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Non-profit Governance

Non-profit Governance. Trevor Hunter MOS 4422 Corporate Governance King’s University College. Differences Between Corporate and Non-profit Boards. For-profit: Number one objective: Maximize shareholder wealth – make as much money as legally possible! Number one constituent: Shareholders.

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Non-profit Governance

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  1. Non-profit Governance Trevor Hunter MOS 4422 Corporate Governance King’s University College

  2. Differences Between Corporate and Non-profit Boards • For-profit: • Number one objective: Maximize shareholder wealth – make as much money as legally possible! • Number one constituent: Shareholders

  3. Differences Between Corporate and Non-profit Boards • For-profit: • Success = Profit maximization • Strategies, policies, operations all aimed toward the goal of profit maximization • Mantra : Efficiency

  4. Differences Between Corporate and Non-profit Boards • For-profit: • Order of responsibility: • Shareholders (and this is way out in front) • Customers • Creditors • Employees • Community

  5. Differences Between Corporate and Non-profit Boards • Non-Profit: • Number one objective: Improve an aspect of the community • Number one constituent: Clients • Success = Helping people (doing what the organization was designed to do) – judged by subjective measures of the good they do

  6. Differences Between Corporate and Non-profit Boards • Non-profit: • Strategies, policies, operations all aimed toward the goal of community improvement • Mantra: Effectiveness

  7. Differences Between Corporate and Non-profit Boards • Like for-profit organizations, there is a balancing act between effectiveness and efficiency • Both need to be effective • For-profit – not effective, no sales, no profit • Non-profit – not effective, not fulfilling mission • Both need to be efficient • For-profit – using shareholders’ money • Non-profit – using funders’/donors’ money

  8. Differences Between Corporate and Non-profit Boards • For-profits are governed “like a business” meaning monitoring revenues and expenses • Board ensures that the managers are acting in the interest of shareholders • Non-profits must be governed “business-like” meaning monitoring costs versus benefits • Board ensures services for which the organization was formed in good faith by the community are undertaken as intended

  9. Differences Between Corporate and Non-profit Boards • For-profit boards: • Small • Efficient (not always) • Answer to shareholders • Paid • Generally made up of members with business/management experience

  10. Differences Between Corporate and Non-profit Boards • Non-profit boards: • Larger • Inefficient (not always) • Answer to and represent many constituencies • Volunteers • Generally made up of members with specific non-profit oriented skills

  11. Differences Between Corporate and Non-profit Boards • For-profit boards: • Not directly involved in revenue generation • Are generally required to have a personal “stake” in the firm – share ownership

  12. Differences Between Corporate and Non-profit Boards • Fundraising: • Unlike for-profits, non-profits normally do not have a way of generating revenues themselves • External funding • Government, charities, foundation grants etc. • External donations • Fundraising drives, gifts, bequests etc.

  13. Differences Between Corporate and Non-profit Boards • Non-profit board members must be directly involved in fundraising in some way • Personal donations • Leveraging contacts for donations • Lobbying governmental officials • Communication of need • Attending functions

  14. Role of the Board in a Non-Profit • Objectives: • Direct the organization to enhance performance and ensure its operations adhere to its mission, vision and values • Stewards of the organization on behalf of the community in which it serves/operates

  15. Role of the Board in a Non-Profit • Process and structure: • Process – the system for decision-making at the most senior level • Management strategy, plans and big picture operations vetting – NOT management • Structure - the legal and administrative framework within which the organization functions • Ultimate authority and liability

  16. Role of the Board in a Non-Profit • Maintain stakeholder relationships: • Principle Stakeholders: • Clients, funders, community, directors, and management • Other stakeholders: • Employees, suppliers, creditors and customers

  17. Role of the Board in a Non-Profit • Specific responsibilities: • Adoption of strategic planning process • Manage risk • Appoint and monitor senior management

  18. Role of the Board in a Non-Profit • Specific responsibilities: • Create and foster a stakeholder communication policy • Maintain the integrity of corporate internal control and management information systems

  19. Role of the Board in a Non-Profit • Limitations: • Governance not an end to itself • Governance is important but boards need to focus on the needs of the organization, not the needs of the board • Good governance will not guarantee good performance • Tenuous link between good governance and organizational performance – but it matters

  20. Role of the Board in a Non-Profit • Oversight not management: • Risk of too much involvement in the organization – who’s in charge? • Undermining management’s authority • “Too many cooks” – used to running the show

  21. Role of the Board in a Non-Profit • Board members are volunteers, they should not be working like employees • Overworking volunteers may lead them to leave • Hard to attract good people if the job it too big

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