Intro to Nonprofit Management chapters 3-5

Major Functions of Nonprofits (6)
1. Provide Services 2. Accommodate diversity 3. Undertake experimentation 4. Provide freedom from bureaucracy 5. Guard societal values 6. Advocate for the underrepresented
Four types of goods
1. Pure public goods 2. Pure private goods 3. Common goods 4. Toll goods
Public Goods
Provided by the government and must be non-excludable and non-rivalrous
once produced consumers cannot be prevented from benefiting except at great cost
Individual use does not reduce the amount available for use
Example of Public Goods
National Defense is for everyone in the country
Private Goods
generally provided by for-profit companies and must be excludable and rivalrous
once produced only consumers with property rights can benefit and others can be prevented from benefiting at no or little extra cost
Individual use limits and can even exhaust potential use by others
Example of Private Goods
Your favorite meal- it is exclusive to only the person who buys it and once you eat it, no one else can
Common Goods
are rivalrous and non exclusive
Example of Common Goods
fishing at a park; anyone can fish there but it is over fished, then there will be not as many fish to catch
Toll Goods
are exclusive and non rivalrous
Example of Toll Goods
Theatre; excluded by ticket prices, but generally attendees can enjoy the experience without taking away from someone else
comsumpion of a good effects other people

positive: you get a flu so others don’t catch the flu from you

negative: your smoking produces second hand smoke, potentially others lung health

Free Riders
those that benefit without paying (if everyone else gets a flu shot. I wont have to)
Sector Failures
1. Market Failure 2. Government Failure 3. Voluntary Failure
Market Failure
can not efficiently allocate or provide a good or service
Government Failure
Government cannot adequately provide a good or service or address a problem
Voluntary Failure
Nonprofit sector cannot adequately provide a good or service or address a problem
Six major theories why nonprofits exist
1. Public Good Theories
2. Theory of the Commons
3. Trust -Related Theories
4. Entrepreneurship Theories
5. Stakeholder Theory
6. Interdependence Theory
Public Goods Theory 1
Nonprofit organizations are gap-fillers; they exist as a result of private demands for public goods not offered by the public sector 1
Public Goods Theory 2
Public choice theory: Application of economic principles of behavior to government where the average citizen’s demands on public spending take precedent 2
Public Goods Theory 3
Demand heterogeneity: However, we live in a diverse country and not every has the same demands 3
Public Goods Theory 4
Nonprofits: Established and financed by the voluntary contributions of citizens who want to increase the output or quality of a public good 4
Theory of the Commons 1
Nonprofit organizations provide common goods, or the goods and services that are between the market and the government. 1
Theory of the Commons 2
the goods cannot be consumed alone by one individual, but they are not of interest or benefit to all people. 2
Trust Related Theory 1
Based on information problems inherent in the goods or services provided and the trust dilemmas associated with them 1
Trust Related Theory 2
Information asymmetry: Trust-related theories are based on asymmetric information between supply and demand that could be exploited to the disadvantage of the customer or recipient 2
Trust Related Theory 3
The non-distribution constraint makes nonprofits appear more trustworthy than other sectors 3
Trust Related Theory 4
Nonprofits: The nonprofit form emerges when it is more efficient to monitor financial behavior, in particular the treatment of potential profits, than it is to assess the true quality of output
Trust Related Theory 5
Example: Nursing homes – many people choose nonprofit nursing homes instead of for-profit ones because they believe that a nonprofit nursing home puts the care of the patient above making a profit. 5
Entrepreneurship Theory 1
Nonprofit entrepreneurs carry out new combinations that drive large-scale, revolutionary change
Entrepreneurship Theory 2
Nonprofit organizations are started by those with vision and intuition, often motivated by religious zeal or strong secular values of idealism and social justice
Stakeholder Theory 1
The key stakeholders are those who feel so strongly about the quality of the service provided and protection form moral hazard that they decide to exercise control over the delivery of service themselves
Interdependence Theory 1
Government and the nonprofit sector are more frequently partners rather than foes 1
Interdependence Theory 2
Third party government: The use of nongovernmental entities to carry out governmental purposes, and the exercise by these entities of a substantial degree of discretion over the spending of public funds and the exercise of public authority 2
Interdependence Theory 3
Resource dependency theory: Choices and behavior of organizations can be examined by focusing on their interdependence with external organizations, including government agencies 3
Transactional; generally concerned with day-to-day operations and making things work
Power and authority, policies and decisions in political economy & society

Different from management: is more than a staff function

Broader notion than government: Interaction between formal institutions and civil society

While there is no obvious standard for evaluation, typical tools of assessment include legitimacy, efficiency, accountability, or representativeness

Early leadership
Focused on trait studies
What characteristics leaders have (1940s)
Active in social situations
Believed leaders born, not made
Personality is a factor in differentiating leaders (1970s)
Leadership styles
The behavior of leaders
Ohio State studies (1940s)
Initiation of structure
Uni. of Michigan
Contribute to achievement of group goals
Maintain or strengthen the group itself
Managerial grid (Blake and McCanse)
Concern for production
Concern for people
Next slide demonstrates the grid
Situational Leadership (hersey and Blanchard)
Leadership depends on the setting

Different situations require different styles of leadership
Leaders need to understand characteristics of organization and adapt

5 ways in which leaders engage (kouzes and posner)
Challenging the process
Inspiring a shared vision
Establishing other to act
Modeling the way
Encouraging the heart
Transformational Leadership (burns)
When leaders and followers engage with one another to higher levels of morality and motivation.
Mutual support for common purposes
Can evolve into moral leadership, resulting in actions that are consistent with the needs, interests, and aspirations of the followers, but that fundamentally change moral understandings and social conditions.
Charismatic leadership:
Charismatic Leadership
a leader who behaves in certain ways that cause others to see him or her as charismatic through their vision, self-sacrifice, confidence, and persuasive appeals
Value Based Leadership
Servant leadership – begins with a commitment on the part of the potential leader to serve others
Listen carefully
Empathize with others
Assume stewardship – accountable for what institutions do
Servant Leadership
begins with a commitment on the part of the potential leader to serve others
Assume Stewardship
accountable for what institutions do
Roles of executive director
Commit to the mission
Lead the staff and manage the organization
Exercise responsible financial stewardship
Lead and manage fundraising
Follow the highest ethical standards, ensure accountability, comply with the law
Engage the board in planning and lead implementation
Develop future leadership
Build external relationships and serve as an advocate
Ensure the quality and effectiveness of programs
Support the board
CEO focuses on
The board
External relationships
Key roles and priorities
The political frame
Right person, right place, right time
Founder syndrome
: The challenge some organizations feel when the founding director leaves the organization
Succession planning
Having a plan in place to help create a smooth transition when the top executive leaves the organization
The Board
holds ultimate responsibility for ensuring that the organization serves its mission and for the overall welfare of the organization itself
Duty of the Board
Due diligence: Exercising reasonable care and good judgment
Duty against self-dealing: Disclosing and scrutinizing transactions with board members
Duty of loyalty: Remaining faithful and loyal to the organization
Duty of obedience: Being obedient to regulations, laws and organization’s purposes
Fiduciary duty: Ensuring financial resources are sufficient and handled properly
Funcitions of the Board
Appoint, support and evaluate the organization’s top paid position (executive director or CEO)
Establish a clear institutional mission and purpose
Ensure sound financial management and the organization’s financial stability
Establish standards for organization performance and hold the organization accountable
12 best practices for boards
Constructive partnership
Mission driven
Strategic thinking
Culture of inquiry
Ethos of transparency
Compliance with integrity
Sustaining resources
Results oriented
Intentional board practices
Continuous learning
Stakeholders the board reports to
Beneficiaries and users,
Paid and voluntary staff
Contractors and cooperating organizations,
Public agencies (e.g., oversight, regulatory agencies)
To take responsibility for one’s actions and behavior
Mechanisms for acountability
Legal Requirements



Watch dog groups
Monitor nonprofit organizations and provide information on accountability standards
Can be controversial – are they measuring the right things?
Charity Navigator
American Institute of Philanthrop
Legal Requirements
Registering for local, state, Federal agencies
Filing IRS Form 990 (or equivalent, depending on size)
Complying with local, state and Federal laws
Self regulation
Voluntary adherence to standards that focus on values such as honesty, integrity, fairness, respect, trust, compassion, responsibility, and accountability
Communicating openly and honestly about your organization’s dealings
Read slide 5 and 6 of accountability
ways in which accountability can be measured
A process; defines vision, articulates direction, sets goals, and influences other to achieve them together
To whom are nonprofits accountable?
To individuals and groups who a stake in the organization
Those that receive services
Funders (private and government)
Who is accountable for a nonprofit organization’s actions?
Executive director

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