The Vampire Squid and nonprofits – a real thing?

Back at the height of the War on the Northern Front, I speculated about how the involvement of key leaders at the two largest banks in the Twin Cities might be making things worse:

…there is no third party willing to wade in and lean on the Minnesota Orchestra board to abandon an approach which has not worked and shows no signs of ever working.

And why is that? I would guess it’s because the Minnesota Orchestra board chair and the head of the board’s negotiating committee – in other words, the two people most in charge of calling the shots – run, or help run, the two biggest banks in town, Wells Fargo and US Bank…

There are not many people who could actually make a difference to a bad orchestra negotiation who are willing to tangle with that kind of firepower. Normally, one would expect the mayor, or the state’s governor, or perhaps the state’s US senators, to get involved in a negotiation that’s garnering so much negative national publicity. But politicians need donations, and most certainly don‘t need the fourth or fifth largest bank in the country opposed to them. Other board members are not going to be willing to go up against heavy hitters like that either – not if they might ever need a working relationship with one of those banks in the future. So who’s left who can lean on board leadership to change course?

Every bad orchestra negotiation is a battle with the community’s power structure, as just about every orchestra board is tied into that power structure, almost by definition. But I can’t recall any negotiation where the key players on the board were quite so… powerful, relative to the rest of the board and the community, as these two men appear to be.

It appears I might have been onto something, according to a recent article in the Stanford Social Innovation Review:

Over the past twenty-five years the composition of the boards at some of America’s most important nonprofit organizations has dramatically changed. Without much notice, a legion of Wall Street executives (investment bankers, hedge fund managers, and others) has taken a growing number of seats in nonprofit boardrooms. Not only that, they hold a disproportionate share of the leadership positions on these boards…

As financiers come to dominate the boards of leading nonprofits, it is not surprising that their approaches and priorities have made their way, very explicitly and fundamentally, into the governance of the nonprofit sector. Practices such as data-driven decision-making, an emphasis on metrics, prioritizing impact and competition, managing with three- to five-year horizons and plans, and advocating executive-style leadership and compensation have all become an essential part of the nonprofit lexicon.

Nonprofit leaders regularly hear about these finance practices from board members and donors whose native habitat is the financial services world. Moreover, nonprofit managers have come to accept them as reasonable principles upon which donors base their giving. More often than not, organizations are also expected to incorporate these principles in the management of the not-for-profit enterprises for which managers and boards share responsibility.

Although many of these business approaches may strengthen nonprofit capacity, we should also be mindful of the ways in which these same tools can morph into pathologies, ignore the costs or trade-offs associated with extending business thinking to the charitable sector, or distort organizational priorities. Numerous critics have written thoughtfully about the ways in which market-based thinking and approaches applied to the nonprofit sector provide false promise, with the potential to dilute charitable values, undermine long-term mission focus, incentivize small, incremental goals, and threaten shared governance and other forms of participatory problem-solving…

The concentration of nonprofit board power in the hands of finance professionals is quite striking. As we think about the sector in its entirety and who gets the opportunity to govern its most prominent organizations, these data reveal a great deal about where priorities have been placed and perhaps even why some critics—including nonprofits themselves—believe nonprofits are inappropriately appropriating business practices and models. For the sake of fundraising and achieving important financial goals, finance professionals are quietly accumulating unprecedented power in nonprofit boards. Fundraising and the ability to secure resources will always be critical board priorities, but nonprofits should be wary not to be led down a path where those priorities distort or limit nonprofit governance.

Of course non-profits often find the mindset of people from the business world to be… challenging. It can be hard for such folks to really understand that, while for-profit enterprises do things to make money, non-profits make (or raise) money in order to do things, and that the bottom line financially is not really the bottom line for the institution. I wonder if this understanding comes even harder for people from an industry that is so removed from the making of things or the providing of actual services – transportation, energy, health care, and the like – to society.

That’s not to say that people from the financial industry can’t be great board members. I’ve known several, and their perspective and expertise has been invaluable to institutions about which I care deeply. But it’s probably not a perspective that should be dominant on non-profit boards.