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Nonprofit Board Composition and Orientation

I recently observed a nonprofit's board members panicking over the organization's total annual deficit of $23,000. Members seriously questioned the exec's abilities.

The organization's annual budget: $8 million. The deficit, less than 1% of the annual budget.

Many of the board members have grown old with their organization with some having been members for 25 years, since the founding of the organization (that's likely not the best scenario). The nonprofit started as most do with only a bit of money: $25,000. Imagine if at the end of the first year, the deficit had been $23,000. Panic would have been conceivably in place and possibly justifiably so.

One of the realities I would observe of nonprofit board members is that many view a nonprofit's finances in the way they view their own personal finances. Many do not have a lot of experience managing a business or a nonprofit and so their only world view when it comes to money is themselves. The consequence: what appears alot on a personal basis is very small on a business basis.

The panic that was set forth from this news, in my opinion, is to be expected. A loss is a loss whether it's mine or the nonprofit's. But the response to the loss -- this is clearly something that can be managed more effectively.

First, given that the majority of board members do not know what to expect or expect as reasonable when it comes to corporate finances, the Governance Committee would do well to a) learn the level of experience when interviewing prospective board members and b) be sure to include in the orientation and on-going training, what corporate finances are like and how they cannot be assessed at the same level as personal finances, perhaps using comparisons with other organizations. In step (b), adjusting personal culture and awareness is essential.

Next, the Exec and the Treasurer should be sure to always keep members abreast of financial challenges and changes. When something "bad" is coming, it is better to be prepared than surprised.

Finally, it's possible and likely that the characteristics and skills/knowledge of individuals who serve as board members in an earlier stage nonprofit are not the best skills/knowledge and characteristics of those who are best for a more mature, large nonprofit. A so-called, corporate-focused or experienced indiivdual may be much more suited for providing fiduciary oversight of a big-budget nonprofit because their skills and knowledge are better matched. These members will still panic but at a significantly different level than the individual with no corporate experience.

Should the characteristics change as the organization grows? I would suggest: yes. The early stage manager is different than a mature stage manger. I would pose that the same is true for the board.

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