The dynamic nonprofit board

Corporations aren’t alone in focusing on governance; rigorous oversight of management and performance is increasingly important for nonprofits too.

The corporate-governance debate in the United States is spreading from the for-profit to the nonprofit world. Well-publicized controversies at organizations such as The Nature Conservancy, the American Red Cross, and the James Irvine Foundation have even caused observers such as Eliot Spitzer, the attorney general of New York State, to suggest that the Sarbanes-Oxley Act should be applied to nonprofit boards.

To be sure, those boards operate under unusual constraints. Directors volunteer their time, play an important role in raising funds, and in some cases are so numerous that board meetings resemble conferences rather than deliberative assemblies. They also answer to a wide range of stakeholders who may lack a single common goal, such as increasing shareholder value. Thus it comes as no surprise that a recent McKinsey survey of executives and directors of nonprofit social-service organizations found that only 17 percent of the respondents felt that their boards were as effective as possible.

To improve the governance of nonprofits, their boards must venture beyond the traditional focus on raising funds, selecting CEOs, and setting high-level policy. Our research indicates that the best boards also provide professional expertise, represent the interests of their nonprofits to community leaders, recruit new talent to the organization, and provide the more rigorous management and performance oversight that funders increasingly demand (Exhibit 1). These boards get their hands dirty undertaking the tasks they do best while carefully avoiding micromanagement that would demoralize full-time staff members. Good boards, well aware that they lack the time and resources to tackle all of their responsibilities at once, manage to adapt—perhaps by devoting extra energy to a single task, such as a capital campaign, before moving on to the next challenge.

Rising to this level of performance takes time. We found that many nonprofit boards struggle with basics such as recruiting the right members and running meetings effectively. The first task, then, is to nail down the fundamentals—a clear vision, appropriate board membership, and effective processes—because these elements enable directors to avoid wasting a great deal of time and energy. Getting the basics right makes it easier for a board to undertake the hard work of providing true performance and management oversight and to adjust the priorities of both the directors and the organization. Generally, the key isn’t to do more but to focus more.

Read more at McKinsey Insights & Publications

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