Nonprofit Genie (FAQs) | Board Governance

Boards of directors governing for-profit corporations face many of these same obstacles. They are busy and short of time; they lack familiarity with the field, and they may not be managers. The question was posed to a partner in a venture capital firm who sits on five corporate boards in which her firm has an equity interest. How does such a board member tell if the company is well managed? Although she doesn't know as much about microchip production or about the market for frozen pizzas, she must act to direct and oversee the growth of the company.

Her answer: because of her unfamiliarity with the field and its markets, she reads trade journals and industry publications. To supplement the information received from management, she reads reports from consultants and analysts hired to assess the company's operations. She uses all the means available, including informal impressions from walking through the plant or a chance conversation with an employee on the line, to obtain independent information. She follows up on rumors of mismanagement or takeovers. In short, she keeps her eyes and ears open all the time for information. With $1 million of her firm's money invested, she makes the time and gets enough information.

Corporate boards have one important advantage over nonprofit boards in their oversight, governance role. They have two ready measures that can be used to measure performance: profit and market share. In contrast, successful performance in a museum, drug treatment program or family counseling program is much more elusive.

Perhaps a bigger difference though is that corporate board members like this venture capitalist also have a material stake in the success of the organization. If nonprofit board members each had $100,000 of their own money invested in their own organizations, would they find more time and more information?