Investing in Performance: Paul Light Keynote Speech

The Center for Nonprofit Management hosted Citibank Board Leadership Forum on March 17, 2004. Paul Light's keynote speech discussed the importance of capacity building and the text of his speech is included. "Capacity building well done in the nonprofit sector I believe is a critical answer to the extraordinary uncertainty we face and also to the tremendous political pressure under which most nonprofits are operating." Paul Light was the director of Governmental Studies at Brookings from 1999 to 2004. From 2005 to 2010, he was a nonresident senior fellow. Light is the Paulette Goddard Professor of Public Service at New York University's Robert Wagner School of Public Service.

I have just finished writing a book titled Nonprofit Rising. I really like that title. The subtitle is the “The Case for Capacity Building and the Evidence to Support it.” And what I said earlier is that you can either listen to what I say here, or you’ll have to read the book, and it’s painful to a certain degree.

Those of you who are Executive Directors should buy this book and take it to your board chairs and say “Either invest in capacity building, or you’ll have to read Paul Light’s book.” Board chairs who believe in capacity building should do the same with fellow board members.

So I say in this book that, you know what, there is a lot of promotion of capacity building as a good thing. But more than a few of the people I talk to in the sector think of it as a luxury -- something you do when you have some spare change, something you do when you have a little bit of a reserve. I have had Executive Directors talk to me about it as being something that you can also postpone, especially during lean times. But I am here to tell you today that capacity building right now is arguably the most important investment the nonprofit sector can make.

I should say by way of my writing that I have written quite a few books. I wouldn’t call any of them best sellers. I was in Boston a few years ago and I visited Boston’s Buck-A-Book. I don’t know whether you know Buck-A-Book, but you’ve got to have Books-a-Million here -- you know, the big remainder outlets -- and I saw one of my books that I had toiled on over a long period of time at Boston’s Buck-A-Book. And I was like, well you know, that’s not necessarily a bad thing. It shows that your publisher still has some hope. Because you know if you’ve written a dog of a book, they will just bind it up and sell it for scrap, just like anything. But I saw one of my books at Boston’s Buck-A-Book on a table marked “Make Us An Offer.” That’s a little bit of a problem.

Now, I want to be really careful about my message to you today. I’ll tell you a little story about this. I was down in Orlando last year; I took my 12-year-old down with me. We went to see my dad and I was giving a speech to a bunch of chief information officers, who are not necessarily the most humorous…I think the only audience that I had that was less inclined to laugh was a group of federal prison wardens. They didn’t find anything I said funny.

But on my way down to the speech, I left my son in my room and he said "Can I have something from the mini bar?" And I said "Yeah, go ahead. Just don't take too much; itxs very expensive." I was giving kind of a clear message, you know: donxt take too much. And I came back up and said, "So did you take anything from the mini bar?" and he said, Yeah, I did. I took a couple of M&M's;. I had a tic-tac; I had some jelly beans; I had a pretzel; the cashews - I had three or four of those; I had a sip of Sprite; I had some Coke; a little bit of a water." It turned out to be a $97 mini bar bill.

So when I say invest in capacity building, what I want you to take away is that it’s not just any kind of capacity building that’s going to help you. We are drowning in change right now. Hardly a moment goes by without some new idea for making your organization’s faster, leaner, smarter, meaner.

Private companies are constantly implementing new ideas and then reporting on failed implementation. The failure rates of change are extraordinary. Seventy percent of mergers and acquisitions – no worries here at Citibank – 70% fail to measure up to the original profit and loss projections. And you’ve got TQM [Total Quality Management], which is often under-implemented, and so forth.

But what I want to say today is that capacity building well done in the nonprofit sector I believe is a critical answer to the extraordinary uncertainty we face and also to the tremendous political pressure under which most nonprofits are operating.

I start this book by saying that now is the time that tries nonprofit souls. Scrutiny has never been more intense. Congress is watching. The IRS with its merger staff is starting to bulk up. You’ve got watchdog groups all over the country that are energized and active. The media is paying close attention. You’ve got Attorneys General – your state Attorney General [Bill Lockyer], my State Attorney Eliot Spitzer. I mean, you’re nobody if you’re an Attorney General and you’re not investigating the nonprofit sector. And you know, AG doesn’t just stand for Attorney General, it stands for “Almost Governor.” And they see payoffs from these investigations, because “there’s fraud, waste, and abuse down there in the nonprofit sector.”

The demographic crisis confronts us as we Baby Boomers continue to age. I’m often fond of saying that the Baby Boomers just aren’t going to let go. We’re just not going to let go. We’re not going gently into that good night. And I often say that every year we win a couple of Grammys just to prove that we still rock. So one year it’s Sting, the next year it’s Bonnie Raitt. I’m fond of saying that Mick Jagger will win one in 2020 for Mick Jagger Unplugged, only it might be literal.

Apropos of that, the two Baby Boomers who won Grammys this year are no longer with us – Warren Zevon and George Harrison. And there’s a message to you in Nonprofitland that your organizations are aging; we are entering an extraordinary talent war; we are late to the party. The federal government, which is hardly a leading indicator of human resource innovation, is working this issue hard. It’s a collective good problem in the nonprofit section that we have great difficulty solving.

Most of you cannot offer loan forgiveness programs to recruit talented young people. The federal government does. Most of you can’t offer signing bonuses. The federal government does. In fact, the private sector and government are so aggressive right now that we could find ourselves in a situation in the nonprofit sector where we just cannot field effective staffs, but we’re not doing much about it because we’re dealing with the present.

Now the last point I want to make is that public confidence in this sector has been shaken. I’m ordinarily a “glass half-full” person, but I look at the data that some people say is okay, and I say the American public has lost a lot of confidence in this sector over the last three or four years. The controversies surrounding the September 11th funds, the problems with the Catholic Priesthood, the Enron crisis, practically everything that did go wrong in any sector affected confidence in nonprofits.

Today, just to give you a sampling of this, 60% of Americans believe that nonprofits waste a great deal or fair amount of money. How do you feel about that? Well that’s better than the federal government, where 93% of Americans think the federal government wastes a great deal or fair amount of money, but much higher than what Americans think about small business. Americans are convinced that the executive compensation of nonprofit leaders is too high. I don’t think they’ve been looking at nonprofit paychecks lately, but they are convinced that there’s something wrong out there.

I would say to you that this is not a “what” crisis. The problems facing the nonprofit sector among Americans are in terms of confidence, are not about what you do. The vast majority of Americans that we talk to believe the nonprofit sector has the right priorities and has the right programs for helping people.

What they are saying is that they have doubts about the capacity of nonprofit organizations to spend money wisely, to run their programs and services effectively, to be fair in making decisions, and to do enough to help people. They are not saying that you have the wrong programs. They’re saying that they wonder if you have the right organizations. And believe me, the evidence is stunning on this score. Now, I don’t want to depress you too much. I could talk about social security and what’s going to happen in 2020 on that, and the Baby Boomers here would be depressed.

I want to talk about the good news in the distrust, because in this terrible onslaught of pressure and public disquiet is a very powerful message to you -- as Executive Directors, to your boards, to your donors, to philanthropists -- about how to change public attitudes, unlike the federal government where trust is clearly anchored in partisanship. You ask somebody whether they trust the federal government to do the right thing and you get all sorts of attitudes about whether Bush told the truth about weapons of mass destruction, and whether John Kerry is doing the right thing, and whether you like taxes or don’t like taxes, what you think abut this or that.

In the nonprofit sector, confidence is driven almost entirely by public perceptions of performance, almost entirely. It’s not driven by partisanship; it’s not driven by whether you voted for Bush or Gore; it’s not driven by whether you trust your neighbor next door; it’s not driven by perceptions of waste; and it’s not driven by those perceptions of high salaries. What explains the vast majority of opinion on nonprofit confidence is performance.

Americans look at the sector and they’re saying the sector is not doing well enough spending money wisely, even among Americans who believe the sector is doing a great job helping people. Even among the Americans who say that the sector is doing very well on that key issue, there’s a very high percentage who believe that the sector is not capable of spending money wisely, is not running its programs and services effectively.

Now, you want to dismiss it. These are public perceptions; the public’s wrong about a lot of stuff, and public perceptions are a slender reed on which to build the case for capacity building. The public could be wrong.

It is true that 100 million Americans are in and out of your nonprofits every year; 90 million Americans this year will volunteer, and another 11 million Americans are going to work for you either as full-time employees or part-time employees. But you could say basically that the American public is wrong.

You could also say that McKinsey & Company and former Senator Bill Bradley, you know, that article about the $100 billion of waste in the sector -- you could say, “That’s just nonsense. Where did they get that figure? How did they calculate it?” Enough already with the desire to end duplication and overlap.

I never hear the federal government or policymakers talk about reducing the number of small businesses. You’ve got a Wendy’s on one corner, you’ve got a Subway on the other, you’ve got a Kentucky Fried Chicken on the other, you’ve got an In & Out Burger on the other. I never hear anybody say, “Let’s put them all together and do a big sandwich.” Have you ever heard that? Because I haven’t heard that, but we’re constantly hearing that we need more mergers and alliances within the nonprofit sector, and that McKinsey article fuels some of that energy. So you can dismiss the McKinsey article.

You know there’s a lot of anger about that article, and a lot of people are upset about that, but we can dismiss that. Let me tell you something, it’s a lot harder to dismiss the opinions of nonprofit employees, who are telling us the same thing. Because when we go out and we interview nonprofit employees about what it’s like to work for you, they tell us that they are under-resourced. They tell us that they don’t have enough access to training. They tell us that they are working with lousy computers, that they are struggling every day to get their jobs done. And then they tell us that they love their jobs and they want to be there tomorrow.

It is the greatest workforce. We -- the nonprofit sector -- has the greatest, most motivated workforce in American and they deserve better. They deserve to come to work in the morning...

(Clapping).

They deserve to come to work in the morning and be able to turn on a computer at their desk that boots up within an hour or so.

They deserve access to training. They deserve some decent benefits. How many times have I gone into nonprofits -- I’ve been all over the country visiting high-performing nonprofits -- how many times do I go and say,

“Hey, do you have a pension system?”
Well not really, but we do encourage our employees to save for the future.”
Okay, what about life insurance, what about disability insurance?”
Well, you know, the government kind of covers some of that.”
And I say, “Well, wouldn’t it be nice if the nonprofit sector provided access to those kind of benefits.”

But I’m not even talking about that -- how about working with your board? How about developing the capacity of the board to provide leadership in appropriate ways? How about giving your Executive Director some access to resources to invest in new ideas and new technologies?

We interviewed grantmakers about capacity building several years ago (This book is actually the product of about 2.5 - 3 million dollars worth of research over the last 5 years), and we said, "How many high-performing nonprofits do you know that have reserve funds?" And all the grantmakers are saying, "None, none. We don't know of any high-performing nonprofits that have reserve funds." Then we interviewed the Executive Directors of the high-performing, nonprofits that these grantmakers nominated and we said, "Do you have reserve funds?" And about half of them did. "Well, why havenxt you told your grantmakers about it?" Duh. Duh... I had that response, like, "Are you insane? I mean if we told our grantmakers we had a reserve fund, they'd cut us off, because a reserve fund is not considered a healthy thing." Well, it's considered a healthy thing for everybody but the nonprofit sector.

And when we talked to nonprofit employees about what they need to do their jobs, what we found out is that we have a first-class workforce, a world-class workforce, an intensely motivated workforce that comes to work in the morning for the right reasons, stays through the day despite often significant organizational barriers, goes home at night often burned out, stressed out, and wondering why they came in the morning, but you know what, they’ll be back tomorrow.

Now, how many years can we live on that? It’s a first-class workforce often imprisoned in second-class organizations that operate with fourth-class technology and support.

I’m here to tell you today that not only does the nonprofit sector deserve better, investments in organizational capacity generate high social rates of return at very low costs.

It doesn’t take a lot of money to make your organization better, but it does take commitment from the board, commitment from the Executive Director, and commitment down through the organization, and it takes an acknowledgment that if you care about the kids, and you care about the community, and you care about the homeless, and you care about the trees and the environment, that sometimes the best thing you can do is care about the people inside your own organization.

You are not subtracting, you are not subtracting, you are not subtracting from your ability to deliver your mission by investing in the core capacity of your organization. Get over that. Stop pretending that it is a net negative to invest in organizational capacity. Because you are going to compete for the next generation of workers, and let me tell you something, they will not tolerate coming into work and confronting a 486. And for some of you in this room who are old enough to remember, that was the second generation. What do we do when our computers break down, what do we do with them? Well, we give them to the nonprofit sector.

“Hey we got a new computer! It’s not compatible with anything else we have here, the software is not compatible, but we got a new computer!”
And you say, “What kind is it?”
Well it’s a blue star 487.”
Okay, so enough already.

Now let me suggest to you that there’s absolutely no need to invest in organizational capacity if you already have enough. So those of you that who already have enough capacity to do your jobs, and those of you on boards who are looking down in your organizations and saying “How are we doing?” -- if you have enough capacity to get the job done effectively, you’re on mission, you’re able to anticipate the future well, you’ve got an active, fresh strategic plan, you’re really working it, get up and leave.

All right. But if you believe, as I do, that the sector is under-supported and under-capacity, and if you believe as a nonprofit – do you really have enough capacity? Did I drive somebody out? Please come back.

I can really put people on the spot. I should say that one of the things in my background is that I’ve worked for more losing Presidential campaigns than I care to remember.

I worked for John Glenn in 1983, and you know he got knocked out early. I did a few minutes for Fritz Mondale, and you know he’s one of the worst defeats in all-time history. I worked for Bob Kerrey for a moment in 1992. I’ve worked for some Republicans along the way as well. And I kind of said to Bob Graham earlier last year that if he wanted to run, I’d be glad to help him, and he dropped out before the campaign began. I should be working for Dennis Kucinich because he never will go away.

Okay so, I don’t want to drive anybody out. What I want to say is that our research shows -- I said this at an Alliance for Nonprofit Management meeting two years ago -- I said I was going to prove that nonprofit capacity building actually works.

And we went out and we were open minded. We collected a lot of data, and you know what we found? Nonprofit capacity building works. If you do the right thing - and that’s key - your productivity is going to increase. That motivated workforce that comes in in the morning is going to do its job better, it’s going to be even more motivated, and it’s going to be even more effective. You are going to save some money that you can redeploy.

Now whatever you thought of the McKinsey piece, whatever you think about Senator Bill Bradley getting involved in that whole argument, you know there is money that you can recover and put to better use by being more efficient.

What we see is significant gains in productivity and efficiency at relatively low costs from investing in capacity building, and a clear relationship between what you do to improve focus, through things like strategic planning, and your actual ability to get the job done.

What we’ve found, surprisingly, sometimes is that certain types of capacity building interventions actually work exactly how we thought they might. If you do strategic planning, you improve your focus, but it doesn’t do much for your funding. If you do external marketing, it improves your reputation, but it doesn’t do much for employee training. If you re-org the organization, that will improve internal communication, but it’s not going to do much in terms of external funding.

One thing for you Executive Directors that I have to say is that practically everybody we talked to in this research thought that leadership was the answer to all that ails organizations. There’s a lot of pressure on leaders to do it all. We also found that a lot of nonprofits view changing leaders as the answer to all that ails them. And I want to tell you, Executive Directors, that we found absolutely no proof that merely firing an executive director will improve your organization’s performance, so take a breath. We do not advocate for wholesale slaughtering of Executive Directors.

Now how do you do capacity building well? Let me offer you five suggestions:

1. You’ve got to match the capacity building effort to the problem you have. There is no silver bullet out there. Now we’ve developed a kind of notion of a spiral of nonprofit effectiveness.
   
   For the small organic nonprofit that’s just getting underway, don’t do strategic planning. That ain’t going to help you. Build your accounting system. For the large effective nonprofit that’s already there, you might not want to do strategic planning either. You might want to do more sophisticated exploratory analysis and scenario generators, and I can give you lots of stuff.
   
   The point is that what you do by way of capacity building has to be linked to where you are in organizational time. Many of your nonprofits that you deal with as funders or as Executive Directors or board members are stuck at what I call the enterprising stage. They just can’t get off the project treadmill. If they stop the treadmill, they end up in the back of the room all scuffed up, but they can’t focus themselves on exactly why the got into operation in the first place. That’s an issue of strategic planning. That’s where strategic planning can really help you.
   
   But the point is -- and you will have to read chapter 4 of this book, but you can Xerox, I give you fair-use permission to Xerox it at liberty -- matching your capacity building activity to time and place is essential. And you’re going to need some help on that sometimes.
   
   
2. Guess what? Doing a little advance planning for capacity building actually improves the odds of success. Some nonprofits enter capacity building without a single clue as to what they’re doing. And what motivated them to enter capacity building? Why, the availability of capacity building funds.
   
   So somebody comes along and says, “I’ve got two million dollars for capacity building, would you like some?” You say, “Yeah, yeah, yeah, yeah.” We haven’t planned for it, we don’t know what we want to do, but we’ll take it.
   
   I interviewed an Executive Director in Minneapolis of Theatre de la Jeune Lune; it’s a wonderful theater. It started out as a mime troop in France and then developed into a wonderful theater.
   I said to him, “Do you have any strategic plan?”
   He said, “Mon Dieu, I have five strategic plans.”
   I said, “Why do you have five strategic plans?”
   Because that’s what they fund in Minnesota.”

   So what’s he doing, he’s cross subsidizing. He’s strategic planning and putting the cost of strategic planning, the money, into his staff and he’s doing what he really wants to do. So there are a lot of issues here about planning ahead for what you want to do.

   So what’s he doing, he’s cross subsidizing. He’s strategic planning and putting the cost of strategic planning, the money, into his staff and he’s doing what he really wants to do. So there are a lot of issues here about planning ahead for what you want to do.

   There’s no absolutely right thing, per se. We find a lot of value in capacity building just from opening your eyes. But don’t get into strategic planning without thinking a little bit about what you want to do, because it’s a waste of time. It will actually cost you more than it’s worth.

   So I’m not saying go out and strategic plan or go out and capacity build, just get to work this afternoon, go back and do something. Not saying that all. Think a little bit about where you might have a strategic opportunity in your organization to improve, start there and move forward.

3. Measure, measure, measure. I am absolutely, totally convinced of the value of measurement.
   
   I do not believe in any particular measurement approach. I have been outcomes measured to death. I know 18 different dialects of outcomes measurement. So if you’re having trouble interpreting what your funder really means by outcomes measurement, or if your board members are saying well what is an outcome, I can give you 18 different definitions, because I’ve learned all the different definitions.
   
   What you need are measurements that tell you whether you’re going to be successful. If you are, how will you know? Is it just through activities, like how many people you serve, or is it through outputs that you can measure in terms of things that are short-term results of your interventions and activities?
   
   I mean, what are you about? How will you know you’re successful if you are? Because you know funders today just won’t buy activities anymore. They want outputs and outcomes, and you’ve got to get used to it, and it’s critical for capacity building that you know how to measure your progress.
   
   
4. This is wild. Would you make some contact with the outside world? Now, we went out there and talked to hundreds of people, hundreds of organizations, about what they were doing by way of capacity building. And we said, xTell us about the one capacity building effort you know best. Describe it, talk to us about it, how much planning did you do, how much did it cost, how long did it take, was your board involved?
   
   Incidentally boards are under-engaged in capacity building. Key lesson for board members: it’s okay to work on organizational capacity as part of being a board member. What we hear from Executive Directors that boards often times don’t want to work on that stuff.
   
   

   “We didn’t join this board to work on position descriptions for the staff. We want to work with kids, we want to work with the environment.” But I’m telling you, boards need to engage in capacity building. Not at the micro level to tell you what’s in those position descriptions, but to give you the encouragement and support to actually work on building stronger organizations.

   We asked our respondents, “Well, what did you do when you started this effort?”

• Did you go to a workshop? Or a training program?
• Did you go to the internet and just do a search?
• Did you read a book? Boo-hoo, they don’t. Or a manual or some sort of aid, anything written down?
• Did you hire a consultant?
• Did you apply for funding? Because you know what, applying for funding forces you to discipline your thinking a little bit. have kind of a phrase in the book where I amend Alfred Lord Tennyson’s famous statement: “Tis better to have applied and lost, than never to have applied at all.” Did you apply for money?
• Did you go to a management support organization? Like our hosts here [The Center for Nonprofit Management].
• And did you pick up the phone and talk to a colleague about what you are about to do?
  
  
Those are seven ways you can make contact with the outside world. Forty percent of the capacity building activities that we looked at involved zero or one contact. Think about that for a second… 25% of the strategic planning activities that we discovered were done with no contact with the outside world at all, no help.

Now that’s important because the infrastructure in many communities for helping supporting capacity building is weak. You don’t know who to call. And you go and enter the terms “strategic planning” in Google, it will be like drinking from a fire hydrant. You know the term; what are you going to do there?

But look, folks, I mean those of us that are do-it-yourselfers at home - I will change a light switch, I will change a light bulb; I will not rewire my house. I will put in a new seal or a gasket on my little toilet handle, I will do that, but I will not do basic plumbing. I will put gas in my car, I might even put a new air filter in my car, but I will not undo the carburetor.

The point being that capacity building, especially as you move forward, requires some contact with the outside world, and we’ve got to enable it. We’ve got to make contact with the outside world worth it. That’s means strengthening the infrastructure of capacity building.

But we’ve also got to admit that sometimes we don’t know what we’re doing. So if you’re out there going to Computer World and saying, “Well, I need a new financial system for my organization, a new reporting system,” maybe you ought to get a little advice on that one, maybe make a call and talk to some people. Point made.

Or to kind of make a few calls here and there. So to funders who are in this room: it’s okay to fund capacity building. It’s a good investment. It’s just as important as funding the basic program activities in the nonprofit sector. Now let me turn quickly to the role of the board. Boards, number one, were clearly underinvolved in capacity building. I mean, when we talked to Executive Directors about who they engaged, who did they talk to, who made a difference, the boards did not register.

Now I don’t know why that is. It could be that the board checks its organizational capacity at the door. It could be that the Executive Director never asked. I mean, some Executive Directors may not want their boards to get involved in capacity building, because the boards might be a little bit, shall we say, “hands on.” And maybe you don’t want your board members mucking about in the position descriptions that could be part of. Part of it could be that boards don’t want to be involved in capacity building, that they see that as kind of a violation of the boundary between the staff function and the board function.

Now let me tell you something, boards need to provide the permission to invest. Boards need to provide the permission to invest. You know -- if you need a new telephone system, if your executive director comes to you and says, look, we really need to make some investments in our organization, we need to fix the leaky pipes, we need to replace the broken windows, metaphorically...

You know what, board members, I think you should say yes. And I think you should get involved in it. We have finance committees, we have development committees, we have program committees…how many boards in this room have a capacity committee?

Think about it for a second in terms of doing the organizational assessment to make sure that your organization is actually able to support its work over the long haul.

I guess I’d say to the boards that it is okay to invest in capacity building. I talk to Executive Directors all the time who say to me, “Well, you know what, we had a really good idea for building some strength in our organization. We wanted to do a re-organization, or we wanted to buy some new technology that we had really work through, or we wanted to do some training, we wanted to do some leadership development, we wanted to do some strategic planning and do a marketing study, but when we went to the board to ask for the money the board said, ‘How can you take that money away from the mission?’”

And what I am telling you, board members, is that IS the mission. That strong organizations do better at delivering the mission than organizations that fight everyday against themselves.

Going back to where I started, you can accept my case here or you can read the statistics and you can struggle through Nonprofit Rising (although I do think that’s a great title). I’ll tell you something, what we are hearing here is that nonprofits have extraordinary resources within their reach.

You can change your future by investing in your core capacity, and you don’t have to invest $250,000 to make a difference. That’s one of the canards from the venture philanthropy movement that somehow it has got to be monster grants that are going to take you forward.

You know what we found, most of the capacity building that goes on that’s successful is very inexpensive. What it takes is a desire to change and that’s got to involve an agreement between the board, the Executive Director, and the entire staff of the organization. You’ve got to be willing to move a little bit forward.

And let me tell you something what you are going to find is great productivity, greater satisfaction, greater retention, and ultimately, what we are all here for, greater mission results.