April 11, 2012
What is the role of the board? It’s a question that has lots of answers and spawned literally hundreds of books and articles – most of them avoiding the “big issue.” The role of the board – whether of a non-profit or for-profit organization – is largely about money (on a different day, I will focus on the unique role of boards of governmental agencies and organizations). As someone who has had every role (chair, vice chair, secretary, treasurer, committee member, etc.) on boards of for-profit, non-profit, and governmental organizations, I am a seasoned board member and have come to a few hard-earned conclusions about this question.
If you’re on the board of a for-profit organization, your role is to fulfill your organizational mission, satisfy your customers, and maximize shareholder value. The process may differ slightly if you’re on the board of a public or private organization – but the focus is largely the same. Investors provide the capital for the organization to start and grown – and those investors (shareholders) expect a return for that investment. The board’s job is to make sure that return happens by the organization generating a suitable margin – some of which is returned to the shareholders and some of which is retained for future investments in organizational growth.
For non-profit organizations (whether tax-exempt or not), it’s a different twist on the same theme. The role of the board is to fulfill your organizational mission, satisfy your customers (and probably a few other community stakeholders), and generate a margin to sustain future organizational growth (since there are no shareholders, there is no financial return to shareholders). Along the way, if you are a tax-exempt non-profit organization, you also need to assure that your organization provides enough “community benefit” to keep its tax-exempt status.
This sounds simple, but I find that most boards of directors that I’ve served on and work with have trouble operationalizing their role. Especially for non-profits, well-meaning community members want to be on the board for all the good mission-based reasons – but often don’t want to participate in the resource-generating process (this situation often reminds me of the children’s story, The Little Red Hen). But, as I know all too well, “no money, no mission” has taken on a new meaning in this very budget-conscious environment.
For both types of boards, the role of the board is to approve the strategic plan and make sure that the chief executive officer both effectively implements the strategy and doesn’t waste/steal financial resources. In addition, board members contribute specific expertise to the board (in finance, human resources, politics, marketing, legal, etc.) as they are able. And, if you’re on a non-profit board, you also have an obligation to raise donations for or contribute directly to the organization. The confusion comes with deciding how much governance and management functions should overlap in an organization – a question decided in a recent piece, Advice To Board Members: Eyes On, Hands Off all members.
If you think there is a lack of unanimity about the role of the board in your organization, you are not alone. But, we have some great resources in our Industry Library on this topic to distribute at your next board meeting:
For more on governance issues, check out the upcoming June edition of the OPEN MINDS newsletter. And if you have a board governance success story (or management tool) that you would like to share, I would like to hear from you at firstname.lastname@example.org.
Monica E. Oss
Chief Executive Officer, OPEN MINDS
For another free resource, see: Keeping Your Board “On Board” all members
This is free for the next sixty days to all registered OPEN MINDS Circle members.