Kathy Reich’s blog post “What Funders and Nonprofits Can Do to Solve the Sector’s Talent Troubles“, originally published on the Social Velocity blog, outlines our latest thinking on how best to support and develop nonprofit leaders.

Note: As I mentioned earlier, I am taking a few weeks away from the blog to relax and reconnect with the world outside of social change. But I am leaving you in the incredibly capable hands of a rockstar set of guest bloggers. Next up is Kathy Reich. Kathy is Organizational Effectiveness and Philanthropy Director at the David and Lucile Packard Foundation where she helps grantees improve their strategy, leadership, and impact. Here is her guest post…

Philanthropy pundits often exhort nonprofits to “act more like businesses.” Usually I disagree; in fact, I think there’s a great deal that businesses could stand to learn from nonprofits.

In at least one area, though, I admit that all too frequently nonprofits lag their for-profit peers. Nonprofits simply do not invest enough time or money in talent assessment, development, and management.

Major national surveys provide a helpful snapshot of the nonprofit sector’s talent troubles. In the Bridgespan Group’s Nonprofit Management Tools and Trends 2014 survey, which polled almost 500 nonprofit organizations about their current management practices, nearly 60 percent of respondents agreed or strongly agreed that “hiring, training, and retaining staff is one of our greatest challenges.” Yet the survey found that only 40 percent reported using talent assessment and development tools, and just 38 percent said their organizations engage in leadership succession planning.

Similarly, in the Nonprofit Finance Fund’s 2015 State of the Nonprofit Sector survey, which included responses from more than 5,400 nonprofits nationwide, respondents were asked to name the top three challenges facing their organizations. “Ability to offer competitive staff pay and/or retain staff” was ranked in the top three by fully 25% of the respondents, behind only “achieving long-term financial sustainability” as one of the top three challenges facing nonprofits. Yet the same survey found that just 37 percent of respondents had invested money or time in staff professional development in the past year. Only 28 percent had given cost-of-living raises, and 18 percent had given raises beyond COLA.

At the Packard Foundation, program officers tell me that they see signs of this underinvestment almost every day. Some problems that our nonprofit grantee partners routinely report:

• Executive turnover is frequent, and often traumatic.
• Nonprofits have a hard time finding appropriate candidates for senior management roles, including CEO, program executives, development directors, and communications directors.
• The leadership many nonprofits have is not reflective of the leadership that they need, or the communities they serve. In most of the fields in which the Packard Foundation works, nonprofit leadership remains predominantly white, male, and middle-aged, even as our country becomes younger, more diverse, and hopefully, more committed to racial and gender equity.
• Emerging leaders under age 45 report high levels of career dissatisfaction, driven in part by lack of professional development and advancement opportunities. In a 2011 Young Nonprofit Professionals Network survey, only 36 percent of respondents said that their organization invested in “bench strength” to develop emerging leadership. Of that group, less than 47 percent said their organization implemented these investments effectively.

Nonprofits and foundations both have critical roles to play in ensuring that the nonprofit sector has a robust, diverse talent pipeline now and in the future. First, foundations need to step up their financial support for leadership. The private sector spends $12 billion annually, an average of $120 per employee, on developing leaders, investing in their management and technical skills so that they can move up the ranks or excel in their current jobs. In contrast, philanthropy’s investment in nonprofit leadership development totals an average of $29 per employee annually.

Foundations can do much more. Some concrete ways that they can help:

• Fund nonprofit overhead so that nonprofits have enough money to pay their people competitively and can have the operations in place necessary to support their staff and manage their talent. Depending on their size and talent needs, some nonprofits may need to hire a Chief Operating Officer, a Human Resources Director, or a Chief Talent Officer.
• Support nonprofits to develop “right-sized” performance assessment and management systems, as well as meaningful succession plans for key leaders.
• Include funds for staff professional and leadership development in project support grants.
• Incentivize nonprofits to develop cultural competency in hiring and management so that they can attract and retain diverse employees.

But foundations cannot tackle this issue alone. No matter what their size, nonprofit boards and executive leadership need to focus on talent issues and ensure they have appropriate plans in place to manage and develop staff for their organizations. They need to implement thoughtful, intentional strategies and process to ensure that they are identifying their own talent needs, assessing the strengths and growth areas of their staff, and providing ongoing development and feedback to all employees, particularly those with high growth potential. And they need to make the case for talent to their funders, along with concrete examples of how investing in leadership capacity will improve outcomes.

In the nonprofit sector, as in business, leadership matters. Let’s be sure we’re all investing our time, and our money, where it counts.