Philanthropy is not like investing. Nonprofits are not like business. Even the most casual reader of this blog or occasional follower of CEP’s work has heard me make this argument many times (too many, you might be thinking).

But repeating this message matters. And nowhere does recognizing these simple facts seem to be more of an uphill battle than in the boardroom, where foundation and nonprofit boards alike all too often operate with a mindset that might make sense in the zero-sum competitive context of business, but impedes the impact of purpose- (as opposed to profit-) driven organizations.

Widely held mental models for good governance — stressing competition and a narrow focus on single institutions — simply don’t make sense in a philanthropic and nonprofit context. But what does?

Enter Anne Wallestad, the brilliant president and CEO of BoardSource, with an alternative governance framework that, if adopted, could be the most important mindset shift in the nonprofit sector I’ve seen in my two decades in this job. In a crucial, must-read article in the Stanford Social Innovation Review, just published last week, Wallestad contends that nonprofit boards have to put “purpose before organization” and that, if they do, certain principles follow.

Wallestad argues for boards to abandon a common misreading of “duty of loyalty” as “the responsibility to think only of the organization when making governing decisions”:

This interpretation unnecessarily focuses board members on loyalty to the organization as a corporate entity. Instead, boards should focus their loyalty to the organization’s purpose or reason for being, fidelity to the reason that the organization exists and — by extension — to the people and communities its work impacts. What is best for purpose and community is not always synonymous with what’s best for the organization.

It bears repeating: “What is best for purpose and community is not always synonymous with what’s best for the organization.” 

Read the full article about foundation boards by Phil Buchanan at The Center for Effective Philanthropy.