Leadership Engagement and Governance Interfacing
Studying the relationship, a board of directors has with the chief executive officer (CEO), stakeholders, shareholders, members, funders, grant makers, and beneficiaries is an interesting phenomenon that occurs within for-profit and nonprofit organizations. The relationship is interesting because the board is responsible for overseeing organizational governance and leadership engagement. In addition, a board is responsible for planning, organizing, monitoring, evaluating, and controlling (Andert, 2003) the operating mechanisms (Lorsch, 1987) in organizations. Thus, to understand how for-profit and nonprofit organizations utilize leadership engagement and governance interfacing, it is essential to develop a framework for organizational governance. Then, the author will compare and contrast leadership engagement and governance interfacing for-profit and nonprofit organizations. Additionally, an assessment of the value transparency has on for-profit and nonprofit organizations. Finally, the author will explore if nonprofit board members are paid or not paid for their service to an organization.
Governance Framework
Developing a working definition of corporate governance is essential to understanding leadership engagement and governance interfacing. Thus, corporate governance can be described as providing an organization guidance and insight to the CEO and executive management (Andert, 2003). Similarly, Mace (2000) explained that corporate governance is a “source of advice and counsel, providing discipline, guidance, strategic insight, and mentorship in crisis situations” (p. 39). Estes (2000) expanded further and noted that corporate governance is an oversight and guidance function of management. David (2001) specifically outlined corporate governance as: control and oversight of management, adherence of legal guidelines, and protector of shareholder and stakeholder rights and interests. Moore (2003) viewed corporate governance as the “processes through which goals are set and decisions are made within organizations” (p. 20). However, Hermanson and Hermanson (1997) cogently stated, “the purpose of governance is to oversee company operations, but not to manage them” (p. 17). Lastly, Gove’s (2004) research discovered that governance is “based on normative principles, not statues” (p. 12). Furthermore, Gove explained governance establishes fiduciary responsibilities, procedures, and monitoring mechanisms. Therefore, a working definition for governance is the fiduciary responsibilities, procedures, policies, and monitoring mechanisms an organization has established to protect stakeholders, shareholders, members, funders, grant makers rights and interests.
Comparison
Leadership engagement and governance interfacing within for-profit and nonprofit organizations have some unique characteristics. For example, in both organizations leaders are responsible for developing, implementing, and monitoring the policies, procedures, objective, mission, vision, and code of ethics that all employees utilize when operating the organization-essentially, developing the appropriate governing mechanisms (Brown, Trevino, & Harrison, 2005; Ruiz-Palomino & Martinez-Cañas, 2011) unique to each organization. In addition, both types of organizations have to “interpret the relevant guidelines in ways which best meet their particular circumstances and carry the support of their stakeholders” (Cadbury, 1997, p. 6). In fact, Corley and Robert (1979) explained that for-profit and nonprofit organization, governance and leadership initiatives are designed to provide oversight when organizations are making major decisions, whether they are pecuniary or non-pecuniary in nature. Kess and Westlin (1984) found that in both organizations leadership responsibilities and governance are established to protect shareholder and stakeholders’ best interests. In essence, these commonalities develop fiduciary responsibility between the organization and its employees, shareholders, and stakeholders, and most importantly society.
Conflicting Views
A key component for evaluating the difference between how for-profit and nonprofit organizations handle leadership engagement and governance interfacing is determined by what each organization is striving to achieve. For example, in for-profit organizations the goals, objectives, and mission are established to maximize organizational resources so the return on shareholder and stakeholders’ investment is optimized (Lorsch, 1987). The focus of maximizing profits and minimizing expenses is the driving force in for-profit organizations. However, recently, there is a push for organizations to be socially responsible for their strategic planning and decision-making (Brown, 2005; Bass & Avolio, 1994). Governance and leadership engagement in nonprofit organizations are based on providing as many services to their clients at the lowest price. Both organizations strive to access or raise capital or resources, but the use of the capital and resources differ drastically. For instance, Carver (1997) explained that in nonprofit organizations the focus is to assist as many people’s lives with a limited amount of resources. In sum, the major difference between the governance interfacing and leadership engagement is dependent upon what the organization was created to achieve.
Disclosure and Transparency
Both for-profit and nonprofit organizations value a level of disclosure and transparency. As corporate scandals have increased such as Enron (e. g. concealing losses), AIG (e. g. over compensating top executives), Martha Stewart (e. g. insider trading), United Way (e. g. over compensating the CEO) (Johnson, 2012), so has the level of disclosure and transparency required by regulating agencies. Both organizations value increased disclosure and transparency because the public has a greater level of integrity in the organization, especially, when society and regulating agencies understand that an organization passed the strict regulations (Frumkin & Kim, 2002). Nonprofit and for-profit organizations have to report to their boards, watchdog groups, state and federal regulatory commissions, shareholders, and the media who heavily scrutinize organizations (Frumkin & Kim, 2002; Gove, 2004). Disclosure and transparency can be viewed as a two-way street, for example, when organizations are abiding by the regulations then the public, whether investors or donors, place more confidence in the organization to turn a profit and to provide services to the public.
Nonprofit Boards
When evaluating if board members in nonprofit organizations are paid, it is necessary to understand that compensating board members depends on what is written in the bylaws or charter (Oster, 1998). Oster (1998) further discovered that some nonprofit organizations reimburse board members for traveling expenses to attend board meetings or other nonprofit business. Preyra and Pink (2001) research revealed that when nonprofit organization pay their board member they will make half as much as board members from publicly traded firms. To expand on compensating board members, ASAE & The Center for Association Leadership (2006) suggested that independent directors should determine compensation amounts and amounts need to be comparable to other nonprofit organizations. On the other hand, because nonprofit organizations are established to provide a service to society, some charters or bylaws encourage board members to volunteer their time (ASAE & The Center for Association Leadership, 2006). When board members volunteer their time, then they are not paid for providing the expertise to the nonprofit organization. Overall, compensating board members in nonprofit organizations does occur and depends on the organizational bylaws or charter.
Conclusion
In sum, the relationship a board has with the CEO, stakeholders, shareholders, members, funders, grant makers, and beneficiaries is an interesting concept because the board is responsible for oversight of governance and leadership engagement, in addition to planning, monitoring, and controlling the operating mechanisms. Governance is the fiduciary responsibilities, procedures, policies, and monitoring mechanisms an organization has in place to protect stakeholders, shareholders, members, funders, grant makers rights and interests. The commonalities of leadership engagement and governance interfacing in for-profit and nonprofit organization develop fiduciary responsibilities between an organization and its employees, shareholders, and stakeholders, and most importantly society. Conversely, the major difference between the governance interfacing and leadership engagement depends on what the organization was created to achieve. Disclosure and transparency are viewed as a two-way street where investors or donors place more confidence in the organization to turn a profit or to provide services to the public. Lastly, compensating board members in nonprofit organizations does occur and depends on the organizational bylaws or charter.
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doi:10.1007/s10551-011-0837-6
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