This article comes from the summer 2019 edition of the Nonprofit Quarterly. It was first published online on July 24, 2019. For further exploration of the subjects discussed here, see “Unbalanced: A Map of Nonprofit Stakeholders” and our interview with Tom Kochan, “The Accountability Collision Course.”
“With stakeholder theory, the study of organizations turns its attention to the notions of interest….”
—Maria Bonnafous-Boucher and Jacob Dahl Rendtorff1
It is generally acknowledged that nonprofits are not designed to be shareholder driven but rather stakeholder driven; in other words, they are not meant to make individuals wealthy—they are designed to put the collective good first. In many cases, there is a subset of that “collective” that may be the focus of the organization—people with chronic mental illness, for instance. And those are the people in whose name the organization functions—raises money, et cetera. The organization exists in a special fiduciary relationship with this group, a relationship that too often is dishonored in neoliberal settings. The constituents that the organization serves, however, may be a larger group that includes friends, families, and allies—and then there is an even larger group that comprises all of those affected, which includes a series of institutions (jails, courts, police, and treatment facilities, among others), and beyond that the community as a whole. Add to that government regulators and funders both private and public. Each of these stakeholder groups holds its own set of complexities.
Accountability questions within this large collection of stakeholders, then, become a critical consideration. Whose interests do you hold as primary? How clearly is that expressed in structure, action, governance, and strategy? How much say do those primary stakeholders have over the direction setting and design of programs, or to define and design strategy being sold to a funder? These are questions that are central—or should be—to nonprofit leaders.
Accountability, writes Alnoor Ebrahim, “…is a relational concept. Accountability efforts and mechanisms do not stand alone but are reflective of relationships among organizational actors embedded in a social and institutional environment. This suggests that asymmetric relationships among stakeholders are likely to result in a skewing toward accountability mechanisms that satisfy the interests of dominant actors. In other words, accountability is also about power, in that asymmetries in resources become important in influencing who is able to hold whom accountable.”2
From Parts to a Whole: Our Internal Stakeholders
Coming to decisions about how to prioritize and engage external stakeholder groups is one thing, but there are also internal stakeholders to be addressed, and there are times and situations in which it can feel like the needs of these almost crowd out the relationship building with external groups. This can reflect other problems, like a lack of internal-to-external integrity, or the lack of a larger vision to which people have buy-in.
The staff and board are in an unusual stakeholder position in that they not only have a call on the organization but also have an explicit responsibility to know and serve the interests of external stakeholders—and in particular, those in whose name the organization operates. This position has a kind of three-way reciprocity, in that each member of staff and board has a responsibility to external stakeholders, the organization, and the team with which he or she works. Each of these relationships has to be kept dynamic and healthy for the whole to feel healthy.
There is a dearth of good literature on the relative role of internal versus external stakeholders, and it is arguable whether or not the board is or should be in a slightly different category, as it is explicitly charged with stewarding and representing the interests of other stakeholders. But the staff in a learning organization is in very much the same position. This creates a special category of the internal stakeholder, as those who can be deeply affected by the behavior of an organization are also in dialogue with other stakeholders on behalf of the organization, and bound to represent those views as well as their own. If and when a break in the integrity of an organization’s spoken-to lived values occurs with internal stakeholders, the wound can fester and infect the whole system.
Among nonprofits, the issue of equity and inclusion is one such wound. In organizations that have chosen to remain largely noninclusive at leadership and governance levels, the changing external environment has now moved forward to a declaration that less than full inclusion is no longer viable. Where in the past it has been assumed that “diversification” is a choice that can and should be made in good organizations, the imperative has now largely been taken out of the realm of the individual organization and moved into field prerogatives. So, even though individual organizations must make their own changes, external stakeholders are very much a part of the environment influencing those decisions.
Thus, if an organization that holds democratic or human rights values has less than fully inclusive leadership, it will and should be challenged on its internal-to-external integrity.
The integrity issue is very often a good lens to use to understand these situations, in that doing something to staff that violates the values you purport creates a rupture that will eventually affect your reputation and your effectiveness. An organization that underpays employees to the extent that they must apply for public benefits, for example, may be seen as violating a sectoral mission that implies—or even explicitly articulates—a commitment to improving the health and well-being of the communities the sector serves. No one wins in such cases—the workforce on which vulnerable people depend is made unstable, the families of those workers are made unstable, the organization is rightly seen as lacking in a thorough kind of integrity, and the reputation of the sector overall is damaged. In such a case, the organization will need to combine with other stakeholders to address the issues that helped to create the business assumption of an entire field of underpaid workers in the first place.
Boundaries and Bridges
There are increasing numbers of examples of for-profit organizations that have been called to account to a stakeholder environment that is broader than mere shareholders. In fact, the communicative distance between the decision makers in an organization and collections of stakeholders seeking accountability of one sort or another is collapsing, and technology makes boundaries between organizations and the external environment, and among various stakeholders in the external environment, ever more porous.
We are beginning to see the emergence of new c