Industry Insights – July 2024

With succession planning emerging as a top concern, especially as many organizations face the retirement of baby boomers and the need to replace executive-level positions, only 27% of nonprofits report having a formal succession plan in place, highlighting a critical area for improvement (Plante Moran). Effective succession planning involves engaging senior leaders, mapping out future leadership needs, developing potential leaders, and continuously improving these processes (Bridgespan).

Policy and budget considerations also play a pivotal role. Nonprofits are navigating post-COVID funding challenges, with reduced government support and fluctuating investment incomes impacting their financial stability (Plante Moran). Additionally, technological modernization is a key priority, as organizations update their systems to support remote work and enhance cybersecurity measures (Plante Moran). These challenges are leading organizations to deprioritize investment in succession planning, despite its crucial role in ensuring long-term leadership continuity and organizational stability 

Here’s what we’re hearing in the market:  

1. Lack of Formal Succession Plans: The majority of nonprofits do not have a written succession plan, leaving organizations vulnerable to significant disruption, operational instability, and significant lapses in programming continuity. This is backed by data from BoardSource who found 73% of nonprofits do not have a written succession plan.₁
2. Dependence on Founding Leaders: Founder-CEO transitions are points of challenge, with many teams, boards, and stakeholders fearing new incoming leadership and the breaking of longstanding personal ties, potential disruptions, and institutional knowledge management and donor relationship losses. The reliance on founders or long-term leaders, who have unique insights and relationships, often drives delays in transition – even when founders are ready to move on. Standford’s Social Innovation Review reinforces the concerns over relationship and knowledge loss.2,3
3. Board Involvement and Readiness: Not all boards are experienced or resourced enough to effectively guide succession planning. While many have exceptional relationships, technical expertise, or management skills, less than half appear prepared to handle an executive transition (Harvard Law School Forum on Corporate Governance).₄
4. Financial Constraints: By far, the greatest challenge nonprofits face in handling executive successions successfully comes from financial resource constraints. In a sector where mission is rightly prioritized, investment in leadership development, knowledge management, and succession planning can often be relegated to a less than primary position due to tight operating budgets. The constraints limit recruitment and retention of qualified external successors, where investments not only in the search but the post-appointment onboarding suffer. They also impact internal high-potential leaders, who may feel undervalued and see limited opportunities for growth and advancement. Without a strong focus on developing and maintaining bench strength, these emerging leaders might seek career opportunities elsewhere, resulting in a loss of valuable talent and further destabilizing the organization’s leadership pipeline. This is by no means a unique challenge. Bridgespan Group finds that resources for leadership development often don’t meet the necessary demand.₅
5. Organizational Culture and Resistance to Change: A final hurdle to overcome during successions is organizational – longstanding cultures and ways of doing business necessarily change with new leadership. Teams can be resistant to this change – and so can leaders, who are reluctant to confront their own departures. One way to help mediate this is through internal leadership development of talent pools, or by adopting interim leadership to lead change. The Nonprofit Leadership Alliance backs these suggestions.₆
6. Emergency Succession Planning: What to do when emergencies arise necessitating new executive leadership? More than 80% of nonprofits do not have emergency succession plans in place (Bridgespan Group).₇ These scenarios, while uncommon, are not unheard of – ensuring a team and a plan is in place to address such scenarios will greatly ease any unexpected shifts.

Recommendations for Addressing Succession Planning Challenges: 

So, what should your organization be doing to ensure a successful transition of your executive leadership or founders? First, Develop Formal Written Succession Plans for both planned and emergency transitions. Second, Actively Engage the Board in planning and leadership development. Third, and so importantly, Invest in Leadership Development. Allocate resources for training and mentoring potential leaders within the organization. Fourth, Work to Cultivate a Leadership Pipeline of internal talent to prepare them for future leadership roles. Fifth, Consider Searching Externally if there are gaps in the readiness of internal leaders to fill emergency vacancies, ensuring you have access to a broad pool of qualified candidates. Sixth, Communicate Openly and foster a culture of transparency and open communication about leadership transitions. Change is coming for us all, best to be prepared!

Overall, addressing these challenges through strategic planning and investment in leadership development is essential for nonprofits to thrive and continue their missions effectively. For further reading and detailed strategies, resources like the National Council of Nonprofits and Bridgespan provide comprehensive guides and toolkits (National Council of Nonprofits).

1 https://boardsource.org/fundamental-topics-of-nonprofit-board-service/executive-transition/ OR BoardSource. (n.d.). Nonprofit Governance Index. 

2 https://ssir.org/articles/entry/lessons_from_the_front_line_for_nonprofit_ceo_successions OR Stanford Social Innovation Review. (n.d.). Founder Transitions: Creating Good Endings and New Beginnings. 

3 https://ssir.org/articles/entry/making_founder_successions_work# 

4 https://corpgov.law.harvard.edu/2021/09/20/how-the-best-boards-approach-ceo-succession-planning/#:~:text=The%20best%20boards%20ensure%20there’s,in%20the%20company%20proxy%20statement.  

Harvard Law School Forum on Corporate Governance. How the Best Boards Approach CEO Succession.  

5 https://www.bridgespan.org/insights/the-nonprofit-leadership-development-deficit OR Bridgespan Group. (n.d.). Building the Capacity to Lead: The Essential Task of the Nonprofit Board. 

6 Nonprofit Leadership Alliance. (n.d.). Developing Nonprofit Leaders. 

7 Bridgespan Group. (n.d.). Building the Capacity to Lead: The Essential Task of the Nonprofit Board.