Nonprofit Governance Trevor Hunter MOS 4422 Corporate Governance

Non-profit Governance Trevor Hunter MOS 4422 Corporate Governance King’s University College

Differences Between Corporate and Nonprofit Boards For-profit: Number one objective: Maximize shareholder wealth – make as much money as legally possible! Number one constituent: Shareholders 2

Differences Between Corporate and Nonprofit Boards For-profit: Success = Profit maximization Strategies, policies, operations all aimed toward the goal of profit maximization Mantra : Efficiency 3

Differences Between Corporate and Nonprofit Boards For-profit: Order of responsibility: 1. Shareholders (and this is way 2. 3. 4. 5. out in front) Customers Creditors Employees Community 4

Differences Between Corporate and Nonprofit Boards Non-Profit: Number one objective: Improve an aspect of the community Number one constituent: Clients Success = Helping people (doing what the organization was designed to do) – judged by subjective measures of the good they do 5

Differences Between Corporate and Nonprofit Boards Non-profit: Strategies, policies, operations all aimed toward the goal of community improvement Mantra: Effectiveness 6

Differences Between Corporate and Nonprofit Boards Like for-profit organizations, there is a balancing act between effectiveness and efficiency Both need to be effective For-profit – not effective, no sales, no profit Non-profit – not effective, not fulfilling mission Both need to be efficient For-profit – using shareholders’ money 7 Non-profit – using funders’/donors’ money

Differences Between Corporate and Non-profit Boards For-profits are governed “like a business” meaning monitoring revenues and expenses Board ensures that the managers are acting in the interest of shareholders Non-profits must be governed “businesslike” meaning monitoring costs versus benefits Board ensures services for which the organization was formed in good faith 8 by the community are undertaken as

Differences Between Corporate and Nonprofit Boards For-profit boards: Small Efficient (not always) Answer to shareholders Paid Generally made up of members with business/management experience 9

Differences Between Corporate and Nonprofit Boards Non-profit boards: Larger Inefficient (not always) Answer to and represent many constituencies Volunteers Generally made up of members with specific non-profit oriented skills 10

Differences Between Corporate and Nonprofit Boards For-profit boards: Not directly involved in revenue generation Are generally required to have a personal “stake” in the firm – share ownership 11

Differences Between Corporate and Nonprofit Boards Fundraising: Unlike for-profits, non-profits normally do not have a way of generating revenues themselves External funding Government, charities, foundation grants etc. External donations Fundraising drives, gifts, bequests 12

Differences Between Corporate and Nonprofit Boards Non-profit board members must be directly involved in fundraising in some way Personal donations Leveraging contacts for donations Lobbying governmental officials Communication of need Attending functions 13

Role of the Board in a Non-Profit Objectives: Direct the organization to enhance performance and ensure its operations adhere to its mission, vision and values Stewards of the organization on behalf of the community in which it serves/operates 14

Role of the Board in a Non-Profit Process and structure: Process – the system for decision -making at the most senior level Management strategy, plans and big picture operations vetting – NOT management Structure - the legal and administrative framework within which the organization functions Ultimate authority and liability 15

Role of the Board in a Non-Profit Maintain stakeholder relationships: Principle Stakeholders: Clients, funders, community, directors, and management Other stakeholders: Employees, suppliers, creditors and customers 16

Role of the Board in a Non-Profit Specific responsibilities: Adoption of strategic planning process Manage risk Appoint and monitor senior management 17

Role of the Board in a Non-Profit Specific responsibilities: Create and foster a stakeholder communication policy Maintain the integrity of corporate internal control and management information systems 18

Role of the Board in a Non-Profit Limitations: Governance not an end to itself Governance is important but boards need to focus on the needs of the organization, not the needs of the board Good governance will not guarantee good performance Tenuous link between good governance and organizational performance – but it matters 19

Role of the Board in a Non-Profit Oversight not management: Risk of too much involvement in the organization – who’s in charge? Undermining management’s authority “Too many cooks” – used to running the show 20

Role of the Board in a Non-Profit • Board members are volunteers, they should not be working like employees – Overworking volunteers may lead them to leave – Hard to attract good people if the job it too big 21