Does Wall Street Have Too Much Influence Over Nonprofit Boards?

Nonprofit boards aren’t the same as for-profit ones, but a shift in the makeup of those nonprofit boards could be bringing them closer together.

A recent report in Stanford Social Innovation Review  (opens in a new tab) highlights the net effect of the issue that industry makeup can have on a board’s approach. The report, by Ohio University’s Garry W. Jenkins, offers a different take on board composition from what’s generally analyzed in such studies—often, issues of racial or gender makeup.

In his research, Jenkins examined three kinds of nonprofit boards—those of well-known private research universities, small liberal arts colleges, and New York City cultural and health organizations—and found that between 1989 and 2014, all three saw significant increases in the percentage of board members from the financial-services industry, both among the general board population and among board leadership.

The numbers are most startling at research universities, Jenkins notes, where in 2014, 40 percent of board members and 56 percent of board leaders hailed from the financial world. But the results aren’t limited to the educational arena: Among the New York City nonprofits studied, 40 percent of board members and 44 percent of leaders come from the financial sector.

The makeup of these boards doesn’t reflect the size of the U.S. financial industry. “If nonprofit boards were composed of a representative group of people from society, one would expect trustees with a finance background to represent roughly 6 to 8 percent of board members,” he explains.

Why It Matters

In his analysis, Jenkins says that the result of this strong shift toward the financial sector is that it hurts diversity on boards and also has the effect of limiting the approach of the board to a certain subsector of worldviews.

“One of the reasons diversity is important is that it can produce what social psychologists call ‘cognitive conflict’—task-oriented differences in judgment among group members that emerge when they are faced with interdependent and complex decision-making,” he explains. “It is the clash of perspectives and the expression of dissenting views that help uncover underlying assumptions, change outlooks, and stimulate conversations around topics.”

The result of this, he says, is that nonprofits that have significant financial-services-industry representation on their boards become overly focused on the bottom line—to the detriment of the organization’s mission.

In a blog post analyzing the study, CNBC’s Robert Frank argues that Jenkins’ points ring true.

“Nonprofits no doubt benefit from thinking more about efficiency, effectiveness, accountability, data and measurement,” Frank writes  (opens in a new tab). “Yet as the study makes clear, simply ‘following the money’ may not be the best long-term strategy for today’s most important charities.”

What’s your take on the issue? Is the financial sector too well represented in the nonprofit sector? Let us know in the comments.