Nonprofit service can prepare directors for private company boards.
There is a common, overly simplified and fundamentally mistaken belief that a nonprofit board is a different animal than the board of a privately held company. I’m here to tell you that, particularly from the chair’s perspective, that belief is false.
When it comes to serving on boards of closely held organizations, I’ve been around the block a few times. I have spent 30 years in leadership positions, including two five-year stints as chair of two globally recognized arts organizations and two medium-sized educational institutions. I’ve also served on or led a number of community-based nonprofits and was a partner in a professional services company with annual revenues in the billions of dollars. At this organization, I rose through the ranks to colead a 3,000-person segment of the business and cofounded and co-owned what became a $45M per year professional services company, exiting after 16 years. Currently, I serve on the boards of two small privately held companies. To borrow from the insurance company advertisement, “I know a thing or two because I’ve seen a thing or two.”
For-profit and nonprofit board concerns
The overlap of board concerns is, for some casual observers, surprisingly large between what is seen in the nonprofit arts world and what takes place in for-profit companies, particularly closely held for-profits. Fundamental governance and executive performance appraisal are both identical. Who are we seeking for the board, and what do we expect of them? Financial performance is no less of a concern in a nonprofit than in a for-profit. The accent is on a different syllable because of the source of money, but many of the fundamentals are the same.
• What are we selling?
• Do we know how to make our product?
• Do we know what it costs to produce?
• Will we be able to sell enough of it to make money?
• Do we know whom we are selling to?
• Do we know how to reach our target audience?
• Who is our competition?
• What kinds of risks do we have?
• Do we know how to assess and manage risks to the business?
• Do we have debt and, if so, how do we manage it?
• How do we assess executive performance?
• Which executives get assessed and by whom?
• Who is paying attention to the money, and who is paying attention to the person(s) paying attention to the money?
The list of nonprofit board worries that commingle with the for-profit world is exhaustive, and this paragraph just scratches the surface. But there are a couple overlapping highlights worth noting.
Board composition
Board composition is a good place to start. If we were to survey the board composition of both smaller nonprofits and smaller for-profits, what would we see? Almost without exception, we would have boards that are intended to meet a minimum legal requirement of the “we have to have a board” type or we would see boards populated by friends and family. It is the most expedient path. Many of us have been pulled into the “I really need you” vortex. If your aim is to have a nonfunctioning board, friends and family is the way to go.
But, in the arts world in particular, the artist leader really needs a functioning board to keep the artist out of trouble and solvent. Friends and family are too emotionally wrapped up in the artist to do the hard work that needs to be done. In the for-profit world, a founder or CEO can often manage for a long time without a functioning board. But, at some point, all organizations need adult supervision. A board populated by your childhood friends, your college roommate and your second cousin cannot function without creating turmoil.
Leadership assessment
Second, in my estimation, is CEO/artistic director assessment. By definition, CEOs and artistic directors believe themselves to be “in charge.” This is especially true for founder/CEOs and artistic directors. The world is full of founder-leaders who are hostile to the notion of performance appraisal. It is nonetheless a key role of the board to provide unequivocal feedback to leaders in both the nonprofit and for-profit worlds. In the arts world, there is an additional layer of complexity that we generally do not see in smaller businesses. Because, in the arts, there are often two people who view themselves as in charge: the artistic director and the executive director, the individual who often acts in the role of the CEO. It is generally agreed that leader appraisals should be focused on measurable metrics. But in very large arts organizations, the artistic director rarely gets formal feedback outside of contract renewal (or nonrenewal) time.
Despite its relative rarity, artistic directors should be provided with clear guidance about things like sticking to the budget or schedule. After that, it’s really all about the art, and boards generally have little input on that subject, which can be complicated if the art veers off in a direction not supported by the board. It’s a hard spot for a board to be in. For the executive director/CEO of an arts organization, the role can be more like COO of a for-profit with an out-of-control CEO. It’s a hard job that needs strong board engagement toward helping the executive perform their duties. It’s similar to a for-profit board and its CEO. Performance appraisal and open engagement between the board and executive is critical to organizational success no matter the type of company.
In my experience, actively serving on a nonprofit board provides experience that translates very well to board service in the for-profit world.
Elliot Rosen is a consulting executive and serves as chair of the Bowdoin International Music Festival. He is also a board member for Placard Pass and Factor Inc.