Ask More of Business

Asking More Commentary: Perspectives from Mendoza College of Business

Commentary Post - Thomas Harvey

Boards Are Ultimate Guardians of Nonprofits’ Missions

July 22, 2013

Ken Stern, who served as the CEO of National Public Radio (NPR) for many years, recently published, With Charity for All: Why Charities Are Failing and a Better Way to Give. The book calls for greater accountability for nonprofit organizations. However, it’s troubling that the book rarely, if ever, mentions the role and importance of boards in organizational accountability. Stern asserts that nonprofit organizations lack accountability because donors are being irresponsible.

In this column, we will focus on three points that make this book less than beneficial to the nonprofit sector, and then give our own recommendations for improving accountability.

First, the book virtually overlooks the role and function of nonprofit, governance boards. We find this not only strange, but alarming. By law, boards are to be the guardians of their organizations’ missions. It is shocking to think that a book on accountability disregards the group that should be most accountable for an agency’s mission.

Second, early in the book, the author categorically states that nonprofits must realize that donors are their primary clients. Though donors certainly rank as very important stakeholders for any nonprofit organization, we disagree with the notion that they should be regarded as the primary clients. Missions should not be at the mercy of those who pay for a given service. It is our experience that failing social service programs financed through government grants or contracts are unsuccessful often because those who designed the programs lack the experiential understanding of the challenges faced by the beneficiaries of the programs. By this analogy, the policymakers are the funders or donors.

Thinking of donors as clients becomes increasingly problematic in that it requires someone to codify donors’ wishes to reach a consensus by which the agency must act. A worrying proposition to deal with this problem would be to give the power to only the big donors. Frankly, we find this a very dangerous platitude for setting policy.

Third, the book dedicates various chapters to poorly performing nonprofits. One chapter describes the stream of failures by many international humanitarian organizations that provide the poorest parts of the world with access to water through new wells. The author, Stern, criticizes these efforts because he believes the organizations placed too much focus on digging the hole in the ground, and not enough attention to the future maintenance of the wells. On one level, the criticism is justified to the extent that organizations raised expectations only to see neglect and failure. But, our criticism of the book’s analysis was its absolute focus of the provider agency putting in the well and being responsible for its future maintenance without ever bringing accountability and the local community and culture into the discussion. If there were failures, surely the author must have researched how important it is to have the clients involved in the planning and maintenance of the new equipment.

One can learn from what we consider a limited analysis of the weaknesses of charity organizations. For example, this book demonstrates that being involved in an important nonprofit organization, as the author of this book was at NPR, does not guarantee a real understanding of the altruistic sector and of its culture. The book’s attention to the donor as the entry point for change has some merit, but only if the donor has the ability to assess the real issues—which were not addressed in this book—namely how board directors view their role as the agents who are accountable for the how an organization’s mission is served.

But, hoping for trustee improvement may not be enough. A recent article, “Nonprofit Abuses Won’t Stop without Tougher Rules and Regulators,” by Pablo Eisenberg discusses additional approaches. We agree with the solutions he proposes, and think that at least two oversight functions would help to hold nonprofit boards more accountable. Because there is no version of the U.S. Securities and Exchange Commission for the nonprofit sector, we suggest forming a similar body that would set broad standards for the functioning of nonprofit boards. The second oversight function is auditors. We recommend that auditors should be replaced regularly, and that all firms that perform nonprofit audits should be mandated reporters and abide by requirements to alert the public and the oversight body of board ineptitude and malfeasance.

What all directors must learn from this book is the need to recommit to being accountable and to showing the public who is actually responsible and accountable for organizational mission. Then, future authors will not so easily overlook nonprofit boards as the ultimate agent of accountability in charities.

Note: This column was excerpted from the "On Board" column published in Issue 2 – 2013 of the Alliance for Children & Families Magazine. The column is written by Thomas J. Harvey, MSW, the director of the Master of Nonprofit Administration Program at the University of Notre Dame Mendoza College of Business; and John Tropman, Ph.D., professor and associate dean for faculty affairs at the University of Michigan School of Social Work.