Academic journal article The Foundation Review

Assessing and Advancing Foundation Transparency: Corporate Foundations as a Case Study

Academic journal article The Foundation Review

Assessing and Advancing Foundation Transparency: Corporate Foundations as a Case Study

Article excerpt

Keywords: Charitable foundations, nonprofit organizations, good governance, accountability, transparency, corporate foundations, corporate social responsibility, corporate philanthropy, Compromiso Empresarial Foundation

Framing Accountability and Transparency in Nonprofit Organizations

Although the roots of corporate-governance research can be traced back to at least Berle and Means (1932), subsequent literature has mainly focused on firms. Publicly traded companies, where control over capital by professional managers is separated from ownership of capital by shareholders, have been particularly studied in order to understand and to design mechanisms to mitigate agency problems, i.e. conflicts of interest arising between principals (shareholders) and agents (managers). The concept of transparency in the business sector has been extended into a complex information infrastructure where financial accounting information is only one of the elements. It has been defined as "the widespread availability of relevant, reliable information about the periodic performance, financial position, investment opportunities, governance, value, and risk" of firms (Bushman & Smith, 2003).

Not until the 1980s did literature on the specificities of governance of nonprofit organizations gain momentum in the U.S., led by such institutions as Boardsource (Rey-Garcia & Martin-Cavanna, 2011). Since then, accountability and transparency have progressively overshadowed other aspects of nonprofit governance, such as the responsibilities and internal functioning of boards or the evaluation of their performance. They have thus become the focus of practitioners' interest and academic literature during the last decade (Dautel & Brudney, 2003; Miller-Millesen, 2003; Brown & Iverson, 2004; Bobowick, 2009).

Nonprofits may not be more prone to scandal than other types of organizations, but their public-benefit mission and their societal status render them more susceptible to public disappointment. Another, highly sensitive, differential feature consists of the tax relief available to nonprofits that comply with certain requirements. This ultimately leads their accountability and transparency duties to resemble those of public bodies, subject only to constraints imposed by the need for confidentiality, if social trust is to be maintained (Leat, 1994; Salamon, 1995).

In fact, nonprofits have come under increased public scrutiny and criticism in the past few decades. The risk of perceived financial abuse and mismanagement has been fueled by publicized and recurring episodes of wrongdoing involving, for example, executive compensation and conflicts of interest by board members in the early 1990s and international nongovernmental organizations in the new millennium (Gibelman & Gelman, 2004). The economic crisis has heightened public sensitivity to governance-related issues. The broader wave of public concern over scandals in the business and public sectors, dating to the Enron and WorldCom scandals and the subsequent Sarbanes-Oxley Act of 2002, has also contributed. Consequences internationally for nonprofits, charitable foundations included, have been notorious: increased public distrust, more regulation by public authorities (in the U.S., recurring efforts to make tax exemptions and deductions more stringent), and more self-regulation, including the adoption of ethics and goodgovernance codes (Herzlinger, 1996; Independent Sector, 2007; Warren & Lloyd, 2009).

As a result of these social, ethical, and regulatory forces, all nonprofits are being held increasingly accountable for their finances, governance, performance, and mission (Behn, 2001; Ebrahim, 2010). Accountability has been generally defined as "the processes through which an organization makes a commitment to respond to and balance the needs of stakeholders in its decision-making processes and activities, and delivers against this commitment" (Lloyd, Oatham, & Hammer, 2007, p. …

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