How nonprofit and for-profit board work is different

For those who sit on 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. 

The focus is far less on making money, but this can be a fatal flaw. Both nonprofit ad for-profit need to focus on revenues.

I attended a womens’ Board Director’s dinner held by the prestigious Heidrich and Struggles firm, who have done invaluable research on women and boards. 

Diane Francis was the guest speaker and she had recently been invited to sit on the board of a mining firm with a profit motive. Diane commented that it was a completely different experience and far more demanding. Immediately, this was dismissed by one of the women, a formidable lawyer. Her rebuttal was that women are told to go on nonprofit boards to build their resumes and there are talented people on these boards, working just as hard as on a for-profit board. 

I agreed with Diane Francis though, because the for-profit is under far more pressure with paying shareholders money at risk. For women, I believe it is an important message that putting time into a nonprofit board might not make as much sense as we are lead to believe. There are many companies with revenues of $10M and up who need board members and would give a great experience of how to add value to a company from that position.

My chief regret from the evening was not speaking up to encourage more debate between Diane and the woman who snapped the topic closed. 

Now, here is a book from Harvard that opens up that topic and the authors  support Diane Francis and her view on for-profit boards. Another reason I wish I had spoken up - think of the opportunity for these top women to get out a few more points we could all have discussed. 

Next time.

Marc J. Epstein of Rice University and F. Warren McFarlan of Harvard Business School have a book to crack open this debate with solid facts about the key differences. These key differences are said by industry leaders and are well worth re-visiting. Here are Epstein and McFarlan:

 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.

Differences

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. There is the complex multifaceted issue of mission definition and evaluation of its appropriateness. There needs to be a deep understanding about 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. There is 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. Non-profit boards must deal 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. Nonprofit boards are often larger, have more committees, and have a very different trustee life cycle. Further, 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.