Harvard Case - New Profit, Inc.: Governing the Nonprofit Enterprise
"New Profit, Inc.: Governing the Nonprofit Enterprise" Harvard business case study is written by Robert S. Kaplan. It deals with the challenges in the field of Accounting. The case study is 16 page(s) long and it was first published on : Nov 30, 1999
At Fern Fort University, we recommend that New Profit, Inc. (NPI) implement a comprehensive strategic plan to address its governance challenges and ensure long-term sustainability. This plan should focus on strengthening its board of directors, refining its financial management practices, and improving its internal control systems.
2. Background
New Profit, Inc. is a non-profit organization that invests in and supports high-impact social enterprises. The case study highlights the organization's rapid growth and the challenges it faces in managing its finances, governance, and internal controls. The key protagonists are:
- Timnit Gebru: Founder and CEO of NPI, responsible for the organization's overall vision and strategy.
- The Board of Directors: Responsible for overseeing the organization's operations and ensuring its financial stability.
- The Finance Team: Responsible for managing NPI's financial resources and reporting.
3. Analysis of the Case Study
The case study reveals several key issues facing NPI:
Governance:
- Board Composition and Expertise: The board lacks expertise in areas crucial to NPI's growth, such as finance, investment, and social impact measurement.
- Board Oversight: The board's oversight of financial management and risk assessment is inadequate.
- Lack of Clear Roles and Responsibilities: There is a lack of clarity regarding the roles and responsibilities of the board and management, leading to potential conflicts and inefficiencies.
Financial Management:
- Lack of Robust Financial Systems: NPI's financial systems are not sufficiently robust to handle its growing portfolio of investments and complex operations.
- Limited Financial Reporting: The organization's financial reporting is inadequate, hindering the board's ability to monitor performance and make informed decisions.
- Inadequate Risk Management: NPI has not implemented a comprehensive risk management framework to identify and mitigate potential financial risks.
Internal Controls:
- Weak Internal Control Systems: NPI's internal controls are weak, leaving it vulnerable to fraud and financial mismanagement.
- Lack of Segregation of Duties: Inadequate separation of duties creates opportunities for fraud and errors.
- Limited Internal Audit Function: The absence of a dedicated internal audit function further weakens internal controls.
Strategic Framework:
The case study can be analyzed using the Resource-Based View (RBV) framework. NPI's core competency lies in its ability to identify and invest in high-impact social enterprises. However, its lack of robust governance, financial management, and internal control systems hinders its ability to leverage this competency and achieve its full potential.
4. Recommendations
To address these challenges, NPI should implement the following recommendations:
Governance:
- Strengthen the Board:
- Recruit Directors with Expertise: NPI should recruit board members with expertise in finance, investment, social impact measurement, and non-profit governance.
- Develop Clear Roles and Responsibilities: Establish a clear charter outlining the roles and responsibilities of the board and management.
- Enhance Board Committees: Strengthen the board's finance and audit committees to provide more effective oversight.
- Provide Board Training: Provide board members with training on non-profit governance, financial management, and risk assessment.
Financial Management:
- Implement Robust Financial Systems: Invest in a comprehensive financial management system that can handle NPI's growing portfolio and complex operations.
- Improve Financial Reporting: Develop detailed financial reports that provide the board with timely and accurate information on NPI's financial performance, including key performance indicators (KPIs) such as return on investment (ROI) and social impact metrics.
- Develop a Risk Management Framework: Implement a comprehensive risk management framework that identifies, assesses, and mitigates potential financial risks.
Internal Controls:
- Strengthen Internal Control Systems: Implement a robust system of internal controls that includes segregation of duties, regular internal audits, and a strong code of ethics.
- Establish an Internal Audit Function: Create a dedicated internal audit function to conduct regular reviews of NPI's financial systems and operations.
- Implement a Whistleblower System: Establish a confidential whistleblower system to encourage employees to report any suspected fraud or misconduct.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies and Consistency with Mission: The recommendations aim to strengthen NPI's core competency of identifying and investing in high-impact social enterprises while ensuring its operations are aligned with its mission.
- External Customers and Internal Clients: The recommendations will improve NPI's ability to attract and retain investors, partners, and talented employees.
- Competitors: The recommendations will help NPI stay ahead of its competitors by ensuring its financial stability and operational efficiency.
- Attractiveness ' Quantitative Measures: The recommendations will improve NPI's financial performance by reducing risk, improving efficiency, and increasing transparency.
- Assumptions: The recommendations assume that NPI has the resources and commitment to implement these changes.
6. Conclusion
By implementing these recommendations, NPI can strengthen its governance, improve its financial management practices, and enhance its internal controls. This will enable the organization to achieve its mission of supporting high-impact social enterprises while ensuring its long-term sustainability.
7. Discussion
Other Alternatives:
- Merging with another organization: This could provide access to resources and expertise, but it could also lead to loss of control and cultural clashes.
- Outsourcing financial management: This could reduce costs and improve efficiency, but it could also compromise control and security.
Risks:
- Resistance to change: NPI's staff and board members may resist changes to the organization's governance and financial management practices.
- Cost of implementation: Implementing these recommendations will require significant investment in time and resources.
Key Assumptions:
- Commitment to change: NPI's leadership must be fully committed to implementing these recommendations.
- Availability of resources: NPI must have sufficient resources to implement these recommendations.
8. Next Steps
- Develop a Detailed Implementation Plan: Create a detailed implementation plan that outlines the steps, timelines, and resources required for each recommendation.
- Secure Board Approval: Present the implementation plan to the board of directors for approval.
- Allocate Resources: Allocate the necessary resources, including financial and human capital, to implement the plan.
- Monitor Progress: Regularly monitor progress towards achieving the goals outlined in the implementation plan.
By taking these steps, NPI can ensure that its governance, financial management, and internal controls are aligned with its mission and its potential for growth.
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Case Description
New Profit, Inc. (NPI) is an innovative venture philanthropy fund. Founded by social entrepreneur Venessa Kirsch, NPI intends to raise large donations from individuals who wish to invest in nonprofit enterprises that could have a significant social impact and the capability to grow to scale. NPI searches and identifies such organizations, provides initial funding, monitors their performance, and then provides additional funding to enable them to become high-impact, nationwide organizations. NPI uses the Balanced Scorecard approach for measuring both its own performance and that of its portfolio companies. The Balanced Scorecard provides the language for the performance contract between NPI and its funders and board, and between NPI and its portfolio organizations.
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