A CEO Survival Guide for Tough Times

As nonprofit leaders of all organizations face big financial storms, it is important to remember that our first responsibility in navigating roiled waters is to our charitable missions, not to the comfort of the staff or board or to the continuity of operations.

Most nonprofit groups will respond to difficult economic times in more or less the following way: Board members will ask the chief executive what is happening, but they won’t push. The CEO will reassure them that, with some minor course adjustments, the organization will be fine. The CEO will assess the situation but won’t ask for help from senior managers. She will focus on operational-adjustments strategy, revenues, and expenses, but not on assets and liabilities. Staff members will be told that all will be fine. They won’t believe it.

Some initial adjustments will be made. Layoffs, if any, will be handled badly. Then, a few months later, as finances continue to tighten, there will be a second round of belt tightening; perhaps a third, maybe even a fourth.

Throughout the process, the organization’s clients will suffer a steady deterioration of quality and responsiveness. Anxiety and frustration will grow. Whether the organization or its managers survive will depend largely on how strong the organization was before the financial downturn and how quickly the economy turns around.

But a few organizations will take a much more mission-driven approach.

They will seize this as an opportunity to sharpen their missions and toughen their operations. Those organizations will emerge from the downturn with a much stronger sense of purpose and a more-effective way to serve society.

After more than two decades of leading organizations that face tough times, I’ve developed some key principles that organizational leaders should keep in mind as they figure a way out of tough times.

Center all decision making on the mission. If, in facing tough choices, we are not explicit and rigorous about how the decisions we make serve the mission, we have fallen short of our responsibilities.

Be open and engage everyone. Everyone will find this period and the process unsettling. No one, at the outset, can guarantee an outcome. What we can do, though, is find creative means to discuss what is happening and encourage participation from all quarters.

Move quickly but systematically. When uncertainty reigns, people draw comfort from knowing that, though there is no resolution at present, there is rapid and systematic movement toward a resolution.

Be hopeful in style and rigorous in analysis. This balancing act is, perhaps, the toughest of these principles to observe. As leaders, our colleagues depend on us to set a tone, and to convey hope. However, it is also crucial that we ask the tough questions and discount our desire to believe the best.

Live with ambiguity, acknowledge uncertainty. We must act on incomplete and imperfect information; we must make assumptions and decisions that will prove to be wrong. This requires that we acknowledge what we don’t know and be prepared to adjust when we are mistaken.

Let it hurt you; salve the hurt of others. If this recession drags on as long as many experts project, most organizations will be obliged to make painful decisions. Although we must serve the mission first, we also have the responsibility to make and convey decisions in ways that demonstrate respect and lessen the pain for others. If those decisions are painful to us, as leaders, that is as it should be; It is because we are good people who care about the mission and about our colleagues.

With those principles in mind, leaders can start the process of assessing just how severe a challenge the organization can withstand, and how to make it stronger. Here’s a step-by-step guide, a kind of synthesis of approaches that have worked at an array of organizations facing threats to their survival:

• Establish a process, roles, and timing. Lay out a detailed outline describing a process and timeline (less than a month) and explaining how all parties can participate. Invite comment and revisions. Include ample, systematic communications throughout. Invite tough challenges and provoke new ideas.
• Create cash-flow projections. In times of financial stress, cash is king — but most nonprofit groups have very little of it, and they almost never have effective tools for projecting it. As soon as leaders commit to a serious assessment of financial strength, they must also commit to generating, within 30 days, cash-flow projections. These will be crude at first but can be refined over time.
• Look outward first. Create and share an information package, including articles on the economy, recent trends that affect the organization’s cause, key program reports and trends, and key financial and operating trends. Then work toward a one-page description of what is likely to happen in the economy and elsewhere in your environment. Participants should be explicit about how much confidence they have in key assumptions or conclusions, and make sure the assessments lean toward pessimism.
• Compare the outlook to the mission. Ask, “What services or activities are most central to the organization’s mission?” Then identify the two or three major forces for change that affected the charity’s mission before this downturn. Ask how the downturn will affect those forces — increasing the need for some activities, expediting the obsolescence of others. Look at what would happen to key services or goals if the predicted outlook (or a worse one) turned out to be accurate and the organization did nothing.
• Assess assets and liabilities. Most organizations will skip this step entirely, but it can make an immense difference in determining what strategies are available or what course changes are required.

• In looking at assets and liabilities, list the tangible and intangible separately and develop ways to put those assets to work. Some tangible assets (e.g., rarely used equipment, a piece of art, real estate) can be sold for cash. A less tangible asset, like great credibility with clients, might mean it’s possible to charge fees for services, or at least help in a search for private donations. Tangible and intangible liabilities require similarly self-conscious action.

• Examine the income statement. (Notice that this comes late in the process. Most organizations will do this first, and without building context they will miss a great deal.) Calculate what is most likely to happen to different types of revenue by category, such as foundation grants, big gifts, income from fees, investment income, etc. Factor in the impact of the assessments that were just conducted and figure out how much of a shortfall is likely.

It is easy to be tempted by the path of least resistance — spreading the pain “fairly” or laying off the most recent or least popular hires.

But the leader’s duty is to let the mission trump comfort. Frequently, tough times enable tough decisions that should have been made anyway. And incurring debt to avoid tough choices is not an act of leadership.

It’s wise to identify cost reductions that go at least twice as deep as the organization’s anticipated shortfall. To do this usually requires consideration of major cuts — whole programs, functions, or departments.

Time and further analysis will help the leader decide when, or whether, such draconian action is required.

The best way to carry out cuts is to do it once (making sure that the first cuts more than meet the expected shortfall), take the pain, and begin the process of healing. If, however, the initial analysis proves too optimistic, the second best way is know in advance (when making the first round of cuts) what developments will trigger deeper cuts and what those cuts will be.

Leaders should make the decisions, as much as possible, at the strategic level and let the organization’s managers figure out how to carry out each action, but insist on firm timelines.

If, in the final instance, the cost cutting overshoots the mark slightly and extra cash is available, all the decisions made thus far will help the leader find better uses for those dollars than before.

• Communicate and keep communicating. Share and seek information throughout. Don’t allow secrecy. Consistently encourage new information and dissent. Be very clear about the decisions made and their implications. Don’t sugarcoat.

Many leaders worry that an open process will cause people to leave. Even in a strong economy that doesn’t happen once people know a serious process is under way to deal with the challenges. People who care about an organization’s mission were probably already worried, so they will be reassured that leaders are taking action. In a recessionary economy, with fewer places to go, this is likely to be even more true.

Also, a spirit of openness allows a chief executive to keep this inevitable anxiety on the surface, so it can be discussed openly and assuaged. If, for instance, the organization determines that if things don’t improve Program X will have to be cut, the people who work on Program X will be alarmed. On the other hand, by not announcing that Program X will be next, everyone in the organization will assume that he works for the (undisclosed) Program X.

Finally, remember that an organization’s clients and the people who work on the front lines will begin to see new developments before managers do; leaders greatly enhance their access to that information if others feel that their continuing counsel is crucial.

The same spirit of openness should guide any discussions the organization’s leader has with the news media.

Remember that bad information looks much better if offered freely than if it appears the organization tried to hide it. If the organization doesn’t volunteer the information to the news media, always be prepared for them to come to you.

Following all these steps is difficult, but if undertaken quickly and systematically they will increase the prospects that the organizations will survive. If they reveal that it cannot survive, then they enable the leadership to look for alternative ways to serve the mission (e.g., mergers or spinning off programs) before it is too late. By insisting on a process that emphasizes rigor, openness, and compassion, all organizations can become stronger after a period of painful challenges and change.

Pat Nichols runs Transition Leadership International, a business that serves nonprofit organizations facing major strategic transitions — start-ups, turnarounds, mergers, etc. — either as interim CEO or as a consultant.