Financial Management

What does your ministry’s board look like?

A board is a critical part of any nonprofit. It helps set the direction, tone and mission for your organization. Think about the decisions your board has made over the past year – could you have come this far without them?

Given how important your board members are, it’s equally important to pay attention to who you’re appointing and what they’re bringing to the table.

Think about the makeup of your board – do members have anything in common? Chances are, quite a few come from finance backgrounds. A new study conducted by Ohio State University’s Garry W. Jenkins reveals more nonprofit board members than ever before come from the finance industry.

“44 percent of board leaders in the nonprofit sector have backgrounds in the finance industry.”

Jenkins’ study of nonprofit boards in New York revealed that while only 19 percent of members had worked in finance in 1989, that number leaped to 40 percent by 2014. Nonprofit board leadership saw a similar jump, from 29 percent to 44 percent.

What does all this mean for a board? And does it mean your ministry should be more carefully choosing board members to ensure their backgrounds span a variety of fields?

The good
There’s a reason so many organizations want financiers on their boards: They’re often eager to donate to good causes. The report noted that, from 2003 to 2012, “the percentage of the 50 largest US donors whose source of wealth was finance soared from 10 percent to 36 percent.” That’s a significant jump, and could have a huge impact on a smaller nonprofit’s fundraising. Additionally, people with similar backgrounds and career experiences may be more willing to cooperate and be on the same page for major decisions.

Just how important is a diverse board?

The potential drawbacks
While having a board full of people in finance isn’t terrible, it isn’t without its challenges.

In some instances, cultural differences may make it challenging for finance professionals to understand how a ministry operates. More attention to profit margins, debt service, and long-term strategic planning initiatives may throw off members or other higher-ups within the ministry who have less experience in these areas. While this isn’t necessarily a bad thing, direction should be clearly communicated and in line with a ministry’s mission and own goals for long-term goals.

Another issue that may arise is diversity. A report from PricewaterhouseCoopers shows that already only 19 percent of leadership positions in the finance world are filled by women. Combine that with the fact that women and minorities are often underrepresented on boards, and you have a recipe for quite a homogenous group. A report from Catalyst shows women make up only 16.9 percent of board members in the U.S. Similarly, only 8 percent of board members are minorities, according to a report from BoardSource.

A board that lacks any diversity may actually be putting the very organization it serves at risk. Separate Catalyst research indicated organizations in the top 25 percent when it came to female board member representation saw their invested capital perform 66 percent better than those with the least gender diversity. A more diverse board population may also lead to less risk-taking. A study from Ya-Wen Yang of Wake Forest University and Indrarini Laksmana from Kent State University showed multicultural, gender inclusive boards were more likely to pay dividends, spend less on capital expenditure, and take fewer risks in general. While stock prices, dividends, and some of these other private-sector specific outcomes may not directly relate to nonprofit ministries, the message remains the same: Board diversity equals minimized risk.

One final potential drawback organizations should note is minimal diversity on the board could result in less creativity, innovation, and willingness to try out new things. A group of people with similar backgrounds, who are also involved with the same organizations and live in the same community may have similar ideas. While this can lead to easy cooperation and agreement among board members, it can also result in stagnation.

According to Columbia University’s Katherine W. Phillips’ article in Scientific American, diversity improves innovation, problem solving, and changes the way we think, improving bottom-line results for organizations.

“Diversity can change the way we think, leading to more creativity and innovation.”

“People who are different from one another in race, gender and other dimensions bring unique information and experiences to bear on the task at hand,” she wrote. “A male and a female engineer might have perspectives as different from one another as an engineer and a physicist – and that is a good thing.”

So what needs to be done?
For some ministries, nothing. Depending on how your organization operates, how large the board is, and what role members play in overall operations, making an overhaul may be completely unnecessary. However, ministries with larger-scale operations who rely heavily on board member decision making and feel the board is in need of fresh ideas may consider choosing new members with a different background, whether it’s career, race or gender related.