Should nonprofits be led more like businesses?

Understanding the differences between impact and purpose for businesses and nonprofits can usefully inform the leadership of both

“Should nonprofits be led more like businesses?”

I posed this question to a group of 55 philanthropists at the Nordic Philanthropy Summit hosted by Pi (Philanthropy Insight) this week- and the room was evenly divided on the answer.

I went on to explore what do we mean by business leadership, and how does that apply to nonprofits. I think many use “business leadership” as shorthand for greater discipline and focus. And those are certainly important components of successful leadership – but they are not the sole province of for-profit organisations.

However, it is generally easier for good business leaders to bring more focus and discipline to everything they do, given that there is a clear, measurable, common, metric of success for businesses – namely their financial returns (leaving aside the issue of whether they should also contribute to the broader public good). These returns allow for-profit organisations to compare performance with peers, to allocate resources to where they will have the greatest impact, and to drive accountability for results throughout the organisation (if done well).

Nonprofits don’t have a single, common, metric of performance. It is near impossible to compare the performance of two organisations working in the same sector and geography, let alone those working in different sectors or geographies. How do you compare the performance of a housing charity focussed on providing shelter in London, vs one advocating to the UK government and local authorities? Or the performance of MSF vs World Vision? Or a housing charity vs MSF vs an art museum?

Given the difficulties of assessing impact, it’s very difficult to assess if organisations are performing as well as they should. One consequence is that many nonprofits don’t rigorously direct their funding to the most impactful activities, because they don’t have price signals and robust feedback mechanisms.

BUT where nonprofits (and their leaders) do have a real advantage over for-profit organisations is with purpose. Nonprofits have a powerful motivating purpose – which is invariably around positive change – for a community, a country, a sector or globally. And that gives their leaders a powerful tool to build strong, positive cultures and effective teams - if done well. In a large survey of corporate employees, 90% said they would trade a percentage of their lifetime earnings for more meaning at work, and in another extensive survey of business CEOs and CFOs, 90% said that improving culture would improve performance. Good business leaders understand the power of a motivating purpose.

So, rather than trying to reflexively lead nonprofits more like businesses, nonprofit leaders should lean into the powerful purpose of their organisations to shape powerful, inclusive, community-focussed cultures. And they always be looking to deploy their funding to have the greatest impact for the communities they serve, accepting that they will always struggle to find robust (and comparable) measures of impact – but they can usually find ways to improve the effectiveness of what they are doing if they bring a disciplined focus to doing so.