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The Top 5 Challenges Leaders Are Facing in The Not-For-Profit Sector

Written by on August 18, 2014

Providing leadership in the not-for-profit sector can be immensely rewarding, but it comes with a diverse set of challenges. Some of the most complex are:

1. Challenges of Governance

Working with governing boards is a different task in a not-for-profit situation than in a corporate one. Issues with board governance and the relationship between the board and CEO, as well as other stakeholders, take up more mental energy and time with a not-for-profit organization than in a typical for-profit company.

In a for-profit organization, the board of directors is in place to look after the shareholders’ interests, and the shareholders are looking for returns. However, in a not-for-profit, the shareholder is the community.

This provides a unique, inclusive dynamic. A board member with a for-profit company might not know anything about making the product the company sells. But when you’re a community member sitting on the board of a not-for-profit organization, and you’re there in a fiduciary role, you have a lot to say about what’s going on in the community and what the needs are.

The leadership is more of a shared commodity with the board. Who develops the strategic plan? In the corporate world, the CEO and executive team do, and they might show it to the board, or they might not. In the not-for-profit sector the board members are up to their elbows in developing it. The leadership is shared.

In the not-for-profit sector, issues of accountability and questions about who’s the owner and who’s the shareholder all make the job much more complex for a leader.

2. A Wider Range of Stakeholders

Not-for-profits also involve more complex operations for leaders from the perspective of managing relationships with the board, key donors, colleagues in other not-for-profits in the community, funders and clients. The range of key stakeholders is much greater for a leader in a not-for-profit organization.

3. Competing For Top Talent With a Wealthy Private Sector

Leaders also face significant challenges in acquiring the right talent with limited resources. In a not-for-profit organization, it can be a struggle to compete to attract the best and brightest individuals because not-for-profits often can’t offer the same compensation as the corporate sector for comparable positions.

For that reason, not-for-profits have started offering other benefits to top candidates, such as cultural and personal development opportunities and other non-financial incentives.

4. Retaining Top Talent

Mentoring and nurturing a person to be a candidate for a top-level role within a not-for-profit organization takes more time and energy for leaders. It often involves working closely with other staff to get them on board, intense organization and training to ensure skill sets are realized, and fostering leadership qualities in the candidate.

The main downside of offering career development at a lower salary than the corporate sector is that people tend to come into an organization with fewer skills, build their skills and then leave. Although there are now programs geared toward building capacity of staff educated specifically to lead in the not-for-profit environment, new hires often come to the role with little leadership experience.

5. Measuring Success

Issues surrounding accountability are another challenge that not-for-profit organizations and their leaders have to solve. Providing measurable value when a profit motive is non-existent involves creativity. Only now is evaluation becoming a recognized component of accountability reporting.

6. The Next Generation

Perhaps the biggest challenge the not-for-profit sector will see is still hibernating. Already, a trend is emerging that sees top leaders retiring with no succession plans in place. Leaders who have worked their way up through the ranks of large organizations and held key positions for decades are not mentoring or preparing anyone to take over their responsibilities.

Because of this, there may soon be a severe shortage of experienced top-level leaders in the not-or-profit sector. For today’s not-for-profit organizations, the biggest challenge might be still to come.