Governance models for Non for Profit Organisation: From theory to Practice
IPMA is in the process of implementing its 2020 strategy. This implies finding and putting in place the right governance model to do so. In this context and bearing in mind the upcoming board elections IPMA, turning to theory may help to meet the practical challenges of that endeavor. Indeed, social constructivist theory argues that reality is socially constructed and that an interpretative framework can help to understand organizations and their behavior. On the other hand, neo-institutional theory suggests that corporations and nonprofits are susceptible to external legitimacy demands and therefore tend to rationalize internal structures in order to ensure survival (Scott, 2001; Suchman, 1995). This is viewed as a dynamic process: Organizations restructure themselves and adopt practices and organizational designs to conform to external demands. As DiMaggio and Powell (1983) suggest, particularly nonprofits have to adapt rapidly to external change. Neo-institutional theory has consequently been applied by several authors to explain governance and organizational change in the nonprofit sector (Hager, Galaskiewicz, & Larson, 2004). They suggest that nonprofit boards are one way to communicate externally the organization’s responsiveness to efficiency norms as well as interests, identities and preferences of stakeholders. Since board members are the key representatives of IPMA, their perception by external stakeholders becomes a basis for legitimacy claims. Hence, nonprofit boards should be selected to represent these external demands, for example, by nominating representatives of key stakeholders and professional business experts. The aim is not to improve performance but to secure legitimacy and access to financial donations (Abzug & Galaskiewicz, 2001).
In this context, the New NPO Governance model is related to that approach. Hilb (2008) and Hilb and Renz (2009) provide practitioner-oriented models for corporate governance (New Corporate Governance) and non-profit governance (New NPO Governance). They are based on the observation that individual analytical theories such as principal- agent theory, resource dependency theory or institutional theory fall short in fully explaining corporate governance challenges. Therefore, Hilb proposes an integrated, holistic perspective. The model is based on a reversed “KISS-principle” and deals with corporate governance on four interdependent dimensions: (1) Keep it controlled, (2) integrated, (3) strategic, and (4) situational (see Table below).
Table: New Corporate Governance
|Controlled||Principle agent theory||Auditing, risk, management||Holistic long term performance evaluation by shareholders, customers employees, the public|
|Integrated||Resource dependency theory||Board Management and evaluation||Integrated selection, assessment, reward and support of the supervisory and management board|
|Strategic||Stewardship theory||Strategic direction of the organi-sation by the board||Corporate strategy as a central function of the executive board. Exemplary board team, constructive board culture and processes, stakeholder-oriented board performance criteria|
|Situational||Institutional theory, situational leadership theory||Adaptation to the external and internal context of an organisation||
Well-directed adaptation to the environment of the organisation
Source: Baed on Hilb (2008)
The new corporate governance model has inspired research on non-profit governance (Hilb & Renz, 2009) and holds vital implications for this field of research. The main message is that there is no one-size-fits-all model for non-profit governance and that holistic, integrated approaches to non-profit governance have to address the four described dimensions mentioned in the table above.
Keep it Controlled
Referring to the a.m. table, the controlling dimension of new corporate governance encompasses board tasks such as auditing, risk management, communication, and performance evaluation. This could be the role of a newly designed financial committee. Typically, nonprofit boards struggle with these issues and have come under pressure to raise standards in this area. Accordingly, the Swiss NPO Code states:
“As a rule, the Council of Delegates provides strategic leadership and assumes medium- to long-term leadership and monitoring functions. The Council of Delegates bears overall responsibility for the Foundation/Association, in particular for its business activities, the administration and use of the Foundation’s/Association’s funds; for Risk Management and effective controlling (§ 12).”
Keep it Integrated
The new corporate governance model recommends an integrated selection, assessment, reward, and support of the supervisory and management board. Clearly, the governance of NPOs lags behind this recommendation in practice and research (Rehli, 2011). An important feature of non-profit boards is that board members often get no reward for their mandate (Preston & Brown, 2004) and are selected for very specific criteria, as, for example, the representation of major donors, geographical balance or members (Abzug & Galaskiewicz, 2001). Therefore, in many cases, there is very little room for selection based on multiple criteria including factors such as managerial and personal competencies. The selection of board members to represent key stakeholders is in line with stakeholder theory (see above). Institutional theory predicts that since the external pressure on non-profits to implement modern business policies is high, nonprofits will also tend to nominate professional business experts for their boards. This trend can be observed in practice as well.
Keep it Strategic
According to the new corporate governance model, corporate strategy is a central function of the supervisory board (see previous table). Recommended features of the board in this respect are (1) exemplary board team, (2) constructive board culture, (3) simple and networked board structures and processes, and (4) stakeholder-oriented board performance criteria.
Non-profit boards are often involved in strategy making and policy clarification. This is in line with stewardship theory, which claims that the main function of the board is to improve organizational effectiveness rather than solely ensuring management compliance.
Notwithstanding the difficulties of performance measurement and evaluation in NPOs, it can be argued that board members in successful NPOs necessarily manage to implement a stakeholder-oriented performance to ensure organizational effectiveness and survival (Herman & Renz, 1997). In this view, the non-profit board can only perform well if its performance is directed toward the stakeholders and satisfies their normative expectations.
Keep it Situational
With regard to the fourth dimension, the new corporate governance model calls for a well-directed adaption to the external and internal context of a corporation (see previous table). Hilb (2008) shows that internal factors such as the development phase, the degree of internationalization, power-relations between the board and the management, the size of an organization, etc. have an impact on how effective governance should be modeled. On the other hand, external factors such as the institutional context, local business culture, and local norms have to be considered.
Summary New corporate governance model could be used for an organisation like IPMA, if the following is taken into account: Whereas the strategic role of the board and the direction of board performance and activities toward key stakeholders (keep it strategic) are broadly recognized and implemented in practice, controlling, integration and situational dimensions of governance should also be integrated in their role. Most importantly for IPMA, the new NPO governance model as well as actor centred institutionalism show that an integrative, holistic approach to non-profit governance is necessary to fully understand its challenges and to provide sustainable and effective advice on how non-profit governance should be designed. To outline some of the next steps to come, the governance review group of IPMA will elaborate a proposal on common governance principles, on the revision of existing governing bodies mentioned in its by-laws, on the set-up of new governing bodies including the definition of their roles and responsibilities. This also relates to the upcoming Vice-president profiles that will be sent out to member associations before the elections in October 2016. The group will organise a sounding among its member associations to integrate their views as the proposal develops. Finally a voting proposal that takes into account the previously mentioned KISS-principle will be proposed to the Council of Delegates of IPMA in 2017.
Sources: -Abzug & Galaskiewicz, 2001: Non Profit Boards: Cricibles of Expertise or symbols of local Identities ? Non for profit and Sector quarterly, 30(1): 51-73 -Dimaggio W.W. and Powell P.J. 1991: The New Institutionalism in Organisational Analysis, Chicago, London The university of Chicago Press -Hager, Galaskiewicz, & Larson, 2004: Structural Embeddedness and the Liability of Newness among Non for profit Organisations, Public management Review, 6(2), 159-188 -Hermann, R.D und Renz D.O, 1997: Board Practices and Board effectiveness in local nonfor profit organisations, Non-for profit management and leadership, 7(4), 373-384 -Hilb, M. 2008: New Corporate Governance: Successful Board Management Tools, (3rd Edition), Berlin. Springer – Hilb & Herrmann und Renz D.O. 2009: Wirksame Führung und Aufsicht von Non-for-Profit Organisationen. New NPO Governance (Effective Leadership and control of non for profit organisations, New NPO), Bern. Haupt. -Prestin J.B. and Brown W.A 2004: Commitment and Performance of Non for profit Board members, Non for profit managememt and leadership, 15(2), 221-238 -Rehli, F. 2011: Governance of international non for profit organisations, Diss. N. 3926, University St. Gallen, CH -Scott, W.R. 2011: Institutions and Organisations (2nd Edition), Thousands Oaks, Sage -Suchman, M.C. 1995: Managing Legitimacy: “Strategic and institutional approaches”, Academy of Management review, 20(3), 571-610