Leadership and Governance in Profit and Nonprofit Organizations
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17th, March 2013
Leadership and governance are two most important factors considered in both for-profit and nonprofit organizations. These two aspects are quite similar, and help both organizations in achieving their goals and objectives. Engagement leadership in organizations is whereby the leaders in the organization influence employees, basing on their resourcefulness, to contribute to the achievement of company goals, while upholding positive relations with them. This way, when the leader faces a challenge, it is easier for them to address, as the employees will support him or her. On the other hand, governance involves the use of power to achieve control in an organization. This is mainly through the authority that is given to leaders, who make rules and enforce the rules in an organization, including the code of conduct, as a strategy of achieving company goals (Chait, Ryan, & Taylor, 2011). Ideally, leadership and governance in profit and nonprofit organizations is conducted in a similar manner, with the board of trustees playing the main role. However, a few aspects might vary, considering the fact that these organizations are of different nature.
In both profit and non-profit organizations, there are different programs and projects, which are undertaken as part of the fulfillment of the mandate of the organization. These need to be effective, and in most cases, these determine the effectiveness of the organization. In this case, leadership and governance are core in ensuring that there is robust development of the programs and projects. In both the for-profit and nonprofit organizations, there is a structure of leadership, where different responsibilities are distributed to various individuals in the organization, depending on their rank and position. However, of great importance in these organizations is the board of trustees, or board of directors, which is responsible for overseeing and influencing all the leadership and governance activities in the organization (Agard, 2010).
Nonprofit organizations mainly are philanthropic in nature, and do not expect to gain profits after their projects are completed (Agard, 2010). On the other hand, profit organizations have ‘profits’ as their driving force. However, in both organizations, a board of directors, who ensure that the organization functions well, mainly heads them. The board also ensures that projects run as they have planned. The nature of the board of directors varies from country to country. However, this comprises a minimum of three people and a maximum of 50 people in most countries. These figures depend on the rules of a country, but the size of the board varies from one organization to another, depending on the needs and nature of the organization (Chait, Ryan, & Taylor, 2011).
Since nonprofit organizations are based on philanthropy, the board members offer their expertise and services at no cost, thus, they are not paid for being part of the board. However, in some nonprofit organizations, the board members might be given considerable compensation once in a while, depending on the by-laws of the organization. This compensation is therefore, not same as salary, as it might not be consistent. The reason why board members are not paid in nonprofit organizations is to enhance the spirit of volunteerism, which is deeply embedded in nonprofit organizations. The board members therefore, should have the desire to help, which is a unique attribute. On the contrary, board members in profit organizations are paid for their responsibilities on the board. These therefore, work under restrictions, and are accountable for decisions they make in the organization, especially, if the decision affects company profits detrimentally (Chait, Ryan, & Taylor, 2011).
In nonprofit and profit organizations, the board of directors is in charge of the governance. Depending on how the board organizes itself, its responsibilities are vast, and therefore, the board might further be broken down into committees, which are responsible for different duties. The head of the board is responsible for the co-ordination of the work of the board of directors. The board of directors in both organizations is held accountable for the different policies of the organization, and therefore, it is their responsibility to ensure that the organization operates as per its policies (Cornforth, 2005).
A board of directors in nonprofit and profit organizations has the mandate of setting the goals of the organization, which give direction to the operations of the organization. Additionally, the board manages the assets in the organization. In nonprofit organizations, the board ensures that assets, which are mainly obtained from donors, are not wasted, or used in a corrupt manner. In both nonprofit and profit organizations, the board plays the role of authorizing and overseeing budgets in the organization, for effective management of finances. Despite the similarities in roles of the board, responsibilities of the board in profit organizations are more inclined to the business issues of the organization (Cornforth, 2005).
In both nonprofit and profit organizations, the board of directors is responsible for the identification of the organization’s senior employee, who is the CEO in profit organizations. The board also liaises with the selected CEO in selecting other people to be included in the management team. The board advises the CEO and the management team in the company, which is also responsible for ensuring that their performance meets the standards of the organization. In organizations, governance and leadership is highly vested in board of directors. However, it is the duty of the board and the management team to ensure that other staff members also participate in leadership, mainly through their contribution to decision-making in the organization (Chait, Ryan, & Taylor, 2011).
Transparency is an important factor in both the profit and nonprofit organizations. A transparent organization is one that reports to the public about its operations and important organizational issues in an honest and prompt way. This could be through honest financial reporting, annual reports, compensation structure, and other core activities in the organization, which are all availed to the public. The more transparent an organization is, the more it strengthens its trustworthiness. Therefore, donors, the public, and regulators, among other key bodies, might judge an organization, with regard to its transparency level (Garsten & Montoya, 2008).
Transparency influences both profit and nonprofit organizations. However, most nonprofits have prioritized this, since failure to adhere might cost them much, compared to the profit organization. Prioritize transparency prevents public and government investigations. For the nonprofits, it also prevents donor mistrust. Nonprofit are therefore, obliged to adhere to reporting procedures. In addition, all correct use of resources must aim at the achievement of organization’s goals. The board in the nonprofits also ensures that organization’s core decision-making is availed to the public. In addition, its annual report, comprising details on the year’s core activities and performance, is produced and made available to the public. Nonprofits also ensure that they report misconduct, and protect the employee bearing the report from any detrimental effects. Finally, the board and management must guarantee a non-discriminatory environment for employees, clients, and all constituents. Nonprofits must embrace transparency, to maintain their donors, who the source of their finances (Garsten & Montoya, 2008).
In the profit organizations, transparency and accountability is employed mainly to avoid scandals in the governance of the organization. Reforms in profit organizations also center on transparency. As in nonprofits, the board in profit organizations ensures transparency. The board monitors the management team to analyze their performance. Their ability is then publicized. In some cases, the CEO’s in profit organizations might manipulate the information to be released to the public, in order to make the public have a positive image of the organization. Nonetheless, as in the nonprofit organizations, transparency in profit organizations comprises financial reporting, disclosure of key decision-making, release of annual report to the public, availing information about the operations of the organization. In addition, since profit organizations aim at profit maximization, they have different policies, which help them achieve this. Therefore, these business policies are also availed to the public, in support of transparency in the organization (Garsten & Montoya, 2008). In both profit and nonprofit organization, leadership and governance is a responsibility of the board, and most staff members do not participate in leadership at the organizational level, but at the lower levels in the organization, including the personal level.
References
Agard, K. (2010). Leadership in Nonprofit Organizations: A Reference Handbook, Volume 1.
London: SAGE.
Chait, J., Ryan, W. & Taylor, B. (2011). Governance as Leadership: Reframing the Work of
Nonprofit Boards. New York: John Wiley & Sons.
Cornforth, C. (2005). The Governance of Public and Non-profit Organizations: What Do
Boards Do? London: Routledge.
Garsten, C. & Montoya, M. (2008). Transparency in a New Global Order: Unveiling
Organizational Visions. New York: Edward Elgar Publishing.
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