Non-profit Governance

Trevor HunterMOS 4422Corporate GovernanceKing’s University College

Differences Between Corporate and Non-profit Boards

• For-profit: –Number one objective: Maximize shareholder wealth – make as much money as legally possible!

–Number one constituent: Shareholders

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Differences Between Corporate and Non-profit Boards

• For-profit: –Success = Profit maximization

–Strategies, policies, operations all aimed toward the goal of profit maximization

–Mantra : Efficiency3

Differences Between Corporate and Non-profit Boards

• For-profit: –Order of responsibility:

1. Shareholders (and this is way out in front)

2. Customers3. Creditors4. Employees5. Community

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Differences Between Corporate and Non-profit 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

–Social/psychological contract to fulfill the promise they make to society.

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Differences Between Corporate and Non-profit Boards

• Non-profit:–Strategies, policies, operations all aimed toward the goal of community improvement

–Mantra: Effectiveness

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Differences Between Corporate and Non-profit 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• Non-profit – using funders’/donors’

money7

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 “business-like”

meaning monitoring costs versus benefits–Board ensures services for which the

organization was formed in good faith by the community are undertaken as intended

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Differences Between Corporate and Non-profit Boards

• For-profit boards:–Small–Efficient (not always)–Answer to shareholders–Paid–Generally made up of members with business/management experience

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Differences Between Corporate and Non-profit 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 Non-profit Boards

• For-profit boards:–Not directly involved in revenue generation

–Are generally required to have a personal “stake” in the firm – share ownership

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Differences Between Corporate and Non-profit 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 etc.

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Differences Between Corporate and Non-profit 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

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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

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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

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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

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Role of the Board in a Non-Profit

• Specific responsibilities:–Adoption of strategic planning process–Manage risk–Appoint and monitor senior

management

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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

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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

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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

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