Wednesday, April 6, 2011

Glaeser on Nonprofit Governance

The Metropolitan Museum of art in New York City.Image via Wikipedia
Metropolitan Museum of Art, NYC
Edward Glaeser’s book, The Governance of Not-for-Profit OrganizationsNational Bureau of Economic Research Conference Report (University of Chicago Press, 2006), explores the pressures and challenges affecting nonprofit governance.   Glaeser starts his book by asking, “What makes nonprofits different?”  He answers that nonprofits have (1) tax privileges, (2) nondistribution constraints (i.e., they cannot distribute profits), and (3) no owners.  He observes that these unique features give nonprofits boards and CEOs unmatched autonomy.  Interestingly, though, this observation isn’t his main contribution.  Instead, he believes that nonprofits’ workers can also determine their firms’ preferences.

Edward Glaeser
Glaeser presents nonprofits in a model consisting of four types of actors—managers (the CEO and board of the nonprofit), workers, donors, and customers.  The role of the managers is to determine the nature of the production of the nonprofit, the workers carry out the production for the benefit of the customers, and donors provide the financing to enable these activities.  Glaeser’s thesis is that, because of weak incentives, nonprofits tend (usually) to orient their production and its details towards the interests of their workers.  Nonprofit managers' main motivation is prevention of embarrassment (which replaces maximization of profit in for profit firms).  Since workers are in the best position (usually) to cause embarrassment, the tendency toward satisfying workers is natural.  The book’s contributors look at four types of nonprofit operations—hospitals (doctors), art museums (curators), academia (professors), and the Catholic Church (priests)—from aspects ranging from fundraising to endowments to specific governance issues.  The overall picture that presents itself is one of a complex range of governance problems and observations—everything from nonprofits that maximize their employees’ interests to nonprofits that closely mirror their stated missions.  Thus, nonprofit government becomes a balancing act that must incorporate the interests of all four classes of actors.  Overall, the book is an interesting, challenging read.

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