Why Non-Profits Exist
The role of Non-Profits is to provide services less attractive to business establishments and state agencies, the main reason being stakeholder groups involved and nature of contracts. There, indeed, exists an extensive difference between stakeholder groups in the three service provider groups. Stakeholder groups in business establishments include shareholders (whose interest is a share in profits) and consumers (whose interest is quality products), both groups face opportunity costs when engaging in their mutually beneficial engagements. With regard to state operations, stakeholder groups include taxpayers (whose interest is the provision of services, transparency, and good governance). Stakeholder groups in Non-Profits include the donors (whose interest is to fund the provision of goods or services of interest and recipients whose interest includes being helped to achieve certain groups). These differences in shareholder groups and interests indicate that the three establishments can only succeed in continuing to specialize in their current occupations.
Non-Profits are best positioned to channel donations from donors to recipients, the reason being that the donating group does not expect anything in return (except the feel-good attitude). This aspect provides Non-Profits to allocate finances in the most efficient ways because there is no pressure to allocate in certain ways (Hoefer, 1993, p. 19) ). Businesses and state agencies are not well-positioned to become conduits for donations from donors to recipients since stakeholders collaborate only when they would gain something in return.
Non-Profits are also better positioned to help donors who do not have larger donations that could make greater impacts. A major goal of Non-Profits has therefore become to pull resources from many corners and make some big impact in the society. These organizations understand that their existence and ability to meet goals depend on the efficiency in collecting funds from various corners. In this regard, management ends up mixing different groups of donors to guarantee the long-run existence as well as expanding recipients helped in the process.
Charitable contracts in this sector were developed and maintained on two fronts. The first contract is the one between donors and Non-Profit, and strives in ensuring that either side holds their promises. The donors should ensure on holding their promise of continuing to support Non-Profits in their efforts of helping recipients attain certain goals (Reid & Wilma, 2001, p. 220). On their part, Non-Profits are supposed to uphold their part of the agreement, which includes proper use of donations. The second face of the contract is between the Non-Profits and the recipients. The recipients are supposed to ensure taking advantage of the availability of resources provided by the donors. Non-Profits are held to their promise of being conduits of passing donations from the donors, and the continued support to recipients. The two faces of charitable agreements directly involve Non-Profits because they are the intermediaries.
Donations are perfectly designed to meet recipients’ needs, the reason being that donors provide funds to courses they see fit. Owing to this fact, Non-Profits position themselves in ways that would tap more funds, which is done through the development of mission, vision, and goals. In addition, recipients usually choose Non-Profits that have completely dedicated to help certain causes and have enough resources of undertaking activities involved (Rice, 1997, p. 35). The non-Profit industry has recently seen an increase in competition, which has resulted in players developing strategies to net greater funds and recipients.
Non-Profits as Intermediaries
Playing the intermediary between donors and recipients to continue with their day-to-day activities without worry of how funds would be collected and distributed. Donors especially benefit from the intermediary role played by Non-Profits. For instance, wealthy and busy donors are able to continue with their businesses. Smaller donors, those providing fewer donations are able to pull resources and make bigger changes than it would have happened individually (Young, 1999, p. 16). In addition, having an intermediary brings together groups of donors with similar aspirations and subsequently helps them to advance the cause that holds them together. Intermediaries thus play an important role in serving both donors and recipients.
These Intermediaries help create more effective contracts because of the understanding that only through good and productive relationships with stakeholders that Non-Profits thrive -on. Any failure to help donors and recipients through successful contracts deals a direct blow to the existence of these organizations. Therefore, it is in Non-Profits’ interest to see that contracts are developed and implemented in ways that would please and leave donors and recipients better off. The intermediary role also calls for Non-Profits to employ individuals who are professionals in donation collection and distribution. Having such staff enables Non-Profits to perform in most professionals ways and thus help the two stakeholders to meet through obligations in charitable contracts.
Issues of adverse selection and moral hazard also arise in the Non-Profit sector. With regard to adverse selection, donors may choose to fund certain Non-Profits just because they agree ideologically with causes being championed, not because the said organization is well placed to perform activities in question (Wish, 1993, p. 19). The moral hazard issue could arise as some Non-Profits become so dependent upon a few donor’s money. Any reduction or discontinuation with the big donations could lead to the collapse of important organizations. The recipients, too, could become dependent on donations to an extent that they do not look for alternative means of funding their activities, which could also mean a return to needy situations when Non-Profits or their donors discontinue support.
Contract Enforcement Problems
The main problem in enforcing contracts develops from donors’ (big and small) ability to keep track of the management of Non-Profits. As mentioned earlier, the big donors could be busy with other matters to an extent that they have little time dedicated to the Non-Profits. Some of these individuals or corporations contributing most of the funds just do so with little interest in the running of Non-Profits, which makes it hard for them to ensure efficiency. The smaller donors may also fail to keep track of Non-Profits activities, the reason being their meager resource allocation. Some donors in bother classes could just take the Non-Profits issues for granted, and just contribute the money because they have some extra cash left in their budgets, others donate because of tax benefits accruing from such donations. However, there are some donors who take the contract issue very seriously when dealing with Non-Profits, a matter that originates from their passion for issues being addressed by Non-Profits. Indeed, some donors, especially the big ones ensure to be on the board of directors so they can guarantee to improve enforcement of contracts (Golembiewski, 2006, p. 156). Big donors also happen to be some of the founding members of Non-Profit, meaning that they have more say in running the organizations as well as enforcement of contracts. Some other donors, especially the small ones that do not have the ability to get into the boards control the enforcement of contracts by voting with their feet, which means moving their donations to other organizations (Burton, 1977 p. 150). Given that Non-Profits, too, operate in a competitive market means that Non-Profits failing to enforce contracts would lose donations to other organizations.
Accountability in Non-Profits
The level of accountability in Non-Profits is higher and rising rapidly, thanks to governments’ demand for more transparency in such organizations are run (Boris, 2005, p. 255). Just like in business situations, none profits understand that their existence solely depends on how well stakeholders’ interests are met. This means that management in Non-Profits have to lead activities in ways that would lead satisfaction among stakeholder groups. Accountability in using donors money is thus a priority among the management,. failure of which could lead to organizational collapse. Transparency is achieved through regular updates on Non-Profits’ accounting books, which are made available to the donors. With regard to recipients, Non-Profits achieve accountability by ensuring a smooth flow of donations.
The way Non-Profits handle accountability issues is not different from for-profit arrangements. First, just like for-profits, Non-Profit organizations have to ensure that both donors and recipients are happy with management practices and operations. In both arrangements, the class of stakeholder groups providing funds (donors and shareholders) has to be assured that their funds are being used in the most efficient and productive ways possible. This means keeping them well updated on the activities being undertaken to ensure that the resulting work would meet goals. On the other side, groups receiving benefits from both establishments (customers and recipients) have to be kept assured of the consistent provision of goods and services as agreed in the written or unwritten contractual agreements.
There is room for accountability to be improved in the Non-Profit organizations. One way of doing this is by ensuring that all members of stakeholder groups are somehow involved in the running of a Non-Profit organization (Edwards, 1987, p. 10). As it happens now, only the big donors have access to the accounting books of Non-Profits, leaving the small ones with little say. This has meant that the small donors just follow what is said by the big donors and the management. Fact that some of the big donors are the founders and managers increase the risk of keeping a close circle and thus reduce transparency and accountability. Enabling even the small donors to take part in the process of management could make them feel more part of this process and thus increase their donation. This would and in the improvement of services being provided by the said organization. In addition, the Non-Profits could also increase the recipients receiving help from them, which means being able to meet more goals in accordance with vision and mission statements.
Establishing or opening communication links between the stakeholders, donors, and recipients can also serve as a way of increasing transparency and accountability issues. In this regard, both groups can interact and discuss the strengths and weaknesses of the said Non-Profit to meet goals (Crowder & Virginia, 1992, p. 230). They could afterward embark on developing mechanisms that would help the management to meet stakeholders’ needs best. In addition, the management in Non-Profits would be aware of the communication between the two groups and thus embark on improving the way they run affairs in the Non-Profits. Another way of improving accountability is by ensuring that all regulatory laws developed by local, regional, national governments and international conventions are followed to the letter. Taking such measures would benefit the organization through increased efficiency, donors through the better use of their resources, and recipients through efficient means of meeting their desired goals. The entire Non-Profit fraternity would also benefit from a good reputation that would lead to an increase in the number of donors, a decrease in governmental regulations that could be underway, and eventual the ability to meet needs in their respective communities.
Government and Non-Profits
The state, too, has a role to play in the management of Non-Profit organizations. Its role should however not go beyond ensuring a proper environment for these organizations to conduct their businesses, as well as making sure that transparency and adherence to the rule of law. This is because the Non-Profits are able to conduct their affairs in the most open and lawful manner, because of competition in the industry. In addition, many corporations are starting to establish their own Non-Profit organizations, which could mean a reduction in the amount of donations that have been coming from companies. Independent Non-Profits should therefore ensure employing strong strategies in their management, which would be the best way to ensure their survival.
Burton T. (1977). Reassessing Non-Profit Management, Management and Leadership, 25, 143-158.
Boris, E. (2005), Usable Knowledge in Non-Profit Management. Voluntary Sector Quarterly, 22, 254-259.
Crowder, L. & Virginia H. (1992). The Nonprofit Sector and Voluntarism. Nonprofit Management, 3, 223-236.
Edwards, L. (1987). “NGO Management Curriculum,” Social Work Administration, 11, 1- 13.
Golembiewski, R. (2006) “The Future of Non-Profits. Administration Review, 76, 140- 159.
Hoefer, R. (1993) Managing Job Skills in Non-Profit Sector. Social Work. 17, 1-24.
Reid, N. & Wilma P. (2001). Renewing Commitment in Volunteerism. Social Education. 27, 200-221.
Rice, J. (1997). Strategies in non-profit Management. Volunteer Administration Journal. 15, 30-39.
Wish, B. (1993). Preparing for Graduate sturdies in nonprofit management. Journal of Admissions Professionals, 5, 15-20.
Young, D. (1999) “Development in Nonprofit Management. Public Affairs Journal, 5, 9- 25.