Decision Making in Non Profit Sector (NPO) Lecture-20

DECISION MAKING IN NON PROFIT SECTOR (NPO)LECTURE-20

MPA 505MPA ProgramCourse Instructor: Riffat Abbas Rizvi

AGENDA Preview of Last Lecture Stakeholders Governance Accountability Conclusion

WHO ARE THE STAKEHOLDERS? Stakeholders are people or organizations that

have a real, assumed, or imagined stake in the organization, its performance, and sustainability.

STAKEHOLDERS INCLUDES Depending on the organization, stake-

holders include members, trustees, employees, volunteers, clients or users, customers, funders, contractors, government, oversight agencies, community groups and watchdog organizations

EXAMPLE 1-CHILD CARE HOSPITAL

EXAMPLE 2-MUSEUM

ACCORDING TO DRUCKER(1990) Peter Drucker (1990) once suggested that,

because of a missing bottom line, nonprofit organizations would be in greater need of management and good governance than forprofit organizations, where performance is often easier to measure and monitor.

A nonprofit organization has several bottom lines because no price mechanisms are in place to aggregate the interests of clients, staff, volunteers, and other stakeholders, and to match costs to profits, supply to demand, and goals to actual achievements.

BOTTOM LINES  The organization’s mission, which not only

gives the ambitions and long-term view, but is also subject to differing interpretations

DUAL GOVERNANCE The dual governance–management structure

of many nonprofit organizations, where operating procedures are the province of executive officers, and the overall governance is vested in the hands of boards; often the board emphasizes the mission of the organization—and not the financial bottom line primarily, as in the case of a shareholder board; by contrast, management focuses on operational aspects and financial matters in running the organization.

VALUES, MOTIVATIONAL STRUCTURES, ORGANIZATIONAL TASK ENVIRONMENT The frequent importance of values and

deeply felt convictions held among board members, staff, clients and stakeholders:

The complex motivational structure of staff, volunteers, and stakeholders.

The complex organizational task environment in which nonprofit organizations operate, with high degrees of uncertainty.

EXPECTATIONS AND NEEDS The different expectations and motivations

held by core constituencies (e.g. the culture of local volunteer organizations versus the demands of the national unit managed by professional staff).

The interests and needs of clients and users who may not be in a position to reveal their preferences (e.g. people with disabilities, children, and older people), or may not be able to pay prices that cover the cost of service delivery.

HANDY(1990) Handy (1990) suggests that many voluntary

organizations contain three distinct compo- nents: mutual support, service delivery, and campaigning.

These components are weakly coupled and tend to develop their own dynamic and internal culture over time.

COMPONENTS OF MID-SIZED NPO a mid-sized nonprofit organization typically has the

following components: Aprofessional core of managers, including personnel

officers, fund-raisers and accountants; A governing board of experts and community

representatives; A client or user base and their representatives; A set of relations with foundations and other major donors; A set of contractual relations with different levels of

government; A set of business contracts; A volunteer and membership component; and The actual service providers. 

KANTER AND SUMMERS(1987:164) Kanter and Summers (1987: 164) suggest

that the existence of multiple constituencies lies at the core of governance and management dilemmas in nonprofit organizations.

GOVERNANCE

The term governance comes from the world of business. Corporate governance is the system by which organizations are directed and controlled.

CORPORATE GOVERNANCE The corporate governance structure

specifies the distribution of rights and responsibilities among different participants in the corporation, such as the board, managers, shareholders, and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs.

IIAS SUMMARY International Institute of Administrative

Sciences issued a useful summary statement on this broader conception of governance:

“Governance refers to the process whereby elements in society wield power and authority, and influence and enact policies and decisions concerning public life and economic and social development”.

NOTION “GOVERNANCE” Governance is a broader notion than

government, whose principal elements include the constitution, legislature, executive, and judiciary. Governance involves interaction between these formal institutions and those of civil society.

GOVERNANCE AND CONTEXT Governance has no automatic normative

connotation. However, typical criteria for assessing governance in a particular context might include the degree of legitimacy, representativeness, popular accountability, and efficiency with which public affairs are conducted.

DIFFERENCE FROM MANAGEMENT Governance is different from management,

which is primarily a staff function, although in many smaller and medium-sized organizations both functions overlap.

It is useful to think of the board as the focal point of governance, and the chief executive officer as the focal point of management. For Hudson (1999: 42), the governance of nonprofit organizations is “about ensuring that the organization has a clear mission and strategy, but not necessarily about developing it.

It is about ensuring that the organization is well managed, but not about managing it. It is about giving guidance on the overall allocation of resources but is less concerned with the precise numbers.

Thus, governance involves the responsibility for the organization’s performance and direction.

Governance is primarily an organizational steering function and closely related to the notion of stewardship.

The board of trustees (or its equivalent) is the governing body of the nonprofit and the locus of the governance function.

The board represents the organization to the outside world, in particular vis-à-vis legal authorities and the general public.

In nonprofits, where no strict equivalents to “owners” exist, the board is entrusted with the organization, i.e. they are the trustees.

The task of the board is to make sure that the organization carries out its agreed-upon mission “without the objective of making profit and with the promise not to distribute organizational assets to benefit individuals other than the clients the nonprofit was formed to serve.

BOARD DUTIES due diligence, i.e. an expectation that a

board member exercises reasonable care and follows the business judgment rule when making decisions;

duty against self-dealing, i.e. an expectation that a board member discloses and scrutinizes potential and actual transactions between trustees and the organization;

duty of loyalty, i.e. an expectation that a board member remains faithful and loyal to the organization;

duty of obedience, i.e. an expectation that a board member remains obedient to the central purposes of the organization and respects all laws and legal regulations;

fiduciary duty, i.e. a responsibility of board members and the nonprofit board as a whole to ensure that the financial resources of the organization are sufficient and handled properly.

Determine the organization’s mission and purpose. It is the board’s responsibility to create and review a statement of mission and purpose that articulates the organization's goals, means, and primary constituents served.

Select the chief executive. Boards must reach consensus on the chief executive's responsibilities and undertake a careful search to find the most qualified individual for the position.

Provide proper financial oversight. The board must assist in developing the annual budget and ensuring that proper financial controls are in place.

Ensure adequate resources. One of the board's foremost responsibilities is to provide adequate resources for the organization to fulfill its mission.

Ensure legal and ethical integrity and maintain accountability. The board is ultimately responsible for ensuring adherence to legal standards and ethical norms.

Ensure effective organizational planning. Boards must actively participate in an overall planning process and assist in implementing and monitoring the plan's goals.

Recruit and orient new board members and assess board performance. All boards have a responsibility to articulate prerequisites for candidates, orient new members, and periodically and comprehensively evaluate its own performance.

Enhance the organization's public standing. The board should clearly articulate the organization's mission, accomplishments, and goals to the public and garner support from the community.

Determine, monitor, and strengthen the organization's programs and services.

The board's responsibility is to determine which programs are consistent with the organization's mission and to monitor their effectiveness.

Support the chief executive and assess his or her performance. The board should ensure that the chief executive has the moral and professional support he or she needs to further the goals of the organization.

CONFLICT OF INTEREST POLICY

 1 Full disclosureBoard members and staff members in decision-making roles should make known their connections with groups doing business with the organization. This information should be provided annually. 2 Board member abstention from discussion and votingBoard members who have an actual or potential conflict of interest should not participate in discussions or vote on matters affecting transactions between the organization and the other group. 3 Staff member abstention from decision-makingStaff members who have an actual or potential conflict should not be substantively involved in decision-making affecting such transactions. 

ACCOUNTABILITY

Accountability in a general sense refers to having to answer for one’s behavior.

ACCOUNTABILITY members—in the case of membership-based

and member-supported organizations such as community associations, advocacy groups, business and professional associations, or parent-teacher associations; since members entrust the board with the governance of the organization, the board is accountable to them.

ACCOUNTABILITY supporters—such as individual donors,

foundations, corporations, government agencies, and other organizations and groups that contribute financially and otherwise;

ACCOUNTABILITY beneficiaries or users—those who in one way

or another receive the service or benefit from the activities of the organization, including, in some cases (for example, environmental protection), the public at large;

ACCOUNTABILITY paid and voluntary staff—those who work for

the organization on a full-time, part- time, or voluntary basis, including consultants and advisers;

ACCOUNTABILITY contractors and cooperating organizations—

such as suppliers of material or purchasers of services, grant-making foundations, government agencies, and other nonprofit organizations that are part of common or joint programs or projects;

ACCOUNTABILITY public agencies such as oversight and

regulatory agencies.

THREE TYPES OF ACCOUNTABILITY Explanatory accountability means that one

party explains and gives an account of actions to another party, either verbally or by filing more formal, written statements. For example, watchdogs and voluntary oversight bodies in the field of environmental protection may request reports from businesses or government organizations, but they may have no statutory right to this information, nor can they express formal sanctions.

THREE TYPES OF ACCOUNTABILITY Responsive accountability implies that

management and the board are to take into account the views of those to whom they are directly and indirectly accountable, even though there may be no legal obligation to do so, and no formal sanctions in place.

An example would be a foundation in the process of strategic planning and deciding to change its grant-making priorities.

THREE TYPES OF ACCOUNTABILITY Accountability with sanctions refers to the

formal, legal aspect of accountability. It is accountability to those stakeholders that have formal sanctions in place, legal or otherwise.

KUMAR (1996) SUGGESTS SEVERAL ACCOUNTABILITY FORMS Management accountability (rather than

board accountability) refers to the obligations of management in terms of fiscal accountability to parties involved in financial transactions; legal accountability in complying with statutory provisions and regulations; program accountability in ensuring the effectiveness in meeting stated objectives; and process accountability in achieving and, reporting on, stated efficiency levels.

INTERNAL ACCOUNTABILITY Internal accountability refers to obligations

within the organization, such as between management and the board, whereas external accountability addresses the reporting requirements to parties that are either supervisory bodies or other external stakeholders linked to the organization.

APPROVAL ACCOUNTABILITY Approval accountability is a special version

of external accountability, and refers to the way in which nonprofits “seek to project themselves to the outside world” (Kumar 1996: 243).

TEN ASPECTS OF ACCOUNTABILITY Public information/disclosure, including annual reports,

990s, Internet postings, messages conveyed to the public, audits, etc.

 2 Legal and regulatory compliance and requirements. 3 Governance, meaning board oversight and fiduciary responsibilities. 4 Peer accountability, including field reviews, self-regulation, distribution of best practices. 5 Organizational effectiveness regarding accountability. 6 Fund-raising ethics and integrity.

7 Responsiveness to constituencies, including donors, donees, and paid and volunteer staff. 8 Integrity of the organization’s mission, meaning the ways in which an organization works for the good of the public. 9 Avoidance or resolution of conflicts of interest. 10 Stewardship of public resources, including funds and volunteer time.

ACCOUNTABILITY AND TRANSPARENCY Note that accountability is different from

transparency. The latter refers to the provision of, and

access to, information about the behavior of an organization’s board, managers, employees, volunteers, and members.

TRANSPARENT ORGANIZATIONS Transparent organizations provide

information directly and in a form that is accessible and understandable to key stakeholders as well as the general public.

CONCLUSION "Accountability breeds response-ability."

Stephen R. Covey