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Nonprofit Issues Forum: Boards and Governance

December 10, 2009

(The following post was written by Stephen Sherman, reference librarian at the Foundation Center-Atlanta, and originally appeared on the Philanthropy Front and Center-Atlanta blog.)

Stakeholders What if various stakeholder groups -- donors, patrons, foundations, government agencies, corporations, and volunteers -- all had a direct say in the governance of nonprofit organizations in proportion to their contributions? Would this help improve the governance of nonprofit organizations?

These were some of the questions posed by Professor Dennis Young at a recent Nonprofit Issues Forum. The free event was held at the Andrew Young School of Policy Studies at Georgia State University and included a lecture by Dr. Young and a panel discussion on the topic of boards and nonprofit governance.

While nonprofit boards have a tendency to attract highly-motivated, well-intentioned individuals, they often suffer from inherent problems in their structure and composition, resulting in issues such as:

  • Free-riding -- individuals failing to contribute meaningfully to the board's collective activities
  • Groupthink -- the inclination of groups to avoid conflict and debate in order to reach a consensus without critically testing, analyzing, and evaluating ideas
  • Conflicts of interest -- individual board members bringing personal motives or incentives into the decision-making process
  • Principal/agent problem -- the board and staff working with conflicting goals or objectives and not sharing the same agenda for the organization

To address these issues, Young proposed reconstituting boards to include representatives from stakeholder groups that provide the resources on which each nonprofit depends. These groups -- donors, customers, private funders, government agencies, corporations, volunteers -- would be represented on each board and receive voting rights in proportion to each group's share of the revenue for the nonprofit. According to Young, this model would have the advantage of introducing competing stakeholder interests and tighten the relationship between resources and the decision-making process.

Panelists Marjorie Fine Knowles, professor of law at Georgia State University; Penelope McPhee, president and trustee of the Arthur M. Blank Family Foundation; and Oz Nelson, retired chairman and CEO, UPS, all offered responses to Young's proposal. Among their criticisms:

  • Stakeholder incentive already exists in the fiduciary duties of boards and therefore precludes the creation of such a model.
  • Board members are required by law to act in the best interests of the nonprofit organization as a whole and therefore would not be permitted to represent specific stakeholder groups or interests.
  • Involving outside stakeholder groups would actually lead to greater occurrences of conflicts of interest and more self-dealing among individuals.
  • Rather than fall into neat categories, many stakeholders would likely have multifaceted interests in the organization (for example donors may also be volunteers), preventing them from representing a specific subgroup.
  • Board members should be recruited according to the skills and interests that they bring to a nonprofit rather than for their status in certain stakeholder groups.

What do you think? Feel free to join the debate in the comments section below.

Want to learn more about nonprofit boards and governance? See the newly-revised FAQs on the topic or search our Catalog of Nonprofit Literature, the Foundation Center's bibliographic database, for the subject Board members.

-- Stephen Sherman

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