July 2, 2012

Four Red Flags to Look Out for When Researching a Nonprofit’s Leadership

This is the latest post in our new series on Nonprofit Due Diligence. Click on the links below to read previous posts. Join the conversation by commenting below or on Twitter at #NonprofitDueDiligence. You can follow Give Smart updates at @BridgespanGroup.

By: The Bridgespan Group
In your research of nonprofits, you may come across a "red flag”—something that will make you think long and hard about investing in the organization. Before providing a few examples of red flags related to a nonprofit’s leadership, it is important to consider how to respond to red flags when you do encounter them:
  • Not all red flags carry equal weight. For example, in many cases you’ll find that nonprofits lack vital systems and supports due to a lack of resources. That’s a red flag, but one you may be able to live with; you might be able to provide the resources needed to fix the problem. Other red flags might prove to be more troubling, for example, if they shed light on fundamental gaps or issues, such as an ineffective program or an executive director’s flawed approach. In those cases, more resources may only exacerbate the problem.
  • More important than these red flags, in other words, is the context from which they arise. Try to figure out whether the challenges you identify are surmountable with the support you plan to provide. Are the leadership team and board willing to tackle (or even acknowledge) these weaknesses? If the weakness lies in capacity, consider your own willingness to fund some or all of the non-program expenses that capacity building would require.
  • Stay open-minded, and approach the process with questions. Don’t leap to judgment when challenges come to light. Engaging in conversation in the spirit of inquiry will reveal the story behind the weaknesses, how they have emerged, and how you might help address them with your support.

More From the Blog

With these tips in mind, here are some examples of issues that should trigger further inquiry as you research a nonprofit’s leadership (see this previous post for some greater starter questions):

  • The executive director doesn’t seem fully committed to the organization.
  • The executive director does not seem to have a solid grasp of the financial aspects of the organization.
  • The organization lacks any management “bench strength” beyond the leader, and lacks a succession plan for the leader or any other key staff.
  • Board members are not donating to and fundraising for the organization; board participation is low.
Remember that the existence of red flags doesn’t necessarily mean that you should forego investing in a particular nonprofit; instead, it may mean that it is necessary to offer the organization non-financial support, like the examples described here, in addition to the financial support you were considering.

What red flags do you watch out for when researching a nonprofit’s leadership? What have you found to be an effective response to red flags you encounter in your research?

If you’re trying to decide whether to invest in a particular nonprofit organization, the organization’s leadership will likely be only one of several things you will look into; so consider using our Donor Decision Tool to find resources customized to your research needs.


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