Mythbusters: Non-Profit vs. For Profit

How often have you heard: “but it’s only a non-profit”? This phrase might be followed by such statements as “we can’t expect the financial statements to be in business format” or “the board members are volunteers so we can’t demand too much of them”. Although it may seem through experience that these are reasonable things to say and think, if the organization is duly registered or incorporated with a government agency (regardless of whether it is a non-profit or for-profit entity), it is subject to essentially the same laws! The organization must have a board of directors, who serves the deemed owners (community) and/or the legal owners (members, shareholders); it must follow the laws of the land; and it must submit annual reports to the government. Yes, the details of duties and reporting differ, but generally speaking they are the same.

Some jurisdictions articulate the expectations of all board members, both non-profit and for-profit, very clearly. For example, in the United States state Attorney General’s Offices state at least three specific duties of all board members: the Duty of Care, Duty of Loyalty, and Duty of Obedience.

Duty of Care refers to the responsibility of board members to carefully carry out the work of the board. This includes such things as attending meetings regularly, checking that meeting minutes accurately record decisions made, overseeing appropriate financial records, and ensuring the organization has enough revenue to cover its expenses.

Duty of Loyalty refers to the requirement that board members make decisions in the best interests of the organization on whose board they sit and its owners in general, not in their personal best interests. When directors have a conflict of interest they must declare it to the full board and refrain from participating in related decision making. Board members are responsible to develop policy that guides the organization’s activities so that all people involved with the organization know what is required to be aligned with the organization’s expectations.

Duty of Obedience refers to the board members’ responsibility to follow the laws of the land and the organization’s policies. Board members must obey all entities and decisions that have authority over the organization and/or the board. They must ensure that all government filings are submitted.

All this to say: there isn’t such a gap between the two as some seem to think. Volunteer board members of non-profits have to fulfill the duties of board members that are stated in the laws of the land. And paid board members of for-profits are required to do the same.

About admin

Cathie Leimbach is Co-Founder and Consulting Partner with STRIVE!, a leadership development firm serving boards and senior management teams across the United States and Canada. Her diverse leadership experience includes chairing boards of directors, managing a team of 200, and coaching board members and senior managers to enhanced effectiveness. Cathie is recognized as an outstanding facilitator who engages workshop participants in the learning process for enhanced understanding and retention. STRIVE!’s book “The Imperfect Board Member” has been the top selling governance book for the last two years. Cathie writes a weekly board governance blog www.boardgovernance.wordpress.com.
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