This piece was originally posted in March 2021.
Philanthropy is not like investing. Nonprofits are not like business. Even the most casual reader of this blog or occasional follower of CEP’s work has heard me make this argument many times (too many, you might be thinking).
But repeating this message matters. And nowhere does recognizing these simple facts seem to be more of an uphill battle than in the boardroom, where foundation and nonprofit boards alike all too often operate with a mindset that might make sense in the zero-sum competitive context of business, but impedes the impact of purpose- (as opposed to profit-) driven organizations.
Widely held mental models for good governance — stressing competition and a narrow focus on single institutions — simply don’t make sense in a philanthropic and nonprofit context. But what does?
Enter Anne Wallestad, the brilliant president and CEO of BoardSource, with an alternative governance framework that, if adopted, could be the most important mindset shift in the nonprofit sector I’ve seen in my two decades in this job. In a crucial, must-read article in the Stanford Social Innovation Review, just published last week, Wallestad contends that nonprofit boards have to put “purpose before organization” and that, if they do, certain principles follow.
Wallestad argues for boards to abandon a common misreading of “duty of loyalty” as “the responsibility to think only of the organization when making governing decisions”:
This interpretation unnecessarily focuses board members on loyalty to the organization as a corporate entity. Instead, boards should focus their loyalty to the organization’s purpose or reason for being, fidelity to the reason that the organization exists and — by extension — to the people and communities its work impacts. What is best for purpose and community is not always synonymous with what’s best for the organization.
This simple but profound statement has far-reaching implications. In the article, Wallestad describes four principles of purpose-driven board leadership and their implications for nonprofits, focusing in particular on operating nonprofits. I’ll list the principles here and suggest some foundation-specific implications that come to mind — acknowledging full well that there are many more.
To every leader in the social sector, I recommend you read the article yourself and distribute it to your board. Meantime, here are Wallestad’s four principles of purpose-driven board leadership and some musings about what they might mean for foundation boards:
“Principle 1: Purpose before organization — a prioritization of the organization’s purpose, versus the organization itself.”
What does this mean for foundations? The list of answers is long, but among other things, it means being willing to follow the lead of other funders and nonprofits in defining strategies, rather than seeking instinctively always to lead or to “punch above our weight” by having a large influence on others.
“Principle 2: Respect for ecosystem — an acknowledgment that the organization’s actions can positively or negatively impact its surrounding ecosystem, and a commitment to being a respectful and responsible ecosystem player.”
What does this mean for foundations? It means ensuring that nonprofit grant recipients — which are working toward key goals the foundation shares — are treated in a way that strengthens them. Reporting requirements for data or information that serve only to bolster the foundation’s ability to make claims or satisfy board members’ desires to understand “where our money went,” but that aren’t seen as helpful to the nonprofits, should fall away.
Similarly, embracing this principle means that foundation boards will see “media mentions” of the foundation as a much less important indicator of a CEO’s performance than, say, mentions of the foundation’s grantees or of a promising strategy or approach the foundation supports.
“Principle 3: Equity mindset — a commitment to advancing equitable outcomes, and interrogating and avoiding the ways in which the organization’s strategies and work may reinforce systemic inequities.”
What does this mean for foundations? It means recognizing that if strategy conversations within the boardroom — whether about the strategy in the education program, the environment program, or some other program — are not specifically addressing structural inequities, they’re probably unwittingly perpetuating or deepening those inequities.
“Principle 4: Authorized voice and power — the recognition that organizational power and voice must be authorized by those impacted by the organization’s work.”
What does this mean for foundations? Among other things, it means changing, over time, who is in the boardroom. It means listening to those you seek to help before establishing goals and strategies. It means not acting in the top-down, expert-driven manner in which too many foundations operate.
Purpose-driven board leadership makes explicit what is different about social sector governance (as opposed to corporate governance) and how more traditional ways of thinking about nonprofit governance fail to acknowledge the unique charge of social sector organizations and the boards that lead them. Applying purpose-driven board leadership principles means leaning into the pursuit of a social good purpose at an ecosystem level and a shift away from protectionism and self-promotion at an organizational level. For some board members, this will be an exciting and inspiring shift toward greater social impact. For others, it will create a sense of loss around personal identity and status that are intertwined with organizational positioning in the competitive landscape.
I hope foundation boards make Wallestad’s article required reading and ask themselves: what, fundamentally, is our purpose?