Academic journal article Public Administration Quarterly

Nonprofit Board Effectiveness, Private Philanthropy, and Financial Vulnerability

Academic journal article Public Administration Quarterly

Nonprofit Board Effectiveness, Private Philanthropy, and Financial Vulnerability

Article excerpt

In the last 15 years, demands on nonprofit organizations for service, development, and accountability have evolved. Many nonprofits face great competition for public funding and continuous pressure to expand access to service. As Kearns (1994) noted, a dramatic expansion in the size and influence of nonprofit organizations has led to tighter scrutiny of resource management from a broad spectrum of stakeholders (e.g., government agencies, private donors, the media, clients of the organizations, and the public at-large). While service and accountability standards have been elevated in recent years, so has the overall importance of a nonprofit's governing board of directors.

Board members as a whole are charged with the public's trust in guiding nonprofit organizations in the effective and efficient administration of its purpose (Kearns, 1994). In general, boards are expected to provide financial oversight, to counsel on the organization's strategy, and to assist in the development of financial and other resources. As such, the effectiveness of an organization's board is likely to have a direct influence on the organization's overall performance in terms of both financial management and service delivery.

A number of recent studies have explored the impact of board characteristics on fundraising success, mission development, and service provision (e.g., Heimovics, Herman, & Jurkiewics, 1993; Herman & Renz, 2000; Miller-Millesen, 2003; Provan, 1980). As a set, studies of this kind identify a link between board activity and proxies of organizational success (e.g., service provision). There is, however, a lack of clear research on the relationship between board activity and bottom-line economic stability. The question remains, therefore: does board effectiveness have an impact on the overall financial health of a nonprofit organization?

A recent study by Hodge and Piccolo (2005) used a short measure of board activity to derive a link between board behavior and financial stability. According to the authors, existing resources drive the nature of board involvement in day-to-day operations and in strategic planning activities of the organization. Results of the study by Hodge and Piccolo suggest that planning and development activities by the board have a significant impact on the economic stability of an organization, as measured by an index of financial vulnerability (Tuckman & Chang, 1991). The Hodge and Piccolo study used a small sample and a rather narrow measure of board activity, so additional research is needed to understand how and when board behavior shapes bottom-line performance.

As such, the primary purpose of this study is to examine the relationship between board effectiveness and the overall fiscal health of a nonprofit organization as measured by financial vulnerability (Tuckman & Chang, 1991). The relationship is an important one in that the role of an organization's board is generally regarded as critical for the success and survival of a nonprofit. In support of this purpose, the current study integrates concepts in resource dependence theory (Pfeffer & Salancik, 2003) to examine the extent to which resource structure (e.g., private philanthropy) serves as a boundary condition on the link between board effectiveness and financial vulnerability. Beyond our interest in if the board impacts financial health, we are also interested in examining when.

In the following sections, we provide a brief overview of the three main concepts in this study: board effectiveness, financial vulnerability, and primary funding source (specifically private philanthropy). We then offer hypotheses about interrelationships among these three variables, describe our methods of data collection and analysis, and offer results and conclusions of this study. Financial Vulnerability

Although the literature provides a host of qualitative and subjective measures of organizational performance (e. …

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