The nonprofit sector of America has enjoyed tremendous growth over the past three decades as a result of a handful of factors. Chief among them is the vast amount of wealth generated in the private sector. This, in turn, has resulted in increased corporate and individual donations. And the giving of private funds for public good – known as philanthropy — is likely to become even more pronounced in the future.
Another reason for this growth is that the governmental sector is asking nonprofits to play a larger role in the delivery of services. Government agencies are increasingly providing funding and grants to organizations which, in turn, provide assistance with programs that help the public.
And finally, there is the managerial transformation in which nonprofit organizations apply business tools and talent to their enterprises. There was a time when some nonprofits scoffed at the idea of implementing traditional business practices; the for-profit and not-for-profit sectors were viewed as having little in common. However, business practices and business training today are playing a critical role in achieving social missions by the most effective and efficient means possible.
There is another trend in the nonprofit arena. It has been the subject of many recent surveys and reports. It has been called the greatest challenge facing nonprofits over the next decade. To many it is, indeed, a crisis.
Last year, Thomas J. Tierney of the Bridgespan Group published a startling report entitled “The Nonprofit Sector’s Leadership Deficit.” It has sparked a flurry of public debate especially with regard to where the next generation of leaders would come from.
The report examined nonprofits with revenues greater than $250,000, (with the exception of hospitals and higher educational institutions). Most alarming is that over the next ten years the nonprofit sector will need to attract or develop approximately 640,000 new senior managers.
Tierney’s report cites a number of reasons for this: not enough talent entering the sector; the growth in the number of nonprofit organizations; anticipated retirement; the transition of current managers into different positions within or outside of the industry; and the expansion of nonprofit organizations themselves.
As an example of how ominous the situation has become, in the New York region alone, 70 percent of nonprofit executive directors are expected to leave their jobs by 2010, according to a survey by the Support Center for Nonprofit Management.
It is uncertain, however, what effect, if any, this will have on the board composition of these nonprofit organizations. Many board members are also approaching an age of retirement or will be stepping down from the board when a new executive director takes over. The good news is that this will present a great number of board vacancies – opportunities for young people who are interested in serving on boards of nonprofit organizations whose causes they are passionate about.
Why, you might wonder, would this affect you? Because for a vast majority of you, at some point in your future, you will have the opportunity to contribute to a nonprofit organization as a donor, as an executive and/or as a board member. So it is important to begin thinking about how you can make a contribution.
In thinking about the nonprofit sector, it is essential to have some baseline knowledge about how nonprofit organizations are structured. Nonprofits organizations are incorporated by the state and regulated at the state level through the secretaries of state. They are classified as 501(c)(3)s , and must benefit the broad public interest. Because they work for the public good, nonprofits are exempt from paying federal income taxes, and contributors may claim donations as deductions from their income taxes. Nonprofit ownership refers to both a legal and ethical responsibility: to offer a public benefit purpose and to meet the expectations of those on whose behalf the organization exists.
According to a report by the Independent Sector – a forum for charities, foundations, and corporate giving programs – as of last year, there were over 1.5 million charitable organizations. These organizations are sometimes labeled “the independent sector” to distinguish them from governmental and private sector enterprises. Total charitable giving reached $260.3 billion in 2005 with nine out of ten households giving to charity.
While the sector is growing in terms of quantity of organizations, most nonprofits are small. Seventy-three percent had annual budgets of less than $500K, and only four percent had annual budgets of greater than ten million dollars. The total combined assets of public charities and private foundations are estimated at $2.95 trillion. And the sector employs more than 11.7 million people, or nine percent of working Americans.
With this sector growing so rapidly, it is important to think about what successful twenty-first century nonprofits will need to meet the challenges they will face. Crucial to success will be financial viability and sustainability, an effective executive director, accountability to community, donors and clients and a clear and functioning governance structure. In addition, these organizations will need strong boards of directors.
In Jim Collins’ book, Good to Great and the Social Sectors, he writes, “The number one resource for a great social sector organization is having enough of the right people willing to commit themselves to mission.” In order for the nonprofit sector to thrive, we’ll need smart, passionate and dedicated people to help create the next generation of nonprofit organization and board leaders.