You're binding your DropDownList to a field named "Department" in your GridView's datasource:
SelectedValue='<%# Bind("Department") %>'
It's kind of a hack, but you could modify the query that populates the Department field of your GridView to account for the nulls (by coalescing them out):
SELECT COALESCE(Department, "No department entered") AS Department
FROM YourTable
And then just add that as kind of a "default" option in your dropdown:
<asp:ListItem>No department entered</asp:ListItem>