Have you considered hiring a CEO from a not-for-profit?

CEOs that have collected experience in a not-for-profit organisation remain a rare thing but hiring them could bring a different kind of leadership style to a firm that creates some benefits.

If you ask me to name a CEO of a company that has previously been the CEO of a not-for-profit organisation, I couldn’t come up with one. But according to a study by Leo Liu and his colleagues, about one in five CEOs in the US have not-for-profit experience before they became appointed as CEOs, but the trend is growing fast.

Share of US CEOs with not-for-profit experience

Source: Liu et al. (2023).

Managing a not-for-profit organisation arguably is different from managing a for-profit company. After all, the head of a not-for-profit organisation typically cares about other things than profits, has to manage a plethora of different stakeholders and typically cannot motivate employees by offering them high bonuses. Meanwhile in the for-profit world, the focus is on maximising shareholder value and profitability and motivation of employees all too often works via offering high salaries and bonuses.

Thus, one might think that CEOs who come from a not-for-profit background may not be hardnosed enough to cut it in the for-profit world or they may simply be some lofty idealists who can’t handle the realities on the ground.

The study by Liu and his colleagues should put you at ease when it comes to their ability to generate profits. When comparing CEOs with a not-for-profit background with their peers, they found no difference in the profitability of the companies these CEOs managed, nor was the valuation of the shares any different. From a purely financial perspective, CEOs with a not-for-profit background where no better or worse than their peers.

Where they were different, however, was in managing stakeholders. Companies run by CEOS with experience in the not-for-profit sector had substantially better ratings on Glassdoor and in particular scored higher on dimensions like company culture (which my readers know I think is crucial to business success), career opportunities, compensation (!), and senior management. In other words, CEOs with a not-for-profit background make their businesses a better place to work and that helps attract the best talent and retain employees.

Another dimension where CEOs with a not-for-profit background differ from their peers is ESG outcomes. When companies hired a CEO with a not-for-profit background, their ESG scores improved and for technology companies, the rate at which green patents were filed increased as well. In general, these CEOs pushed their businesses towards material change in corporate sustainability, both in the environmental and social dimension. And that is something to consider, in particular because it seems to come at no cost to the financial performance of the company.