The Board as a Monitor of Organizational Activity: The Applicability of Agency Theory to Nonprofit Boards

Abstract

Despite the consensus about the significance of this crucial board responsibility, scholars know little about the ways in which a nonprofit board actually performs its monitoring function. In this article I report on an empirical study of the monitoring behavior of twelve nonprofit boards of directors. Agency theory provides the framework for this analysis. I show that the way in which individual board members define their relationship with the chief executive and understand the scope of the monitoring function influences how, or if, they monitor agency action. The findings also show that, given ambiguous rules of accountability and unclear measures of performance, nonprofit board members tend to monitor in ways that reflect their professional or personal competencies rather than paying attention to measures that would indicate progress toward mission-related goals and initiatives.

Are Spanish Listed Firms Betting on CSR during the Crisis? Evidence from the Agency Problem

“…In order to avoid these managerial opportunism practices (Miller, 2002), some mechanisms (financial rewards, shares) have been specified in order for the directorsto take into account the interests of the shareholders (Jensen & Meckling, 1976;Eisenhardt, 1989). According to the Agency Theory (Ross, 1973), solving the conflict between managers and shareholders (Magness, 2008) is quite important in order to come to an agreement about the companies' strategic decisions.…”

Principal-agent relationships on the stewardship-agency axis

“…A first explanation for the weak control by nonprofit boards might be drawn from Miller (2002). Her empirical research suggested that board members possess high confidence and trust in their management and make decisions based primarily on information provided by management and employees.…”

Determinants of Organizational Design Choices in Spanish Nongovernmental Development Organizations

“…Still, as [12] notes, there is no basis to think that non-profit organizations are spared from "moral hazard, opportunism, adverse selection and other problems of asymmetric information". Agency theory framework can be applied to nonprofit organizations if some peculiarities of this sector are taken into consideration as shown several empirical and theoretical studies [11], [13], [14], [15], [16], [17]. More research is therefore needed.…”

“…Principal-agent relations in non-profit organizations are even more problematic than in for-profit firms because of the lack of ownership incentives, complex and vague mission [15], lack of a single overriding objective [11] and even the absence of consensus on the identity of one single principal [14].…”