It’s not always easy to persuade business leaders who’ve had little exposure to the nonprofit sector that the challenge of managing nonprofits is real. Yet McKinsey’s experience advising hundreds of diverse nonprofits in recent years suggests that it is increasingly important that for-profit executives understand the leadership challenges faced by their nonprofit counterparts. In at least four different roles – as board members, funders, partners, and as career-changing nonprofit executives themselves – business leaders’ lack of real understanding of what it takes to lead a nonprofit undermines their effectiveness and hurts the nonprofit sector’s performance.

Too many business leaders serving as nonprofit board members, for example, take their roles less seriously than they do their corporate board roles. Too many donors fail to use their financial clout to improve nonprofit performance, often because they don’t understand the way the sector really works. Too many cross-sector partnerships – which are central to addressing society’s most intractable problems – fail partly because business leaders don’t cope well with the nonprofit sector’s different culture and demands. Finally, too many well-meaning businesspeople who move into leadership roles in nonprofits end up frustrated and ineffective because they don’t fully appreciate the challenges. This report reveals the challenges that come from managing nonprofits and the importance in understanding the challenges of nonprofit leadership.