Nonprofit organizations have always been at the mercy of economic changes. Whether a recession, a natural disaster, or other disruptive events such as 9/11 or the COVID-19 pandemic, an organization’s revenue often rises and falls in parallel with what’s happening in the world. As disruptive events go, the COVID-19 pandemic appears to have a short-term mixed impact on nonprofits. Recent reports note that donors at all levels responded positively to the sector’s needs, with corporations, high-net-worth individuals, and independent foundations leading the giving (Nonprofit Times Staff, 2021). Yet, the Johns Hopkins Center for Civil Society Studies (2020) estimated that 1.6 million nonprofit jobs were lost at the beginning of the pandemic (p. 16). The most recent recovery estimate shows the nonprofit workforce remained down by nearly 900,000 jobs. The current assessment of sector recovery is approximately two years (Newhouse, 2021). The loss of staff, particularly among the smaller nonprofits, suggests that leadership in these organizations are likely making decisions that are compounding an already significant social sector problem – insufficient staffing to achieve the goals.

The data tells us that donors and donations increased, yet many organizations were furloughed or laid-off staff. This may signal that some nonprofit leaders are retrenching— reducing costs to weather the storms they see coming, as they have likely done in any of the past recessions. However, unlike previous disruptive events, maintaining revenue flow did not appear to be a major challenge for many nonprofits.

So, why are leaders reducing staff even though the outlook models for donor revenue growth are showing increases (Ware, 2021)? They are likely responding by focusing on the one thing they know they can control amid the uncertainty of the marketplace. This conventional decision-making method among leaders and their long-held perspectives on nonprofit business operations is understandable. But, post-pandemic, it is unlikely that the world will return to its previous ways.

The marketplace will likely sustain uncertainty in part due to rapidly evolving cultural attitudes. The COVID-19 pandemic highlighted society’s changing views on racism, social and economic inequalities, public health, trust in science, government intervention, and individualism vs. collectivism (Kubb, 2020; Mansouri, 2020), among others. Nonprofit leaders who employ the same decision-making models used in the past are likely to do more harm than good for the social impact capabilities of their organizations.

Balancing mission, money, and management

Nonprofit organizations typically balance three core functions – mission, money, and management. Of these “three M’s,” the mission provides the most stability as it is established and rarely changes.

Money can be a destabilizing factor. It can vary widely based on economic factors that are often tied to the mix of fund sources—grants, individual giving, and sometimes corporate donations or sponsorships. Many nonprofit leaders argue that money is the most important dimension, considering that the mission is fixed. They adjust their staffing and programs around their revenue streams’ ebbs and flows. While they do have the responsibility to be good stewards of the funds they do receive, it is equally important for leaders to maximize the social impact of those resources.

Quite often, it is people who have the responsibility for delivering on an organization’s mission. Whether the staff directly or indirectly through volunteers are responsible for facilitating the tasks, expense reductions often directly affect mission delivery. Moreover, when staff headcounts are also reduced to offset declines in revenue, the ability to maximize social impact is reduced accordingly. Reducing expenses improves the operating statements, but it does not solve the larger problem of sustainable social impact in the face of declining revenue.

Management has the most effect on a nonprofit, and it may well be its most significant destabilizing factor. In fact, a substantial number of respondents to the Stanford Survey on Leadership and Management in the Nonprofit Sector (2017) reported “weak or ineffective management,” “weak or ineffective board governance,” and minimal evaluative impact as leading challenges for the nonprofit sector (p. 13). The factors that inform and drive performance in a for-profit organization, such as performance standards, a culture of encouragement and rewards, basic talent development approaches, and ability to scale, are often missing in many nonprofits (Meehan, III & Jonker, 2017). The lack of consistent strategic thinking and leadership, and management seems to hamper organizational performance, engagement, and impact.

The evolution of societal and cultural attitudes fueled by the COVID-19 pandemic suggests that management decision-making within nonprofits must give way to more considered leadership thinking approaches to sustain post-pandemic social impact and relevancy. The established and mental models of nonprofits are likely no longer reliable.

Four factors hindering leadership decision-making in nonprofits

The elements of mission and money are so critical to nonprofit operations. The management of those elements often evolves into transactional activities meant to encourage good stewardship of resources and facilitate mission continuity and sustainability. Nonprofit managers are often trained to respond quickly to maximize resources by controlling costs to align with existing revenue streams. This approach primarily incorporates easily visible information to make decisions, generally relying on what Daniel Kahneman calls System 1 thinking processes (Kahneman, 2012). Many nonprofits promote from within, so managers often become executives trained to manage but not to lead. Management, of course, is not leadership.

Leadership requires a different approach to decision-making. Slow, deliberate, logical, and skeptical, leaders must identify gaps in information and seek to fill those gaps with relevant data, a process that Kahneman (2012) calls System 2 thinking. Systems 2 thinking provides leaders the opportunity to break the boundaries of long-held mental models that inform the balance of mission, money, and operational management.

My research and work in the nonprofit sector suggest the following four factors are the most prevalent barriers to impactful leadership decision-making:

1. Cultural framing

The things that define an organization’s culture are invisible to most but affect virtually everything from assumptions around mission, goals, and performance to individual behavior and consensus-building within the workplace (Schein, 2004). Many leaders are unaware of the impact of culture on their decision-making processes. As individuals climb the ladder, the cultural influence on decisions becomes even less visible. Even those hired from the outside, once immersed within the culture, will eventually make decisions through a lens of that culture. This lack of awareness creates decision-making problems, too.

Leaders shape culture by the organization’s design and structure, what they measure and control, how they allocate resources, impart status, recruit and promote, through stories, philosophies, and rituals (Schein, 2004). Future generations of leaders advance through organizations placing the same value on the culture as their predecessors. Cultural consistency is an important element in sustaining the aspects of mission, money, and management that are core to the success of most nonprofits. Stepping outside the culture requires intention and commitment.

Consider the Big Brothers and Big Sisters of America (BBBSA) national organization recently named its first black CEO in its 116-year history (Big Brothers and Big Sisters of America, 2020). Like many large nonprofits formed at the turn of the 20^th century, its culture is likely a product of the social context of its times (Hammack, 2002). The BBSA executive leadership and national board do not appear to be significantly diverse (Leadership, 2021), suggesting that before hiring their new CEO, leadership decisions made were informed and influenced more by a culture shaped more by privilege than by a culture mirroring the diversity of the “littles” the organization served (Big Brothers and Big Sisters of America, 2019, p. 9). The lack of diversity within the organization arguably shapes its culture and the decisions made by its leaders despite a desire to rise above it.

Granted, the BBSA has more than 235 agencies (affiliated local nonprofits). In some communities, it is likely that the local organizations more closely mirror their communities. Yet, when considering the limited diversity of its volunteer “bigs” across the organization and the diversity “littles” being mentored (Big Brothers and Big Sisters of America, 2019, p. 9), one wonders what impact the organizational culture has not only on leadership decisions at a national and local level but also on recruitment and involvement of volunteers in support of the organization’s mission.

This one example focuses on diversity because this is a recent occurrence highlighting a persistent problem in nonprofits—the lack of diversity. It is something rarely discussed yet needs much more attention. Yet, as noted above, there are many ways in which leadership decisions will inform, shape, and often perpetuate the culture they serve. Culture will, in turn, inform and shape ongoing leadership decisions.

How is organizational culture framing and guiding your leadership decisions?

2. Scarcity boundedness

Focusing primarily on the money-first perspective has the potential to rationalize all leadership decisions solely through that filter. Key decisions, such as the one many leaders made to reduce staff during the pandemic even though revenue was largely consistent for 2020, suggest that their decision-making processes may be ignoring perceivable and important information while focusing on old habits built on what may now be irrelevant information (Bazerman & Moore, 2012).

The post-pandemic uncertainty has seemingly caused leaders to fall back into established decision-making frameworks and traditional boundaries that occur when difficult economic times surface. Yet, the boundaries brought by the COVID-19 pandemic are different than, for example, a recession which often causes donors to reduce giving. Economic signs strongly suggest a robust and rapid recovery is already underway (Ember et al., 2021).

Nonetheless, leaders appear to be making decisions with staffing that anticipate financial shortfalls that are unlikely to occur considering the current state of growth. While leaders must be good stewards of their financial resources to continue their mission during difficult times, it appears that fear is preventing many leaders from seeing obvious signs of economic and social disparity – the very things that nonprofits support in civil society—are more of a problem than fundraising. Rather than being bound by old ways of thinking built on financial scarcity, leaders should be breaking the boundaries of established decision-making processes and looking more closely at how to serve their mission best. The money will come.

How might fundraising blinders be preventing other relevant information from coming into your view?

3. Decision-making biases

Biases are often and unknowingly at work decision-making. As noted previously, nonprofit leaders made decisions to reduce staff during the COVID-19 pandemic, even though many were meeting revenue goals, and signs suggest they will continue to do so. This may suggest some leaders are subjective to conjunctive bias – the over-reliance on a relationship between an economic recession and donor giving based on historical patterns.

For example, if the economy falls into a recession, staff must be reduced to maintain cash flow. Although research indicates that giving falls during a recession, it also shows that overall giving trends have increased steadily since the 1980s; any decreases have been modest compared to the direction (Bergdoll & Rooney, 2020). Another important factor to note is that giving patterns affected by economic conditions differ in nonprofit subsectors. However, history shows us that donor activity during previous epidemics was sustained (Rolland, 2020).

Confirmation bias may also be at play here. Suppose a leader assumes revenue will fall, and a major donor or two reduces giving by 10%. Donor actions confirm for the leader that difficult times are ahead and trigger decisions based on scarcity. Reducing costs certainly suggests to donors that the organization is using its money wisely; however, expanding service opportunities may create more revenue opportunities to offset a modest shortfall. Such retrenching may also suggest to donors that the organization lacks vision and is more concerned with maintaining the status quo than expanding mission service opportunities.

Every leader’s decisions are built on prior successes and failures. These heuristics enable leaders to make decisions quickly, but they are also fraught with biases. Bias-free decisions are largely impossible, but intentional consideration of the likelihood of bias slows the decision-making processes and allows for unbiased options to present themselves.

How are biases informed by past successes and failures shaping your decisions, regardless of context relevancy?

4.  Assumption of continuity

The easiest way to plan is to assume a significant amount of continuity in fundraising and operations. For example, many leaders budget annually based on historical performance measures. Individual donors will give a certain amount; foundations will provide another amount, and grants, sponsors, or maybe earned revenue sources will also contribute. Perhaps investment income will make up the balance of the revenue picture. Each of these sources is likely to have reflected increases or decreases based on the overall economy. As a result, operating costs should reflect the anticipated revenue.

All leaders make best guesses about the possibility of disruption to their revenue and operations. Typically, these guesses are rooted in continuity built on culture, bounded awareness, and personal biases. However, organizations are not closed systems, and planning built on mental models that assume continuity ultimately places an organization at risk.

Organizations are open systems, informed and influenced by happenings in the world around us (Howard-Grenville et al., 2020). The COVID-19 pandemic demonstrated this fact and highlighted the need for a more robust consideration of discontinuity that extends beyond mid-year re-budgeting. One might argue it was impossible to have predicted the impact of the COVID-19 pandemic on organizations. But such thinking merely highlights an overconfidence bias for the assumption of continuity.

Nonprofit leaders have a responsibility to assume discontinuity; to look externally for things that may influence an organization’s operation and its ability to fulfill its mission. Global pandemics are disruptive, to be sure, but typically disruption is more subtle and occurs over time. Changes in generational leadership, society’s attitudes, and social and economic disparity are among the gradual changes that will test the continuity of social impact. These changes are often overlooked in the planning process and may pose long-term problems for an organization.

How might society and culture inform and test the validity of your continuity-based decisions?

Reflect on most leadership decisions during the pandemic. Write down a few of those decisions. Next to them, write your rationale. Review that rationale through the four factors. What do you see? Should these factors not inform your decisions, chances are your leadership decision-making processes are not limiting future growth and opportunity. If you find your decisions are indeed filtered through the four factors, you are not alone.

Nonprofit leaders often argue the complexity and difficulty in establishing measures and metrics for social impact. They sometimes use simplified data points, such as the number of programs offered and the number of people served, to demonstrate impact. While none of these data points provide meaningful social impact measures, leaders sometimes tout these points to indicate success (or shortfalls) during fundraising cycles during the year. Measures become metrics, which establish faux baselines for nonprofit performance and, thus, social impact. It is not surprising, though, that such metrics—number of programs and number of people served— are directly tied to revenue gained and the cost of program delivery.

Leaders also argue that to maximize program offerings and serve people, revenue needs to increase, and expenses need to be managed. If income declines, then expenses are cut. Yet, it is virtually impossible to deliver program offerings and serve people in the same way. It appears that social impact rises and falls based on one measure: revenue. But this way of thinking is rooted in and framed by the boundaries of culture, scarcity, bias, and assumptions of continuity. It is a limiting approach that constrains the mission of the organization.

There will always be disruptive factors that impact nonprofits. To remain relevant and maintain sustainable operations, leaders must be intentional in their approach to decisions and stretch beyond the boundaries that limit them. In those nonprofits where managers are promoted to executive roles without ongoing leadership training, mentoring, coaching, or guidance, System 1 thinking is likely the norm. As previously noted by the Stanford Survey (Meehan, III & Jonker, 2017, p. 13), it leads to “weak or ineffective management.” System 2 thinking is needed for long-term success.

Leadership decision-making processes are complex and influenced by a variety of factors. The difference between management and leadership decision-making approaches is likely to be the most significant factor in a nonprofit’s ability to maximize social impact.

Nonprofit employees, as the Stanford Survey suggests, seek stronger, more visionary leadership from their executives, not simple cost-cutting managerial approaches that create more work for an already over-burdened team. Donors, sponsors, partners, and staff expect nonprofit leaders to employ decision-making processes that improve social impact, not limit it.

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References

Bazerman, M. H., & Moore, D. A. (2012). Judgment in managerial decision making (8th ed.).Wiley.

Bergdoll, J., & Rooney, P. (2020, March 23). What happens to charitable giving when the economy falters? The Conversation. http://theconversation.com/what-happens-to- charitable-giving-when-the-economy-falters-133903

Big Brothers and Big Sisters of America. (2019). Big Brothers and Big Sisters of America Annual Report 2019 (p. 34) [Annual Report]. Big Brothers and Big Sisters of America. https://www.bbbs.org/wp-content/uploads/Big-Brothers-Big-Sisters-of-America-2019- Annual-Report.pdf

Big Brothers and Big Sisters of America. (2020, November 23). Artis Stevens Named New President and CEO of Big Brothers Big Sisters of America. Big Brothers Big Sisters of America. https://www.bbbs.org/2020/11/artis-stevens-named-new-president-and-ceo-of- big-brothers-big-sisters-of-america/

Ember, S., Corkery, M., & Chokshi, N. (2021, April 15). Signs of Economic Hope Are Growing, Some With Superlatives. The New York Times. https://www.nytimes.com/2021/04/15/business/economy/economy-retail-sales-unemployment-pandemic.html

Hammack, D. C. (2002). Nonprofit organizations in American History: Research opportunities and sources. American Behavioral Scientist, 45(11), 1638–1674. https://doi.org/10.1177/0002764202045011004

Howard-Grenville, J., Lahneman, B., & Pek, S. (2020). Organizational culture as a tool for change. Stanford Social Innovation Review, 18(3), 29–33. https://ssir.org/articles/entry/organizational_culture_as_a_tool_for_change

Kahneman, D. (2012). Thinking, fast and slow. Penguin.

Kubb, S. (2020, October 14). The Importance of Culture in Societal Responses to COVID-19.

Harvard Political Review. https://harvardpolitics.com/culture-response-covid-19/

Leadership. (2021). Big Brothers Big Sisters of America. https://www.bbbs.org/leadership/

Mansouri, F. (2020, May 29). The socio-cultural implications of COVID-19. UNESCO. https://en.unesco.org/news/socio-cultural-implications-covid-19

Meehan, III, W. F., & Jonker, K. S. (2017). Stanford survey on leadership and management in the nonprofit sector (p. 77). Stanford Graduate School of Business. https://www.gsb.stanford.edu/sites/default/files/publication-pdf/survey-leadership-management-nonprofit-sector-2017.pdf

Newhouse, C. L. (2021, April 14). Estimated Nonprofit Jobs Losses as of March 2021 [Research]. Johns Hopkins Center for Civil Society Studies. http://ccss.jhu.edu/march-2021-jobs/

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