The contribution that New Zealand’s approximately 113,000 non-profit organisations make to the nation’s gross domestic product (GDP) is increasing but only incrementally. Government funding to registered charities, of which there are more than 25,000, reached $4.8 billion last year. Total gross income was $14.2 billion. According to the Ministry of Social Development, our not-for-profit organisations (NFPs) account for around five percent of GDP.
The sector also provides paid employment for almost 200,000 people. But 90 percent of NFPs don’t employ paid staff. They do things for the good of the cause. It means NFPs mobilise, paid or not, around one million Kiwis year. So not-for-profits represent significant portion of the economy. It’s sector that successfully taps into loyalty but it couldn’t be described as taking off financially.
Nor should it, you might argue. The nation needs more high-performance, profit-driven, export-oriented commercial enterprises, not more charities. On the face of it, that may ring true. But given the economy is awash with increasing numbers of unemployed at both ends of the age spectrum for the next few years, maybe more individuals could be gainfully recruited and redeployed by NFPs. Baby boomers falling out of the employment marketplace have experience aplenty to offer.
So what’s going on in the non-profit world and could it be making better fist of what it does? According to survey by global consultancy Grant Thornton, the country’s NFP sector is facing some pressing problems. The three most challenging ones are financing their activities, fundraising and, now here’s the point, some leadership – management and governance – skills shortages.
As management guru Peter Drucker wrote in his book Managing the Non-Profit Organization, an effective non-profit manager must try to get more out of the people he or she has. The yield from the human resource really determines the organisation’s performance. According to the Thornton survey, the same could be said of the directors NFPs appoint.
Our protracted economic difficulties have non-profit organisations not only battling for reluctantly donated dollars but also looking long and hard at their cost structures, spending practices, operational efficiencies, and financial reporting and management.
Don Bell is commissioner of the Salvation Army which last month was, for the third year in row, named the Hay Group/NZ Management magazine Most Reputable Not For Profit Organisation. Acknowledging his organisation’s win, he said the current economic recession has made government contracting more challenging and constrained donations.
Hard times or not, governments around the world want community organisations to deliver more services. At its best, the non-profit sector has the potential to tackle some of society’s most entrenched challenges, proclaims the Ministry of Social Development’s website.
And according to NZ Herald report last November, Gillian Peacock, people and capability manager for New Zealand Red Cross, believes the NFP sector is attracting new breed of people. She said organisations like hers are doing more to retain staff and even increase their numbers. The world outside has changed and we are expected to be more professional, she said.
At the same time, Wellington-based management consultant Peter McLaren, who has worked with the non profit sector for some years, claimed the sector suffered from shortage of people with business development, marketing, fundraising and donor legacy experience. Without them, NFPs run the risk of not getting sufficient funding to run their organisation. Having sound business model was, he said, essential.
And that, in significant part, is what the Grant Thornton study found and the New Zealand Institute of Management and Institute of Directors (IoD) believe could be rectified through some well directed management and governance guidance.
On the skills shortage side of the Thornton survey, respondents didn’t rate their directors’ strategic thinking capabilities. On the other hand, previous surveys had shown respondents believed board’s most important task was indeed strategic planning. This time, only 63 percent of those who responded considered their directors thought strategically.
And they didn’t rate their risk-taking or entrepreneurial skills much better. More than 80 percent of them thought their board members were knowledgeable and/or experienced, and 93 percent believed they were honest and showed integrity.
They, well 74 percent of them, ranked their leadership little more highly. The 23 percent of respondents who didn’t think their directors were great shakes as leaders thought the problem was best tackled by exposing board members to different disciplines.
However, the study did confirm that many boards are now trying to educate their board members. More than half, 54 percent, thought that was best done by sending them to conferences or courses, while 42 percent thought books, magazines and journals would help develop their leadership skills. But 59 percent believed leaderships skills were best developed through on-the-job experience.
However you look at it, non-profit organisations play an increasingly important role in the economy, says NZIM chief executive Kevin Gaunt. But for them to deliver effectively both for their special interest groups and for the economy as whole, they must be competently led, directed and managed. Their operational competency and their governance must be every bit as good as the commercial sector’s. NZIM wants to work with the IoD to provide guidelines that would improve the capability of the country’s NFPs and, by so doing, help lift their productivity. M
The long and the short of it
Back in 2006, an ASB Community Trust report into capacity building in community organisations found the majority of NFP funders limited their funding to programmes and short-term projects. This approach, it said, effectively created disincentives to good management because the practice didn’t support either the growth or sustainability of the organisation.
The ASB study identified capacity building as long-term investment that needed strong leadership, an organisation which is ‘ready’ for sustained change, and where both the governance and programme delivery are stable and solid.
The study also said trusts and foundations in the United States and United Kingdom had made large commitment to funding NFP capacity building. Some of them were devoting up to 30 percent of their available funding to the task. Australian and New Zealand trusts had, on the other hand, given money to NFPs exclusively to provide services to the community.
Reg Birchfield Life FNZIM is writer on management, governance and leadership. [email protected]
