Nonprofit Board Composition
Posted: 9 Feb 2021 Last revised: 2 Jul 2021
Date Written: December 23, 2020
Nonprofit organizations that provide services and advocacy to low income and other vulnerable populations are some of the most important institutions in the country. Since President Lyndon Johnson declared a War on Poverty in 1964, nonprofit entities have been at the forefront of poverty alleviation. They have also been instrumental in assisting millions of people during the Covid-19 pandemic. Critically, many of these institutions developed with the expectation that they would include and empower the communities they serve in their anti-poverty efforts. The composition of the boards of directors is a critical point where this inclusive work can occur because boards direct the mission of the organizations. However, inclusiveness and community empowerment are elusive in most of these organizations. Yet, the law of fiduciary duties and nonprofit governance best practices do not provide sufficient guidance on how to compose boards to empower communities. And even as the for-profit sector is making waves by seizing on current important moments to debate the inclusion of employees and racial and ethnic minorities on corporate boards, nonprofit boards are largely left out of these board composition debates.
This Article addresses this critical gap in the literature and current debates. It introduces the concept of board capital, which originated from the for-profit management literature, but has gained a stronghold in the nonprofit boards literature, to provide guidance on how to compose boards of nonprofit organizations that serve vulnerable, often minority communities. Board capital comprises financial, social, and human capital and highlights the importance of having board directors who as a group, possess the skills, knowledge, and professional and personal experiences to not only provide legal and finance expertise, and funding, but also provide strategic advice informed by knowledge of the client population. The Article supports its normative assertions with the empirical example of the 9000+ boards of directors of public interest legal organizations (PILOs).
Empirical findings show that boards in these legal nonprofit organizations are largely assembled to focus on legal expertise and fundraising at the expense of social capital affinity with communities served, and human capital skills and characteristics to understand the needs of the client population and be racially and ethnically diverse. This misplaced emphasis may be undercutting the organizations’ and other nonprofits’ abilities to serve their stated mission effectively. The mechanism for this misplaced emphasis is that a majority of the boards comprise law firm and corporate lawyers who can be far removed from the legal and social issues the organizations represent. In other nonprofit organizations, the mechanism is often having a large number of individuals from the business sector. Board members are more likely to hew to their own expertise and abilities to raise financial capital. Boards of directors also tend to replicate themselves, which undermines human capital knowledge of the client population and racial and ethnic diversity. The Article makes suggestions for increasing human capital, particularly expertise on the client population and racial diversity on nonprofit boards and addresses board capital implications for for-profit boards.
Keywords: nonprofit organizations, boards of directors
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