Effective governance for NPOs is especially important since such organizations always carry out some socially important mission, do not aim to earn money, and, due to this specificity, are often limited in resources.
NPOs: the commitment to the principles of management
The nonprofit sector is distinguished by various organizational forms and a wide range of socially important goals and objectives for which NPOs are created. Since NPOs, the purpose of their creation and the procedure for registration and activities are fundamentally different from commercial organizations, and their management includes many subtleties and individual points.
Even 20 years ago, such organizations almost perceived the word “management” as a curse. It was associated with business, while members of organizations were proud of their non-merchant and independence from such “base matters” as profit. By now, most have learned that for NPOs, strong adherence to management principles is perhaps even more important than for business enterprises since people who work without regard for the “end result” are more difficult to organize. Of course, these organizations strive to “succeed.” However, they understand those good intentions will not replace organization, principles of leadership and responsibility, effective work, and high results. All this requires management, which, in turn, begins with the formulation of the mission of the organization concerned.
The effective use of the board of directors
Many NPOs now have what is still considered an exception in the commercial sector – a well-functioning board of directors. They also have something even rarer in business practice: a chief executive officer who is truly accountable to the board of directors. The chief executive officer’s performance is reviewed annually at a board meeting and compared against predetermined performance targets. Under US law, the board of directors is still regarded as the “governing” body of the corporation. Management experts agree that a strong board brings great benefits to any organization. The main problems of any organization, including the NPO organization, lie within the competence of its top echelon. The main task of the board of directors of the organization is to help it survive in a changing environment.
Traditionally, the board of directors managed all the affairs of such organizations. Many NPOs have recently moved to the use of professional management due to their size. They have become more complex to such an extent that volunteers working part-time, gathering once a month for three hours, can no longer cope with such deals.
Nonprofit boards in a new reality
It should also be taken into account that members of the boards of directors in these organizations, as a rule, have a personal interest in the business they are engaged in. Few people will agree to be parish council members or sit on the board of trustees of the school if they do not personally care about the problems of religion or education. In addition, many members of the boards of directors in nonprofit organizations, before being elected to a leadership position, work in their organization voluntarily for several years and, unlike outsiders, already have a certain understanding of the features of this work.
Since boards of directors in NPOs are made up of active and personally interested in the cause in which they are engaged, the relationship between the board and the chief executive officer in such organizations can sometimes be very difficult and even tense.