FALL 2006

VOLUME 1, ISSUE 3

Dear Friend,

Greetings! In our fall issue of The Learning Link we touch on three areas that frequently come up in our work with clients.

Bill Coy

Just about all nonprofits have or will face the need to transition a current executive director out of the organization and to bring another in. In the first article, Bill Coy, who leads our Human Resources practice, discusses how organizations can structure this process to achieve optimal outcomes.

A well-functioning board is equally important to effective organizations as are the leadership skills of the ED. Our second article presents a board committee structure that we have found to be very successful in promoting board effectiveness.

Luis Vergara

Our spring newsletter featured an article (More Mergers) discussing trends in strategic restructuring (mergers and other partnerships) in the sector. While there has been an increase in this activity overall, the greatest growth in such partnerships appears to be among chapters or affiliates of national organizations. This past summer Luis Vergara, Senior Associate, conducted a study to learn more about this trend; our third article presents his findings.

For those wanting a quick scan of the articles in this issue, we provide a brief summary within this email message. To read the full articles, click on the link after each summary. Please also check out the sidebar for updates on La Piana Associates, Inc., including upcoming presentations and workshops by our staff.

I hope you find these articles of interest. As always, we welcome your thoughts, comments, and suggestions; please email these to our editor, Michaela Hayes, at hayes@lapiana.org.

Yours in learning,

David La Piana

P.S. We are sending you this issue of our newsletter because you signed up for it on our website, were on our Strategic Solutions Initiative mailing list, or are in our contact database and receive other mailings from us.

Also, please feel free to forward this newsletter to a friend. If you know someone who would like to subscribe, please tell them to go to our website to sign-up.

Tips for Successful Executive Transition

by Bill Coy, Senior Associate, Human Resources Solutions Practice

The "leadership deficit" is now a commonly acknowledged phenomenon in the sector. The crisis is most acute at the highest level—the executive director (ED) position. The precipitating factors—the aging of the baby-boom generation, inadequate compensation, the stress of the ongoing struggle for funding, and the continued growth in the number of new nonprofits—have been well-documented. Several initiatives focus on identifying and developing potential leaders and strengthening the capacity of current leaders. (See our February 2006 newsletter article and briefing paper on one such program: the learning community for EDs.)

While these leadership development programs are essential, equally important, and often overlooked in the pressure to meet the demand for a new ED, is the need to take the time to select the right individual to lead the organization, and to successfully transition the current ED out and the new ED in. This article outlines an approach to managing this change process to achieve optimal outcomes.

The departure of an ED is disruptive to the organization. However, it can be a great opportunity.

Much has been written about the difficulty of adapting to change—both for organizations and individuals. The departure of an ED, whatever the reason, is disruptive as it involves significant change at all levels of the organization. However, if the nonprofit approaches this in a thoughtful and intentional way, this can be a great opportunity. It can be an occasion for self-examination and developing a greater understanding of the nonprofit's role in the community and how it is perceived, and of the issues and challenges that it faces. This provides a sound foundation for finding the right leader who can not only stabilize the organization, but take it to the next level.

An approach that we have found very effective is to break the transition process into three phases:

Phase 1: Organizational Analysis
Replacing a chief executive is not like replacing a cog in a machine. The requirements of leadership must be defined in the context of the organization. This should involve both board and staff, and take into consideration the mission and vision, history and accomplishments, priorities and challenges, strategic position, and future direction of the nonprofit. A process we have found useful for structuring this discussion is our one-day strategy formation process. Unless contraindicated, the departing ED's accomplishments and legacy should be celebrated. After this internal review, the input of external constituencies such as customers/clients, the community, and funders and donors should be obtained. From this, an understanding of the criteria of effective leadership—a profile of requirements and competencies for leadership in this organization—can be developed.

Phase 2: Executive Search
Components of this phase include: agreeing on a recruitment strategy and process, developing proactive search mechanisms, screening and ranking candidates against the profile created in phase1, completing and documenting thorough reference checks prior to selection, and overall, conducting a professional and successful interview process and compensation negotiation.

While the board makes the final decision, the selected candidate's chances for success are greatly enhanced when other stakeholders are included in the process. We don't advise that staff members interview their potential boss; however, providing an opportunity for a conversation where the candidates can present themselves to staff members and discuss their vision for the organization lays a foundation for development of a positive working relationship.

Phase 3: Transition Management
Too many boards think that the job is done when the signed offer letter is returned. This has been the downfall of many executive transition processes. No matter how successful the previous ED was or how skilled the new executive is, change is difficult and must be carefully and thoughtfully facilitated. When this is poorly managed, the result is often another search process. To avoid this outcome, the board must facilitate the introduction of the new ED, orient her to the organization and the community, assist with the development of a six-month work plan including specific goals and measures, facilitate the development of a positive ED/board chair working relationship, and support the new ED in assuming the leadership position.

Summary

The selection of the nonprofit’s leader is the most important decision a board makes.

In sum, successful executive transition is no easy undertaking, yet the selection of the nonprofit's leader is the most important decision a board makes. Although nonprofit leaders are in short supply, as are organizational resources, nonprofits must avoid the tendency to rush through the process. It is critical that sufficient time and thought be put into this process. The outcome will be well worth the effort.

Board Committees: Fewer is Better

From our consulting work with hundreds of nonprofits, as well as our experience as staff and board members with many others, we have developed a keen appreciation for the role of a well-functioning board committee structure in helping nonprofits to achieve success. Our conclusion: Most nonprofit organizations have too many board committees doing too little work.

We recommend that nonprofits replace this cumbersome and dysfunctional structure with a simple three-committee structure.

A typical nonprofit has a plethora of committees: Finance, Personnel, Facilities, Program, Nominating, Membership, Fund Development, and of course an Executive Committee. Often, when one committee malfunctions, the board appoints another. For example, when the Development Committee fails to raise funds (or even to meet), the board may appoint a special Annual Giving Committee to manage the yearly fund appeal. When none of this actually produces any appreciable increase in donations, the board may then charter a Major Gifts Committee to go after big donors.

In another arena, these separate committees may overlap and interfere with each other. For example, after extensive study of competitors, the economy, and the year’s performance, the Personnel Committee may decide that employees deserve a 4% raise in the coming year. This recommendation goes to the Finance Committee, which determines that whatever the staff deserves there is only enough money in the next year’s budget for a 2% raise. The result: wasted effort and possible tensions between committees.

In most cases, we recommend that nonprofits replace this cumbersome and dysfunctional structure with a simple three-committee structure, each headed by a Vice President who serves as the Committee Chair, and consisting of Internal Affairs, External Affairs, and Governance.

In addition, there should be an Executive Committee consisting of the Vice Presidents/Chairs and the Board President/Chair; however, as described below, this committee should not be allowed to take over the decision-making function of the board as a whole.

This structure has several key advantages:

Each board member serves on just one committee at a time and focuses on interrelated issues, avoiding redundancy and recommendations that are at cross-purposes. For example, a 12 member board has 3 committees, each with 4 members.
It requires fewer meetings, making less work for staff.
The accountability lines of the three committees are clear.
Board meetings can be organized around the three committees’ reports, reinforcing the importance of their work and affording more time for "generative thinking," including development of organizational strategy and fostering greater involvement in decision-making.

The three-committee structure

Internal Affairs Committee
All internal and operational issues—including those related to finance, investments, capital acquisitions, human resources, and facilities—are handled by this committee which is staffed by the CFO and the Director of HR (or the ED where these positions do not exist). Putting all internal issues related to expenditures under one committee’s jurisdiction streamlines these decisions. The Treasurer normally chairs this committee.

External Affairs Committee
All external issues—including fundraising, public relations, and marketing—are the responsibility of this committee, which is staffed by the Development Director (or, in small organizations, by the ED). These concerns often overlap. For example, public relations and marketing efforts should support fundraising and vice versa. This also forces the board to avoid dealing with a failing committee by creating another (as described above).

Governance Committee
This committee is responsible for the health and functioning of the board. It recruits and nominates new members, conducts orientation and ongoing training, produces board materials, and evaluates the performance of the board itself. This committee, staffed by the executive director (ED), is arguably the most important of the three. It is responsible for ensuring the effectiveness of the current board and for recruiting and preparing tomorrow’s leaders. It takes the old standard nominating committee to new heights of impact on the organization.

The role of the Executive Committee

Many nonprofits have an Executive Committee that is composed of board leaders. This committee usually is conceived with a mandate to "take care of issues that come up between board meetings" and to work with the ED to organize the board meetings themselves. Over time, however, an Executive Committee often begins to usurp the role of the board. It works closely with the ED and so hears of issues before they come to the full board, helping the ED to resolve them in advance of the next board meeting. As a result, board meetings can become a series of reports by this committee and the ED on actions they have taken. Over time, other board members may feel they have no meaningful role in decision-making.

Our advice: If your board meets fairly frequently—monthly or bimonthly—task your Executive Committee with organizing the agenda for the next board meeting and nothing more. The only exception should be a true crisis in which the executive needs help. For nonprofits that meet less frequently—such as, quarterly—limit the committee’s activities to routine business so that meetings of the full board can focus on strategic discussions. In fact, a key topic of conversation at the executive committee is how to make sure that the upcoming board meeting is a powerful experience for board members and the organization they serve.

Conclusion

Nonprofits that have adopted this three-committee structure and that have limited the role of the Executive Committee, as described above, report that their boards have become significantly more effective as a result.

Partnerships among Chapters and Affiliates of National Nonprofits: A Growing Trend

by Luis Vergara, Senior Associate

Our spring newsletter featured an article, More Mergers, that highlighted the increase in mergers in the sector and noted the greater tendency of some types of nonprofits to engage in strategic restructuring (that is, mergers, administrative consolidations, joint ventures, and other types of partnerships).

In particular, we have observed a growing interest in such partnerships among chapters and affiliates of national nonprofits. Intrigued by this anecdotal evidence, we conducted a qualitative study to find out whether this trend would be substantiated. We also wanted to better understand the nature of, and motivations underlying, these partnerships.

Our study consisted of in-depth interviews with executives at the local (chapter/affiliate) and national levels of a sample of organizations, as well as a review of current periodicals, newspaper articles, and reports.

Key Findings

While not statistically valid due to the small sample of organizations studied, the study findings support our hunch that chapters and affiliates of national organizations are increasingly forming partnerships. Interviewees believe this trend will grow. Other findings include:

While mergers are the most commonly noticed activity, administrative consolidation may actually be occurring more frequently.
The initial motivation for forming partnerships typically comes from the national office which is seeking to address competition for resources, and to achieve increased efficiencies and greater impact at the local level.
With the national office providing information and support, chapters/affiliates are increasingly open to considering strategic restructuring (SR) and are also more frequently initiating this activity on their own.
While some national offices provide support (such as, funding and/or consultants) to locals, the bulk of the work involved (assessment of partners, negotiation, implementation, and integration) takes place at the local level.

Detailed findings

Interviewees
Interviewees represented the following nonprofits: Alzheimer’s Association, Girl Scouts USA, Junior Achievement, United Way, and YMCA. Thus, our sample encompassed a variety of sub-sectors, including education, youth, and health. Additional national organizations and their chapters/affiliates were considered in the secondary research.

Strategic restructuring is a growing trend

Strategic restructuring is not only common in the sector, but it is also an essential strategy for nonprofits to have in their "strategic toolbox."

In 2006, strategic restructuring (SR) is not only common in the sector, but it is also an essential strategy for nonprofits to have in their "strategic toolbox." Constrained resources, exacerbated by competition from other nonprofits as well as for-profits, coupled with a trend toward adopting more "business-like" practices in the nonprofit sector has led executives and boards to embrace this strategy.

For national nonprofits with multiple chapters/affiliates, SR is becoming increasingly common, and is often motivated by an overall consolidation/realignment effort launched by the national office. Most interviewees reported seeing more SR activity than in previous years, and that they expect this activity to continue to increase.

The most common form of SR is merger. As one executive stated "mergers are easy to conduct because missions and goals are the same." These mergers tend to be large in scope, involving three (3) or more sister organizations within a defined geographic area. Membership organizations, such as YMCAs, are less likely to merge than other local affiliates; strong member ties and involvement raise barriers to merger.

Other SR activities that are taking place to a lesser degree are mergers between local non-affiliated organizations. These tend to be smaller in scale (that is, just two organizations merging), and usually occur between organizations with similar programs, such as a local YMCA and a local Boys and Girls Club.

Mergers are highly visible, but administrative consolidation may be more common.

Mergers are highly visible, but administrative consolidation may be more common. Mergers tend to be highly conspicuous since they involve two or more nonprofits becoming one new organization. This typically results in many obvious changes such as a new name and location, as well as changes that directly impact many stakeholders in the communities involved (such as, employees, volunteers, donors, funders, and customers/clients). For these reasons, and because the press tends to be interested in these stories, the local community is more likely to know about a merger.

Administrative consolidation is often more palatable than merger. It allows organizations to remain autonomous and to avoid the risk of losing their local community’s support. For these reasons, administrative consolidations often occur "below the radar." In fact, some interviewees believe that administrative consolidations are actually occurring more frequently than mergers.

Administrative consolidation is considered a sound cost-saving strategy and is particularly appealing when merger is not an option. It can also serve as a precursor to merger, allowing the organizations to become familiar with working together and to observe first-hand the benefits of this. The most common type of shared services include: fund development, technology, financial services, and marketing. (For more information on administrative collaboration and consolidation, please see our briefing paper on this topic.)

Management service organizations
Some national executives mentioned interest in creating management service organizations (MSOs), but evidence of this actually occurring is lacking. (The briefing paper mentioned above provides a description of MSOs.)

Collaboration

Collaboration, while not a form of SR, continues to be a very popular form of partnership.

Collaboration, while not a form of SR, continues to be a very popular form of partnership. It ranges in scope (two or more partners) and formality (from formal MOU to verbal agreement). From both a local and national perspective, collaboration that leads to increased services, unified fund development, and enhanced advocacy of local policy helps create a strong local identity and increases effectiveness. Key outcomes include the ability to provide increased programmatic activities and reach larger numbers of stakeholders, greater impact of advocacy efforts, and preservation of organizational autonomy.

Benefits and drawbacks
National offices believe the benefits of SR far outweigh the drawbacks. Local executives know and understand the benefits, but not all are entirely happy about forming partnerships. The benefits most frequently noted include economic efficiencies, programmatic expansion, and the increased advocacy strength derived from consolidating local efforts. Drawbacks are primarily related to fear of change and, specifically, of potential loss of jobs; this fear lowers morale and makes the organization less effective. There is a growing acknowledgement, especially at the national level, that a reduction in force may result from SR, but this is considered necessary and acceptable in order for the organization to be sustainable in the long-term. Another drawback is the potential loss of local autonomy, but this appears to be more a perception than a reality.

While most see mergers favorably, executives often perceive the term "merger" itself as a negative and prefer to use "consolidation," "realignment," or "restructuring." These other terms are also more indicative of what national organizations are attempting to accomplish: geographic consolidation or a scaling down process.

Decisions are made at the national office

By joining forces, local chapters/affiliates can be more competitive.

The competitive nature of the sector is leading national nonprofits to develop more "business-like" practices. They see that, by joining forces, local chapters/affiliates can be more competitive, and the national office can provide a more focused and higher level of support to them. Decisions to encourage SR activities often emerge from strategic and business planning efforts at the national level; there may be little or no input from the local organizations.

National offices are setting up internal consultant teams to support local chapters and affiliates during their SR process; several mentioned setting up transition/realignment teams, providing funding, and supporting marketing and public relations efforts. Through these efforts, they are developing and disseminating "best practices."

Local offices are doing the day-to-day work
Local affiliates/chapters are leading their own assessment process (deciding on partners, hiring consultants, etc.), and determining who should lead the local affiliate/chapter once merged. While most of these decisions are arrived at through careful planning, some are more organic, arising due to executive transition or economic crisis (such as, inept fund management and/or poor fundraising skills), or to achieve greater overall effectiveness from joining forces and sharing resources.

Summary

Partnerships—especially mergers and administrative consolidations—among affiliates and chapters of national nonprofits are on the rise. There are many benefits and few drawbacks.

For more information, tools, and resources on nonprofit partnerships, please visit the strategic restructuring section of our website: www.lapiana.org/sr.

La Piana Associates, Inc. is a management consulting firm that helps nonprofit organizations and philanthropic foundations effectively address the strategic issues they face. We are dedicated to improving the capacity of the nonprofit sector, and specifically to helping nonprofits become stronger, more effective, and sustainable for the long-term. Our mission is to help transform the way nonprofits are led and managed so that they have a more powerful impact on society. For further information, please visit our website at www.lapiana.org or contact us at info@lapiana.org.

Please feel free to forward the following link to this newsletter to your friends and colleagues: http://www.lapiana.org/newsletters/0103.html

Welcome new staff
We are pleased to announce our newest staff member: Stephen Colwell, Senior Manager.

Play to Win wins!
Our most recent book—Play to Win: the Nonprofit Guide to Competitive Strategy—recently won a Terry McAdam Nonprofit Book of the Year honorable mention award. Click here to read the press release.

Upcoming Speaking Engagements by La Piana Associates’ team members
Visit the "Recent and Upcoming Speaking Engagements" section on our website for more information.

David La Piana, President (lapiana@lapiana.org)
The annual conference of Grantmakers for Education, to be held in San Francisco in early November, will feature two sessions on collaboration. For the first one, David will discuss the question: Can Collaboration Among Funders Improve Impact in Education?, and for the closing plenary session, David will serve on a panel discussing ways to create collaborations and partnerships with public agencies, grantees, and other funders. Later in November, David will lead two workshops on strategic restructuring in Dallas, followed by a training for consultants.

Bob Harrington, Senior Manager (harrington@lapiana.org)
In recent months Bob has given several presentations on strategic restructuring for audiences ranging from nonprofit executives and board members, to funders and capacity builders. Among his upcoming presentations are one for the California League of Park Associations, two training sessions at the United Way of Rock River Valley, and a session at the Michigan Nonprofit Association. The latter session is similar to workshops that Bob led at the Ohio Association of Nonprofit Organizations' annual conference in early October.

Luis Vergara, Senior Associate (vergara@lapiana.org)
At the California Association of Nonprofits (CAN) annual conference, to be held in Los Angeles in late October, Luis will lead a session on Sustaining Success: The Leadership Challenge of Our Time.

Bill Coy, Senior Associate (coy@lapiana.org)
At the Northern California Human Resources Association’s Nonprofit HR Conference in November, Bill will conduct a workshop on compensation in nonprofit organizations.

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Check out David La Piana's blog
For a discussion of a variety of current issues facing the nonprofit sector, read David’s blog, The Next Big Thing—Musings on the future of nonprofit management and governance. Please comment, as well. We want to hear your thoughts!

Recent publications and articles
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