> Posted by Danielle Piskadlo, Manager, Investing in Inclusive Finance, CFI
The Investing in Inclusive Finance program at the Center for Financial Inclusion at Accion explores the practices of investors in inclusive finance. Across areas including risk, governance, stakeholder alignment, and fund management, this blog series highlights what’s being done to help the industry better utilize private capital to develop financial institutions that incorporate social aims.
I was recently invited to join the board of my son’s school. The gist of this invitation email was that there would be a fairly significant time commitment in the form of regular board meetings and committee work, and that in addition to this time investment, “As with all non-profit boards, it is expected that every member of the board will support fundraising, and give a donation themselves.”
I spend much of my time at work on governance topics and am therefore fairly well-versed in the trials and tribulations faced by boards. However, when I personally received an invitation, I felt, in my humble opinion, that this is an absurd request.
What kind of proposition is it to be asked to sacrifice your highly coveted personal time and in return to also be expected to commit your hard-earned money. Could you ever imagine a job where you were asked to pay your employer for the privilege of committing your time and energy to working with them?
That said, there are millions of non-profits in the world and most of them have some sort of governance structure so obviously people do commit their time, energy, and money to non-profit board service. This disconnect got me thinking about why anyone would ever join a non-profit board. What are the incentives? Here are some of the reasons I came up with for why I would consider accepting an invitation to be a board member at a non-profit:
- I felt very passionately about the cause.
- A close friend or relative asked me.
- I had a vested interest in the work of the organization.
- I was flattered to be asked to provide my wisdom/guidance.
- There was some prestige, resume building, or additional perks.
- It would be a good opportunity for networking or may lead to a future job.
- To meet some like-minded people.
The problem with most of these reasons – with the exception of being passionate about the cause – is that they are generally considered governance no-nos. Number two and three would be nepotism and related-parties, respectively, both of which are frowned upon governance practices.
Reasons four through seven, although not directly in opposition with any governance best practices, are not the rationales that would make for good boards as they are all superficial and self-interested incentives. Superficial and self-interested reasons don’t strike me as the best way to attract high quality individuals ready and willing to put the effort, thought, and dedication into this role that is needed for a high functioning board. Boards should be made up of individuals with a diversity of backgrounds, expertise, and experiences who are willing to put in the time, stay actively engaged, and are ready to ask the hard questions about strategy, mission, risk mitigation, and so on.
Perhaps I am missing some of the incentives for why individuals would offer both time and money to join a non-profit board. If I am, I hope you’ll comment with additional reasons I missed. It still seems like there is a major disconnect between the incentives individuals have to join a non-profit board and the needs that board has to execute its governance role well. The odds that the bulk of non-profit board members are operating solely or even mostly on passion for the cause, to me, seem low.
As with anything, you get what you pay for. Maybe it is time for more non-profit boards to consider remunerating their board representatives for their service in order to ensure they can attract the caliber and composition of board members they need. After all, within our organizations, we do pay our staff in accordance with the demands and importance of their positions.
Image credit: matt_e
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June 10, 2014 at 9:10 am
Larry Reed
Thanks for the thoughts on nonprofit governance, Danielle. I think Prof. Yunus would tell us that the reason we join any voluntary association that requires time and often money is because we are human beings that value more than just financial gain. We care about the health our community and the lives of our neighbors. What we earn from our voluntary activity is being able to see positive change in things we really care about, and for most of us that is more valuable than money or time.
June 10, 2014 at 9:32 am
Daniel Rozas
Danielle – I think the list is pretty good, though not sure I agree with all the conclusions. #3 particularly – vested interests – requires further clarification. Vested interest is certainly a problem when that interest diverges from that of the organization. But I’d think in the case of your son’s school, your interest as a parent in ensuring quality education should align quite well with that of the school. For several years, I’d served as president of my building’s condo association. My personal vested interest in keeping the building well-maintained and condo fees low aligned perfectly with those of the association at large. In the financial sector, this is exactly the type of interest that helps keep together informal savings associations as well as larger financial coops. The same can be applied to NGOs. The key in all these cases is that there should be sufficient checks and balances built-in (other board members, external auditors, strong general assembly, etc.) to limit opportunities for directors to benefit themselves at the expense of the institution. For example, in the case of my condo board, requirements to double-sign checks, the presence of an external manager, annual audits, and an involved board would have made it difficult for me to take advantage of my position for personal gain.
So why did I decide to (reluctantly) take on the responsibility? It was, in fact, vested interest — when the past (and highly capable) president resigned, somebody needed to fill the shoes. I didn’t want to entrust another owner with even less willingness than myself with that responsibility. I imagine coop members face the same decision.
Reason 5: also don’t quite agree. Becoming a director of an organization may bring recognition, but it also comes with accountability — that recognition may prove unwelcome should the organization falter or become the center of a scandal! Personally, I’ve never been asked to join an MFI board, but I imagine if someone were to do so, the benefits to my CV would be contingent on how well that MFI performed. Particularly since I work a lot in risk management, were I to accept such a post, I’d be quite motivated to maintain whatever reputation I have by helping the institution manage its risks well. That doesn’t mean that compensation wouldn’t matter, but its primary element would be to enable me to accept the position in the first place. Meanwhile, my motivation to take the responsibility seriously would exist even without such compensation.
Ok, so that doesn’t answer the question of contributing money along with time, but at least in the case of MFIs, the latter isn’t normally part of the bargain…
June 10, 2014 at 4:02 pm
erhyne
Why Danielle joining the school’s board? Out of a sense of mutual obligation, probably — her son is receiving benefits and she recognizes the importance of keeping the school healthy. This is not the same thing as passion for the cause.
More broadly, many people are motivated not by “Passion” but out of a sense of civic duty, obligation to contribute and the kind of participation in society that Larry describes well above.
Another motivation that has been important for me is learning.
And the even motivations dismissed here as self-serving are not necessarily shallow, and can well contribute to good governance performance. No one who wants to get on a board to make new connections is going to sluff off if that means that the new connections will regard the board member as a slacker.
June 11, 2014 at 1:19 am
John Gitau
Why do I have a feeling that all points sited in this post and comments are valid? I think it is because they are. But their validity would be better tested if the board invitations are from fields outside our professions and family interests. For example, if Larry is a senior bachelor and an atheist who owns a chain of casinos, would he accept board invitation to a Mormon church organization that supports family planning? ( sorry Larry for using such a weird example). The choices and decisions we make are all a product of rational and irrational considerations some holed up in our subterranean zones and thus not available for analysis. We can’t tell for a fact how much of each consideration has gone into the choice made. We may never even be accurate on metrics and measures. Whether it is a kilogram of ego, a centimetre of altruism, a degree of spirit, a light year of love, a drop of passion, a whiff of inspiration, a millilitre of murderous feeling towards institutional incompetence or a kilowatt of philanthropy, we cannot tell. All we know without a doubt is that choices result from a cocktail of variables.
June 12, 2014 at 9:01 am
Matt balitsaris
I was with you through the bulk of your post. But you lost me with your conclusions. What constitutes a more self interested incentive than financial renumeration (see your conclusion re points 4 through 7)?
Perhaps this makes sense for some organizations at a certain level. But most non profits I know can barely pay their staffs, much less contemplate paying their boards, who outnumber the staff in many cases.
June 13, 2014 at 1:00 pm
Danielle Piskadlo
Thanks for all of your comments. I am glad to see this post generating some conversation. I completely agree that people should, and often do, join non-profit boards for reasons of civic duty, learning, service above self, etc. and that those rationales are often more important than financial gain.
What really worries me about non-profit boards is that it seems an industry standard has been set that board members are expected to make a non-voluntary financial commitment to the organization. I am concerned this industry standard may exclude passionate, well-qualified individuals from serving on non-profit boards just because they don’t have disposable income. Isn’t this policy of expecting of expecting money from board members a bit exclusionary and perhaps even elitist? If non-profit boards are viewed as a revenue source, doesn’t that misalign the institution’s incentives when recruiting new board members to favor wealthier (over well-qualified) individuals?
I agree that financial gain is also a self-interested reason for joining a board and would be happy to modify my conclusions to say I think for-profit boards should remunerate their boards and that non-profit should ask board members only to volunteer their time.
In terms of vested interest, I understand that this could be an acceptable, and even desirable, trait in board members but it can still get messy. For one, it assumes that the interests of the board members are in fact aligned, and continue to be aligned, with the institution. It also assumes that the board members are responsible enough to be transparent about all potential conflicts of interest and to excuse themselves from discussions/votes related to those interests, despite potential personal gain. For example, my husband recently completed a real estate transaction for our son’s school. In this case, incentives would have been misaligned because the larger the school’s rental contract, the bigger his commission. However, if I had been on the board at the time this decision was made, I wonder if my mere board participation would have been an influencing factor even if I had excused myself from the vote.
I completely agree that recognition may turn out to be unwanted attention should the non-profit encounter a scandal. I was approaching the blog from the perspective of why one would join a non-profit board and didn’t think “being held accountable” was one of the reasons 😉 Perhaps the flip side would be that if you are able to help the organization to do really well, your name and reputation would be linked with that success. Perhaps that would be a better way of stating #5.
Thanks again for all the excellent comments!