Despite conventional wisdom that draws sharp lines between for-profit and nonprofit boards, I believe that they are fundamentally the same. Both for-profit and nonprofit boards have ownership responsibilities for their organizations.
As the “owners” of a company, shareholders entrust the for-profit board to build and run the enterprise for the greatest profit and return on investment. Similarly, as the “owners” of nonprofits, communities entrust boards to direct nonprofit organizations for the greatest benefit to the community. The community invests in a nonprofit by granting it tax-exempt status, charitable contributions, and sometimes direct governmental funding; the board must ensure that the community gets a return on its investment in the form of useful services advancing the public good. For-profits pursue profits; nonprofits pursue missions.
Boards of both sectors have great power over our world and our lives. The decisions they make determine the success or failure of the global economy, and vital matters related to jobs, energy policy, the environment, healthcare, education, training and advancement, pension plans, social services, arts and culture, parks and recreation, among others.
Power, however, comes with responsibility and accountability. Boards must comply with laws that govern for-profit and nonprofit organizations. Our corporate governance systems “are shaped by a mixture of laws, rules, regulations, and the degree of their enforcement. These laws define the obligations of managers, the rights and duties of owners, the claims of stakeholders, and the powers of boards.” (Gourevitch and Shinn)
Even more importantly, boards have the power and responsibility to envision and achieve the best results for their owners – shareholders of companies, and community stakeholders of nonprofits.
Unfortunately, over the past year, too many boards have fallen down on their responsibilities. A great price has been paid, but the public and the media finally get it about who runs our global institutions. This new awareness raises the ante for boards to improve their performance. In my next three posts, I will show how boards can become more ambitious and more effective.