Playing the Numbers Game

Nonprofit organizations are often evaluated using the program ratio: the proportion of mission‐related program expenses to total expenses. Nonprofit managers have incentives to manipulate the reporting of financial information to enhance the program ratio. This article reviews the scholarly literature on program ratio management in nonprofit organizations. Prior research has identified several motivations for and methods of program ratio management and provided limited evidence that it occurs. Researchers have explored the consequences of program ratio management and provided a list of factors mitigating such behaviors. The emerging consensus is that the program ratio is of limited usefulness in evaluating nonprofit performance.     

The governance of nonprofit organizations: Law and public policy

Who should have the right to set the objectives of nonprofit organizations, hire their managers, set compensation standards, and in general control these organizations? Current law and public policy do not provide answers to these questions. Often, nonprofit organizations are controlled by managers and members of the boards of directors or trustees (many of whom are appointed by management). The goals of these individuals may not best serve the interests of those who support the operation of nonprofit organizations. This article proposes a legal and policy framework for empowering consumers, donors, and sponsors—those who have an economic demand for the nonprofit form of organization. The framework establishes a formal status of membership, accords standing in the court of law to members, enhances direct information dissemination by nonprofit organizations, and empowers state-sponsored agencies to support and oversee nonprofit organizations.     

The financial information that nonprofit trustees need and how they can get it

With one exception, the accounting principles governing the information reported on the financial statements of nonprofit organizations should be the same as those for business organizations, and trustees should use this information to decide on budgets and analyze actual performance in essentially the same way as do business boards of directors. The exception is that nonprofit organizations receive capital contributions, which are rare in business corporations. In some nonprofit organizations, especially colleges, the information that trustees actually receive is confusing because of the unnecessary use of fund accounting and other peculiarities. Nevertheless, trustees can insist on businesslike financial statements.     

The economics of performance management in nonprofit organizations

This article analyzes whether and how private‐sector notions of performance management apply to nonprofit organizations. To this end the author shows that each concept of performance management used in the private sector is based on a specific economic theory of the firm and its environment. Before transferring concepts and tools derived from a certain model of the firm and its environment to nonprofit organizations, one must determine whether the assumptions underlying this model are also adequate for nonprofit organizations. Otherwise, one must first adjust those assumptions and analyze whether the derived concepts and tools are still meaningful in the new context; if not, one must determine how to modify them accordingly. The analysis elaborates on the differences between for‐profit and nonprofit organizations that are important for applying performance management concepts. Moreover, the author discusses the practical implications for the use of balanced scorecards in nonprofits.     

Sustainability Assessment and Reporting for Nonprofit Organizations: Accountability “for the Public Good”

Nonprofit organizations serve the public good by offering services that benefit communities and the individuals who live in them. While many large for-profit companies and a few international nonprofits have begun voluntarily assessing and reporting their environmental, cultural, economic, and social sustainability performance in response to growing public awareness of sustainability issues, nonprofit organizations have generally been slow to adopt the practice. This paper makes the case that nonprofits have an obligation to assess and report sustainability performance to account for their positive and negative environmental, cultural, economic, and social impacts in the communities they serve precisely because of their promise to serve the public good; and that sustainability assessment and reporting are not only possible, but that they can actually offer several practical advantages for organizations that integrate the practice into their missions and models. Several sustainability reporting frameworks are reviewed. Two case examples are presented to illustrate the utility of sustainability assessments and reports for different types and sizes of nonprofit organizations. Challenges to the process of adoption and implementation of sustainability programs in the nonprofit sector are discussed.     

Structure and accountability a study of national nonprofit associations

In the 1990s, the integrity and performance of nonprofit organizations in the United States have come increasingly under attack, and there are new calls to hold nonprofit organizations more accountable for their behavior and performance. This article reports on a study of the organizational structures of national nonprofit associations and asks how these umbrella organizations can help to self-regulate the sector through appropriate checks and balances between the national organization and local affiliates. The authors identify a number of differences in how associations with alternative structures hold local affiliates and national organizations responsible for their performances, and they conclude that structure is an avenue of self-regulation for nonprofit organizations deserving further attention.     

Implementing an employee performance management system in a nonprofit organization

Nonprofit organizations are not exempt from the imperatives of employee attraction, retention, and motivation. As competition for staff, donors, and funding increases, the need to manage employee performance will continue to be a critical human resource management issue. This article outlines a study of the introduction of a performance management system in an Australian nonprofit organization and analyzes its design and implementation. It explores how performance management can be introduced and used effectively within a nonprofit environment to benefit staff and the organization. However, the use of performance management is not without its challenges, and the research also identified initial employee resistance and a resulting initial spike in labor turnover. However, findings indicate that if nonprofit organizations are willing to undertake consultation with staff and ensure that the organization's specific context, values, and mission are reflected in the performance management system, it can be a useful tool for managers and a direct benefit to employees.     

Managerial Control and Strategy in Nonprofit Organizations: Doing the Right Things for the Wrong Reasons?

This article presents the second stage of a study that engages with the debate that has occurred within the nonprofit literature about the propensity and relative merits of nonprofit organizations adopting for‐profit approaches to management. Specifically, this qualitative investigation examines the ways in which nonprofit organizations use management control when implementing their chosen strategies. Although this topic has been the subject of considerable attention in the management accounting research, it has rarely been explored within a nonprofit context. This is surprising not only because of the considerable social and economic impact of this sector, but also because of the apparent trend toward sectoral convergence in many structural and processual respects, including strategic behaviors and approaches to control. Based on interviews with CEOs and senior executives in thirty‐two Australian nonprofit organizations, we find that the relationship between strategy and control in nonprofit organizations is similar to that in for‐profit organizations, but quite different reasons underlie nonprofit organizations' exercising of management control.     

Boards of directors in nonprofit organizations do they follow a life-cycle model?

In this study the authors used data from a survey of Canadian nonprofit organizations to empirically test hypotheses derived from models of nonprofit board “life cycles.” The authors suggest that while formal structural elements of board behavior change in the manner suggested by life-cycle models, the more enacted or behavioral aspects of nonprofit boards do not. The data further suggest caution in the use of life-cycle or age-dependent models to either explain or guide nonprofit board behavior.     

Improving performance? The adoption and implementation of quality systems in U.K. nonprofits

There are increasing and multiple pressures on nonprofit organizations to demonstrate excellence in performance. Although there is a growing literature on the various approaches to performance improvement taken by nonprofits, little is known about the processes involved in the adoption and implementation of specific approaches. This article is about the adoption and use of one approach to performance improvement, “quality systems,” in the U.K. nonprofit sector. We report findings about factors that encourage nonprofits to adopt quality systems. We also analyze the distinctive challenges of implementing quality approaches in a nonprofit sector context and suggest critical success factors. The article concludes with a discussion of the organizational and policy implications of applying the management concepts of quality and performance to the nonprofit sector.     

The 990 return: Beyond the internal revenue service

The author recognizes the expanding role of the Internal Revenue Service (IRS) 990 Return in understanding the nonprofit sector and monitoring the strategies, operations, and performance of individual nonprofit organizations, operations, and performance of individual nonprofit organizations. She identifies major problems with the IRS 990 Return relative to its broadened use and provides suggestions for minimizing the problematic interpretation of IRS 990 data.     

Information Technology,Adaptation and Innovation in Nonprofit Human Service Organizations

This report examines how two measures of performance—adaptation and innovation—can be predicted by the use of digital communication. It suggests that information technology in nonprofits offers strong leverage for adaptation but not for innovation. This suggests that (a) the two measures are dissimilar in both their nature and their relevance to organizational performance in nonprofit settings, (b) that service organizations are more likely to use information technology for adapting to change, and (c) it is probable that large and well-founded organizations will use IT for establishing innovations.     

Management implications of government funding of nonprofit organizations: Views from the United States and Canada

Most American authors approach nonprofit institutions as an alternative to both for-profit and public provision. This view suggests that the issues surrounding governance focus on the tension between the needs of individuals who finance or benefit from the activities of nonprofits and the goals of those who manage them. A different paradigm is more appropriate in much of the rest of the world. This article focuses on Canada, where the decision to use nonprofit organizations is made largely by governments. Examples from the Canadian experience with health care, higher education, day care, and television illustrate this difference and some of the implications for nonprofit management that follow from it.     

The Who,Why, and How of Reinvention in Nonprofit Organizations

Although reinvention of government agencies is being extensively discussed, relatively little is known about the reinvention strategies of nonprofit organizations. This article reports survey results for a randomly selected group of nonprofit organizations from across the United States. We conclude that reinvention is being used as a management tool by nonprofit organizations and that it is affecting day‐to‐day operations. Regardless of how reinvention was implemented, these organizations generally view their reinvention activities as successful for increasing productivity, enhancing services, improving performance, and managing costs.     

Managing electronic documents and work flows: Enterprise content management at work in nonprofit organizations

Web management and knowledge management systems have made significant technological advances, culminating in large information management systems such as enterprise content management (ECM). ECM is a Web‐based publishing system that manages large numbers of electronic documents and other Web assets intended for publication to Web portals and other complex Web sites. Work in nonprofit organizations can benefit from adopting new communication technologies that promote collaboration and enterprisewide knowledge management. The unique characteristics of ECM are enumerated and analyzed from a knowledge management perspective. We identify three stages of document life cycles in ECM implementations—content, reification, and commodification/process—as the content management model. We present the model as a mechanism for decision makers and scholars to use in evaluating the organizational impacts of systems such as ECM. We also argue that decision makers in nonprofit organizations should take care to avoid overly commodifying business processes in the final stage, where participation may be more beneficial than efficiency.     

Exploring structure-effectiveness relationships in nonprofit arts organizations

The authors examined nineteen nonprofit performing arts organizations, investigating the distribution of influence among organizational members, the grouping of volunteers and staff in organizational structures, and the effectiveness of the organizations. The organizations' effectiveness was assessed using multiple performance indicators. The analysis revealed five groupings or configurations of influence, which correlated to the organizations exhibiting the highest and lowest levels of organizational effectiveness. The authors conclude that a variety of structures are associated with good performance but structural dysfunctions are associated with organizational failure, and that members' commitment to an organization's structure is an important element of success.     

Board Accountability: Lessons from the Field

Accountability has become a major issue in the nonprofit sector. Numerous external and internal approaches to strengthening performance in this area exist, and many nonprofit boards expect their executives to account foruse of their organizations' resources. However, few boards apply any such expectations to themselves. Qualitative analysis of records from interviews, consultations, and meeting observations with 169 board members of thirty‐four diverse nonprofit organizations revealed six sets of practices that foster board accountability. They include setting clear expectations and standards for the group and for its members, actively using policies regarding conflicts of interests, identifying and staying focused on priorities, maintaining strong two‐way communications directly with constituency groups, conducting assessments of meetings and board performance, and experimenting intentionally with new approaches to their work. The experiences of these boards provide numerous examples of practical steps that others may consider when they seek to increase the value they add to their organizations as well as to strengthen public trust.     

Doing Better While Doing Good: Motivational Aspects of Pay-for-Performance Effectiveness in Nonprofit Organizations

Management practices in the nonprofit sector have been changing over the last decade. Many nonprofit organizations are now mimicking the management techniques of for-profit organizations. Referring to prevailing economic, psychological, and management theories, this paper deals with pay-for-performance plans and specifies reasons for their introduction into nonprofit organizations. The determinants of pay-for-performance effectiveness are analyzed with special emphasis on the motivational determinants. The results of the analysis are incorporated into a model of pay-for-performance effectiveness. Referring to theoretical reasoning as well as empirical studies, this paper analyzes how the motivational determinants of pay-for-performance effectiveness are coined in different types of nonprofit organizations. The paper ends with a discussion in which the author presents an alternative explanation for the introduction of pay-for-performance plans into nonprofit organizations and some suggestions for future research.     

Do Mission Statements Matter for Nonprofit Performance?

In this exploratory study, we examine whether organizational mission statement attributes make a difference to the performance of nonprofit performing arts organizations. We use text analysis to measure two semantic attributes—activity and commonality—of mission statements. We examine whether these attributes are associated with improved performance for the instrumental and expressive functions of nonprofit performing arts organizations. Our findings indicate that the mission statement attribute activity is associated with improved performance for both instrumental and expressive functions. Our analysis of nonfindings for the mission statement attribute commonality suggests that there is a need to develop and use content analysis tools tailored to nonprofit contexts.     

“We Actually Trust the Community:” Examining the Dynamics of a Nonprofit Funding Relationship in New Zealand

Funding relationships in nonprofit management are increasingly defined by a philosophy of rational management, characterized by measurement of outputs and benchmarking, which represents an audit culture system (Burnley, Matthews, & McKenzie, 2005). There is concern that these approaches are constantly undermining the mission of community service nonprofit organizations (Darcy, 2002). In this research, we analyzed the management of funding relationships by examining dynamics within a nonprofit funding relationship in New Zealand. Through focus groups we explored the relationship between 17 representatives from nonprofit organizations and four Board members of a funding Trust. The management of this funding relationship was characterized by an appreciation of the diverse nature of nonprofit organizations, a balance between trust and control, and communication. We suggest that elements of these dynamics could be incorporated into nonprofit funding relationships in order to challenge an over-reliance on audit culture systems, and to re-establish relationships characterized by interaction between nonprofit organizations and their funders. Finally, we call for future research in this area.