Wall Street takes over NFP boards
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 not-for-profit (NFP) boards has doubled between 1989 and 2014 – raising concerns about underlying changes to the culture, values and strategic direction of NFP boards.
The June 2015 study, The Wall Street Takeover of Non-profit Boards, 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. chair, vice chair 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 as to 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 per cent of respondents had little to no confidence that the data reviewed by NFP boards fully and accurately measured the success of their organisations, and more than a third suggested that their NFP board never evaluated its own performance.
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. Australian studies have also highlighted the need for NFP boards to improve their financial literacy.
For example, a recent survey of 1,065 NFP organisations by Pro Bono Australia and Grant Thornton suggested that only 40 per cent of respondents believed that their boards had the financial literacy skills necessary to deal with the challenges facing their organisation.
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