Nonprofit Governance in the United States

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Abstract

Nonprofit boards are increasingly a focus of those interested in greater accountability and transparency, including policymakers, media, and the public. To help inform current policy debates and initiatives to strengthen nonprofit governance, in 2005 the Urban Institute conducted the first ever national representative survey of nonprofit governance, with over 5,100 participants. This report presents survey findings, discussing: relationships between public policy and governance, factors that promote or impede boards' performance of basic stewardship responsibilities, board composition and factors associated with board diversity, and recruitment processes, including the difficulty experienced by many nonprofits in finding members.

Introduction

Nonprofit boards are ultimately responsible for the organizations that they oversee, and are one of the primary vehicles through which citizens participate in the nonprofit sector. In recent years, nonprofit boards have become an increasing focus of those interested in nonprofit accountability and transparency, including policymakers, the media, and the public. Legislative reforms have been proposed, nonprofit associations are calling on their members to review and strengthen nonprofit governance practices, and the Internal Revenue Service has released a draft paper on "Good Governance Practices for 501(c)(3) Organizations."

It is critical that both proposed policy reforms and best practice guidelines be informed by solid knowledge about how boards currently operate and what factors promote or hinder their performance. To help ensure the availability of such knowledge, in 2005, the Urban Institute conducted the first-ever national representative study of nonprofit governance. Over 5,100 nonprofit organizations of varied size, type, and location participated in our study, making it the largest sample studied to date.

Our survey covered a wide array of topics but included a special focus on practices related to current policy proposals and debates. This focus was in keeping with one of our primary goals—to draw attention to the links between public policy and nonprofit governance. Attention to the influence of organizational environments on boards has declined significantly in the board research literature, and when attention is given, it is typically to the financial context (Ostrower and Stone 2006; Stone and Ostrower forthcoming). Funding relations are important, but the environment includes far more. As organizational theorists remind us, nonprofits face normative pressures to adopt certain policies and practices in order to demonstrate their public legitimacy (DiMaggio and Powell 1983). Nonprofits today are facing pressures to be more accountable and transparent, which has had a profound impact on discussions of appropriate board roles and policies.

This study draws attention to the relationships between the public policy environment and nonprofits. A major point of this study, however, is that the impact of public policy extends beyond legislative proposals aimed specifically at nonprofits. One of the most important developments to shape thinking about nonprofit governance today was the passage of the Sarbanes-Oxley Act, legislation intended to deter fraud in the corporate sector. Developments in the corporate sector not only shape wider expectations about governance that influence nonprofits, but as our findings show, board members that sit on both corporate and nonprofit boards serve as a channel through which corporate practices are brought into the nonprofit world.

Another major purpose of this study is to identify factors associated with promoting or impeding boards' performance of basic stewardship responsibilities related to overseeing and supporting the organization and its mission. Attention to accountability and concerns about loss of public legitimacy have dominated the dialogue about nonprofit governance in recent years. Concerns about accountability, however, should not obscure attention to performance and effectiveness. We have to ask not only whether nonprofit boards have various practices and policies in place to avoid malfeasance but whether they are actively serving the organization's mission and ensuring that the organization is accomplishing its mission. Here we find wide variations, including evidence that significant percentages of boards are not very active when it comes to carrying out some basic stewardship responsibilities.

A third and related purpose of this study is to draw greater attention to board composition and recruitment processes. Our findings show that efforts to strengthen nonprofit governance have insufficiently dealt with the fact that many nonprofits are having difficulty finding board members and that this is one important factor associated with lower levels of board engagement. To promote not just adoption of strong practices and policies in theory but to implement them in practice requires an engaged and dedicated board. The dramatic growth in the number of nonprofit organizations over the past decade (Pollak and Blackwood 2006) means that greater numbers of board members are needed, which may contribute to greater competition in recruitment. Whatever the reasons for the difficulty, initiatives are clearly needed to enlarge the available pool of board members. Furthermore, our findings concerning high levels of ethnic homogeneity on many boards raise questions about nonprofit boards' ability to be responsive to the diversity of the constituencies served by their nonprofits.

As rich as these data are, keep in mind that these data come from self-reports. As is true in all such surveys, including those that assure confidentiality as this one did, respondents may be inclined to choose answers that are more favorable to their organizations and thus the percentage reporting positively on board practices may be biased upward. Since there is no reason to believe that this tendency is more or less prevalent among particular subgroups, however, any upward bias should not influence conclusions about relationships between various factors and board practices.

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