“Nonprofit” Still Means Business


Nonprofit doesn’t mean non-business.  Since the “non” part of profit simply refers to where profit goes (back into the organization, not to shareholders), a nonprofit is otherwise a mission-driven business, complete with business processes, revenue, P&L, employees, etc.

Almost. Perhaps the key difference between nonprofit and for-profit businesses lies in perception — society’s AND their own.

Some nonprofit board and staff members are reluctant to call their efforts business. And some business best practices are considered too costly, too complicated, or too indulgent for nonprofits.  As noted by author/board member/business consultant and Professor Emeritus at Rochester Institute of Technology, Eugene Fram, some boards fail to appreciate that today’s nonprofit leaders need the same tools as corporate executives “to lead their organizations towards greater accomplishment and sometimes survival.”

By excusing themselves from investing appropriately in the tools, professional development, and expertise needed to evolve their organizations, boards mistakenly lower the bar — for staff leadership, outcomes, growth, board leadership criteria, and more. They settle.

And perhaps they’re not at fault for that disservice. A colleague, who heads his own company and sits on a nonprofit board, recently disclosed he expects the organization to outgrow its ED/ CEO within three years.  His instinct is to craft a new contract that includes a severance package for that executive who will have served for over a decade.  That common business practice, however, could be questioned in the nonprofit sector, where the “money into mission” mantra discourages non-essential overhead expenses.  What typical donor wants to fund a pay-out to the outgoing leader?

Another strategy might be to build the leadership skills of the ED/CEO through professional development, but that’s another budget item more commonly found in the for-profit model.  So, does the board keep a leader the organization has outgrown and evolve at a much slower pace or invest in tools to align executive management skills with strategic priorities?

Surely many nonprofits already employ such best practices in business, but it’s more common in certain segments of the sector and in larger organizations.  While we often hear a call for nonprofits to “act more like businesses,” it is unreasonable to impose that expectation without treating them as such.

To effectively change course for a nonprofit, Eugene Fram suggests boards must achieve the following:

  • Reduce the number of board standing committees that hamper effective board operations and misuse board personnel
  • Build a high level of trust between board members, management staff
  • Overview organizational operations and management development, not attempt to micromanage them
  • View the CEO as a professional peer, not as a servant
  • Conduct a robust evaluation of the CEO and the organization annually
  • Pinpoint management’s responsibility and clarify its accountability
  • Develop a partnership between the board and management to develop funds
  • Allow for more management flexibility to develop a more entrepreneurial culture
  • Increase focus on productivity and impacts at the expense of bureaucratic processes

In essence, nonprofit board and staff members accomplish much without sufficient resources, but they surely deserve the same advantages as their for-profit counterparts in running their businesses.

Sonia J. Stamm

Sonia J. Stamm is Governance Consultant at BoardEffect. Since almost our inception, she has shared a best practice perspective on governance with our team and clients, partnering to guide boards toward optimal implementation of our software. As founder and principal of a nonprofit leadership consulting firm, Sonia supports the evolution of mission-based organizations through her work in board development, leadership transition and succession, and organizational effectiveness. A seasoned facilitator, trainer, and consultant, she enjoys guiding boards and organizations through critical junctures in their development.