Chronic underinvestment is placing increasing demands on social-sector leaders. New research suggests ways they can meet the leadership challenge.
It’s no secret that high-performing leadership is synonymous with private-sector success. Nor is there any shortage of research into the leadership qualities that matter most, their potential impact on financial performance, and the importance of investments in leadership development. But what about leadership quality and development in the fast-growing social sector?
To better understand the state of leadership in this sector in the United States, McKinsey surveyed nearly 200 social-sector CEOs and other top managers leading nonprofit organizations, foundations, social enterprises, and impact-investing funds. We asked these leaders to identify the critical attributes for leadership success in their sector and then to rate the performance of leaders in the field against each attribute.1 Across every category—including balancing innovation with implementation, building top executive teams, and collaborating to achieve outcomes—survey respondents found themselves, and their peers, to be deficient.
The findings suggest that chronic underinvestment in leadership development within the US social sector, accompanied by 25 percent growth in the number of nonprofit organizations in the past decade, has opened a gap between demands on leaders and their ability to meet those needs.2 At the same time, a number of sector leaders tell us they’re concerned that the sector’s priorities are at risk if the organizations lack leadership teams with the capabilities to fulfill emerging missions effectively and to adapt to fast-changing demands.
Given the positive return on leadership investment we’ve seen in the private sector, one might hypothesize that more systematic focus on, and investment in, leadership development in the social sector could pay off in more effective delivery of social interventions. (To our knowledge, there has been no large-scale, empirical research on the effect of leadership development in this sector.)
The US social sector—with more than one million nonprofit organizations addressing issues from education to the environment, from homelessness to digital literacy and access, arts and culture, and workforce development—accounts for nearly $837 billion in products and services, or 5.6 percent of GDP, according to the Urban Institute. Social enterprises, B Corporations, and other commercial organizations looking to do well and do good add to these numbers and represent an expanding segment of the overall social sector. Given the sector’s size and fast-paced growth, we suspect that improving performance even a little could mean a lot with respect to social outcomes.
The time to act is now. The next generation of mission-driven professionals is considering social-sector careers. They expect mentoring, professional-development opportunities, and increasing responsibility. Funders (including foundations, individuals, and impact investors), government, and business have important roles in addressing the leadership opportunity in this critical sector.
Leaders assess leadership
During the past decade, many within the social sector warned of a looming leadership deficit as older leaders retired while the number of organizations within the sector mushroomed. Those predictions proved to be overstated. Yet all along the more pressing issue has been ensuring that this sector’s existing and emerging leaders have the ability to be effective in their roles.
So what are the leadership attributes identified as most critical by our survey respondents? There was strong consensus around four skills: 58 percent said leaders must to be able to both innovate and implement; 53 percent said effective leaders must surround themselves with talented teams; 49 percent said leaders must be skilled collaborators, experienced at bringing multiple stakeholders together; and 40 percent said leaders must manage to outcomes and be committed to quality improvements. All other leadership skills tested for in the survey—including placing solving the overall social problem ahead of individual and organizational success, sharing leadership, possessing a good understanding of the ecosystem and operating environment, and using data and evidence adroitly—were rated as less critical for success by more than three-quarters of the respondents.
These responses indicate that leaders in the sector agree on what they think they need to be successful. The next step is to determine what actions can be taken to better support leadership development in the social sector. Based on our experience working with social-sector organizations and funders in this sector, we have identified three primary areas where there is the most striking need for attention to leadership development: the bench strength (or even the existence) of top executive teams within many social-sector organizations, the performance of sector leaders in critical leadership attributes, and adequate funding and other structural support for leadership development.
The top team
The majority of respondents (59 percent) believe the lack of an effective top team—a C-suite such as a CEO, chief operating officer, chief financial officer, and chief information officer—undermines the effectiveness of individual social-sector organizations and the sector as a whole. In our view, what lies behind this response is a growing belief that there is a gap in leadership talent and capability between the CEO and other managers. One reason may be the inability of some organizations to offer compensation and advancement opportunities to recruit and retain talent. (At some organizations, limited compensation budgets mean that they can afford only one highly experienced leader.) But sector leaders suggest that insufficient attention to, and chronic underinvestment in, leadership development may be the root cause of the gap—an observation we will explore in more detail below. There is no deficit of committed, talented people in the social sector. What they lack is training, support, and opportunities to grow in their roles.
Survey respondents said one of the top leadership attributes for the sector is the ability to create talented teams. We think this reflects their concern over the talent gap among top leaders, which results in there being no true C-suite in most social-sector organizations. In the private sector, a strong executive team exhibits complementary skills to tackle a broad range of challenges. Effective CEOs surround themselves with people possessing the diverse skills that a successful organization needs. Social-sector leaders seem to recognize this and prioritize it, but their responses suggest they don’t feel they have been successful.
A gap in talent at the top, where too much of the leadership burden rests with one or two professionals, may limit what a social-sector organization can accomplish. Collaborating to assemble multiple stakeholders and managing to outcomes committed to quality improvement—the other two top leadership capabilities respondents identified—is often a team effort, even in smaller organizations. Falling short in either skill can undermine execution of the most important initiatives. CEOs with underdeveloped teams lack strong internal sounding boards for ideas and concerns.
The gap complicates succession planning, too. A recent survey suggests that nearly 70 percent of US charities lack succession plans.3 Without them, and a “talent bench” at the senior-most level, organizations losing a leader must find a replacement from another social-sector group, elevate a manager unprepared for the role, or recruit a leader from business or government who will face a significant learning curve. In these circumstances, a leader’s exit can reduce the organization’s effectiveness.
Responses to questions about how well they and their peers performed in the four leadership attributes they identified as critical should give us pause (exhibit). Only 32 percent of leaders are confident in their ability to both innovate and implement. Only 22 percent of them think their peer leaders in the sector in general can do this. Only one in five leaders believe they surround themselves with a talented team, but nearly 40 percent of them think their peers are good at this. Twenty-four percent of them think they are skilled collaborators, and 33 percent of them think their peers are. Only 18 percent of leaders say they manage to outcomes and commit to quality improvement; they also believe that fewer than one in four of their peers do. Finally, in a sector that is mission driven, 90 percent of them think that, when it comes to making trade-offs, they and their peers will prioritize their own organizations and themselves over advancing their causes. (Note that they did not rate advancing the good of the mission over the good of the organization as a top leadership priority.)
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