Key Differences Between Corporate and Nonprofit Boards

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When a person with extensive corporate board experience joins a nonprofit’s board the differences can come as a surprise. Many of the rules governing for-profit directors also apply to nonprofit directors: fiduciary responsibilities, obligations to disclose conflicts of interest, and so forth. But important differences, some cultural and some technical, make the nonprofit experience its own creature. Here are a few.

  • Different constituencies.

A corporate director’s primary responsibility could be said to be to preserve and enhance shareholder value and manage shareholder risk. Managing the relationship with important shareholders is important for any corporate director. In a nonprofit, the board is answerable not to shareholders but to stakeholders. Stakeholders aren’t just the members of the nonprofit’s leadership group and its primary donors. They also include volunteers, beneficiaries, and the broader community that will be affected by the nonprofit’s activities. This can be a significant cultural shift for someone used to dealing only with a small group of financially sophisticated investors.

  • Different goals.

A for-profit board often focuses primarily on the business’s central purpose: making a profit. This motive drives all manner of decisions, to the point that it can take on an unconscious quality. When moving into the nonprofit realm a director often needs to retool this cultural programming to take account of the goals of the nonprofit, which focus on the organization’s social impact.

  • Different finances.

Of course, financial matters are still critically important to a nonprofit’s board. But the sources of financing for nonprofits differ dramatically from those in the corporate sector. A different mindset is often required while cultivating reliable donor relationships, seeking out financing from foundations and government grants, and planning events.

  • Different staffing.

While a corporate CEO can sometimes get away with being a technocrat, allowing lieutenants to do the leading, a nonprofit’s executive staff needs to have the charisma to appeal both to donors and to volunteers who often do a lot of the day-to-day work of a nonprofit. Volunteers are also a big difference. Because they aren’t paid, the nonprofit’s handling of volunteers needs to be managed according to different standards than a corporate employee.

The Church Law Center supports nonprofit boards

The Church Law Center of California provides guidance to secular and religious nonprofit boards. We have broad experience helping boards develop governance plans and resolve operational questions. To learn how we can help your organization call us today at (949) 892-1221 or reach out to us through our contact page.

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