NANOE’s Eruption Onto The Nonprofit Scene – Jack Horak

NANOE’s Eruption Onto The Nonprofit Scene is Jack Horak’s take on how our Nation’s newest charitable intermediary organization defied industry convention and has made it’s mark. Jack is one of the founders of The Alliance for Nonprofit Growth and Opportunity (TANGO). Here’s what he has to share:

A few years back the then newly formed National Association of Nonprofit Organizations & Executives (NANOE) erupted onto the scene with a head turning proposition: money is more important than mission.

The proposition did not get a warm reception within the ranks of the nonprofit establishment, and that is understandable to some extent. After all, the words “more important” can be read as heresy –  as an audacious directive to make an abrupt 180-degree change in direction – a command to subordinate the interests of the poor, the addicted, etc. to making money (profit). In accounting terms, “direct mission expenses”  would no longer be a mission performance indicator (of some type) but a charge against revenue that reduces profits.

NANOE’s Eruption Onto The Nonprofit Scene

However, I read the proposition much differently. I immediately recognized it as a part of a larger effort to call attention to weaknesses in the principles and systems by which money is both understood and transformed into mission outcomes by nonprofit boards of directors and management in the 21^st century operating landscape.  Let me explain with a hypothetical.

New Beginnings, Inc. is a social services agency doing its best to navigate the landscape.   It has annual revenue of  $15 million  (from a mix of government and private sources), and seven departments:  human relations (HR);  government relations, lobbying and advocacy;  facilities management; development;  accounting and finance; quality control and compliance;  and, of course, the clinical department whose staff interfaces directly with clients.  New Beginnings has 200 employees —  110 clinical social workers and 90 who work in other departments.

New Beginnings has a history of poor staff morale and has faced a series of costly and distracting wrongful termination, harassment,  and discrimination claims. The lingering problems were the result of dismal performance by the former HR officer who left the organization. New Beginnings begins a search for a replacement (posted at the same salary level as the terminated officer), and two candidates have been identified.

Candidate A is highly experienced with mature judgment and a superlative track record with private sector experience. Candidate B is two years out of school with limited experience but great enthusiasm. Candidate A’s salary demand is $ 20,000 more than what is posted. Candidate B would accept the posted salary.

So, which candidate would you hire?

The conventional practice would be to characterize the $ 20,000 as an additional expense that would be better spent on the mission (perhaps to hire additional clinical social workers). To emphasize the point the development director might note that donors want to fund mission and not overhead – and that some might conclude that if the organization can afford an extra $20,000 on this expense,  then it must not need money that badly.  Some might go so far as to criticize Candidate A for not being willing to take less – arguing that the personal psychological benefits Candidate A would enjoy working for a charity are worth more than the money.

On the other hand,  I would advise the board to pay the extra $ 20,000 for the following three reasons:

First, the $20,000 is not an empty expense – it is being tendered in exchange for equal value in the form of the experience and skills of Candidate A. Moreover,  the $20,000 is an investment that should pay a hefty financial return to the organization. The series of costly and distracting wrongful termination and discrimination claims under the prior HR officer took money out of the operating budget (legal fees and settlement costs); and Candidate A’s extra skills and experience should reduce these loss events dramatically. It’s money the organization will not have to spend – a dollar saved is as good as a dollar donated. The $20,000 is a drop in the bucket measured against the costs of defending employee claims and litigation.

Second, the  $20,000 is, in fact, a direct mission expense – it is money that improves mission performance because mission performance is not a function of the ratio of clinical staff to non-clinical staff,  but a function of the entire integrated whole (all eight departments)  working as a balanced and connected system that keeps the enterprise healthy, financially and otherwise.   The total (the mission) is greater than the sum of the parts when the system works this way and less than the sum when it does not.

This system centered view of organizational management and performance is based on hard thinking (systems theory) being taught at places like MIT. In contrast,  by and large the nonprofit sector still follows a nineteenth century charity-based view of the world. (If you want to learn more about systems theory check out the many explanatory videos that can be found on You Tube. It would be worth the effort.)

Third,  as far as donors are concerned I would  explain that we are not looking for coins in a tin cup,  but for contributions to meet the working capital requirements necessary to keep the entire system —  each part (HR included) and the whole working efficiently and effectively.   The goal is to create $ 1.25 worth of mission value for each $ 1.00  donated  — and its possible to do so when the total exceeds the sum of the parts.

I started this column as a commentary on the proposition that money is more important than mission, seeing it not as a tug of war between alternative missions but as part of a larger effort to modernize the principles and systems whereby money is transformed into mission outcomes by boards and managers in the 21^st century.

The example I used to make my point – of an HR director – was chosen deliberately because it’s a perfect example of what I mean by the 21^st century landscape. Employment law did not exist as a separate discipline when I finished law school in the 20^th century (1980). However, in the 21^st century the employer-employee relationship is heavily regulated by federal and state administrative agencies and is a font of potential liability if not professionally managed. Nonprofits need the money to be able to hire people with the necessary HR talent and experience – and donors would do well to fund this type of expense.

There is more I have to say about changes the nonprofit sector must make to confront modernity successfully and they will be appearing in future articles here on the TANGO Hub.

To learn more about TANGO please VISIT HERE and feel free to contact me with questions or suggestions at [email protected].

NANOE’s Eruption Onto The Nonprofit Scene was first posted at INSIDE CHARITY

For more articles by Jack Horak like NANOE’s Eruption Onto The Nonprofit Scene VISIT HERE