Editors’ note: This article was first printed by California Management Review, in summer 2007 (vol. 49, no. 4), and appears here with a few minor alterations. NPQ thanks California Management Review and the University of California for their kind permission. The Nonprofit Quarterly reprinted it in its winter 2015 edition, “When the Show Must Go On: Nonprofits & Adversity.”
Nonprofit scholars and managers generally recognize that nonprofits need the public’s trust for legitimacy, for effectiveness, and for non-financial as well as financial support. Yet, a complete literature search uncovers no operational or managerial definition of the public’s trust in these organizations. This article offers a conceptualization of the “public trust” that is applicable to nonprofit organizations, touches on what relationship marketing theory says about restoring that trust once corrective action has been taken, and identifies the managerial actions that might impair that trust. It also offers an operational guide in tabular form on the meaning, management, and marketing of the public trust in nonprofit organizations.
This article argues that the public’s positive or negative experiences in core transactions with an organization may be the principal bases for the impairment or improvement of the public trust. It identifies five core nonprofit-public transactions:
- Contracting, particularly for charitable services;
- Soliciting and receiving charitable contributions;
- Exercising custody over assets for the benefit of society;
- Employing the organization’s social capital for the public’s benefit; and
- Promising mission commitment and adherence.
These transactions distinguish nonprofits from firms. Breakdowns in these transactions are likely to be significant enough to have meaningful consequences and reverberate throughout the organizational structure.
The impact of an impairment of the public’s trust in one or more of these transactions may spill over and impair the trust in the organization as a whole. In the same way, a relationship message to cure the effects of a transactional impairment might have a positive spillover to the organization. Thus, the greatest favorable impact will be achieved when the concepts and messages apply positively to both the transaction and the organization.
At least six antecedents or conditions can modify the favorable impact of any relationship marketing message (including the most contrite) by a nonprofit organization:
- The organization’s exposure and depth of involvement in the transaction;
- The content, channel, and method of message transmittal;
- The nature of the market in which the organization operates;
- The organization’s goodwill and the cost-benefit of restoration;
- The nature and depth of the damage and continued public risk; and
- The properties of the product or service suffering trust impairment.
Concepts of the Public Trust in the Nonprofit Organization
The literature on trust, social capital, and nonprofit or voluntary organizations primarily views the nonprofit as an incubator of trust for its own internal cohesion. This draws from organizational theory.1 Another approach views the nonprofit as fostering trust for the benefit of civil society.2 The present article examines the nonprofit not as an incubator or creator of trust, but as being functionally dependent upon the public’s trust for fulfilling its mission. This calls for a different logic.
The relationship between the nonprofit and the public can be framed as the reciprocity of expectations. Piotr Sztompka phrases it as a wager that the other party will perform as expected.3 Diego Gambetta expresses it as the expectation or probability that the other party will perform.4 This article posits the nonprofit-public relationship leading to mutual expectations as follows:
- Nonprofits are chartered to perform the public services in their missions;
- In exchange for these services, the public promises tax benefits and makes donations to nonprofits;
- Violations of public expectations, based on the nonprofit’s promise in its mission and for which the tax benefits are given, may cause the loss of public trust;
- The nonprofit management desires to restore that trust, saving the core relationship and its benefits—particularly tax exemption;
- To do this, the nonprofit managers will take corrective measures and craft a restorative message to the public; and,
- In so doing, relationship marketing concepts should be considered.
Another way of describing this relationship is principal-agent, where the nonprofit (the agent) serves a public purpose—the public being the principal—in exchange for tax benefits.5 In principal-agent relationships, there is the question of whether the principal (the public) can trust the agent (the nonprofit) to act on its behalf as promised. The operative trusts are trust of specific performance as agreed and custodial trust over the assets the public invested in and which are held by the nonprofit so that it may perform as agreed in its mission.
In agency theory, an agent is hired partly because the principal needs to rely on the discretion of the agent if information is asymmetric—the agent has superior or timelier information. If so, trust also relates to the confidence the principal places in the agent’s intelligence and discretionary choices—that is, given the competing exigencies, the nonprofit management will make the “right” decision on behalf of the public it serves. As Mark Granovetter notes, trust is the confidence that others will do the right thing even with incentives to the contrary.6
Kenneth Arrow’s concept of trust in nonprofits is grounded in a concept of congruence of interest—A can trust B because A and B have a similar interest, purpose, or orientation.7 Thus, individuals create organizations and become clients to assure that their preferences are attended to and not subordinated. Put another way, the asymmetry in the information between the producer and the client and the need for the client to rely on the producer lead to the crea