This case analysis has attempted to support the central argument of this paper, namely that for-profit and not-for-profit governance should not always be viewed in isolation of one another. Governance in these two sectors may actually exhibit very similar behaviors in certain circumstances and so there is value in being open to this possibility. However these behaviors will only be identified by researchers if theoretical insights from research in each sector are combined in any framework adopted. Despite a handful of exceptions (Miller-Millesen 2003; Bart and Deal 2006; Parker 2007), there is still a tendency to focus on issues that have been revisited many times in the same sector. The case detailed here has focused on agency and involvement, two key challenges of governance that are prominent within the for-profit and not-for-profit literatures respectively. By making a link between agency failure and a desire by the board to restrict stakeholder involvement, the case has shown how not-for-profits can be subject to unethical conduct by directors who can undermine governance and so impact negatively on operational decision-making.
Although the agency failure detailed above can be viewed as incompetence, it takes on a more unethical character when taken together with the board’s behaviors with regard to involvement and governance. The willful exclusion of employees took place through undermining the spirit if not the letter of the constitution of the company. Bouckaert and Vandenhove (1998) suggest that an organization that claims to be socially responsible must “give due regard to the expectations and interests of the various stakeholders in determining and realizing the values and mission of the company”. There is little evidence of this “due regard” in the case of ABC. This fact raises doubt around whose interests the board members were serving in their decision-making. Director self-interest may be more common within the for-profit sector but it should not be ruled out in the not-for-profit arena (Hayden 2006).
It is not the intention to suggest that this case indicates a widespread malaise in the not-for-profit sector. It simply highlights that an organization that is founded on a social principle may still display behaviors that is more usually associated with the for-profit sector. The organization may still trumpet its values throughout its communications while acting in a way that undermines its claims. Better governance procedures within the not-for-profit sector aim to balance experience with new ideas (1 Parker 2007). The case of ABC shows how this can be stifled by protecting the cost arrangements already in place (Hayden 2006). Lack of openness to new board members may pose a threat to the quality of decision-making (Letza et al. 2004) alongside being an issue of ethics. The agency failure of ABC may or may not have been avoided with a more diverse board membership. But at least the adoption of a more pluralistic approach would raise the probability of a more informed approach to the decision-making process. It becomes more likely that the board will be made more sensitive to the demands of stakeholders, including potential consumers and contractors (Abzug and Galaskiewicz 2001).
This field requires conceptual development alongside additional studies examining governance failure within the not-for-profit sector. It is assumed that the current preference will continue amongst governments for the not-for-profit sector to expand in its provision of public services (Parker 2007). Therefore, it is not unreasonable to posit that the incidence of financial collapse will increase, thereby presenting more research opportunities for research. While increased failure is not a desirable scenario, it requires greater scrutiny. Without such scrutiny it is likely that future failures will continue to happen. Greater attention must be paid to the impact of the role played by director conduct and motivation in not-for-profit organizations. The for-profit “scandal” literature does a very good job of analyzing this. To help bring this about, more syntheses of the two literatures are needed (e.g., Miller- Millesen 2003). This would then offer the possibility of developing a framework that builds upon the tentative model put forward in this paper.
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