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UNDERSTANDING THE GOVERNANCE OF NON-PROFIT
ORGANIZATIONS: MULTIPLE PERSPECTIVES AND
PARADOXES

(A paper to be presented to the 30th Annual ARNOVA Conference, November 29 –

December 1st, 2001, Miami)

Chris Cornforth, Open University Business School, Walton Hall, Milton Keynes, MK7
6AA, UK.
Tel: +44 1908 655863; Fax: +44 1908 655898; E-mail: c.j.cornforth@open.ac.uk

Key words: governance, boards, multiple-perspectives, paradox

Introduction
The paper has a theoretical orientation. Its main purpose is to present a new
framework for understanding the governance of non-profit organisations in terms of
multiple theoretical perspectives and a number of key paradoxes or tensions that
boards face. The paper addresses two related problems.

First, the governance of non-profit organisations is relatively under theorised in

comparison with the governance of business corporations. In addition, the literatures
on corporate governance and non-profit governance have developed largely separately
from each other (Middleton, 1987; Herman and Van Til, 1989, Hung, 1998).
Noticeable exceptions include resource dependency theory and the study of elites
(Middleton, 1987). In contrast a variety of competing theories have been proposed to
try to understand the role of boards in the private sector e.g. agency theory,
stewardship theory, stakeholder theory, and managerial hegemony theory. The paper
briefly reviews each of these theories and discusses how they can be usefully
extended to throw light on non-profit boards. A framework is presented for comparing
and contrasting these different theoretical perspectives on boards.

However, this raises a second related problem. Taken individually the different
theoretical perspectives are rather one dimensional, only illuminating a particular
aspect of the board’s role. This has lead to calls for a new conceptual framework that
can help integrate the insights of these different perspectives (Hung, 1998: 108-9;
Tricker, 2000: 295). The paper argues that a paradox perspective offers a promising
approach to providing this new conceptual framework. It argues that taken together
these multiple theoretical perspectives are helpful in highlighting some of the
important ambiguities, tensions and paradoxes that non-profit boards face.

Based on this framework the paper outlines some of these key paradoxes:
• The tension between board members acting as representatives for particular
stakeholder groups and ‘experts’ charged with driving the performance of the
organization forward.

ARNOVA paper 2001;20/03/09 1

• The tension between the board roles of driving organizational performance and
ensuring conformance i.e. that the organisation behaves in an accountable and
prudent manner.
• The tension between the contrasting board roles of controlling and supporting
management.
• The ambiguities that stem from accountabilities to multiple stakeholders.

Each of the paradoxes is discussed and illustrated by drawing on examples from

recent empirical studies by the author and other researchers (Cornforth and Edwards,
1998; Cornforth, 2001). These will examine how the paradoxes manifested
themselves in particular non-profit organisations, and the different patterns of
behaviour that resulted.

Finally the paper concludes by considering the implications of taking a paradox

perspective for future research on non-profit governance.

Competing theoretical perspectives

Although theories like resource dependency theory have been developed at least
partly in relation to public and non-profit organisations the governance of public and
non-profit organisations is relatively under theorised. In contrast a variety of
competing theories have been proposed to try to understand the role of boards in the
private sector, for example agency theory, stewardship theory, stakeholder theory, and
managerial hegemony theory. Below each of these theoretical perspectives is briefly
examined and how they can be usefully extended to throw light on non-profit boards.

Agency theory – a compliance model

Principal - agent theory, or agency theory for short, has been the dominant theory of
the corporation and corporate governance arrangements. It assumes that the owners of
an enterprise (the principal) and those that manage it (the agent) will have different
interests. Hence the owners or shareholders of any enterprise face a problem that
managers are likely to act in their own interests rather than to their benefit. While free
markets are seen as the best restraint on managerial discretion, agency theory sees
existing corporate governance arrangements as another means to ensure that
management acts in the best interests of shareholders (see Keasey et al (1997: 3-5) for
a more detailed overview). From this perspective the main function of the board is to
control managers. This suggests that a majority of directors of companies should be
independent of management, and that their primary role is one of ensuring managerial
compliance – i.e. to monitor and if necessary control the behaviour of management to
ensure it acts in the shareholders best interests.

One difficulty in applying an agency perspective to non-profit organisations is that

there is much more potential ambiguity over who the principals or owners are. In the
case of voluntary organisations for example is it the original founders of the
organisation, its funders, its beneficiaries or members? In the case of quasi-
governmental organisations (quangos) is it the general public, users, taxpayers or the

ARNOVA paper 2001;20/03/09 2

government itself? However, many aspects of this perspective still have relevance.
The principles and regulations concerning charitable trusts, which affect many
voluntary organisations in the UK, embody similar ideas on the role of governance.
Under trust law the trustees of a charity are appointed to look after the money and
resources donated by those founding the organisation and to see that their wishes, as
set out in the trust deed, are carried out. It is enshrined in trust law that the trustees
themselves can not benefit financially from the trust, and so employees of a trust
cannot normally be trustees. Legally the key role of the trustees of a charity is to see
that the staff or management of the organisation carries out the objectives of the trust
and act in compliance with the law. As there is a complete separation of the board
members from staff or management it could be argued that trust law is even more in
line with an agency or compliance model of governance than company law. Given its
origins in traditional ideas of philanthropy and charity Harris (1994) identifies this as
the ‘traditional’ model for charity boards. Similarly, in quangos it can be argued that
the public’s or state’s interests are at risk from managers pursuing their own interests,
and so a key role of the board is again to monitor management and ensure there
compliance in furthering the organisation’s objectives.

Stewardship theory – a partnership model

Stewardship theory (Muth and Donaldson, 1998) is grounded in a human relations

perspective (Hung, 1998) and starts from opposite assumptions to agency theory. It
assumes that managers want to do a good job and will act as effective stewards of an
organisation’s resources. As a result senior management and shareholders (or the
mandators) of the organisation are better seen as partners. Hence, the main function of
the board is not to ensure managerial compliance or conformance, but to improve
organisational performance. The role of the board is primarily strategic, to work with
management to add value to top decisions. In this context it is not surprising that
management ideas and practices should be applied to governance. From this
perspective board members should be selected on the basis of their expertise and
contacts so that they are in a position to add value to the organisation's decisions;
boards and managers should receive proper induction and training; they should know
how to operate effectively as a team etc. Ideas such as these are common in much of
the ‘how-to-do-it’ literature on non-profit boards, (see for example Kirkland (1994)).

This perspective is evident in various prescriptive models of governance in both the

private and non-profit sectors. For example, Pound (1995) suggests what he calls the
'governed corporation model' of governance for public companies. In this model the
board, and major shareholders, are seen as partners of management, and the prime
function of the board is to add value to the organisation by improving its top decision-
making. Carver (1990) in his policy governance model for non-profit organisations
advocates that the real business of governance is to make policy, articulate the
mission and sustain the vision of the organisation.

Resource dependency theory – a co-optation model

Resource dependency theory (Pfeffer and Salacik, 1978) views organisations as

interdependent with their environment. Organisations depend crucially for their
survival on other organisations and actors for resources. As a result they need to find
ways of managing this dependence and ensuring they get the resources and

ARNOVA paper 2001;20/03/09 3

information they need. From this perspective the board is seen as one means of
reducing uncertainty by creating influential links between organisations through for
example interlocking directorates. The main functions of the board are to maintain
good relations with key external stakeholders in order to ensure the flow of resources
into and from the organisation, and to help the organisation respond to external
change.

The role of the board is very much a boundary-spanning role. Board members are
selected for the important external links and knowledge they can bring to the
organisation, and to try to co-opt external influences. For example it is quite common
in the UK for local voluntary organisations to be at least partly dependent on local
government for resources and support and to include representatives of the local
authority on their boards.

A democratic or association perspective – a democratic model

Democratic government is a central institution in Western societies. Key ideas and

practices include: open elections on the basis of one person one vote; pluralism i.e.
that representatives will represent different interests; accountability to the electorate;
the separation of elected members, who make policy, from the executive, who
implement policy decisions. Democratic ideas and practices have influenced thinking
about the governance of many types of organisations. For example many voluntary
organisations, co-operatives and mutual organisations are established as membership
associations, where it is enshrined in the organisation’s constitution that the governing
body should be elected by and represent the membership in some way. Conversely,
the governance of many quangos is often criticised for not living up to ideas of
democratic accountability (Plummer, 1994; Skelcher, 1998).

A democratic perspective on governance suggests that the job of board is to represent

the interests of members of the organisation. The role of board is to resolve or choose
between the interests of different groups and set the overall policy of the organisation,
which can then be implemented by staff. Central to this view is the idea of a lay or
non-professional board, where anyone can put himself or herself forward for election
as a board member. Expertise is not a central requirement, as it is in the partnership
model.

Stakeholder theory – a stakeholder model

Stakeholder theory as applied to governing bodies is based on the premise that

organisations should be responsible to a range of groups (or stakeholders) in society
other than just an organisation’s owners or mandators (Hung, 1998: 106). By
incorporating different stakeholders on boards it is expected that organisations will be
more likely to respond to broader social interests than the narrow interests of one
group. This leads to a political role for boards negotiating and resolving the
potentially conflicting interests of different stakeholder groups in order to determine
the objectives of the organisation and set policy.

Stakeholder theory has developed mainly in debates over corporate governance in the
private sector, where there has been robust debate about its desirability and likely
consequences (e.g. Hutton, 1997; Tricker, 2000: 295). The principles of stakeholder

ARNOVA paper 2001;20/03/09 4

involvement are less controversial in the public and non-profit sectors, and the
practice more common, although not always discussed in terms of stakeholder theory.
Some of the clearest examples in the UK are in the field of education where
government reforms have specified the broad composition of governing bodies. For
example, state funded schools are required to have governing bodies made up of
people appointed or elected from various groups, including: parents, the Local
Education Authority, teacher governors, and in the case of voluntary aided schools
foundation governors representing the church or charity supporting the school. When
further education (FE) colleges were taken out of local government control the
Conservative government specified that at least half the governors should be from
business broadly construed. Due to concerns about lack of balance and accountability
the composition was broadened by the Labour government in 1999 to include
representatives of staff, students, the local authority and community. In parts of the
voluntary sector there have been important moves to involve service users on boards.

Managerial hegemony theory – a ‘rubber stamp’ model

Managerial hegemony theory relates back to the thesis of Berle and Means (1932) that
although shareholders may legally own and control large corporations they no longer
effectively control them. Control having been effectively ceded to a new professional
managerial class. A variety of empirical studies have leant support to this thesis.
Mace (1971) in his study of US directors concluded that boards did not get involved
in strategy except in crises, and that control rested with the president (chief executive)
rather than the board. Herman (1981) came to similar conclusions but argued that
managerial power was always in the context of various constraints and the latent
power of stakeholders such as external board members. In a more recent study
Lorsch and MacIver (1989) conclude that although the functioning of boards has
improved since Mace’s study, their performance still leaves much room for
improvement. Like Mace they distinguish between boards in normal times and during
crises, and conclude that during normal times power usually remains with the chief
executive. From this perspective the board ends up as little more than a ‘rubber
stamp’ for management’s decisions. Its function is essentially symbolic to give
legitimacy to managerial

Although this theory was developed in the study of large business corporations, many
of the processes it describes seem just as relevant to public and non-profit
organisations: for example the separation of those who found (‘own’) the organisation
from those that control it, and the increasing growth and professionalisation of
management. Indeed it could be argued that the largely voluntary nature of board
involvement in public and non-profit organisations might mean that board power is
even more limited than in the private sector. Murray et al (1992) identified five
different patterns of power relations among non-profit boards in Canada. One of the
most common was what they called the CEO-dominated board, where chief executive
and sometimes other senior managers exercise the main power and the board plays a
largely symbolic role, often rubber stamping decisions.

The main features of these different perspectives are summarised in Table 1.

-Table 1 about here-

ARNOVA paper 2001;20/03/09 5

A paradox perspective - towards a synthesis
Taken individually these different theories are rather one dimensional, and have been
criticised for only illuminating a particular aspect of the board’s work. This has lead
to calls for a new conceptual framework that can help integrate the insights of these
different perspectives (Hung, 1998: 108-9; Tricker, 2000:295). A paradox perspective
offers a promising approach to providing this new conceptual framework. Taken
together these multiple theoretical perspectives are helpful in highlighting some of the
important ambiguities, tensions and paradoxes that non-profit boards face.

Morgan (1986: 339) in his groundbreaking study of organisations argues that many
theories and ways of thinking about organisations do not match the complexity and
sophistication of the realities organisations face. In order to address this problem he
argues that it is necessary to take a multi-paradigm or perspective approach in order to
‘understand and grasp the multiple meanings of situations and to confront and manage
contradiction and paradox, rather than pretend they do not exist’. At the same time
there has be a growing recognition that many management problems and issues
require a move from linear thinking and simple either/or choices to seeing them as
paradoxes (e.g. Hampden-Turner, 1990; Handy, 1995). Managing paradox means
embracing and exploring tensions and differences rather than choosing between them.
As Lewis (2000) charts in her review of the literature the concept of paradox has been
playing an increasing role in organisation studies.

A similar critique can be made of attempts to understand organisational governance.

As Hung (1998: 108) observes in his review of the literature each of the theories of
governance (discussed above) ‘focus on a small part and no one is able to perceive the
whole picture of corporate governance’. In a similar vein Tricker (2000: 295) notes
‘At the moment various theoretical insights cast light on different aspects of play,
leaving others in the shadow…’. He calls for a new conceptual framework that can
‘light up the entire stage and all the players’.

One way of addressing this problem is to take a multi-paradigm perspective and focus
more explicitly on the paradoxes, ambiguities and tensions involved in governance.
As Lewis (2000: 772) discusses a multiple perspectives approach can be useful as
sensitising device to highlight what are likely to be important paradoxes, by
contrasting opposing theoretical approaches. So for example contrasting agency
theory with stewardship theory suggests that boards may experience pressures to both
control and partner senior management. Next we examine some of the main tensions
and paradoxes that the contrasting theories of governance suggest that boards are
likely to face. The list is not meant to be exhaustive. A number of authors have also
begun to study governance from a paradox perspective. Demb and Neubauer (1992)
in their study of corporate board identified and examine three paradoxes which stem
from the legal and structural aspect of the boards setting. Wood (1996) suggests a
similar approach to studying non-profit boards.

Who governs -the tension between representative and professional boards

The different theoretical perspectives have different implications for who should serve
on boards. The opposition is clearest between the stewardship and democratic
perspectives. Stewardship theory stresses that board members should have expertise

ARNOVA paper 2001;20/03/09 6

and experience that can add value to the performance of the organisation. The
implication is that board members should be selected for their professional expertise
and skills. In contrast the democratic perspective (and to some extent the stakeholder
theory) stresses that board members are lay representatives there to serve the
constituency(s) or stakeholders they represent.

This can raise an obvious tension for public policy makers – should the boards of
public bodies be elected or chosen because of their expertise. Since the early 1980’s
successive Conservative governments in the UK introduced a variety of public sector
reforms leading to a growth in the number of quangos and public bodies with
appointed boards. This move to non-elected, expert boards in many parts of the public
sector has been heavily criticised for its undemocratic nature and the danger of
creating a new self-selected elite (Skelcher, 1998). While the recent Labour
government has modified some of these arrangements and introduced greater
stakeholder involvement, deep concerns over the democratic accountability of many
of these boards remains (Robinson et al, 2000).

There is also a dilemma for voluntary sector boards - should members be chosen or
encouraged to stand for election, because of their expertise or because they represent
some stakeholder group? It also raises dilemmas for board members. Are they
expected to represent particular stakeholders or to give expert guidance? The
professional role also demands a close involvement with the organisation. This may
conflict with board members’ unpaid status in most non-profit organisations.

Board roles - the tension between the conformance and performance

The different theories of governance put different emphasise on what are the main
roles of the board. This is most apparent in the opposition between the agency and
stewardship perspectives. What Garratt (1996) has called the ‘conformance’ versus
‘performance’ role of boards. Agency theory emphasises the conformance role of the
board to ensure that the organisation acts in the interests of its ‘owners’ and to be a
careful steward of their resources. In contrast stewardship theory emphasises the role
of the board in driving forward organisational performance through adding value to
the organisation’s strategy and top decisions.

The conformance role demands careful monitoring and scrutiny of the organisation’s
past performance and is risk averse. The performance role demands forward vision,
an understanding of the organisation and its environment and perhaps a greater
willingness to take risks. Again, boards face an obvious tension concerning how
much attention they should pay to these contrasting roles.

Relationships with management - the tension between controlling and partnering

The agency and democratic perspectives stress the importance of the board
monitoring and controlling the work of managers (the executive). In contrast
stewardship theory stresses the role of the board as a partner to management,
improving top management decision-making.

The need to both control senior management and be their support and partner in
decision making can be a source of role conflict and tension for board members. To

ARNOVA paper 2001;20/03/09 7

what extent should board members push the interests of particular stakeholders if this
is against the wishes of management? This tension is vividly illustrated by the
following comment on an European Union report on parent participation in education
by the convenor of the Scottish Parent Teacher Council:
‘Quite often the parents on school boards cease to take parental point of view
and start to identify more with management...in some cases you can see
parents on boards closing ranks around the head teacher rather than lobbying
on behalf of parents’

(From the Scotsman, Page 6, 27/12/95)

Multiple or ambiguous accountability

There may be tension concerning to whom board members are accountable. The
agency perspective suggests that board members are accountable to the ‘owners’ of
the organisation. The democratic and stakeholder perspectives suggests that there are
other stakeholders who have a legitimate interest in what the organisation does, and
should in some way be able to hold it to account. Equally the legal framework of
many public and voluntary bodies mean that board members are legally required to
act in the organisations best interests rather than in the interest of particular
stakeholders. Board members may experience tension because they feel accountable
to more than one group, or because they are unclear or differ over who feel they are
accountable to.

Conclusions

The paper has shown how existing theories of corporate governance can be extended
to help understand the governance of various types of social enterprise, but that by
themselves each is too one-dimensional only highlighting particular aspects of the
board’s role. As empirical research suggests governance is an inherently difficult and
problematic activity. A paradox perspective helps to explain some of the difficult
tensions and ambiguities that boards face.

Another criticism that can be levelled at much of the theorising about boards (both
descriptive and prescriptive) is it generic nature. Often little or no account is taken of
contextual factors, such as organisational size or changes in public policy, that may
influence or shape board characteristics or how they work. This is not something that
is unique to the study of boards; similar criticisms have been levelled at much recent
research in the field of organisational behaviour (Mowday and Sutton, 1993;
Rousseau and Fried, 2001). An important avenue for future research on non-profit
governance is to examine empirically the different paradoxes, tensions and
contradictions boards face, and how these are shaped and influenced by contextual
factors.

ARNOVA paper 2001;20/03/09 8

 THEORY INTERESTS BOARD BOARD ROLE MODEL
MEMBERS
Agency theory ‘Owners’ and ‘Owner/mandators’ Conformance: Compliance
managers have representatives - safeguard ‘owners’ model
different interests
interests - oversee management
- check compliance
Stewardship ‘Owners’ and ‘Experts’ Improve performance:
theory managers share - add value to top Partnership
interests decisions/strategy model
- partner/support
management
Democratic Members/the ‘Lay’ Political:
perspective public contain representatives - represent member Democratic
different interests model
interests - make policy
- control executive
Stakeholder Stakeholders Stakeholder Political:
theory have different representatives -balancing stakeholder Stakeholder
interests needs model
- make policy
- control management
Resource Stakeholders Chosen for Boundary spanning:
dependency and organisation influence with key - secure resources Co-optation
theory have different stakeholders - stakeholder relations model
interests - external perspective
Managerial ‘Owners’ and ‘Owners’ Symbolic:
hegemony managers have representatives - ratify decisions ‘Rubber
theory different - give legitimacy stamp’
interests (managers have real model
power)

Table 1: A Comparison of Theoretical Perspectives on Organisational Governance

ARNOVA paper 2001;20/03/09 9

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