I asked yesterday what a “perpetual interest” in a nonprofit (as discussed in the VolunteerMatch prospectus) might mean to a donors. Reader Carl Shulman read my mind and left a six word comment:
Voting rights to elect the board.
As a shareholder in a company, investors get a share of the profits and voting rights. These voting rights do not give them authority to dictate the day to day running of a company. They do however allow them to vote on the membership of the company board. Certain issues must also be approved by shareholders. And shareholders have the right to bring certain items to the board’s attention and require a vote by all shareholders.
Personally I find this to be a pretty appealing concept. I think that donors should not tell nonprofits how to operate on a daily basis (part of the reason why I favor unrestricted giving), but I do think that nonprofits should be accountable to donors. I would guess that if donors were given voting rights, that they would be more engaged and likely to give more money over time.
I’d love to hear what others think about this idea.
18 Comments
Great idea! But probably not agreeable to the donor that wants control, so it can’t be as simple as $1 donated = 1 vote, otherwise there’s no longer much of a negotiation if a donor is contributing 10% of a budget – and may actually then be conflicted and not want more donations to come in, since that would dilute their control. Not saying this is a bad thing, just trying to think of contrary opinions.
Overall, I like it.
–David
David, thanks for the input, it would be complicated. It could be that nonprofits continue to fundraise (with no voting power given for donation) and they also issue “equity” such as the growth capital offering by volunteermatch. I would guess not everyone wants a vote. For-profit companies have to weigh the pros and cons of issuing new equity. Doing so dilutes the existing shareholders, but gives them more resources to grow. Your correct that nonprofit “equity owners” would have the same issue. To get more resources, they have to dilute their control.
Another interesting dimension to this topic is the widely held opinion within philanthropic circles that it is a conflict of interest for the program officers at foundations to take a Board seat at the organizations they fund. This seems so contrary to our way of thinking that I still have difficulty following the argument. I mean, who better to serve on a Board than a knowledgeable and well connected advocate invested in the future of the organization? I think we’d be lucky to have a few more talented program officers and foundation leaders serving the institutions they fund.
I also think the idea of proxy voting is an interesting idea for adding more individual accountability to the governance of nonprofits.
Just thinking out loud here, but would it work for non-profits to actually issue “shares” just like a public company? The shares have a price, so instead of asking for your $35 membership, you ask them to buy one share. The price can be set based on the performance of the charity, to tie it back to the metrics, and reset annually or some other basis. Or even a new “exchange” could be created??
Basically, why not run this element just like a public company? Measuring share price comes down to all sorts of underlying elements which don’t necessary apply to all types of companies (P/E, book value, etc). Could be similar here. The non-profit needs to focus on their effectiveness to keep their share price up, or they’d have to issue more equity and dilute control – which might lead to a change of direction or executive director or whatever.
This might also serve as a little “pride of ownership”, since you “own” a share of something instead of just a donation. And you can tell your friends you “own” 1,000 shares of your favorite charity, which sounds sort of cool and not the same kind of bragging. Effectively, you have a share of something doing some good, and it will pay dividends, just not the monetary kind.
I’m not concerned about the voting, as just like a public company you don’t have to vote if you own a share of stock, or you can just take the director’s recommendations. And there can be preferred shares and warrants (pledge to buy more if the nonprofit is successful) and options and whatever else.
Thanks for letting me ramble, happy to discuss further or just be told why this is crazy.
–David
What about the community’s voice in their organization? Should nonprofits really be beholden mostly to their donors?
An important part of nonprofit’s effectiveness – as something like “Forces of Good” captures – is their ability to mobilize a community of volunteers, advocates, and other organizations. I would strongly caution against any proposal that would seem to hand “ownership” to a specific funder or group of funders. They are certainly partners, but I don’t think they get to be controllers. This isn’t their organization to “own.”
I’m not trying to argue that the current system frees nonprofits from feeling “owned” by donors nor that it has made them fully accountable to them. Clearly, neither is the case. But the reason putting a PO on a nonprofit board can be bad is that the person might bring their own agenda, tied to their own goals and objectives, that isn’t responsive to the community or the organization.
I guess my bottom line point is this: nonprofits ought tobe accountable to more than their donors. If we’re moving to a model of an elected boards of directors, let’s give votes to the people being served, too.
My guess: the opportunity to vote for board members would be uninteresting to most donors, most of the time. However, I think it would be great to offer this little piece of power to donors. In my experience, every single time you put some kind of choice or power in donors’ hands, they respond with more donations and better retention — even from those donors who exercise no power whatsoever. Just offering it is the magic ingredient.
This is one application of corporate structure to nonprofit business that I find deeply unsettling.
Partly, for the same reasons as Young Staffer mentions above – accountability needs to flow in multiple directions within the triad of donor-organization-client, and this concept pushes the influence and accountability imbalance even further toward donors.
Bigger picture, organizations ought to be able to independently steward their work in keeping with their mission.
Donors are not shareholders. Extending the logic of corporate shareholders to exempt nonprofit organizations defies the public nature of those organizations.
Governance needs to be independent. Donors should fund – and trust – organizations that can best address issues of donor’s concern. Giving donors a role in governance crosses a line.
I share the concerns of Stephen and Young Staffer. But I guess I wonder how the current model gives any more vote to the public than giving donors the vote would. Right now, boards are self perpetuating groups. Donors are now asking for more and more control over spending decisions, which I think is a negative. But if you truly want donors to be invested in the success of the nonprofit, than wouldn’t giving them some say in deciding who runs the nonprofit make sense?
Giving the broader community the vote sounds good, but I’m not sure how this would work in practice. Any ideas?
I hope I’m not taking the conversation off course here, but in just the last few weeks I have heard of several efforts to encourage the formation of a new legal entity that’s something like a “low profit corporation,” or some other formal vehicle for social enterprises. Although it seems unlikely that many existing nonprofits would consent to take on “shareholders,” I could imagine that many of the coming generation of social entrepreneurs would be glad to.
If you are interested in this idea, I highly recommend an article by Robert A. Wexler called “Social Enterprise: A Legal Context” which describes something like this in England called a CIC–a Community Interest Company–and lays out some potential guidelines for a US version. You can find the article at the Adler & Colvin website (http://www.adlercolvin.com/pdf/grantmaking/SocialEnterprise.pdf), and the UK link is here: http://www.cicregulator.gov.uk/
I’ve also had a colleague point me to the American effort to encourage the creation of the “L3C,” a “low-profit limited liability company.” See http://americansforcommunitydevelopment.org/default.asp
Obviously, not all nonprofits would go for this kind of model. But I am very interested in the idea of a new kind of legal entity, particularly if it could provide a vehicle for enterprises that might easily receive program-related investments from private foundations.
Can we join this conversation with the real-life effort to promote some kind of social enterprise vehicle? Use their proposals as a starting place and offer refinements? There are apparently several states considering actual legislation.
Questions for the thread:
– I have run into a number of non-profits with boards and organizations that are paralyzed by decision constipation or in-fighting. Wouldn’t these type of non-profits actually be assisted by putting things like the mission out for a donor vote?
– Is it wrong for a significant donor to be able to exert significant control? It should be an accepted battle, “If you want my money, do it my way,” and on the other hand, “We want your money, but only if you support our exact mission.” Either way, they have to come to an agreement. I’m not saying good or bad, but isn’t it correct for a significant donor to ask for some control if they want it?
– Public corporations are always beholden to a shareholder vote, and rarely do the shareholders manage to significantly alter the course of the business. Why would a non-profit be any different?
Another advantage would be increasing the level of responsibility (and prestige) of volunteer boards. I’m appalled at how many board members take the job without any real commitment to the organization. If board members were subject to a vote, it seems to me that the prestige of serving would go up and board members would only accept the position if they were going to give the job a real effort, other wise they would face the embarrassment of being voted off.
I’m not in the least convinced that giving donors a vote is the right thing to do. But I do think that organizations like VolunteerMatch who want to raise money in the new social capital markets need to be thinking about these kind of issue or else they’ll be accused of simple dressing their fundraising up in a new guise.
David,
– Sure, many nonprofit boards are paralyzed. But engaging donors in board-level decisions would not clarify things for them. If the Board doesn’t have a clear and consistent vision, and the ability to set strategy decisively, involving donors in the decision will only make matters worse. It’s that kind of vacuum that leads organizations to chase the money wherever it may lead, then their mission drifts, they lose focus and identity, and ultimately lose support.
“Is it wrong for a significant donor to be able to exert significant control?”
They already do. And, donors have their own interests that change over time (many of them are in fact fickle and prone to chasing fads). Far better for an organization to steer itself, with appropriate donors getting on board (and getting off if their interests shift), than to have a multitude of donors, with their own interests, all putting their hands on the wheel in a governance capacity.
I think in the end, the shareholder analogy doesn’t hold water. Shareholders get a say in a public corporation’s business b/c they literally “own” a portion of it and have a financial stake in it.
The ROI of tax-exempt nonprofits goes to the public in the form of public benefit. We ALL have a stake in it, which is the rationale for the tax exemption. The donor’s “return” is in the tax breaks, positive PR, etc. They do not “own” a financial stake in the form of monetary returns.
Structurally speaking, the system is balanced between donors, nonprofits and the public. This shareholder concept disrupts this balance.
Stephen, donors should definitely not be involved in board level decision making. My suggest was to give them the ability to vote for who serves on the board. That’s a big difference.
Right now, nonprofit boards answer unofficially to big donors, but really not at all to the people they serve. Making it so that donors got a vote over who served on the board would make the board more accountable and would likely deliver higher quality, more highly engaged board members (see my previous comment).
I do think it would be even better if the public at large had a vote, but I don’t see a practical way for that to work.
None of this is a criticism of boards or nonprofits. I’m just suggesting that if nonprofits want to go out and raise money in the social capital markets, they need to change the framework around how that capital is treated. If they simply rename a donation to an “investment” without changing anything else about what the money means, then I think they’re just putting on some window dressing.
There are actually nonprofits that elect their boards using a membership of donors and volunteers.
The most common example I can think of are church councils, which function more or less like nonprofit boards (depending on the overall structure of the religious institution) and are sometimes elected. They manage finances, oversee major programming decisions, and, in some cases, hire or fire the executive (the Pastor). Not all of them are effective, to be sure, and their members are typically both donors and receipents of services.
Neighborhood and community centers, which provide a range of social services, also sometimes elect most or all of their Boards from their constituency. It can be a fairly board group of eligible voters, including donors, volunteers, people who receive their services, and sometimes even just people who live in the area.
I think to make it effective you have to think through very carefully your board development strategy – what opportunities do you create to train people and prepare them to run so you get diversity of perspectives and quality board members. You also have to think through your voting requirements, which include attending a community meeting to meet candidates.
I don’t think we want to see all boards elected by a general “public” but I think that’s different from creating a process of selecting leadership that is more open to the range of “key stakeholders,” including donors and service recipients, who have informed opinions about an organization.
Young Staffer, setting aside the “who gets to vote” question for a minute, what do you think of the point I was making that if a nonprofit is going to offer “investment opportunities” such as VolunteerMatch’s prospectus does, that they need to somehow distinguish the transaction from a regular donation? If you agree that they must do this for the offer to be anything but a repackaged donation, how might they accomplish this?
I guess I don’t disagree with the point that we need to distinguish the transaction from a regular donation. I just want to be careful that as we’re thinking about how to help nonprofits make good on a promise of being “investment opportunities” for donors or having “shareholders” that appropriate attention is given to what’s different about nonprofits. I actually think you’ll strengthen your appeal by promoting a model that uses stock-holding as a basis, but that encourages organizations to be creative in how they apply it to the nonprofit sector. I also think you strengthen it by acknowledging that this concept isn’t a total revolution -some nonprofits do allow donors to vote on their boards. They just haven’t called them shareholders.
VERY interesting subject, this!
I am reminded of Studs Terkels’ observation that people want to “count,” i.e., to have a feeling that they matter.
There would be philosophical issues to consider, as these wonderful comments show, as well as logistical issues to confront.
I have worked for NPO’s with “glory boards” (wealthier, socially-oriented, highly visible community members) and those not so situated. Scenarios would vary widely, depending upon the internal cultures of the organizations, as well as how they are perceived in the larger community.
“Voters” would most likely feel closer to their organizations, that they “counted” more, that their opinions mattered – which could have all manner of positive implications.
But would “candidates” subject themselves to the rigamarole? “Look, I volunteer to serve as a Board Member, and I love you guys, but now you want me to go through this?”
How “political” might these campaigns become? How would they be conducted?
What are the logistical issues, and how would they affect an organization’s resources?
And obviously, this wouldn’t work for all orgs. I’m thinking of a clinic I worked for which had a federal mandate that their Board comprise a majority membership of clinic patients, for example.
Thanks for the opportunity to comment.
Young Staffer, being imaginative about how to “remix” concepts from the financial markets for application in the third sector is critical. Great point.
Tom, those are all very important points you bring up. As I’ve said, I’m not convinced that letting donors vote is a good idea, but I think it is an interesting one. One thing I would see as a benefit is (at least for larger nonprofits) moving away from board members joining a board as a “favor” because their friend asked them and moving towards a model where board members joined because it was an honor to be asked and they felt an obligation to put real time and energy into the role. So I think that there would be bright side to the point you make about candidates not being willing to put themselves through the process. It might be that the non-engaged board members drop out the best board members become more vested in the organizations.