Thinking Seriously About Governance

The heated debate about non-profit and for-profit microfinance institutions stretches back for years. It’s truly time to put that debate to rest—not because it has been resolved but because it is limiting a more important conversation about proper governance arrangements for microfinance: the question of who oversees management and in what manner.

The idea that for-profit or non-profit status is determinative in the future course of a firm, what customers it serves and how is so overly simplistic as to be laughable. There are responsible and corrupt for-profit organizations and responsible and corrupt non-profit organizations. What determines the course an organization takes over the long term—whether it hews to a vision of serving the poor or pursues profit above all else, whether it flexibly adjusts to changes in markets and contexts or becomes hidebound and irrelevant, whether it maintains a commitment to a long term vision or shifts like the wind with fads of the day—comes down to the governance arrangements that are put in place after the choice of profit status. 

There are some signs of this conversation emerging (Carlos Danel made this point at the recent Microfinance USA conference) but too few of them. Consider a few recent examples where governance should be making headlines and be the central point of conversation but isn’t: 1) The Central Asia Institute scandal in the U.S. drew a lot of attention to the very poor governance of the organization but that point quickly faded into whether advocacy was a “program cost” and Greg Mortensen’s creative interpretation of the truth; 2) Last year’s sudden shutdown of Unitus exposed the unorthodox, questionable and conflict- of-interest-ridden governance arrangements at Unitus but it barely hit the radar of most of the microfinance industry; 3) Grameen Bank’s governance practice of including a large number of borrower-members on its board has been lauded for years but only recently has there been serious questioning of whether these boardmembers could provide proper oversight of the highly complex entity that Grameen has become. These are the kinds of questions of governance that should be in the forefront but have played second fiddle to the for-profit/non-profit debate.

What are proper governance arrangements for a pro-poor institution? That’s a question that deserves a lot more attention and debate. Most people today seem to accept that socially responsible, pro-poor for-profit organizations can exist. If so, what is the proper role of the poor in the governance of such an organization? Can poor clients deliver the kind of oversight necessary to check management? Similarly, how should power at a non-profit be divided between funders, managers and clients? The answers to these questions are critical but non-obvious. The industry would do well to think about them more deeply.

Timothy Ogden is an executive partner at Sona Partners, the editor in chief of Philanthropy Action, and co-author of Toyota Under Fire. He also blogs at HBR and SSIR.