Nonprofit Board Accountability: A Brief Comparison with For-Profit Corporations

What can nonprofit organizations learn about accountability from for-profit corporations?  Plenty!  Despite their differences, for-profits and nonprofit organizations can have much in common structurally and operationally.  Taking a look at the best ways for-profit corporations hold themselves accountable will yield helpful principles than can strengthen nonprofit organizations. 

For-profit and nonprofit general similarities and differences

Compare the nonprofit to a for-profit corporation.  Notably, the Illinois Not-for-Profit Corporation Act and many other state nonprofit corporation laws are structurally quite similar to state for-profit corporation laws.  Both acts provide for formation, corporate powers, limited liability due to corporate structure, directors, officers, merger, dissolution, and annual reports.  Operations and accountability of the board of directors and the executive personnel may be quite similar in both types of organizations.  In both the for-profit and nonprofit context, “the buck stops with the Board,” and the Board appoints executive personnel (CEO, COO, CFO, etc) to run the company.  Given these similarities in basic structure, it is not surprising that the nature of accountability in a nonprofit board, like that of a for-profit board, is encapsulated in the directors’ fiduciary duties.

But the interesting question when it comes to nonprofit accountability is:  “To whom?”  In the for-profit context, the board is accountable to the company’s owners or shareholders.  But in the nonprofit context, there are no shareholders.  So, to whom is the nonprofit accountable?  Generally speaking, a public charity is accountable to the “public.”  But a public charity also has stakeholders, who may be members (e.g., a church), donors, volunteers, and perhaps other organizations who engage jointly in various projects.  Much has been written about Section 501(c)(3) organizations’ legal accountability to the IRS, state Attorneys General, and other government regulators.  But like for for-profit entities, who are accountable to shareholders, public charities also have broad and deep accountability to their stakeholders. Though these stakeholders are not “owners” like shareholders in a for-profit corporation, it is advisable for nonprofit boards to understand their accountability to such stakeholders.   Such accountability is key to maximum financial and programmatic success.

Accountability tip:  good communication to stakeholders

What can nonprofit leaders do to improve lines of accountability with stakeholders?  Look again to the principles used by the best for-profit corporations: good communication is key.  Many for-profits provide shareholders with a simple end-of–year annual report or other similar informative document.  Such a report accomplishes many purposes:  It showcases the organization’s achievements.  The report makes available to shareholders the for-profit’s financial information.   The wide dissemination of such information helps shareholders hold the directors accountable for the leadership. 

Going Global: Operating Charitable Programs Abroad

Philanthropy in the US has always carried a distinctly global mindset.  US-based nonprofits have a lengthy and impressive history of not only sending money, goods, and volunteers to help those in need, but also operating overseas to directly conduct their missions.  Legal and practical issues may vary considerably. Several basic pro-active steps, however, apply to nearly every nonprofit contemplating international activities.

Research, Research, Research