Governance Issues

At the April meeting of the Social Enterprise Network, the group discussed role of the board and governance issues for social enterprise.  Judy Alnes, Executive Director and Brad Kruse, Board Chair, of MAP for Nonprofits hosted and led the discussion.

Notes from Governance Issues for Social Enterprise

MAP's Experience with Earned Income

  • MAP is a capacity building organization, working with other nonprofits to help them achieve their missions more effectively.
  • Originally provided free or very low cost services to nonprofits, using volunteers.  There was a lot of discussion about the pros and cons of fees for service.
    • Mission would be advanced by growing - the organization could work with more nonprofits.
      • Corporate and foundation giving were flat, there was growth potential around earned income.
    • The added value of additional/more robust services outweighed their concerns.
  • Now the business model is orientated around earned income.
    • About half MAP's revenue comes from fees for service.

Board Roles and Responsibilities

  • Strategic Leadership

  • Financial Stability

  • Ensure Adequate Resources

  • CEO Oversight

  • Measure Impact
  • Organizational Ambassador

Strategic Leadership

In social enterprise, money and mission are closely aligned.
  • Earning more money will support greater mission services.
  • Strategic planning/oversight questions:
    • Are you oriented to the market?
      • What are the market demands?
      • Is your organization aligned to market needs? To what extent?
    • How are you addressing competition - from other nonprofit organizations and for-profit businesses?
If you know the mission and vision you are better equipped to make decisions. 
  • A strategic plan is a lens to assist with decision-making.
  • Important to have clarity around mission, values, broad strategy.
  • Doesn't have to be long-term, could be vision for the next year.
    • Tie to work plan and goals
    • Identify overall strategy and priorities, then task staff with the details.
      • What does this mean for the organization and how do we get there?
  • What does the mission mean today?
    • What are the current needs of our constituents? How can we meet them where they are?
  • If you don't know where you're going it doesn't matter which road you take.
  • Life happens while you're planning.
    • Important to be nimble - react in real time to challenges and opportunities.
    • Balance immediate needs/concerns with the bigger picture.
  • Most nonprofits have some earned income competencies - assessing that potential should be part of the strategic planning process.
    • Set contributed and earned income goals
      • Keep in mind that it takes time for a new business venture to generate revenue.

How is planning different in a business context?

  • Social enterprise is not just a nonprofit - could be a business that impacts the common good.
  • How does this affect the strategic planning process?  
    • Based on customers and/or competition
    • Faster, more reactive
    • Strategic guidelines - a set of principles that guide how approach the business and market
      • React to external changes and/or make decisions that are consistent this with principles
      • Adjust to realities is more important than following a pre-set plan
  • Good governance is not sector-specific
    • This is what we do versus making money at any cost
    • Oversight, checks and balances are important regardless of sector
  • Should nonprofits operate more like businesses?
    • Not hearing this as much right now, but it has been a common refrain
    • Nonprofit social enterprises take the best from both
    • Businesses can also learn from nonprofits, especially around governance

Financial Stability

  • Establish a culture of social entrepreneurship
    • Use words like profit; pay attention to business services
    • Important that the board understands:
      • Specific business model for your venture and/or business lines
      • Revenue goals (overall and for individual business lines)
  • Questions to ask:
    • How is the performance of each business line?
    • What is the market demand in each niche?

Ensure Adequate Resources

  • Build relationships with donors around specific interest in service areas
  • Develop partnerships to build community resources
  • How do you represent your clients/constituents on the board?
    • Think about specific services/business lines
    • MAP Example: Board Training - sought out corporation stakeholders
      • Corporations want employees placed on boards
      • Build interest, prepare to funnel people to boards/act as ambassadors

CEO Oversight

  • Is it different than at a traditional nonprofit?
    • Your eye is on a different prize - business outcomes/revenue generation, rather than grants obtained
  • Performance measures often tied to business
    • Revenue/profit 
      • Profitability of organization/social enterprise
      • Hit revenue goals for each business line
    • Customer satisfaction
    • Growth
      • Increase revenue
      • Identify new products/services to meet the needs of your market

Measuring impact

  • Revenue is important, but not always the best way to assess impact
    • There can be a trade off between profitability and mission.
      • Arts and cultural institutions often balance "popular" shows or exhibits with cutting edge ones as a way to support and subsidize more dynamic, mission driven work.
      • Balance access and excellence
    • Consider connection to mission - what can additional revenue help you accomplish?
    • Some organizations can measure impact more readily than others

Organizational Ambassador

  • Board members should have deep knowledge of all business lines
    • Services/goods provided
    • Pricing structure
  • Responsibility to promote/market/refer

Board Development

  • Healthy governance
    • Develop/maintain an enterprise culture
    • Term limits - focus on passing baton to new board members
    • Consider life cycles
  • Develop the board you need
    • Be intentional about recruiting new board members.
    • Consider organization mission, type of social enterprise, life cycle, strategic goals, etc
  • Board members often have too many responsibilities and not enough time.  Help maximize efficiency by utilizing time effectively
    • Focus your meetings. Prioritize:
      • Strategic Plan
      • Finances
    • Present information in a user-friendly format (like bullets)

Getting the "Right" Board

Who are the best candidates for a social enterprise board?

  • People who understand P & L
    • Not just the concepts, but people who are responsible for P & L
      • Is it in their bailiwick?
    • People who know where the rubber hits the road
    • Be wary of the business person who wants to shut off their "business brain" when at a nonprofit board meeting
  • Small business owners are great - they are entrepreneurs who know what it takes to run a business
    • Staff at other nonprofits can also be a good fit
  • Other factors to consider:
    • Balance skill set, energy, personality, and connection to mission
    • Personality is a factor
      • Risk takers and entrepreneurs - people who can pull the trigger
      • Comfortable with ambiguity
      • Board chemistry is important
    • Where they work and their role
    • Do they have access to organizational leadership?
      • If you are recruiting a board member for their connections, it's important to know the quality of their network.
        • Soliciting volunteers, sponsorship, or corporate partnerships is easier with allies in the right places.
    • Successful board members have a heart connection to the mission and charitable purpose of the organization.

Governance Structures

  • Organizational identity impacts governance:
    • How do you view your organization?
      • Are you a social enterprise or a nonprofit that operates a business? Does it matter?
    • Identity evolves over time, so this may be a life cycle issue.  As a social enterprise grows, it may be a larger part of your organization framework and identity.
    • If you are looking to fill a short-term budget gap, this is not the solution. It takes time and commitment to build a successful business venture.
  • Some organizations create a separate board for the social enterprise, others have an enterprise committee of the board. 
    • Depending on the makeup of the board, either structure could work - the key is being able to focus on revenue generation.
      • Some boards have the capacity to discuss program outcomes and profit.  Both are important, and ideally the board can balance conversations about revenue and programs.
      • Creating a separate committee can result in an enterprise silo.
      • Other boards may lose sight of revenue because there is too much focus on programming - in this instance creating a committee devoted to discussing the business venture can be helpful.
      • Management is key - assign program outcomes, revenue goals, and accountability. This will help with balancing, the staff will encourage oversight and discussion of both aspects because they are accountable for both.
  • For a social enterprise, the committee function is designed to support enterprise:
    • Focus on customers, products, marketing (rather than donors)
    • May not have fundraising or program committees
      • Could redefine fundraising at the board level to include enterprise income
    • Committee might be established to identify new products or figure out why revenue is flat

Collaboration/Competition

  • Do we know know what other organizations are doing?  Are there larger projects we could bid for if we had a better grasp on one another's core competencies?
    • Do we limit our own capacity by overlooking opportunities to collaborate?
  • If the market is saturated, it hurts everyone.  Unnecessary competition is due to a lack of awareness.
  • Important to identify the resources in our own communities - what are the core competencies?
    • What services, products, and programs already exist? 
    • What constituencies already being served?
    • Gaps are opportunities for growth and/or partnerships
  • Competition has its place, it can breed better products and services