Financial leadership for government and non-profit boards: Part 1
When it comes to governing boards and financial oversight, we often focus too much on the details and legalities, and totally miss the board’s more important responsibility to provide real leadership for the organization’s financial matters.
Woods Bowman, PhD, Lisa Gioia, CPA, and David Renz, PhD, affiliated with the Midwest Center for Nonprofit Leadership at the University of Missouri, Kansas City,(UMKC), recently taught a program on “Boards, Governance, and True Financial Leadership.” In a nutshell, (summarizing definitions of both Renz and Gioia) financial leadership is a collaborative effort by a board and its key executives to secure and effectively use the financial resources needed to accomplish its mission, vision, and goals. The focus of their program was nonprofit organizations, but their key points apply to governments as well.
Three key points emerged from their presentations (Gioia, Bowman, Renz). First, the board has a fiduciary responsibility which is broader and longer term than that of for-profit firms. Second, true financial leadership entails tying the money to the mission. And third, the board and management have distinctly different, but equally critical, roles. Financial education programs for local and tribal governments presented by the Government and Public Policy Team from Michigan State University Extension highlight these key points as well.
Every board has a responsibility to someone to exercise fiduciary oversight. As Bowman pointed out, for-profit firms’ shareholders bear the financial risk, and boards typically are responsible to them. He explains that nonprofits differ in that the clientele bear the risk of poor financial performance. John Carver’s Policy Governance model speaks of owners being those for whom the board leads the organization. For government boards, the citizens are both the owners and the clientele. Since nonprofit and governmental boards aren’t driven by a profit motive, the mission becomes the driving force, and in Bowman’s words, “the board’s first financial duty is to preserve and protect ability to fulfill the mission”. This necessitates a longer term approach to financial oversight than what we often see from boards doing the typical annual budgets in the context of 2 or 4 year terms of office. Gioia’s presentation included key questions for assessing financial strength and weakness in both the short and long term. Long term assessment of financial strength is a critical, and often overlooked, element of true financial leadership.
Part 2 of this article will go into more depth on the second and third key points of the True Financial Leadership presentation.