Who owns a Non-Profit and Why is Ownership Important?
Nonprofit ownership is a concept boards can struggle with. It is commonl for a board to believe it is acting properly without having a good conceptual or operational understanding of who their owners are and what those owners expect from the organization. Identifying the owners for these organizations can be complex and some common errors can occur. Following are a few principles and ideas I pulled from various policy governance sources including the work of John Carver.
What is meant by “ownership” for a non-profit organization?
The owners for public for profit companies are easy to identify. They are the shareowners. Likewise, owners of membership non profits — credit unions for example — are also easy to identify. But many non profits exist for broader purposes with vague ideas of who the owners are. These owners are often referred to as the moral owners of the organization. They are not literally or legally owners. But they are the people whose interest the board represents.
What is the relationship between a non-profit board and its ownership?
- It is a basic governance principle that boards represent the interests of the owners.
- Owners provide legitimacy and the source of authority for non-profit boards.
- Boards who don’t know who their organization’s owners making decisions in the interest of others (e.g. themselves, the organization’s employees) that can lead to a seriously misdirected organization.
- Ownership establishes who the board represents or acts on behalf of when it makes decisions such as establishing ends policies.
- Ownership provides a sense of accountability for boards and a clearer chain of command from owners to the board to the CEO.
- Boards should maintain a strong connection with the ownership to determine their values and expectations for the purpose of the organization. The fundamental question boards must answer — what value or benefit should the organization achieve — cannot be answered meaningfully without knowing on whose behalf is the value being created.
- Boards should communicate with owners so they are informed about how the organization is performing on their behalf.
Who are not owners?
- Clients or consumers are not owners. Clients are who the organization serves. They are not owners because owners determine ends which includes who gets served. It would be a conflict of interest to have clients be the moral owners.
- Funders and donors are not owners. Funding organizations are contractual partners. If funders were owners they would be able to determine the ends for the organization. Donors are solicited to support the ends set by the board.
- Employees are not owners. Employees are means for the organization to achieve its ends. They are essential to providing services but should not be in a position to determine, through the board, who should get served and what services are provided.
- Stakeholders are not owners. They care about how the organization operates but do not, as a group, determine what the organization should achieve.
What is an operational definition of ownership?
From a practical perspective boards may need to develop an operational definition of their owners. This is necessary for the board to contact and communicate with the owners. Answering the question of who owns a non profit with “the public” is not useful when your public can be hundreds of thousands or millions of people.
The following is a suggested operational definition for a nonmember public service organization. Care needs to be taken in setting an operational definition to avoid focusing on groups who are not owners (see previous points above) or failing to separate their ownership role from other roles such as funder.
The (add organization) ownership is the broad community for the organization’s primary service area. More specifically and practically it is the people in the community interested in and concerned about the impact of (add primary problem or issue the organization is trying to solve) on the community and on affected individuals. These owners are likely to be community members who are knowledgeable about and engaged in various aspects of (the problem area) and its effects on the community and individuals.
How should a board connect with its ownership?
The board should develop and execute an ongoing process for connecting with the owners. This should involve getting input from owners on important governance issues, particularly ends policies and communication to owners on how the organization is achieving its stated ends. A variety of methods can be used including interviews, surveys, and focus groups.