Corporate vs Non-Profit Boards

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What are the key differences between a corporate and a non-profit board? 

  • The main similarities include:
    • Governance – Both boards have clearly stated mission and core values. In both settings, good management and leadership are crucial to ensure the success of the organization. Both models can inform one another about governance.
    • Governing Documents – Corporate and non-profit boards have the same governing documents, although they are worded differently. They both have articles of incorporations, by-laws, descriptions of the duties and responsibilities of the board, of individual directors and of committees. Both will develop written policies, including policies to deal with conflicts of interest, codes of ethics, confidentiality, and indemnification.
    • Responsibilities – Both boards have similar responsibilities such as hiring and evaluating CEOs, establishing an operating plan, ensuring financial statements are accurate and timely, safeguarding and allocating financial resources, ensuring policies are in keeping with legal and ethical compliance, protecting the organization’s reputation, providing guidance and oversight. However, the non-profit board has a responsibility to further the charity’s tax-exempt purpose.
    • Metrics – Both boards will use metrics to determine the success of the organizations. However, the type of metrics used and the importance given to them differ. For-profit boards will use financial metrics of performance such as P&L, stock price, and cash flow. Non-profit board will focus on meeting their budget and cash flow projections but also meeting certain client, staff, and community needs.
  • The main differences are:
    • Different purposes – In a corporate setting, the board of directors serve and are accountable to shareholders. A non-profit board serves the clients of the organizations, the organization’s causes, and the organization’s communities.
    • Size – Corporate boards tend to limit the number of directors to 10-15. Non-profit boards are often 5 times larger. Both boards will form committees, but corporate board will have fewer committees than non-profit boards.
    • Fiduciary Duties – Both boards will have duty to care, duty of loyalty, duty of candor, and duty of confidentiality. However, non-profit boards will also have duty of obedience (remain faithful and supportive of the non-profit organization’s mission and its organizational goal).
    • Financial Structure –The majority of funds for non-profit organizations comes from donations, grants, membership fees and philanthropic efforts. Some non-profits also have a small operational budget for selling products or merchandise. Non-profits utilize the talents of volunteers and donors, and some employ staff. Because non-profit organizations channel most of their funds toward a cause, boards must place a heavy emphasis on responsible budgeting and cash flow.
    • Meetings – On average corporate boards will meet five to seven times per year, with three to four additional meetings taking place via teleconference. Directors are expected to attend all board meetings with few or no exceptions. Regulations require public companies to disclose whether any of their board directors have less than 75% board meeting attendance. Non-profit boards meet as frequently or infrequently as necessary based on the work required. Since directors do not get compensated for their time there might be no specific attendance requirements.
    • Compensation – Corporate boards members are often retired senior executives. Members receive compensation for their duties (cash, corporate stocks, stock options, or a combination). Non-profit board members typically are volunteers who are required to give some amount in personal giving to the organization. Corporate and non-profit board members get reimbursed for travel and personal expenses although in smaller non-profits board directions are sometimes expected to pay their own expenses and/or use them as a tax write-off.
    • Retirement – Many corporate boards will have a mandatory retirement policy (usually between the ages of 70-75), whereas non-profits usually allow board directors to serve indefinitely. However, both corporate and non-profit boards can limit the number of terms directors can serve in succession.

If you are interested in learning more about non-profit boards please contact robin@rhifundraising.com for bespoke advice.

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Bibliography

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