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Corporate Governance: One Size Doesn’t Fit All

It has come to my attention over my many years sitting as a member of various Boards of Directors that many governance consultants fail to understand and appreciate the difference between for-profit corporations and non-profit corporations when it comes to corporate governance. They are not two peas in a pod.

It goes without question that the fundamental principles of good governance such as accountability and transparency apply to both the profit and non-profit sector. It’s how those principles are applied to those two sectors that differentiate them.

An example of the differences in approach is the selection of the organization’s President. In the for-profit sector the President, without exception is selected and appointed by the Board. The shareholders vote in, or out, the Board and charge the Board with the responsibility of selecting a President and CEO who will lead the organization in such a manner that profit is maximized for return on investment to the shareholders by way of dividends or an increased market value of their shares. It is never the shareholders who select a for-profit company’s President.

On the other hand, it is frequent, if not commonly the case, that in the non-profit sector the President is elected to that position, not by the Board, but by the organizations members – the equivalent of the for-profit’s shareholders. There is, in non-profit organizations, much more a feeling of affinity and shared personal purpose between the members and their President. There is in most cases a common cause to pursue, and to ensure accountability for the pursuit of that common cause it is important, of fundamental importance, that the members directly select their President. This of course is not the case with every non-profit but it is for many, and it is an important distinction to appreciate when looking at governance. It is but one example of the fact that one size does not fit all when applying the principles of good governance to profit and non-profit corporations.

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