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Corporate Governance in non­commercial organisations


It is important to consider the nature of the sector. The not for profit (NFP) sector is one which is growing in importance all over the world. Moreover it is much bigger than people generally realize. In Europe for example it is estimated that the sector comprises around 40% of GDP. In this chapter we will explore the distinctive nature of the sector and consider the implications for governance.

There is a growing movement within the "non"-profit and "non"-government sector to define itself in a more constructive, accurate way. Instead of being defined by "non" words, organisations are suggesting new terminology to describe the sector. The term "civil society organization" (CSO) has been used by a growing number of organisations, such as the Center for the Study of Global Governance. The term "citizen sector organisation" (CSO) has also been advocated to describe the sector - as one of citizens, for citizens. This labels and positions the sector as its own entity, without relying on language used for the government or business sectors. However some have argued that this is not particularly helpful given that most NGOs are in fact funded by governments and business.


First we need to start with some definitions:

A not for profit organisation is one whose objective is to support or engage in activities of public or private interest without any commercial or monetary profit. In many countries some will be charities but there will also be many which are not. Their distinguishing feature is not that they seek to provide benefits to less advantaged 9although many do) but rather that they do not seek to make a profit to return to investors. They tend therefore to have a different ownership structure.

A non-governmental organisation (NGO) is a legally constituted organisation which operates without any participation or representation of any government. In the cases in which NGOs are funded totally or partially by governments, the NGO maintains its non-governmental status insofar as it excludes government representatives from membership in the organisation.

The role of NGOs

Non-governmental organisations (NGOs) fulfil a vital role in society, filling the gap often left between civic responsibility undertaken through an agency of the government and personal responsibility often undertaken through the family. Indeed the modern streamlined and reduced state very often deliberately relies upon such NGOs to undertake responsibilities previously undertaken by the state, such as health, welfare and educational roles, which can no longer be undertaken due to the twisted logic of privatization. To fill the gap states often rely upon NGOs and provide funding accordingly - a state obligation undertaken by proxy. The role and significance of NGOs has therefore risen accordingly; commensurate with this we have seen an explosion in the number of NGOs and a concomitant explosion in the spheres of influence of such organisations and in the roles which they claim for themselves.

In many ways this has been brought about by the retreat of the state which has caused the number of NGOs to increase to fill the gap left by this retreat (Kajimbwa 2006). This retreat means that the current situation is reminiscent of the situation in the middle of the nineteenth century with the rich being expected to donate some surplus to the poor but with a clear distinction between the deserving poor and the undeserving poor, with the distinction of course being dependent upon the acceptance by the receivers of the norms of the givers. Any further retreat would take us back to the medieval world of charity being inseparable from religion, but at least such charity was available to everyone as religious organisations tend not to discriminate in this manner! Thus the role of NGOs has increased very significantly in recent years.

It is uncertain how many NGOs exist in the world but there are many millions. It is estimated for example that in India alone there are 2 million such organisations. Some are very large international organisations and there are a few thousand28 of these while many are national organisations or even very local organisations. Some of these are very small indeed and not all are active at a particular point in time. One thing which is certain however is that the number continues to grow as new ones are established for new purposes and this provided us with a rationale for our analysis, which is concerned with the growth in the number of NGOs existing and the ensuing problems.

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