Succession Plans: Why Every Nonprofit Needs One

First Republic Bank
August 20, 2018

Research suggests that nonprofits are poorly prepared for leadership transitions. Fewer than three in 10 have a succession plan in place, according to a BoardSource 2017 study, yet 10,000 Baby Boomers — those most likely to hold executive-level positions across both for-profit and nonprofit organizations — retire each day.

That’s why a well-thought-out succession plan is a critical investment in the future of a nonprofit. It can help the organization sidestep potential pitfalls, provide a path forward during times of change, and maintain long-term sustainability and directional continuity. There’s no such thing as a one-size-fits-all succession plan but the most effective ones proactively map out the ways in which an organization plans to handle expected and unexpected leadership changes, no matter the cause.

Prepare for the expected…

The most effective way to maintain organizational continuity is, simply, to keep key leadership in place. Certain incentives like compensation bonuses, benefit incentives and restricted bonus plans can help keep an executive happily rooted within an organization. Still, even the most loyal and mission-driven leaders will be ready to retire at some point.

For many nonprofits, it’s not just the CEO who is critical to the streamlined operations. For that reason, many organizations take all C- and Director-level positions into account when creating a succession plan.

Ultimately, it’s the responsibility of the Board of Directors to make sure there’s a solid succession strategy in place, should a leader leave. Still, in many instances, the executive leadership team plays an active role by sharing institutional knowledge, mentoring potential protégées and even actively participating in an external executive search. The buy-in of existing leaders can often enhance the transition, handoff and onboarding of a new executive.

…While planning for the unexpected

Retirement isn’t the only exit circumstance for which a Board of Directors should prepare. Events that can trigger the use of a pre-prepared succession plan may include:

  • An unanticipated career-limiting illness or disability
  • The untimely death of an organizational leader
  • A “bad actor” who is dismissed for wrongdoing
  • A new leader who isn’t a strong cultural fit within the organization

Advantages of a well-prepared succession plan

Having a set plan to activate, whether a transition is anticipated or unexpected, can help a nonprofit reduce the impact of financial and operational disruption that can often accompany a shift in leadership. A succession plan may help:

  • Maintain staff retention despite increased vulnerabilities surrounding employee or board-member turnover.
  • Keep fundraising efforts on track. Donors are less likely to lapse or take a “wait and see” approach when a well-planned and thoughtfully executed transition strategy is at play.

How to develop a roadmap

An organization’s timeline doesn’t always proceed as expected. A leadership transition need not derail operations or jeopardize the nonprofit’s overarching mission. A nonprofit is more likely to thrive before and after a leadership shift if they have a solid succession plan in place.  

Start laying groundwork. Ideally, a nonprofit should start planning a succession strategy at least two years before an acting executive plans to depart. Still, it can be a savvy move to start developing a blueprint for how the organization will approach a shift in leadership, should one unexpectedly occur. A good first step is to codify the roles, responsibilities and qualities needed to lead the organization. Then, look at what your strategic goals are in the next five to 10 years. Finally, identify people within the organization who have the potential to grow into the position, should it be necessary.  

Build employee skills and capacities. Ideally, a nonprofit board should identify more than one potential future candidate per role and, during times of non-transition, create a development plan that targets the skills, relationships and areas of expertise that can help a prospect grow into a future executive role. Expand your current team’s leadership skills. Cross-train current employees. Develop coaching and mentoring programs for newer employees. These are all tactics that can minimize disruption during an unexpected transition. Even if you ultimately hire an external candidate, having your current employees prepared to take on additional responsibilities will act as a safety net.

Start an external search. If no potential prospects exist within the organization, consider what an external search would require. A candidate may be brought on with the expectation that they’ll be groomed for greater leadership in the future.

Develop a transition strategy (even if there is no planned transition). Consider how the organization will handle an emergency transition versus one that’s planned. What contingencies may need to be in place? How will key responsibilities be delegated during transition? What relationships will be impacted? A well-planned transition strategy can help an organization mitigate risk by increasing its ability to maintain long-term sustainability and directional continuity.

Create internal and external communications policies. The way a transition is discussed can set the stage for how a change is viewed by both internal employees and external stakeholders. A prepared strategy means an organization can act fast to dispel fears, create a perception of strength and move forward as quickly as possible.

Maintain effective levels of insurance protection. Insurance protection can provide a cash cushion to an organization, helping it minimize the unexpected disruptions that can occur when a key employee can no longer lead. Coverage may include:

  • Key employee life insurance: a term life insurance policy that covers the executive director of the organization. Funds may be used to defray the cost of finding a new leader, fill any fundraising gaps or provide an added layer of financial stability during a turbulent time of transition.
  • Key employee disability insurance: an oft-overlooked succession planning tool that can provide a financial stopgap for the organization if an executive director falls ill or becomes disabled.

How First Republic can help

It’s easy to put off the creation of a well-tailored succession plan. Topics can be sensitive, board members may not know how to proceed, and it can be difficult to capture the unique cultural and operational capacities that your organization may need to fulfill. The First Republic Nonprofit Succession Assessment Report, provided by our affiliates in First Republic Private Wealth Management, can help an organization overcome those hurdles.

This custom report identifies areas of organizational risk and provides a blueprint for how to address those potential issues. It includes a checklist of tasks that can be used to quickly and easily create a succession plan.

Would you like to explore how a succession plan can help protect your nonprofit? To learn more about getting a custom report, connect with First Republic today.

The strategies mentioned in this article may have tax and legal consequences; therefore, you should consult your own attorneys and/or tax advisors to understand the tax and legal consequences of any strategies mentioned in this document. First Republic does not provide tax or legal advice.