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.     

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.     

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.     

Public reporting: A neglected aspect of nonprofit accountability

Nonprofit organizations have a compulsory external accountability (largely involving financial reporting) to government agencies such as the Internal Revenue Service and state regulators. They also have a pragmatic “must‐do” accountability to their funders, clients, and other obvious stakeholders. But are nonprofits also accountable to the public at large? If so, how can such accountability be implemented, given the diffuseness and breadth of the public as an audience? This article suggests that nonprofits should consider the citizenry as a stakeholder, if only due to the substantial taxpayer subsidy of the sector. The theory of public reporting that emerged in public administration literature beginning in the 1920s and 1930s can be helpful. Using principles, templates, and examples from public administration, nonprofit organizations can pursue more vigorous public reporting as one method to increase citizen confidence in their activities and in the sector as a whole.     

Structure and adequacy of human service facilities: challenges for nonprofit managers

Findings from a statewide survey of nonprofit human service organizations in Illinois show great diversity in access to and use of facilities. Large proportions have facility-related problems that will require substantial investments beyond the financial capacity of the organizations themselves. The findings also point to major shortcomings in attention to or knowledge about facility-related problems among managers of these organizations. The findings have important policy implications for nonprofit managers, as well as for public and private funders and policy makers.     

Why do nonprofit managers accumulate surpluses,and how much do they accumulate?

Most theories of nonprofit behavior assume that nonprofit managers run surpluses only temporarily and that managers choose a budget level equal to expected revenues. In reality, equity accumulations have intrinsic value to nonprofit managers, and equity balances of nonprofits do grow over time. The authors discuss the tax treatment of nonprofits under U.S. tax laws, present existing theories of nonprofit behavior, and consider the reasons a prudent nonprofit manager might wish to earn and retain surplus funds. Data from a 1983 national sample of nonprofits are used to show that a large majority of nonprofits earned surpluses in 1983, that surprisingly few nonprofits had surpluses close to the zero level, and that the size of a nonprofit's surplus was related to its equity and asset holdings.     

Factors Attracting Individuals to Nonprofit Management over Public and Private Sector Management

Little research has sought to identify the distinct advantages that nonprofits offer employees, particularly managers. Drawing upon Weisbrod's theory of managerial sorting (1988), we test a series of hypotheses about the differences among nonprofit, public, and for‐profit organizations that may explain the preference of managers to work in one sector over the other. We use pooled cross‐sectional data from the General Social Survey to test managerial sorting. We find many similarities in the perceptions of managers in the nonprofit and public sectors as compared to the for‐profit sector. However, when we examine the sorting of managers into nonprofit versus public sector jobs, we find differences in work environment. Compared to those working in the public sector, managers in nonprofits report greater freedom in deciding how to carry out their job functions, more control over their work schedules, and greater opportunities for pay increases. We conclude with a discussion of the implications of these findings for the practice of nonprofit management.     

How nonprofit human service organizations manage their funding sources: key findings and policy implications

Major findings and policy implications on how nonprofit social service organizations manage their funding relations are summarized. Data from in-depth case studies of six medium-sized social service organizations with distinctive funding profiles yielded findings on the major contingencies associated with controlling fees, the volatility of donations, and the driving force of public funding relationships for funders (public and private), nonprofit managers, and the role of nonprofit organizations.     

“That proves you mad,because you know it not”: impaired insight and the dilemma of governing psychiatric patients as legal subjects

This article investigates “impaired insight,” a controversial psychiatric category describing a mad person unable to know his or her madness. Like “moral insanity” and other concepts before it, impaired insight offers a way to link the disparate logics of human responsibility in psychiatry and the law. I attribute its development to changes wrought by deinstitutionalization, the rise of antipsychotic medication, and patient incarceration in penal settings. In a system that aims to govern psychiatric patients through their freedom, the logic of impaired insight introduces a wrinkle: can a person make an informed choice to refuse treatment if madness itself impairs awareness of illness? Drawing on tools from the sociology of science, I trace the process by which researchers recast psychodynamic “denial” as a neurological and therefore non-volitional “impairment” in the 1990s. I then show how social movement actors mobilized the materialized form in the legal and policy fields in the 2000s, bringing insight science to bear upon the very questions of custodial management and patient rights that gave birth to it. At stake is this dilemma: how can societies that simultaneously privilege individual responsibility and somatic accounts of behavior govern those at the border of legal capacity, and with what justification?     

Fidelity in philanthropy: Two challenges to community foundations

Two recent court cases have raised doubts about how faithful community foundation officials must remain over time to the donor's charitable intent. For trustees of community foundations, nonprofit managers, and potential donors, the two cases discussed in this article raise three critical questions: Under what conditions can and should a donor's charitable intentions be modified? Do nonprofit organizations have legitimate claims to funds in community foundations earmarked for their organizations by donors? Should donors consider disbursing their philanthropic funds themselves rather than seek to have them held in perpetuity in a foundation? In addition to addressing these questions, the author suggests that the two court cases examined here reveal something important about the broader evolution of philanthropy over the past three decades.     

Building and valuing global brands in the nonprofit sector

Global nonprofit brands are the world's new “super brands” (Wootliff and Deri, 2001). Nonprofit organizations command unprecedented levels of trust, and nonprofit brand valuations are on par with major international corporations. Leaders and managers of nonprofits face new challenges in the stewardship of their brands. Based on current thinking in nonprofit management and detailed interviews with close to one hundred executives of ten international nonprofit organizations, this article draws strategic lessons on brand building and brand valuation activities of international nonprofits. The multiple roles and stakeholders that global nonprofit brands must address make nonprofit brand building complex and challenging. In particular, differences between advocacy and relief organizations must be explained. Despite the complexity, international nonprofit organizations may have an advantage over for‐profits in leveraging public trust and brand communication. Advocacy organizations in particular successfully link brand and cause to good effect. The valuation of nonprofit brands is a new strategic challenge with significant appeal, but also significant concerns for international nonprofits. In addition to providing nonprofit leaders and managers with a better understanding of brandbuilding activities, imperatives, and best practices in the field, this article outlines the opportunities and threats associated with the valuation of nonprofit brands.     

Small organization mergers in arts and humanities

This chapter discusses a case study of the merger between two relatively small organizations: a local nonprofit arts council and a public county‐level humanities commission. As this case deviates from other merger analyses that tend to focus on larger health and social service agencies, the chapter examines how well key findings of the nonprofit merger literature apply to mergers of organizations of smaller size and in other fields. Generally, we find that the merger literature so far provides sufficient guidance for nonprofit managers in fields such as the arts, where merger pressures have only now begun to mount.     

Reforming Property Tax Exemption Policy in the Nonprofit Sector: Commercialism,Collective Goods,and the Donative Theory

This article develops, critiques, and tests the donative theory, which bases the tax treatment of nonprofits on their production of collective or public goods, through twelve variations for determining property-tax-exempt organizations in five nonprofit industry groups. Using a case study of Indianapolis nonprofits, the results reveal that a significant number of organizations in the nonprofit sector and most industry groups would experience the loss of their property tax exemption. The author calls for nonprofit managers and scholars to give greater future attention to property tax exemption policy in the nonprofit sector.     

To risk or not to risk? Uses and limitations of Mary Douglas on risk acceptability for understanding health and safety at work and road accidents*

The recent Greening of politics in the West has encouraged rapid development of research into both environmental hazards and risk perceptions among the public. There are also longstanding traditions of research into behaviour under risk in such disparate fields as superpower relations (Allison 1971), inter-country commercial transactions, the economics of uncertainty, and the study of natural disasters (Torry 1979). Relatively few sociologists or social anthropologists have contributed. A major exception is Mary Douglas (1982,1985,1987). This paper is an attempt to make use of her work and to tests its limits, in answering two empirical questions: How do managers and workers address workplace hazards? And, how do motorcyclists and drivers behave on the roads?     

Nonprofit cash holdings and spending: The missing role of government funding

Charitable nonprofit organizations have long been under scrutiny with regard to how they manage excess funds, particularly cash holdings. Given previous empirical evidence, agency problems have been treated as an effective lens to explain the consequences of cash holdings among nonprofits. That is, nonprofit managers spend cash holdings for their own interests as opposed to the social interests of the organization. This study revisits the question of how charities manage extra cash and further examines the role of government funding in nonprofits' spending decisions. The results suggest that nonprofit managers make decisions on how to manage extra cash in accordance with the level of cash holdings; therefore, agency problems do not effectively explain how nonprofits manage extra cash. Furthermore, the results illustrate two contrasting roles of government funding in nonprofits' financial behavior: government funding may be used to monitor unscrupulous behaviors among managers, but it may also restrain nonprofits from investing in human capital.     

Understanding Nonprofit Advocacy in Non-Western Settings: A Framework and Empirical Evidence from Singapore

Research on nonprofit advocacy in non-Western settings is still rather limited. In this article, we address this limitation by examining the advocacy practices of nonprofit charitable organizations in Singapore, a non-liberal democratic city-state in Southeast Asia with a history of colonial rule. We ask the following questions: What are the key environmental and organizational factors that influence the scope and intensity of advocacy activities of nonprofit organizations? In particular, what is the effect of the political context on the advocacy strategies and tactics among these organizations? To answer these questions, we present a three-factor explanatory model of nonprofit advocacy incorporating cause, capacity, and context. The research methodology entails a survey of nonprofit executives from a random sample of Singapore human and social service organizations. Our findings shed light on how the various aspects of the political context—perceived opportunities and threats from government intervention and dependence on government funding—shape nonprofit advocacy in a non-Western setting.     

Principal‐agent relationships on the stewardship‐agency axis

This article provides an overview of the literature on nonprofit principal‐agent relationships. It depicts the nature of agency theory and stewardship theory, analyzes the origin of their struggle within the nonprofit structure, and marks directions for a conciliatory approach. We open with an introduction to agency theory and discuss the two main components of its mathematical branch. We thereby contrast it with stewardship theory and elaborate on the arguments that can affect the position of nonprofit principal‐agent relationships on the stewardship‐agency axis. Analysis of the existing literature points to a lack of consensus as to which theory should be applied. We argue that the division of nonprofit principalagent relationships into board‐manager and manageremployee interactions may help to clarify the balance between agency theory and stewardship theory and may lead to the establishment of a strongly founded theory on nonprofit principal‐agent relationships. We close with a discussion of how this article may prove valuable to nonprofit policymakers and other empirical researchers.     

Do profits “crowd out” donations,or vice versa? the impact of revenues from sales on donations to local chapters of the American Red Cross

This article examines the relationship between donations to the American Red Cross and the profits, sales, costs, and prices of health and safety classes offered by local chapters. Two important questions are examined: Do profits from sales of services “crowd out” donations to local chapters of the American Red Cross? Do managers respond to changes in donations by changing prices, output, or costs of saleable services? The results suggest that nonprofit managers should pay close attention to the potential impact on donations of any change in the prices charged for saleable goods and services, and that profits, costs, and prices of services are influenced by donations.     

A Question of Genesis: An Analysis of the Determinants of Public Authorities

One of the central questions in the study of special purposegovernments is how to explain their proliferation over the pastfifty years. Of particular concern to scholars has been therise of a hidden government that is not highly accountable throughregular democratic processes. This article looks specificallyat one form of special purpose government, known as a "publicauthority," and amends the conventional explanation that localgovernments principally create public authorities to addresspublic finance concerns. First, I argue that full "service publicauthorities," which administer and make policy about a particularservice arena, raise different concerns about democratic accountabilityfrom a "conduit authority" and are a nonparsimonious solutionto a public finance problem. Second, drawing on an archivalsurvey of the institutional choices of county governments indealing with solid waste policymaking in New York State, I findthat while public finance is a driver in the choice to createa service public authority, equally, if not more important,are the needs of local government to resolve a policy problemin a politically competitive environment.