Nonprofits
Failing to Govern?
Would designated "governors" solve problems with board oversight?
Is there a breakdown in the governance function of nonprofit boards? This is the question behind the article with the above title in the current issue of SSIR. Michael Klausner and Jonathan Small argue that there is a deep ambiguity in the role of the boards of nonprofit organizations as they currently operate: Unlike boards of commercial corporations, nonprofit boards are supposed both to exercise full governmental oversight and serve as fund-raisers and image-enhancers of their organizations. This, according to the authors, sets up a dysfunctional situation wherein many nonprofit boards do neither job very well.
The solution recommended by Klausner and Small is to establish a legal bifurcation of boards, in which there would be designated “governors,” who have the full responsibility for organizational governance, and “nongoverning board members,” who fulfill the other board functions. Could this be a solution to the challenge of nonprofit oversight, or is it a solution to a nonexistent problem that would set up a distinction between “first class” and “second class” board membership? What do current members of nonprofit boards think of this idea?
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COMMENTS
BY Colleen
ON April 12, 2005 10:58 PM
I appreciate the concerns of the failure to govern but take issue with the authors position. The sole purpose of the board of directors is to stand in for the public - to protect the public’s interest in the organization, similar to that of the board of director’s protecting the shareholder’s interest in a corporation.
If the organization believes it is important to have volunteers perform significant, visible tasks, systems should be set up to do so - but not as the board of directors.
BY Patricia Sinay
ON April 14, 2005 06:38 AM
I found the article a bit off the mark and pass?
BY Kristin
ON May 6, 2005 11:46 PM
I am a graduate student at FGCU researching a broad and multi-faceted topic, and in need of help. Will anyone in the forum be willing to direct me toward information regarding the challenge of a nonprofit attempting to create an attitudinal shift? In particular, I am looking for research about any challenges/stories/etc. about nonprofits that provide care for wildlife, but also hope to create a change in the public’s perception of wildlife. In particular, I am looking for information on public perception of nonhuman primates in entertainment and captivity, and the challenges a nonprofit hoping to change these perceptions (i.e., advocating against nonhuman primates in entertainment) may face. Thank you for any direction and assistance.
BY Michael Klausner
ON May 11, 2005 12:17 AM
Colleen states: “The sole purpose of the board of directors is to stand in for the public - to protect the public’s interest in the organization, similar to that of the board of director’s protecting the shareholder’s interest in a corporation.”
Well, if that is true, then it follows that the board should govern, which I suppose means all members should govern, and do nothing else—or that whatever else they do would be secondary. That could end the issue, in which case the article Jon and I wrote would be irrelevant at best.
The issue, however, is whether Colleen’s designation of the “sole purpose” is a good one, either (i) as an empirical description what many nonprofit boards do, or (ii) as a prescriptive statement of the ideal role for the board. With respect to a great many boards—and we certainlyu do not pretend to describe all boards—Colleen’s description is not accurate empirically. As Jon and I describe in our article, boards raise funds, provide specialized advice—and they govern. Nonprofit boards serve multiple purposes, not a sole purpose. I say this just as a matter if simple description for many organizations.
Now, is what I have just described a good thing? Perhaps not. Perhaps boards’ sole purpose should be governance, as Colleen says. If we could get from here to there, I would have no disagreement with her.
But getting from here to there may well be impossible, and in Jon’s and my view, it is not necessary. To get to the world Colleen describes, nonprofits would have to find other ways to attract people to give and get money, and they’d have to find other ways to attract the specialized expertise that currently resides on many boards. Today, an offer of board membership is commonly expected as a quid pro quo, or at least as a signal of recognition for such contributions.
If the sole purpose of the nonprofit board were governance, boards would have to be small and they would have to include people with the time, interest, and skills to govern. At leaset some and perhaps most major contributors and fundraisers would have to be kept off the board. Perhaps they could be put on an “advisory board.” Or perhaps an organization could be explicit and create a “committee of givers and getters” with which to recognize their major supporters.
The problem is getting from here to there. As a descriptive matter, in the current real world environment, many givers and getters and advisors do not want to be on an advisory board or a committee of givers and getters. They want to be on “The Board.” For better or worse (and I would be happy to acknowledge the latter), being on The Board has social meaning that is deeply embedded in the upper class. As seen in the studies that Jon and I cite in our article, many supporters of nonprofit organizations consider board membership a sign of social status or recognition, or as a means of being engaged in a civic effort with minimal time commitment. Without a board seat, some will not make as large a commitment.
We could try to force these people to govern, but I am doubtful that this would work. Moreover, why bother? Why fight a highly entrenched social reality? Our proposal would accept this reality and work within it. For any organization that faces the reality we describe—and not all do—major supporters that want to be on The Board could be, with all the social meaning the position provides, and without necessarily becoming saddled with governance obligations. Among that group of board members, a subset of manageable size would commit to govern. That subset could change or rotate among board members annually if that works for an organization.
I see little downside in our proposal and real upside. A nonprofit could have a large “Board” that would be ideally composed for fundraising and providing specialized advice, but poorly suited to govern; and it could have a small group of “Governors” chosen from within the board that is dedicated to governance. Perhaps the solution we propose is largely semantic, but to call many current boards “boards,” implying that all members govern, is semantic as well.
Patricia asks “Isn’t it easier to just reduce the number of members?” If it is, then by all means an organization should do that. But if a small board means less fundraising or less access to specialized advice, then Jon’s and my proposal would allow the organization to have it all.
Patricia then accurately points out that many boards are in efect bifurcated in the way we describe by virtue of having an executive committee that does all the governing. As we explain, this is a workable second-best alternative—and in states that would not allow the fully bifurcated board we propose, it is the best alternative. There are, however, disadvantages to governing through an executive committee. First, this approach is less than fully explicit; the executive committee may not fully accept the fact that they are the governors and that the buck stops with them, as a practical matter, regardless of whether the board is asked to endorse its decisions. And second, the board remains legally responsible. The likelihood of director liability is nearly nil in the nonprofit sector, but nonetheless, if the board is not going to govern, we believe it should not operate under a legal obligation that it do so. A virtue of our approach it would bring into line reality on the ground, legal obligations, and functional effectiveness.
Michael Klausner
BY Mark Kramer
ON May 19, 2005 01:24 AM
Professor Michael Klausner & Jonathan Small’s
excellent article about the governance of nonprofit organizations raises an interesting question: Should their recommendations also apply to the boards of charitable foundations?
Klausner and Small offer a pragmatic and helpful solution to the problem of inattentive nonprofit boards, arguing that nonprofit boardmembers play a critical fundraising role, and this in turn leads to boards that are far too large and may include many members that lack the qualifications to exercise attentive and prudent governance. They suggest that, rather than impose a greater level of obligation on all boardmembers, the board’s fiduciary duties can be delegated to much smaller “governing board,” thereby relieving the rest of the board of its traditional responsibilities.
Neither of these arguments, however, applies to endowed foundations. These board members do not normally raise or contribute money, and the typical size of a private foundation board is similar to that of a corporate board. Yet my research suggests that foundation boards are often as inattentive to the strictures of governance as other kinds of nonprofit boards.
At one level, this merely suggests that private foundation board members cannot so readily be excused from their duties of governance. At a second level, it highlights the danger of offering advice that paints all nonprofits with a single brush. Most important, however, it suggests that the inattentiveness to performance that is an unfortunately frequent characteristic of nonprofit boards is not due their size, composition, or generosity.
Klausner and Small’s suggestion, therefore, while helpful does not get at the central problem: a willingness to accept good intentions in place of good performance that has a debilitating effect on the entire nonprofit sector.
Mark Kramer
Managing Director
Foundation Strategy Group, LLC
BY Keith
ON May 20, 2005 11:24 PM
Good discussion. The board on which I serve has another issue. We are in a position to be marginalized by the organizational staff. Our charter is one of governance, yet most “direction” comes from the staff and is then presented to the board as “this is the way we are going…” We recognize that we have to be very active and involved as board memebers to actually provide a governing role. Any thoughts?
BY Mohammed Bougei Attah
ON May 21, 2005 12:42 PM
Non-profit Boards differ in actions depending on the regions. In Africa for example, Michael Klausner and Jonathan Small’s article readily captures their role as dictated by the envoronment, while this may not be applicable in such nations like USA, Canada and some part of Europe.
Incidentally this is the focus of the next edition of our magazine, NGO Network, a general interest for the third sector in sub-Saharan Africa.
BY Sally Bach
ON May 25, 2005 11:30 PM
Regarding the governing role of non-profit board members: my experience is that board members prefer to provide governance over the funds they raise. Even auxiliary organizations exercise control over the funds they raise for a non-profit, they don’t usually just hand the funds over without proposals, budgets and reports. The role of fund raising at the board level comes into play simply because when the non-profit does not have enough money in the budget to fulfill its mission through programs, expansions, etc., then the board steps up to help supplement the budget through fund development and community involvement…therefore matching up donor intentions to the non-profit organizations’ mission. With large boards, committees serve as the avenue for indepth discussions and getting the work done…without executive committee, finance committee and fund development committee work, the board meeting would take way longer than good business people are willing to give in one sitting. Members of the finance committee oversee the budget, audit, etc. and their reports to the board are extremely important…therefore the board’s responsibility is to recruit members of good community standing to serve on the financial oversight committee so that they are secure in knowing that finances are what the paperwork says it is, filed on time, etc. Tried and true, the beauty of the committee system is that board members can decide (annually if they prefer) how to do their governance duty, and it is their perogative to dictate their wishes to staff and to require compliance….I often wonder why board members don’t implement this option and why they rely so heavily on staff to tell them how to do it. Over my 22 years in non-profits, Iv’e noticed controvercy arises when staff has too much power over information and few if any checks and balances. People joining a board should self educate - there are tons and tons of resources for board members and they really need to understand & exercise their civic duty when they sign on to govern a non-profit organization. No excuses!
BY Alan Hough
ON June 7, 2005 11:17 AM
An excellent article! Finally, somebody has loudly and clearly stated that legal and normative expectations of nonprofit boards may not be appropriate. Researchers in governance have posed the questions “Why boards?” and “What is the appropriate role of boards?”. There is no clear theoretical justification for the existence of boards, despite the availability of nearly twenty different theories to explain the existence and role of boards. The better question to pose is “What are the best means to enable organisations to perform and conform (to legal requirements)?” Boards can be part of the solution, but the law should permit a range of answers to the latter question.