Reduced Performance Triggers Turnover for Nonprofit Executives

Nonprofit organizations that have declining expenditures – an indication of reduced operations – are more likely to seek new leadership, according to a new study.

“The nonprofit sector has been critiqued as not holding its executives accountable, even when they are underperforming,” says Amanda Stewart, an assistant professor of public administration at NC State and lead author of a paper describing the work. “But this study shows that poor performance does lead to executive turnover in nonprofits.”

For this study, researchers looked at data on 998 U.S.-based nonprofits that focus on issues related to the arts, health or human services. Specifically, the researchers focused on executive turnover and each nonprofit organization’s annual expenditures. Annual expenditures served as a proxy for assessing the work a nonprofit was doing to advance its mission.

The researchers found that, if a nonprofit’s annual expenditures decreased by 20 percent over a three-year period, that nonprofit organization was 50 percent more likely than other nonprofits to seek a replacement for its chief executive officer.

“Nonprofits are not motivated by profit, but this study tells us that the field still holds its executives accountable for effective action and outcomes,” Stewart says. “To the best of our knowledge, this is the first time this question has been addressed for the nonprofit sector.”

The paper, “Turnover at the Top: Investigating Performance-Turnover Sensitivity Among Nonprofit Organizations,” is published in the journal Public Performance & Management Review. The paper was co-authored by Jeff Diebold, an assistant professor of public policy at NC State.

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Note to Editors: The study abstract follows.

“Turnover at the Top: Investigating Performance-Turnover Sensitivity Among Nonprofit Organizations”

Authors: Jeff Diebold and Amanda Stewart, North Carolina State University

Published: Aug. 16, Public Performance & Management Review

DOI: 10.1080/15309576.2017.1340900

Abstract: Research has confirmed private firm performance as a predictor of executive turnover, but whether this relationship holds in other organizational contexts—especially those operating without a profit-distribution requirement—is not known. For nonprofit organizations, performance monitoring and governance largely occur behind closed doors under the leadership of a volunteer board of directors. Nonprofits are commonly criticized as inefficient, even ineffective, and the accountability of boards and executives for organizational performance has not been sufficiently investigated. This article engages a unique dataset of 998 U.S.-based nonprofits serving missions related to the arts, health, and human services, and uses a multiple-spell discrete-time hazard model to evaluate nonprofit financial performance and the likelihood of executive turnover. The findings provide preliminary support that tenure in the executive office is sensitive to nonprofit financial performance, and in doing so, they raise new insights about the accountability of nonprofit executives.