When considering the effectiveness of a charitable organization, we at Door County Community Foundation place tremendous importance on an organization’s governance. Those of us who evaluate nonprofits as a profession know that a great indicator of an organization’s effectiveness is its ability to form an independent board of highly respected volunteer leaders.
Many charities assume that our demand for independent boards is based solely on concerns about conflicts of interest – for example, when a salaried CEO or their family members sit on the same board that evaluates their performance and sets their compensation. While addressing these conflicts is important, our desire for independent governance runs much deeper.
We have two core beliefs at the Community Foundation that are in direct conflict with each other. First, we strongly believe in the value of competition. In the for-profit world, competition drives efficiency. Companies are forced to streamline their operations, reduce waste and offer better products at lower costs. Competition exposes inefficiencies, outdated technology and poor management, putting these companies at a disadvantage. This pressure forces companies to innovate, resulting in better products and services, ultimately benefiting both customers and society as a whole.
Competition also encourages ethical behavior. Companies that mistreat their employees or offer substandard service eventually lose customers and risk reputational damage. This dynamic creates a self-regulatory system where companies are encouraged to treat people fairly and honestly. As a society, another reason we promote competition in the for-profit sector is because it makes business more ethical and more responsible.
On the other hand, at the Community Foundation we also strongly believe in avoiding duplication of effort in the non-profit sector. Duplication occurs when multiple charities offer the same or similar programs in the same community. While it may seem that more services would mean more help to the community, it usually leads to inefficiency, wasted resources, and confusion for those who need help.
Imagine a society where several non-profit organizations provide the same service. When these organizations operate independently, they often struggle for the same limited funding, such as donor grants or grants. Instead of channeling resources into a well-managed, comprehensive program, the community ends up supporting several smaller charities that overlap, have higher administrative costs and each struggle to maintain quality and achieve sustainability. That’s why, as a society, we work to consolidate nonprofits and avoid duplication.
The challenge is that these two strong beliefs – to encourage competition and avoid duplication – directly contradict each other. As we work to avoid duplication, we also remove competitive pressures that drive for-profit businesses to become more efficient. The lack of competition can result in complacency where charities continue to operate with outdated methods simply because there is no direct consequence for failing to improve.
This is why an independent board is so important to the health of the charity. Without the external competitive forces, it falls to the board to hold the non-profit to account. The board should not be involved in the day-to-day operations, but it should ask tough questions to the professional staff: are we using our resources in the best way? Is there a better way to deliver our services? Are we staying true to our mission?
It’s not necessarily the board’s role to have answers to these questions—that’s why the board hires a professional CEO after all—but it is the board’s responsibility to test the staff’s answers, ask them to justify actions, and thereby promote greater efficiency and encourage innovation. In this way, the board functions as a substitute for the competitive pressures that drive efficiency in the for-profit world.
Furthermore, one of the greatest strengths of an independent board is the diversity of thought and experience it brings. Board members from different professional backgrounds contribute different skills, experiences and points of view, which ultimately leads to better decision-making. This diversity encourages innovation and challenges the organization to think beyond its usual ways of doing things, opening the door to new solutions and strategies.
At the Door County Community Foundation, we see this causation every day. Charities that make it a priority to form an independent board of highly skilled people are usually the most cost-effective and efficient organisations. Independent governance isn’t just about avoiding conflicts of interest—it helps ensure that our nonprofits operate with the same rigor and accountability that competition imposes on businesses. It’s about promoting innovation, efficiency, and ultimately making the biggest impact on Door County in the most cost-effective way possible.
Bret Bicoy is President and CEO of the Door County Community Foundation. Contact him at [email protected].
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