The Management of Nonprofit Organization v3

THE MANAGEMENT OF NONPROFIT ORGANIZATIONS
Prof. univ.dr. Mihaela Vlsceanu
Goals of the course

The aim of the course is to offer an understanding of how private, public and nonprofit organizations differ in terms of their missions and capabilities. We focus on a variety of sectors health care, social services, culture, education etc. where there is a substantial competition among organizations from different sectors. Students will learn through readings, class discussions and development of a research proposal that addresses questions of institutional form and organizational
PART I. THE NONPROFIT SECTOR: ITS SCOPE, SIGNIFICANCE AND SOCIETAL IMPORTANCE
The Emergence of Nonprofits. Relationship with the Other Two Sectors The three sectors of the society Conceptual problems in defining the third (nonprofit) sector Defining Features of the Nonprofit Sector Societal Importance of the Third Sector What is a nonprofit organization? The distinctive character of nonprofit organization The mission statement The formal organization and nonprofit distributing The specific tasks and values The hybrid character of voluntary organization
Diversity in Nonprofit Sector. Major Types of Nonprofit Organizations

The scope of nonprofit organizations in terms of their principal field of activity
(International Classification of Nonprofit Organizations)

The assumed (declared) mission: providing services or advocacy
The sources of resources
Why do we have nonprofits? Theories explaining the existence, the role, and the behavior of nonprofit organizations Theories explaining the economic role of nonprofit organization Demand Side Theories Public failure Market failure Supply Side Theories Preferences of the people who work in the nonprofit sector The Theory of Government Nonprofit Relations
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Theories explaining the behavior of nonprofit organizations Optimizing models Productive Inefficiency Supply response
PART II ORGANIZATION and MANAGEMENT in NONPROFIT SECTOR

The Mission of the Nonprofit Organization The Role of the Mission Statement Developing a Mission Statement Engaging in Risk/Survival Analysis Identifying and involving the constituency Testing for Organized Abandonment
The Distinctive Character of Management in Nonprofit Organizations Distinctive organizational problems A theory of voluntary organization and its implication for the internal management of voluntary agencies Voluntary agencies and the management of ambiguity Nonprofit Board of Directors The responsibilities and duties of the board Board composition Functions of the board Executive Leadership in Nonprofit Organizations Functions of executive The executive as entrepreneur The executive as personnel manager
THE NONPROFIT SECTOR: ITS SCOPE, SIGNICANCE AND SOCIETAL IMPORTANCE
The Emergence of Nonprofits. Relationship with the Other Two Sectors

The three sectors of the society
It is already accepted that one of the distinctive signs of contemporary society is represented by the multiplication, extension and the diversity of organizations. Despite the immense diversity that comprise modern society, we have come to accept the existence of two grand complexes of institutions two broad sectors into which it has become conventional to divide social life. We refer to this typically as the market and the state, or the private and the public sectors.
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Public and private are terms taken from Latin:
Public means of the people; Private means set apart.
A variety of classifications have been used to distinguish between meanings as they apply
to public and private organizations. Some researchers distinguish between private and public organizations
by whether gains and losses are communal or individual, by the openness of the organization to scrutinity, and by the degree to which the organization acts as an agent for a
community and
not individuals.
Others distinguish between public and private organizations by using definitions of the public interest. The notion of services as public goods is often used to make public-private distinctions. For example, the fluoridation of drinking water has notable health benefits that would be enjoyed by all, whether they pay for fluoridation or not.
Because everyone benefits if such a service is provided, taxes are collected to pay for service, creating what economists call public goods. Public goods are recognized when markets fail to fairly allocate these goods or when collecting payments for use is not feasible, such as billing for clean air. Ownership and property rights also make public organizations appear distinct because these rights cannot be transferred and the risks of acting are spread among various bodies
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The three sectors of the society What recent dissatisfaction with the role of the state has done, however, is to challenge this two-sector conceptualization rather fundamentally. It has done so by focusing attention on a third set of institutions that has long made major contributions to the alleviation of human problems throughout the world, but has been largely overlooked in both scholarly inquiry and public debates: a set of organizations that are private in form but public in purpose.
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Conceptual problems in defining the third (nonprofit) sector
The problem, however, is that the increased expectations with regard to the third sector are not based on a very clear understanding of the nature of this sector or what its capabilities really are. There is a little agreement about the existence or the precise boundaries of a definable third sector occupying distinctive social space outside both market and the state. The conceptual confusion can be illustrated by the different ways of defining the third sector in different countries. The French conomie sociale, the British public charities, the American nonprofit sector, the Central and Eastern European foundation, association or NGO, and the Latin American and African NGO or nongovernmental organization are not simply linguistically different. They reflect wholly different concepts and refer to 11 distinctly different groupings of institutions.
Even within the same country a wide variety of different terms is used to depict the set of organizations of concern to us here, and each has its own nuance of meaning. Thus in U.K., organizations outside the market and the state are variously referred to - each one depicting a slightly different set of actual organizations.
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As a matter of fact, few countries use the American terms nonprofit sector to describe the set of organizations located between the private, forprofit and the public sector. While the term nonprofit sector refers to a relatively well defined organizational universe in the United States and perhaps in the United Kingdom, the term seems less precise when used to distinguish such sectors in most European countries. For comparative purpose, it seems useful to adopt the term third sector to designate all organizations which are neither profit-oriented business nor governmental agencies or

Despite this terminological confusion it is almost unanimously accepted that the organizations of the third sector share important common features that justify thinking of them as a distinctive set of institutions, as an identifiable social <sector>. They are private in character and not part of the governmental apparatus. But unlike other private institutions, these entities are expected to serve some public or community purpose and not simply to generate profits for those involved in them. They therefore embody two seemingly contradictory impulses: first, a commitment to freedom and personal initiative, to the idea that people have the right to act on their own authority to improve the quality of their own lives or the lives of persons they care about; and second, an emphasis on solidarity, on the idea that people have responsibilities not only to themselves but also to the communities of which they are a part. Uniquely among social institutions, the institutions of the nonprofit or civil society sector merge these two impulses, producing a set of private
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Organizations in the third sector often pursue
educational, health, cultural, religious, artistic, political, charitable, philanthropic, or other social goals. They seek to serve public at large (such as the disaster-relief efforts of the Red Cross) or the public of narrowly defined membership (such as home owners association). Nonprofit organizations fulfill a unique role in society. They differ from business in that they do not seek to maximize profits. Their aims follow from their mission to serve the public good; activities are not constrained or prioritized on the basis of their profit potential.
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Moreover, surpluses are reinvested in the organization rather than distributed to corporate owners. Nonprofits also differ from public organizations in that their activities are not subject to process of democratic governance. Nonprofits often take over where inadequate political will exist, such as providing additional support for the arts or education that includes religious elements. In recent years, nonprofits are also used by governments in helping to implement public policy, such as providing services to special populations.
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Defining Features of the Nonprofit Sector

In order to depict the most important features of the nonprofit sector, it is necessary to develop a definition which helps us to establish the boundaries of the sector. Therefore, to be included in the nonprofit sector, an organization has to be:
Private, i.e. institutionally separate from government. Nonprofit
organizations are neither part of the governmental apparatus nor governed by boards dominated by government of officials. This does not mean that they may not receive significant government support or that the government officials cannot sit on their boards. The key here is that nonprofit organizations are fundamentally private institutions in basic structure;
Non-profit-distributing, i.e. not returning profits generated to their
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owners or directors. Nonprofits organizations may accumulate profits in a given year, but the profits must be used to serve the basic mission of the agency, not distributed to the organizations owners or governing body. In this sense, nonprofit organizations are private organizations that do not exist primarily to generate profits. Rather, they have some public purpose and are not primarily commercial in operation and purpose. This differentiates nonprofit organizations from the other components of the private sector private
Defining Features of the Nonprofit Sector

Self-governing, i.e., equipped to control their own
activities. Nonprofit organizations have their own internal procedures for governance and are not controlled by outside entities; Voluntary, i.e. involving some meaningful degree of voluntary participation, either in the actual conduct of the agencys activities or in the management of its affairs. This does not mean that all or the most of the income of an organization must come from voluntary contributions, or that most of its staff must be volunteers. The presence of some voluntary input, even if only a voluntary board of directors, it is sufficient to qualify an organization as in some sense voluntary.
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Societal Importance of the Third Sector In his remarkable Democracy in America, Tocqueville (2) wrote about the importance of Americas voluntary associations: Nothing, in my view, more deserves attention than the intellectual and moral associations in America. American political and industrial associations easily catch our eyes, but the others tend not to be noticed. And even if we do notice them, we tend to misunderstand them, hardly ever having seen anything similar before. However, we should recognize that the latter are necessary as the former to the American people; perhaps more so. In democratic countries knowledge of how to combine is the mother of all other forms of knowledge; on its progress depends that of all the others. Among laws controlling human societies there is one more precise and clearer, it seems to me, then the others.
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Societal Importance of the Third Sector

Tocqueville argued that there is a vital connection between the principle of association and the . skills necessary to make a democracy work. In an aristocracy, he wrote, things get done because there are wealthy powerful people who can command the action of a great many other people. In a democracy, however, there is no such mechanism for ensuring collective action: but among democratic peoples all the citizens are independent and weak. They can do hardly anything for themselves, and none of them is in a position to force his fellows to help him (p. 514). Therefore, a democracys progress is directly related not only to the ability of citizens to vote for representatives but also to their ability to associate voluntarily in order to solve problems and meet needs. Voluntary associations accomplish many things vital to the full functioning of the society, and they teach group 20 action skills that can be transferred to the political and

Tocqueville also held that a strong network of voluntary associations would limit the growth and power of government: the more government takes the place of associations, the more will individuals lose the idea of forming associations and need the government to come to their help. That is a vicious circle of cause and effect (p. 515). He further noted that just as an energetic business community is necessary to keep government out of commerce, so vigorous intellectual and moral associations are necessary to prevent government domination of opinions and sentiments: a government, by itself, is equally incapable of refreshing the circulation of feelings and ideas among a great people, as it is of controlling every industrial
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German sociologist Max Weber argued that voluntary associations play an important role between large, bureaucratic institutions and individual. Elaborating on these themes, Smith (3) presented the following functions or roles of the voluntary sector: provides society a wide variety of partially tested social innovations, from which business, government, and other institutions can select and institutionalize those innovations which seem most promising provides a forum for countervailing definitions of reality and morality ideologies, perspectives, and world views that frequently challenge the prevailing assumptions about what exists and what is good and what should be done in society
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provides for the recreational, or play, element of society has a major impact on the level of social integration in society is active in preserving numerous old ideas [is characterized by] its embodiment and representation in society of the same sense of mystery, wonder, and the sacred [is characterized by] its ability to liberate the individual and permit the fullest possible measure of expression of personal capacities and potentialities within an otherwise constraining social environment [is] a source of negative feedback for the society as a whole gives [support] specifically to the economic system of a society, especially in a modern industrial society plays a major role in providing for the general welfare of society through all manner of social services constitutes an important latent resource for all kinds of goal attainment in the interests of the society as a whole.
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As we can notice, the most important functions of the nonprofit sector are: promoting the social innovations or the new social ideas, playing, at the same time, a major role in nourishing the collective memory of society through historical societies, ethnic groups, churches, and museums. Often the old is a source of the new. For example, the private schools often combine the oldest and newest approaches to education. The third sector responds to human needs for sociability beyond the family and workplace. Voluntary associations play an important role in leadership development for those with limited access to such roles in business and government organizations. Many women and members of minority groups have had opportunities to become leaders only in their own third-sector organizations. Nonprofits contribute significantly to the strength of both business and government through education, research, and development. The graduates of nonprofit educational institutions and the research produced by these institutions have had a major impact on other sectors of the society. Nonprofits daily assist millions of people in need through health care, social service, and legal assistance agencies. Nonprofits work with government in a major partnership to meet the needs of the sick, the poor, the aged, the emotionally disturbed, and the physically handicapped. Nonprofits often play a vanguard role in provision of such services.
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What is a nonprofit organization? The distinctive character of nonprofit organization

The most common definitions of the third sector organization are
negative: a nonprofit/nongovernmental organization is one that is not part of government and does not exist to make profit. Another way to differentiate the third sector organizations by the ones from private and public sector is to underline the nondistribution constraint (H. Hansmann). Nonprofits can also be distinguished by: The mission statement The formal organization and nonprofit distributing The specific tasks and values The hybrid character of voluntary organization
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The mission statement

One of the best known criteria for defining the third sector organizations is by referring to their objectives, goals or mission statement. There are at least two kinds of interpretations regarding the mission statement. Within the first interpretation it is considered that nonprofits typically exist to provide some service or advance some cause. This is how they can be distinguished by the business, on one side, (which exist to make a profit), and by the government, on the other side (whose mission is to provide an essential structure of law and order ant to promote the general welfare). The service or cause may be physical or psychological health, historical awareness, religious improvement, protection of minority group rights or the prevention of child abuse. But there is usually some relationship to the good of society even if immediate beneficiaries (for instance, disabled children) are a more narrowly defined group. 26 Thus, nonprofits are often characterized as

A good illustration of this way to define the nonprofits is offered by P. D. Hall (4) I define a nonprofit organization as a body of individuals who associate for any of three purposes: (1) to perform public tasks that have been delegated to them by the state; (2) to perform public tasks for which there is a demand that neither the state nor for-profit organizations are willing to fulfill; or (3) to influence the direction of policy in the state, for-profit sector, or other nonprofit organizations. According to this interpretation the mission of nonprofit organization is focused either on providing some public or quasipublic services or on promoting of some causes.
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Another way of defining the nonprofit
organization is by distinguishing them by those governmental or for-profit organizations whose mission is also to provide some public or quasipublic services. Unlike these two types of organizations, the fundamental mission of nonprofits is always focused not only on serving people, but on changing the human being, the community and even the society as a whole.
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Trying to extract the distinctive character of nonprofit
organizations, Peter Drucker offers his own definition: The <nonprofit> is a negative term and tells us only what these institutions are not. But at least it shows that we have come to realize that all these institutions, whatever their specific concerns, have something in common. And we now begin to realize what that <something> is. It is not that they are not business. It is also not that they are <nongovernmental>. It is that they do something very different from either the business or government. Business supplies, either goods or services. Government controls. A business has discharged its task when the customer buys the product, pays for it, and is satisfied with it. Government has discharged its function when its policies are effective. The <non-profit> institution neither supplies goods or services nor controls. Its <product> is neither a pair of shoes nor an effective regulation. Its product is a changed human being. 29 The non-profit institutions are human-change agents.
The formal organization and nonprofit distributing

Another distinguishing characteristic of nonprofits
from public or for-profit organizations focuses on the legal and formal framework on one side, and nondistribution constraint on the other side. According to this view, the fact that nonprofit organizations are included in the private sector is what differentiates them from public agencies, and the constraint of nonprofit distribution separates them from for-profit organizations. To illustrate the distinctive character of nonprofit organizations from this point of view, we offer two definitions.
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The first one is promoted by Henry Hansmann
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(6) a well known economist who introduced the term of non-profit constraint: The firms organized as <true nonprofits> - that is firms that are formally organized as either nonprofit corporations or charitable trusts [} are all characterized by the fact that they are subject, by the laws of the state in which they are formed, to a constraint which I shall call the <nondistribution constraint> - that prohibits the distribution if residual earning to individuals who exercise control over the firm, such as directors or members. Note that nonprofits are not prohibited from earning profits: rather, they must simply devote any surplus to financing future

Taking over Hansmanns definition, E. James (7)
extends this argumentation, focusing not only on the case of USA, but also on what happens in other countries: In the U.S., the term <nonprofit organization> is commonly used and refers to a set of organizations that qualify for tax exemption and for tax-deductible donations. However, in other countries, the term nonprofit organization is much less common, and tax privileges often dont apply. Similar organizations exist, however, and are called by many other names: nongovernmental organizations (NGOs), private voluntary organizations (PVOs), or community associations, for example. The characteristic they all share in common is that they do not have owners who are entitled to receive the profits of the organization in the form of dividends or capital gains. These organizations may earn profits, but may not distribute them. Instead, all
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The specific tasks and values (residual approach)

Another way of differentiating the third sector from public one and the private one is by evaluating the tasks which are best fulfilled by each of the three sectors. According to this view, each sector has its own limits which can be overcome by exploiting the qualities of the other two. Therefore, it is important to know the strengths and the weaknesses of each sector in order to choose the best alternative. Business does some things better than government, but government does some things better than business. The public sector tends to be better, for instance, at policy management, regulation, ensuring equity, preventing discrimination or exploitation, ensuring continuity and stability of services and ensuring social cohesion. Business tends to be better at performing economic tasks, innovating, replicating successful experiments, adapting to rapid change, abandoning unsuccessful or obsolete activities and performing complex or technical tasks. The third sector tends to be best at performing tasks that generate little or no profit, demand compassion and commitment to individuals, require extensive trust on the part of customers or clients, personal attention (such as day care, counseling, and services to the handicapped or ill), require volunteer work and a comprehensive,
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Regarding the limits and the strengths of each sector, D. Osborne and T. Gaebler (8) argue that the third sector proved to be better at: enforcing moral codes and individual responsibility for behavior. Whether an institution is running homeless shelters, schools, or day-care centers, it must often enforce a code of behavior (shelter residents shall not use alcohol or drugs, for instance). Public institution often have trouble doing this, because their employees have been inculcated with the idea that it is wrong for a government to impose any particular set of values on its citizens. For-profit firms have trouble doing this because it might cost them money if they expel a paying student, for instance. But religious organizations, community groups, and the like which typically exist to fulfill a mission often have both a strong sense of values and a willingness to enforce them, despite the financial implications. On the other hand, third sector organizations often choose to serve only certain people (only Catholics, or only poor people or only
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According to the same residual approach focused
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on task evaluation, Lester Salamon (11) argues that The nonprofit sector is actually societys preferred mechanism for providing collective goods. It existed long before most government services existed. It coped with social problems long before governments took on that role. Governments stepped in only when the third sector proved incapable of dealing with particular problems. Consequently, government can be viewed as the residual institution, needed only because of certain shortcomings or failings of the voluntary sector. Anyway, given the fact that in most cases the failings of the voluntary sector are counterbalanced by the strengths of the government agencies, neither the replacement of the voluntary sector by government nor the replacement of government by the voluntary

Nonprofits also stand on their own, regardless of the distinctions among the three sectors. Nonprofits are often unique in the values they adopt and the passion with which they operate. For example, many nonprofit schools commit to educating the child as a whole, rather than only focusing on narrow, academic skills. Some focus on helping the child to perform in a web of social relationships, whereas others emphasize moral development or self-esteem. Likewise, environmental organizations are often passionately committed to preserving nature as their first priority, leaving it to business and government to balance other priorities. Nonprofit organizations operate under their own set of values and have their own ideology with which they pursue their goals. Although many private and public organizations seek to make the world a better
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Knowledge about the third sector and its
values is fundamental to understanding the broader society in which we live:

It provides contrast between the governmental and for-profit sectors; It reflects the emergent and ongoing concerns of society; It often serves as the springboard for social change in local, national and international arenas.
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The hybrid character of voluntary organization

Apart from being subject to the nondistribution
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constraint and the other distinguishing characteristics of the nonprofits presented before, there is another way of defining the identity of the third sector. In this case the references to the nonprofit organizations emphasize the blurred or ambiguous boundaries of the sector. For example, at a European conference session voluntary organizations were described thus: Situated between markets and bureaucracies or hierarchies, they have to balance out the competing logics of efficient market competition, the provision of public goods and their equitable distribution - and responsiveness to specific membership, clienteles, communities in terms of services provided and advocacy of interests. In balancing elements of community, market, and state or politics, NPOs represent

Based on the results of a comparative research, Kramer et al (8) have summarized the distinguishing characteristics of nonprofit organizations in terms of three M: Mixed, Multiplicity, and Mediating. Mixed refers to a hybrid character, which combines structural features of a service bureaucracy and a voluntary association, resulting in the coexistence of contrasting structures of authority, responsibility, and power, with two different organizational cultures of work norms, values and interests. The blurring of the boundaries between the sectors presupposes borrowing some attributes from the other sector. Consequently, it could be
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Multiplicity, the second M, also refers at the same time to
the diversity of voluntary organization constituencies, goals, accountabilities, and funding sources. In addition to the dual functions of service provision and advocacy, the mission and the goals of voluntary organizations are typically diffuse. That the multiple goals of most voluntary organizations are on a high level of abstraction makes it difficult not only to evaluate their performance, but also to determine whether any deflection has occurred. As a result, the characteristic breadth and ambiguity of their goals makes it possible for a wide range of social purposes to be considered appropriate without having to defend themselves as abandoning the organizations mission. The other side of this characteristic is that while such organizations have a plurality of choices considerably more than a governmental agency once critical program decisions are made, they have a way of becoming institutionalized and resistant to change.
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Mediating, the third M, refers to a
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voluntary organizations intermediary character on the sectoral level among state, market, and the informal social systems in the community. On the interorganizational level, voluntary agencies mediate as a buffer between the citizen and the state, donors and clients. On the intraorganizational level, voluntary agency can be conceived as mediating between the interests of: staff and clients; board and executive; professionals and volunteers;
Toward a definition of the nonprofit sector
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To summarize the main arguments presented in order to emphasize the distinctive character of the third sector, we shall define it by referring to the most important attributes. The term nonprofit/nongovernmental/ independent/ voluntary/ social organizations refer to: Those nongovernmental entities, legally and formally organized in a charitable or not for profit form Their fundamental mission is either providing public or quasi-public goods/services, or promoting some social causes They are private organizations whose mission
Toward a definition of the nonprofit sector

The distinctness of nonprofit organizations consists of:
the nongovernmental character the supply of public/quasi-public or personal,
diversified services the nondistribution constraint the presence of some voluntary input the capacity of self-governing
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Diversity in Nonprofit Sector. Major Types of Nonprofit Organizations

There are many ways of classifying the third sector organizations. We will consider the most well known, in accordance with a few criteria. The scope of nonprofit organizations in terms of their principal field of activity (ICNPO) L. Salamon and H. K. Anheier (9) developed a classification system to group these organizations systematically. The criterion used by the authors takes into account their main field of activity. Their typology is known as the International Classification of Nonprofit Organizations (ICNPO). The organizations of the third sector are classified in 12 groups:
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The scope of nonprofit organizations in terms of their principal field of activity: International Classification of Nonprofit Organizations (ICNPO)
Group 1: CULTURE AND RECREATION Culture and arts: Media & communications; Visual arts, architecture, ceramic
art; Historical, literary and humanistic societies; Museums; Zoos & aquariums; Multipurpose culture and arts organizations; Support and service organizations, auxiliaries, councils, standard settings and governance organizations; Culture and arts organizations not elsewhere classified Recreation: Sports clubs; Recreation/pleasure or social clubs; Multipurpose recreational organizations; Support and service organizations, auxiliaries, standard settings and governance organizations; Recreational organizations not elsewhere classified Service Clubs: Service Clubs; Multipurpose service clubs; Support and service organizations, auxiliaries, standard settings and governance organizations; Service clubs not elsewhere classified
Group 2: EDUCATION AND RESEARCH Primary and Secondary Education: Elementary, primary &secondary education Higher Education: Higher education (university level) Other Education: Vocational/technical schools; Adult/continuing education;
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Multipurpose educational organizations; Support and service organizations, auxiliaries, standard settings and governance organizations; Education organizations not elsewhere classified Research: Medical research; Science and technology; Social sciences, policy studies; Multipurpose research organizations; Support and service organizations, auxiliaries, standard settings and governance organizations;
International Classification of Nonprofit Organizations

Group 3: HEALTH Hospitals and Rehabilitation: Hospitals; Rehabilitation hospitals
Nursing Homes: Nursing Homes

Mental Health and Crisis Intervention: Psychiatric hospitals;
Mental health treatment; Crisis Intervention; Multipurpose mental health organizations; Support and service organizations, auxiliaries, standard settings and governance organizations; Mental health organizations not elsewhere classified Other Health Services: Public health & wellness education; Health treatment, primarily outpatient; Rehabilitative medical services; Emergency medical services; Multipurpose health service organizations; Support and service organizations, auxiliaries, standard settings and governance organizations; Health service organizations not elsewhere classified
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..
Group 4: SOCIAL SERVICE
Social Services:
Child welfare, child services, day care; Youth services and youth welfare; Family services; Services for handicapped; Services for elderly; Self-help and other personal social services; Multipurpose social service organizations; Support and service organizations, auxiliaries, standard settings and governance organizations; Social service organizations not elsewhere classified
control; Temporary shelters; Refugee assistance; Multipurpose emergency & refugee assistance organizations; Support and service organizations, auxiliaries, standard settings and governance organizations; Emergency and refugee assistance organizations not elsewhere classified
Emergency and Refugees: Disaster/emergency prevention, relief and
Income Support and Maintenance: Income support and
maintenance; Material assistance; Multipurpose income support & maintenance organizations; Support and service organizations, auxiliaries, standard settings and governance organizations; Income support and maintenance organizations not elsewhere classified
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....
GROUP 5: ENVIRONMENT
Environment: Pollution abatement & control; Natural
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resources conservation & protection; Environmental beautification & open spaces; Multipurpose environmental organizations; Support and service organizations, auxiliaries, standard settings and governance organizations; Environmental organizations not elsewhere classified Animals: Animal protection &welfare; Wildlife preservation & protection; Veterinary services; Multipurpose animal services organizations; Support and service organizations, auxiliaries, standard settings and governance organizations; Animal related organizations not elsewhere classified
..
GROUP 6: DEVELOPMENT AND HOUSING
Economic, Social and Community Development:
Community and neighborhood organizations ; Economic development Social development; Multipurpose economic, social and community development organizations ; Support and service organizations, auxiliaries, standard settings and governance organizations ; Economic, social and community development organizations not elsewhere classified
Housing association; Housing assistance; Multipurpose housing organizations; Support and service organizations, auxiliaries, standard settings and governance organizations; Housing organizations not elsewhere classified Employment and training: Job training programs, Vocational
Housing:
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counseling and guidance ;Vocational rehabilitation and sheltered workshops; Multipurpose employment and training organizations; Support and service organizations, auxiliaries, standard settings and governance organizations; Employment and training organizations not elsewhere classified
..
GROUP 7: LAW, ADVOCACY AND POLITICS
Civic and Advocacy Organizations: Civic associations
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;Advocacy organization; Civil rights association; Ethnic associations; Multipurpose civil and advocacy organizations; Support and service organizations, auxiliaries, standard settings and governance organizations ;Civic and advocacy organizations not elsewhere classified Law and Legal Services: Legal services ;Crime prevention and public safety; Rehabilitation of offenders; Victim support; Consumer protection associations; Multipurpose law and legal service organizations; Support and service organizations, auxiliaries, standard settings and governance organizations; Law and legal organizations not elsewhere classified Political Organizations: Political parties Political action committees Multipurpose political organizations Support and service organizations, auxiliaries, standard settings and governance organizations Political organizations not elsewhere classified
..
GROUP 8: PHILANTROPIC INTERMEDIARIES & VOLUNTARISM
PROMOTION Philanthropic Intermediaries: Grantmaking foundations; Voluntarism promotion and support; Fund-raising intermediaries; Multipurpose philanthropic intermediaries and voluntarism organizations; Support and service organizations, auxiliaries, standard settings and governance organizations; Philanthropic intermediaries organizations not elsewhere classified GROUP 9: INTERNATIONAL ACTIVITIES International Activities: Exchange/friendship/cultural programs Development assistance associations International disaster &relief organizations International human rights & peace organizations Multipurpose international organizations Support and service organizations, auxiliaries, standard settings and governance organizations International organizations not elsewhere classified
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GROUP 10: RELIGION Religious Congregations and Associations: Protestant churches;
Catholic churches; Jewish synagogues; Hindu temples; Shinto shrines; Arab mosques; Multipurpose religious organizations; Support and service organizations, auxiliaries, standard settings and governance organizations; Religious organizations not elsewhere classified
GROUP 11: BUSINESS AND PROFESSIONAL ASSOCIATIONS,
UNIONS Business and Professional Associations, Unions: Business associations Professional associations Labor unions Multipurpose business, professional associations and unions Support and service organizations, auxiliaries, standard settings and governance organizations Business, professional associations and unions organizations not elsewhere classified
GROUP 12: [NOT ELSEWHERE CLASSIFIED] N.E.C.
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The assumed (declared) mission: providing services or advocacy Another way to classify the nonprofit organizations is focused on the declared mission statement: providing some services or advance some cause. According to this criterion, James Douglas (10) identifies three groups of nonprofit organizations:
the public benefit organizations, i.e. those organizations
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set up to provide a public benefit from private funds. This form of nonprofit organization is, in a real sense, an alternative to government, permitting a greater diversity of social provision than the state itself can achieve. Moreover, according to the results of a comparative international research, it is estimated that this class of nonprofits, in addition to its social and political importance, accounts for a significant share of national expenditure and employment. The information collected in 35 countries shown that this part of the nonprofit sector accounts for 5.1 percent of the combined gross domestic product (GDP) [of the surveyed countries] and, at the same time, is a major
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the mutual benefit organizations which are established to
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provide collective benefits more or less exclusively for its members. They range from elitist social clubs to trade unions. In many ways these are closer to the for-profit sector than to the philanthropic. There is frequently very little altruism about the motivation of their members. They differ from the typical commercial for-profit enterprise in providing goods or services for their members collectively rather than a quid pro quo transaction basis, which usually is why the nonprofit is adopted. It is cheaper and more satisfactory to make facilities available to the members collectively in return for membership fees rather than charging members individually each time a service is used. the pressure groups, or political action organizations which aim not to provide benefits itself but to persuade government to do so. This class of nonprofit organizations that have public policy objectives is considered crucially important to the working of democratic government. Political parties are themselves members of this class, but, even apart from them, it is almost impossible to imagine the workings of a modern democratic system without a constellation of lobbies, interest groups, and the like to articulate the range of interests and values that must
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Of these three classes, only the first is technically a charity. Obviously, a mutual benefit association in which all the benefits are captured by the members and contributors themselves has no claim to special legal or tax privileges. It no more serves a public purpose than does a for-profit organization. Similarly, although the reasons for this are less obvious, organizations set up primarily to achieve a political objective are not regarded as charitable.
In practice the distinction between the three classes or nonprofit
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organizations is not always so clear. For example, it is considered that minority mutual benefit agencies have provided valuable leadership training to people who have no other opportunities. Religious institutions, which have many of the characteristics of mutual benefit organizations, provide charitable services to members and nonmembers. Labor unions and farmers organizations are driven primarily by the economic interests of their members yet historically have played a much broader social role. It should also be noted that many charitable organizations benefit their members socially, economically, and in other ways. Consequently, it could be said that altruistic and self-directed behaviors coexist comfortably in every part of the nonprofit sector. There is a legitimate distinction between public benefit and
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The sources of resources Generally, it is accepted that there are five main sources potentially generating financial resources: Fees for goods and services (in which case the behavior of the nonprofits is very similar with the behavior of commercial firms; they only differ by the fact the first ones are subject to nondistribution constraint); Subsidies (government grants and contracts, funding from foundations, corporations and charitable trusts); Private donations (individual gifts, bequests, private giving from foundations and corporations); Charges and membership dues (in the case of mutual benefit organizations)
....
Despite the common opinion that the major source of nonprofits funding is represented by private donations, it seems in fact that only a small percent of nonprofit revenue (15%) come from this source. The results of the comparative research carried out by Salamon and his colleagues (17) have shown that: Fees are the dominant source of revenue. In the 32 countries studied, over half (53%) of the nonprofit organization income comes, on average, not from private philanthropy but from fees and charges for the services that these organizations provide and the related commercial income they receive from investments and other commercial sources, including dues. Significant public sector support. Nor is philanthropy the second largest source of third sector organization revenue internationally. That distinction belongs, rather, to government or the public sector. An average of 35% of all civil society organization revenue comes from public sector sources, either through grants and contracts or reimbursement payments made by governmental agencies. Limited role of private philanthropy. Private giving from all sources individuals, foundations, and corporations accounts for a much smaller 12% of total civil society organization revenue in the countries examined, or one-third as much as government and less than one-forth as much as fees and charges. Fee dominance holds in most fields. This pattern of fee dominance in the revenue base of nonprofit sector is fairly consistent
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.
Conclusion: as the results of the research show, the
charitable sector is far from being dependent on charity alone. However, there is at least one characteristic of the sector which should be emphasized from this point of view. Philanthropic organizations are unique in that the prices for services (hospital charges, tuition, admission fees and so on) are not intended to cover the costs of producing these services. Philanthropic production is only partially financed by sales of services; the remainder is covered by various subsidies. This means that, to a great extent, it is precisely the gap between production costs and charges that defines the uniqueness of the nonprofit sector. Certain personal and social needs, such as counseling for low-income families and litigations to protect the environment, are insufficiently lucrative to be provided on a for-profit basis. Therefore, they must be provided or subsidized by other sources. This explains why the major source of financing these kinds of services (whose costs exceed the market value) is a combination of government and nonprofit sector providing services
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.
Hansmanns classification scheme (12). Firms are distinguished according to: Their source of income and The way in which they are controlled. Considering the source of income: nonprofits that receive a substantial portion of their income in the form of donations will be referred to as donative nonprofits; firms whose income derives primarily or exclusively from sales of goods and services will be called commercial nonprofits. The Red Cross is an example of the former; most nonprofits hospitals and nursing homes would be in the latter category. The author uses the term patrons to denote those individuals who are the ultimate source of the organizations income. Thus, in a donative nonprofit the patrons are the donors, whereas in a commercial nonprofit they are the firms customers. In the case of nonprofits that have both donors and customers, the term comprises both.
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.
Mechanisms of control:
Firms in which ultimate control (the power to elect the board of
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directors) is in the hands of the organizations patrons are referred to as mutual nonprofits Other nonprofits including, in particular, those in which the board of directors is self-perpetuating are called entrepreneurial nonprofits. The process of selfperpetuating board is usually described as a process whereby boards select only those who fit in and rid themselves of those who are seen as radical or deviant. One could hypothesize that a truly self-perpetuating board is one in which intangible qualities take on maximum importance and are perpetuated through the strong ties of existing board members. Through this process, similarity in board members outlook and status is increased while the more strategic considerations of organizational needs are neglected. For example, it is often said that an unstated purpose of some arts organizations is to maintain certain class distinctions in society, so that the arts become a crucial part of elite screening and socialization. Their boards are composed of members of wealthy families who have contributed to the art for years.
.
The intersections of these two two-way classifications yield four
types of nonprofits: donative mutual, donative entrepreneurial, commercial mutual, and commercial entrepreneurial.
Table 1. A four categorization of nonprofit firms
Source of income Distribution of control
MUTUAL
ENTREPREUNERIAL
DONATIVE
Charitable trusts Political clubs

Associations of consumers Country clubs
Hospitals, universities or private schools

Hospitals, nursing homes
COMMERCIAL
Source: Adapted from Hansmann, 1980
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Why do we have Nonprofits? Theories explaining the existence, the role, and the behavior of nonprofit organizations
Several theories have been advanced to date to explain the economic role of nonprofit organizations. In order to systematize the information, we shall classify them in two groups: Theories of the role of nonprofit organizations which in the first place address such questions as these: Why do nonprofit organizations exist in our economy? What economic functions do they perform? Why, in particular, are nonprofit firms to be found in some industries and not in others? How nondistribution constraint influences the decision to found an organization in the nonprofit form? Theories of the behavior of nonprofit organizations, focused primarily on explaining the specific purposes pursued by nonprofits, the reasons of managers and 62 entrepreneurs in the nonprofit sector, the relationships between these reasons and the objectives pursued by
Theories explaining the economic role of nonprofit organizations

The various theories of the role of nonprofit organizations can be classified in two categories: Demand side theories which try to explain the reasons consumers might choose to patronize nonprofit firms in preference to government agencies or to for-profit firms in particular industries. Within the demand - side theories, some explanations focus on the government failure to provide goods and services in sufficient amount to satisfy the consumers, while other explanations focus on market failure. Supply side theories develop an alternative approach that emphasizes private supply-side variables in explaining why founders choose and government support the nonprofit form, when consumers choose nonprofit services, 63 and in what circumstances (industries,
Demand Side Explanations

Public Failure
The Public Goods Theory (Theory of excess demand) The first general economic theory of the role of nonprofit enterprise was
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offered by Weisbrod (13) who suggested that nonprofits serve as private producers of public goods. Governmental entities, Weisbrod argued, will tend to provide public goods only at the level that satisfies the median voter; consequently, there will be some residual unsatisfied demand for public goods among those individuals whose taste for such good is greater than the median. Nonprofit organizations arise to meet this residual demand by providing public goods in amounts supplemental to those provided by government. Theory of differentiated demand A second demand-side model views private nonprofit production of quasi-public goods as a response not only to an unsatisfied demand but also as a response to differentiated tastes about the kind of service to be consumed in situations where that differentiation is not accommodated by government production. E. James (14) argues on the basis of an empirical comparative research that differential preferences about quality, one group demanding a better product than the median voter choice, may also lead to the development of a private alternative. Using education as an example, many private schools exist in developing countries because the public school capacity is not large enough to enroll everyone who wants to attend. If the private rate of return is high, people are willing to pay for a privately produced service. In modern societies, argues James, private schools exist as a result of

Market Failure (The contract failure theory)
The elements of a somewhat different theory of the role of nonprofits were
set forth in an essay on day care by Nelson and Krashinsky (15), who noted that the quality of service offered by a day-care center can be difficult for a parent to judge. Consequently, they suggested, parents might wish to patronize a service provider in which they can place more trust that they can in a proprietary firm, which they might reasonably fear could take advantage of them by providing services of inferior quality. The strong presence of nonprofit firms in the day-care industry, they argued, could perhaps be explained as a response to this demand.
The theme advanced by Nelson and Krashinsky was taken over and
generalized by Henry Hansmann (16) who argues that nonprofits of all types typically arise in situations in which, owing:
a)
either to the circumstances under which a service is purchased or consumed or

consumers feel unable to evaluate accurately the quantity or quality of the service a firm produces for them.
b) to the nature of the service itself,

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In elaborating his theory, Hansmann points out that it most obvious application is to donative nonprofits. A donor is, in an important sense, a purchaser of services, differing from the customers of commercial nonprofits (and of for-profit firms) only in that the services he or she is purchasing are either
delivery of goods to a third party (as in the case
of charities for the relief of the poor or distressed) or collective consumption goods produced in such aggregate magnitude that the increment purchased by a single individual cannot be easily discerned.
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In either case, the purchaser is in a poor position to determine whether the seller has actually performed the services promised;

Conclusion: In attempting to explain the existence and the role of nonprofit organizations, demand side theories concentrate: on the government failure to provide in a sufficient amount (quantitatively and qualitatively) goods and services demanded by the consumers. Consequently, nonprofits operate in many of the same areas as public sector, and act as partial substitute for public provision. on the comparative advantage of nonprofits versus profitmaximizing organizations. This advantage is owing to the asymmetric information between producer and consumer. This means that, because the nonprofits are subject to nondistribution constraint, the people are more willing to make philanthropic contributions to nonprofit organizations. Thus, nonprofits develop, and constitute an efficient contractual form, where trustworthiness is important because many small customers or donors do not have adequate information about output characteristics. Briefly, contract failure theories emphasize the development on nonprofits in sectors which trust and reputation are important.
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Supply Side Explanations

An alternative approach to the demand-side
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explanation emphasizes private supply-side variables in explaining: why founders choose and government support the nonprofit form, when consumers choose nonprofit services, and in what circumstances (industries, countries) we find a large nonprofit sector. Based on the results of a comparative research, Estelle James (17) argues that apart from explanations offered by demand-side theories, there are other motives (supply-side variables) which can explain why the private sector took the form of nonprofits rather than for-profits, especially in areas such as education, health and social service. James identifies three factors which are responsible, in her view, for the preferences of the people to choose a nonprofit form of organization and to work in the nonprofit sector. These are:
Supply Side Explanations

Disguised Profit Distribution
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One major motive for founding is the possibility of disguised profit distribution, and there is a popular belief in many countries (for example Japan, Columbia) that this takes place, particularly in areas where nonprofit status may be a legal requirement for schools and universities (also, the case of Romania). Although called nonprofit, these organizations are, allegedly, really profit-making entities. The illegal ways of distributing profits are only rarely brought to light, as when student places or professional appointments are sold to families giving large gifts to the schools administrator. The legal ways are more interesting but very difficult to detect or prove. For example, the founder may become the headmaster or director and be paid a salary beyond the market wage that is, beyond what he could earn elsewhere; he is, in effect, receiving monetary profits, albeit in disguised form.
Status, Prestige, and Political Power

Benefits to founders make also take intangible
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form: perpetuation of a family name on a school or status and prestige from being connected with an important institution. In effect, by creating these status distinctions, a society is increasing the coinage at its disposal and using some of it to pay for nonprofit entrepreneurship. These motivations are common in the United States. Another intangible benefit to school founders in many countries (for example, Japan, India Kenya) is the political support they gain in a local community. The community may be beholden to an individual to an individual who starts a school or hospital there. Thus, political ambition is often pointed to as a motivation for founding nonprofit organizations.

Religious motivation However, another motivation seems much more potent when we observe that most founders of private schools (and other nonprofits) are not individuals or groups seeking personal gain but rather are religious groups. Universally, religious groups are the major founders of nonprofit service institutions. We see this in the origin of many private schools and voluntary hospitals in the United States and England, Catholic schools in France and Latin America, missionary activity in developing countries, and so on. Usually these are proselytizing religious, but other religious/ideological groups often must start their own schools as a defensive reaction (for example, the independence schools in Kenya and the caste dominated schools in India were started partly to provide an alternative to the Western mission schools). Typically, they cost of production are lower than those of government schools. This supply-side variable suggests that the private-school sector will be more important in countries
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This simply observation that religious groups
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are the major founders of private schools and other nonprofits has important implications for nonprofit theory. It explains why nonprofits are concentrated in areas such as education and health and it suggests a particular reason for which the nonprofit was chosen by the founders: their object was not to maximize profits but to maximize religious faith or religious adherents and schools are one of the most important institutions of taste formation and socialization. Similarly, hospitals are a service for which people will have an urgent periodic need; hence they constitute an effective way for religious groups to gain entre and goodwill in a society. The nonprofit form was chosen because the main objective was
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Once these religious groups and hospitals are founded they have a comparative advantage over their profitmaximizing alternatives. Let see the reasons: They have a semi captive audience; it means that that parents may prefer to send their children to a school with a particular religious orientation. Some people may trust such schools and hospitals precisely because they are run by religious groups, not because their nonprofit legal status. Religious groups have, in the past, had access to low cost volunteer labor (such as priests and nuns) and donated capital, which allow them to undercut their secular rivals and compete with government schools. Once a school or a hospital has been founded by a religious group, it develops a reputation that may allow it to continue attracting a clientele even if it later loses its cost
.
Conclusion: The religious motive for founding
provides a powerful supply-side explanation for where nonprofits are found, why the nonprofit form is used, which services are provided by nonprofits, and how these institutions may compete effectively with a public or secular profitmaximizing alternative.
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The Theory of Government Nonprofit Relations

Essentially, the theories presented earlier have been advanced to
explain the existence of the nonprofit sector in terms of failures of the market system and of government. The nonprofit sector is thus seen as a derivative and secondary, filling in whether other systems fall short.
Trying to develop a new theory of the nonprofit sector, L. Salamon (18) argues that it is possible to turn the discussion on its head. This means to reject the view that the voluntary sector is merely a residual response to failures of government and the market and to see it instead as the preferred mechanism for providing collective goods. Government would be viewed, under this theory, as the residual institution, needed only because of certain shortcomings or failings of the voluntary sector.
The central argument for Salamons approach is that the creation of a sense of social obligation of the sort that is required to support collective action on community problems is best done on a voluntary basis and at the local or group level, where individuals can participate with their neighbors without sacrificing their freedom of choice. Government action thus becomes appropriate under this alternative theory only to correct for voluntary failures, for inherent shortcomings of the voluntary sector.
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.
But what are the voluntary failures that justify government involvement and governmental support for the voluntary sector? Broadly speaking, argues Salamon, there are four: philanthropic insufficiency, philanthropic particularism, philanthropic paternalism, and philanthropic amateurism. Philanthropic insufficiency. The central failing of the voluntary system as a provider of collective goods has been its inability to generate resources on a scale that is both adequate enough and reliable enough to cope with the human service problems of an advanced industrial society. Philanthropic insufficiency also results from the twists and turns of economic fortune. The fluctuations that have accompanied the growing complexity of economic life mean that benevolent individuals may find themselves least able to help others when those others are most in need of help, as happens in periods of economic crises. Similarly, the voluntary system often leaves serious gaps in
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.
Philanthropic particularism. Particularism refers to the tendency of voluntary organizations and their benefactors to focus on particular subgroups of the population. Voluntary organizations provide the vehicle through which subgroups ethnic, religious, neighborhood, interest, or other can come together for common purposes. But particularism also has its drawbacks as the basis for organizing a communitys response to human needs. For example, some subgroups of the community may not be adequately represented in the structure of voluntary organizations. Even voluntary organizations require resources, and it is possible that those in command of the needed resources financial, as well as organizational may not favor all segments of the community equally. As a result, serious gaps can occur in the availability of services. More generally, the private sector has long had a tendency to leave the most difficult cases to public institutions. Not only can particularism, and the favoritism that inevitably accompanies it, leave serious gaps in coverage; it can also contribute to duplication of services. Voluntary organizations and charitable activity are motivated by 77 considerations not only of social need but also of communal or individual pride.
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Philanthropic paternalism. Philanthropic paternalism refers to the fact that most of the influence over definition of community needs is in the hands of those in command of the greatest resources. This is so despite the importance of volunteer effort in this sector. Indeed, voluntarism itself requires resources of time and knowledge. But, in addition, the growing need for professional approaches to social problems has made it necessary to go beyond voluntary effort. So long as private charity is the only support for the voluntary sector, those in control of the charitable resources can determine what the sector does and whom it serves. The nature of the sector thus comes to be shaped by the preferences not of the community as a whole but of its wealthy members. As a consequence, some services favored by the wealthy such as the arts may be promoted, while
.
Philanthropic amateurism. One final problem with the voluntary sector has been its association with amateur approaches to coping with human problems. In part, this has reflected the sectors paternalism noted before: for a considerable period of time, the problems of poverty were attributed to the moral turpitude of the poor. However, these approaches lost favor; attention turned to more professional treatment modes involving trained social workers and counselors. Voluntary agencies, which stressed volunteer effort and were limited by dependence on contributions from offering adequate salaries, were in a poor position to attract professional personnel. It was partly for this reason that social welfare advocates of the late 19th century and early 20th centuries 79 opposed public support for private charitable institutions, fearing this would siphon off resources needed to build an

In short, the voluntary sector has a number of drawbacks as a
mechanism for responding to the human service needs of an advanced industrial society. It is limited in its ability to generate an adequate level of resources, it is vulnerable to particularism and the favoritism of the wealthy and it has ar times been associated with amateur, as opposed to professional forms of care. Significantly, however, the voluntary sectors weaknesses correspond well with governments strengths, and vice versa. Potentially, at least, government is in a position to generate a more reliable stream of resources, to set priorities on the basis of a democratic political process instead of the wishes of the wealthy, and to improve the quality of care by instituting quality-control standards. By the same token, however, voluntary organizations can personalize the provision of services, operate on a smaller scale than government bureaucracies, reduce the scale of public institutions needed, adjust care to the needs of clients rather than to the structure of government agencies, and permit a degree of competition among service providers. Under these circumstances, argues Salamon, neither the
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replacement of the voluntary sector by government nor the replacement of government by the voluntary sector makes as much sense as collaboration between the two.
Theories explaining the behavior of nonprofit organizations

The theories of the role of nonprofit organizations are all based on the assumption that nonprofit firms are or at least appear to their patrons to be bound by a nondistribution constraint. This constraint, however, is consistent with a variety of forms of behavior on the part of nonprofit firms. Therefore, commitment to one of these theories does not necessarily involve commitment to a particular theory of the behavior of nonprofit firms, and vice versa. Consequently, the behavioral models of nonprofit organizations developed to date have been to some degree disconnected from models of the role of such firms. Optimizing Models Following the neoclassical tradition, most models of the behavior of nonprofit firms have been optimizing models, typically focusing on firms in a particular industry. Hospitals have been the most common subject. Most commonly, nonprofit firms have been assumed to maximize the quality and/or the quantity of the service they produce. The first of these goals might seem reasonable for a nonprofit firm run by professionals who derive strong satisfaction from doing highly professional work, independent of the needs or desires of their clientele. Quantity maximization, in turn, might be attributed to managers who are empire builders or who are altruists of a type that seek to serve as broad a segment of public as possible. Models of nonprofits that seek to maximize their budgets have also been common. Presumably budget maximization might be chosen as a goal because 81 it enhances the apparent importance of (or justify a higher salary for) the firms managers or, alternatively, because it provides a combination between quality
..
Productive Inefficiency
Optimizing models of the type just presented implicitly assume that the
firms involved minimize costs. Another line of behavioral theory has argued that, whatever objectives nonprofits may pursue with respect to quantity or quality of output, they are inherently subject to productive inefficiency (that is, failure to minimize costs) owing to the absence of ownership claims to residual earnings. This argument is clearest when applied to entrepreneurial nonprofits, which constitute the great majority of financial significant nonprofits. Those who control such organizations whether the managers or the board of directors who appoint the managers are unable, by virtue of the nondistribution constraint, to appropriate for themselves the net earnings obtained by reducing costs, and thus have little pecuniary incentive to operate the organization in a manner that minimize costs. Of course, it could be that managers of some nonprofits derive substantially utility from having the firm produce large amounts of output and thus have a desire to minimize costs that is independent of the income they derive from the firm (Young, 19). And there is reason to believe that nonprofit organizations tend to attract more managers of this type than do forprofit firms. Nevertheless, nonprofit managers in general might be expected to derive some satisfaction from various perquisites of office including some forms of nonpecuniary income as well as more relaxed attitude toward their duties to a greater extent than do their counterparts in for-profit firms. However, most of the researchers argue that nonprofit firms are productively inefficient in the sense that, in the absence of subsidies or a substantial degree of market failure of some type (such as contract failure) in the product market, they 82 will generally produce any given good or service at higher costs than would a forprofit firm. If it were otherwise, we would expect to find nonprofit firms operating
.
Supply Response
Empirical work indicates strongly that nonprofit firms tend to
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respond much more slowly to increases in demand than do their for-profit counterparts. For example, in those industries populated by both nonprofit and for-profit firms, such as nursing care, hospital care, and primary and secondary education, the ratio of nonprofit to for-profit firms is much lower in markets in which demand has been expanding rapidly than in the markets in which demand has remained stable or declined. One likely explanation for this phenomenon is that, in comparison to for-profit firms, nonprofit firms are constrained in their access to capital. Unlike for-profit firms, nonprofit firms cannot raise capital by issuing equity shares; rather, they must rely on sources that, even in combination, offer a less responsive supply of capital than does the equity market. An alternative explanation for nonprofits relatively poor supply response points to problems of entrepreneurship. Owing to the nondistribution constraint, nonprofit entrepreneurs are unable to capture the full return that can be gained by establishing a new firm or expanding an old one in the face of increased demand. Consequently, their incentive to undertake such entry or expansion is limited relative to that of entrepreneurs in the for-
ORGANIZATION and MANAGEMENT in NONPROFIT SECTOR

The Mission of the Nonprofit Organization The Role of the Mission Statement Developing a Mission Statement Engaging in Risk/Survival Analysis Identifying and involving the constituency Testing for Organized Abandonment
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The Mission of the Nonprofit Organization

The Role of the Mission Statement
An essential difference between public, for-profit and nonprofit organizations centers on the concept of mission.
What do we mean when we talk about an organizations mission?
In the business world, the ultimate mission of the profit-making firm is to earn money for its owners. The concept of ownership is completely absent from a nonprofit organization and consequently the nonprofits mission has a totally different interpretation. There can be no owners in a nonprofit organization because such an entity is intended to serve a broad public or quasi-public purpose, and ownership (with concomitant private gain) is incompatible with public purpose. As a result, it is much more difficult to identify and articulate the mission of a nonprofit organization and, at the same time, to develop criteria by which success can be measured. In a for-profit organization, because the mission is clear, success criteria are also clear. The mission centers around profit-ability; thus criteria for success (and decision making) include things like return on investment, sales, profit margins, market share, and other easily calculated measures. In a nonprofit organization, where the mission centers around public service it is much more difficult to define the purposes and to find proper criteria by which to measure success.
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If the purpose of a school is to produce well-educated citizens, or if a recreation center is established to offer constructive activities to urban teenagers, what criteria should we use to measure success? There will always be quantitative
The role of the mission statement
Generally, it is admitted that mission statement should serve three functions for an organization:
Boundary functions Act to motivate both staff and donors Help in the process of evaluation of the organization
Boundary function. A mission statement describes the
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bounds of the business of the organization. The boundary function is important as a way to provide focus for all organizations, but for nonprofits it is particularly so given the ambiguity of control and criteria for success in this sector. A for-profit enterprise interested in a new project will typically make its decision by looking at the effect of that decision on profits. For nonprofits, which are often producing either collective or hard-to-evaluate goods, the profitability venture is often not the right criteria for

The nonprofit also lacks clarity in ownership.
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Given the absence of shareholders, the staff, clients, volunteers, and the board all will compete for control at one time or another. Discussions of the mission statement often form part of the battleground for these struggles for control. A clear mission statement can often limit struggle within an organization, both because it attracts people with similar ideas and because it makes clearer the basis on which decisions will be made. Thus, a clear mission statement, by resolving some of the boundary issues for the organization, can allow organizations with many competing

Motivating the staff, board, volunteers and
donors of an organization. This second role is particularly important in the nonprofit sector. Mission statements help to carry the ideology of the organization, to serve as a flag around which the organization can rally. The evaluation function refers to the possibility to state the mission in such a way as to substitutes for profits as criteria for success. Just as there are three functions served by the mission statement, there are also three constituencies the statement will affect: the staff, the donors including volunteers and the users of the service. As a boundary mechanism, the mission statement serves all three groups. It helps attract donors, focus the staff, and identify client. The motivational function of the mission operates principally on staff while the evaluation 88 function is a staff donor domain.
Developing a Mission Statement

One of the constant issues in designing a mission
statement involves just how broad one should make it. The challenge of developing a good mission statement is to create a text that is sufficiently broad to encompass the many possible activities that the organization may wish to engage in. This is crucial inasmuch as the law obligates the nonprofit organization to limit its activities to those covered by the mission statement as contained in the organizing charter. However, in addition to a broad statement of purpose, a mission statement is only valuable if it gives some specific guidance on the direction that the organization should take in regard to programs, services, and activities. 89 Nevertheless, the process of mission-setting has to take

A broad mission statement can direct an
90
organization toward new opportunities; broadly drawn boundaries are thus sometimes useful. For a nonprofit that relies on fundraisers, a more general mission statement can allow it to appeal to a range of donors as well. Overly broad statements, however, have substantial dangers, particularly around the functions of motivation and evaluation. On the other hand, the narrower the mission, the less dissension is likely to be seen among stakeholders and the easier it will be to evaluate programs. For nonprofits, with their multiple constituencies and hard-to measure products, this may be a considerable advantage.
Designing the mission statement In designing a mission statement, it is important to remember that whatever is decided on is not cast in stone. Although the filing of the statement of purpose with the organizations incorporation papers is an important step, this document can be updated and changed through a clearly articulated legal procedure. Mission statements should be reviewed and revised periodically. A regular review and revision process is itself valuable in helping to clarify the assumptions and desires of those most involved in the organization.
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Changes in the mission statement On the other hand, changes in the mission statement are necessary because either environment changes or the needs of one or more of the constituents change. In order to succeed, an organization needs a set of goals that not only embody the vision of the constituents, but make some sense in terms of realities of the economic marketplace and political and social environment. Because the mission is often a broad statement, it is necessary to be operationalized by breaking it down into achievable goals and objectives. A mission statement has to be operational, otherwise its good intentions. A mission statement has to focus on what the institution really tries to do and then do it that everybody in the organization can say: this is my contribution to the goal (Drucker, 20).
Breaking down the mission into goals and objectives argues P. Drucker solicits paying attention to three conditions: Finding out the opportunities and the needs which mean to look at strength and performance in order to produce a change or a new quality standard. Asking about the competence of people and organization to really make a difference or to really set a new a standard or, in Druckers words, One sets the standard by doing something and doing well. You create a new dimension of performance Asking about the commitment of the people to the cause the organization wants to serve. I have never 93 seen anything being done well unless people were
Engaging in Risk/Survival Analysis

Discussing about the process of mission-setting we emphasized the importance of reviewing/revising the mission whenever is necessary. This raises one of the great dilemmas for nonprofit organization. Which is more important: To ensure the continuity and the survival of the organization or to stay true to the organizations mission even if this involves certain financial and institutional risks?
T. Wolf (21) suggests considering the following cases:

A legal aid group must decide whether it will begin to charge
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clients a modest fee in order to generate much needed earned income (the mission statement talks about providing free legal aid). A symphony orchestra, organized to improve the quality of the musical life of the city, must decide whether to increase the number of pop concerts and decrease its regular subscription concerts of classical music. The programming change would assist the organization in meeting its payroll but, some say, would compromise the mission of the organization.
Engaging in Risk/Survival Analysis Each of these examples suggests a choice between: risk and compromises The original missions of the various organizations suggest one direction, prudence and good management sense suggest another. Staying true to the original mission may be risky and expensive, yet focusing only to the relative security of organizational survival may lead to a compromise in principles. The difficulty of choosing between these two tendencies becomes extreme when: organizations are under pressure, when funds are scarce, and when there is lack of agreement about basic principles
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The challenges of taking the risk in public and for-profit sector The contrast with public and profit sectors is striking. In the public sector, risk is measured in political terms and agencies generally have a clear idea of how far they can and should go. The authorization to operate comes from elected officials who set limits on what is permissible. In the profit sector, businesses are constantly faced with choices involving varying degrees of risk. But the risks are almost always measured in terms of the ultimate return of payoff. If the effect of a risky decision today is greater profitability

What means taking the risk in nonprofit organizations?
The situation for the nonprofit organization is different because the standards of value are not stated primarily in political or financial terms.
Who can decide how much it worth to perform more classical music or continue to provide free legal aid? Risk in each case will not lead to greater profitability. In fact, in most cases, risk will place greater financial burdens on the organization. Thus there is no single simple criterion on which to base a decision. It is a judgment call. On one side are the people who say the organization cannot afford to put itself in jeopardy; on the other side are the people who claim that a nonprofit organization that does not stay true to its ideals should not continue to operate.
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Engaging in Risk/Survival Analysis Meeting the challenges of risk/survival analysis There is rarely a correct place to draw the line between organizational security and a public service mission. A nonprofit organization that is responsibly governed and managed finds itself debating the question continually, issue by issue, decision by decision. This is the second major challenge for a nonprofit organization risk/survival analysis, or the search for the proper balance between organizational extension and the risk taking and organizational security. Meeting the challenge involves the willingness of the governing group:
To engage in an ongoing planning process To analyze future options from both a practical and an
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idealistic point of view
Identifying and involving the constituency

The mission of every nonprofit organization
centers on serving the public. But what precisely does that mean? The public, in the broadest sense, is everyone; yet few nonprofit organizations see themselves as offering their services to everyone. Unlike public agencies, they do not operate under any such implied or stated obligation. Therefore, every nonprofit organization must decide how broadly to define its constituency and how large or diverse a public to serve. This decision has ramifications for programs and activities, fund raising, budget planning, and size and 99 structure. It touches on questions of constituency

Differences between the profit-sector and nonprofit sector
The contrast with profit-sector makes clearer our
understanding of the special characteristic of nonprofits. In the profit-sector, an organizations public is determined by its need to sell products and services. Therefore, its public consists of those who have either a direct or indirect effect on profitability: its customers and clients, its employees, and those significant others who can either promote or limit the organizations ability to carry out its activities. Each of these constituency groups - customers and clients, employees, and significant others are important to a profitmaking entity to the extent that they can influence the business enterprise, and the primary strategy for dealing with each group is determined from a business perspective. 100

In the nonprofit world, the situation is completely
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reversed. Service to the public is not seen as a strategy; it is an end in itself. While a nonprofit organization can engage in many of the activities that were described for the profitmaking business surveying its constituency to adjust products and services, promoting harmony among employees, and even, occasionally, making contributions to other charities it does so of a conviction that these activities further the organizations service mission. Board involvement of its public at all levels of operation is absolutely necessary to achieve effective nonprofit administration.
Differences between the public and nonprofit sector

The nonprofit organization does not have the same
kind of public mandate that the government (or public) agency does. The public agency, because it is tax based in its support, theoretically must offer its services to anyone. In many cases, anyone is restricted to people or organizations meeting certain eligibility requirements. Once the eligibility criteria are set, anyone who meets those criteria can expect to be served. This is not the case with the nonprofit organization.
A nonprofit organization has the luxury of picking and
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choosing who wish to serve. But this very flexibility is also a challenge. Defining the constituency too narrowly or failing to include representatives of that constituency in the operation of a nonprofit
Constituency identification in a nonprofit organization

The third major challenge of a nonprofit organization regards the
constituency identification and involvement. A nonprofit organization must identify clearly those it intends to serve, and once it does so it must work toward an organizational structure through board, staff, and activities that reinforces its commitment to that group. The various decisions that follow the identification of an organizations constituency establish its specific image in the community, provide a clue to potential funders concerning its public commitment, and either attract or repel the people the organization wishes to serve.
For a nonprofit organization, then, defining its service to the
public involves the following components:

A well-defined understanding of an organizations constituency Involvement of this constituency at all levels of the organization, but
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particularly at board level Programs and activities that demonstrate a strong commitment to the constituency
Testing for Organized Abandonment

One of the greatest challenges for a nonprofit
organization is to determine its mission, but it is equally difficult to decide at what point the mission is no longer appropriate or there are other organizations that can achieve it more effectively. A so-called test for organized abandonment is so difficult to apply that many nonprofit organizations simply struggle year after year without ever facing up the fact that their existence is of very little consequence to anyone outside of the organization itself.
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Consider the organization whose mission
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centers on the eradication of a particular disease. What should happen to that organization when a cure for the disease is discovered, medicine made available, and the disease eliminated? At first glance, it would seem obvious that the organization should disband. But should it? It has over the years built up a loyal constituency. Might that constituency be encouraged to join the fight to eliminate another disease? Or consider the organization that has been allowed to atrophy over the years and now finds itself surrounded by a number of younger, more vital organizations that appear to be carrying out its mission more effectively. This would appear to be a clear case where the organization should disband. But again, one should not jump quickly to conclusions. By whose standards is

The concept or organized abandonment is central
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to understanding of nonprofit organization and illustrates one of the principal difficulties in responsible governance and management. Organized abandonment refers to the planned phasing out of an organizations operation. The word organized is used to characterize a kind of disbanding that is the result of careful deliberation rather than of unwelcome and unexpected financial reversals, management upheaval, or other external or internal crises. One of the major problems in the nonprofit world is that the test for organized abandonment is difficult to apply because the criteria by which judgments are

The contrast with the profit and public sectors In the profit sector, when an organization loses money for any length of time and the future does not promise a turnaround, it is usually a signal that something must change. Investors move in to cut their losses and organization may be sold, disbanded or reorganized. There are two essential differences in the nonprofit sector:
The first is that it is not an obvious criterion by which things
should change because there is not a single, objective criterion by which to measure success or failure. Second, there is no predictable outside pressure to reorganize or disband. There is no voting group moving quickly to protect its investments and the governing group and staff can continue operating for years without a real sense of purpose or standard of excellence.
In the public sector, there is a clear difference in knowing
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when to cease operations. For a government agency, publicly elected individuals review the agencys achievements and plans, usually on an annual basis. Periodically, the agency may be further subject to some form of sunset review that requires a formal justification of its
Given the problems just mentioned, the challenge of testing for organized abandonment requires that the organization:
Has defined its mission clearly Has established success criteria by which can evaluate the
relevance and effectiveness of its mission Has set up a formal system by which it can determine whether the mission is still relevant and whether it is carrying out the mission effectively.
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CONCLUSION: Nonprofit organizations are privatesector organizations with public purposes. This combination gives them great flexibility in their operation. Although this flexibility offers opportunities yet poses certain dangers. Most particularly, it can cause ambiguity and uncertainty in the area of mission, constituencies, and activities. A nonprofit organization must address these dangers by:
o Articulating its mission clearly o Engage in an ongoing planning with an eye toward careful considerations of the risks and benefits of every proposed course of action and the relation of these actions to organizations mission o Identifying its constituency and involving representatives of that constituency in all phases of the organizations operation o Testing for organized abandonment in order to ensure that the organization remains needed and wanted. o These challenges, when properly met, provide a basic framework for responsible governance and management in nonprofit organizations.
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The Distinctive Character of Management in Nonprofit Organizations

Distinctive organizational problems
Stereotypes regarding the differences between the public and the
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voluntary sector: the state system is seen as bureaucratic, inflexible, costly, and insensitive to the needs of clients the voluntary sector is generally considered as non-bureaucratic, flexible, more cost-effective and close and sensitive to needs. In fact, it was demonstrated that the flexibility, the lower degree of formalization or the informality of relations are characteristics not necessarily related to the distinctness of nonprofits entities but rather with their small size. This means that the very smallness of most voluntary agencies permits the well-known flexibility of response to need. Once the voluntary agencies become larger it seems that problems of organizational goals, growth, and governing structures are even more severe for voluntary than public management. At the same time, the growing similarity between the public and nonprofit agencies determined some analysts to define the last ones as neo-bureaucracies or ambiguous organizations (Billis, 22).
A theory of voluntary organization and its implication for the internal management of voluntary agencies
Essentially, there are two assumptions advanced by Billis in
order to understand the voluntary sector. First, argues the author, is necessary to distinguish three different worlds (scenes of human existence), each with its own rules of games. These three worlds are: The personal; The associational; The bureaucratic which is further divided into the governmental and profit-seeking bureaucracies. Secondly, and crucially, it is suggested that all three worlds (and their subdivisions) overlap, and that overlapping areas form ambiguous zones. It is also argued that all three worlds are unambiguous worlds that have reasonably clear terms of reference, or what may be called rules of games. This means that the inter-relationships in these worlds are relative stable, and are underpinned by theories and explanations that are either well understood and accepted, or can, when necessary, be made explicit.
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The personal world

What might be called the personal world is the most familiar of
the unambiguous worlds. In the personal world social problems are resolved by relatives, friends, neighbors, on a private basis. It is not usually found necessary or appropriate to establish contractual arrangements between the parties for the resolution of social problems. The special character of these relationships is that they are inexplicit. The problem-solver is not given a special title or status by virtue of the efforts made. Problems are responded to without recourse to categorizing either those who have the problem or those who respond. It is seen as natural, perhaps as part of being a good parent, or later on in life as part of being a good child in relation to an elderly parent. Or, it is seen as being a good neighbor, friend, colleague, etc. The real bonds between the two sides (the problem holder and the solver) are those which are based solely on individual qualities such as loyalty, affection, love, humanity.
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The world of voluntary associations

The formal world of voluntary associations may be defined as
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comprising groups of people who draw a boundary between themselves and others in order to meet some problem, to do something. The literature usually refers to this as having an objective or purpose. The concept of membership is important without the boundary cannot be maintained. The association will need a name; outsiders crossing the boundary will need to adhere to the purposes of the association and be members of that named group. Even the smallest formal association if it wants to do anything significant will find it necessary to act as, or create, some form of governing body. The governing body need not be distinguished from the members, and within this definition of association will be included small groups, such as trustees, who function primarily as governing bodies and who would not necessarily regard themselves as an association of members. The association may rapidly face the need to establish a legal identity since by differentiating itself from the external environment it must if it wishes to negotiate with the environment, and at the very least exclude non-members give itself a name. Thus, if it becomes necessary to open a bank account, write letters to others, and in general negotiate as a corporate entity, the group moves out of the personal world and become an association. The rules of the games in the world of voluntary associations are based on concepts such as voting and elections.
The bureaucratic world

Within this context, bureaucracy is defined as a system of paid staff
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that is organized into hierarchical roles. Until now the concern was only with unambiguous bureaucracies. However, the bureaucracies can be divided into two categories: governmental bureaucracies and business bureaucracies. Both government and business share the fundamental characteristics of bureaucracies the differentiation into statuses, such as directors, staff, customers/clients, etc. However, they have very different roots. The root system or source of strength of an organization refers to: the legitimizing philosophy or theory and the base of resources. From this point of view it is important differentiate between the two types of bureaucracies: Governmental bureaucracies draw their strength from the legitimizing philosophy or theory of representative democracy and their resource base from the right to raise money from their particular territory. Business bureaucracies, or the commercial sector, have a similarly straightforward integrated combination of legitimizing theory and resource base. The legitimizing philosophy is to be found in the theory of the market which submits that the efficient firms will survive and gather profits. These profits in turn provide the sources for staff to be employed to undertake the work of the corporation.
Ambiguity
It was suggested that there is a large area of voluntary sector
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activity that falls between the three unambiguous worlds described above. In order to understand the characteristics of these ambiguous zones is necessary to comment on the concept of ambiguity. The anthropologist Edmund Leach (23) suggests that when we distinguish one class of things from another, let us say category A from non-A, there is always uncertainty about the edge of A turns into the edge of non-A. Consequently, an ambiguous area refers to this uncertainty regarding the edge where category A turns into category non-A. We can now combine Leachs definition of ambiguity, and the distinction between the bureaucratic, associational and personal worlds (Fig.1.) It is still assumed that the bureaucratic world is homogeneous. From this it can be observed that there are now two ambigous areas between the unambigous worlds. One of this will be called the area of unorganized groups (UG). The other section, falling between the associational and bureaucratic worlds, is a large area of voluntary sector activity. This is the territory of the ambiguous voluntary agencies (AVA). We shall describe the general features of both these areas.
Ambiguity
Fig. 1. The bureaucratic, associational and
personal worlds
Bureaucrati c Association al
Personal 1
1 - UG Unorganized groups 2 AVA Ambiguous voluntary agencies

Source: David Billis, Organizing Public and Volunary Agencies, 1993
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Unorganized groups
These groups represent the first step from the personal to
the associational world. They may be differentiated from the latter by the fact that
they do not have a constitution, or legal identity. people just come together on an informal basis to resolve their
own or others social problems. If any significant activity is to be undertaken, they will find necessary to move across the boundary into the world of formal associations.
Unorganized groups are part of the world of associations
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because they are trying to achieve some objective, to resolve some social problem. But they find themselves with multiple roles going from their occupation of the ambiguous area between the personal world of friends, neighbors, etc. and their membership of the group which has purposes (as an association) above and beyond being an individual good neighbor, etc. Although unorganized groups probably play a major role in social welfare in its broadest sense, their lack of stable structures makes them unlikely candidates for the substantial resolution of severe social problems.
Ambiguous voluntary agencies (AVA)

AVA occupies that territory that falls between the
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bureaucratic and assocational worlds. An association may or may not employ paid staff to carry out its work. Those that do not employ paid staff are considered pure or unambiguous associations. However, in certain circumstances, even if an association does employ paid staff it may still be considered anambiguous. This arises where the paid staff only help the unpaid membership who undertake the real operational activities (those activities for which the association was set up). In this instance the paid staff in a supporting role and undertake nonoperational activities. We might think of such groups with paid supporting staff as standing at the door of the bureaucratic world. Thus, small local groups that employ part-time secretarial help might still be classified as unambiguous associations.
Ambiguous voluntary agencies (AVA)
If an association decides to move to a further stage
and employ paid staff to carry out the operational work, then it may be described as entering bureaucratic territory and having become an agency or nonprofit. Thus the argument so far suggests that:
If groups decide to move from unorganized to
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bureaucratic forms, then this is accompanied by increased differentiation of roles or statuses, as categories such as member, committee member, volunteer, staff, director, and so on, emerge; The dominant characteristics of voluntary agencies are the ambiguity of many of these statuses, and the consequent tension between the formal characteristics of the bureaucratic world and the more informal characteristic of the associational and personal world.
The three zones of ambiguous voluntary agencies

The bureaucratic world can be further divided into governmental
and profit-seeking or business, sub-worlds. This appears to reflect organizational reality in that there is once again an ambiguous zone between the government and profit-seeking agencies. Combining the first division (of the three worlds) with the second one (reflecting the two bureaucratic sub-worlds) produces three other ambiguous zones of voluntary agency activity: GA Government-oriented associations PA Profit oriented associations EA Entrepreneurial associations To analyze the characteristics of the new three ambiguous zones occupied by the voluntary agencies it is important to refer again to the roots of voluntary agencies. The roots were defined as the twin philosophical and resource sources of agencies. That is to say that the analysis of organizational roots requires both an exploration of the inspirational sources upon which agency policies are developed, and the exploration of the critical resource foundations of agency survival.
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Government-oriented associations
The most illustrative examples of occupants of this zone
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are agencies where both the resource and philosophical aspects of roots look toward government. Thus government represents the prime source of revenue, and staff and governing body regard government as appropriate funder. Governmental support would be seen as appropriate because the social problems that the voluntary agency was tackling were those that the agency believed should be the responsibility of government. Many GAs, especially those which in practices owe their establishment to governmental sources, may have only artificial (inspirational) roots. The absence of a philosophy stemming from deep associational roots means that their strength and survival is highly dependent on the degree to which their bureaucratic philosophy matches that of the
Profit-oriented associations
The basic characteristics of organizations in this zone
(PA) are that their inspirational roots come from associations where mutual self-interest of the members/staff is expressed through the market philosophy. Through its occupancy of the profit-seeking bureaucratic world, the voluntary agencies in this zone are primarily dependent on fees. However, unlike the position in the governmentaloriented agencies, these are genuine fees, nor indirect payments from government. That is to say that the clients of such agencies are in the main just as likely to choose a firm from the pure profit-seeking world.
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Entrepreneurial associations
Since these agencies stand at the centre of a number
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of different worlds and sub-worlds, it is suggested that they are more genuinely thought of as entrepreneurial. In the first place they are clearly in the world of associations. Then they are in the bureaucratic world (since they have paid staff delivering operational activities). At the same time they are in both the government and profit-seeking worlds. The EA often has strong roots with sometimes a strong associational base, and is resourced from the association by means of membership fees, donations, legacies, endowments. Those EAs that have genuine and strong associational roots can be real entrepreneurs, exploiting changing government policy or charging fees for services. This is perhaps the most interesting of the three ambiguous bureaucratic areas. It gives diversity of resources and, providing there is, among other factors, a talented leadership, continuous possibilities for new initiatives.
Voluntary agencies and the management of ambiguity

IMPLICATIONS OF THE THEORY
The first, and most obvious, implication of the theory just presented is
that an explanation is provided for the genuine management complexity of voluntary agencies. The management of such agencies, which operate in the ambiguous territory between the formal bureaucracies and the associations, can be regarded as more complex than governmental or business management.
The management of ambiguity thus requires an understanding of the
ground rules of both worlds. Elected leaders and paid staff must appreciate that bureaucratic organization means paying attention to issues of managerial authority and accountability, levels of decision making, career progression, staff development, conditions of service, explicit policy making, and all other essential characteristics of modern bureaucracies. At the same time agencies must absorb the essential concepts of the association: membership, mission, informality and democracy.
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Ambiguity can manifest itself in many ways, for example, in the tension between: (informal) charismatic leadership versus the pull to authority-based roles; (informal) unlimited commitment (the expectation that paid staff should work 24 hours a day) versus (formal) negotiated conditions of service; volunteers (be they members of the governing body or service deliverers) versus paid staff; the desire for collective, co-operative or democratic forms and styles of organization, versus standard bureaucratic forms.
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The concept of ambiguity helps to explain
why relations between management committee and paid staff are such
a familiar problem for many agencies. This is the front line where bureaucracy meets association.
The introduction of paid staff that is expected to undertake operational
work represents the move into bureaucratic territory. These staff may or may not share the sense of mission to the same degree as the committee who may still be doing part of the operational work. Or vice versa! The paid staff may be the genuine roots of the agency, representing in reality the only membership, and performing not only the operational work but also in effect undertaking the core survival and legitimating work of the committee, and acting as de facto guardians of the future of the agency. In this instance it is the paid staff who really appoints the committee.
It is not surprising therefore that committee staff relationships are
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often so tricky. At any given time both sides will need to share the same associational and bureaucratic values. That is to say they must both share the same sense of mission which is in itself a considerable challenge; they must also share a similar view of the degree of bureaucratization that is needed. Should the agency, for example, take
The major implications of the theory just
described are at the level of individual organization. Analysis of the root system and its interaction with the governing body can allow agencies to review the balance of the various elements. It can help them to understand the consequences of decisions which can be taken blindly in rapid response to internal and external forces. Voluntary organizations can choose whether they wish to enter the alternative bureaucratic zones.
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Nonprofit Board of Directors

The responsibilities and duties of the board
Essentially, the board of directors (sometimes called the board of
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trustees or board of governors) of a nonprofit organization is composed of a group of people deeply committed to the institutions mission, acting like guardians of the public trust and ensuring that the nonprofit operates in the public interest. It represents the ultimate authority in nonprofit organizations. The members are responsible for the success or failure of the nonprofits vision, mission, and strategies. They govern the nonprofit directly through their decisions and indirectly through their advisory efforts. (24) Generally, it is admitted that boards of directors, more than any other aspect of nonprofit organizations, embody and represent community interest. Formally, this is the case because the board members are volunteers a status that implies their commitment to fight the problems of the community by giving unremunerated time an effort to the organization. In this context it is obvious that trusteeship is an activity that requires knowledge, commitment and time. It is not simply an honor. Or, in Druckers words, membership on the board is not power, it is responsibility. (25)
What does and do not include the duties of the trustee

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Principal areas of responsibility: Define and reevaluate the mission of organization and set policies for its operation Develop the organizations overall program from year to year and engage in longer planning to establish its general course for the future Establish fiscal policy (approve budgets and take care of fiscal controls) Provide adequate resources for the activity of the organization through direct financial contributions and a commitment to fund raising Select, evaluate and, if necessary, terminate the appointment of the chief executive. Develop and maintain a communication link to the community, promoting the work of organization Important as it is to understand what the duties of trustees include, it is equally important to understand what they do not include. Trustees should not: Engage in the day to-day operation of the organization Hire staff other than chief executive Make detailed programmatic decisions without consulting staff
The skills and areas of knowledge that a board must collectively posses:
Organizational planning Financial accounting Fund raising (including business/corporate, individual, public agency,
and foundation Personnel management Public relations Various trustees should also be familiar with the programs and activities that the organization sponsors, and all trustees should support the organizations mission. They should represent a variety of backgrounds as well as various segments of the community, including different minority and ethnic groups that will give the board a broad vision and understanding of the true meaning of community and public service. In addition, specific nonprofits may require trustees with other types of expertise and representation. The purpose of having trustees with specific expertise is to provide a monitoring capability for the board. Such trustee expertise helps the board in formulating policy, reacting at staff recommendations, and choosing alternative course of action.
Given all these requirements regarding the necessity of true involvement and high expertise of the trustee, it is important to analyze the way by which the board is structured.
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Board composition
Some of the most important aspects and problems raised in forming a nonprofit board: the distinctive character of nonprofit board as compared with for-profit boards; limiting term of office (trustee rotation) attendance; recruitment; evaluation and dismissal; structured board involvement; liabilities of board members.
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Nonprofit versus for-profit board composition There are a number of characteristics that distinguish the nonprofit boards from their for-profit counterparts. One important aspect refers to their average size. Nonprofit boards are mach larger than is typical for the board of a for-profit corporation. The corporate board averages ten to fifteen members; the nonprofit board generally consists of thirty to fifty members. The composition of the nonprofit board also differs from that of the for-profit in several ways. Nonprofit boards typically consist entirely of outsiders, nonemployees of the organization. The forprofit board generally combines insiders and outsiders. For-profit boards are also typically composed of people who have professional expertise in the area of business of the firm. The nonprofit boards usually consist of people who have specific knowledge about major elements and activities of the nonprofit organization. Nonprofit boards typically include representatives from the public sector, other nonprofits, and community representatives, as well as more typical lawyers and business people. Conclusion: Nonprofits boards are larger, with fewer insiders and more involved in operations than for-profit boards.
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Limiting term of office (trustee rotation)

Generally, it is admitted that no trustee is going to serve the
organization indefinitely. Limits should be placed on terms of office and on number of times a trustee can be reelected. When boards have fixed terms with mandatory term limits, new members are typically added each year. Although the exact duration of the term limits varies from one organization to another, one system that seems to work well is to have a three year-term with one opportunity for reelection. After three years, a trustee may come back on again; after six, he or she must go off the board for at least one year before being invited to serve again. Trustee rotation offers a process for replacing weak members with enthusiastic and committed trustees. Because continuity on the board is important, though, it is desirable to stagger the terms of trustee so that only one-third of the board members should be reaching the end of their terms in any one year. Without term limits and mandatory rotation, the board can become stagnant, lacking new directions and with no desire to make needed changes.
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Attendance
Nothing undermines the effectiveness of a board
more than absence from meetings. Participation by everyone is necessary if the board is going to operate effectively. Thus it should be a stated policy of the organization that attendance at boards meeting is required. Beyond this, the board might adopt a policy that two unexcused absences in a year constitute an automatic resignation. If a trustee has a legitimate problem, such as an illness, the president can excuse that trustee from a meeting. However, without such a legitimate excuse (and without approval of the president), the policy should be clear that the trustee is expected to be at all boards meetings.
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Recruitment
Board members are typically elected for a fixed term. Even some of the trustees are denominated to the board for second or subsequent terms, people leave and must be replaced. At this point, board recruitment becomes a crucial activity in the survival of the board and the organization. Board recruitment involves identifying, evaluating, and soliciting potential board members. Some boards particularly those for new or low-prestige nonprofits must be opportunistic. That is, they cannot be too selective and need to get the best board members they can attract. More established or prestigious boards can be more selective. In either case, the executive director and the nominating committee need to be clear in what they are looking for in a prospective board member. Do they want a name to enhance the prestige of the board? Are they looking for someone who will bring money or in-kind resources for the board? Are they looking for someone with specific technical or leadership talents? The nonprofit needs to know what specific needs are most important. The smaller, less prestigious the board, the more likely that the nonprofit will need every type of board members. At the same time, a prestigious board is likely to have fewer needs and those needs are easier to fulfill. Other proactive recruiting approaches might include contacting the community relations or public relations departments of major organizations in community. Large corporations, government agencies, universities, religious and other organizations often have a pool of potential leaders who may be interested in active community involvement with a nonprofit.
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Another source of potential leaders is among other volunteer organizations.
Evaluation and dismissal
Some organizations have a formal review period at the end of
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each year at which time trustees evaluate one anothers performance. It is usually the president who determines the evaluation process. Among the options available are informal discussions with each trustee or anonymous written statements. Whatever the process, the objective is the same: to identify ineffective trustees. If the president discovers that a trustee consistently receives poor evaluations from fellow board members, he is supposed to take action. Dismissal, through a majority vote of the board or some other procedure, is an action that should only be taken in the case of gross misconduct. However, other more moderate methods may lead to the same outcome. For example, a strong president can often counsel a trustee to resign by suggesting that he or she seems to have lost interest. It should be remembered that a good rotation policy through limited terms of office often makes the issue of trustee dismissal and forced resignation simpler. On self-perpetuating boards, where terms are not fixed, evaluation, dismissal, and resignation become more critical.
Structured board involvement (Committees)

When a nonprofit organization reaches a certain size and its
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operation becomes more complex, the board usually finds that is difficult to carry out all its responsibilities efficiently without dividing up into smaller groups. These groups, or committees, allow for a detailed analysis of specific areas such as fund raising, planning, budgeting, or programs, before they are discussed by the full board. A committee structure offers several advantages: First, it allows for a division of the workload. Second, promotes a more informal discussion of the pros and cons of various issues before they come to the board for a formal resolution. Third, it allows an organization to bring experts into the deliberation process without putting them on the board. For example, a fund-raising committee might include representatives from the business community willing to help on an occasional basis but does not have time or the inclination to be a trustee. In general, a committee should be chaired by a trustee and the majority of committee members should be board members, but outside resource people and staff members can and should be included because they are often an asset. The following
Executive.
This committee is generally empowered to act for the
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full board in matters that require immediate action or do not involve major questions of policy or funding. The executive director will often use the executive committee as a troubleshooting group, bringing to it problems needing rapid resolution. Generally the corporations officers serve on this committee along with a few other members of the board, some of whom may be chairs of other committees. The executive committee should be small enough to function effectively (seven or eight members is common) and it should be made up of individuals who do not live or work so far away from the organizations home base that they are unable to come to meetings on short notice.

Finance. This committee is usually headed by the
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treasurer. It is empowered to study and make recommendations regarding all financial procedures and controls, assist in the preparation and presentation of budgets, and review all financial statements. Development. This committee, sometimes called the fund-raising committee, oversees the planning and coordination of fund-raising efforts. This will certainly include planning for fund-raising events and for capital campaigns, although these are sometimes handled by separate committees in larger organizations. Nominating. This committee identifies, screens, and recommends prospective trustees. Members of this committee can also assist in the recruitment and
Planning. This committee coordinates long-range planning.

Marketing/public relations. Many nonprofit organizations have not
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developed a well-conceived approach to marketing or public relations and find themselves relatively unknown in the community. For those organizations and for others that sell a service or a product, it may be important to have a committee that can develop a marketing strategy and plan and oversee a public relations approach. On such a committee, it is often useful to have someone from media or from a public relations firm. Program. This committee is organized to review the program activities of the organization and plan for the future. This committee has to work very closely with the staff. Personnel. This committee develops personnel policies, recommends salary ranges to the board, may evaluate the executive director and recommend a specific salary level for that individual, and reviews benefit packages. Investment. For organizations that own significant assets that require investment (such as endowment funds), a special committee oversees the management of these funds. This may involve the evaluation of investment managers (with the subsequent recommendation to the full board about which managers to retain), or it may involve investment decisions by the committee itself. Few organizations will have all these committees, and some organizations will have committees not listed here. Committees should only be formed if and when there is a real need for them. With board members serving on committees, the structure keeps the board
Liabilities of board members

Accountability is an important concept in trusteeship and many board
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members ask, quite properly, whether they are legally liable for their actions and whether the corporation should carry liability insurance for itself and for trustee individually. This issue is of particular concern to individual board members who worry that their own financial assets might be at risk in cases where there was proven negligence on their part. Although the subject of board liabilities is complex, varying from a country to another, some generalizations can be made, however, to give general guidance in this area: In general, trustees cannot be held liable for business judgments or financial decisions if they are informed, show no conflict of interest and do not appear highly irrational. Nevertheless, if trustees never attend meetings, if they approve major decisions involving the corporations funds without soliciting any background financial information, or if they engage in any illegal financial activity, they can be held liable. Trustees are liable when conflict of interest is involved especially where a trustees personal financial interest is put ahead of that of the corporation. Using corporate property for personal purposes, taking advantage of a financial opportunity at the expense of the corporation is generally not permitted by law. The trustees are liable for making sure that the corporation is carrying out its mission. Donors, in particular, should be able to expect that their funds are used for the purposes for which the organization is
Functions of the nonprofit board

Most discussions of the nonprofit board identify two major functions of the board:
internal and external functions

This perspective of analyzing the boards emphasizes that boards are part of both the organization and Boundary spanning . (26) its environment
activities critic resources are with Environment means all external elements that interfereto be the organization as a whole, its subunits, or its found outside members. These elements
include other organizations, as well as unorganized groups, such as donors and beneficiaries. Boards of directors are part of the external environment in the sense that their members are drawn from and often have primary affiliation to other groups in the community. Thus, the boards have an important role in regulating exchanges of information and resources across boundaries. At the same time, boards of directors are part of the organization because they are responsible in the broadest sense for its well being and for ensuring that it fulfills its stated purpose.
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(a) The internal functions of the board

Mission statement and objective-setting Whats the organizational profile? The organizational identity is built on the mission statement Strategic decision and long-term planning Which are the main coordinates that are expected to ensure mission accomplishment? How the organizational structure must be designed as to be efficient? Organizational policies concerning funding, personnel, public relations
(1) How the resources shouldthe stated purpose Ensuring the fulfillment of be allocated? Which is the philosophy? (2) What type of Human resourcefunctionsinterested in attracting? How Ensuring that the organization are you properly and well adapted to the environment do that? are you going to requirements
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Which is the strategy of interacting with your organizations different
Theory of homophily
If A&B are similar AND A&C are similar, THAN there are great chances for B&C to be similar
Theory of strong ties (balance theory)

If A&B are friends AND A&C are friends, if meet, there are great chances for B&C to be at least acquaintances if not also friends In terms of social-status (professional, economic, social traits). Some e.g.? A friend of a friend is my friend
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Transitivity leads to homogeneity & low levels of opinion diversity
Nonprofit board composition

Many nonprofit boards have a reduced diversity of many nonprofit boards regarding the background of the members (from the point of view of racial, gender, socioeconomic and professional differences) - even though trustees represent a variety of professions and organizations. Incidentally, the similarity of their social group identities may produce homogeneity of outlook. Strong ties among board members will increase this similarity even further. One reason for this seems to be owing to the selection process, which means that the selection process of many boards appears to facilitate homogeneity in board composition. It is usually argued that boards use both explicit criteria and interpersonal networking in the recruitment and selection of board members.
Why the reduced diversity?
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Recruitment tools Explicit criteria for board candidates may include such items as (a) familiarity with the organizational activity, (b) amount of time available for board work, and, an important point, (c) the kinds of resources to which candidates have access. Implicit criteria (tangible attributes of board members), such as their (a) values and attitudes concerning the organizations work or (b) the prestige they will bring to the board. This means that interpersonal networks act as screening devices these less publicly acknowledged qualities. Candidates known to other board
Major effects of homophily and balance theories

This process has been described as a self-perpetuating system whereby boards select only those who fit in and rid themselves of those who are seen as radical or deviant.
Same social-status Same prestige Same ideas Same philosophies WE LIKE A FAMILIAR AND COMFY ENVIRONMENT
intangible qualities (implicit criteria is of maximum importance) while the organizational needs are neglected (see the explicit criteria) strong ties are the vehicles for selfperpetuating systems similarity and homophily are the major triggering mechanisms
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SIMILARITY & HOMOGENEITY OF BOARDS IN TERMS OF STATUS&SOCIO-DEMOGRAPHIC The structure of the board that is, its officer positions and committees also TRAITS influences the degree to which diverse opinions are expressed. Some boards develop a hierarchy of committees with high-status members on the influential IF HIGH, VARIABILITY OF DECISION IS LOW + THE executive, fund raising, and nominations committees and low-status members PROBABILITY OF INFORMAL DECISION MAKING on the less prestigious program and personnel committees. This kind of PROCESS IS HIGH + THE PROBABILITY OF distribution may reduce opportunities for lower-status members to express IS TAKING THE DECISIONS OUTSIDE THE org opinions and be heard. (WHATS THE VARIABILITY OF THE EXPRESSED HIGH OPINIONS?) IF LOW, VARIABILITY OF DECISION IS HIGH+ Many boards may not have a well-developed formal structure or they may not THE PROBABILITY OF FORMAL DECISION MAKING use it in actual decision making. Instead an informal arrangement may exist PROCESS IS HIGH + THE PROBABILITY OF whereby subgroups or individual members interact outside of meetings to TAKING THE one other often through social or discuss board business. Members who seeDECISIONS INSIDE THE org IS HIGH business ties may be more likely to be involved in this informal decision making than those who are connected only through the formal process of board meetings. (THE FORMALITY OF THE DECISION-MAKING PROCESS) The result is the narrowing the range of information and resources brought to bear on board issues while increasing the strength of the ties among certain members.
The structure of the board, then, may both reflect existing patterns of board
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member relationships and provide opportunities to strengthen those relationships. It is obvious that when the ties among board members become exclusionary and reduce opportunities for others to become involved in board activities, the board will function less efficiently. (THE PLACE WHERE
The style of decision making

The structure of the board may also influence the style of decision making. In this sense, consensus-style decision making is used as a protective device to maintain the power of the more influential members over the less influential. It is not surprising, then, that nonprofit boards are often described as conflict-averse they seek to avoid anything controversial. Conflict or controversy may call into question the legitimacy of existing power relationships and decision process and may alter the pattern of relationships among members. Some kinds of controversial issues may also threaten relationships that are external to the board; members who belong to a number of other organizations may wish to avoid decisions that conflict with those interests. Not all nonprofits boards are conflict-averse, however. The degree of conflict that surfaces seems to be related to the diversity of membership and specifically to the degree of constituent participation on the board. Some studies showed up that the boards composed by different groups of interests frequently disagree over goals and organizational policies; the result is a bargaining style of decision making and these kinds of 148 boards are usually described as noisy boards.
Conflict-averse boards may be composed of trustees who are relatively homogeneous, and this similarity reinforces strong ties among members. As these relationships strengthen, there is an increased desire to avoid controversial issues that might disrupt them. This may be especially true if board member ties extend beyond the organization. The ultimate result is that as board member ties become increasingly strong, the board will become closed off to crucial elements in a changing environment. Noisy boards, on the other hand, have relatively weak ties among members, resulting in part from the diversity of social group memberships. Extremely weak ties among trustees may result in a board that has no coherent sense of identity separate from the staff. Lacking a sense of direction and purpose, the board may become too faction-ridden to make decisions crucial to organizational functioning and may contribute to an organizations lack of a sense of boundaries.
A board that avoids conflict may also avoid challenging managerial competence. The manager then remains relatively
safe in his or her position and domain of influence. However, this kind of board may not be prepared to deal with important issues facing the organization, and executive management may feel a lack of board support at critical points.
A noisy board may present management with more points of view from which to resolve issues. The process
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may become political, however, as various factions fight for control. In this case, it is doubtful that management stands to gain much from diversity of opinions. Diversity means lots of solutions for executives
Board-management relationships
The professional literature does not devote much attention to the relationship between the board and top management of nonprofits, but it does recognize the delicate balance that must exist between their roles and responsibilities. The literature describes several factors that influence the balance: The board
The board hires, fires and supervise the executive; thus the executive
is a subordinate of the board; The board is responsible for making final policy decisions and should not become However
The executive
The executive often has the important information and serves as an
educator of the board. As implementers of policy, executives may in fact be the functional authority.
Much of the writing suggests that the relationship is a partnership, one 150 that depends on mutual trust; it should be harmonious, and it fails if communication about roles and responsibilities is ineffective.
Factors influencing the board-management relationship
Much of the writing suggests that the relationship is a
partnership, one that depends on mutual trust; it should be harmonious, and it fails if communication about roles and responsibilities is ineffective. In contrast with the description in the literature, the board-management relationship is a dynamic interaction; to state that is a partnership implies a resolution of the tension rather than a complex shifting of power.
CONFLICTS PARTNERSHIP (COOPERATION)
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Factors influencing the board-management relationship

The socioeconomic status differences between management and board members affect the likelihood of executive domination of the board. Board members are frequently recruited from the business and professional elites, whereas the executive is usually a middle-class member with rather a professional status. As a result, the executive may develop feeling of Fragile balance relationship impotence. Under these conditions, overt executive domination of the board is unlikely. In the case of smaller nonprofits, however, they rarely attract trustees with ample time to spare. Thus, these volunteers rely on the executive for the flow of information and evaluation of organizational goals, making executive dominance more likely. #1 Board dominates
Closely linked to socioeconomic status is the degree to which the executive is recognized by the board as being a professional. The more frequently noted pattern is one in which the executive has professional status and the board is composed of people who either are not professionals or are from professions different from that of executive. Given the importance of professional status, the executive may not trust the board members ability to make decisions regarding organizational goals, policies, or programs. #2 Balance Informal social relations between board members and the executive, length of history with the organization, and type of issue presented may reduce the 152 effects of these differences. #3 Balance
Controlling information streams The executive may divert the board away from
Functions of the nonprofit board a) Internal functions

Homogeneity vs heterogeneity Self-perpetuating boards Decision making style Types of nonprofit boards based on their composition Board-top management relation and its influencing factors
b) External functions
Boards and the organizations environment (linkages of the board members) Theories explaining nonprofit success
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The external functions of the board
They develop exchange relationships with external parties to ensure the flow of resources into and out of the organization. They process information gained from these exchanges to make internal organizational adjustments necessary to meet environmental demands. They buffer the organization from the environment and thus protect it from external interference. They reduce environmental constraints by influencing external conditions to the organizations advantage.
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Board and the organizations environment

Extf = Ensuring access to the critical resources placed outside the organization Incidentally the composition of the board must reflect the profile of your critical resources
E.g. a social service nonprofit may place on its board an active member of the local chamber of commerce, who it is hoped will link the organization to the business community. The interorganizational linkage, then, creates a channel for information and resources to flow between enterprises.
It follows that Nonprofits access critical resources via board members organizational linkages this is a way of decreasing the uncertainty of the organizational external environment
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Board and the organizations environment

Some theoretic thoughts explaining the rate of organizational success Resource-dependence theory: organizational survival depends on managing the relationship with the external environment (Pfeffer & Salancik empirical research) Organizations with high-status boards maintained higher funding levels than those nonprofits whose trustees were less influential
Social capital theories explaining organizational success (1) Colemans social capital: the higher the density of your organizational connections, the higher the probability of accessing several types of resources. (2) Burts structural holes: the higher the number of distinct links of your organizations (you must be connected to organizations that are not connected each other), the higher the probability of accessing novel information on the available resources
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Boards and the organizations environment (linkages of the board members) Theories explaining nonprofit success Functions of the executive leadership a) Internal functions Controlling internal operations: acting as a manager of people b) External functions Daily managing organizations external relations: acting as an entrepreneur
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Functions of the executive leadership in nonprofits
The chief executive of a nonprofit organization is often the most important person in determining: (1) effectiveness and the morale of the staff (personnel) (2) establishing the quality of the work environment and projecting the organizations image in the community (q of working processes & image) The chief executive of a nonprofit is responsible for: (1) Daily managing the relationships between the organization and its social, economic, and political environment (2) Controlling of the organizations internal operations. Internal & external functions
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Functions of the Executive

Externally Managing on a daily basis the relationships with: trustees or stockholders, customers or clients, and funders or investors Anticipation problems produced by environmental change Exploiting new opportunities within the environment
Acting as entrepreneurs Based on his/her external functions, chief executive must initiate and develop new programs and resources establish the circumstances under which an organization survives via its produced services
Internally
Resources allocation Work force (personnel) decisions (recruitment, promotions, incentives + & -, transfers, dismissals) Performance assessment of organizational departments Implement plans & policies Manage internal crisis Acting as manager of people Responsible for people performance levels
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Acting as an entrepreneur
Entrepreneurship profit-org origin Schumpeter (27) the entrepreneur is the actor that brings about new goods and services by new combinations of resources OR innovative ways of providing the resources under conditions of risk & constraints
Decreases nonprofits vulnerability under the context of: Environmental change Environmental turbulence, hostility, uncertainty, low rate of predictability Resource scarcity Way of ensuring orgs survival
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Risks and Constrains among the 3 sectors
Acting like an entrepreneur, the chief executive is a risk-taker

Financial risks are higher within nonprofits than within profits (what about publics?)
Nonprofits are more vulnerable
Professional and reputation risks are higher within nonprofits than within profits (what about publics?)
Nonprofits are more vulnerable
How would U comment on that?

Thinking in terms of survival and resource access
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Acting as a manager of people HR specific character within nonprofits Paid & volunteer staff Majority of the goods and services is difficult to produce by routine tasks & is difficult to evaluate in terms of quality/quantity Incidentally, Hard to get as you must use efficiently the funding
You need skillful personnel You need to allocate incentives You need to allocate tasks streams Difficult as its hard to assess q&q of goods & services Difficult as you also wok with volunteers SO, WHATS 2 B DONE?
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Acting as a manager of people

The chief executive must entrepreneurshiplly combine (limited) resources + conflicting interests (paid vs volunteers) + donors and public different requests AS TO IMPLEMENT POLICIES AND ENSURE ORGANIZATIONAL SURVIVAL AND MISSION ACCOMPLISHMENT
personnel recruitment & staff selection (the best, but not the most expensive) staff evaluation procedures (raise productivity and levels of performance) attracting and motivating volunteers (helps you to cut-off budgets) conflict-of-interest policies (solve any indoor crisis) termination and grievance procedures (firing people) 163 general office practices and procedures (you need order)

Boards and the organizations environment (linkages of the board members) Theories explaining nonprofit success Functions of the executive leadership a) Internal functions Controlling internal operations: acting as a manager of people b) External functions Daily managing organizations external relations: acting as an entrepreneur
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Written evaluation
(1) Analytic exercise (2) List of theoretical questions that imply covering the bibliography
Who wants to act as a transmitter?
4 questions or info serching gabriel.hancean@yahoo.com http://gabrielhancean.wordpress.com
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The Management of Nonprofit Organization v3

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THE MANAGEMENT OF NONPROFIT ORGANIZATIONS

Prof. univ.dr. Mihaela Vlsceanu

Goals of the course

Diversity in Nonprofit Sector. Major Types of Nonprofit Organizations

(International Classification of Nonprofit Organizations)

PART II ORGANIZATION and MANAGEMENT in NONPROFIT SECTOR

THE NONPROFIT SECTOR: ITS SCOPE, SIGNICANCE AND SOCIETAL IMPORTANCE

The Emergence of Nonprofits. Relationship with the Other Two Sectors

The three sectors of the society

The three sectors of the society

Conceptual problems in defining the third (nonprofit) sector

Conceptual problems in defining the third (nonprofit) sector

Conceptual problems in defining the third (nonprofit) sector

Conceptual problems in defining the third (nonprofit) sector

Conceptual problems in defining the third (nonprofit) sector

Conceptual problems in defining the third (nonprofit) sector

Defining Features of the Nonprofit Sector

Defining Features of the Nonprofit Sector

Societal Importance of the Third Sector

Societal Importance of the Third Sector

Societal Importance of the Third Sector

Societal Importance of the Third Sector

Societal Importance of the Third Sector

What is a nonprofit organization? The distinctive character of nonprofit organization

The mission statement

The mission statement

The mission statement

The mission statement

The formal organization and nonprofit distributing

The formal organization and nonprofit distributing

The formal organization and nonprofit distributing

The specific tasks and values (residual approach)

The specific tasks and values (residual approach)

The specific tasks and values (residual approach)

The specific tasks and values (residual approach)

The specific tasks and values (residual approach)

Knowledge about the third sector and its

values is fundamental to understanding the broader society in which we live:

The hybrid character of voluntary organization

The hybrid character of voluntary organization

The hybrid character of voluntary organization

The hybrid character of voluntary organization

Toward a definition of the nonprofit sector

Toward a definition of the nonprofit sector

the nongovernmental character the supply of public/quasi-public or personal,

Diversity in Nonprofit Sector. Major Types of Nonprofit Organizations

International Classification of Nonprofit Organizations

Nursing Homes: Nursing Homes

Emergency and Refugees: Disaster/emergency prevention, relief and

Income Support and Maintenance: Income support and

Civic and Advocacy Organizations: Civic associations

Source of income Distribution of control

Charitable trusts Political clubs

Hospitals, universities or private schools

Source: Adapted from Hansmann, 1980

Theories explaining the economic role of nonprofit organizations

Demand Side Explanations

Demand Side Explanations

either to the circumstances under which a service is purchased or consumed or

b) to the nature of the service itself,

Demand Side Explanations

Demand Side Explanations

Supply Side Explanations