IN USA What social-sector leaders need to succeed
Chronic
underinvestment is placing increasing demands on social-sector
leaders. New research suggests ways they can meet the leadership
challenge.
It’s
no secret that
high-performing leadership is synonymous with private-sector success.
Nor is there any shortage of research into the leadership qualities
that matter most, their potential impact on financial performance,
and the importance of investments in leadership development. But what
about leadership quality and development in the fast-growing social
sector?
To
better understand the state of leadership in this sector in the
United States, McKinsey surveyed nearly 200 social-sector CEOs and
other top managers leading nonprofit organizations, foundations,
social enterprises, and impact-investing funds. We asked these
leaders to identify the critical attributes for leadership success in
their sector and then to rate the performance of leaders in the field
against each attribute.1 Across
every category—including balancing innovation with implementation,
building top executive teams, and collaborating to achieve
outcomes—survey respondents found themselves, and their peers, to
be deficient.
The
findings suggest that chronic underinvestment in leadership
development within the US social sector, accompanied by 25 percent
growth in the number of nonprofit organizations in the past decade,
has opened a gap between demands on leaders and their ability to meet
those needs.
At
the same time, a number of sector leaders tell us they’re concerned
that the sector’s priorities are at risk if the organizations lack
leadership teams with the capabilities to fulfill emerging missions
effectively and to adapt to fast-changing demands.
Given
the positive return on leadership investment we’ve seen in the
private sector, one might hypothesize that more systematic focus on,
and investment in, leadership development in the social sector could
pay off in more effective delivery of social interventions. (To our
knowledge, there has been no large-scale, empirical research on the
effect of leadership development in this sector.)
The
US social sector—with more than one million nonprofit organizations
addressing issues from education to the environment, from
homelessness to digital literacy and access, arts and culture, and
workforce development—accounts for nearly $837 billion in products
and services, or 5.6 percent of GDP, according to the Urban
Institute. Social enterprises, B Corporations, and other commercial
organizations looking to do well and do good add to these numbers and
represent an expanding segment of the overall social sector. Given
the sector’s size and fast-paced growth, we suspect that improving
performance even a little could mean a lot with respect to social
outcomes.
The
time to act is now. The next generation of mission-driven
professionals is considering social-sector careers. They expect
mentoring, professional-development opportunities, and increasing
responsibility. Funders (including foundations, individuals, and
impact investors), government, and business have important roles in
addressing the leadership opportunity in this critical sector.
Leaders
assess leadership
During
the past decade, many within the social sector warned of a looming
leadership deficit as older leaders retired while the number of
organizations within the sector mushroomed. Those predictions proved
to be overstated. Yet all along the more pressing issue has been
ensuring that this sector’s existing and emerging leaders have the
ability to be effective in their roles.
So
what are the leadership attributes identified as most critical by our
survey respondents? There was strong consensus around four skills: 58
percent said leaders must to be able to both innovate and implement;
53 percent said effective leaders must surround themselves with
talented teams; 49 percent said leaders must be skilled
collaborators, experienced at bringing multiple stakeholders
together; and 40 percent said leaders must manage to outcomes and be
committed to quality improvements. All other leadership skills tested
for in the survey—including placing solving the overall social
problem ahead of individual and organizational success, sharing
leadership, possessing a good understanding of the ecosystem and
operating environment, and using data and evidence adroitly—were
rated as less critical for success by more than three-quarters of the
respondents.
These
responses indicate that leaders in the sector agree on what they
think they need to be successful. The next step is to determine what
actions can be taken to better support leadership development in the
social sector. Based on our experience working with social-sector
organizations and funders in this sector, we have identified three
primary areas where there is the most striking need for attention to
leadership development: the bench strength (or even the existence) of
top executive teams within many social-sector organizations, the
performance of sector leaders in critical leadership attributes, and
adequate funding and other structural support for leadership
development.
The
top team
The
majority of respondents (59 percent) believe the lack of an effective
top team—a C-suite such as a CEO, chief operating officer, chief
financial officer, and chief information officer—undermines the
effectiveness of individual social-sector organizations and the
sector as a whole. In our view, what lies behind this response is a
growing belief that there is a gap in leadership talent and
capability between the CEO and other managers.
One reason may be the
inability of some organizations to offer compensation and advancement
opportunities to recruit and retain talent. (At some organizations,
limited compensation budgets mean that they can afford only one
highly experienced leader.) But sector leaders suggest that
insufficient attention to, and chronic underinvestment in, leadership
development may be the root cause of the gap—an observation we will
explore in more detail below. There is no deficit of committed,
talented people in the social sector. What they lack is training,
support, and opportunities to grow in their roles.
Survey
respondents said one of the top leadership attributes for the sector
is the ability to create talented teams. We think this reflects their
concern over the talent gap among top leaders, which results in there
being no true C-suite in most social-sector organizations. In the
private sector, a strong executive team exhibits complementary skills
to tackle a broad range of challenges. Effective CEOs surround
themselves with people possessing the diverse skills that a
successful organization needs. Social-sector leaders seem to
recognize this and prioritize it, but their responses suggest they
don’t feel they have been successful.
A
gap in talent at the top, where too much of the leadership burden
rests with one or two professionals, may limit what a social-sector
organization can accomplish. Collaborating to assemble multiple
stakeholders and managing to outcomes committed to quality
improvement—the other two top leadership capabilities respondents
identified—is often a team effort, even in smaller organizations.
Falling short in either skill can undermine execution of the most
important initiatives. CEOs with underdeveloped teams lack strong
internal sounding boards for ideas and concerns.
The
gap complicates succession planning, too. A recent survey suggests
that nearly 70 percent of US charities lack succession plans.
Without
them, and a “talent bench” at the senior-most level,
organizations losing a leader must find a replacement from another
social-sector group, elevate a manager unprepared for the role, or
recruit a leader from business or government who will face a
significant learning curve. In these circumstances, a leader’s exit
can reduce the organization’s effectiveness.
Leadership
performance
Responses
to questions about how well they and their peers performed in the
four leadership attributes they identified as critical should give us
pause (exhibit). Only 32 percent of leaders are confident in their
ability to both innovate and implement. Only 22 percent of them think
their peer leaders in the sector in general can do this. Only one in
five leaders believe they surround themselves with a talented team,
but nearly 40 percent of them think their peers are good at this.
Twenty-four percent of them think they are skilled collaborators, and
33 percent of them think their peers are. Only 18 percent of leaders
say they manage to outcomes and commit to quality improvement; they
also believe that fewer than one in four of their peers do. Finally,
in a sector that is mission driven, 90 percent of them think that,
when it comes to making trade-offs, they and their peers will
prioritize their own organizations and themselves over advancing
their causes. (Note that they did not rate advancing the good of the
mission over the good of the organization as a top leadership
priority.
This
crisis of confidence in leadership was underscored by the sense of
intent versus reality in leadership behaviors. In some important
areas, social-sector leaders are meeting standards and doing well.
Respondents believe leaders try to work effectively, with 53 percent
of them saying leaders anchor innovation in data and evidence, 63
percent of them saying that leaders try to meet the highest
standards, and 80 percent of them saying leaders on the whole
leverage partners and resources effectively.
But
they say there is a gap between rhetoric and reality in other
important areas connected to mission and sector-wide collaboration.
Fifty-nine percent of them say leaders do not adequately prioritize
serving constituents or focusing on the mission. Sixty-one percent of
them say leaders put the interests of their own organization ahead of
collaborating with others to solve problems. And an equal number
report that they see little cooperation occurring across the
ecosystem—organizations scramble to claim credit rather than
contribute to solutions.
Underfunded
and unfocused development
The
findings of three separate research studies shed more light on the
poor grades leaders give when assessing their own leadership
attributes and those of their peers. The first of these studies,
conducted by McKinsey, analyzed 20 years of foundation spending and
discovered that such institutions allocate 1 percent of annual
funding to leadership development. In 2011, this was the equivalent
of $400 million.
In a second study, conducted in 2014 by the Center
for Nonprofit and Public Leadership at the Haas School of Business at
the University of California, Berkeley, researchers found that the
social sector dramatically underinvests in leadership development
compared with the private sector. The private sector spent about $12
billion in 2011 to ensure its leaders, present or emerging, got the
skills they need to perform well. When compared with the $400 million
in leadership spending identified by McKinsey, this corresponds to
about $120 per employee annually in the private sector versus $29 per
employee in the social sector.
Finally,
in the third related study, conducted initially by McKinsey and later
expanded upon by Haas, researchers found that capability-building
programs in the United States aren’t, as a whole, adequate to
sector needs. Access to them varies widely, not all opportunities are
available to many sector leaders, and not all are appropriate for
every leader. What’s more, the majority of these programs are
delivered through classroom training, despite the fact that research
shows adults learn best in applied, real-world settings.
If
the leaders who responded to the McKinsey survey are indicative, most
get their training on the job. Seventy percent of the leaders
surveyed said this was how they acquired their leadership
capabilities. Sixty-seven percent of them credited exposure to
challenges and career transitions as development opportunities, and
52 percent of them report that they gained skills outside the sector.
In
every sector, opportunities to take on a challenge are the foundation
of leadership development. Among the commercial companies that do
this best, such as GE, providing leaders with a challenge is a
deliberate, thoughtful, systematic practice. Companies complement
these “learn by doing” opportunities with coaching and feedback
from seasoned leaders.
In the social sector, however, frequently
there is less support, structure, and supervision available for
emerging leaders to take on a significant challenge and fewer
opportunities for mentorship, in part because so many organizations
are small. As a result, we were told by leadership experts that
younger professionals do not experience “stretch goals” as
development opportunities but see them as a sort of exploitation: in
other words, increased work for which they do not receive additional
compensation or promotion.
When
sector leaders responding to the McKinsey survey were asked what
would help support their development, 40 percent of respondents cited
coaching from board members and funders, underscoring this point. A
near majority of them also said that participating in cross-sector
networks (42 percent), time to experiment (49 percent), or taking a
sabbatical (49 percent) would help.
The
lack of opportunities to grow as a leader from within, coupled with a
paucity of mentoring and capability training, may be the single
biggest factor driving leaders’ assessment that leadership
capabilities are low.
Narrowing
the development gap
While
solutions to defining and implementing leadership-development
programs have a long history in the private sector, social-sector
organizations should avoid adopting them directly as an easy answer.
(See sidebar, “How the United States catalyzed change for business
leaders.”) Leadership attributes vary, and any solution for the
social sector must address the unique requirements that executives
there face. For instance, leaders in social-sector organizations have
a passion for mission, and successful managers know how to harness
the mission-driven energy of their staff, board, and volunteers. Even
more important, while competition is the norm in the private sector,
no social-sector organization is able to achieve its mission working
alone. To be truly effective, they need to be active, dedicated
collaborators, unafraid to reach out to others for advice or for
partnership opportunities. Collaboration requires unique skills,
which social-sector leaders must cultivate to be successful.
Commit
more funds to leadership development
A
few funders are investing in social-sector leadership development
overall or specifically in program areas they care about, such as
education or the environment, and can serve as examples of what many
other funders can do. For instance, the Bill & Melinda Gates
Foundation, the Ford Foundation, the Wallace Foundation, and the W.
K. Kellogg Foundation have between them provided nearly $1 billion in
leadership funding between 1992 and 2011.However, the 1 percent total
annual investment that US foundations are making in leadership is
small and unlikely to sustain the sector.
Of
course, foundation support is not the only source to fund
investments—donations from individuals (which are often
unrestricted), earned income, and corporate grants for general
operating purposes are alternatives. The fact that social-sector
organizations do not invest more of these funds in leadership may
reflect the fact that they are under pressure to meet short-term
demands, and developing leaders takes longer to pay off. Funders
could help by having a more flexible balance of expectations between
short-term and long-term results.
The
recent move toward pay for success is likely to put a squeeze on many
social-sector organizations seeking to invest in their own leadership
development by reducing their sources of general operating support.
The concept suggests government, foundations, insurance companies,
and others should pay for results when a preventive intervention,
such as permanent supportive housing, successfully reduces a costly
and pressing social problem, such as chronic homelessness.
This means
that rather than invest in the growth and stability of social-sector
organizations—which would allow them to develop new interventions
and build internal implementation capacity—many contractors and
funders are deciding it’s prudent to pay only for demonstrated
results. While this may work in the short term, innovating, scaling,
and sustaining interventions requires high-performing organizations
and leaders—all the more reason to focus dedicated resources on
leadership development.
In
2010, the American Express Foundation committed to spending $25
million over five years to support leadership development. It is
funding an annual academy for emerging leaders, managed in
partnership with Ashoka, the Center for Creative Leadership, Common
Purpose, Entrepreneurial Training for Innovative Community, Japan
Philanthropic Association, and Thunderbird School of Global
Management. American Express is also supporting the National Urban
League Emerging Leaders Program, whereby high-potential regional
leaders in the organization are offered training; the goal is to
build an executive pipeline. American Express also backs the Acumen
Fund’s online leadership academy, which makes the curriculum of the
organization’s global fellows program available to anyone with
access to the Internet.
Reward
leadership—and the attributes of good leaders—in all grants and
contracts
Not
every funder will create a program exclusively dedicated to
leadership development. But they could direct more resources for
leadership development within their existing activities. Following
this model, all funders could add on a percentage for leadership
development to every project-specific grant, along with some
mechanism to ensure the relevance and quality of the activities that
are subsequently made available.
Best-practice
funders and government grant makers look for indicative outcomes and
ongoing assessment capabilities needed to measure results before they
decide to support a project in the social sector. Similarly, funders
might give preference to organizations with a deep leadership bench
over those with a single charismatic CEO or those with a track record
of collaboration over those that go it alone.
Funders
can also promote scale in leadership development—and set an example
for effectiveness in the sector—by investing in ecosystem-level
approaches to address gaps in leaders’ skills. For example, funders
could invest in codifying collaboration skills and developing a
curriculum to teach leaders at all stages of their career how to be
successful partners. (Since collaboration was rated one of the most
important skills for social-sector leaders, this could yield powerful
results.) But more important, and even easier to do, funders can
reward organizations that show a track record of behaving
collaboratively and cooperatively.
Focus
funding on the leadership resources leaders say they really need
Leaders
who responded to the McKinsey survey were asked to name
leadership-development resources on their wish list. They chiefly
cited time to experiment and innovate (49 percent of respondents) and
sabbatical time to rejuvenate themselves, gain exposure, and broaden
their horizons (49 percent of respondents).
Allocating
time for an organization’s leader to step back is a valuable
investment in organizational capacity and effectiveness, according to
a 2009 study by CompassPoint Nonprofit Services and Third Sector New
England.7 It
not only helps the sabbatical taker, allowing her to recharge her
batteries and gain a fresh perspective on the organization’s
mission and work, but also tends to strengthen an organization’s
internal capacity, as others need to step up, as well as its ability
to collaborate, and general governance.
Funders often benefit from
the stronger relationship with the grantee that invariably follows
and the fresh insights the organization’s leader is able to apply
to its work. And, as the report notes, most leaders who take a
sabbatical recommit to their leadership role after it is over, with
only 13 percent looking to move on to another job within three years.
Forty-two
percent of respondents also cited developing and accessing
cross-sector networks to build connections with peers in the social
and private sectors and in government. We believe this reflects their
understanding that social-sector leaders, to be effective, must be
skilled collaborators who can work with multiple stakeholders. These
networks can also be sounding boards for leaders.
Partnership
and coaching from board members, investors, or funders is another
priority on their development wish list, according to 40 percent of
respondents. Forty percent also cited building communications skills,
particularly media training and public speaking. This request seems
consistent with the desire to reflect and innovate, share new
thinking with peers, and engage meaningfully with supporters.
Funding
organizations that are dedicated to delivering fellowships and
training for leaders is the most direct way to expand leadership
development. Participating in these programs gives leaders time away
from the office to reflect, while helping them build their peer
networks—two things they asked for in the survey.
For instance, the
Rockwood Leadership Institute, based in Oakland, California, provides
leadership training to nearly 400 social-sector leaders each year.
Founded in 2000, and with more than 4,500 alumni to date, the
institute focuses on helping leaders to develop attributes such as
the ability to collaborate and to inspire organizations to achieve
quality outcomes.
Another
example is the Institute of International Education’s Global
Leadership Development initiative. It provides long-term and
short-term training programs for emerging leaders, in part by
connecting them to opportunities and mentors globally. A third
example is the Henry Crown Fellowship Program, managed by the Aspen
Institute. It provides structured training and a leadership
opportunity to a mixed group of public- and private-sector executives
interested in more broadly serving communities. Crown Fellows not
only engage in a personal leadership journey but also have the
opportunity to build their cross-sector peer networks.
Develop
leadership opportunities more collaboratively with the private sector
Social-sector
leaders in the McKinsey survey cited coaching and mentorship as a
priority on their development wish list, but funders, board members,
and peers don’t have enough capacity to do all that is needed. The
private sector could step in to help meet this gap, contributing some
specialized expertise in the bargain.
Increasingly,
for-profit companies are working to address issues that have
cross-sector implications, such as education for employment,
sustainable supply chains, and job growth. Companies frequently
engage in these issues through partnerships that bring them in touch
with social-sector organizations.
For instance, the 50-plus
participating leaders in the Itasca Project in Minnesota include the
CEOs of many of the region’s largest companies, as well as leaders
in the public and social sector, such as the governor of Minnesota,
the mayors of Minneapolis and St. Paul, the leaders of the major
local foundations, and the leaders of the University of Minnesota and
the Minnesota State Colleges and Universities system. The involved
business leaders become part of a peer network with key social-sector
and political leaders and work closely together to improve economic
competitiveness and quality of life in the region. Socioeconomic
disparities, job growth, education, and transportation are some of
the issues they address.
Through
examples like this one, many private-sector leaders are becoming
familiar with the issues social-sector leaders are working on. This
puts the private-sector leaders in a better position than ever to be
sounding boards for their social-sector counterparts, many of whom
they now know personally through shared partnership endeavors.
Additionally, private-sector coaches could bring expertise in
unfamiliar areas such as supply-chain management, social media,
knowledge management, and customer care.
Social-sector
leaders are increasingly working in these areas and often lack expert
guidance, since it’s unfamiliar territory to mainstream
social-sector coaches, board members, and funders. Peer coaching
relationships with business leaders also help social-sector leaders
to build their networks—another priority on their development
checklist.
These
three actions—committing more funds for leadership development,
targeting the resources leaders say they need, and securing increased
mentoring and coaching from the private sector—are near-term
remedies to address the leadership-development gap in the social
sector. Chronic, long-standing underinvestment in social-sector
leadership isn’t a problem that will be solved overnight, however.
More research on the most effective ways to meet the leadership
challenge will prompt other innovative responses. Greater
understanding of the leadership gap and how to solve it is critical:
business and government need the social sector to succeed at
innovating and scaling social-service delivery solutions. Leadership
matters.
http://www.mckinsey.com/insights/social_sector/what_social_sector_leaders_need_to_succeed?cid=other-eml-alt-mip-mck-oth-1411
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