Should businesses look to the not-for-profit sector when hiring CEOs?

Few successful CEOs in the public and third sectors enter business, despite having commercial skills aplenty. Any corporate board seeking a new leader would do well to consider what they could offer

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The CEO churn rate is approaching record levels in big business around the world. Research covering 1,800-plus firms listed on leading stock markets by executive headhunter Russell Reynolds has found that 106 chief executives left their roles in H1 2023. In the past couple of weeks alone, FTSE stalwarts BT, NatWest and Capita have announced the departures of their CEOs for varying reasons.

But corporate boards are decidedly uncreative when it comes to finding replacements. Raconteur’s own analysis of the FTSE 100 in May found that 70 of its constituents had appointed their then CEO from within. And it is likely that very few boards, if any, had a chief executive of a not-for-profit organisation on their shortlist.

Stephen Crookbain is senior client partner across the government, public sector and not-for-profit sectors at recruitment firm Korn Ferry. The non-profit space, he observes, doesn’t tend to feature in business recruitment. “When corporate clients come to us, they don’t look at not-for-profit business leaders,” he says. “That isn’t to say that is always the case but my experience of it is zero.”

But by overlooking CEOs in the not-for-profit sector, businesses could be missing out on leadership talent. A recent study called Is ESG a Managerial Style? found that companies which appointed CEOs with experience at a not-for-profit performed exceptionally well in ESG outcomes and stakeholder management. And from a financial perspective, their performance was comparable to that of peers in the corporate world.

Why are not-for-profit CEOs overlooked by boards?

The research contradicts the general perception that NGO leaders can’t translate their skills to for-profit organisations. “The main reason that boards overlook people from the not-for-profit space is because of a perception that it’s too ideological and not financially or economically driven,” explains Ben Bryant, professor of leadership and organisation at IMD Business School. “They will be fearful that the potential CEO won’t be cut-throat enough to deliver the numbers to make a for-profit successful.” 

It could be narrow-minded of boards to limit the pool of candidates for the CEO role 

This notion disregards how competitive the charity space can be, according to Crookbain. Chief executives at charities have a remit to increase the surplus they make to reinvest in their services. They are “minded towards” profit but not “driven by it to the same extent”, he observes.

A further factor which makes corporates pause to consider a not-for-profit leader as a potential CEO is the make-up of the boards which have the final decision

It’s rare for the chair of a commercial organisation to be from an entirely not-for-profit background. This makes it “less likely for them to have that thought front and centre” when they are searching for a CEO, says Crookbain. Boards in the private sector will also be more interested in people with an evident ability to manage analysts and investors.

“Every sector is also a bit parochial,” he adds. “People in the retail sector, for example, will believe they need someone with retail experience to run the company.”

What benefits can an NGO CEO bring to commercial businesses?

Leaders with NGO or not-for-profit experience can bring a range of skills and benefits to a business, should they be bold enough to appoint them to their leadership team. “It could be narrow-minded of boards to limit the pool of candidates for the CEO role,” says Bryant. “These people will have faced enormous challenges, so don’t underestimate them.”

Non-profit leaders excel in attracting talent. Tighter budgetary restrictions mean that many non-profits cannot compete with the private sector in remuneration. Instead, they have to rely on creating an excellent working environment and selling the organisation’s mission. 

The brightest and best young people increasingly look at a company’s purpose when they’re choosing where to work

Santiago Gowland, CEO of the Rainforest Alliance, describes this ability to work with self-motivated, purpose-driven people as his “bread and butter”. “The younger generations want to work for companies with a purpose and NGO leaders are used to working with people’s vocation,” he adds.

This is something that private sector companies struggle with, according to Crookbain. He adds: “When they’re choosing where to work, the brightest and best young people are increasingly focused on a company’s purpose and whether that purpose resonates with them. Not-for-profit chief executives have a lot of good things to offer in that space.”

Boards that seek to improve the ESG of their businesses could also be wise to consider appointing a CEO from a not-for-profit. Crookbain thinks that the not-for-profit world has a more advanced understanding of these issues and leaders in this space “know how to apply an ethical lens to organisational issues”. 

This is particularly important when considering the impact of a positive ESG performance on investment and talent attraction. Crookbain warns: “Companies will lose competitive advantage, in terms of the people they want to hire and the customers they want to attract, if they don’t have reassurances about the business’s ESG credentials.”

Making the leap from for-profit to NGO

Gowland is someone who has leadership experience on both sides of the profit fence. Before taking up this new role, he worked in the sustainability space for global brands such as Nike, Unilever and Estée Lauder. 

“This cross-pollination between the business world and the NGO world, sharing the strength of one with the other, has been beneficial for me in transitioning between sectors,” he says. “If you want to see companies succeed, they need their leaders to master the capabilities, skills, competencies and the leadership style that you develop in the NGO sector.”

Gowland believes that the gap between NGOs and businesses is narrowing as companies become increasingly concerned about sustainability, social and environmental issues – causes which were once outside their purview. “The intersection between the two is growing bigger. It is now at a point where companies can consider looking at NGO leadership,” he adds. 

It’s definitely worthwhile adding a not-for-profit chief executive to the shortlist

This is something which, he says, would have been “unthinkable” even a decade ago. But he would like to see NGOs become “a cradle for leaders with purpose and sophisticated collaboration skills.” 

But one other issue stands in the way of executives moving from a non-profit to a for-profit organisation. Those that have worked their way up to a leadership position in an NGO will be motivated by different factors than a CEO in a private company. Gowland, for example, chose to move to an NGO because of a desire to see his impact “go beyond one company”. 

“These leaders want to make a personal difference on an issue that they care about; they don’t get a kick out of selling a lot of products at increasingly high margins,” explains Crookbain. “This means it isn’t always straightforward for private sector organisations to hire not-for-profit people.”

But as more companies in the private and public sectors put purpose at their core and strengthen their ESG credentials, we may see more leaders move between these two spaces. Bryant adds: “More bosses of not-for-profits might be able to rationalise to themselves that working for a for-profit organisation is contributing to a greater purpose as businesses get better at spinning that narrative.”

Ultimately, Crookbain has no doubts that some CEO candidate shortlists would be enhanced by the addition of candidates from the non-profit world, but only as long as the challenges facing the business are relevant to their skills. He says: “Every chief executive appointment takes place against the backdrop of the problems and opportunities facing the business. If a company is seeking to improve its ESG, or find intelligent ways to retain and recruit high-quality people, then it’s definitely worthwhile adding a not-for-profit chief executive to the shortlist.”