The Third Turn

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A board member's cost: economics for organizational leaders

Posted by Mark L. Vincent on Nov 7, 2012 6:06:00 AM

A board member's cost: economics for organizational leaders.

Board members for an enterprise are compensated for their time and expertise. It is an expected cost for oversight. The balance point is to compensate fairly enough to capture a board member's complete attention. Too little and the type of board member you want is not going to be available or interested. Too much and board members become sorely tempted to preserve their board seats for the sake of the money. Establishing policy for how board compensation is determined becomes important. Biogen Idec does it through a board subcommittee. Other companies draw on consultative expertise to establish board compensation that ties to company performance, and not just a wage for time served.

Board members in the nonprofit sector usually offer their time and expense to do so at no cost to the organization. In fact, a nonprofit's decision to compensate board members usually runs against the grain of donor development, and prevents board members from engaging in fundraising efforts with integrity. Establishing policy for how board members are reimbursed for any expense is important, so is communicating this policy as part of the recruitment process.

board member cost, design group internationalAt first glance, it sounds as if this is completely equitable. Board members of an enterprise are compensated equally, and all board members of a nonprofit or ministry organization donate their time equally when attending a meeting. A closer look, however, shows that board members of nonprofits contribute in an unequal manner.

This inequality does not have to be a problem. In fact, it can be a boost to how the organization thanks its board members for their service, and deepens the relationship for years to come, especially when acknowledged.

But what inequality you say?  Consider this illustration:

Community Development Inc. has a 7 member board. Three are appointed by the founding Credit Unions who established the nonprofit organization as a means to provide relief for financially stressed families.  One board member is appointed by the Mayor's office with the expectation they must serve in a nonpartisan role. Two board members are appointed by the Board itself -- usually a combination of a clergy representative and the owner of a business or industry in the community. The Executive Director of Community Development, Inc. also serves as a board member.

Consider the cost to participate for each:

  • The Executive Director is compensated by Community Development, Inc. to be present. It is a condition of her employment.
  • The founding credit union members are on a salary and are serving as part of their job description. It is likely even their mileage to participate is covered by their credit union. They are definitely offering service to the community, but no personal cost is involved.
  • The appointed member from the Mayor's office also serves as an extension of their employment. They bear no personal cost.
  • The clergy member may or may not be serving under the terms of their employment. More often than not, they do so on top of their compensated work rather than as part of it. If they serve at their own initiative, they may be able to write-off contributed expenses to participate.
  • Most likely the business member is serving on their own time and at their own expense. Further, if meetings take place during prime periods of productivity there is a measurable loss of potential income that the board member sets aside in order to serve. Even further, the business member worth their salt can tell you what that loss comes to.

In this illustration the cost to participate ranges from nothing to substantial. Executive Directors and Board Chairs who are aware of this should be encouraged to structure their meetings for maximum impact and fulfillment of mission. Poor board meetings and mission momentum serve to aggravate those who are aware of the sacrifice to their business and family to be present. Further, their confidence is eroded in the competence of their fellow board members and the organization's executives to lead in fiscal matters when they cannot understand the cost to participate.

-mark l vincent

mark l vincent, design group international, untying organizational knots

For even more on economics for organizational leaders, consider:

4 Financial Confusions--the free e-book!

Anger in Common, emell vee, whorled viewz, design group international

Topics: process consulting, board members, nonprofit sector, board compensation, organizational development consulting, Mark L. Vincent, Design Group International, organizational design


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