In the next few decades, nonprofits are expected to see an unprecedented level of donations coming into their organizations as accumulated wealth is handed down from baby boomers to the next generations. That shift presents a challenge for organizations to leverage that funding. William Meehan, director emeritus at McKinsey & Co., and Kim Starkey Jonker, president and CEO of King Philanthropies, have written a book to help leaders in the nonprofit sector. The authors, who are also lecturers at Stanford University, discussed their book — Engine of Impact — which offers seven steps for strategic leadership, on the Knowledge at Wharton show on SiriusXM channel 111.
An edited transcript of the conversation follows.
Knowledge at Wharton: Are we looking at a situation where the nonprofits are not ready for this influx of cash?
William Meehan: I would think that some nonprofits are ready. They are the ones that follow our seven essentials of strategic leadership, but many are not. In the last chapter of the book when we talk about scaling, we took some data from a survey that Kim led of 3,000 nonprofit leaders and put them in a typical four-box matrix. Just by their own measures, about 30% of the nonprofits in the U.S., we put them in scale jail, which is to say not only shouldn’t they scale, they probably shouldn’t even exist.
The whole theme of the book is whenever this onslaught of philanthropy occurs — and it’s going to be a large number as we baby boomers see the great white light in the lessening distance — we outline a program so that nonprofits can earn the right to the increased philanthropy that is going to be needed to fuel the sector.
Knowledge at Wharton: Kim, what did you find in the research?
Kim Starkey Jonker: First, we found that more than 80% of organizations struggle in one of the seven core elements of strategic leadership. We also found that 11% of organizations actually excel at all seven of those elements. In the matrix that Bill mentioned, we put those 11% in what we call the “nonprofit promised land.”
“From a donor’s perspective, it is better to choose organizations that are evaluating their impact and have evidence that their intervention works.” –Kim Starkey Jonker
We also found that more than half of nonprofits out there struggle with board governance as well as fundraising and impact evaluation. We wrote the book as a guide to help organizations strengthen their abilities on these core elements of strategic management. We’re quite optimistic about organizations’ ability to take some of this advice, apply it and have significantly more impact.
Knowledge at Wharton: At the top of that list of seven components, you talk about mission and strategy. I would think those are the two most important points for any nonprofit.
Meehan: We certainly agree. The clear and focused mission is, in fact, very controversial in the sector. [Every] nonprofit needs a clear and focused mission, and that clear and focused mission is embodied in their mission statement.
Many observers over the years have simply concluded that since so many nonprofits’ mission statements are vague or broad or nonspecific, filled with flowery inspirational language that doesn’t explain what the nonprofit does, they basically give the whole sector a pass and say that mission is not all that important. We don’t believe that. Nonprofits by definition are mission-focused and must start with a clear and focused mission.
Knowledge at Wharton: What about strategy?
Meehan: For publicly traded companies, we know that their mission is to maximize shareholder value. For nonprofits, they need a strategy that embodies a theory of change, which is a logic statement that shows how they are going to achieve their mission. Then their strategy explains that in more detail. Our chapter on strategy is the few strategic thoughts that matter. We don’t need to over-complicate this. Several of the frameworks that you learn in business on strategy are very reflective of the nonprofit sector.
Knowledge at Wharton: Kim, talk about one of the other principles: impact evaluation. Donors want to know the impact their cash is making, and the nonprofit organizations need to keep track of it.
Jonker: We use our book to encourage organizations to do more impact evaluation. From a donor’s perspective, it is better to choose organizations that are evaluating their impact and have evidence that their intervention works.
“Nonprofits are liked failed diets or federal government deficits; these are things that we sort of assume just are the way they are.” –William Meehan
Sometimes in the sector, nonprofits will say, “Our intervention is so qualitative in nature that it can’t be measured, it can’t be reduced to mere numbers.” Our perspective is that the process of translating qualitative things into quantitative ones can actually be quite useful, and the organization can learn something in the process.
We have an example in the book of Willow Creek Community Church, which is an extreme example because it uses something as touchy-feely and amorphous as spiritual growth. They conducted a quantitative analysis that taught the organization something and caused them to alter their programmatic intervention as a result.
Knowledge at Wharton: You mentioned the role of the board of directors. We have seen many stories about company leaders stepping away from business because they feel the need to work with a nonprofit. When they do, they bring a lot of experience and skill to the table. Can that influence how a board operates?
Meehan: Nonprofits are liked failed diets or federal government deficits; these are things that we sort of assume just are the way they are. We explain very simple methods that nonprofit boards can use to become more effective. You mentioned former CEOs and others who have joined boards. If you observe nonprofit boards, whether it’s a business CEO, an attorney or a small business entrepreneur, they very often seem to check their experience and wisdom at the door. Sometimes it’s fear of offending the professionals in the room, be they musicians or social workers or physicians.
Our advice to any new board member would be to ask stupid questions, ask them until they get the smart questions, and demand answers to the smart questions until they get them. If after six months they haven’t been able to get answers to their thoughtful questions, then perhaps they should find another nonprofit to support. For some reason, many of us cut nonprofits a wide swath when we’re demanding basic information of them.
Knowledge at Wharton: Providing that information is going to be a necessity moving forward, correct?
Meehan: We think so. Kim and I have been involved [in nonprofits] for over 20 years, and people have been saying that for most of that period of time, certainly since the introduction of Guide Star and other information sources on the net. If you look at the best market research available, which is not very good, at most 10% of donors and philanthropists say they do any evaluation at all of a nonprofit when they make their donations.
Philanthropy and nonprofits are obviously big news items now; you can’t read any of the major national newspapers without seeing at least one or two columns a week. They continue to cite millennials as demanding more evaluation. We applaud that stance and hope that they continue to follow through. We call it donor power. If donors and philanthropists demand that nonprofits give them strong evaluatory information, not only of themselves but also compared to other similar interventions, then nonprofits over time are going to provide it just as if it were the demand of a stockholder.
Knowledge at Wharton: The Giving Pledge is a commitment by the wealthy to give back to worthwhile causes. Bill Gates recently announced a $50 million pledge towards Alzheimer’s research. Will charity from super-wealthy donors make the critical difference?
“Our advice to any new board member would be to ask stupid questions, ask them until they get the smart questions, and demand answers to the smart questions until they get them.” –William Meehan
Jonker: We are very encouraged by the Giving Pledge and so many people that are stepping up. But I also want to underscore that small and medium-sized donors, those who have $100,000 yearly incomes and make donations to nonprofits, comprise a very large portion of charitable giving in this country. Everyone’s donations make a difference, and we can’t rely only on the major philanthropists. I think everyone has a role to play in the nonprofit sector.
Knowledge at Wharton: In the book, you also discuss the people working within the organization and the roles they will play moving forward.
Meehan: We are supporting what is in many ways a new organizational model called Team of Teams. Many of us work and spend most of our time in teams, even project teams. This is an organizational model that is now being applied by the founder of Ashoka, a social entrepreneurship movement, where the new organization no longer has simple black lines. Everyone is organized in teams of teams.
Recognize in the post-modern organization — corporations, professional firms, nonprofits — that people spend their time working across the organization in a series of multiple teams. We think this is not only going to be the future organizational model for nonprofits, we think it’s going to be for companies as well.
Knowledge at Wharton: You highlight some organizations that have already implemented the principles outlined in the book.
Jonker: There are many wonderful, extraordinary organizations out there that literally take your breath away. We have case examples of 50 organizations, all of which are tremendous. It’s a very uplifting journey to write a book about extraordinary nonprofits because there are people devoting their every day and their entire lives to creating impact through the nonprofit sector.
In addition to some of these core fundamentals, like mission, strategy and impact evaluation, we also have a chapter in the book called “Insight and Courage,” and that gets at some of the qualitative aspects of this work. We’re underscoring the importance of fundamental insight about how to solve a particular problem in society. Most of the extraordinary organizations started with some particularly distinctive insight.
Then there’s this notion of courage. So many of these nonprofit leaders exhibit courage every single day in trying to do this work. They’re up against tremendous challenges, not just fundraising. I can’t underscore enough the importance of insight and courage.
Knowledge at Wharton: What should donors expect from these organizations in the future?
Meehan: The short word is impact. People should give to nonprofits largely that can demonstrate they have impact. Listen, we have no problem with what I call good citizen philanthropy. You’re living in a city, you want to have a robust culture — your symphony, your opera, your art galleries. Many of us will give money to our universities. In fact, typically when they measure the quality of universities, the U.S. has somewhere between 15 and 17 of the top 25, and that’s frankly because of our philanthropic model.
They ought to look at impact, for sure. They want to look at other things, just as you would look at a business, which is that they run their business well, that the people who lead it are strong and devoted. You should look at the quality of the board. But the short answer is, we’re in what we call the fourth era of nonprofits in the U.S. It’s the impact era. Many believe that we’re very far along. You could define it at the earliest from the internet bubble in the late nineties. But it’s really just begun, and it will happen because donors demand information about a nonprofit’s impact.