The Difficult Transition from For-Profit to Nonprofit Boards
In the new book Joining a Nonprofit Board: What You Need to Know, authors F. Warren McFarlan and Marc J. Epstein observe that service on a nonprofit board can be a frustrating experience for executives grounded in a for-profit world. Read our excerpt.
Editor's note: For those of who have attended meetings of both nonprofit and for-profit boards, the differences between the two organizations couldn't be clearer. Nonprofit boards meetings tend to be longer, less tightly organized, and more sporadically attended by the board members themselves. Why this happens is one of the many subjects discussed in the new book Joining a Nonprofit Board: What You Need to Know, by authors Marc J. Epstein of Rice University and F. Warren McFarlan of Harvard Business School. In this excerpt from the introduction, Rice and McFarland highlight the major similarities and differences between the different types of boards and what newcomers to nonprofit governance can expect.
Comparing Nonprofits and For-Profits
There are a number of important similarities and differences between the operations and challenges of nonprofits and for-profits of which a new nonprofit board member must be cognizant. Some of the more important items are discussed in this section.
There are a number of similarities between for-profits and non-profits which make people with for-profit experience particularly helpful as board members. The key similarities include:
- Both organizations can grow, transform, merge, or die. Success is not guaranteed for either type of organization, but requires sustained work.
- In both cases, cash is king. This for-profit focus is critical for a nonprofit board.
- In both settings, good management and leadership really matter. Delivery of service, motivating and inspiring staff, and conceiving of new directions for growth are all vitally important.
- Planning, budgeting, and measurement systems in are vital in both settings.
- Both types of organizations face the challenges of integrating subject matter specialists into a generalist framework.
- Both organizations add value to society. They just do it in different ways.
In short, there is much overlap between the skills needed and perspectives provided by leaders in the two types of organizations. This is a key reason why social enterprise courses have taken root in business schools and why, appropriately socialized, those with for-profit backgrounds can contribute so much to the nonprofit world.
Repeatedly we have seen new trustees and ineffective boards try to wag the mission dog with the financial tail.
Having noted all of this, the blunt question in your mind is: why do I need to read a book on nonprofit management? Isn't it just a subset of the for-profit world, with little difference in the tasks and perspectives of managers and board members? Cannot the tools, practices, and viewpoints developed throughout a career of successful for-profit work be transferred to this new realm of nonprofit? The authors answer this question with an emphatic no! Although, as noted, many aspects are the same, in important areas there are deep differences. Failure to understand these differences can cause the new board member to stumble badly and perhaps irretrievably damage her credibility and effectiveness in a nonprofit organization.
At its core the nonprofit is fundamentally different than the for-profit. At the center of the nonprofit is its social mission. Understanding the mission, helping the organization to fulfill it, and adapting it to a changing world is the very core of nonprofit governance and management. It is for this reason this book starts with a detailed discussion of mission and how it grows. Right behind this are the two major intertwined strategic themes that the nonprofit trustee must deal with.
The first theme is fulfilling the mission and whether we are doing it in a fiscally responsible fashion. Chapter Two deals with the complex multifaceted issue of mission definition and evaluation of its appropriateness. Chapter Three shows, in a series of examples, how organizations can go about measuring their performance against mission. For the new trustee, understanding these issues is the place to begin her trusteeship. The second theme is financial solvency. Chapter Four deals with the board's fiduciary responsibility and financial sustainability. Our life experience drives us to put this behind "performance measurement against mission." Repeatedly we have seen new trustees and ineffective boards try to wag the mission dog with the financial tail. It just doesn't work that way. Without mission and its accountability we have nothing.
Achieving financial sustainability is very different for the nonprofit than the for-profit in that the nonprofit cannot easily access the public equity markets but instead has philanthropy as a potential additional source of funds. Chapter Five deals with the role of philanthropy and the trustee's role in it. This may be summarized by giving often and generously and when not giving helping others to give (hence the phrase, "give, get, or get off.")
Finally, the execution of the work of the board is deeply different from that of boards in the for-profit world because of the tasks of mission performance measurement and different capital markets. As Chapter Six describes in detail, nonprofit boards are often larger, have more committees, and have a very different trustee life cycle. Further, as Chapter Seven describes, the heart of the governance process is a volunteer nonexecutive chairman and volunteer board, leading a staff of paid professionals. The dynamics of this are complex and profoundly different than the process in the for-profit world. Chapter Eight returns directly to you, the new trustee, addressing what you should consider before deciding to join a board and what you can do to make your trusteeship personally beneficial to you and the organization.
Reprinted by permission of the publisher, John Wiley & Sons, Inc., from Joining a Nonprofit Board: What You Need to Know by F. Warren McFarlan and Marc J. Epstein. Copyright (c) 2011 by John Wiley & Sons, Inc. All rights reserved.