by Thomas Schipani

Created on: April 17, 2008

In addition to all of the things a Board needs to do in a commercial company, the Board of a non-profit must pay particular attention to beliefs of its stakeholders and to the measurement of results. These can be daunting tasks.

In a commercial company the objective is to make money for the shareholders. The issues that the Board faces can take many forms, such as timing (profits now vs. later), dividends vs. investing in the business, social responsibility, being "green" etc. But these are all means to an end and the end is to make profits. If profits come in (or can be expected) and you haven't committed some serious social sin (e.g. broken the law or polluted the environment) then the shareholders will generally be happy.

In a commercial company, it is generally easier to open a new line of business or to introduce new ways of doing things. If these new approaches and products are profitable, then the new items can be deemed to be a success.

In a commercial company, as compared to a non profit, it is easy to define and report results. There are many rules (FASB, IAS etc.), regulations (SEC etc.) and supporting infrastructure (accounting firms, consultants, off-the-shelf software) to help ensure that there is consistency in understanding and publishing the returns. It is easy for shareholders to compare these across companies (financial statements, stock price/market valuation, etc.).

In a commercial company you know that the person or entity that paid for your product is the customer.

In a non-profit the objectives can be difficult or impossible to define rigorously. In many cases defining the objectives can only be done anecdotally, and the definition of a good outcome can have an "I can't define it but I know it when I see it" quality.

Hence, the Board must ensure that there are means to present results that will be acceptable to the stakeholders. These are likely to be unique to the type of or even to the individual non-profit. However these are compiled and presented they should be viewed to be as fair, objective, independent and as rigorous as financial statements. Presenting results can be complicated as many things can take years to come to bear fruit. For example, if the non-profit is designed to provide job-training, then it is not enough to count how many people were trained, stakeholders will likely want to know how many of the trainees are employed and for how long. Just as the auditors of a commercial company report to the Board to ensure independence

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