NPOS face similar issues, but not identical to business boards.
While the motivation behind not-for-profit organizations (NPOs) is markedly different from that of for-profit businesses, it would be a mistake to see the function and activities of NPO boards as significantly different from their for-profit counterparts. The operational challenges mirror one another and NPO boards are just as mandated to challenge management and the status quo and to stay on top of critical oversight issues, such as cyber security, regulatory compliance and reporting. Indeed, on the reporting front, they face as many, if not more, obstacles, as the public tends to hold NPOs to a higher level of accountability. Donors want their money put to good use and while the organization needs to demonstrably validate that trust, it’s the board that’s accountable at the end of the day.
With this in mind, NPO board members—particularly prospective members—should bear a few helpful tips in mind:
Directors coming from the corporate world tend to bring their comfort zone with them. They want a set of best practices, but what works in a public company from a governance perspective does not always work in a not-for-profit context. Corporate knowledge is valuable, but doesn’t necessarily transfer as a template.
In the NPO sector, you’re dealing mostly with passionate, devoted people who really just want to do what they’re doing and are less concerned with compensation. There is less money to go around in all areas, for example discretionary funds. Where hiring external consultants is considered an investment in the for-profit world, for NPOs it may generate overhead and raise donor questions. Be wary of these objections, as investments are just as necessary in the NPO world. To reduce this cost, NPOs leverage volunteer and donor knowledge where possible to resolve issues and boards should likewise examine their own membership for untapped skills and knowledge.
The NPO sector is somewhat misunderstood. It’s larger than most sectors when looked at collectively, but it’s often overlooked because it’s not bottom-line focused. Board members quickly learn how complex NPOs can really be and should be prepared to focus on understanding sector and organizational intricacies.
Don’t seek NPO board membership if you don’t have the time to devote to it. There are more than 100,000 NPOs across the country, ranging from PTAs to billion dollar organizations—from ones with small boards that do everything to ones with multiple committees, a strong risk and reporting focus and close to $1 billion in operating budgets. So recognize the time required is commensurate to the organization and don’t assume an NPO board will be any less demanding.
Audits don’t tend to be NPO boards’ main concern. Indeed, not all even have a separate audit committee. Rather, most directors want to know that the organization is staying “onside” and not engaging in activities that could create liability issues for directors. Directors who are involved in risk issues and have interaction with the CRA need to be aware of any specific reporting requirements that apply to the organization and to know all the related rules and consequences—for both the organization and themselves.
People come to the NPO sector at all stages of life and from all types of working backgrounds. It’s important for board members to take the time to understand the NPO sector itself and the points where board service diverges from the for-profit model. This should help you realize the goal of contributing to the NPO world through board involvement while helping you do it more effectively.