Supply and Demand. We learned of these terms in Econ 101. Conceptually, when Supply equals Demand an economic equilibrium is achieved. If an increase or decrease in either Supply or Demand don’t move in lockstep, things get thrown out of whack and something has to change until Supply and Demand once again achieve some semblance of balance.
For the last several years, the not-for-profit sector and the boards that govern them know all about such an imbalance. They've been forced to confront this issue when it comes to identifying the next generation of leadership talent to helm the organizations they serve. And, the problem is only going to be become more acute in the next 20 years. Why? Well, there is a perfect storm of contributing factors. Before turning our attention to what’s happening on the Supply side, let's examine the dynamics that have influenced Demand.
No factor has contributed more to a huge uptick in the sheer number of leaders needed than the surge in the number of not-for-profit organizations out there. In the past 25 years, the number of not-for-profit organizations has swelled by a factor of more than three times. A closer examination of this dramatic expansion points to several factors. First, as budgets shrink and austerity measures kick-in, government has increasingly gotten out of the business of providing necessary public services and this burden has, instead, been shifted to the not-for-profit sector. Second, as our society has become more attuned to individual and corporate social responsibility, more and more organizations have embraced the "it's good for business" mantra of being more socially accountable and conscious. Third, the millennial generation, as a general rule, places a greater emphasis on social entrepreneurship than preceding generations.
Increased Demand has also been influenced by a higher exodus rate of current not-for-profit executives. As the calls for greater accountability and transparency have mounted, the toll on active executives has extracted a higher "burn-out" quotient that goes well beyond normal attrition rates as a result of expected retirement-age transitions. Tenured leaders are leaving the sector at alarming rates based on this increased scrutiny, financial pressures of increased competition over donor dollars, long hours and, traditionally, lower-than-market wages, benefits and perks.
Okay, so there's obviously been a dramatic increase in Demand. One study went so far as to attempt to quantify exactly how much Demand has and will increase and the analysis led the authors to conclude the number of senior leaders needed over the next decade will exceed two and half times the current total employed. Even if that estimate is off by a factor of half, that still means the number of senior leaders needed is more than all those currently serving the sector.
With this huge increase in Demand supported by facts, let's now turn our attention to the other part of the equation, Supply. On the very day you read these words, roughly 10,000 baby boomers will turn 65. That number will hold true every day for nearly the next two decades! In fact, it's estimated that the number of people over the age of 65 in this country will increase by nearly 40% by the time the last of the baby boomer generation reaches that age in 2030. That demographic shift has a number of major implications for the country in many ways, not the least of which is employment in all sectors. And, the implications specifically for the not-for-profit sector are acute. Because of limited resources, most not-for-profits don't have the capacity for building "bench strength"—that is, they don't have the luxury of grooming their own next wave of leaders through comprehensive succession planning and training. Their successful counterparts on the for-profit side routinely invest significant resources into attracting and retaining younger high-achievers and fostering further development to prepare them to become ready and capable successors. It's been estimated that the not-for-profit sector fills just over a third of its senior leadership needs through internal promotions while the for-profit sector has cultivated a "farm system" that accounts for nearly twice that rate of internally promoted candidates when leadership transitions take place.
Yet another contributing factor to the Supply conundrum is the very nature of hiring practices that the not-for-profit sector has traditionally observed. Not-for-profits have typically turned to an insular world of trying to attract talent solely from other not-for-profits. Given what we’ve already learned about the Demand side of the ledger, this doesn't appear to be a sustainable modus operandi. So, where does the sector then turn?
Despite the chronological aging of the Baby Boomer generation, most report feeling nearly a decade younger than their age might imply. This generation prides itself on its active orientation and overall fitness level and many intend to find some meaningful work-related purpose in their Golden years. This orientation has even spawned a new term, "Encore careers" —that is, second careers they turn to in their 50's and 60's and beyond that offer purpose, an income beyond retirement savings and social security and, perhaps, most importantly, a means of “giving something back.
Add to this the fact that due to shrinking military budgets, Secretary of Defense Chuck Hagel has mandated that each branch of the armed services reduce their headquarters staffing by 20% by the year 2019. Coupling these two developments means there's a significant untapped pool of seasoned and well-trained leadership talent becoming available. The opportunity for the not-for-profit sector is undeniable, but a paradigm shift when it comes to its traditional hiring practices will need to take place.
And, honestly, these developments on the Supply side of the ledger could not come at a better time given the new standard of demands placed upon the sector that was referenced earlier. As competition for donor dollars becomes even more intense given the dramatic rise in the number of entities vying for those resources, donors have upped the ante on what they demand in return. Greater accountability, transparency, and efficiency are just some of the benchmarks not-for-profits must respond to. The sector is being asked to run “more like a business” than ever before.
In addition to the pure Supply concerns, it's also true that ideas and leadership styles can get stale, especially if an organization continually turns to the same tried and true sources from which to draw their leadership. In the last several years when faced with competitive operating challenges, the for-profit sector turned to a concept that has become known as "open innovation." Many consciously seek to attract leadership from outside their organization or industry to provide innovative and fresh perspectives.
To remain sustainable, not-for-profits and the boards that govern them must respond. Tapping into new veins of talent represents a unique opportunity for the not-for-profit sector. Savvy organizations will recognize that expanding their "talent pool" to include those looking to the sector as they exit the for-profit or military sectors is a necessity and offers a number of advantages. Such forward-thinking organizations will capitalize on investments made by prior employers to cultivate leadership skills and open themselves to being the beneficiary of fresh ideas and responses to challenges.
Only by responding in this fashion can the not-for-profit sector hope to achieve some equilibrium of the Supply and Demand curve and at the same time help ensure long-term sustainability. If you have any questions, please contact your CBIZ MHM advisor.
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