How to Justify Executive Search Firm Expenses to your Board
From time to time, you need to make a key hire to achieve your nonprofit's mission, and that sometimes requires the services of an executive search firm who specializes in nonprofit executive placement.
But when you don’t have a budget allocation for search fees, how will you make your case to the board? This post gives you a step by step guide for how to approach that conversation.
Typically, your board is not comprised of people who are experts in running an organization like yours, and many of them might be unfamiliar with hiring executives or engaging with executive search firms. Your board cares about your mission, but should be far removed from your day to day concerns. Ideally, their focus is on the careful stewardship of the organization's resources, not lockstep conformance to a budget you created last year. Budget variances happen all the time. These should not be a concern---the board members are usually far more interested in your thought process than what the specific budget numbers are.
So to get a search fee or any new expense approved, you simply need to make the proper business case for it, with the right people. In most nonprofits, the top financial executive works closely with the finance committee, and also delivers the "budget narrative" at board meetings. (The budget narrative might be referred to as the budget justification or budget description.) This narrative brings the budget numbers to life, explaining what the numbers represent and how you arrived at them. So if you want something that will be a significant budget variance, be sure you give your finance person (the CFO or Director of Finance) the information they need, so they can create the appropriate budget narrative.
What information does your CFO need for their budget narrative? Your narrative needs to mirror the strategic conversations that occur in board meetings. Board members want assurance that the budget properly allocates resources to work that matters, and that you are managing those resources efficiently.
If you need to use a search firm because your job advertising is not attracting the right people, your narrative should outline business impacts:
- The impact of leaving the position vacant for several more months. Start with the impact it has on the goals outlined in your strategic plan.
- What projects will not be completed?
- What toll does the vacancy take on other staff member’s productivity?
- How does the vacancy affect service levels, profitability, or the reputation of the association?
- How might the position vacancy lead to stress and burnout of other employees, creating a domino effect of staff turnover?
- The impact of the uncertainty. If you are not sure you can fill a job through job advertising, other employees may hesitate to launch initiatives that rely on the position, or you might scale back on their expectations for projects.
- If only 12% of job seekers actively look at job advertising, doesn’t it make business sense to gain access to the 45% of candidates who would respond to recruiting outreach?
If you need to use a search firm because the position is important, new or unfamiliar to you, your narrative should outline the following:
- The search firm provides a framework for making the decision, so important risk factors are not overlooked. This lowers your risk of making a hiring mistake, which can set back progress for more than a year while you are forced to deal with performance issues.
- The search firm provides market intelligence (so qualified people are not overlooked).
- The search firm adds rigor to the hiring decision.
- The search firm provides transparency to external stakeholders.
It’s a strategic mistake to use, "It’s not in the budget" as an excuse to leave a position vacant, hire someone mediocre, or fail to meet a strategic goal. And if you think it’s risky to advocate for a budget variance, it’s not nearly as risky as not meeting your goals.
The accumulated weight of filling positions slowly, or filling positions badly, creates an unproductive work environment where accountability is missing. If it is acceptable to say you missed your goals because you were understaffed, or if it is acceptable to hire people who are mediocre, then your top performers will soon be leaving you in search of work environments where they can make more progress. Employee engagement comes from progress, and achieving goals.
Looking at it another way, hiring better people demonstrates more careful stewardship of your salary budget:
Say a typical search fee averages 15 - 25% of annual salary, and your typical employee tenure averages 3- 5 years. Doesn’t it make sense to invest an amount equivalent to 5% of their annual salary in a search firm, if it ensures that the people you hire are 30 - 50% more capable than their peer group? To be a careful steward of your salary budget, be sure you spend it on people who can deliver better results than their peers.
Hopefully you found this post useful. If you did, you are welcome to learn more about the executive search and hiring process in our Resource Center.