Corporate CFOs in High Demand at Charities as Budgets Come Under Scrutiny

From WSJ: After three decades working as a financial executive for General Electric Co. and the Depository Trust & Clearing Corp., Oscar Raposo took a career break in 2015 to go backpacking in Asia. When it was time to return to work, he decided to move into the nonprofit sector.

“I wanted to do something that I was passionate about,” said Mr. Raposo. He is now finance chief of the International Rescue Committee, a role he took last year. The New York-based refugee aid organization helps people around the world survive and rebuild their lives after natural disasters and conflicts.

It is a career shift more finance executives are making. There are no industrywide figures on the number of corporate CFOs making the switch, but executive recruiters from Stanton Chase, Heidrick & Struggles International Inc., Odgers Berndtson and Egon Zehnder say they are increasingly fielding calls from nonprofits.

They attribute the trend to scrutiny from donors as more money flows into the coffers of American nonprofits. Giving to U.S. charitable organizations hit $427.71 billion in 2018, up from $424.74 billion in 2017, according to the Giving USA Foundation. Vetting groups like Charity Navigator want nonprofits to dedicate more than 70% of their funds to programs, rather than administration and fundraising.

As a result, financial management skills are at a premium. “Many nonprofit organizations are trying to behave more like businesses,” said Cathy Logue, head of the chief financial officers practice at Stanton Chase.

In many ways, finance skills are “totally transferable” to the nonprofit sector, said Mr. Raposo of the IRC. The charity uses key performance metrics to run its balance sheet—its 2018 annual report details operating revenue of $744.43 million, operating expenses and net assets—and it has strong board oversight, Mr. Raposo said. He manages a sizable finance team of around 650 employees.

But at a nonprofit, the bottom line isn’t the end of the story. CFOs choosing to go to work for a charity are signing up for a new set of challenges. For starters, they often need to learn new ways of defining success.

“We measure financial and operational performance, but ultimately, the difference is the one we are making in the lives of people,” said Paul Henrys, chief financial officer of Feeding America, the U.S.’s second-largest charity by revenue, according to a ranking by Forbes.

Previously a senior vice president for financial planning at giant food supplier U.S. Foods Holding Corp. , Mr. Henrys moved to Feeding America in June 2013. He believed he could make a bigger impact working for an organization that provides food for more than 40 million people a year at pantries, soup kitchens and shelters, he said.

At U.S. Foods, Mr. Henrys would zero-in on earnings before interest, taxes, depreciation and amortization, the company’s debt ratio, costs per case of food, margins per case of food, product cost inflation and fuel prices. At Feeding America, he puts greater emphasis on helping the organization plan strategically for the long term and ensuring the organization is sourcing food as efficiently as possible.

Figuring out nonfinancial ways of measuring return on investment can present dilemmas.

Bhupi Singh of Direct Relief, a nonprofit that provides emergency medical services around the world, said his organization has had to weigh the benefit of helping people suffering from a rare disease against helping others rescued from a tropical storm.

“You cannot trade one life for the other,” said Mr. Singh, who previously worked as a senior director of finance for Apple Inc. and served as CFO of Direct Relief until recently moving into a senior advisory role. He said Direct Relief is trying to raise enough money to continue funding both rare-disease research and disaster relief.

On the other hand, focusing on nonfinancial impacts can make a CFO’s work more rewarding.

“Our analysis suggests that every dollar invested in ending HIV, tuberculosis and malaria delivers a 19-to-1 return on investment,” said Peter Sands, executive director of the Global Fund to fight AIDS, Tuberculosis and Malaria and the former chief executive of U.K.-based bank Standard Chartered PLC. “How often do you see that kind of return in the world of business?”

It isn’t just measuring results that can pose a challenge for CFOs. Even the task of gathering reliable data about a nonprofit’s own operations can be tough.

“Data is often slow, of uneven quality and consists of estimates rather than actuals,” Mr. Sands said, adding that the lack of information makes it harder for his organization to react to developments or target a specific result.

Meanwhile, reliance on uneven donations and government handouts makes planning more difficult. Mr. Raposo of the International Rescue Committee said he finds it hard to forecast the organization’s annual budget as government grants fluctuate and often arrive late. To reduce the uncertainty, he said he plans how to respond to a range of different funding scenarios.

Mr. Henrys of Feeding America said the organization’s finances are affected by regulatory changes such as the 2017 U.S. tax overhaul, which reduced donations to the charity. Feeding America receives around $150 million to $170 million a year in financial donations, alongside several billion pounds of food, he said.

“Governments have a habit of paying late, leaving the nonprofit trying to figure out how to pay for services upfront while waiting months to be reimbursed,” said Rick Cohen, chief operating officer at the National Council of Nonprofits, a body representing nonprofit organizations.

Anecdotal evidence suggests that corporate CFOs often join nonprofits later in their careers. That may be because CFOs at charities earn less than their corporate counterparts, according to Mr. Henrys of Feeding America. “If [the salary] is high on your list of priorities, you are not going to make a move,” he said.

Ms. Logue of Stanton Chase said hiring for a charity typically takes longer than the six months it takes to fill a corporate role.

Working for a nonprofit can still be financially rewarding. The IRC said Mr. Raposo’s salary is in the same range as that of his predecessor, who earned $400,000 a year, according to the organization’s latest available report.

Mr. Raposo, who hopes to spend the rest of his career in the nonprofit sector, said telling his own story has sometimes helped convince people to come and work for him. The 56-year old fled the regime of Fidel Castro in his native Cuba with his parents at age 12.

“To me, the job was like a calling,” he said. “That connection is extremely powerful.”

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