The CEO Successor Pinch
February 2, 2015 Thomas McLaughlin
Many nonprofits in the United States are in or are about to be in a CEO successor pinch. This pinch is structural, has multiple causes, and will affect the nonprofit sector in multiple ways for the next several years.
The way this structural squeeze at the CEO level gets resolved will be determined by the major cause of the problem and in most cases the outcome, successful or otherwise, will be felt for many years. This is not an insurmountable problem for most nonprofits.
The primary structural pinch was set up by the Baby Boom generation. To appreciate the size of this unprecedented post-war surge in births from 1946 to 1964, consider that today’s birth rate is roughly half that of the boomers’ period.
The boomer generation went on to flex its social muscle by protesting the Vietnam War, an idealist campaign that shaped many in the generation to the point where they often sought work places with compatible values. It didn’t hurt that the manufacturing base of the American economy was already starting to dissolve. The boomers in some ways were simply adjusting to economic realities.
Many boomers became CEOs of nonprofits, and many others grew their nonprofit from scratch. For those early boomers, retirement time now is drawing near — and that’s the beginning of the problem.
Not Enough 50-Somethings
Many older boomer executives who are beginning to apply the brakes of retirement are wisely looking toward the half-generation behind them but are not seeing many potential successors. These later boomers, who are now 50-somethings, are not as plentiful in nonprofits for several reasons. The most typical explanation for this vacuum is also the most ironic: The boomers as a whole took so many of the jobs when they entered the workforce that today’s 50-somethings aren’t as plentiful as the half generation leaders that hired them.
As a result, the internal pool of potential successors is smaller. This imbalance is seen practically every day in many types of nonprofits. The telltale sign often is the boomer CEO who is ready to retire but doesn’t have an obvious internal successor.
Shallow Pools of Talent
Another reason why boomer executives are finding it hard to shift into pre-retirement mode has to do with the economics of most nonprofits. The logic favoring internal successors is clear-cut. There won’t be any time spent on getting the new CEO up to speed on the organization, there is likely to be a tight bond of respect and trust between the sitting executive and the in-house successor, and no one in the organization needs any “Getting to Know You Time” with the successor CEO.
Any changes that come are likely to be predictable, already vetted, and probably widely-supported. The problem here, especially in the bulk of small nonprofits, is that there might simply not be anyone on the staff who is prepared to take over as CEO.
Even if an organization is large enough, there is no guarantee that the closest body of potential internal successors has the skills and the desire to succeed the boomer CEO. Especially in small organizations, the CEO many years ago probably picked the people in the next level down for their operational or programmatic skills. If none of them has truly even dabbled at the CEO role — including during CEO absences — it’s not likely they will want to start now.
We’re Not Making It Up Anymore
The truth is that the boomer CEOs of the ’70s were making it up as they went along. That’s not surprising, in retrospect, because so much of the nonprofit activity at that time focused on new organizations, new models of care, and new ways of providing established services. Decades later, many nonprofits have grown tremendously sophisticated and are capable of providing large amounts of services when asked to do so.
This is a very good development from the CEO’s perspective. That means the person is supported by a growing team of sophisticated managers.
The downside can be that those sophisticated operations personnel — especially in small to medium-sized nonprofits — have not had true executive experience, and they might not even want it anyway. This means that the CEO planning to retire must go outside the organization for a successor — or try to fashion a lightning-fast way of prepping the most promising of the team members. Neither choice is a particularly good option, unless the CEO is willing to extend the time to retirement and/or devise a crash program for the most promising of the operations staff.
More Than a Social Conscience Needed Now
It must have seemed to outsiders a few decades ago that the new nonprofits springing up during the late 1970s and 1980s needed only a sincere and innovative CEO with an exciting message of hope. Many CEOs privately were quite aware of their limitations and many took steps to offset them, such as taking courses or a graduate management degree. One happy result of that effort is that they were able to design and manage the organization more effectively — but their staff didn’t necessarily have the same advantages.
Today many nonprofits, especially the larger ones, operate in a highly complex, competitive and demanding environment. As often happens in large nonprofits of any kind, the second-level executives might be deeply immersed and knowledgeable about their own area of responsibility, but they are not necessarily familiar with others’ areas. This means at the very least a long learning curve about different functional areas.
Succession planning can help this, of course, but sudden successions don’t allow the internal CEO successor much time for making up the knowledge deficit, so they’re in a pinch of their own.
What to do
These structural riddles are a product of unique circumstances and will probably not happen again for many generations. Future millennial nonprofit CEOs, for instance, are unlikely to face a similar paradox three or four decades from now. So the choices today are uniquely limited — but also expansive, in some instances.
The obvious option for replacing a boomer CEO if an internal successor is not possible is to hire from the outside. The 50ish executive from a similar organization who wants a CEO role will probably be much in demand to replace the retiring boomer executive.
A second option is to hire the same outsider, but to pick a 40ish candidate. There is still a subtle prejudice against such “young” executives, but people from that generation are every bit as talented and determined as the boomers were — and they didn’t have to spend a chunk of their early developmental time protesting an unjust war.
A novel approach would be to seek a compatible organization with a sitting 40-50ish CEO who is willing to combine the two organizations into a larger, more efficient nonprofit while also knitting the two cultures together. In this scenario, the specter of the “demoted” CEO is non-existent, and the expanded management team might well make its own natural adjustments as they settle into the new, expanded organization.
Boomers have already left their mark on the nonprofit field, and boomer CEOs are quietly contemplating the final act of their tenure. The wise board of directors will now keep one figurative eye on the calendar and one eye on the CEO, ready eventually to welcome a new generation of leadership. NPT
Thomas A. McLaughlin is the founder of the nonprofit-oriented consulting firm McLaughlin & Associates and a faculty member at the Heller School for Social Policy and Management at Brandeis University. He is the author of ‘Nonprofit Mergers & Alliances (2nd edition), published by Wiley. His email address is firstname.lastname@example.org