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What Can For-Profit and Nonprofit Boards Learn from Each Other About Improving Governance?

9 Pages Posted: 30 Apr 2015  

Nicholas Donatiello

Stanford Graduate School of Business

David F. Larcker

Stanford University - Graduate School of Business

Brian Tayan

Stanford University - Graduate School of Business

Date Written: April 28, 2015

Abstract

For-profit and nonprofit organizations exist for different reasons: for-profits to generate a return on investment for shareholders and nonprofits to pursue charitable and social activities unrelated to commerce. The obligations of the boards of directors of both entities, however, are the same: to oversee the organization and to hire, advise, evaluate, and when necessary remove the CEO.

We examine the attributes and processes both for-profit and nonprofit boards, and identify opportunities to learn from one another.

We ask:

• Why is there not greater sharing of practices between the two entities?
• Why are both unsuccessful developing reliable nonfinancial metrics to measure organizational progress?
• Why are for-profit CEOs paid so much more for their services? Do they create commensurately more value?

The Closer Look series is a collection of short case studies through which we explore topics, issues, and controversies in corporate governance and executive leadership. In each study, we take a targeted look at a specific issue that is relevant to the current debate on governance and explain why it is so important. Larcker and Tayan are co-authors of the books Corporate Governance Matters and A Real Look at Real World Corporate Governance.

Keywords: nonprofit boards, nonprofit organizations, nonprofit perfvormance measurement ,nonfinancial metrics, for profit firms

JEL Classification: G30, G32, G34

Suggested Citation

Donatiello, Nicholas and Larcker, David F. and Tayan, Brian, What Can For-Profit and Nonprofit Boards Learn from Each Other About Improving Governance? (April 28, 2015). Rock Center for Corporate Governance at Stanford University Closer Look Series: Topics, Issues and Controversies in Corporate Governance No. CGRP-49; Stanford University Graduate School of Business Research Paper No. 15-28. Available at SSRN: https://ssrn.com/abstract=2600541

Nicholas Donatiello

Stanford Graduate School of Business ( email )

655 Knight Way, C214
Stanford, CA 94305
United States
6507367420 (Phone)

David F. Larcker (Contact Author)

Stanford University - Graduate School of Business ( email )

Graduate School of Business
518 Memorial Way
Stanford, CA 94305-5015
United States
650-725-6159 (Phone)

Brian Tayan

Stanford University - Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

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