Editors’ note: This article was abridged and adapted from the article “Governance and Accountability: Broadening the Theoretical Perspective,” published by Nonprofit and Voluntary Sector Quarterly (February 2015; vol. 44, no. 1; published online before print October 1, 2013; doi: 10.1177/0899764013503906.) This article is from the Nonprofit Quarterly’s spring 2016 edition, “Strategic Nonprofit Management: Frameworks and Scaffolding,” and was first published online on May 16, 2016.
Governance is of central concern to nonprofits, yet theories of nonprofit governance are underdeveloped in comparison with corporate governance; and, specifically, it appears that knowledge of governance practices to achieve broadened accountability to multiple and diverse stakeholder groups has lagged. This article aims to expose and question the assumptions and asymmetrical power relations that are often taken for granted in the most normative of the governance theories used by nonprofits. In doing so, I challenge the notion of accountability as a somewhat benign and straightforward governance function, and recast it as a challenging, complex choice.
There is, in fact, a framing issue in governance, and different perspectives on governance are founded on distinct logics. Fundamentally, these logics constitute organizing principles based upon a set of belief systems and associated practices.1 One of the rudiments linking principal–agent theories such as agency and stewardship theory is that they are founded on what Tony Watson refers to in Organising and Managing Work as a “systems-control” approach to framing organizational realities.2 Essentially, these approaches aspire to maximize control over human circumstances by presenting organizations as goal-based, controllable systems. The central logic is thus one of unitarism, a perspective built on the assumption that everyone—employees, beneficiaries, and the wider community—will benefit from decisions made at a senior level:
As regards the role of the CEO, structures will assist them to attain superior performance by their corporations to the extent that [they] exercise complete authority over the corporation and that their role is unambiguous and unchallenged.…The organisation will enjoy the classic benefits of unity of direction and of strong command and control.3
Within the logic of unitarism, conflicting objectives are seen as dysfunctional, and agents’ accountability to principals takes precedence and is enacted through adherence to monitoring, accounting and auditing, and the law.4 In “Trust and Control in Anglo-American Systems of Corporate Governance,” John Roberts argues that such formal hierarchical accountability creates “a sense of self as singular and solitary within only an external and instrumental relationship to others.”5 Here, we can draw parallels with narrow constructs of accountability presented in the nonprofit literature where the affiliation between nonprofits and their evaluators constitutes a typical principal–agent relationship founded on instrumental, rule-based accountability involving explicit and objective standards of assessment.6 Indeed, in “The Defects of Stakeholder Theory,” Elaine Sternberg argues that accountability is only legitimate in circumstances where principals have the authority to hold agents to account, and attacks stakeholder theory for “destroying” conventional accountability.7 In short, she posits that just because organizations are affected by and affect certain factors, such as the environment, does not mean they are accountable to them. Principal–agent theories thus cast accountability as “the means by which individuals and organizations report to a recognized authority and are held responsible for their actions.”8 This may act to marginalize broader constructs of accountability based on “felt responsibility,” or taking responsibility for one’s own actions,9 which would be central to critical management endeavors and their deliberate attempts to enhance empowerment and the voices of the less powerful.
But alternate governance theories such as stakeholder and democratic theory exist, directly challenging the foundations of unitary, principal– agent theories. One of the key purposes of the challenges inherent in these approaches is to extend companies’ responsibilities beyond those enshrined in law, which are often premised on minimal standards. Stakeholder and democratic theory are thus driven by what may be termed a process–relational view of work and organizations, characterized by the acceptance of multiple individuals and groups with divergent interests and priorities, requiring “continuous social, political…and moral processes.”10 The central logic is one of pluralism, where diverse groups’ pursuit of disparate interests can produce conflict,11 which is considered both inevitable and a possible driver of social transformation.12 There are, however, differences between the practices associated with stakeholder and democratic theory, which I will briefly draw out.
Stakeholder theory assumes stakeholders have different interests and it is therefore important that the governing board is made up of stakeholder representatives; there is a focus on how specific stakeholder groups exercise oversight and control over management. A core conviction is that organizations have more extensive duties to key stakeholder groups than is strictly required by law.13 In “Shareholder versus Stakeholder—Is There a Governance Dilemma?,” Gerald Vinten defines the stakeholder corporation as one which not only recognizes its direct legal and statutory responsibilities but also its need for a license to operate and responsibilities to those indirectly affected by its activities and decisions.14 Democratic theory, on the other hand, is built on the premise that organization actors and the public have different interests, and that democratic political order allows for protection of individual liberties/rights against the potentially corrupt and tyrannical power of the state. Under this theory, good governance begins with implementing traditional democratic structures, and focuses on the process through which decisions are made as a source of legitimacy. Indeed, in Entrepreneurs and Democracy, Pierre-Yves Gomez and Harry Korine argue that all corporations must take into consideration society’s views on what constitutes a legitimate exercise of power, based on the view that directors cannot govern the corporation in opposition to the values of the society in which the organization is embedded.15
The board’s role under a pluralist logic is thus political: to represent diversity of interests and balance stakeholder needs, to make policy, and to control management.16 Indeed, those who address the underlying philosophical and relational issues in corporate governance argue that it is a social and dynamic process rather than an economic, fixed, and enduring reality, and therefore must be considered in relation to concepts of politics, power, culture, ideologies, modes of thought, and social relations.17 Stakeholder and democratic theory require corporations to move beyond their legal and statutory responsibilities, and this immediately broadens the scope of accountability, constructing it as a combination of being held responsible by external actors and taking responsibility for one’s own actions. John Roberts posits that “socializing forms of accountability…constitute a sense of the interdependence of self and other, both instrumental and moral.”18
The theories reviewed thus represent distinct schools of thought on corporate governance, which are infused with particular and sometimes opposing assumptions about the nature of work and organization. This holds major implications for the treatment of stakeholders and the construct of accountability. In a nonprofit context, principal–agent assumptions, and the instrumental forms of accountability associated with them, can be problematic. This is particularly the case where nonprofits are motivated to adopt alternative, democratic forms of organization in line with the societal change they aim to bring about and/or where legitimacy in the eyes of the nonprofit’s host society is central to organizational viability. It is difficult to conceive of an environmental nonprofit, for example, maintaining legitimacy if it did not account for its own impact on the ozone layer or natural environment, simply because these factors are “not the sorts of things that can hold agents to account.”19
Table 1, below, was created to frame the empirical findings and address the question of what implications exist for accountability in various governance theories and practices. It delineates the potential consequences of diverse governance assumptions for the nature of accountability in nonprofit organizations. Specifically, the implications of the governance theories foreshadowed in the earlier literature summary are linked to board composition and role, board–staff interests, and the subsequent focus and nature of accountability relations. It should be noted, however, that practitioners do not necessarily operate consistently within a particular stance, and often vary their approach within a specific context. Rather than claiming that the taxonomy presented is exhaustive, I would point to its heuristic value that exposes the possibility of diverse views of governance and accountability, thus illustrating the range of choices available to nonprofit practitioners.
The following section discusses the analysis underpinning development of the preceding typology.
The Effects of a Unitary Model of Governance and Conceptions of Accountability
This section illustrates how agency and stewardship governance assumptions, based on a unitary logic, can produce particular effects on the nature of accountability. First, however, it is important to highlight the distinguishing features, which suggest the central logic of Case A and Case B to be unitary (see Table 2).
Both cases appear to be united by overarching unitary logics, where the goal is for organizations to be harmonious, consensual entities that exist for common purposes. There are, however, differences in how they pursue this goal. Case A largely appears to operate within agency governance assumptions, where relationships are viewed as nothing more than a series of implicit and explicit contracts with associated rights.20 Within such contracts, a key challenge is how to ensure agents will act in the best interests of principals. Within Case A, the board—made up of long-serving members—assumes its role in the monitoring and control of the chief executive officer (CEO) in order to limit any divergence from their interests: “In terms of the board, it’s our job to make sure the CEO is properly monitored. I see him fortnightly for an hour/hour and a half, see he’s doing the job, and I’m just trying to help him by holding him accountable.” (Board chair, Case A)
In contrast, Case B seems to adopt a partnership approach between CEO and board, indicating parallels with stewardship governance assumptions and the associated adoption of CEO duality.21 Though United Kingdom charity law generally prevents it, organization B developed complex structures to allow the CEO to act as a trustee; the CEO simultaneously holds the position of honorary (unpaid) museum director of the charity and chief executive of the wholly owned trading subsidiary, for which he is remunerated. The board obtained an order from the charity commission to enable him to continue to be a trustee of the charity when he took on the role as CEO of the trading subsidiary. Despite a collectivized approach between board and CEO, however, the CEO exercises complete authority over the organization, and his role is unambiguous and unchallenged by staff, thereby suggesting adoption of a unitary logic.22
Although Case A and Case B start from opposite assumptions regarding the interests of the board (as principals) and CEO (as agent), they share the idea that control emanates from the top of the organization, where elites rule: “You have, as trustees, people who are eminent in their professions and skilled…that’s where the expertise comes from. It’s assumed they’re capable and expert and they sit on the trustees [board], showing their wisdom.” (Board chair, Case A)
Thus, if we consider the relationship between board and staff more widely, it appears to illustrate that agents’ accountability to principals takes precedence and is enacted through adherence to monitoring and implementation of human resources legislation, policies, and procedures. Accountability thus acts as a constraint upon an opportunistic and self-interested human nature.23 John Roberts argues, too, that such processes and practices of accountability create individualizing effects, which are associated with formal hierarchal accountability and drive development of instrumental relationships. The associated monitoring and organization surveillance take place within formal hierarchical accountability and, arguably, create disciplinary effects and processes that attempt to prevent circumvention of formal hierarchy.24
At an informal level, there seems to be an attempt to “build strong cultures,” where employees share their leader’s beliefs, assumptions, and vision for the organization.25 Case A’s employees are socialized with the founding story of a visionary faith leader who identified the need and established provision for “the needy,” while within Case B there is constant reference to the historical military links of the museum and maintaining an authoritarian approach consistent with that tradition. In each case, the historical roots of the organization are used to legitimize the authority of a select group of leaders (principals) over a group of subordinate followers (agents) and to ensure the principals’ goals are accepted as natural, unchallengeable, and given. Table 3 illustrates the various ways in which Case A and Case B reinforce instrumental accountability within internal relations.
Within such contexts, the construct of instrumental relationships at the individual level seems to reproduce at the organizational level, leading to the prioritization of instrumental transactional relationships to external stakeholders. Roberts argues that dominance of external market mechanisms contributes to producing such forms of accountability,26 and it is noteworthy that the organization we are calling Case B has the highest level of earned income and is run as an “attraction business,” while the organization we are calling Case A has the second-highest proportion of earned income—albeit marginally—with the ambition to increase this type of income. With both cases, references to “professionalization,” “amateurism,” and “business” are prevalent within the narratives of senior organizational actors, and compliance with legal and regulatory obligations seems to take priority. External stakeholders, such as service users, who lack the authority to bring about sanctions, appear marginalized in decision-making processes in favor of viewing them as customers or consumers of services. Moreover, donors and other players in the external environment are looked upon as an instrumental resource to further the goals set by the organizations’ elite (see Table 4).
My analysis indicates that if missions, visions, and goals are developed and governed solely by organization elites, it is their perspectives that become prioritized and legitimized at the organization level. Prioritization of principals’ interests is not considered a problem if principals’ appointments are assumed to be based on merit. They are assumed to be the rightful guardians of the organization’s overall purpose, which is pursued in the best interests of all members—whether they realize it or not. As Table 2 suggests, rationality is “automatically accorded to decision making of the leadership and the behavior of subordinates who might be recalcitrant or even resistant to such direction becomes deemed to be irrational.”27 I find that in this situation, broader conceptions of expressive accountability based on moral foundations often can be marginalized in favor of narrow conceptions of hierarchical accountability within instrumental principal–agent relationships. By conceptualizing accountability in this way, the priorities of the majority of organization members and wider community stakeholders who are affected by the organization’s operation may be marginalized or excluded. Moreover, this narrow instrumental view of human nature can appear at odds with the values embedded in the social mission of many nonprofit organizations.
The Effects of Pluralist Governance Models
Table 5 illustrates the characteristics that imply a central pluralist logic in Case C and Case D.
Though Case C and Case D appear to be founded upon pluralist logics, where organizations are constituted by diverse groups that pursue disparate interests, there are subtle but important differences that deserve attention. Case C seems to operate under the premise that to prevent the organization from adversely affecting stakeholders, it requires governance processes that allow stakeholders to participate in decision making. In a practical sense, this plays out formally through the election of trustees by Case C’s membership and the co-option of other board members, representing statutory agencies, to ensure a sufficiently wide representation of stakeholder interest groups. The board, in turn, charges the CEO with the responsibility of stakeholder involvement in wider organizational endeavors: “The trustees usually give me a steer…a recent issue has been to what extent we build relationships with the private sector and how that is presented to members; we will also not compete to provide any service that our members could provide. The general instruction I have from the trustees is that we want people in the tent rather than outside the tent, and we should work to accommodate what they want.” (CEO, Case C)
Case D appears strongly driven by the principles of democratic theory, built on the protection of individual liberties and rights. Such ideological foundations are endemic in both the formal charitable objectives of the organization, which talks of helping a particular section of society “obtain their full rights and privileges” and its processes and practices: “Because we go about changing thin