February 25, 2011

So you really want a nonprofit to run like a business?

Business and philanthropic leaders have been known to openly encourage the nonprofits they support to operate more "like a business". The premise, that businesses are run so well, is itself debatable. But more than that, many of these volunteer leaders have themselves abandoned sound business practice in directing how their charities should be run. They also seem not to have noticed that many real-world businesses have gone under during the past few years, or that for-profit enterprises cannot succeed if they are under-capitalized.

Their behavior includes favoritism in putting friends and allies on the payroll; deference to their own whims and to the perquisites of charismatic professionals; and... Madoff. Few if any professionals were involved in decisions by boards and investment committees that swung hundreds of millions of dollars to funds managed by Bernie Madoff. The investment committees were peopled by too many big-money VIPs who didn't care about conflicts of interest, since in many cases Madoff or one of his cohorts was a member or the chair of the same committee (or they were Madoff investors themselves).

Decisions about program and strategy are often taken based upon a donor's own gut feelings and personal experience, rather than relying upon objective analysis of what may advance the organization's overall mission and goals.

Some of those heading major organizations and foundations are content to get Board approvals by throwing a budget up on a screen once a year and calling for adoption by consensus. Board members are not seen as stakeholders or shareholders, but as donors to be impressed or business partners to be cultivated. Many of those joining the Board are not expected to pull their own weight either financially or politically.

This is not to say that most nonprofits are not run in a first-rate manner. The fact that most nonprofits are being operated by professionals of integrity, seeking to maximize deliverables, is too often discounted by those in a position to leverage their own charitable dollars toward noble purposes. The fact that many lay leaders either did not make their own fortunes, or that they abandon sound business principles as soon as they enter a nonprofit setting, is conveniently and politely overlooked.

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