Where Most Needed

A new study offers data that shows that the rate of growth in the number of very large charities is between two and three times greater than that of small charities.  It also suggests that the huge number of small charities will have a particularly difficult time finding leaders over the coming years. 

These conclusions are not in the Executive Summary, but the key data appears very early in the main Bridgespan Group report report "The Nonprofit Sector’s Leadership Deficit." Taken from IRS data available via the National Center for Charitable Statistics, the table shows a census of groups by size in 1994 and 2004 and calculates the compound growth rate of each size class.

The report web page is here with links to the report, executive summary, commentaries, and an Excel spreadsheet with the model used in the report.  Note that the groups selected for this study were U.S. charities (that is, 501(c)(3) organizations) with revenues greater than $250,000, excluding hospitals and institutions of higher education. 

From smallest to largest groups, the compound growth rate increases.  The number of groups under $1 million grew at a compound rate of 5.4%, while the number of groups of $100 million or more grew at a compound rate of 13.0%.  At 13%, the number of organizations doubles in just 7 years, while at 5.4% it takes 15 years for the number to double. 

Even more striking are the main conclusions of the study relating to executive development.  The table shows that the need for executives will be highest among smaller groups.  In 2004, 86% of the groups—over 90,000 in all—had revenues of $5 million or less, while there were well under 1,000 groups over $100 million.  The chart shows clearly the dramatic drop off in number of organizations above $5 million in revenue.

Yet, as readers of WMN know, the relatively small number of large organizations account for a large part of the overall activity of the sector (See "IRS Data Shows Largest Nonprofits Have Biggest Economic Impact".)

Few in number, rich in resources—the large charities are not going to have great difficulty finding leaders.  It is the smaller groups that will bear the brunt of the demographic deficit as the baby boomers retire. 

The Bridgespan Group concludes by recommending more investment in leadership capacity, offering better rewards to managers, and recruiting more widely.  WMN offers some alternative conclusions: 

• boards of organizations with revenues under $5 million need to move deliberately and aggressively toward mergers that will create organizations of a sustainable size, with resources sufficient to attract scarce talent at the level of the top management team
• executive "transition" involving an outside hire is, in general, not a reasonable expectation for organizations under $5 million, and it becomes less reasonable the further the organization falls below that line and the longer it waits.