When considering the effectiveness of a charity, we at the Door County Community Foundation assign enormous importance to an organization’s governance. Those of us who evaluate non-profits as a profession know that a terrific indicator of an organization’s effectiveness is its ability to constitute an independent board of directors comprised of highly respected volunteer leaders.
Many charities assume our call for independent boards is rooted solely in concerns about conflicts of interest – such as when a paid CEO or their family members sit on the same board that evaluates their performance and sets their compensation. While addressing those conflicts is important, our desire for independent governance runs much deeper.
We hold two fundamental beliefs at the Community Foundation which are in direct conflict with each other. First, we strongly believe in the value of competition. In the for-profit world, competition drives efficiency. Businesses are forced to streamline their operations, reduce waste, and offer better products at lower costs. Competition reveals inefficiencies, outdated technologies and poor management, leaving those companies at a disadvantage. This pressure compels businesses to innovate, resulting in better products and services, and ultimately benefiting both customers and society as a whole.
Competition also encourages ethical behavior. Businesses that mistreat their employees or offer substandard services eventually lose customers and risk reputational damage. This dynamic creates a self-regulating system where companies are incentivized to treat people fairly and honestly. As a society, another reason we promote competition in the for-profit sector is because it makes businesses more ethical and more accountable.
On the other hand, we at the Community Foundation also strongly believe in avoiding duplication of services within the non-profit sector. Duplication occurs when multiple charities offer the same or similar programs in the same community. While it might seem like more services would mean more help to the community, it typically leads to inefficiencies, wasted resources and confusion for those who need assistance.
Imagine a community where several nonprofits provide the same service. When these organizations operate independently, they often fight for the same limited funding, such as donor contributions or grants. Rather than channeling resources into one well-managed, comprehensive program, the community ends up supporting multiple smaller charities that overlap, have higher administrative costs, and each struggle to maintain quality and achieve sustainability. This is why we, as a society, work to consolidate non-profits and avoid duplication of services.
The challenge is that these two strong beliefs – encouraging competition and avoiding duplication – directly contradict each other. When we work to avoid duplication, we also remove the competitive pressures that drive for-profit businesses to be more efficient. The lack of competition can result in complacency where charities continue to operate with outdated practices simply because there is no direct consequence for failing to improve.
This is why an independent board of directors is so essential to the health of a charity. Without the external forces of competition, it falls to the board to hold the non-profit accountable. The board should not be involved in day-to-day operations, but it should ask tough questions of the professional staff: are we making the best use of our resources? Is there a better way to deliver our services? Are we staying true to our mission?
It’s not necessarily the role of the board to have answers to these questions – that’s why the board hires a professional CEO after all – but it is the board’s responsibility to test the staff’s answers, ask them to justify actions, and thereby foster greater efficiency and encourage innovation. In this way, the board serves as a substitute for the competitive pressures that drive efficiency in the for-profit world.
Further, one of the greatest strengths of an independent board is the diversity of thought and experience it brings. Board members from various professional backgrounds contribute different skills, experiences, and viewpoints, ultimately leading to better decision-making. This diversity encourages innovation and challenges the organization to think beyond its usual ways of doing things, opening the door to new solutions and strategies.
At the Door County Community Foundation, we see this causal relationship every day. Charities that make it a priority to constitute an independent board of directors with highly accomplished people are typically the most cost-efficient and impactful organizations. Independent governance isn’t just about avoiding conflicts of interest – it helps ensure that our non-profit organizations operate with the same rigor and accountability that competition imposes on businesses. It’s about fostering innovation, efficiency and, ultimately, making the greatest impact on Door County in the most cost-efficient way possible.
This column originally appeared in the Peninsula Pulse on October 2, 2024.
Bicoy Philanthropic Advisors 