Maybe Firms Should Be More Like Nonprofits

In “Global Crossing Hurt by Board’s Cronyism” [Feb. 24], an unnamed former director said, “[Directors] are only as good as the information that is given to them....You don’t know if [staff are] withholding something. You have absolutely no idea.”

From the perspective of someone who works extensively with directors of nonprofit organizations, it is alarming to realize how often directors of for-profit companies who are paid thousands of dollars to attend a handful of board meetings a year, often in luxurious settings like Bermuda, cannot be bothered to take reasonable steps to assure themselves that they are getting good information about the companies they oversee. In contrast, consider the following:

* Directors of nonprofit organizations typically serve as unpaid volunteers, even when overseeing budgets in the millions and even billions, such as for hospitals and universities.

* Nonprofit directors are held to strict standards of accountability. The first, most important lesson nonprofit directors learn is that the law places ultimate responsibility with them, not with staff, and that they cannot passively accept the information staff offers to them.

* Perhaps the most important charge of both a corporate and nonprofit board is to review and supervise the chief executive. Nonprofit directors face stiff sanctions under IRS rules and California corporate law for approving excessive salaries for executives.

Corporate directors have approved extraordinary pay increases for CEOs over the last decade, with precious little correlation between corporate results and increased pay. One can only wonder how well informed these decisions are too.

“Nonprofits should operate more like businesses,” we often hear, but in the area of governance, at least, perhaps it should be the other way around.

Peter Manzo

Executive director

Center for Nonprofit Management

Los Angeles