Robert Herman and David Renz presented a study in progress at the 2005 conference of the Association for Research on Nonprofit Organizations and Voluntary Action (ARNOVA). Among the interesting elements of the study was a finding on a question that many of you will have struggled with: Does having influential/connected-to-money individuals on your board translate into greater revenues?
There is, of course, a related question: “Even if it did result in greater revenues, Is it the right way to go?” but that is for later…
Renz and Herman first looked at the 64 organizations in their sample in 1993 and then again in 1999. These human service organizations were sorted into two groups: those that were more dependent on earned income (“commercial organizations”) and those that were more dependent on contributed income (“donative organizations”). When they examined the relative levels of prestige of their boards, they found that the commercial organizations began with fewer influential members than did the donative organizations, but both groups increased the prestige of board members at approximately the same rates. Here is what Renz and Herman reported.
“Contrary to what we expected, those nonprofits with no or only small increases in board prestige had, on average, more gain in total revenue. . . For the total sample of 44 community-based organizations, those with large increases in prestige averaged total revenue increases of a little more than $642,000; those with no or small increases averaged gains of a little more than $941,000. The same held when we sorted the organizations into “donative”and “commercial”nonprofit organizations. Among the donative organizations, the average gains for the no/small increase in board prestige were almost $912,000 and a little more than $780,000 for those with large increases in board prestige; the respective gains for the commercial nonprofits were $1,010,000 and $469,000. Clearly, increasing board prestige was not instrumental in improving an organization’s financial outcomes.
“Why is change in board prestige for donative nonprofits unrelated to change in total revenues? Are the chief executives and fundraising officers of these particular nonprofits not successful at encouraging their somewhat more prestigious boards to contribute to raising more money? The period during which the data were collected was one of relative prosperity and increasing GDP. Perhaps attracting revenues was easier and boards were less needed as fundraisers? Given the research data we have, we can only speculate.
“One of the likely reasons why increasing prestige had no statistically apparent effect on total revenues is that the sample organizations reflected a fairly narrow range of prestige. The sample comprised community-based human services organizations and did not include the sort of nonprofits that often have the high-prestige boards—organizations such as major museums, symphony orchestras and other major performing arts organizations, hospitals, and universities. Many of the donative nonprofits in our sample did rely substantially on donations. However, it seems that, to the extent that board prestige is important in fundraising, these organizations were relying mostly on some kind of historical legacy from an earlier generation of board prestige.
“Nonetheless, it seems important to recognize that our results do raise the question: Is a strategy of pursuing increased board prestige likely to result in any significant increase in revenues (and thus secure more financial resources for programs)? This is a strategy that continues to be pursued by many nonprofits (indeed, many believe it essential), but our evidence suggests that, for some types of nonprofits, attracting more prestigious board members may not yield the increase in giving that they seek. Perhaps it is important to note, as most prescriptive guides to board development maintain, that smaller and community-based nonprofits should invest their energy in seeking diverse types of board members who can provide skills and community connections and be willing to contribute in line with their resources. We believe these results reinforce the soundness of such advice.
Those wishing to review the study in its entirety should contact Robert Herman.
Robert D. Herman is professor at the L.P. Cookingham Institute of Public Affairs, Henry W. Bloch School of Business and Public Administration, University of Missouri–Kansas City.
David O. Renz is Beth K. Smith/Missouri Chair of Nonprofit Leadership and Director of the Midwest Center for Nonprofit Leadership, at the L.P. Cookingham Institute of Public Affairs, Henry W. Bloch School of Business and Public Administration, University of Missouri–Kansas City.