Essentials of Corporate Governance

Chapter 12. Not-for-Profit Organizations

After reading this chapter, you will be able to

• Understand what a nonprofit or not-for-profit corporation is

• Understand the differences between for-profit and not-for-profit corporations

• Understand the value of good Corporate Governance practices for not-for-profit organizations

• Understand the systems through which not-for-profit corporations can work to enhance their Corporate Governance practices

During the discussion of Corporate Governance in publicly traded corporations, the concept of market image was discussed in terms of good Corporate Governance promoting the investors’ trust in the entire market. This same principle can apply to a discussion of not-for-profit corporations.

When scandal and fraud occur in any area of the economy, the public becomes outraged, but when it happens in a charitable organization, the consequences are exponentially dire. For many people, it is unimaginable that anyone would steal from an organization that has been established in the spirit of charity. Even more upsetting are situations in which the organizations themselves are misusing, mishandling, or exploiting donated resources rather than allocating them to the intended purpose.

Unfortunately, what happens in one instance can taint the public’s perception of an entire sector. As such, it is important for all not-for-profit organizations to enhance their efforts toward good Corporate Governance practices as a way to promote the public’s general level of trust. ...