The only silver lining that Pope and his fellow directors could find was the fact they had been through the same transition only three years earlier when Barbara Zahner, who had served as Sacred Heart’s executive director for 15 years, stepped down. Board members realized with relief that memories of that transition were fresh enough to provide a blueprint for their new task. "We knew the kinds of challenges we would be facing, and generally what steps we needed to take," Pope says. "We had an institutional memory of how we had done this. But even then we found that the road was full of bumps and unexpected potholes along the way."

For Sacred Heart’s directors, the repeat task of managing executive transition was daunting. But most individuals whose passion has led them to a seat on a board of a nonprofit are ill-prepared to tackle that challenge. Surveys show that the same people who serve as corporate directors and would not dare be without a succession plan for key management team members often fail to even discuss the same topic with the nonprofit boards on which they serve.

Meanwhile, those same surveys reveal that anywhere between 30 and 50 percent of the leaders of those nonprofit organizations are planning to retire or resign soon. "There will be a huge amount of turnover in the next few years, but little evidence to show that boards and directors are well prepared to oversee and manage those transitions," says Gene Tempel, executive director at the Center on Philanthropy at Indiana University in Indianapolis. It is time, he and other advisors agree, for nonprofit directors and donors to look beyond fundraising and program development to the complex task of ensuring that the nonprofit group has a solid succession plan or strategy to draw on in the event that its executive director decides to leave. "Anyone who fails to do so will be failing in his responsibility not just to the organization and its employees, but to its donors, to the community and to the people it was created to support," Tempel says.

Ignoring the Inevitable
Nonprofit directors do not seem to be getting that message. The Annie E. Casey Foundation set off the alarm bells last year when it released the results of a 2004 survey of 2,200 nonprofit managers across the United States. Of these, 11 percent were over 60 years of age and another 44 percent between 51 and 60. All but one-third of those surveyed planned to leave their position or retire within the next five years, but only 44 percent said any succession plan existed.

TOP VIEW: Too many nonprofit boards are unprepared to face the challenge of succession when an executive director or other vital employee resigns. With an estimated 30 to 50 percent of nonprofit leaders planning to retire in the next few years, this could lead to crisis if donors lose faith in nonprofit preparedness and oversight.

Subsequent surveys have painted an even bleaker picture. A study on nonprofit executive leadership published early this year by CompassPoint NonProfit Services and the Meyer Foundation found that only 29 percent of those surveyed even discussed succession planning with the board. A survey of nonprofit chief executives by New York-based search firm DRG released this past spring showed that the gap between boards and managers on succession planning seems to be widening: 40 percent of those surveyed plan to leave their posts within two years, but only one-third of all respondents have discussed management transition with the board.

This failure to plan ahead invites other challenges. When the time comes to replace a retiring executive director or an underperforming nonprofit president, boards will be drawing on a shrinking talent pool, thanks to demographic trends and the lack of attention and resources devoted to training a new generation of leaders within the nonprofit world. "That leadership deficit is only going to grow, and so directors have to get ahead of the curve or they will fail," says Tom Tierney, chairman and cofounder of the Bridgespan Group, a Boston-based organization that advises nonprofits on management issues. Tierney, who serves on the board of eBay and other corporations, says his mission is to get nonprofit boards to think about management succession in the same way that corporate boards do. "It’s time to define our mission as nonprofit directors more broadly, and to understand that our key job is making sure we are helping to build a strong and sustainable institution," he says. "Planning for executive transitions is part of that larger responsibility that we have. If the first time we seriously address that is when an executive director resigns, then we have failed in our responsibility."

For their part, donors are starting to pay more attention to how businesslike nonprofit organizations are in their operations, while many large foundations hone in on succession planning as an example of good governance. In the San Francisco area, a branch of Local Initiatives Support Corp., a group that funds strategies for improving low-income or distressed communities, invited some of its grantees to attend a workshop on succession planning, says Tim Wolfred, director of leadership services at CompassPoint Nonprofit Services. "Their message was that they felt it would be responsible behavior if those groups invested resources in succession planning, and they said they would make grants available for exactly that purpose," Wolfred says.

Other organizations are taking a similar approach. The Annie E. Casey Foundation in Baltimore has pushed its "mission-critical" grant recipients to engage in succession planning, while in Silicon Valley, the David and Lucile Packard Foundation expects to give $3 million to more than 60 different nonprofits to help them improve their organizational effectiveness—grants that cover succession planning as well as other measures.

Incremental Changes
Ideally, nonprofit succession planning involves a series of baby steps, interspersed with consensus building. With a contingency plan in place, directors can then move on to instituting regular performance reviews of the current CEO or executive director.

When the time comes to replace a retiring executive director or an underperforming nonprofit president, boards will be drawing on a shrinking talent pool.

Sacred Heart Community Service had completed just such a strategic review less than two years before Vorwerk’s sudden resignation, Pope says. That nine-month process culminated in the decision that the organization needed to shift its emphasis from simply delivering aid to the working poor in the San Jose area to offering educational resources and other services that would help make those individuals less dependent on the group’s ability to provide emergency housing, food and clothing. "This meant that we couldn’t just dust off the old job description, but had to take three or four weeks to write a new one," Pope says. "We realized it also meant that we had to spend a lot of time with our constituency to make sure there was an understanding both of that new mission and the role of a new E.D. in the process."

NONPROFIT SUCCESSION GUIDE Begin comprehensive annual reviews of top managers to improve understanding of their roles and their skills, so that when change comes, you can draw on that knowledge. Talk to the executive director about succession planning, making it clear this is a general strategic discussion and not a hint that the person’s performance is being questioned. Undertake periodic strategic reviews of the organization, ranging from its mission to its capabilities. What will its future needs be in terms of resources? Discuss succession planning with large donors and see if they have resources available for organization-building and/or management training. Identify or recruit promising younger managers, and groom them for senior management roles by ensuring they are familiar with all areas of the organization and not just their own role.

Even after a nonprofit board creates a clear picture of the kind of executive it needs to steer its organization, directors agree that simply prepares them for the larger challenge: building consensus. Most nonprofits serve many different constituencies that must be consulted in the search process. An educational charity, for example, may need to consult with donors, local teachers, volunteers, staff, city or regional governments and professional associations when picking a new leader. "If you conduct the search openly and correctly, the new person will arrive and be welcomed, because no one will feel blindsided by the process," says Jim Stern, managing partner of Cypress Group, a private equity investment firm, who holds annual review meetings with the president of a college whose board he leads.

But even the best-prepared board members are likely to face a lengthy external search process. Christine Fahlund, a senior executive at T. Rowe Price and a director of the Maryland chapter of the Arthritis Foundation, knows that if the head of the foundation’s regional operations resigned tomorrow, she and her fellow board members would be forced to undertake a regional, or possibly national, search for a successor. "There is no bench strength," she says. That’s true of most nonprofits, which have ultralean organizations and are reluctant to spend resources on anything that doesn’t relate directly to the mission.

That attitude—institutionalized at agencies like Charity Navigator that rate nonprofits on efficiency and governance—is counterproductive, Bridgespan’s Tierney argues. "In business, we are trained to think about reducing overhead, but we know that there is a difference between good overhead and bad overhead," he says. "You know you have to spend money to recruit and hang on to good people: salaries, benefits, training, sabbatical policies and so on." That outlook, he says, needs to spread to nonprofit boardrooms. "You wouldn’t pick the hospital that paid its doctors the least if you needed an operation, or send your kids to the school that spends the least on educational resources," says Tierney in exasperation. "The best nonprofit boards of the future are going to be those who recognize when it’s necessary to spend money."

Thanks to the board’s proactive approach and preparatory work, Sacred Heart Community Service was not left without a chief executive a day longer than expected. "Getting this right has, I think, strengthened our organization and the commitment of our board to the mission," Pope points out. "Despite all the effort, we all feel re-energized."

Suzanne McGee is a Brooklyn, N.Y.-based business writer and a regular contributor to Worth.

Art by Ken Orvidas.