Owners vs. Donors

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There is no shortage of legitimate debate about what ideas from the business world can and should be applied to the non-profit world, but one that I often wonder about is the Board of Directors.

It is pretty much assumed that non-profits should have a Board of Directors, as they bring in outside expertise and help craft a long-term strategy for the organization.  But that is not the true reason boards exist in the private sector.

For-profit entities create boards for one fundamental reason: to protect the interests of shareholders.  As owners, shareholders are the beneficiaries of the company’s profits as well as the victims of its losses.  Thus, they appoint a Board of Directors to oversee management and make sure they don’t do anything that might threaten their payout.  Long-term strategy development is simply the outcome of this pure self-interest.

Non-profits have adopted board governance, but that founding logic doesn’t hold quite as well.  These board members are not owners; they have no stake in the outcomes of the organization.  Instead, they are often appointed on the basis of their ability to raise funds or through personal relationships.  And unlike for-profit board members, they are not paid; their involvement is strictly extracurricular.

Yet non-profit boards tend to perform the same role, overseeing management and crafting long-term strategy.  I will concede that there are plenty of boards that perform this role well and enthusiastically, but one has to question whether this is the correct alignment of power and incentives.  If we were to rethink this structure, would we maybe consider appointing other stakeholders? Employees? Foundation Reps? Dare I say clients?

To drive the point home, think of Bravo’s Real Housewives of Wherever, who are all often engaged in some charity work.  Close your eyes and imagine that one of them is in control of your organization’s mission and long-term strategy.

Are you worried yet?

Posted on February 24th 2010 in ideas

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