Response to Luke Johnson Article in the Financial Times Criticising Non-profit Sector Governance and Accountability
This blog responds to Luke Johnson’s article in the Financial Times of
May 24, 2011 criticising non-profit sector governance and accountability and proposing private company models as the best route. The original article can be found at
While Luke Johnson’s article in the Financial Times defending private company corporate governance as the “least bad” option raises a few legitimate questions (A private lesson for the not for profits, May 24, 2011), it is largely an inaccurate and generalised representation of the non-profit world that many in the sector will find insulting.
First, the idea that volunteer trustees have “too little at stake to rock the [governance and accountability] boat” is misleading and devaluing. Trustees of non-profit organisations have plenty at stake, most importantly a legal fiduciary duty and personal reputation. In addition to dismissal, failure to perform could well deter donor funding, leaving the trustees without a job (paid or unpaid). They also have a genuine desire to ensure delivery of services to the intended beneficiaries of the charity as effectively as possible.
A more accurate picture would acknowledge that the non-profit world holds itself to increasingly demanding standards – and so do the authorities that regulate it and the philanthropic individuals and organisations that support it. As a trustee sitting on several charity boards and a consultant to the sector in the UK and internationally, I have yet to encounter a non-profit organisation of any size in any country that did not have accountability and governance among its highest priorities. This is particularly the case post-Sarbanes-Oxley, a capitalist link that has affected the sector. I would highlight organisations such as Independent Sector in the US, the Comite de la Charte in France (a self-regulatory accountability organisation on the board of which I have the privilege to sit), and Charities Aid Foundation and NCVO in the UK, in addition to myriad academic programs and other umbrella advisory groups. Donors, the public, and volunteers increasingly demand that non-profit organisations have well-developed governance policies and practices. These include board oversight of executive compensation, full financial audits and codes governing both ethics and conflicts of interest.
By contrast, the boards of the hundred or so start-up and early stage for-profit companies I have followed from the US, Europe, and Asia lag far behind the levels of governance, accountability, and in many cases ethics, of most properly registered non-profit organisations soliciting donor funding. Many start-up company boards are rife with conflicts of interest and questionable compensation practices, in large part due to boards comprising many equity investors that focus on their own financial stake in voting.
Charities are making hard choices in a difficult economy. It is considerably more challenging to attract revenue from donors than to generate revenue in return for a product or service.
Yes, there are examples of intentional and criminal wrong-doing, self-interest, and even arrogance among charitable organisations – as there are in the for-profit world. But most of us who dedicate our professional and personal lives to the non-profit sector hold those examples up in a productive spirit as lessons for others and mistakes not to repeat not as sweeping dismissals of the non-profit sector.
Generalising is the worst form of failure of governance and accountability, whether in the corporate or non-profit sector. Defining a “stake” as financial in order to be meaningful and effective is the second.
Copyright 2011 Susan Liautaud. All rights reserved