Managing for Results, Planning for Succession
An interview with Peter F. Drucker by Joseph Maciariello

Source: Leader to Leader Institute

Shine a Light, Spring 2005

Joseph Maciariello: Peter, why is the social sector and nonprofit organizations so important in America?

Peter Drucker: Nonprofits are characteristic of American society. We are a society of volunteers. In 2003 there were approximately 1.4 million social sector institutions, including charities, religious organizations and advocacy groups. Almost half of all adult Americans participate as volunteers in these organizations.

A friend of mine, the head of a major business, is an active member on boards of seven nonprofit institutions. The same man in the same position in Europe sits on five or six company boards but on the boards of only a few state institutions. And on these boards, he serves in an advisory capacity. Government governs. But, in America we expect people to take on community responsibilities including managing nonprofits. That is why we can keep government limited. We expect the community to supply the leadership and the money.

The major tasks nonprofits perform in America are performed on the continent of Europe and in England by governments. For example, churches on the European continent are state institutions. Hospitals are also state institutions. In Europe, government runs all of the major churches and the great bulk of education and healthcare. These institutions, churches and hospitals, are amongst the biggest nonprofits in America.

It is the unique character of American society that social tasks are not all governmental. We are trying to keep government out of social tasks and in government tasks, “in governing” rather than “in doing.” We are trying to, sometimes not successfully, but by-and-large quite successfully. Call it privatization. But, this is the unique characteristic of American society and the resultant leadership demands and leadership opportunities.

That is why the social sector is so important in America.

Joseph Maciariello: What makes the management of social sector organizations so much more difficult than the management of private sector organizations?

Peter Drucker: The bottom line is not an adequate definition of results in business but it is a parameter restraint. And it is a very sensitive thermometer. Nonprofits do not have such a sensitive thermometer for results. As a result they are more vulnerable than businesses. Nonprofits can get off course for a long time without noticing it. And they are by-and-large poorly managed.

In a nonprofit, at least the ones I have worked with, they are exceedingly conscious of how much money they have raised. But they often pay inadequate attention to mission and results. They neither define their mission adequately nor do they define results. Therefore, the important and very unpopular question for nonprofits is, “How do we define results?”

The critical issues I am up against all the time in nonprofits is that they are not results focused. They are budget focused. Their measure of success is how much money they have raised. They also believe their mission is forever. This is precisely because they do not have the discipline of the bottom line.

And so in nonprofits you have the added challenge of the definition of results and the revision of results. And then sometimes when you attain them you become obsolete and you have to think through results again and that is very unpopular and very painful.

This is what makes their management more difficult than business. And that is how I first came to see that mission and the definition of results are so much more important, and difficult, in nonprofits than in business.

Joseph Maciariello: Peter, many executives of major nonprofits will be retiring in the next five years. Little seems to have been done to groom successors, the pipeline of leaders seems sparse. Isn’t this a very serious problem?

Peter Drucker: One major challenge in institutions as you point out will be in leadership changes and we are not as prepared in the social sector for succession as we are in business. We are at the stage now that business was when we began executive development in business.

The present nonprofit executives came into management about the time of the Vietnam War, when they were in their thirties. And they are now moving out. And few nonprofit organizations have prepared their successors. A great many nonprofits have not yet developed professional management.

It’s going to be rough. Very few of these people have thought through the succession questions: “What kind of people do we need to succeed us? What kind of background should they have? How do we train them? How do we test them? How do we screen them?” The way we pick them now is to have the board get on the telephone and ask various people, “Do you know somebody?”

This morning I got first a fax and then a phone call from an organization that I have never heard about. It turns out to be a fairly large organization, focused on first generation immigrant children and their mothers, providing them community. A very successful organization. Someone, whom I’ve known for many years, runs the very large charitable programs of this very large organization. He has done it for twenty-five years and he is now seventy-eight.

I asked, “Who’s is going to take over your job?” He said, “That is for others to decide.”

The questions I ask nonprofit organizations looking for successors are “What are results in the job? What competencies do you need? What experiences do you need?”

Joseph Maciariello: How then would you propose training new leaders? How would you develop new leaders?

Peter Drucker: In the social sector, you need three things: you need professionals, you need community leaders, and you need volunteer leaders. For the professionals, today, we have a fairly substantial body of educational programs, some of them excellent and some are not. But there is no shortage today of professionals.

I regularly call up my previous students and ask them, “What are you doing?” And I have concluded that there is no shortage of able people who usually, in their second or third job, can go into management in the social sector.

We have well-developed hospital management programs and are beginning to develop good church management programs. Some universities are doing a very good job. And social sector management is being taught now in a great number of management schools.

Within the last few weeks, I have people call me and say, “we need a person who can take over our organization in five years. I would like to discuss our candidates.”

Take a Catholic parish, a large parish; the bishop happens to be a former student of mine when I was in New York. And I had to tell this bishop to bring in a layperson as an administrator. She has experience in a non-religious organization. She has just left her job as administrator of the business side of the hospital and medical programs of a very large metropolitan area institution. That type of experience qualifies her even though she has never worked in a religious organization.

Finally, in large companies in particular, we are making social responsibility a criterion for leadership. Different people in business take social leadership differently. But, it is becoming increasingly common in businesses to expect that a “comer,” a bright young person on the way up, spend a part of his or her time in the social sector, as a volunteer in community leadership. You expect it now.

It is nearly unique that in this country we expect, encourage and support executives who volunteer in the nonprofit sector. In the rest of the world, a business executive is either not allowed to do any work in the social sector—for example in Japan. Or while it does not harm a person in business to participate in a nonprofit as a volunteer, it does not help either. In Europe, he is likely to be told in his annual review, “stick to your last.” And the result is the social sector has to be governmental, bureaucratic, top down.

These are some of the ways of training and developing future leaders for the social sector in America.

Joseph Maciariello: In closing Peter, doesn’t this succession problem also create real opportunities?

Peter Drucker: It does indeed! There is part of the social sector that is not volunteer and the succession crisis creates leadership opportunities. And for the part that is volunteer it creates opportunities for parallel careers.

Here is a fellow from business who at age 43 has become a controller of a small division of a large company. Basically, he has reached his terminal job. Only one of 40 controllers will become the chief financial officer of the company.

He may make it from a small division to a large division. But he is in his terminal job. His opportunities for leadership, for growth and for stimulation are in the social sector. Either as a second career or as a parallel career.

The social sector is full of leadership challenges creating new opportunities for first, second and parallel careers.

Joseph Maciariello: Thank you Peter Drucker for giving us still more insight into the problems and promise of the social sector in America.