December 16, 1999 | Read Time: 2 minutes
Business executives beware: Using traditional corporate-management skills on a non-profit board can be hazardous to the health of the charity.
“Non-profit work involves more than just having your heart in the right place,” F. Warren McFarlan, a Harvard Business School professor and veteran non-profit board member, writes in the Harvard Business Review (November-December). “It’s essential that business people who are involved with, or who are thinking about becoming involved with, non-profit work understand how the for-profit and non-profit worlds differ.”
One of the major ways they differ, Mr. McFarlan says, is in the ways in which they develop and evaluate their missions.
In the corporate world, “factors such as profit growth and market capitalization are effective measures of the company’s long-term performance,” he notes. But at a non-profit group, “financial considerations form only one dimension of its mission statement, though still an important one since sustained losses can lead to the demise of any organization. Another more critical variable is the service that a non-profit gives its often diverse constituencies. But it can be very difficult to measure performance along that dimension.”
While losing money may be anathema in the for-profit world, that may not be so in the non-profit world, Mr. McFarlan points out. A money-losing non-profit program “may be at the center of the group’s mission and its raison d’etre,” he says. Ending the program might make the non-profit group’s finances “even worse, because the closure may choke off capital gifts and other forms of long-term support for the whole organization.”
Other arenas in which the non-profit environment may differ from the for-profit include: selection of the organization’s chief executive, the structure of the board, and the chief executive’s relationship with the board chair, Mr. McFarlan says.
“Corporate executives potentially bring great skills and insights to the non-profit boards on which they serve,” Mr. McFarlan concludes. Still, he adds, “non-profits need business people, but only on the right terms.”
A summary of the article is available on the magazine’s World-Wide Web site: at http://www.hbsp.harvard.edu/products/hbr/.
