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Governance issues in NFPs

All of these factors have implications as far as governance is concerned. It is often thought that if an organisation exists for a public or charitable purpose then it must be a socially responsible organisation demonstrating good governance. Our consideration of issues throughout this book should have enabled you to understand that this is not necessarily the case. Governance is about how an organisation conducts its operations and deals with its stakeholders. For NFPs we can see that there is a different focus and we need to consider this in terms of governance implications. We can consider this according to these criteria:


There are different stakeholders for a not for profit organisation and the different stakeholder groups have different amounts of power to a profit seeking organisation. It is inevitable therefore that dealing with these stakeholders will be a much more important function for a NFP. Moreover the sources of conflict might be different and the actions taken in resolution of this might also be different. Inevitable also the decision making process is likely to be different.


In terms of doing more with fewer resources (see Aras & Crowther 2009) then this is always an objective for this kind of organisation. In terms of affecting the choices available to future generations then an NFP actually seeks to do this and to redistribute resources more equitably. In terms of seeking a continual existence then really an NFP should strive to make its purpose of existence no longer relevant and should not seek sustainability.

Thus sustainability is an equally important issue for these organisations but its implications are very different in terms of both motivation and decision making.


Accountability is an even more important issue for this kind of organisation and who it is accountable to can be very different. Without either shareholders or customers then accountability is to donors, beneficiaries and a wide range of other stakeholders. Moreover it needs to address this accountability - which can be different for different stakeholders -in order to be able to continue with its operations.


With this diverse set of stakeholders groupings who all have considerable interest in the organisation and its activity then there is obviously a great need for transparency and all such organisations will strive for this. This is particularly exacerbated by the need to keep fund for specified restricted purposes. On the other hand it is in the interest of the NFP to seek to use its accounting system and procedures to classify indirect costs as direct and thereby to minimise the apparent administrative costs incurred. This is contrary to the principle of disclosure but completely understandable!


Increasing disclosure is a feature of corporate reporting as they seek to satisfy stakeholders through increased accountability and transparency. Disclosure has of course always been a feature of NFP activity as such disclosure is necessary to seek additional funds as well as to satisfy the diverse but powerful and vociferous stakeholder groupings. In this respect therefore it might be considered that profit seeking organisations are becoming more like not for profit organisations.


The environment in which not for profit organisations operate is somewhat different but there are still governance implications which are mostly concerned with sustainability and with accountability. Particular features of this environment are:

o Uncertain resource availability and its effect on long term planning

o Stakeholder power and involvement

o Conflicting priorities

o Legal environment

o Managing ambiguity


Aras G & Crowther D (2009); The Durable Corporation: strategies for sustainable development; Aldershot; Gower Kajimbwa M (2006); NGOs and their role in the Global South; International Journal of Not-for-Profit Law, 9 (1)

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