Why Nonprofit Transitions Fail

Barry Dym, Susan Egmont, and Laura Watkins

Leadership transitions, even successful ones, are rarely smooth. A number of difficulties that can be expected during the transition period are not so much due to faulty governance or planning, but are natural to any major change effort. These difficulties can be anticipated and managed. In the midst of new anxiety over the future of the organization, people will be asked to do additional work and create new teams around tasks many have not done before. They will be asked to take leadership in different ways and to play unfamiliar roles.

Unforeseen events inevitably influence the board’s deliberations and progress. A transition team member gets sick, for example, and meeting dates have to be revised or a new member needs to be integrated. There may be a shortage of qualified candidates—or so many good ones that the selection process is difficult or more time consuming. The board may grow divided over policy and find it hard to reconcile its differences. The economy may turn up or down, making it easier or harder to raise money and leading to more or less ambitious possibilities for the organization’s growth (with repercussions on what kind of CEO to select). A promising candidate may indicate serious interest but later withdraw.

Sometimes key senior staff members resign during a transition process. They may have been anticipating a move before the announcement of the CEO’s departure, or they may be approached with an opportunity that’s too good to ignore. They may feel anxiety over taking more responsibility during the transition or over new directions the board is considering. The authority to hire new staff may be given to an interim leader by the board, or a decision may be made that temporary staffing is in order so that the next CEO has the hiring responsibility and opportunity. At any rate, this common occurrence shouldn’t throw the transition team for a loop.

Preparing the community for bumps and curves may include setting flexible timelines and assuring others that a mission-driven strategic process—not deadlines—will rule the decisions made. Whatever the issues that arise, a commitment to respond to concerns transparently gives the board room to operate and credibility in the face of unanticipated or unwanted events.

Challenges That Threaten Successful Transitions

Pitfalls during the transition process generally can be classified as issues of the following:

• Leadership and governance

• Organizational characteristics

• The external environment

• Planning and execution

Leadership and Governance

The board of directors is charged by the community to fulfill the mission of the organization. Nonetheless, they rely on the CEO to oversee and manage the daily work of the organization. Therefore, the transition of the CEO places significantly more responsibility on the board of directors. Often the CEO has made the governance work of the board easy by his knowledge and expertise as well as his dedication and support of the board. However, the supportive treatment of the board has weakened their muscles for doing some of the hard work of the organization. Board members feel unprepared to take on a strategic transition of the CEO. Members are apt to believe that such comprehensive work is more than what they “signed on for.” Board members may have agreed to serve on the board because of their respect and trust of the CEO. Now they are charged with stepping up to some intense work. At the same time, members worry that their liability in their board role has increased significantly. Some may even take this opportunity to step off the board. Those who remain may experience significant shifts in power of certain board members and leaders. Following are some of the challenges that boards facing during their expanded governance and leadership of transitions.

Working Without a Net

Many boards have little experience with leadership transitions. The board president and team/committee members may never have served during a transition at this or any other nonprofit organization. Taking the time to access the organization’s vision and create a strategic plan is essential.

The transition process in a nonprofit may vary substantially from recruitment and hiring in a corporate setting. The number of constituencies who desire to have a voice is one difference. Taking time to survey staff, board members who will not serve on the transition team or search committee, funders, volunteers, and community members will pay off in a better understanding of the type of leader needed and in buy-in from these constituents when a finalist has been identified. Regular communication with these “publics” during the transition is essential to allaying fears and rumors and to obtaining their support and participation in outreach as well as preparing the organization’s climate for the future leader.

Board members who are familiar with corporate hiring or public hiring situations (such as for school superintendents) may need to consider the differences in the nonprofit community. Maintaining confidentiality of candidate names versus public disclosure and interviews in a “hearing”-style environment are examples. The process may also vary in the amount of participation that team and committee members are asked to contribute. Reaching decisions together as opposed to relying on a hierarchical process is critical.

Board members may resist hiring expert support to guide the transition process. If they do not know what to expect, how to plan, or how to conduct a search, they may over-plan, track false leads, spend too much time with inappropriate candidates, or overreact to community rumors. If they are poor negotiators, they may lose excellent candidates. Having been through one cycle of the search as independent novices, more than one tired search committee has hired an experienced consultant to conduct a second search.

Absence of Decision-Making Clarity

During a transition, it is the board president’s responsibility to move the organization down the path to replace the CEO. Even a highly organized president with ample time to devote to the organization will be dismayed by the number of decisions to make. Before engaging in the search process, the board members need to revisit their strategic vision, conduct an assessment of the organization’s health, and determine what led to the departure of the previous leader, all to craft the best parameters and characteristics required of their next leader.

The president and board grapple with decisions about how to spread the decision-making of the departing CEO among the board president, the board committees, and the full board. They may need to consider engaging an interim CEO. If they want to engage an interim CEO, they need to develop a plan of work for that engagement and determine how to divide responsibility. Often, the decision-making assignments during a successful transition have not been laid out in advance. Few nonprofits have a true succession plan that maps out the process in advance.

When a CEO resigns, a weak board president may be terrified to learn his position requires a shift from partnering with the CEO to leading the organization, or at minimum, to establishing clarity regarding all the players in the strategic decision-making process. During the transition period, the board president must discipline the board to do what it is chartered to do and no more unless other options are unavailable and a conscious and transparent decision is made to temporarily suspend the rules.

It can be difficult to control individuals making promises, overseeing staff without authority to do so, taking on tasks without clear communication, gossiping, and more when the board president is challenged to add many nonroutine functions to his plate.

Engaging in Roles That Are Outside the Norm

After managing the organization during the transition process, boards are reluctant to give up authority and can end up micromanaging the incoming leader. Many boards do not hesitate to take on administrative, programmatic, and other functions that belong with professional management. Such micromanagement is so frequent that it has become part of nonprofit lore. Although micromanagement generally connotes uninvited interference, many new CEOs, feeling at least temporarily insecure, invite inappropriate board participation. Boards, particularly during the early stages of an organization, are accustomed to stepping into the breach—and then staying beyond their welcome.

The board may step in to make a correction not directly related to the new CEO’s activities or simply to lend a helping hand—perhaps even upon invitation by the CEO who may get into difficulty trying to turn around a crisis situation. The board may need to assist a new CEO in helping her learn the complexity of the organization. Many new CEOs, after all, have never launched an institution. They are used to working in established organizations or in other roles where they had little need to interact with a board or community members and raise money.

A second scenario has the board stepping in to help but rushing out as soon as the task is done. Board members may be exhausted by launching the organization or hiring a new CEO. They do not, in any case, want to encroach on the CEO’s authority. They will, however, step in for a discreet task and then out again as often as the CEO needs help without formalizing that role. They are in and out so often, in fact, that the lines of responsibility and authority blur—not just because of board involvement, but because of ambivalence and inexperience on the part of the board as well as the CEO. The board must act with caution whenever it assumes responsibilities normally designated to the CEO.

The board response to a request to step into the CEO’s territory should be: “This is your job. If you need help in fulfilling it, let’s figure out together how you can get it done.” That kind of clear statement about expectations of the CEO is management, not micromanagement.

The board needs to ensure that there is clarity about the staff’s role in the search process. Board members may want to have input from staff about what is needed in the future leadership of the organization. They may want to provide an opportunity for senior staff to interact with the top candidates. However, it should be clear that the decision of whom to hire lies with the board.

Founder or Previous CEO Intervention

Many founders (and founding boards) have difficulty letting go of control. They have grown accustomed to doing everything themselves and have a tremendous stake in the organization. Most boards have good intentions; but many organizations, out of fear of operating without the familiar founder or out of a genuine desire to stay in touch, negotiate a continuing role for the founder.

When a founder stays involved, the moment the new CEO makes a mistake or acts contrary to the founders’ vision, she may override her promises and best judgment to step back in and exert control. Naming a founder to the board of directors makes this more likely. Entering into a consulting arrangement with the departing CEO (usually negotiated before the new CEO is hired and is able to express an opinion about how welcome this might be) structurally sets up ongoing conflict.

In one organization, the new CEO’s style varied greatly from the founder’s, and staff members were concerned about whether the new CEO’s priorities were wise. When the board president heard their concerns but asked them to bide their time, they remained anxious and turned to their beloved former mentor. It would have been painful for him to tell them he couldn’t help and that they would have to form a new bond of trust with the incoming CEO. He himself was struggling with creating new relationships and a different role, so he took their calls and unintentionally encouraged an insurrection. When the new CEO exerted more stringent measures to get the staff under control, the founder realized he had played a part in a situation that damaged the reputation of the organization he loved.

Resistance to Change

Change is hard, and the changes implicit in transition planning will almost invariably bring some degree of resistance. Change can threaten vested interests and make people anxious. It poses a threat even when it means leaving behind painful or dysfunctional ways of operating. Resistance to change takes many forms, from direct opposition to foot dragging to apparent agreement accompanied by inept planning and implementation. Indirect resistance is particularly difficult to deal with. Most people deny inappropriate motivations. In such cases it is difficult to find ways to reassure or motivate them.

Leaving behind a nimble organization that understands change is part of the work of an effective departing CEO. When people know that change is inevitable, they can support it and see a benefit from changing. As a result, a learning organization is created.

The External Environment

The economic downturn of the fall of 2008 is a prime example of environmental factors that may create unsuccessful transitions. One CEO announced his departure the day before a dominant financial institution announced that the company was in trouble. He feared a downturn in the organization’s funding, but few people could predict what was ahead.

The board moved forward to hire a new CEO without undertaking a strategic process, and over the course of the transition, every month’s financial statements brought more dire indicators. During the search, candidates suspected that the staff would be reduced and, to the organization’s credit, they were told about significant downsizing that was left to the unfortunate board president and interim CEO. By the time the new CEO took over, it was a smaller and much weaker organization than the departing CEO had left.

Even the best of leaders is forced to operate in the same economy as the surrounding society. Although some industries and sectors are counter-cyclical, nonprofits that depend on state funding are uniformly hit when sales taxes decline and governors amend budgets. Coming into a new position at such an unfortunate time can paint the new leader with an unfair brush just as coming in at the time of an unprecedented rise in the stock market can create a strong endowment balance, although the leader had little to do with it.

The Initial Phases of New Leadership

Once a new CEO is named, predictable pitfalls continue to require attention.

Lack of Clear Contracting

After selection, the most predictable way for boards to ensure long-term effective leadership is to form a clear contract with the new leader. This agreement must outline explicitly what is expected of the new leader, a rough timetable for when those expectations should be met, and ways to measure how those expectations are being met—both outcomes and movement on the way to outcomes. The contract also should include what the new leader can expect from the board. Tom Adams refers to this process as social contracting.

Creating a written document is a way for both parties to see where there is a need to work out differences and find commonality. Returning periodically to this document can provide the opportunity to keep the pact fresh. Revisions can be added where needed and action can be agreed upon. Without this periodic review of the agreement, misunderstandings can occur. This may be the single biggest reason why boards and leaders clash, leading to greater turnover and ever more leadership transition.

Too Much Faith in the CEO

Sometimes board members assume that the CEO will always know what to do. They hired a professional, after all, one that seemed immensely knowledgeable during the interview process. The professional they hired is reluctant to bare his own shortcomings. The new leader is left alone too long, and he doesn’t ask for help until problems of staffing, finance, or fund-raising begin to get out of hand.

When cracks show in the armor, the founders or hiring board members rush in and sometimes react too extremely. Feeling let down and even betrayed, they withhold confidence in the CEO’s ability to accomplish his tasks and check every detail of his work. This in turn further erodes his confidence. They will now stay too involved in day-to-day operations until the CEO proves himself—or until they fire him.

Inadequate Support

The transition team and search committee members may feel they have given such a significant amount of time during the search that it’s time to go back to neglected responsibilities at home or at work. The exhausted board hands the organization to the new leader without orienting him to the strategic plan, the community, the culture, systems that have been in place, or relevant players in the field and the organization. Adequate time for the new CEO to learn the history and operational systems, meet people and create relationships, and develop trust and vision is essential for success.

New CEOs often express surprise at learning information that wasn’t obvious (or was even hidden) during the hiring process. Some organizations are afraid that if they provide a full explanation of organizational concerns and worries, they will not be able to attract a sufficient caliber of leadership. Some make every attempt to be open and fully disclose both positive and negative aspects of the operation, but no matter how much is shared, there may be surprises. The new CEO has likely inquired about the circumstances surrounding the departure of his successor, but on arrival he may find that the explanation that the CEO was retiring or “moving on for other opportunities” may cover a multitude of sins.

One search consultant says, “There’s always something in the bottom of the bottom drawer in the back that the departing CEO either didn’t want to do or didn’t know how to fix.” The new CEO needs to ask questions and be assured that difficulties he inherits will not be accounted to him but that he will be supported with resources to resolve those issues and be given credit for doing so. That may take time, and having the confidence of the board during that uncertainty is invaluable.

Inadequate Resources

Upon arrival, a new CEO may find that the organization has slipped financially below the viability mark. Although funding was in the bank or promised at the departure of the previous leader, time during the transition can take its toll financially. Without sufficient working capital, staff layoffs in the early days can create tremendous ill will. Cutbacks in essential services may cause the organization to become a target for competition in the community and with funders, and community support may wane if the organization is perceived to be too weak to deliver on its mission. Both the organization and its candidates must analyze whether the resources on hand will fund the strategic plan until there is time for the new leader to get her bearings.

Even the ideal CEO cannot make up for the board’s failure to raise sufficient funds to run the organization well, attract volunteers, and bring in excellent staff. Below-market CEO compensation is also a great de-motivator. It is the board’s responsibility to know current salaries in peer organizations and to pay a respectful wage that rewards the CEO for hard work and leadership success.

Divided Boards

Board schisms can be crippling to a CEO and to the organization. During the transition process, the transition team should consciously provide opportunities for staff, board, and community members to express their opinions about the organization’s strategic plan and the characteristics required of its new leader. Once the strategic planning process has taken place and a search committee has been appointed to find and recommend a new leader, the discussion shifts venues to a confidential setting where various candidates’ backgrounds and talents are compared to these needs. Truly delegating this responsibility and putting confidence in the search committee will mean that their recommendation is accepted ,unless there is reason to believe the committee has acted without full information or diligence.

A divided board regarding the hiring decision gives multiple and often conflicting messages to the CEO. She is wary that judgments have been made before she has had a chance to prove her commitment and capability. When the organization waits to see if the new person is really okay before getting fully behind her, that doubt is likely obvious to the community. This starts a vicious cycle: without a belief that board members are supportive, she worries that she can’t succeed. Some board members take her lack of confidence as lack of competence, angering other board members and inflaming board schisms, leading to further conflict.

A unanimous vote for a new CEO starts the new leader on the right foot. Once a new CEO is on board, a quick public vote of confidence by the board makes her success in the community more likely. Coordinating board feedback through the board president can keep the CEO from getting different messages from board members. Regular performance reviews can make it clear where the CEO is excelling and where improvement is required.

No Guarantees

Good people and good organizations aren’t necessarily a dependable fit. The lack of a strategic planning process, unclear criteria, or internal politics may bring about a hire that causes one or both parties to worry that they have done the wrong thing. Sometimes unforeseeable circumstances require a change in commitments. The new CEO or a family member may become ill, or the organization may lose a substantial contract.

It may be no one’s fault, but terminating the relationship with the new CEO within the first year can be perceived or remembered as a “bad hire.” Sometimes that bad hire label is well deserved. The search committee may have misunderstood the needs of the organization, or the new CEO may have misrepresented his skills and experience to get the job. Careful process and reference checking goes a long way but cannot guarantee that a “bad hire” will never happen.

Certainly, there are landmines evident in the transition process. However, adherence to a disciplined process of developing a strategic vision of the future, assessing the organization’s strengths and weaknesses, as well as addressing the root cause of the most recent departure set a sturdy framework for a successful transition process. When a board is fully engaged in governance and the president truly acts in partnership with the CEO, transitions create opportunities to grow exponentially. Staff is invigorated by developmental challenges. Volunteers reconnect to their beliefs in the mission, and the entire community comes to see the next level the organization can achieve.

Discussion Questions

1 How can an organization turn the risk created in transition into an opportunity for growth?

2 What systems need to be developed in an organization to prepare for successful transitions on the horizon?

3 What ongoing dialogue should be initiated to strengthen leadership partners in preparing for transitions?