April 14, 2014 – The not-for-profit industry is like no other: it is a special sector that promotes a wide range of institutions for the betterment of society. According to the National Center for Charitable Statistics (NCCS), more than 1.5 million not-for-profit organizations are registered in the U.S. This number includes public charities, private foundations, and other types of not-for-profit organizations, including chambers of commerce, fraternal organizations, civic leagues, leading universities, research institutes, academic medical centers, cultural institutions, economic development organizations, human service agencies and national advocacy groups.
Founded in 1982, Isaacson, Miller is the largest not-for-profit search firm that specializes almost entirely in this sector. In Hunt Scanlon Media’s last rankings of top U.S./Americas recruiting firms, Isaacson, Miller ranked No. 13 in size with revenue of $18.3 million. In the following interview, firm founder and president, John M. Isaacson, provides a detailed window into this unique industry.
ESR: In 1982 when you founded Isaacson, Miller, to what extent were not-for-profit organizations using search to fill open positions?
Isaacson: It was not very well-established. There were important small practices in key fields at a few firms like Heidrick & Struggles which had a particularly good, small practice in higher education. Many of the current people who are now my competitors came out of that practice and I think the firm was proud of it at the time.
ESR: Why weren’t these organizations using search firms; was it a financial issue or was it just that they had not been aware of the search industry as a vehicle?
Isaacson: I think they were not aware of it as a professional service and you have to remember that many of the not-for-profit organizations had very long traditions of filling positions on their own or internally. Higher education is a good example: it had its own sense of how recruitment should be handled so they did not think, initially, that search firms would be able to embrace their culture and fill a position as they might have. These are mission-driven organizations and they thought the corporate world would not understand them.
ESR: There are far more firms today like yours operating in this sector. Is this because there are just more not-for-profit organizations today?
Isaacson: While there are certainly a greater number of not-for-profit organizations in existence today it’s the order of magnitude that is the difference. Many of these organizations are much bigger and more powerful today than they were in 1982. Harvard’s endowment in 1982 was probably in the $3 billion range, but today it’s in the $30 billion range. Furthermore, these are vastly more complex organizations today and they are far more powerful — such as large medical centers or in the science sector, which is today a $40 billion dollar industry; in 1982 it was likely a third of that figure.
ESR: With regard to the types of positions you were filling 30 years ago, how much do they differ from what you’re doing today? And what types of positions are you filling now?
Isaacson: Well, let’s just start with the firm itself. We started with four or five people and we had a fairly modest array of searches. Some of them were pretty high level but many of them were not. They could be managerial, second or third level roles for an organization. And, of course for the firm, one of the powerful changes is that we moved up, overall by and large, with presidents and vice presidents, key roles especially in universities, foundations, development and medical centers.
ESR: In 2013 how have these types of requests changed? In other words, do not-for-profit organizations typically turn to a firm like yours, or is it still a smaller percentage of the positions that need to be filled?
Isaacson: Let me pause for a second. Healthcare is 17 percent of GDP. A not-for-profit segment of healthcare is probably a third of that. I don’t really know but I think that is a reasonable number. So if you are looking at five percent of GDP, that’s roughly the equivalent of the auto industry. Higher education is probably a $400 billion territory; half the size of the Defense Department. And that’s virtually all not-for-profit. And now we haven’t gotten to anything else like foundations or the small ones, just the two big ones we’re dealing with — 15 percent of GDP. So when you think total volume of what’s actually out there, search is a very small percentage of the total volume.
ESR: To what extent have the positions you are asked to recruit for changed? Have the requests moved down the organization chart?
Isaacson: Typically we get calls from a college or a university or a medical center or a foundation. They will look to us to conduct a search for a CEO, COO or a VP role and sometimes they will look for a prominent professional specialist in expert roles. So you might get a global search for the very finest biological scientist in a particular specialty. That’s not at all uncommon. And then sometimes we’ll get requests for managerial roles that can be fourth or fifth level, but very large.
ESR: What are the key differences or nuances in conducting not-for-profit search assignments as opposed to for-profit situations?
Isaacson: Well the core difference is these are mission-driven organizations. Not for-profit is a bit of a misnomer because that’s just a tax status. It tells you who owns the equity and who pays property taxes and whether they pay income taxes. But what is really the distinguishing factor is that they are, in the first instance, driven by their mission and have to be reminded that they have a marketplace that disciplines them. By stark contrast a corporate organization is driven by its marketplace and has to be reminded that its mission should also govern. One more crucial point. They are almost always what I’ve come to call a “church-state organization.” They contain a priestly class that has a special knowledge and a special wisdom that we all defer to, and they contain a managerial class of laymen who organize and manage the organization. The balancing act is between the priestly and the lay class that constitutes the politics of management and governance structure of these organizations.
ESR: Please provide the range of assignments your firm conducts for the not-for-profit sector?
Isaacson: We serve most public missions, some more intensely than others. The largest single one is higher education – our single biggest marketplace followed by fundraising development where we maintain a very large practice and then by healthcare and foundations. Although we tend to focus more on academic medicine, healthcare is a very large market.
ESR: If you had to give examples of institutions specific to these sectors what would they be?
Isaacson: Well, in higher education we range across the whole country, public and private, and in every tier, so we would serve Ivy League presidents, for example. A search we completed was for the presidency of Dartmouth College. That’s a fairly common type assignment. Another area of this would be provosts and vice presidents and deans all over the country. So if you looked at virtually any major research university in the country we would have done searches in science, engineering, law, medicine, public policy and deans of libraries. I think we have a niche practice in almost every dean territory in a research university; across tiers and both public and private. Another very active practice is in foundations. We do serve large nationals in very established markets at the level of president, vice president and program officers. But we’re increasingly serving family foundations. These are people who are establishing foundations for their families, and there’s a lot of new activity especially following the Gates and Buffett pledges.
ESR: Have compensation levels increased for the not-for-profit sector where they are now more competitive?
Isaacson: Compensation is less than that of a for-profit company but compensation has increased quite a lot in the larger and more established organizations, especially in medical centers and larger private research universities. But compensation has not increased anywhere near as much in public universities or in second tier struggling not-for-profits.
ESR: Explain how the approach on a search assignment might differ between sectors? What might some similarities be as well?
Isaacson: Well, let’s start with the similarities. They are both mission-driven organizations. And in a search for mission-driven organizations, first and foremost, they want their candidates to show a deep and fundamental commitment, matched by experience, in their field so that the person understands the language and the sensibilities of the position. Second, because constituencies are crucial to how they manage, the search process itself will be more important than it would be in a comparable for-profit organization. In a for-profit organization it’s the hierarchy of decision that is essential to the search process and the people who are authorized to hire. In a not-for-profit there are constituencies who are influential who are not authorized to hire but who probably will be consulted in some formal way, so a university will reach out to all of its alumni looking for commentary. The faculty will have representatives on the search committee who will have a real voice; and a candidate who did not do well with the faculty probably would not make it through the search. In a cultural institution the curators will probably have some representation in some way during the course of the search. Donors will show up as members of the trustee group, and they are essential to the organization. The board of course will be heavily represented but it will be people who are accustomed to working with the donors and who have strong relationships with the curators.
ESR: Does the same apply in non-profit assignments where you would tap a university president at one college to fill the same position at another?
Isaacson: Those are good questions. If you are looking for a functional VP the answer is yes, you would seek a functional VP or the next depth such as the associate vice president or something at a similar organization. So in that sense it’s directly lateral. In some functional roles you can reach across the field to another field. So if you’re looking for a VP of finance in a university it is possible to look both in other universities but also in corporations or in large non-profits, for example, an ECU or a medical center or university. On the other hand if you’re looking for a CFO in a medical center it’s extremely rare to take anybody who doesn’t have medical center finance experience. The financial accounting structures are expert driven and field driven. Let me now turn to the presidency idea for a second. Some proportions of presidencies are filled with presidents from other organizations and universities, but a relatively modest percentage because a successful presidency is seven to 10 years and people don’t get to be presidents until they establish themselves academically and managerially.
ESR: Do you recruit people in second careers or wealthier individuals who might consider a non-profit career for reasons other than to make money? And, again, do people you recruit tend to be people who are older because they have had a certain amount of experience?
Isaacson: These are two different questions. First, in the university and medical center world, they do tend to be a little older than they would be in the corporate world because, in both cases, the leadership has spent 20 years establishing their academic credentials by doing research and publishing. So they are going to be a little older by the time they start to do any managerial work. A 35 year-old in a corporation could have very real managerial responsibilities. A 35 year-old in a university or medical center has just barely achieved tenure. They have published their first book but not the second. So people will tend to be a little older. Now that’s much less true in another field such as environmental defense or conservation where a younger person could have lots of experience that would be very appealing to the experts and advocates. Now let’s discuss the older, wealthier people having made their money who then look to move over into the mission-driven sector. For them it is laudably common that people, having made significant money, take civic responsibility on boards. So the country is full of people who have civic missions, thank heaven, having made significant money and make major contributions as board members and as donors. It’s very common. It is less common to find people moving over in managerial roles. It is a lot easier to do in a functional VP role, in IT or in HR where it is extremely common to transfer from for-profit to non-profit. It is much less common in marketing because marketing is so different. Once in a while it is possible. It is possible within for-profit healthcare and non-profit healthcare but not that common actually. It is rare in the CEO role because people haven’t been involved enough in the mission-driven work. Once in a while there is somebody who has been a major volunteer and a donor and is heavily invested in a particular field and knows it well who then takes on a managerial responsibility at the CEO level.