What started 20 years ago as a small movement to bring people from the for-profit sector onto nonprofit boards is far more widespread today. And as you can imagine, mixing representatives from the two sectors is not always seamless. Often these new board members do not receive an adequate orientation and may not have a clear understanding of the nonprofit board’s roles and responsibilities.
Laura Otten is Executive Director at The Nonprofit Center at LaSalle University.
To break down some common myths about both sectors and elucidate some best practices, I’ve created a six-point road map to prevent board members from getting lost along the way.
Mile Marker 1: Boards are not parsley. Irving Olds, Chairman of US Steel back around the last century’s mid-mark, said of boards of directors, “Directors are like the parsley on fish—decorative but useless.” While that might have been the reality of for-profit boards back then, and perhaps even now, it is not now, nor has it ever been, what was needed and expected of nonprofit boards. In fact, being decorative but useless is the very thing that gets nonprofit boards into deep trouble.
Most board members understand that they have a fiduciary responsibility, but they often have no idea what that really means. The vast majority of people conflate fiduciary and financial. Financial oversight is part of a board’s fiduciary duty, but it is, by no means, all of it.
Being a strong fiduciary agent as a nonprofit board member requires: providing oversight functions (of money, strategy, executive director, policy); setting direction to ensure, at all times, that the mission promises are being fulfilled; building and maintaining relationships with the executive director, donors, the community, and the public; stewarding resources, reputation and mission; and engaging in strategic thinking at all times, and not just when doing strategic planning.
Board members must recognize that their role is a 365-day-a-year job, and not a simple volunteer activity that happens once a month for a few hours at a board meeting. This job requires constant attention; you must persistently listen and look for information that would be helpful to the board in doing its work, talk to potential donors and recognize opportunities to don your ambassadorial hat. This work is definitely not decorative.
Mile Marker 2: Nonprofits and for-profits are both businesses. Board members must recognize that nonprofits absolutely must pay attention to the bottom line or they risk going out of business. Like for-profits, nonprofits must have a sound business model for their operations. If not, they will fail.
However, nonprofits must balance that bottom line with the ability to deliver on those aforementioned mission promises. Nonprofits cannot categorically slash a budget by X%, as not all programs are equally important to the mission promises. For example, a nonprofit might need to cut one program entirely in order to safeguard another program that fits its mission to achieve the desired budgetary reduction. That requires careful thought, not just a red pencil.
As a business, we, too, need to worry about sources of income. There is a reason that very few, if any, successful businesses make only one product. Multiple products give them protection so that if the vagaries of the market suddenly lead to less interest in one product, the company has other product lines to feed the bottom line and protect the continued viability of the organization. So it is with nonprofits, only the emphasis isn’t so much on a multiplicity of products but a diversification of funding streams for each of our different “products”— our programs and services that deliver on the mission.
Mile Marker 3: People are an organization’s greatest resource.
The importance of attracting, developing and keeping the best talent in the for-profit world is just as true for the nonprofit realm. While many in the for-profit world believe the best talent is attracted only by money, research shows perks of the work and work environment are more important: feeling good about the work, flex-time, positive work culture, professional development opportunities, being appreciated, and so on. But this does not mean those who chose to work in the nonprofit sector don’t need—and want—a market-driven wage. And there is nothing in the law—or anywhere else–that says this can’t happen. High turnover costs more money in the long run than investing in our talent. While it is the knee jerk reaction in both for-profit and nonprofit organizations to cut the professional development budget at the first sign of a tough economic road, that is penny wise and multiple pounds foolish! Because so many nonprofit organizations are organizationally flat, opportunities for moving up tend to be fewer and further between. This makes opportunities for honing skills, learning new ones, being invested in, all the more important.
Mile Marker 4: Nonprofit Boards work by collective decision-making (no Alfa dogs allowed). The culture of nonprofits tends to be very different from for-profits. First and foremost, it is a much more collaborative culture, sometimes to its detriment. While most boards make decisions based on majority rule, before getting to that point there is much effort expended on getting everyone to agree. Even if consensus isn’t the desired end, it is certainly a goal to have every voice heard before a decision is made. Second, as a result of the decision-making process described above, nonprofits tend to move more slowly than some think the for-profit world does. Decisions can take months, instead of days. But when you are playing with other people’s money that may not be such a bad thing.
Mile Marker 5: No one owns a nonprofit — not even a founder. A nonprofit is defined by the fact that it is an organization that serves some portion of the public good, delivering a product or services explained in the mission statement. And it is the board’s job, as the protector of the public trust to make sure that those products and services are delivered and the public is served. It is not the board’s job to protect the wants, needs, vision, etc. of an executive director (even the founder) or a board member or a major donor.
Mile Marker 6: All money is not the same. This is often a tough concept to understand for people coming from the for-profit sector: our money is not fungible! If we have solicited dollars—be it from foundations, corporations, individuals—for a specific purpose, we are beholden to use that money only for those restricted purposes. We absolutely cannot, under any circumstances (without permission from the donor), use that money for any other purpose, even if we end with more than enough money for that specific purpose.
There is much to be gained for each from the intermingling of the nonprofit and for-profit worlds. Each can learn much from the other. But it is paramount that the new arrivals be respectful of the existing culture, open to learning the ways of that culture while tossing aside previously clung to myths and working in partnership to make the organization as strong as it possible can be.
Laura Otten is Executive Director at The Nonprofit Center at LaSalle University. She is also a faculty member of the Dodge Technical Assistance Initiative. Find out more about our nonprofit capacity building workshops here.