Under-Investing in Social Sector Leadership

(The following post is the first in a series of four written by Laura Callanan, a senior fellow at the Foundation Center. Laura wishes to acknowledge colleagues who have contributed to this work. For more on the sources and methodology behind the analysis, click here.)

Compared to what American businesses spend, investment by the social sector in its leaders is nothing to write home about. Indeed, over the past twenty years, annual foundation support for leadership development has totaled just 1 percent of overall foundation giving. Despite all the attention paid to social entrepreneurs, the bigger picture is plain to see: foundation investment in the development of other social sector leaders is woefully inadequate.

Consider: the social sector would need to invest two to four times current levels (depending on your preferred comparable of GDP or employment) just to keep pace with business. On a per-employee basis, business spends $120 per employee, per year, on leadership development while the social sector spends $29.

An investment of $1 billion a year in social sector leadership – more than twice what foundations currently spend, though still well below what business spends – would represent just a fraction of the $42 billion that U.S. foundations awarded in grants in 2011. Think of that level of leadership investment as insurance that the other $41 billion will be spent wisely.

In addition, if the recent trend of grant dollars being restricted to specific projects were reversed and general operating support – which today comprises only 24 percent of annual foundation grantmaking in the U.S. – was made more widely available, social sector organizations would have the option to invest more in their current and future leaders.

Scholarship on social sector leadership reflects the reality of chronic under-investment at the sector level. While there is no shortage of articles, white papers, and reports dedicated to strategic planning, personnel management, and board governance, there is very little practitioner-authored or scholarly work devoted to leadership development for the social sector as a whole, or how it could be improved.

At a time when the sector is making big strides with respect to coordinating its efforts with government and business, creating shared taxonomies to better manage data, developing protocols and assessment tools in support of impact investing, and launching clearinghouses to optimize volunteerism, much remains to be done in terms of building and strengthening our human capital infrastructure.

Like they say – for only $2.7 million a day, you can change the life of a sector.

-- Laura Callanan

 

Sources and methodology

Source for current social sector leadership development funding: U.S. foundation spending on leadership development is being used as a proxy for social sector leadership development investment. Spending on leadership development was determined to be 1 percent of total foundation spending. The conclusion that 1 percent of U.S. foundation spending was on leadership development is based on Foundation Center data for 1992-2011. The dataset included independent foundations, community foundations (discretionary grants only), corporate foundations, and operating foundations; it did not include corporate giving or direct assistance programs managed by foundations, or grants to individuals and public charities. Based on a national sample of up to 1,500 larger U.S. foundations (including 800 of the 1,000 largest ranked by total giving) out of ~76,000 U.S.-based grantmakers, and on grants of $10,000 or more. The database search was done using leadership development as the primary code and as a secondary code AND the keywords social entrepreneur OR leader plus 25 percent of subject management and technical assistance lines. All Skoll Foundation grants were included except grants to non-U.S. recipients and grants to Stanford Dean’s Fund. All Draper Richards Kaplan Foundation grants were included. Named fellowships and chairs at universities were excluded, and it may not capture all grants made to support leadership within a target program area. In 2011, total U.S. foundation spending was $42 billion. To adjust for the largest foundations already being represented in the sample and to exclude product donations by pharmaceutical foundations, the final estimate for foundation spending on leadership is $400 million for 2011.

Source for nonprofits as 5.5 percent of total GDP: The Nonprofit Almanac 2012, Katie L. Roeger, Amy S. Blackwood, and Sarah L. Pettijohn, Urban Institute Press. http://nccs.urban.org/statistics/quickfacts.cfm

Source for nonprofit employees at 13.7 million: The Nonprofit Almanac 2012, Katie L. Roeger, Amy S. Blackwood, and Sarah L. Pettijohn, Urban Institute Press. (Note: the figure is for 2010)http://www.urban.org/publications/901542.html

Total U.S. GDP and employees: U.S. Bureau of Economic Analysis 2011 data shows $15 trillion total GDP and 100 million total workers for U.S. economy. http://www.bea.gov/industry/gdpbyind_data.htm

Source for $12 billion annual business sector spending on leadership development: Leadership Development Factbook 2012: Benchmarks and Trends in U.S. Leadership Development, Bersin & Associates / Karen O’Leonard and Laci Loew, July 2012. (Notes: Bersin is owned by Deloitte. The study is widely cited in the press. The 2012 Factbook puts 2012 spending at $13.6 billion and says it was a 14 percent increase over 2011.) http://www.bersin.com/uploadedFiles/071212_ES_LDFB_KOL_Final.pdf (free registration required)

Methodology for business sector GDP and employees: Started with BEA figures for overall economy and subtracted government sector figures (from BEA) and nonprofit sector figures (from Urban Institute) to yield business sector GDP and employees.

Methodology for determining nonprofit/social sector spending levels that would be equivalent to business sector: Multiplied business sector spending (~$12 million per Bersin & Associates) by the ratio of nonprofit GDP (or employees) over business sector GDP (or employees) to derive an investment level proportional to the size of the social/nonprofit sector versus the business sector.

Note on terminology: Urban Institute uses “nonprofit” sector and “business” sector. "Social sector" is used here except where it specifically pertains to Urban Institute data.

Acknowledgments

In 2013, McKinsey & Company prepared a landscape and conducted a survey of U.S. social sector leaders. This series of blog posts builds on that original work. The author wishes to acknowledge the contributions of Lenny Mendonca, Nora Gardner, and Doug Scott of McKinsey & Company.

The author also wishes to thank her colleagues Paul Jansen and Dr. Nora Silver in the Center for Nonprofit and Public Leadership at the UC-Berkeley/Haas School of Business, as well as the following Haas students: Archana Kannan, Asif Erayath Thekke Valappil, Christine Tringale, Daniel Alonso, Devin Christiansen, Edwin Mach, Eric Quan, Iona Da Costa Pereira, Jasen Bell, Jennifer Kimbal, Karthik Suryanarayanan, Kasiraman Krishnan, Laura Liao, Lul Tesfai, Munmun Baishya, Nagendran Rangan, Rekha Iyer, Riddhiman Ghosh, Ridham D Shah, Rodrigo de la Calle, Saman Kielty, Sara Kabot, Sumee Khanna, Sushma Bhatia, Tim Cao, Vishal Kudchadkar, and Xiaoding Zhuo. And a very special acknowledgement to Haas students Amy O’Callaghan and Leo Wallach.