Agency Problems between Managers and Employees in Nonprofit Organizations: A Discrete Choice Experiment

Most principal–agent literature of nonprofit organizations has focused on the relationship between board members and managers. However, in addition to the role as an agent of the board, the manager also performs a role as principal with respect to the nonprofit employees. By using a discrete choice experiment, we identify the objectives of managers and employees in nonprofit organizations and assess the presence of agency problems in this relationship. Our sample consists of 76 headmasters, 161 teachers, and 39 administrative employees in 74 secondary nonprofit schools in Belgium. We find that the six objectives set out in the experiment play an important role for both headmasters and subordinate staff. However, the results also indicate that some of these objectives are significantly more important for the headmasters. In sum, our results suggest that agency theory and stewardship theory are not necessarily in conflict with each other but can be combined into a more general governance framework for nonprofit organizations. Consequently, we argue that incentive structures that incorporate different types of objectives can facilitate the recruitment and retention of employees in nonprofit organizations.     

“Corporate” governance in nonprofit organizations

The economics‐based theoretical and related empirical literature on the governance of nonprofit organizations is brought together and integrated in a way easily accessible for noneconomists. This literature is scattered in academic journals covering economics, health economics, management, and accounting, and in the more nonprofit‐geared research publications. After defining corporate governance, I present in a nontechnical way the most appropriate economic framework for studying governance problems: the principal‐agent theory. Most of the economic literature deals with the role and influence of the board and its relation to the organization's management and performance. This is reflected in the article's structure. The board's functioning, composition, and committee structure are first discussed, followed by a review of the literature on incentive‐based remuneration schemes, disclosure of financial information, and the use of debt to mitigate agency problems between the board and management. The literature dealing with donors and subsidizing authorities in governance relations is then presented. The article concludes with a number of practical implications of the scholarly obtained results to date, as well as some suggestions for further theoretical and empirical research.     

Revisiting Agency and Stewardship Theories

Using principal–agent theories, this study examined differences in the perceptions of nonprofit chief executive officers (CEOs) and board chairs on key governance aspects, including board performance, leadership, satisfaction with diversity, and board meetings. Using data from the CEOs and board chairs of 474 nonprofit organizations, we found statistically significant differences in the governance perceptions of these leaders of nonprofit organizations. The findings provide support for an agency theory explanation about the differing interests of principals (board chairs) and agents (CEOs). The findings suggest that these two sets of nonprofit actors frequently operate from different perspectives, potentially affecting the governance of their organizations.     

A reexamination of agency theory assumptions: extensions and extrapolations

In this paper, we discuss agency theory in the context of the individual principal and agent, and also in the context of the organization and its groups. Agency theory is examined in the context of goal orientation, obligation and reciprocity, risk, and self-interest. We offer propositions given agency theory’s assumptions. We also extend agency theory and offer alternative propositions based on a relaxing of agency theory’s assumptions. In relaxing the assumptions of agency theory, insights from outside the agency literature, specifically from behavioral theories are used. Implications of agency theory and the extension of this theory are also discussed in relation to outcomes associated with economic exchanges.     

Female leaders and board performance in member‐serving nonprofit organizations

Despite an active stream of “good governance” research, there is not yet much nonprofit scholarship examining how the gender composition of a board or its leadership relates to board performance. This article helps to fill this gap, focusing on the governance practices of US‐based nonprofits serving a domestic or international membership. A structural equation model finds that the presence of female leaders relates to the performance of nonprofit boards both directly and indirectly through these leaders' presumed influence on board characteristics and operation. This research advances the field by empirically testing a longstanding theory that board performance is both multidimensional and contingent on the market and labor environment, organizational capacity and other characteristics—in this case, gender dynamics. We find there are some positive relationships between female board leadership and clearly defined measures of board performance. These findings also suggest that a strategy to balance a board's gender may serve many nonprofits, but gender representation works in tandem with other board characteristics.     

The communicative power of nonprofit actions and values: A pilot study of dialogic stewardship

The following study seeks to expand and advance stewardship theory in public relations by incorporating tenets of dialogic and contingency theories to propose dialogic stewardship. Given fundraising trends and a theoretical shift in public relations to reconsider relational outcomes beyond organizational performance, the study re-centers stewardship on donor preferences and highlights the need to co-create stewardship strategies with donors to nonprofit organizations. After defining dialogic stewardship and how it helps to address “negative spaces” in donor-nonprofit relationships, the study puts forth a measurement model incorporating donor perspectives by using quantitative scale development processes. Analysis suggests dialogic stewardship consists of five dimensions: Reporting on Responsibility, Strategic Recognition, Organizational Values, Financial Management, and Engagement. The conclusion explains how these dimensions build public relations theory by deliberately bringing stewardship and dialogue together.     

The effectiveness of nonprofit lead‐organization networks for social service delivery

Public agencies increasingly contract with nonprofit organizations to lead community‐based networks for social service delivery. We explore the role that partnership characteristics play in the effectiveness of these networks. Using data on children and family services in Los Angeles County, we consider the impact of both the motivations for forming partnerships and the nature of the resulting partnerships on perceived outcomes for clients, interorganizational relationships, and organizational learning. We find that client outcomes and interorganizational relationships are enhanced when partnerships are formed to meet certain programmatic and organizational goals. Organizational learning, however, is affected only when partnerships are formed to enhance organizational legitimacy. Partners selected because they share common vision increase effectiveness, while those selected because there are few alternative partners decrease effectiveness. Finally, when partnerships use an interorganizational coordination mechanism, client outcomes are improved. The managerial implications of these impacts for the nonprofit sector are developed. The results lend considerable support to the role of partnership motivation and partner selection in the effectiveness of nonprofit lead‐organization networks, and specificity about the nature of that role.     

Agents or Stewards: Using Theory to Understand the Government-Nonprofit Social Service Contracting Relationship

Using agency and stewardship theories, this study examines howpublic administrators manage contracting relationships withnonprofit organizations. Interviews were conducted with publicand nonprofit managers involved in social services contractrelationships at the state and county level in New York State.The use of trust, reputation, and monitoring as well as otherfactors influence the manner in which contract relationshipsare managed. The findings suggest that the manner in which nonprofitsare managed evolves over time from a principal-agent to a principal-stewardrelationship but with less variance than the theories wouldsuggest. This results in part from the contextual conditionsthat include the type of service, lack of market competitiveness,and management capacity constraints. The intergovernmental environmentin which social services are implemented and delivered presentscomplex challenges for public managers responsible for managingcontract relationships. The findings from this study documentthose challenges and the corresponding management practicesused with nonprofit contractors.     

Common Agency in Nonprofit Advocacy Organizations

Most theories of nonprofit organizations and nonprofit leadership recognize the multitude of stakeholders—including board members, donors and volunteers, funders, the media, and policy makers—that organizational leaders must contend with in doing their work. For nonprofits engaged in advocacy, demands from stakeholders may be even more challenging to meet. Although stakeholder theory recognizes the effect of various groups on an organization, it does not explain how leaders manage the preferences of their often‐competing stakeholders while they make choices for the organization. This study develops a common agency framework, evaluating the roles of three groups crucial to nonprofit advocacy organizations: the organization's board of directors, elected officials, and donors/members. The common agency framework is then illustrated with interviews with leaders of nonprofit advocacy organizations in California. Findings suggest that the leaders of these groups have a significant amount of discretion in guiding their organizations’ activities and operations.     

Organizational Self‐Censorship: Corporate Sponsorship,Nonprofit Funding,and the Educational Experience*

La dépendance croissante du secteur privé envers la commandite a eu des conséquences sur la gouvernance des organismes sans but lucratif (OSBL). La recherche traditionnelle sur le financement a pris un angle d'observation essentiellement positif, montrant que les OSBL peuvent trouver des occasions d'influencer les intérêts de leurs bailleurs de fonds de manière à ce qu'ils deviennent plus compatibles avec la mission de l'OSBL. Dans cet article, les auteurs s'inspirent de ce travail en fournissant un examen plus nuancé de l'intermédiaire dans l'OSBL. Plus précisément, les auteurs introduisent une forme négative d'intermédiaire connue sous le nom d'autocensure organisationnelle. En examinant l'autocensure, ils montrent que les OSBL devraient plutôt redéfinir leurs propres buts de manière à attirer les bailleurs de fonds du secteur privé. Increasing reliance on corporate sponsorship has impacted the governance of nonprofit organizations. Traditional research on funding has taken a predominately positive vantage point, expressing that nonprofit organizations may find opportunities to influence their funder's interests such that they become more compatible with the nonprofit organization's mission. In this article, we build upon this work by providing a more nuanced examination of agency in the nonprofit organization. Specifically, we introduce a negative form of agency known as organizational self‐censorship. By examining self‐censorship, we reveal that nonprofit organizations may instead redefine their own goals in order to appeal to private sector funders.     

Variation in part‐time job quality within the nonprofit human service sector

This article extends the growing literature on the quality of part‐time employment to the domain of nonprofit human services, specifically grassroots organizations in which paid work is itself a relatively new reality. It addresses three central questions: How do part‐time and full‐time workers differ in their personal and household characteristics? How do part‐time jobs differ in access to employment benefits from their full‐time counterparts; and finally, How does benefits access vary among part‐time job titles? These lines of inquiry are examined using data from the populations of nonprofit domestic violence programs and their employees in a large midwestern metropolitan area. Analyses of worker‐level data reveal that part‐time workers in these settings disproportionately live with children, are in committed relationships, and report a strong preference for employment that facilitates work‐life balance; they are also less likely to be primary household wage earners. Analyses at the level of jobs suggest that employment benefits extended to part‐time jobs are minimal compared to their full‐time equivalents, but there are also striking variations among different part‐time titles. The results offer insights into the nature of part‐time work in these nonprofit human service settings and potential challenges for effective management.     

The Effects of United Way Membership on Employee Pay in Nonprofit Organizations

This research investigates the relationship between United Way membership and the compensation level of employees in nonprofit organizations. This study is based on questionnaires completed by 1,811 employees from sixty‐nine nonprofit agencies in a large metropolitan area. Managerial capitalism, agency theory, and United Way funding and governance roles were used to develop the hypotheses. We found that employees of organizations belonging to the United Way receive pay premiums, suggesting that the United Way member agencies are higher‐quality agencies that pay their employees higher wages.     

Soil as Social‐Ecological Feedback: Examining the “Ethic” of Soil Stewardship among Corn Belt Farmers

In this article we examine in‐depth interviews with farmers (n = 159) from nine Corn Belt states. Using a grounded theory approach, we identified a “soil stewardship ethic,” which exemplifies how farmers are talking about building the long‐term sustainability of their farm operation in light of more variable and extreme weather events. Findings suggest that farmers' shifting relationship with their soil resources may act as a kind of social‐ecological feedback that enables farmers to implement adaptive strategies (e.g., no‐till farming, cover crops) that build resilience in the face of increasingly variable and extreme weather, in contrast to emphasizing short‐term adjustments to production that may lead to greater vulnerability over time. The development of a soil stewardship ethic may help farmers to resolve the problem of an apparent trade‐off between short‐term productivist goals and long‐term conservation goals and in doing so may point toward an emergent aspect of a conservationist identity. Focusing on the message of managing soil health to mitigate weather‐related risks and preserving soil resources for future generations may provide a pragmatic solution for helping farmers to reorient farm production practices, which would have soil building and soil saving at their center.     

Saving the Moral Capital of NGOs: Identifying One-Sided and Many-Sided Social Dilemmas in NGO Accountability

The literature on nonprofit management has embraced the concept of “accountability” to target urgent challenges related to NGO probity and integrity, and there have been attempts in the literature to use rational-choice-based governance approaches to solve them. Although the existing principal–agent frameworks provide important insights, they are limited to the analysis of financial relationships between NGOs and donors. We contribute to the literature in developing a comprehensive rational-choice-based governance approach to analyze all stakeholder relationships of NGOs. Applying the research program of ordonomics, we unpack two fundamental interaction problems: (a) the “stakeholder dilemma” between the NGO and a single accountability holder as a one-sided social dilemma and (b) the “competition dilemma” among rival NGOs as a many-sided social dilemma. We show that improving NGO accountability in relation to intended beneficiaries, peer organizations, and the general public also requires identifying the underlying governance problem as a competition dilemma focusing on collective self-regulation as a solution.     

Do Nonprofits Treat Their Employees Differently? Incentive Pay and Health Benefits

We examine how nonprofit, public, and for‐profit establishments vary in the provision of health benefits and insurance and performance‐based incentives using the 2002 National Organization Survey of establishments in the United States. We found that in comparison to for‐profit firms, both nonprofit and public organizations are less likely to use performance‐based incentives, although they provide their employees with better health benefits and insurance. Sectoral differences in the provision of health benefits and insurance and use of performance‐based incentives persist after controlling for correlates of sector that predict these outcomes, including establishment size, independence of establishment, market competition, establishment age, and unionization. We also found trade‐offs between the provision of health benefits and insurance and use of performance‐based incentives. Our results are generally consistent with the prediction from agency theory and also consistent with a view that public and nonprofit organizations are more concerned with the well‐being of their employees.     

A Review of Models for Measuring Organizational Effectiveness Among For‐Profit and Nonprofit Organizations

Induced by unprecedented growth, invasion of for‐profit organizations in the nonprofit domain, and high‐profile cases of mismanagement in the nonprofit sector, a recent surge in the literature suggests ample opportunities for research to compare the organizational effectiveness of for‐profit and nonprofit organizations. This article presents a literature review of nonprofit organizational effectiveness from which four models of organizational effectiveness are selected. These models are discussed and analyzed because they apply to both for‐profit and nonprofit organizations.     

The Board as a Monitor of Organizational Activity: The Applicability of Agency Theory to Nonprofit Boards

Monitoring, as an important function for boards of directors in both the private and nonprofit sectors, receives widespread attention throughout the empirical (Chait, Holland, and Taylor, 1996; Eisenhardt, 1989; Golden‐Biddle and Rao, 1997; Kosnik, 1987) and normative literature (Axelrod, 1994; Block, 1998; Carver, 1997; Houle, 1997; Ingram, 1989). Despite the consensus about the significance of this crucial board responsibility, scholars know little about the ways in which a nonprofit board actually performs its monitoring function. In this article I report on an empirical study of the monitoring behavior of twelve nonprofit boards of directors. Agency theory provides the framework for this analysis. I show that the way in which individual board members define their relationship with the chief executive and understand the scope of the monitoring function influences how, or if, they monitor agency action. The findings also show that, given ambiguous rules of accountability and unclear measures of performance, nonprofit board members tend to monitor in ways that reflect their professional or personal competencies rather than paying attention to measures that would indicate progress toward mission‐related goals and initiatives.     

Performance evaluations of for‐profit and nonprofit U.S. hospitals since 1980

This synthesis of studies examines whether the published literature shows an evidence‐based consensus on performance differences between private for‐profit and nonprofit hospitals in the United States since 1980. The author systematically and comprehensively surveyed peer‐reviewed publications to clarify this question. The author's second objective was to learn what proportion of all research assessing for‐profit and nonprofit health care providers is devoted to hospitals compared to all other providers. The third goal was to discover how any trends in observed performance differences among hospitals compare with trends among other provider types. Computerized bibliographic searches of all relevant databases yielded seventy‐five studies (ninety‐three assessments) that compared the performance of for‐profit and nonprofit hospitals on four performance criteria: access, quality, cost or efficiency, and amount of charity care. The author coded findings on performance in one of three ways: for‐profit superiority, nonprofit superiority, or inconclusive. Most studies (60 percent) reported that nonprofit hospitals have better relative performance than for‐profit hospitals, clear evidence of their organizational effectiveness. Thirty‐one percent were inconclusive, and 8 percent reported that for‐profits were better.     

Inside the firm: Socioeconomic versus agency perspectives on firm competitiveness

In this paper, we examine agency theory’s presumptions of self-interest, opportunistic behavior, and the notion of the “economic man” (or woman). We contend that the application of agency theory’s presumptions to the firm may imply high costs, competitive disadvantage, and high firm risk. We suggest that agency theory’s presumptions may not contribute to the interests of the principal, agent, or other stakeholders. Alternatively, we discuss socioeconomic theories’ presumptions of enlightened self-interest, trustworthy behavior, and the possibility of the noneconomic person. We argue that the extension of socioeconomic theories to the firm may imply low costs, competitive advantage, and low firm risk. We contend that the socioeconomic presumptions may contribute to the interests of various stakeholders.     

Strategies and tactics in NGO–government relations

Relationships between nongovernmental organizations (NGOs) and government agencies have been variously described in the nonprofit literature as cooperative, complementary, adversarial, confrontational, or even co‐optive. But how do NGO–government relationships emerge in practice, and is it possible for NGOs to manage multiple strategies of interaction at once? This article examines the experience of three leading NGOs in Mumbai, India, involved in slum and squatter housing. We investigate how they began relating with government agencies during their formative years and the factors that shaped their interactions. We find that NGOs with similar goals end up using very different strategies and tactics to advance their housing agendas. More significant, we observe that NGOs are likely to employ multiple strategies and tactics in their interactions with government. Finally, we find that an analysis of strategies and tactics can be a helpful vehicle for clarifying an organization's theory of change.