The Board, helped along by the filibuster of the normally silent Rob Blokzijl, decided that a not-for-profit might lead to instability (no matter how defined). I think to some small extent they have a case here, one doesn't want an org that knows nothing about running a registry being given .org, simply on the grounds that it is a not-for-profit. IOW, one doesn't want an org to run .org primarily to fund good works and only secondarily, if that, to run .org properly.

However, that is what the application process is for, to weed out any such potential applicants. Did the BoD really think that they would receive no credible bids if they didn't open it up to for-profit entities? I doubt that very much. Or were they perhaps worried that a not-for-profit would put sufficient of its funds into good works that it would fail financially? If that is the case, then they should have been (and should remain) as concerned about for-profits like Afilias and NeuLevel putting sufficient of their funds into questionable areas that they could fail financially.

Regardless, now that ICANN has stated that it would also allow for-profit companies to bid, the successful bidder can presumably choose to do as they wish with the funds, to the extent that it isn't explicitly disallowed by ICANN. And I can't see ICANN explicitly disallowing donations (as I say, if so, why allow Veri$ign and others to donate to political campaigns?). As Vint Cerf himself said, as quoted by Bret here:

I would point out to you that any organization is free, for profit or not, to execute good works.