By Hilda Polanco, Founder & CEO, FMA
A recent story in the Stanford Social Innovation Review (link) makes a persuasive case that the increased prevalence of high-finance professionals on nonprofit boards has resulted in two significant shifts. First, it has made boards less diverse, and second, it has pushed nonprofit leaders to embrace some rather arcane and risky “financialization” strategies. While this is undoubtedly true, and a source of concern for the wealthiest and most prestigious organizations the authors studied, it is scarcely a condition that is characteristic of the bulk of organizations that make up the nonprofit sector.
The study authors suggest that the primary motivator for nonprofits to seek new board members from the financial industry is the contributions that follow. I want to make the case for one more motive: For the boards of the vast majority of nonprofit organizations, sufficient financial literacy remains troublingly scarce. But nonprofit leaders are often in desperate need of expertise for how to build reserves, project cash flows, structure their balance sheets, assess the profitability of programs and so on. For an organization struggling to manage cash flow, a board member with the right knowledge from the financial industry can be a godsend, whether he or she contributes dollars or not. The study authors describe “data-driven decision making, an emphasis on metrics, prioritizing impact and competition, managing with three- to five-year horizons and plans, and advocating executive-style leadership and compensation” as principles originating from the finance industry that require nonprofits to contort themselves in inefficient and unfamiliar ways. But these are generally accepted management principles from across the business world and are certainly familiar to the nominees for, and recipients of, the Nonprofit Excellence Awards. Indeed, the prioritization of impact is likely to have originated in the nonprofit sector and more lately been taken up by for-profits. On balance, for most nonprofit organizations, an engaged board member with a high-finance background is likely to be a source of capacity rather than a drag on it.
An organization’s excellence stems from balanced and careful decision-making in a wide variety of venues. Choosing whom to invite to join your board is one of those, and the need for diversity should be weighed carefully along with the need for financial prowess. It should be noted, however, that the former trait must be acquired over a lifetime, whereas sufficient financial prowess to provide governance and oversight for a nonprofit organization can be acquired in a much shorter period of time. An MBA tweaked with a little insight into the unique aspects of the nonprofit sector can be a good thing indeed.
Hilda Polanco was a member of the Selection Committee for the New York Community Trust Nonprofit Excellence Awards from 2007 to 2013.