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How to maximize performance and impact in the governance of impact organizations

elea Webinar Series

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This webinar, led by Professor Vanina Farber, elea Chair of Social Innovation, and Jan-Maarten Mulder, chair of the governance committees for Root Capital and Digital Divide Data, appeared live on Wednesday, October 14th at 1600 CEST.

Impact and non-profit organizations are typically overseen by independent board members or trustees. How can such oversight be best organized to drive to maximum performance and impact? Often, especially in the US, board members are major donors to the organization: is this a good or a bad thing?

Well-managed boards can play a vital role in driving sustainable performance in impact organizations, by providing oversight of - and support to – executives in the absence of shareholders, according to Mulder.

While many for-profit organizations have shareholders and supervisory boards, non-profit organizations are often simpler in structure – leaving oversight gaps that can hamper performance.

A webinar poll found that 94% of participants believed that good governance is equally important for both non-profit and for-profit organizations.

“Shareholders in for-profit organizations ensure that there is a decision made in a certain way with oversight,” said Mulder. “In the non-profit space, typically, there are no shareholders, so the only body you have in terms of governance is really the board … It (good governance) should be of equal importance for both, but the reality is that it is probably even more important for non-profits.”

A sparring partner and fair critic

Mulder, a banking and natural resources expert who has previously worked for Dutch bank ABN AMRO and commodity trading company Trafigura, argued that a lack of shareholders enables non-profit CEOs to take longer-term views, but this also left a gap in governance that the board has to fill.

“You may have less people that are very critical and will actually challenge you,” he said. “The risk for non-profits is that maybe you are not getting as much critical feedback.”

Farber concurred, arguing that “governance mechanisms and supervisory boards are really important levers of impact organizations. It’s all in a place where entrepreneurship and capital meet to sustain impact and innovation.”

Mulder said that success for impact organizations is not just about having an impact, but also about its own sustainability or resilience.

This is where boards can play a significant role. A second poll of webinar participants showed that more than half believed the focus of boards in impact organizations should stretch to include raising donations from its members and networks, reviewing societal and environmental impact as well as helping with strategic focus.

Mulder said one clear priority should be to support CEOs as a sounding board, not just to oversee their decisions and performance.

“What they need are sparring partners, people they can trust but also hold them accountable and create clarity on some of the key decisions,” the founder of Summer Capital, an early stage investor in quantum, fintech and data companies, said. “It’s important to have a very open dialogue with CEOs around the challenges they face, the help they might need and ensuring that decisions are made in a way that is accountable.”

Driving diversity

Boards also have a key role to play in promoting diversity, he said. This starts with asking questions from all kinds of perspectives as well as opening up positions to diverse people.

“The key job of the board member is to ask questions and to make sure you are asking the right questions,” he said. “The way to achieve that is to make sure you have real diversity of thought – different experiences, different skills.”

When it comes to ensuring that boards are more inclusive, he argued for concrete action to change board compositions.

“You need to have the conversation at board level, measure where you are and set targets,” he said. “Building a very broad pipeline for board members, keeping track of people who may be board members now or in the future and to start having conversations and use platforms for board placements.”

The role of the board in a crisis

In the year of an unprecedented shock which has adversely affected many non-profit organizations around the world, Mulder said well-run boards can help impact organizations navigate both internal and external types of crises.

“In external crises like COVID, calm optimism[1] is really important,” he said. “It’s the management team that solves the issues but it’s the board’s role to be a sparring partner and test assumptions.”

For internal crises, he explained that board members should keep their ears to the ground, speak to management and take temperature checks with people outside of the executive management to understand whether certain issues are reaching boiling point.

Getting the processes right

In any event, for boards to be effective, it is important to establish and adhere to set protocols, he said, suggesting that three-hour board meetings should be limited to 30 minutes for presentations to give the rest of the time for conversations, while taking feedback to improve future meetings.

“Set guidelines to make very clear what the rules of board meetings are – how many slides, how much time, when materials are distributed,” he said. “You have to show up having read all the materials, don’t ask questions that are covered in the materials and your participation should be forward looking and strategic.”

Agreed protocols should also include the way that board members are appointed and how the board is refreshed, involving CEOs in decisions but making sure that the final choice falls to the board.

“Create a process that is board led, where the CEO has input but it is ultimately a board decision who joins the board,” he said. “You need constant refreshing of your board to ensure that everybody opens their minds. Board members that have been there for a long time can dominate the conversation – it may not even be on purpose, but they may stop other insights being discussed. It is more important to refresh your board than to hang on to skills that are difficult to replace.”

Farber concluded that the role of the board is just as important in the non-profit sector as it is for commercial enterprises.

“Boards can inspire and be a sounding board to support and challenge executives in charge and hold them accountable in terms of success and failures,” she said.

The webinar is part of an ongoing series about mobilizing private capital to spark social innovation. If you enjoyed this webinar, be sure to check out our previous webinar with Founder and Chairman of the elea Foundation for Ethics in Globalization Peter Wuffli on how philanthropic impact investors engage with social enterprises to drive strategic decisions through good governance.

To find out more about upcoming webinars from the elea Center for Social Innovation, please visit the Center’s page here.

[1] An idea from The elea Way: A Learning Journey Toward Sustainable Impact. Routledge, 1st Edition, November 2020. by Vanina Farber (Author), Peter Wuffli (Author) Forthcoming November 2020

 

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