Nonprofits “Attract and/or Mold” Subpar Managers? Hogwash!

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September 2012; Source: Journal of Business Research

Oh my goodness! You can’t read the full text of this article from the Journal of Business Research unless you are a subscriber or want to pay $31.50 for a PDF of just this one article, but oh my goodness; look at the published abstract:

“We advance, and test, two competing hypotheses that relate prior non-profit experience to mismanagement and/or negligence against the null of no relationship. The evidence supports the hypothesis that the bureaucratic and chaotic culture of many non-profits often attracts and/or molds individuals with subpar managerial habits. We find that firms headed by CEOs with non-profit experience are more likely to restate financial statements than other firms, even after controlling for variables that have been shown to affect restatements, and that the returns around announcements of class action securities litigation are more negative for firms with ‘non-profit’ CEOs.”

We looked at the full text of the study, in which author Stanley Peterburgsky names the “bureaucratic,” “chaotic,” and “subpar” image of nonprofits the “Accountability Hypothesis.” Peterburgsky cites this passage from “Many nonprofits are stressful places to work because of the chaotic nature of their organizations and decision-making. Some are highly political and bureaucratic. Boards of directors often work against their best interests. Some nonprofits have notorious reputations for administrative incompetence and disorganization; lack quality personnel and staff development; operate with antiquated equipment and from cramped quarters; and have attitude problems. Relationships between the CEO, board members, staff and volunteers can become a nightmare. If you prize strong leadership, clear decision points, high levels of efficiency and the latest in office technology, many nonprofit organizations will disappoint, frustrate, and discourage you. If you can tolerate ambiguity, inefficiency and chaos and function well in makeshift work environments, you may do well in such work environments.”

To support this not-so-lovely view of the nonprofit sector, the author cites 1992 research that for-profit nursing homes are more efficient than nonprofits, 2002 research that for-profit hospitals are more efficient than nonprofits, and a study from 1981 that explains nonprofit inefficiency as due to the need to please multiple stakeholders compared to the efficiency of for-profits because of their focus on profit maximization.

There you have it. Nonprofit experience makes us into subpar managers, with an “above-average propensity for mismanagement and/or negligence at the corporate level,” according to Peterburgsky.

Given this less than idyllic image of the nonprofit sector, wouldn’t it be incumbent on the nonprofit and foundation leadership organizations such as the Council on Foundations, Independent Sector, and the National Council of Nonprofits to say something to counter this? Or is another dimension of nonprofit experience a propensity to sit there and take it?

If anyone needs any citations to counter the vision of a dangerously incompetent sector, they are easy to find. For instance, there are any number of very recent studies that compare the results of nonprofit versus for-profit ownership of nursing homes. In 2011, the University of California at San Francisco produced a comparison of quality of care, and in 2012, The Gerontologist released a study that looked at staff retention and satisfaction. Both studies showed stark differences favoring nonprofit management. We figure these issues would probably be important to those actually staying in or with a relative in a nursing home.

NPQ has also covered studies on comparisons of for-profit and nonprofit hospice care providers and these studies have often shown that the increase in for-profit hospice care providers has come at a high cost for Medicaid. In January, NPQ commented on one such study from the Palm Beach Post: “[P]ayments for hospice by Medicaid have increased precipitously over the past six years, during the same period of time that for-profit groups have been aggressively entering the field. HHS says that Medicare spending on hospice care for nursing facility residents jumped nearly 70 percent between 2005 and 2009, from $2.55 billion to $4.31 billion. A number of investigations and suits have been launched around the country regarding for-profits’ flouting of eligibility requirements.”

We guess if you were to see “efficiency” as the maximization of profits alone, maybe you’d have a case but it might come with threats to the well-being of patients, staff and taxpayers. Ah well. —Rick Cohen and Ruth McCambridge

CORRECTION: An earlier version of this article attributed a quotation from cited by Stanley Petersburgsky to Petersburgsky himself. NPQ regrets the error.

  • Ann

    No…I think someone’s feeling defensive. Their study is ABSOLUTELY correct…which is why the non-profit sector has a hard time retaining talent.

    In no other sector have I seen the amount of mismanagement and disorganization than in this one. …with NO accountability whatsoever. I can’t believe the organizations I’ve worked for haven’t been brought up on charges yet.

    And when people examine and come up with negative findings we call it “hogwash”.
    No wonder this sector is as messy as it is.

    And yes, I work in it. And yes, I am going to school to improve it. All talk and no walk, makes Ann a dull girl!

  • LittleE

    I work at a nonprofit that has three, count ’em three MBA’s in leadership roles. We have ran a deficit the last three years and myself and others have to remind them it’s about mission. In full disclosure, I have a masters in Nonprofit Management, so this enrages me.

  • WashedHog

    I can see where you might take exception with the study in the health care/elder care industries, and I don’t know Peterburgsky looked at non-profits outside of those industries.

    But wow, he sure described the NGO where I work down to the antiquated equipment and cramped quarters.

    I know, my n = 1.

  • She Sells Seashells

    I spent 40 years in a variety of for-profits. I brought my for-profit skills to a non-profit 10 years ago. I stay despite focus changes,leadership changes various “touchy,feely rah, rah” activities, silos, Perhaps its my seniority, in years as well as on the job, I firmly believe that I can make a difference. So, even though I may go unheard at times, I keep pushing my point of view. I have seen people come in from for-profits, try to consolidate what they’ve seen on this job, scratch their heads after 18 months of “why do you do it this way?”, and leave after 24 months.

    I’m most definitely not a sub-par manager. I foster the hopes and dreams of those I supervise. I tell others I meet and network with about our mission. I explain my ideas to my colleagues who will listen how its done in the “real world,” and still keep doing the same activities in the same way. Anyone who tries to work as if they were at a for-profit is met with eye-rolling derision. Perhaps things will change, forced by the times, economic or just evolution in the way people do business and donate. If things don’t change, then many non-profits, perhaps some of the best known, longest-serving, will simply go out of business

  • Elaine Fogel

    Rick and Ruth,
    In my experience, I have known MANY nonprofit managers and leaders who have passion for their causes, but lack managerial and business skills. In fact, I’ve known plenty of nonprofit employees who are mediocre at best.

    The nonprofit work environment can be exciting and worthwhile, but the nonprofit “mindset” – which has existed for decades – is still not where it should be. Aside from personal stories in my own background as a professional and lay leader, I work with nonprofits where colleagues have shared their own stories that blow my mind.

    Rather than being defensive about it, we should be banding together to tackle the sector’s weaknesses and raise the bar on nonprofit leadership. One such nonprofit organization attempting to do this is Lead for Good, a start-up in Phoenix with a model that could be widespread if it had the funding. (What else is new?)

    I subscribe to many of the beliefs expressed in Dan Pallotta’s book, Uncharitable. Nonprofit organizations need help to transform their business models to be more effective. This can only start with a desire to change, a recognition that change is good, and that doing it the way “we’ve always done it,” isn’t in their best interests.

    Plus, collegiate nonprofit management courses need to get with the times, too, and help teach up and coming nonprofit professional the business (and marketing) skills they will need, no matter what role they want to play.

  • Tom Packard

    Since I work at a university (San Diego State), I was able to see the article through our library. I’m glad I didn’t have to pay $31.50 for it. The quote above attrributed to Peterburgsky is actually cited in the article as a quote from, the employment search website. Peterburgsky did not cite this as a reference, which in an academic journal typically includes the URL, so a reader can go to the original source to asses accuracy, credibility, context, etc. I did a quick search of and could not find this quote. This doesn’t seem to me to be an authoritative source as an accurate description of nonprofit organizations. To add to this weak conceptual foundation, the data on firms analyzed included a former nonprofit CEO named Richard B. Cheney, CEO of Halliburton in 1999, the year of the data analyzed. Either of those names sound familiar? Dick Cheney made the list as a former nonprofit executive because Peterburgsky’s definition of nonprofits included universities, governments, hospitals, and foundations/other. The Ns were 37 from universities, 36 from government, 3 from hospitals, 5 from foundations, 8 from universities and government, and 2 from universities and hospitals. I don’t know where community-based human services organizations, environmental organizations, etc. show up on this list. So, on the surface, this sample doses not seem to represent nonprofits, much as’s description may not be typical. I don’t know other names on the list to identify other revolving door CEOs such as Cheney who spend many years in government and then take CEO jobs with for-profit firms which are heavily dependent on government funding. I know nothing of the reputation of the journal which published this article. The editor-in-chief and the managing editor are both professors of marketing. I didn’t bother to look up the fields of other editorial board members. Of course, with blind peer review, we can’t know who reviewed Peterburgsky’s manuscript, and if they actually had any expertise in the nonprofit field. I can only conclude that the article is misleading, being based on some weak research methods and assumptions. I hope others with more expertise in this area than I have go deeper into this, as suggested by Rick Cohen and Ruth McCambridge. And, briefly, regarding Ann’s comment, to say the study is absoutely correct based on her experience in one organization seems to be a stretch. There has been some excellent work on management capacity in our field, and we can always use more, beyond individual cases.

  • Carmen Ibarra

    I’d be interested to see their methodology and data that supports their theory. It seems to me that their research is flawed and full of biases since what they describe is far from what I’ve seen in the nonprofit sector. Sure there are some nonprofits that are poorly run but isn’t this true in the for-profit sector as well?!

  • Mazarine

    It’s a loaded question to ask if nonprofit managers are sub-par.

    That said, I am a former nonprofit employee. I have worked for sub-par nonprofit managers. That is why I now work for myself.

    Let’s say for the sake of argument that some nonprofit managers are sub-par. Why is this? Is it because they have little to work with? Maybe.

    Is it because they have an MBA and/or were recruited from the corporate sector, and have NO IDEA how to run a nonprofit? In my experience, this is far more likely.

    What your article doesn’t mention is the larger historical context of executives from for-profits, with and without MBAs, being recruited into nonprofits and expecting to “get them cleaned up.” The corporate mindset has completely overrun the nonprofit sector. People on boards think that people who have worked at big corporations are perfect to come into small nonprofits and “clear out the dead wood.”

    But what actually happens is something far more insidious.

    In my experience, what happens is that the executive no longer has the structure that they depended on, and they get overwhelmed, and the nonprofit falls apart in various ways.

    Case in Point. One former corporate MBA boss I had fired 32 people over 2 years, in a 20 person agency. Then one of the confidential shelters, because no one was watching it, became a place where clients prostituted themselves. They made no arrests, kicked out the clients, and tried to hush the whole thing up. Because there were no police records, they were successful. Then this person ran for political office, was in the office 2 days per week, and never ONCE mentioned the cause of the nonprofit in their campaign materials. AND they were allowed to keep their full salary. Even THEN, the boss was not asked to leave. Finally, they did.

    My most recent ex-boss got caught stealing, TWICE, the first time, $2,000, then the second time, $44,000 at the end of 2011. He made $120,000 a year, more than anyone else in the agency, and even this was not enough for him. He was a terrible boss as well, he never kept financial records, and he never approved anyone’s budget, he would yell and scream and nitpick and if things got done at that nonprofit, it was in spite of him, not because of him. Even the second time that he got caught stealing, the board said that they had every confidence that he could continue to lead. Then he was allowed to “step down.”

    Often, the ineffective leader joins from the board level. And then the board does a poor job of supervising them, because they are all friends. And was this the case with the ex-boss? uh huh. Was it the case with the previous boss? Yep.

    Have you ever noticed this?

    It’s nice that you found an example of nonprofit leadership that makes a hospice a better place to work. I would like to see more examples of good nonprofit leaders.

    And according to Tom Packard’s comment, the nonprofits they looked at for this study were not indicative of the majority of nonprofits. But I think instead of complaining what people say about us, we should actually do something. Like take responsibility for retaining talent in the sector by creating nonprofit worker unions, that will give people cost-of-living wage increases, training budgets, and other infastructure that can allow people to be more effective in their jobs.

    I do agree with Elaine that it’s good to take a look at Dan Pallota’s uncharitable and think about new economic models for our sector. Perhaps the way forward is to give board members more of a financial reward if the nonprofit does well.


    Author, The Wild Woman’s Guide to Fundraising