This article was first published on 6 June 2016 in The Business Times and BT Invest (a financial portal of The Business Times), under the column “Boardroom Matters” by the Singapore Institute of Director.
It is not uncommon for board directors who sit on “for-profit” boards to also serve on the boards of non-profit organisations (NPOs). The cross-over from corporate to NPO boards has surprised some directors who have found that, in spite of their considerable experience in the for-profit sector, they had to adapt and re-learn what they knew when they entered a non-profit boardroom.
Although business leaders have the skills and expertise that the non-profit sector needs, understanding and appreciating the differences between the two types of boards substantially improve the quality of the NPO board and the experiences of its directors.
At the outset, the job of a director on both types of boards looks similar. Directors on both types of boards work closely with management to ensure adherence to good governance, compliance with relevant laws and codes, adoption of best practices in transparency and accountability that build trust with stakeholders, and ensure that the interests of stakeholders and beneficiaries are met.
Whether it is a for-profit or NPO, an annual set of accounts must be prepared and made available to its stakeholders. The larger NPOs have board committees to assist the board in discharging its oversight function by meeting regularly, not unlike listed companies. The most common board committees in the NPO sector include nomination, remuneration, and audit and risk. Similarly, an annual general meeting of shareholders or members is held once a year.
Empathising with the uniqueness of NPO boards
The differences where they exist are quite striking. It behoves directors joining NPO boards to empathise with the uniqueness and specific demands of the sector in order to be effective and to contribute fully towards the mission of the NPO.
First, NPOs typically rely on volunteers at all levels, except for a few key paid staff. Even the directors are considered volunteers, albeit very senior level ones. Thus, as a volunteer, a NPO director is not paid, unlike for-profit boards.
Secondly, within this unique sector, each NPO, in turn, has its own uniqueness. It could be legally set up as a society, a co-operative, a company limited by guarantee or a trust. Over 600 of the 2100 charities in Singapore are Institutions of Public Character – organisations approved by the Commissioner of Charities for tax-deductible donations. Additionally, social enterprises that seek to create social impact through business are growing and gaining influence.
Thirdly, a key difference between being on the board of for-profit companies and NPOs is the requirement to support the NPO with its funding requirements, something which many who make the cross-over may not be keenly aware of when they sign up because this is not always a prerequisite on for-profit boards.
Fundraising is the lifeblood of many NPOs, including charities. While some NPOs may receive annual funding from the government or endowments, fundraising tends to be the main means by which many NPOs fulfil their mission to serve their constituents. It is thus a perennial activity for these NPOs.
Besides contributing time and skills to the board, directors may be expected to support the NPO financially in various ways. These include making a monetary gift to the NPO, initiating or helping out with fundraising events as well as canvassing for funds to meet the fundraising requirement and/or target. Over and above these, NPO directors are expected to share about the NPO and its cause(s) as widely as possible so that more people may believe in the cause and may choose to support it when the opportunity arises.
Experiencing the rewards
In order to encourage more people to serve on NPO boards, various efforts have been put in place to help incoming NPO directors develop their understanding and hone their skills to address the challenges of NPOs. The Charity Council’s Charity Transparency Framework provides a tool to enhance NPO disclosure and governance practices. Similarly, the Non-Profit Directors Programme, organised jointly by SID and the Social Service Institute, is designed to address the learning needs of NPO directors.
At a personal level, the NPO board role can be fulfilling as it provides a meaningful way to apply one’s experience and expertise towards creating greater social impact through good governance that transform lives and communities.
Individuals exploring the NPO governance environment also gain new skills and knowledge about NPOs that may help them consider careers in the non-profit sector in the future or broaden their own career prospects. Working in the non-profit sector, which operates in a resource strapped environment, directors are trained to find solutions to challenges in more frugal yet innovative ways.
We operate in a connected world today, where conventional business models have been or are being disrupted by the co-sharing of resources. Stepping out of the business or corporate realms into NPOs provides executives and professionals a platform to better understand and embrace this new world order that is driven more by collaboration than competition, and the take-away will certainly be rewarding for personal growth and one’s own life journey ahead.