission as the driving force behind all activity and have missions based on organizational values. The mission is the force that shapes what the organizations are and what they will become.

Terms & Concepts

Advocacy: Activity of supporting or defending a point of view or interest area as in the mission of a nonprofit organization.

Articles of Incorporation: Legal document registering a nonprofit organization and listing the mission or area of work the nonprofit engages in such as education, arts, etc. The document usually includes initial founding board members and the organization's purpose.

Board: Advisory group for a nonprofit organization that has oversight responsibilities and takes on primary leadership for fundraising.

Development Officer: Employee of a nonprofit with primary responsibility for managing the funding strategy including grant writing and donor initiatives.

Executive Director: Executive leader for a nonprofit organization responsible for supervising staff and day to day leadership of the organization.

Fundraising: Term used to describe the activities nonprofits engage in to bring funds into the organization. This can include events, personal appeals, fundraising campaigns and so on.

Program Officer: Employee of a nonprofit organization with responsibility for developing and managing the programs the organization offers to its constituents.

Volunteers: Unpaid individuals who offer their service to assist a nonprofit in fulfilling its mission.

Bibliography

Best nonprofit management programs - US News rankings. (2023). USNews.com. Retrieved June 5, 2023, from https://www.usnews.com/best-graduate-schools/top-public-affairs-schools/nonprofit-management-rankings

Brown, W. A. (2005). Exploring the association between board and organizational performance in nonprofit organizations. Nonprofit Management & Leadership, 15, 317–339. Retrieved November 21, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=16345554&site=ehost-live

Brown, W. A. & Yoshioka, C. F. (2003). Mission attachment and satisfaction as factors in employee retention. Nonprofit Management & Leadership, 14, 5–18. Retrieved November 21, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=10755852&site=ehost-live

Butler, L. G. (2014). Top tips for improved leadership. Nonprofit World, 32, 26–28. Retrieved November 17, 2014, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=95456244&site=bsi-live

Cargo, R. (2005). Book review: The Jossey-Bass handbook of nonprofit leadership and management (2nd edition). Nonprofit & Voluntary Sector Quarterly, 34, 550–552. Retrieved November 21, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=20158248&site=ehost-live

Denhardt, J. V. & Campbell, K. B. (2006). The role of democratic values in transformational leadership. Administration & Society, 38, 556–572. Retrieved November 21, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=22703273&site=ehost-live

Dolan, D. A. (2002). Training needs of administrators in the nonprofit sector. Nonprofit Management & Leadership, 12, 277. Retrieved November 21, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=6714167&site=ehost-live

Epstein, M. J., & McFarlan, F. (2011). Measuring the efficiency and effectiveness of a nonprofit's performance. Strategic Finance, 93, 27–34. Retrieved November 16, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=66447413&site=ehost-live

How many nonprofit organizations are there in the U.S.? (2023). Candid Learning. Retrieved June 5, 2023, from https://learning.candid.org/resources/knowledge-base/number-of-nonprofits-in-the-u-s

Kapucu, N., & Demiroz, F. (2013). Collaborative capacity building for community–based small nonprofit organizations. Journal of Economic & Social Studies (JECOSS), 3, 83–117. Retrieved November 16, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=90496562&site=ehost-live

McGovern, G. (2014). Lead from the heart. Harvard Business Review, 92, 38. Retrieved November 17, 2014, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=94490433&site=bsi-live

Rafe, S. C. (2013). Motivating volunteers to perform. Nonprofit World, 31, 18–19. Retrieved November 16, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=90565068&site=ehost-live

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Van Dam, A. (2023, May 12). The real reason America's nonprofit sector is seeing massive growth, and more! The Washington Post. Retrieved June 5, 2023, from https://www.washingtonpost.com/business/2023/05/12/force-behind-americas-fast-growing-nonprofit-sector-more

Suggested Reading

Dolan, D. A. & Landers, J. (2006). Gambling on an alternative revenue source: The impact of riverboat gambling on the charitable gambling component of nonprofit finances. Nonprofit Management & Leadership, 17, 5–24. Retrieved November 21, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=22524249&site=ehost-live

Eisenberg, P. (2004). Solving the nonprofit leadership crisis will take much work. Chronicle of Philanthropy, 17, 44. Retrieved November 21, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=15528887&site=ehost-live

Fader, B. (1997). When CEO precedes Ph.D. (or MBA, or J.D….). National Civic Review, 86, 261–265. Retrieved November 21, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=80338&site=ehost-live

Fram, E. (2014). What's in a name? Benefits of the president/CEO title. Nonprofit World, 32, 8–9. Retrieved November 17, 2014, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=95456227&site=bsi-live

Glasrud, B. (2003). Nonprofits can be cool. Nonprofit World, 21, 29–30. Retrieved November 21, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=19072313&site=ehost-live

Harrison, B. J. (2006). For-profit or for purpose? Associations Now, 2, 59–65. Retrieved November 21, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=19072313&site=ehost-live