I never realized that serving on the boards of not-for-profit corporations prepared me to become a director at for-profit companies. As a community activist and local leader, I had opportunities to serve on boards of various organizations that were formed to advance causes that I believed were important. Affordable housing development, voter registration, and foster care are just a few of the many community needs that I sought to address by working with community organizations as a board member.
Unfortunately, too often I found that my colleagues in not-for-profit organizations did not see the entities as real businesses and they operated more like social clubs than legal entities. However, there is an unlimited number of groups that desperately need serious, responsible, and capable board members to ensure that they do function with business integrity. Opportunities to serve as directors on these boards offer tremendous value to the cause that they have chosen and priceless experience in corporate governance for someone seeking to become a paid corporate director.
There are at least seven benefits of serving as a volunteer not-for-profit director for those aspiring to become paid corporate directors:
1. Meeting management
Organizing, leading, and participating in formal meetings is a skill. Every organization has procedures for conducting their meetings with most using Roberts Rules of Order as meeting guidelines. Decision-making, deliberation, and other important aspects of attending to a company’s business are transferable knowledge and skills that can be learned and even mastered in a not-for-profit setting.
Not-for-profit corporations develop strategic and other types of corporate planning that boards are responsible for approving and monitoring. Every serious organization measures its outcomes as they compare to the projections that were made in their plans. Often, outside resources are used in the development of those plans, and boards may participate in choosing a consultant and contribute to the creation of the plan. This is a key function of a board and learning to play this role has tremendous value.
3. Financial reporting
Every director at a for-profit company must know the basics for reading and understanding financial reports. As fiduciaries, directors must be able to make informed decisions based on the financial condition of a company and the impact on corporate finances. Not-for-profit organizations can be the perfect training ground for individuals to learn about profit and loss statements, balance sheets, and annual audits. These are all minimum requirements in the for-profit world.
Every legal entity is required to comply with certain local, state, and/or federal regulations. A commitment to excellence in the area of compliance can determine whether or not it survives as an entity. The rigor and discipline of ensuring that a company keeps the rules, and documents its compliance practices is a critical area of governance. Tax filings, registrations, ethics, equal opportunity, and other regulated areas of business require competent oversight by a strong governing board.
How much risk an organization is willing to take is a decision that every board must make. Executives and their teams are expected to be visionaries and to successfully compete for customers, investors, and employees, a company must be willing to execute strategies for growth. Not-for-profit organizations compete for funding, contracts, clients, and customers also. They must negotiate for items such as great office locations and make other business decisions that commit the entity to future obligations. There is always a healthy tension between vision and risk and board members must be able to resolve that tension in a manner that supports growth and protects assets. Directors of not-for-profit organizations and for-profit companies can be held personally liable if they are delinquent in protecting the company from inappropriate amounts of risk.
Reasonable compensation for employees, especially for executives, is an important decision that every board must make.
Corporate directorship requires a real-time commitment. Of course, attendance at board meetings is mandatory. But boards have committee meetings and special meetings that are just as important as meetings of the board itself. One can develop a realistic understanding of the time required to invest in board service by serving on a not-for-profit board.
Not-for-profit corporations often have great difficulty attracting competent and committed people to serve on their boards. Anyone desiring to serve on a paid board may want to consider helping a worthy not-for-profit as a director while developing the skills needed to serve as a for-profit corporate director.