Is there truth in the statement that ALL nonprofits are actually businesses,and they need to be run like businesses?

Is there truth in the statement that ALL nonprofits are actually businesses,and they need to be run like businesses?

By Eugene Fram

In my opinion, too many board and staff members in the nonprofit environment:

Do not realize that a nonprofit can focus even more effectively on “caring” missions, visions and values while operating under a business model. Many functions of a business and are the same for both types of organizations — financial operations, human resources, marketing, board governance, etc.

Mistakenly conclude that using business titles for management (such as CEO, President, vice president) appear more prestigious than is merited for nonprofit organizations. This mistaken attitude can impede the growth of the nonprofit and fund development.  Few people, outside  the nonpolitical world, recognize the importance of the “executive director” title.  However most understand that the president/CEO has full operational responsibility, except for responsibilities reserved for the board.

Associate business boards with financial disasters such as Wells Fargo, while failing to perceive the business board model’s benefits, such as having only a few standing board committees and demanding audit committees that operate robustly.

Fail to appreciate that today’s nonprofit managers must have the tools of professional executives to lead their organizations towards greater accomplishment, impact and sometimes survival.

Choose to continue to implement the 20th century governance practices in which staff members, often without the requisite managerial expertise, are promoted to chief executive positions. A few succeed by growing into the job but most continue to do little more than “mind the store.” This effectively is a significant waste of board and staff resources. More should often be offered meet client requirement.

To effectively change the course for a nonprofit: the board needs to:
• Reduce the number of board standing committees that hamper effective board operations and misuse board personnel
• Build a high level of trust between board members, management staff
• Overview organizational operations and management development, not attempt to micromanage them
• View the CEO as a professional peer, not as a servant
• Conduct a robust evaluation of the CEO and the organization annually
• Pinpoint management’s responsibility and clarify its accountability
• Develop a partnership between the board and management to develop funds
• Allow for more management flexibility to develop a more entrepreneurial culture
• Increase focus on productivity and impacts at the expense of bureaucratic processes

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3 comments

  1. Dr. Fram, you are right on point. Nonprofits need to look at their operational as a whole. Ensure their current business model is providing the infrastructure of sustainability, allowing all them to plan accordingly and invest in their mission and meet their strategic goals. As a interim CEO, CFO, COO for a variety of nonprofits over the years, changing the organizational structure and mindset about operating like a business was a challenge. I

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  2. I generally agree, although you haven’t addressed perceptions, expectations, and treatment of nonprofits by the general public, donors, and government entities, which play significant roles in why nonprofits may be reluctant to embrace business models.

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