When people join a nonprofit, they are often surprised at the difference in the organizational structure from that of a for-profit company. They may hear about decisions being presented to a committee or a board. Who is this mysterious board? Who makes up the committee, and why does a committee have the authority to approve a project?
Unlike many institutions—for-profit companies, schools, and the military—nonprofits rarely follow a top-down leadership style. Instead, depending on whether we’re talking about an accountability hierarchy or a voluntary association, the chain of command differs significantly among nonprofits.
Nonprofit vs. For Profit Reporting Structures
Nonprofits can vary considerably in their ultimate reporting structure. They typically have directors, managers, and other leaders who guide the daily activities of their departments. Like a for-profit company, people report to those managers, and their managers handle daily activities like signing off on marketing campaigns, creating work schedules, and more.
While a for-profit corporation may have a board of directors or shareholders, most have a typical hierarchical structure. Workers report to managers, managers to directors, directors to vice presidents or c-suite leaders, and all roads leading up to the CEO, who answers to the board or shareholders.
Types of Organizations and Their Leadership Hierarchies
There are many types of nonprofits, and every kind of organization is accountable to different members or groups.
Member-Governed Organizations
Many unions and small organizations follow the leadership hierarchy of member-governed organizations, which may also be called “member-driven” organizations because the members guide them. The membership has the final authority over the organization. Members may elect the board of directors, who govern between meetings of the members, but the board may not overrule member decisions.
Board-Governed Member Organizations
This hierarchy finds the board governing the organization. Members elect the board, and then the board leads. Some decisions, such as budget decisions, may be reserved for the members. The board must follow strict bylaws governing its decisions, and often, it can only act after a majority vote is taken at a properly called meeting. Many homeowner associations follow this leadership pattern.
Non-Member Organizations with Self Perpetuating Board
In this structure, the board governs the organization. The board chooses its successors, hence the term “self-perpetuating board.” Members contribute financially but have no say in the daily decisions of the organization. Museums are a good example of this type of hierarchy, with members contributing donations, entrance fees, and the like, but the museum’s governing board handles all the major decisions impacting the organization.
Committee Structures: Executive Committee
Lastly, some organizations follow a committee structure. Large organizations may have a board of directors and an executive committee. Often, the executive committee is comprised of the organization’s leaders and selected board members. The committee is supposed to be guided by the board, but often, the roles reverse, with the executive committee taking the lead.
Review the Bylaws
This is why it is vital to refer to a nonprofit’s bylaws to understand its leadership hierarchy. It’s not as simple as a daily org chart. There may be someone making daily decisions over accounting, finance, operations, marketing, and the like, but big decisions, like pivoting to new programs, making major infrastructure investments, and the like, may require the board’s vote in order to proceed. The bylaws are the ultimate guide to those who have the final say at a nonprofit.
Welter Consulting
Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact us for more information.
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