When I started Sevah Consulting almost two years ago, I suspected that working an interim executive director would be a great fit for me. Now that I’ve had two back-to-back engagements, I am certain it is. But I’ve also learned that there is so much I don’t know. The role on interim ED is unique to the sector—more than a consultant but not fully an executive director. My work with the Alliance for Nonprofit Management and the Association of Consultants for Nonprofits helped me find a peer network of interim EDs, many of whom had been filling this niche for more than a decade. I also learned about the Third Sector Company and its an eight-week Interim Executives Academy. I decided to share my reflections on what I’ve learned to help me clarify things for myself and for the larger social impact sector to understand the role and value of the interim to an organization.in the middle of a transition.
But first—its important to understand the context.
The “Nonprofit” Sector
It’s important to distinguish between nonprofit, which is a tax designation, and charitable or social impact organization. Most entities with a 501c3 designation are charitable organizations, but it doesn’t prevent them from earning revenue or even ending the year with a profit. Similarly, not all agencies doing charitable work are nonprofits and as social enterprise organiations and B-corps are becoming more common, the line between the two is blurring. I will be talking about the organizations we typically think of as “nonprofits,” such as food banks, homeless shelters, or youth development agencies.
The nonprofit sector includes more than 10 million organization worldwide and about 1.3 million organizations in the US that have a 501c3 tax designation from the IRS. They range from all volunteer-run organizations with tiny budgets to huge national and international agencies, like Sierra Club and American Red Cross. The charitable sector also includes churches, food banks, and cultural centers.
Recent data from the Prosper Center indicate that:
- The sector employs 10% of the workforce, equivalent to 11.9 million jobs.
- Funding for charitable organizations, on average, comes largely from fees for programs, goods, and services (48%), government sources (33%), and philanthropic donations (13%).
- Organizations rely heavily on volunteers as well; in 2018, approximately 63 million people volunteered their time.
In fact, if all the US’s charitable organizations formed a single country, it would have the fifth largest economy in the world. Yet, for all that economic and people power, the sector is largely underprepared to handle changes related to our donor and volunteer bases; addressing diversity, equity, and inclusion challenges; and diversifying our revenue streams to ensure long term sustainability.
Challenges to the Sector
One of the biggest challenges for the sector is the lack of preparedness for leadership transitions. Between 2003 and 2013, the sector experienced a huge expansion, almost 20%. Now, many of those leaders are preparing to step down. Most nonprofit executives were between 51 and 69 years old (2017 study) and more than two-thirds had plans to retire within five years. Yet, Boardsource found that only 27% of nonprofits had a written succession plan.
And all that was before the COVID pandemic. A recent study from La Piana Consulting found that survey respondents laid off or furloughed 18% of their staff members, almost half expect to make further reductions, and almost 25% are considering merging with another organization.
What does this mean? Well, for one—it’s going to be hard for the sector to recover from the experience and leadership gap caused by COVID. As people leave the sector and seek work elsewhere, the sector will continue to experience a brain and leadership drain. Factor in that we don’t know the process or the timeline for a full recovery from COVID and we can see just how large the loss of leadership and experience from the sector could be.
The second takeaway is that interim will likely play a larger role in helping organizations in transition. As current leaders either retire or move on to new positions, boards will likely find it more challenging to find the right leader. An interim executive can step in right away to stabilize, manage, and address the agency’s challenges without taxing the board leadership or forcing their hand into a suboptimal hire.
In the coming weeks, I’ll share more about what I’m learning in the Interim Executive Academy, how its informing my current work, and informing my plans for future engagements. I hope you’ll stick with me during the journey.