Joining a Nonprofit Board E-Book

Marc J. Epstein

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 294

Veröffentlichungsjahr: 2011

Beschreibung

Often business executives serve (or are asked to serve) as board members of nonprofit organizations. However, without a clear understanding of how nonprofits work, service on a board can be a frustrating experience. Joining a Nonprofit Board offers an important guide to the roles and responsibilities of a nonprofit board member. Marc J. Epstein and F. Warren McFarlan provide a step-by-step guide to how board members can work with a nonprofit organization to achieve the organization's overarching mission, attain financial sustainability, and develop and execute the systems needed to accomplish both. Based on more than 10 years of research from Rice University and Harvard Business School and filled with illustrative examples, Joining a Nonprofit Board explores the basic structure of a nonprofit, explains how to build and monitor a nonprofit's mission, and identifies how the board performs an effective assessment of a non-profit. The book also explores the challenges posed by the duality of leadership between the unpaid volunteer non-executive chairman of the board and the CEO. Joining a Nonprofit Board includes a helpful explanation of a "board member's life cycle." The authors start with the decision to join a board and explain how to prepare for the first meeting. The book explores how to serve effectively the first two years and reveals what it takes to develop your ongoing role as a trustee. Finally the book describes how to transition off the board to other forms of service with the organization. Joining a Nonprofit Board is a comprehensive resource for anyone who wants to take their experience in the business world and serve a nonprofit with passion and clarity.

Leseprobe

Contents

Cover

Praise for Joining a Nonprofit Board

Title Page

Copyright

Dedication

Exhibits, Figures, and Tables

Foreword

Preface

Acknowledgments

Chapter 1: Introduction

Comparing Nonprofits and For-Profits

Summary

Chapter 2: Mission

Mission Is a Living Process

Summary

Chapter 3: Performance Measurement

Resource Acquisition and Impact

Summary

Chapter 4: Financial Strategy and Oversight

Overview of Nonprofit Finances

Financial Performance Measurement in the Nonprofit Sector

Summary

Chapter 5: Philanthropy

The Development Organization—Securing Funds

The Development Organization—Donor Life Cycle

The Development Organization Structure

Summary

Chapter 6: Board Structure and Role

The Roles and Responsibilities of the Board

Additional Board Committees

Board Meetings

Summary

Chapter 7: Leadership Chairman and CEO—a Complex Partnership

CEO Search

Board Chair Search

Summary

Chapter 8: You as a Trustee

Should I Join the Board?

How Do I Get Started?

First Two Years on the Board

Ongoing Board Service

Transition

Summary

Notes

References and Reading List for Senior Managers and Board Members

Case Studies of Interest

The Authors

Index

Praise for Joining a Nonprofit Board

“This book is a useful road map for the successful businessperson who now wants to ‘give back to society’ by serving on a nonprofit board and unwittingly assumes that the approaches that worked so well in the for-profit world can be seamlessly extrapolated to the nonprofit board room.”

—Roseanna H. Means, M.D., founder and president, Women of Means

“This book is a must-read for all new nonprofit board members (and existing nonprofit board members as well). It is full of practical advice that will help improve the effectiveness of nonprofit board members and the organizations they serve.”

—Roger Servison, president emeritus, Boston Museum of Fine Arts, and vice chairman, Boston Symphony Orchestra

“What a powerful new tool now available for anyone involved with governance of America's unique nonprofit enterprises. The analysis is cogent and concise, amply supported by real life examples.”

—George B. Beitzel, chairman emeritus, Amherst College, and chairman emeritus, Colonial Williamsburg Foundation

“This book gives you practical advice in complementing your business experience with the nuances of not-for-profit governance, performance management, and other areas in fully achieving the societal mission.”

—Jeffrey C. Thomson, president and CEO, Institute of Management Accountants

“This book is a must-read for all prospective board membersof nonprofit organizations. It guides you through the very real differences between for-profit and nonprofit organizations (and boards). Even more important, it helps one navigate through all the nuances in which nonprofit organizations actually operate on a day-to-day basis.”

—Elaine Ullian, former president, Boston Medical Center

“Both for trustees new to nonprofit board work and those who are currently serving, Joining a Nonprofit Board is a must read. I would recommend that Joining a Nonprofit Board be required reading and distributed at the opening board meeting.”

—Agnes C. Underwood, former head, Garrison Forest School and National Cathedral School; vice president/ managing associate, Carney, Sandoe, and Associates

“A board needs a unifying and visionary objective —‘It must be world class.’ This book successfully shows how to create a worldclass board.”

—W. Richard Bingham, former chairman, California Academy of Sciences

Copyright © 2011 by John Wiley & Sons, Inc. All rights reserved.

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Library of Congress Cataloging-in-Publication Data

Epstein, Marc J.

Joining a nonprofit board : what you need to know / Marc J. Epstein, F. Warren McFarlan; foreword by Gail McGovern.–1st ed.

p. cm.

Includes bibliographical references and index.

ISBN 978-0-470-93125-7 (cloth)

1. Nonprofit organizations–Management. 2. Boards of directors. I. McFarlan, F. Warren II. Title.

HD62.6.E67 2011

658.4″022–dc22

This book is dedicated to

Professor James E. Austin

and

John C. Whitehead,

Social Enterprise Pioneers

Exhibits, Figures, and Tables

Exhibits

1.1 Sample: KaBOOM! Performance Indicator

6.1 Keys to Superior Board Performance

6.2 Sample Questions for Board Performance Assessment

7.1 Questions the CEO Must Periodically Ask Herself

7.2 The Series of Questions That the Board Chair Must Periodically Ask Hersel

Figures

P.1 Book Organization

1.1 CMA Canada Balanced Scorecard

3.1 Resource Acquisition and Impact Chart

3.2 The Mission Effectiveness Approach: The Causal Linkage Map of Impact Drivers for Providing Safe Places and Services to Abused Women with Children

3.3 The Mission Effectiveness Model: The Causal Linkage Map of Impact Drivers for a Professional Association

3.4 The Mission Effectiveness Model: The Causal Linkage Map of Impact Drivers for a University

4.1 1980–2005 Sources of Cash Flow for Dana Hall School

6.1 Determinants of Board Performance

Tables

1.1 Structure of Organizations

1.2 Key Differences of For-Profit Versus Nonprofit Governance

1.3 Trustee Life Cycle—Community Services Board Chair

3.1 The Mission Effectiveness Approach: Examples of Performance Measures for Providing Safe Places and Other Services to Abused Women with Children

3.2 The Mission Effectiveness Approach: Examples of Performance Measures for a Professional Association

3.3 The Mission Effectiveness Model: Examples of Performance Measures for a University

3.4 Opportunity International Performance Measures

3.5 The AARP Foundation Performance Indicator

4.1 Key Differences Between Corporate Accounting and Nonprofit Accounting

4.2 Examples of Financial Performance Measures of Nonprofit Organizations

6.1 A Sample of Strategic Information Required for Nonprofit Boards

Foreword

More and more, businesses are looking to contribute to the greater welfare of society through corporate social responsibility initiatives. Similarly, I have a noticed a trend in business leaders looking to give back on an individual level through service on a nonprofit board. This is a wonderful and rewarding form of volunteerism, but as I have learned, there are significant distinctions between for-profit and nonprofit board service. Luckily, Marc Epstein and Warren McFarlan offer an in-depth synthesis of helpful information to guide individuals on their journey of nonprofit board service with Joining a Nonprofit Board: What You Need to Know.

There is no doubt that business leaders have much to offer in terms of expertise to a nonprofit board. Nonprofits must be financially stable, yet this is often one of the greatest challenges to a nonprofit. As financial oversight is a key function of the board, experienced executives can lend valuable financial skills that can help the organization improve efficiencies and thrive. However, as Joining a Nonprofit Board: What You Need to Know reveals, board members must understand that the role of finance will vary in a nonprofit organization, and therefore they must be sensitive to the different nuances in financial reporting.

As most nonprofits rely heavily on philanthropy for major financial support, board members are expected to serve another important role, that of philanthropist and fundraiser. Not only are nonprofit board members not compensated for their service on the board, they are also expected to contribute financially to the organization. Again, the authors provide valuable guidance on this aspect of service, encouraging individuals to seek clarity on these expectations before joining the board.

In addition to personal contributions, board members will also be active in cultivating donors and raising funds through direct solicitation. Board members serve as key ambassadors, deepening existing relationships and fostering new relationships on behalf of the organization. This can require travel and a considerable amount of time. Furthermore, your commitment to the organization may extend beyond just your term on the board. Involvement can sometimes be for life, as former board members will be called upon to participate in various ways and contribute financially.

In my experience with nonprofits, I have been inspired by the manner in which the mission is the motivating force of the organization. Employees are often driven by the fulfillment of the mission and not necessarily monetary gain. Your fellow board members, too, are likely to be personally invested and passionate about the work they are doing. As a result, when suggesting change, it is even more important to earn trust, build consensus, and move forward together as an organization. I have found that this provides opportunities to develop strong relationships with fellow board members, as you work together to achieve the shared mission.

Furthermore, because profits are not the bottom line, it can be difficult to monitor progress and gauge overall success of a nonprofit organization and its employees. Chapter Three lays out an important methodology for measuring nonfinancial performance which all nonprofit board members should consider, as they concurrently evaluate whether the mission is being carried out in a fiscally responsible manner.

Given the significant participation that is expected, it is essential for individuals to fully understand and believe in the mission of the organization before deciding to serve. The requirements may be substantial, but in giving of my time, talent, and resources, I have found that I am personally invested in the organization and even more moved to ensure its success. As a result, my service on nonprofit boards has been extremely rewarding.

However, passion alone is not enough. As you will come to understand in reading this book, it is important to ensure that you have the time and the energy to be an active and valuable contributor; otherwise, neither you nor the organization stand to gain.

When I joined my first nonprofit board eighteen years ago, I was not fully aware of all that was expected of me in this role. As a business executive, I knew I had much to contribute from my professional experience; however, no one had told me about the time and resources which were also an essential part of my service as a nonprofit board member. There were so many questions I should have asked when starting out, yet to my knowledge there was no comprehensive guide available to help prepare me for this responsibility.

As an individual who has served on various nonprofit boards, and as the president and CEO of a large nonprofit organization, I can attest to how valuable this book is. Marc Epstein and Warren McFarlan offer insight into the expectations of nonprofit board members, which is extraordinarily beneficial to individuals considering their first nonprofit board and to seasoned professionals already serving on boards. This book will allow you to be a stronger contributor, preparing you with questions to ask when deciding whether or not to join, and continuing to guide you once you are a board member. Needless to say, I wish this book had existed when I started on my first nonprofit board, but there is no doubt that this guide will be an important resource as I continue my service. I know you will agree.

—Gail McGovern

President and CEO, American Red Cross

Preface

We have spent much of our professional careers working with nonprofit organization boards. Sometimes it has been as a researcher, consultant, writer, adviser, or teacher. Sometimes it has been as an active member or chair of a board of trustees. The nonprofits that we have worked with have ranged from small to large, local to global, and are located in developing and developed countries. Some have been social impact focused and others member focused. But the questions that all posed to us are unusually similar. How do I improve performance in these surprisingly complex organizations?

We have also served for over three decades on privately and publicly traded corporate boards, heavily but not exclusively located in the United States. We have been deeply struck by not just the similarities but by the differences between the rhythms in the for-profit board processes and structures and those of their nonprofit counterparts. Although there has been convergence over the past two decades, the reality is that the differences between nonprofit boards and corporate boards are both profound and deep.

Our careers have been based at business schools. And though we have extensive work with nonprofits, we have often viewed their challenges through the lens of business professionals surprised that they cannot easily take their business knowledge and experience and transport it seamlessly to the nonprofit sector. Though this book is written for both new and experienced nonprofit board members, it is particularly focused on those with a business background and mindset who serve or are about to serve on a nonprofit board. Though there are many similarities to business, there are also significant differences—differences so significant that if you are not consciously addressing the differences, your nonprofit service will be frustrating—both for you and the organization. And your service will not be as beneficial as it can be—either for you or the organization!

You are likely to join a nonprofit board because you care about the mission. The mission is primary, and don't ever lose focus on that. The finances are also important because nonprofits cannot thrive unless they are financially sustainable. This book addresses the many questions that we are often asked. But, at its core, the questions pertain to: (a) achieving mission; (b) achieving financial sustainability; and (c) developing and executing the systems to accomplish both. This book is about the role of nonprofit boards in improving the success of nonprofit organizations. And it is about how individuals with successful business experience can appreciate the differences that nonprofits have and can leverage their business experience to make a major contribution.

We start with the mission and measuring performance against it, as that must be the primary focus. But financial skills are critical to provide and manage the resources to accomplish the mission. We then examine the special nonprofit board challenges of size, skills, composition, types of committees, philanthropy, the relationship of a nonexecutive board chair to the CEO, and so on, all of which are very different in the nonprofit world.

It is this necessity to achieve success at both mission and finances that make nonprofit management especially challenging. Too many nonprofits fail at one or both of these. To achieve excellence in nonprofit boards—whether social impact focused or member focused—success on mission, finances, and execution are all critical.

This book is written for individuals with a for-profit background, or with understanding of a for-profit business, who are joining their first nonprofit board. We believe it will also be useful for experienced board members, who sometimes can lose track of the big picture in the press of operational business. We highlight how different the roles and activities are on a nonprofit board. This book is also directed at nonprofit leaders, with the goal of helping them to understand the very different perspective that their board members from the for-profit world bring to their organizations.

At the center of the book (Figure P.1) are the roles and responsibilities of the board. These are laid out in summary form in Chapter One. The heart of the nonprofit board's role is the building and monitoring of mission, its very reason for existence. Mission, given the lack of a profit and loss statement, is especially important in the nonprofit world and is elaborated on in Chapter Two. Chapter Three identifies how the board does performance assessment of the organization. This is a complex and important task as surrogate measures are identified to replace profit and loss measures. Chapters Four and Five focus on the board's role in securing and monitoring finances for the organization. Philanthropy is such an important aspect of nonprofit finance that an entire chapter is devoted to the issues related to its securing. Chapters Six and Seven define the issues and challenges in organizing and managing the nonprofit board with its large size (in many cases) and plethora of committees. Special attention in Chapter Seven is given to the challenges posed by the duality of leadership in most nonprofits between the unpaid volunteer, nonexecutive chairman of the board and the paid CEO. This role separation is different from how things are done in many U.S. for-profit organizations. Finally, Chapter Eight traces through a life cycle as a trustee, beginning with the issues involved in deciding whether you should join the board. It then successively covers how to prepare for your first meeting, how to effectively use your first two years on the board, your ongoing and developing role as a trustee, and finally your transition off the board to other forms of engagement with the organization.

Figure P.1 Book Organization

Acknowledgments

The material in this book is the outgrowth of field research done over the past decade at Rice University and Harvard Business School (HBS), and over thirty years of active nonprofit and for-profit board service by the authors. We are particularly grateful to Dean John McArthur at Harvard Business School who launched this work and Harvard Business School Deans Kim Clark and Jay Light and Rice Dean Bill Glick who have supported it over a number of years.

We are indebted to all the board members and nonprofit executives we have worked with over the years. All the examples in the book come from real organizations and are the result of observations of strategic decisions and actions. Some organizations we are able to publicly thank, such as Trinity College, Mt. Auburn Hospital, Dana Hall School, and Opportunity International. Others must remain anonymous.

A special note of thanks is due to Professor Emeritus Jim Austin at Harvard Business School who launched the Social Enterprise effort at HBS nearly fifteen years ago and brought us together, and to John Whitehead, former chair of Goldman Sachs and for many years chairman of the HBS Social Enterprise Advisory Committee, who facilitated the whole effort.

Our special thanks go to our spouses who supported us through thousands of hours away from home at nonprofit board meetings. Fortunately there was almost always shared familial belief in the importance of the mission of nonprofits we worked with.

Our colleagues Dutch Leonard, Kash Rangan, Mark Moore, Alnoor Ebrahim, and Jane Wei Skillern have been very supportive, as has been Laura Moon, director of the HBS Social Enterprise effort. Special thanks go to our colleagues Alan Grossman and Jay Lorsch for their insightful feedback on earlier drafts and to our editors Allison Brunner and Kathe Sweeney for their many helpful contributions. The final responsibility for what appears in the book is ours. Finally, we are grateful to Paula Alexander, Maureen Donovan, Janice Simmons, Luz Velazquez, and Margaret de Sosa for their invaluable administrative support.

Chapter 1

Introduction

Congratulations on having joined the board of a nonprofit! You have just become part of one of the most fulfilling and personally satisfying sectors of the economy. Currently, nonprofits account for more than 10 percent of the United States’ economic activity and employment. Nonprofits cover a wide array of organizations spanning hospitals (half of which are nonprofits), schools, colleges, museums, professional service organizations, social service organizations, and so on. The boards of all of these organizations are rooted deeply in the American tradition of volunteerism and trying to help others. You are unpaid and giving of yourself to the community.

The number of nonprofit organizations has increased dramatically in recent years. These include a wide variety of organizations from charitable organizations, social services, religious and fraternal organizations, health care societies and health organizations, educational organizations, environmental organizations, sports and recreational organizations, to funding foundations, business and professional organizations, political parties, and so on. Their purpose is to generate improvements in the lives of individuals, members, organizations, communities, and society as a whole. Some of these organizations, such as charities, may be considered purely social impact focused, whereas others, such as professional organizations, may be primarily viewed as member focused. However, classifying nonprofit organizations is not easy as some have elements of both types. For this reason, one should rather think of a continuum of nonprofit organizations spanning from purely socially focused to purely member focused organizations with numerous nonprofit organizations having dual roles of serving both their members and society. And, as noted in Table 1.1, there are some types of organizations that are always organized as nonprofits, whereas others like hospitals and certain educational institutions may be either for-profits or nonprofits.

Table 1.1 Structure of Organizations.

Usually NonprofitsMay Be For-Profit or NonprofitFor-ProfitCharitableEducational institutionsPublicly traded corporationsProfessional associationsHospitalsPrivately held firmsReligious and fraternal organizationsEnvironmentalCommunity foundations

Participation in nonprofits is a very important part of business executives' lives and until relatively recently unrecognized. Business leaders find themselves on boards of directors of nonprofit organizations. We also find these organizations being led by professionals from the business world including professional accountants instead of individuals from traditional social service backgrounds. Surveys of HBS alumni for example show 80 percent or more self-report being involved with nonprofits during their careers with more than 50 percent serving or having served on one or more nonprofit boards. These organizations vary in size from small community music schools to multibillion dollar health organizations. These activities are widely supported by American culture (despite description in such books as Bowling Alone: The Collapse and Revival of American Community1) and by U.S. federal tax policy where the Internal Revenue Service gives substantial relief for charitable deductions. In addition, local communities often exempt assets of nonprofits from taxes (although in Massachusetts, for example, colleges and hospitals often give gifts to the towns and cities in lieu of taxes).

The roots of philanthropy go well back into the nineteenth century. Names of great business leaders like Andrew Carnegie, J. P. Morgan, and John D. Rockefeller spring quickly to mind, as also being enormously significant philanthropists. Warren Buffet and Bill and Melinda Gates are present-day philanthropists whose work attracts our attention.

We find the topic remains relevant to the leaders of tomorrow, with today's MBA students showing especial interest. Nearly half of the MBA students at the Harvard Business School are currently enrolled in one or more nonprofit courses, with nearly 10 percent of the incoming class coming from this sector as full-time employees. These facts have held for the past five years. On graduation, 3–5 percent of the class takes internships or appointments in the sector. Indeed, this phenomena is a global one with significant numbers of nonprofit CEOs (throughout the book the terms CEO, president, and executive director will be used synonymously) coming to Harvard's nonprofit programs from as far as Australia, China, Singapore, India, and the United Kingdom. This book, however, will be primarily focused on the United States because of its very large role as a matter of public policy (which cedes to nonprofits significant domains that are covered by government in other countries). The United States also has a strong focus on individual philanthropy that is quite unique in the world.

Comparing Nonprofits and For-Profits

There are a number of important similarities and differences between the operations and challenges of nonprofits and for-profits of which a new nonprofit board member must be cognizant. Some of the more important items are discussed in this section.

Similarities

There are a number of similarities between for-profits and nonprofits which make people with for-profit experience particularly helpful as board members. The key similarities include:

1. Both organizations can grow, transform, merge, or die. Success is not guaranteed for either type of organization, but requires sustained work.

2. In both cases, cash is king. This for-profit focus is critical for a nonprofit board.

3. In both settings, good management and leadership really matter. Delivery of service, motivating and inspiring staff, and conceiving of new directions for growth are all vitally important.

4. Planning, budgeting, and performance measurement systems are vital in both settings.

5. Both types of organizations face the challenges of integrating subject matter specialists into a generalist framework.

6. Both organizations add value to society. They just do it in different ways.

In short, there is much overlap between the skills needed and perspectives provided by leaders in the two types of organizations. This is a key reason why social enterprise courses have taken root in business schools and why, appropriately socialized, those with for-profit backgrounds can contribute so much to the nonprofit world.

Having noted all of this, the blunt question in your mind is: why do I need to read a book on nonprofit management? Isn't it just a subset of the for-profit world, with little difference in the tasks and perspectives of managers and board members? Cannot the tools, practices, and viewpoints developed through a career of successful for-profit work be transferred to this new realm of nonprofit? The authors answer this question with an emphatic no! Although, as noted, many aspects are the same, in important areas there are deep differences. Failure to understand these differences can cause the new board member to stumble badly and perhaps irretrievably damage her credibility and effectiveness in a nonprofit organization.

Differences

At its core the nonprofit is fundamentally different than the for-profit. At the center of the nonprofit is its societal mission. Understanding the mission, helping the organization to fulfill it, and adapting it to a changing world is the very core of nonprofit governance and management. It is for this reason this book starts with a detailed discussion of mission and how it grows. Without the mission there is no purpose. Right behind this are the two major intertwined strategic themes that the nonprofit trustee must deal with.

The first theme is fulfilling the mission and whether we are doing it in a fiscally responsible fashion. Chapter Two deals with the complex multifaceted issue of mission definition and evaluation of its appropriateness. Chapter Three shows, in a series of examples, how organizations can go about measuring their performance against mission. For the new trustee, understanding these issues is the place to begin her trusteeship. The second theme is financial solvency. Chapter Four deals with the board's fiduciary responsibility and financial sustainability. Our life experience drives us to put this behind “performance measurement against mission.” Repeatedly we have seen new trustees and ineffective boards try to wag the mission dog with the financial tail. It just doesn't work that way. Without mission and its accountability we have nothing.

Achieving financial sustainability is very different for the nonprofit than the for-profit in that the nonprofit cannot easily access the public equity markets but instead has philanthropy as a potential additional source of funds. Chapter Five deals with the role of philanthropy and the trustee's role in it. This may be summarized by giving often and generously and when not giving helping others to give (hence the phrase give, get, or get off).

Finally, the execution of the work of the board is deeply different from that of boards in the for-profit world because of the tasks of mission performance measurement and different capital markets. As Chapter Six describes in detail, nonprofit boards are often larger, have more committees, and have a very different trustee life cycle. Further, as Chapter Seven describes, the heart of the governance process is a volunteer nonexecutive chairman and volunteer board, leading a staff of paid professionals. The dynamics of this are complex and profoundly different from the process in the for-profit world. Chapter Eight returns directly to you, the new trustee, addressing what you should consider before deciding to join a board and what you can do to make your trusteeship personally beneficial to you and the organization. The rest of this chapter gives an overview of these differences, which provide the structure of the book. These are highlighted in Table 1.2.

Table 1.2 Key Differences of For-Profit Versus Nonprofit Governance.

For-ProfitsNonprofitsMissionMission importantMission very importantFinancial resultsCash loss generator may be key serviceNonfinancial metrics importantNonfinancial metrics of mission performance very importantFinanceFinancial metrics of performance P&L, stock price, and cash flow very importantFinancial metrics of meeting budget and cash flow projections also importantFunds come from operations and financial capital marketsFunds come from operations, debt, grants, and philanthropyShort-term goals very importantDeep focus on long-term goals (as long as cash is there)ExecutiveSmall board—paid governanceOften large board—volunteer governanceFew board committeesOften many board committeesCombined chair/CEO plus lead directorNonexecutive volunteer chair, plus CEO

I. Mission

In the absence of the discipline of a P&L statement, the development of a mission and measuring progress against it is a critical and different nonprofit task. Neither developing the mission nor tracking progress against it is easy to do. Mission will be discussed extensively in Chapter Two and mission performance metrics in Chapter Three, but we present a brief overview here. As a new trustee your single most important task in the first year is to internalize the full breadth and complexity of the organization's mission and assess how well you think the organization is working toward achieving it.

In the for-profit world, an economist would argue that the main objective and mission of an organization is through the provision of goods and services to earn an appropriate return on invested capital for its shareholders. The organization, of course, provides an additional variety of ancillary services such as employment, tax support for the community and state, and special contributions to local communities.

The nonprofit operates in the space between government-provided services and for-profit ones. Absent the discipline of the financial market on the one hand and government mandate on the other hand, special clarity is needed to both effectively allocate financial resources and monitor how they are spent. These tasks bring us to mission and mission accountability.

In its most basic form, mission is the reason the organization exists. It defines the specific social services the organization provides, guides investment decisions, and provides a basis for its performance to be evaluated. A case in point is the mission statement of the Dana Hall School,2 a 100-year-old girls’ school, which evolved through twenty-six drafts in a time of financial stress. In part, the statement reads: “Dana Hall School is committed to fostering excellence in academics, the arts and athletics within a vibrant caring community.…[It] provides its students with a unique opportunity to prepare themselves for challenges and choices as women.”

The ideas in here were powerful. First, it will remain an all-girls’ school because of the unique contribution it can make to women. Supported by a lot of research, it was nonetheless an out-of-favor concept at the time the mission statement was developed, in the mid-1980s. Leadership as well as math and science capabilities are examples of skills that research shows can be increased by all-girls’ education. Secondly, it will strive to be excellent in academics (“We are not a remedial school and academics is our first priority”). Right behind (but behind) are arts and athletics, both of which can be very capital intensive. Next the word “caring” leaps out. “We are not Darwinian in our culture, but seek to help and be supportive.” It can be contrasted with the mission statement of its closest competitor (a very fast-track all-girls’ school, over half of whose graduates go to the Ivy League): “dedicated to developing the individual talents of academically promising and motivated girls.” Finally, we can look at the statement of a boys’ school in the same area: “dedicated to developing boys in mind, body and spirit… challeng[ing] and support[ing] students in and beyond the classroom…honor[ing] clear thinking and creativity, competition and team work.…” Not surprisingly, this all-boys’ school has very strong athletic teams and good students.

Each of these statements captures the essence of a very different set of values—all good, but very different. For Dana Hall in 1995, following a decade of heavy operating losses, confidence in this mission meant taking on $8 million in debt to build a new world-class science center; several years later it took on more debt and built a world-class athletic center. Science, women, and excellence all combined to make this the obvious first investment and worth undertaking the attendant financial risk in a stretched organization. In 2010 it is thriving academically as it still deals with its debt load. In discussing mission numerous additional points emerge that are elaborated on in Chapter Two.

Mission Development Process

The process of developing and disseminating mission is as important as the mission itself. The power of the Dana Hall Mission stemmed from a six-month series of discussions. These meetings included spirited discussions within the board, parents, alumni, student body, and faculty. Out of these discussions came a shared sense of strategic alignment and deep personal commitment “to take the path less travelled” which was crucial for an organization facing a time of financial stress. Finally it should be noted that because board membership changes over time, that the mission needs to be periodically revisited in discussions so that new members can be informed and feel informed.

II. Nonfinancial Performance Metrics Against Mission

Over the past fifteen years, corporations have increasingly recognized the importance of appropriate nonfinancial performance metrics in evaluating organizational success in addition to the more traditional financial metrics (see for example, work on the balanced scorecard or dashboard). These measures of performance are desperately needed by most nonprofit organizations. What are the relevant indicators of performance?

Today many nonprofit organizations have been developing new performance measurement models and performance measures to track their nonfinancial performance. One example of a social impact–focused organization that has made progress here is KaBOOM! An example of a member-focused nonprofit organization that has made progress here is CMA Canada. More examples of measurement systems that can be used to evaluate performance against mission will be discussed in Chapter Three.

KaBOOM! is a nonprofit organization with the mission of building playgrounds and creating safe places to play for children all over America and a related goal of inspiring local residents to work together and become more proactive in revitalizing and maintaining their communities.3