Recent US study points to a growing number of financial professionals on not-for-profit boards

Friday, 10 July 2015


    Percentage of financial professionals on US-based not-for-profit (NFP) boards doubled between 1989 and 2014.

    The Wall Street Takeover of Non-profit Boards

    Stanford Social Innovation Review, June 2015

    2015 Survey on Board of Directors of Non-profit Organizations

    Stanford Graduate School of Business, BoardSource and GuideStar, April 2015

    A recent study by Professor Gary Jenkins published in the Stanford Social Innovation Review has found that the percentage of financial professionals on  US-based NFP boards has doubled between 1989 and 2014 - raising concerns about underlying changes to the culture, values and strategic direction of NFP boards.

    The study examined the backgrounds and biographies of more than 1,700 governing board members of private research universities and liberal arts colleges, as well as more than 1,000 trustees of high-profile New York City-based NFPs.

    Financial professionals were revealed to make up almost half of the board level leadership positions (i.e. Board Chairperson, Vice Chairperson or their equivalent) and, in the case of private research universities, actually made up the majority of the board.

    It is suggested that one of the reasons for this trend is the idea of “philanthrocapitalism”– that is, the use of business approaches (and individuals) to run NFP organisations as well help raise private funds and provide investment advice.

    The study argues that the rise in the number of financial professionals on NFP boards may change the underlying values and motivations of charitable and NFP institutions.

    For example, the increased use of financial logic and market metrics to guide board decision-making may cause NFPs to sacrifice long-term organisational goals for short-term financial gain. Similarly, board decision-making may be less effective on NFP boards due to reduced “cognitive conflict” - that is, fewer differences in judgements amongst board members when faced with interdependent and complex decision-making. This may result in an uncritical adoption of financial concepts, approaches and values and an increased risk of “groupthink”. 

    In contrast, a comparative survey of 924 NFP directors by the Stanford Graduate School of Business, in collaboration with BoardSource and GuideStar, suggested that NFP boards “would greatly benefit from a more rigorous process for setting goals and measuring performance”. In that study, 46% of respondents had little to no confidence that the data reviewed by NFP boards fully and accurately measured the success of their organisations, and over a third suggested that their NFP board never evaluated its own performance.

    Is the financial industry changing the face of Australian NFP boards as well?

    Commentators in Australia have made similar observations about the growing trend for NFPs to adopt the “business-oriented” approaches and practices of “for-profit” organisations.

    In particular, it has been suggested that reforms to the delivery of community services and changes to government funding have created an increasingly competitive environment in which NFP organisations must seek alternative sources of funding to maintain financial viability. These changes are likely to affect board recruitment and composition.

    Australian commentators have generally promoted greater financial skills and experience on NFP boards, drawing attention to high profile cases of financial mismanagement such as the collapse of Mowbray College in Victoria.

    Australian studies have also highlighted the need for NFP boards to improve their financial literacy. For example, a recent survey of 1065 NFP organisations by Pro Bono Australia and Grant Thornton suggested that only 40% of respondents believed that their boards had the financial literacy skills necessary to deal with the challenges facing their organisations.

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